Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 606 of 2010

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

JUDGE: PERRAM J DATE OF ORDER: 3 February 2012 WHERE MADE: SYDNEY

1. The parties bring in short minutes of order giving effect to these reasons within 14 days.
2. The defendants pay the plaintiff's costs.
3. The matter be listed for directions on 21 February 2012 to resolve any dispute about the form of orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 606 of 2010

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

JUDGE: PERRAM J DATE: 3 February 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT I. Introduction [1] II. The evidence of the witnesses [15] (a) The evidence of Mrs Polimeni [16] (b) The evidence of Mr Polimeni [36] (c) The evidence of Ms James [38] (d) The evidence of Mr Alptekin [53] (e) The evidence of Mr Carnovale [66] (f) The evidence of Mr Hinds [71] (g) The evidence of Mr McIlwraith [83] The first loan of $50,000 [88] The second loan of $11,000 [91] The third loan of $5,000 [99] (h) The evidence of Ms Youssef [106] (i) The evidence of Mr Hundsdorfer [119] (j) The evidence of Ms Naidoo [120] (k) The evidence of Ms Amphone [131] III. Inferences and additional findings of fact [139] (a) The Polimenis [140] (b) Ms James [145] (c) The Alptekins [149] (d) Mr Hinds [150] (e) Mr McIlwraith [161] IV. ASIC's case as to the Polimenis [174] (a) 'Financial services' and unadvanced loans [175] (b) Unconscionable conduct - special disadvantage and the business loan declaration [181] (c) Unconscionable conduct - asset lending [195] (d) Unconscionable conduct - personal circumstances [196] (e) Misleading and deceptive conduct - whether loan offer misleading [200] (f) Misleading and deceptive conduct - whether misleading behaviour towards lender [202] V. ASIC's case as to Ms James [203] (a) Unconscionable conduct - special disadvantage and the business loan declaration [203] (b) Unconscionable conduct - asset lending [204] (c) Unconscionable conduct - personal circumstances [220] (d) Misleading and deceptive conduct [221] VI. ASIC's case as to the Alptekins [222] (a) Unconscionable conduct - special disadvantage and the business loan declaration [222] (b) Unconscionable conduct - asset lending [230] (c) Unconscionable conduct - personal circumstances [231] (d) Misleading and deceptive conduct [234] VII. ASIC's case as to Mr Hinds [237] (a) Unconscionable conduct - special disadvantage and the business loan declaration [237] (b) Unconscionable conduct - asset lending [238] (c) Unconscionable conduct - personal circumstances [240] (d) Misleading and deceptive conduct [242] VIII. ASIC's case as to Mr McIlwraith [244] (a) The second loan of $11,000 [246] (i) Unconscionable conduct - special disadvantage and the business loan declaration [247] (ii) Unconscionable conduct - asset lending [251] (iii) Unconscionable conduct - personal circumstances [252] (b) The third loan of $5,000 [257] (c) Misleading and deceptive conduct [259] IX. Vicarious Liability [261] X. The position of Mr Riotto and AMR [268] XI. Relief [270] XII. Orders [287]

I. Introduction 1 This case is concerned with lending practices which the plaintiff ('ASIC') contends are 'unconscionable'. The first defendant, the Australian Lending Centre Pty Ltd ('ALC'), is a lender which conducts business from premises at 107 Chandos Street in Haberfield, a suburb of Sydney. Its business is the broking of loans to people who believe themselves to have difficulties in obtaining finance from traditional sources. The second defendant, the Sydney Lending Centre Pty Ltd ('SLC'), conducted the same business from the same premises until 2005 when SLC appears, for whatever reason, to have stopped trading. Both companies have only one shareholder and director, Mr Christopher John Riotto, who is the fourth defendant. The third defendant ('AMR') is another company under Mr Riotto's control which, rather than engaging in finance broking as ALC and SLC do, extends finance. 2 To understand the nature of ASIC's allegations it is necessary to grasp the operation of the former Consumer Credit Code (NSW) ('the Code'). As the name suggests, that Code regulated consumer credit arrangements. In terms, the Code applied only to credit arrangements under which the debtor was a natural person resident in New South Wales and where the credit was 'provided or intended to be provided wholly or predominantly for personal, domestic or household purposes': s 6(1)(b). Once a credit contract had those features it became subject to a number of statutory impositions: by way of example only, the credit provider became obliged to inform the debtor of certain key terms of the credit arrangement before it was entered into: s 14; there was a prohibition on certain types of default interest: s 28; and on certain types of fees and charges: s 27. There was also an obligation to produce statements of account: s 31. More importantly, perhaps, s 66 allowed a debtor to apply to a creditor on the grounds of hardship for an alteration to the credit contract and s 70 permitted the Consumer Tenancy and Trading Tribunal ('the CTTT') to reopen 'unjust' transactions. 3 Obviously enough from both the lender's and the borrower's perspectives the designation of a loan as being 'predominantly for personal, domestic or household purposes', i.e. being a contract to which the Code applied, was an important matter. Section 11 created certain presumptions about this topic. Section 11(1) created a presumption that wherever a party to a credit contract claimed it was one to which the Code applied it would be presumed that this was so unless the contrary was established. 4 Section 11(1) was, however, accompanied by s 11(2) which provided that the debtor might execute a declaration in a prescribed form that the loan was to be applied 'wholly or predominantly for business or investment purposes'. Where such a declaration was executed the credit was 'presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes'. By itself, s 11(2) appeared to create a régime whereby a lender or borrower could conclusively provide for the Code's non-application. 5 This appearance was incomplete, however, because of s 11(3). This section provided that a declaration under s 11(2) would be 'ineffective' if the credit provider 'knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes'. The true operation of s 11, as a whole, was therefore about onuses of proof: once a debtor claimed the Code applied it was for the lender to prove otherwise; it could do so using a declaration signed by the borrower under s 11(2); if such a declaration were signed, it would thereafter be for the borrower to prove that the lender knew or ought to have known that the loan was to be applied for purposes regulated by the Code. 6 ASIC's principal argument in this case concerns what it alleges are unconscientious attempts by Mr Riotto's companies to get borrowers to sign business purpose declarations under s 11(2) in respect of what it says were personal loans. Its secondary argument is that Mr Riotto's companies engaged in a practice known as 'asset lending' which is the advance of a loan by a creditor to a person who it knows will default and thereafter simply relying upon on the security proffered. The third aspect of its case concerned the individual positions of various borrowers (for example, one of them had a degree of brain damage). In relation to all three of these cases, ASIC alleged that the conduct was unconscionable in equity so that it was entitled to declarations that the defendants had been involved in contraventions of s 12CA of the Australian Securities and Investments Commission Act 2001 (Cth) ('the ASIC Act') which prohibits conduct in relation to financial services which is unconscionable within the meaning of the 'unwritten law'. It also alleged that it was entitled to declarations that s 12CB had been infringed which prohibits conduct which is 'in all the circumstances, unconscionable'. 7 Independently of its claims of unconscionability, ASIC also alleged that the defendants had engaged in misleading and deceptive conduct. Two instances were put forward. The first related to an offer of loan which each borrower was given by ALC or SLC which appeared to be an offer from an actual lender when, in fact, no lender had made any such offer. The second related to instances in which ALC or SLC told certain lenders that the loans being sought were for business purposes when, according to ASIC, they were in truth personal loans. 8 In relation to one of the borrowers, Mr McIlwraith, ASIC also seeks compensation. Mr McIlwraith, who is brain damaged, borrowed $16,000 in two instalments from AMR secured by a mortgage over his only asset, a block of land near Wauchope. These loans were brokered by SLC. The whole of Mr McIlwraith's equity in that land was consumed by interest and then the property sold. ASIC seeks to restore to him his lost equity in this property. 9 Apart from Mr McIlwraith there were four other loans or proposed loans. The first relates to Mr and Mrs Polimeni. ASIC submitted that this loan was to refinance substantial credit card debts in the order, initially, of $27,000. The loan did not proceed but ALC nevertheless charged a brokerage fee of $2,800 and placed a caveat on Mr and Mrs Polimeni's land to secure its payment. 10 The second concerns Ms James, single mother of three. Her income came variously from part time work, Centrelink and family benefits. Ms James had also encountered difficulties with her credit cards. She wanted to refinance her home loan and pay the credit cards off. A loan of $120,000 was proposed but did not proceed. Ms James was subsequently charged a termination fee of $4,500 and a caveat was placed upon her home. 11 The third transaction concerns Mr and Mrs Alptekin who needed to pay their strata levies and fix their kitchen. A loan of $5,000 was arranged by SLC with AMR and Mrs Alptekin's signature procured on a business loan declaration. The rate was 5% per month. They defaulted and an attempt was made by AMR to enforce its security. This was subsequently settled by private arrangement between AMR and Mr and Mrs Alptekin. 12 The fourth transaction concerns Mr Hinds, a pensioner wishing to fly to the Philippines who approached ALC for a loan to do so. Ultimately he received an $8,000 loan secured by a mortgage over his unencumbered home. He, too, signed a business loan declaration. He defaulted but thereafter reached an accommodation with the lender. 13 The defendants' basic defence was that all of the loans appeared to be for business purposes; that even if they were not, the advancing of these loans was to be seen as isolated examples of non-typical practice having only historical significance; that the borrowers were capable of understanding the business purpose declaration; in Mr McIlwraith's case, that an issue estoppel arose out of some proceedings before the CTTT; that his brain damage was not obvious to others; that the loans would most likely have been advanced by others if not by ALC/SLC; that ASIC was pursing the proceedings for improper purposes; that there were, in two cases, no 'financial services' which enlivened this Court's jurisdiction under the ASIC Act; that, if any improper conduct were established to have been committed by its staff, ALC/SLC were not to be seen as responsible for their misconduct which would have been outside the scope of their authority; that it had introduced new procedures which addressed ASIC's concerns; that its loan offer document was not misleading because properly construed it did not offer a loan; and that it did not mislead any of its lenders because the loans were in fact business loans. 14 With one exception, all of the evidence in this case was given by oral testimony. The defendants called no evidence. ASIC called three former or current employees of ALC/SLC as well as each of the borrowers. Significant issues of credit arose. I turn first, then, to the evidence of the witnesses.

II. The evidence of the witnesses 15 In what follows, save where I indicate to the contrary, I accept the witnesses' evidence.

(a) The evidence of Mrs Polimeni 16 Mrs Polimeni was employed as a packer on a production line in 2008 at the time giving rise to this aspect of the claim. She left school at the end of Year 10. To my observation she speaks fluent English although at home she generally speaks Italian. Her husband, Mr Polimeni, is able to speak English although not to read it. In 2008 she became very anxious about the family's position in relation to its credit cards of which there were three - two issued by Citibank and one by AGSC. In total, the amount owed on these cards was somewhere between $15,000 and $20,000. She had fallen into arrears on these cards and was, as she put it, panicking about the consequences. 17 It was at that time she saw an advertisement in the newspaper for ALC. That advertisement appeared as follows: 18 She responded to it by calling the number provided and spoke with a woman called Therese Griffiths. This occurred in February 2008. She discussed with Ms Griffiths not only the issue arising from the credit cards but also whether there might be a possibility of refinancing the mortgage on the family home. At that time, the home loan was about $355,000 and Mrs Polimeni earned about $28,000 per annum. Her husband, who worked as a rigger, earned about $73,000 per annum so that between them they had a combined annual pre-tax income of about $100,000. 19 Ms Griffiths asked Mrs Polimeni for payslips, the most recent statements available for the home loan and a copy of a rates notice from the Council. She told Mrs Polimeni that she did not think that the loan would be a problem. 20 Very shortly after this discussion, Mrs Polimeni received through the post two letters from ALC both dated 7 February 2008 which arrived in the same envelope. One was entitled 'Terms of Engagement and Cost Agreement'. On its face it purported to be a brokerage contract under which Mr and Mrs Polimeni retained ALC 'to assist you in obtaining a loan in the above terms'. On the first page of the letter there was disclosed a fee of $2,800 to be payable on settlement. On the second page, there was disclosed a termination fee of $2,600 payable even if the loan were not ultimately advanced. The face of the offer made clear, too, that what was now proposed was a loan of $27,000. Plainly this did not include any further refinancing of the home loan. 21 Mrs Polimeni says that she then rang ALC and spoke with Ms Lili Amphone who told her that the home loan could not be refinanced at this time but that the credit card debt could be. After one year, so she said, the issue of the home loan could then be revisited. Mrs Polimeni says that she had rung Ms Amphone because she was very concerned about the size of the fees but Ms Amphone had told her not to worry about these fees since they would not be payable unless the loan proceeded. For reasons I give below I reject Mrs Polimeni's evidence to that effect. She was not told that no fees would be payable if the loan did not proceed. 22 Mrs Polimeni gave detailed evidence about the extent to which she read the letter of retainer of 7 February 2008. The letter disclosed a number of matters which she accepted she read and understood: the loan principal of $27,000; the interest rate of 16.5%; the loan term of one year; the monthly repayments of $371.25; and the security proffered being the family home at 315 Comleroy Road, Kurrajong. 23 She did not, however, accept that she had read other parts of the letter in which it was disclosed that the funds would be used 'wholly or predominantly for business or investment purposes'; or where the purpose of the loan was said to be for a 'business purpose'. Nor, so she claimed, did she read those parts of the letter where the termination fee of $2,600 was disclosed; or those where it was said that ALC would be entitled to a charge over the property in respect of those fees which would, in turn, be protectable by a caveat. 24 I accept her evidence that she did not read these parts of the letter but only because I do not think she cared about them. Mrs Polimeni is a woman of limited education for whom the only matters which were of significance were the amounts of the loan, the interest rate and the monthly repayments and, more importantly, how those matters compared with the amounts due under the credit cards. The rate of 16.5% was less than the credit card rate as were the proposed monthly repayments of $371.25. She testified that she did not know the difference between a business loan and a personal loan which I accept. Further, given that she did not know what the Code was it is difficult to see that the fact the loan was a 'business loan' was of the slightest relevance to her. Mrs Polimeni was adamant that she would never have sought a business loan since she did not want one which evidence is a little difficult to reconcile with her evidence that she did not know what such a loan was. Nevertheless, I accept the general thrust of her evidence that she simply did not read those parts of the letter. This is most likely because they were of no relevance to her as she understood matters. 25 I also accept that for largely the same reasons she paid no attention to that part of the letter which read: In signing this letter you agree to the terms of our engagement and that you have satisfied yourself that the terms are appropriate and that you understand your obligations. You also understand that by declaring that the loan is for business or investment purposes, you may lose your protection under the Consumer Credit Code. We suggest that you obtain independent legal advice before signing this agreement. Would you please sign and return this letter to our office so that we may take further steps to proceed with your application. We will be unable to take those steps until we receive this signed letter from you, together with any signed letter of offer which has also been issued to you. 26 Mrs Polimeni then showed this to Mr Polimeni and took him through it since he could not read English. He raised a query with her which related to why the loan was for $27,000 when the credit card debts were only $20,000. Mr Polimeni explained that this represented the interest which was to be paid upfront. Mr and Mrs Polimeni then decided to sign the letter. 27 It is then necessary to say something of the second letter of 7 February 2008. This letter recorded that the Polimenis' application for a loan had been successful subject only to a valuation of the property. There then followed what appeared to be a terms sheet from an unidentified lender. As a loan approval it is a puzzling document as it does not appear to emanate from a lender who could be a contracting party. 28 In any event, the critical terms were identified ($27,000, 16.5% p.a, one year term and security, by way of second mortgage, on the Kurrajong property) which Mrs Polimeni accepted that she read. It also contained a statement that the loan was a business loan which Mrs Polimeni also denied reading. Again, my view is that she paid no attention to it because she did not regard it as being of any relevance to her. 29 Mr and Mrs Polimeni also signed this 'loan' letter. Both letters were then returned to ALC. Subsequently ALC contacted Mrs Polimeni and told her it would be necessary for Mr Polimeni and herself to obtain independent advice from a solicitor before signing the loan documentation. They went to see a Mr John Bennett. Prior to seeing him they were provided with a package of documents for his review. Included in this package were a draft loan agreement (on which the loan amount had increased to $35,000), a draft mortgage and a statutory declaration for both Mr and Mrs Polimeni relating to the status of certain encumbrances on the Kurrajong property (such as, for example, land tax). The package did not include a business loan declaration. Mr Bennett's immediate advice to her was not to sign the documents until he had a look at them. He suggested to her that she stall ALC until that had occurred. She took this advice. Subsequently Mr Bennett advised Mrs Polimeni that she ought not to sign the documents because the paying off of her credit cards was not a business loan. Mrs Polimeni took this advice and did not proceed with the loan proposed by ALC. 30 It is not completely clear when this became known to ALC but on 13 March 2008 it wrote to Mrs Polimeni levying the fees and charges it said were due to it totalling $4,532.00. This included a $2,800 brokerage fee (but not the $2,600 termination fee; this may be explained on the basis that ALC had, in fact, brokered a loan in approaching a private lender, Ginelle Pty Limited, and drawing up the loan documentation). Not long afterwards, on 27 March 2008, ALC lodged a caveat on the Kurrajong property in apparent reliance upon the provision in the retainer charging the land with its fees and expressly authorising the lodging of a caveat. The caveat was accepted by the Registrar-General on 1 April 2008. 31 In the meantime, Mr Bennett was seeking to refinance the Polimenis' credit card debt and home loan through Westpac. The presence of a caveat on the title prevented this occurring. On 7 May 2008, Mr Bennett wrote to ALC on the Polimenis' behalf tendering, without prejudice to their right to seek its recovery, the sum of $4,532 in return for a withdrawal of the caveat. This occurred and the caveat was discharged. 32 Mr Bennett then set out about recovering the $4,532. On 20 May 2008, the Polimenis commenced proceedings in the CTTT. The allegations made included: that the loan was not for the purpose stated by ALC (i.e., a business purpose); that Mr Polimeni did not fully understand the terms; that the payment of interest a year in advance was unconscionable; that the Polimenis were under extreme pressure; and that Mrs Polimeni had been told that no fees were payable if the loan did not proceed. The matter was fixed for hearing on 11 July 2008 at which time it appears that Mr Bennett appeared and was successful on their behalf. ALC was ordered to, and did in fact, repay the Polimenis the sum of $4,532. 33 Mr Newlinds SC, who with Ms Mahmud of counsel appeared for the defendants, pressed Mrs Polimeni about her conversation with Ms Griffiths in an endeavour to demonstrate that the idea that the loan was for business purposes might have come about through a misunderstanding. The Kurrajong property is located in a rural area and Mr Newlinds SC sought to have Mrs Polimeni accept that within the Polimeni family the property was known as 'the farm' and that it was possible that that expression might have found its way into the conversation with Ms Griffiths. Mrs Polimeni accepted that the property was a farm but she would not accept that she might have said such a thing to Ms Griffiths. An attempt was made to persuade her to the contrary by suggesting that the loan proceeds had been used in part either to purchase a lawn mower or to repay earlier credit card debt relating to such a purchase. But Mrs Polimeni did not accept this, claiming that the lawn mower was purchased much later. Unassisted by more material about the purchase of any such mower I can see no reason to reject her evidence that she did not mention a farm to Ms Griffiths. 34 Mr Newlinds SC also put to Mrs Polimeni that Ms Amphone had not said that she did not need to worry about the fees if the loan did not proceed; rather, she suggested the fees would be paid out of the loan in the event that it did proceed so that Mrs Polimeni would not, in that circumstance, have to pay them. This Mrs Polimeni denied. There are some complexities about this. Mrs Polimeni denied reading about the termination fee and it is difficult to understand why she would be asking Ms Amphone about a fee of which, ex hypothesi, she was ignorant. Even accepting that she was only asking about the brokerage fee, which she accepts she saw, there is the further difficulty pointed to by Mr Newlinds SC that Mrs Polimeni's version of events leaves unexplained how she thought that the fee due if the loan did proceed - $2,800 - would be paid. 35 Mrs Polimeni did not overlook this fee (indeed, she asked Ms Amphone about it) and she was, in my opinion, aware that it would need to be paid out of the loan proceeds. It seems to me likely that she was told that that was how the fee would be paid; or that she read it. But I do not accept, on balance, that she was told that no fees would be payable if the loan did not proceed. Ms Amphone, whose evidence I discuss below, gave no evidence about this conversation one way or the other. If Mrs Polimeni had not read that part of the retainer letter she had no reason to raise it with Ms Amphone; correspondingly Ms Amphone had no reason to raise such a matter with Mrs Polimeni if she had not mentioned it first. I conclude that this was not said.

(b) The evidence of Mr Polimeni 36 Mr Polimeni gave evidence with the assistance of an Italian interpreter. He arrived in Australia in 1986 and is married to Mrs Polimeni. They have two children. It was evident that he could understand English but was unable to speak it with much confidence. Mr Polimeni is a rigger, a trade which he has plied all of his life (now in its 50th year). The evidence he gave placed Mrs Polimeni firmly in charge of the household finances. It was she who paid the bills and it was she who, if it were necessary, explained English language documents to him. He was aware in 2008 that there was a crisis in the family credit cards although his insight into the problem seemed less detailed that his wife's. It was Mrs Polimeni who had wanted to put all the credit cards onto 'one card' which I take to be a reference to the need to consolidate the three cards into a single loan. He was aware that his wife had seen an advertisement but he could not remember the name of the company which placed the ad. He agreed that his wife had explained the documents to him before he signed them at her request; he also assumed she had read them. He also recalled visiting Mr Bennett with her. In chief Mr Polimeni was very anxious to make clear that he had never understood the loan to be for business purposes. My impression was that Mr Polimeni believed that this was an important thing for him to convey in his evidence and I am inclined to discount it somewhat in consequence. Nevertheless, I do accept that Mr Polimeni did not understand the loan to be for business purposes. As he said, he has never run a business having worked as a rigger from the time he arrived in Australia. Indeed, I do not think that Mr Polimeni really understood the difference between a business and personal loan beyond understanding that they were, in some unarticulated way, different. In the same vein, it is highly questionable whether Mr Polimeni understood the difference between a home loan and the mortgage by which it was secured. In my observation Mr Polimeni treated these, perhaps unexceptionally, as being the same. 37 Mr Polimeni gave evidence that the Kurrajong premises were referred to within the family as 'the farm' which I accept. Like his wife, however, he was unwilling to accept that a lawn mower had been bought at the time of the loan adhering to the proposition that the lawn mower was acquired much later. I do not accept that what was conducted at Kurrajong was a business. Mr Polimeni's evidence was that he kept a couple of goats and cows on the land but this was not a business.

(c) The evidence of Ms James 38 Ms James left high school in Year 10. She holds a Certificate III in Nursing. Although she was formerly married this is no longer the case. She has three children. It is of some importance for present purposes to know that Ms James suffers from bipolar disorder for which she has received treatment. Her evidence was that it affected her memory 'to a certain degree'. In my opinion, Ms James' memory was affected by her condition to some extent and in making the findings which follow I have kept that in mind. Ms James can read, although my impression was that her reading skills were not of a high order. 39 In 2008 she was living with her three children at premises located at 22 Day Street, Lake Illawarra. At that time she had, so it appears, ceased working as a nurse and was working as a waitress at an establishment called the 'Vegie Patch Café'. Towards the middle of 2008 Ms James appears to have suffered some sort of deterioration in her mental condition resulting ultimately in her hospitalisation. It was not clear to me whether this was caused by her bipolar condition or by the stresses of working at the same time as raising three children or both. 40 Regardless of the reason, however, she appears to have lost her job and thereafter to have fallen behind in her credit card payments which at that time totalled about $13,000. Her other significant obligation was a loan for $70,900 owing to Liberty Financial ('Liberty') which was due on her home. Despite the astringency of those circumstances, her position was by no means hopeless for the property at 22 Day Street was worth about $280,000 so that her equity ($210,000) was high. 41 It is most likely, I think, that she first saw an advertisement for ALC at some time in July 2008. She telephoned them to see if they could assist. This was not her first dealing with them. The loan from Liberty of $70,900 had been arranged by ALC apparently as part of a refinancing of an earlier loan from the Horizon Credit Union. In any event, on this occasion what she sought was a $70,000 loan to refinance the Liberty loan and about $20,000 to pay off her credit card debts (although they appear to have been only at about the level of $13,000). On this occasion, she spoke with a Ms Verushka Naidoo. She does not recall telling her what her debt and asset position was but there was in evidence a statement of assets and liabilities prepared by ALC signed by Ms James so I infer that she did inform Ms Naidoo of these matters. 42 The loan proposed by ALC was for $120,000 and Ms James remembers Ms Naidoo explaining this to her on the basis that the additional $30,000 related to some form of costs. She herself was clear that she only needed $90,000. A retainer letter and loan offer were both issued by ALC on 23 July 2008. As in the case of the Polimenis the loan offer is difficult to comprehend since no lender is identified. The letters record, inter alia, that the loan was to be for business purposes but Ms James denied that she had any such purpose in mind. Her only source of income was her employment (when working) and her various Centrelink entitlements. 43 The letters arrived on about 24 July 2008. She read them albeit not thoroughly: 'as well as I read them now' was her precise answer and I infer from that that she intended to convey only a modest degree of attention. She certainly saw the important matters such as the loan amount and the interest rate, but she was certain she did not see the reference to a business loan. 44 She does say that she was quickly contacted by ALC and urged to sign the documents otherwise she would not get the loan. The proposed loan was for $120,000 at 13% fixed, interest only. All of the interest repayments were prepaid. The consequence was that for 12 months no payments would be due. 45 Ms James thereafter signed the two letters and returned them. I accept that she was led, or at least encouraged, to do so by telephone calls from ALC in which it was suggested she needed to hurry if she was not to lose the opportunity to get the loan. This is because this is what the letter itself said ('This letter of offer is open for acceptance for forty-eight (48) hours from the time you receive it. The Lender reserves the right to withdraw this letter of offer prior to acceptance') and because I accept this aspect of Ms James' evidence. 46 After she signed the letters she received a bundle of 14 documents from a law firm called 'Morabito Legal' which were loan settlement documents. She took those documents to her solicitor, a Mr Franke, who was unfortunately away and saw instead a Ms Young. She executed each of them in her presence and she understood as she did so that she was going to get the loan. She remained unaware that the loan was ostensibly for business purposes. This is most likely the case because when she came to sign the form headed 'Declaration of Purposes for which credit is provided' which had been filled out to record that the loan was for business purposes, there only appeared the letters 'N/A'. It is likely that this was written by Ms Young. In any event, the document was not signed. 47 At that point the chronology becomes a little unclear. Ms James' evidence was both that the documents were returned to ALC and also that her actual solicitor Mr Franke then saw them. The latter is more likely, which I find. Mr Franke told Ms James that what she had applied for was a business loan and, more importantly, that it was not interest free for a year but that at the end of the year the whole amount would be due. This Ms James did not want and the transaction did not proceed. 48 What did proceed, however, was ALC's claim for its termination fee of $4,500 together with its other expenses. Under the retainer letter of 23 July 2008 Ms James had agreed not only to that fee but also to ALC's entitlement to charge her land with its payment and thereafter to lodge a caveat. 49 On 27 August 2008, ALC demanded payment of $6,402 being the $4,500 together with a valuation fee of $420 and other fees of $900 (plus GST). Ms James did not pay. On 11 September 2008, Ms James received a notification from the Registrar-General of Titles that ALC had placed a caveat on her land. She did not know what a caveat was 'but did not like the look of it'. Subsequently, she went to the library to look it up and liked the look of it even less. 50 What happened next is a little unclear. Ms James sought to say that it was this requirement which had then forced her to sell her home. But this is not what the documents bear out. Instead, it appears that Ms James came into contact with the Consumer Credit Legal Centre (NSW) which made a complaint on her behalf to the Credit Ombudsman Service on or around 12 March 2009. A settlement of that complaint was reached by an exchange of letters between the Consumer Credit Legal Centre and the solicitors acting for ALC. The basic terms of this settlement were that ALC would accept $1,452 in lieu of the $6,402 claimed which would be paid on the settlement of the sale of 22 Day Street, Lake Illawarra at which time ALC would withdraw its caveat. A régime of mutual releases was also agreed. The sale appears to have settled on or about 7 April 2009 and the monies paid as agreed. I do not detect in this arrangement that the property was sold to meet the agreed $1,452 still less the originally claimed $6,402. Since ALC had no direct power to force a sale (holding only a charge) the more likely scenario is that Liberty exercised its rights or that Ms James decided to sell herself. 51 I do not accept that Ms James took the loan for business purposes. It was put to her that she had planned to buy the Vegie Patch Café which she denied. I accept her denial which is inherently plausible. Nor do I accept, as was put to her, that she simply failed to read the retainer letter through a lack of diligence on her part. To my observation Ms James wholly lacked the sophistication to understand a transaction of this kind beyond the most elemental aspects such as how much her weekly repayments were going to be. I do not doubt that had she grasped that she was going to be charged a fee even if the loan were not drawn down she would not have signed any of the documents. In the same vein, had she understood that the business/personal loan distinction might deprive her of rights under the Code I do not think that their execution would have proceeded. 52 But she did not understand any of these matters; not only because they were, in my opinion, well beyond her; but, even that aside, because the terms of the loan offer and the repeated calls to her to see if she had signed it created an atmosphere which, when combined with the financial stress under which she laboured, meant that from her perspective close reading was unnecessary. From her perspective, the gravity of the situation demanded no less than that she sign regardless of its terms and her comparatively modest education and sophistication ensured that no wiser position would prevail.

(d) The evidence of Mr Alptekin 53 Mr Alptekin is 40 years old and married with three children. He formerly worked as a project manager at Hutchinson Telecoms but was injured in a car accident in 2003. Although this did not cause the immediate cessation of his employment the necessity to take time off for medical visits eventually led to his retrenchment. 54 Before Mr Alptekin's accident the Alptekins had bought an apartment in Mrs Alptekin's name in 2002 at 6/29 Galloway Street, North Parramatta for about $208,000 in which they lived. By June 2005 the amount owing on this apartment was about $200,000. This amount had been advanced by the National Australia Bank ('NAB') secured by a first mortgage. By this time Mr Alptekin was no longer working full time although he did have a part time job with IAG (formerly NRMA) which paid about $650 per fortnight. Mrs Alptekin was not working but she was in receipt of the family tax benefit. At that time she was suffering from physical and depressive issues arising from her having been run down at a pedestrian crossing. 55 There came upon them, perhaps unsurprisingly in those circumstances, something of a financial crisis. Although it was possible to maintain the repayments to the NAB it was not possible to meet the strata levies due to the body corporate. In due course, Mr Alptekin was contacted by a collection agent who, on being told by Mr Alptekin that he could not pay, put him in touch with Mr Riotto (who, at that time, was operating SLC). Mr Alptekin contacted Mr Riotto and a meeting was arranged. He was told to bring statements showing his Centrelink entitlements, council rates, water rates and strata fees. I think it is likely that he was also told to bring his NAB statements. 56 Shortly afterwards Mr and Mrs Alptekin attended the offices of SLC at 107 Chandos Street. Although the premises appear residential from their exterior their interior is laid out more like an office: there was a reception area, an office and boardroom. In the office there was a photograph of Mr Riotto apparently jumping from a helicopter. 57 Mr and Mrs Alptekin were ushered into the office for a brief meeting with Mr Riotto who thereafter was replaced by a woman known as 'Soula' who I find is Ms Soula Lazaris. Mr Alptekin did the talking. He explained their predicament but also that he was expecting to receive a compensation payment in respect of his car accident. Ms Lazaris indicated that SLC could help. Mr Alptekin wanted to pay out the strata levies but in addition he also wanted to resolve an issue in the apartment's kitchen which had been badly damaged by water and he thought an extra $800 would be handy. To that end he requested a loan of $5,000. He handed Ms Lazaris the various financial statements he had brought with him from Centrelink, the body corporate, the council and the NAB. 58 During this process the Alptekin children had started drawing on a whiteboard and making noise. It was therefore necessary for Mrs Alptekin to remove them outside so that Ms Lazaris could make herself heard. The critical discussions took place, therefore, between Mr Alptekin and Ms Lazaris. 59 After Mr Alptekin had handed the documents to her she left the room to prepare the loan documents. They were signed that day. Although they were all in Mrs Alptekin's name and ultimately signed by her it is clear that all of the discussions on the Alptekins' side were conducted by Mr Alptekin. 60 The initial loan documents were brought to the boardroom where Mr Alptekin had by then been moved to. What was offered was a $5,000 loan at 5% per month for three months. The lender was not identified. In addition, on signing a valuation fee of $420 was payable to the unidentified lender and a $990 fee to SLC. The loan was to be secured by a caveat over the premises. The letter by which SLC was engaged as broker made no mention of the loan being for a business purpose but the terms sheet from the unidentified lender did refer to it being for that purpose. 61 I am satisfied that at no time did Mr Alptekin ever seek a business loan. His purpose was to pay his strata levies, redo the kitchen and have $800 left over. He gave evidence that he read the documents in SLC's boardroom for only fifteen minutes. As I have already mentioned, the property was in Mrs Alptekin's name and it was necessary, therefore, for her to be brought into the room. Mr Alptekin explained the contract as best he could and the amount of the principal. At the time that she signed, Mr Alptekin did not know that the loan was said to be for business purposes and I accept this. Mr Alptekin impressed me as an honest man doing his best to give an accurate account of his recollections. He was asked what he would have done had he noticed that the loan was said to be for business purposes. His answer was that as long as he received the $5,000 he would have signed. This is consistent with the perceived seriousness of the situation from his perspective. I am satisfied also that he was not aware in any meaningful way of the significance of the distinction between business and personal loans. 62 The two initial documents signed were the retainer letter for SLC and the loan offer letter. These were both dated 17 June 2005. A further set of documents was then prepared which included an epitome mortgage. It provided for a default rate of 8% per month (96% per annum) together with various fees which totalled over $2,000. These too were dated 17 June 2005 and I understood from Mr Alptekin's evidence that these were signed at the same time. 63 The loan was drawn down on 21 June 2005. Of the $5,000 borrowed, $3,021 was available after fees and charges of which $2,100 was paid to the body corporate leaving $921.56 which Mr Alptekin said was used to repair the kitchen. The first scheduled repayment of $250 was due on 21 July 2005 and this Mr Alptekin met. Unfortunately, however, the anticipated compensation payment did not arrive and the second payment could not be made. He then sought, and received, a temporary extension from SLC but thereafter contacted the Consumer Credit Legal Centre in Redfern. Due to the default rate, the loan rapidly expanded and according to Mr Alptekin increased from $5,000 to $12,000 and then to $18,000. I am not certain of the arithmetic of this but given the 8% monthly default rate some significant increase in the size of the loan may not be altogether surprising. 64 As a result of the actions of the Consumer Credit Legal Centre (which included a complaint to the Credit Ombudsman) an arrangement was reached with SLC on 21 September 2006 and a deed executed under which Mrs Alptekin agreed to pay $4,000 in return for a release of the caveat. 65 I have rejected above the proposition that the Alptekins' loan was for business purposes. For completeness, however, it should be noted that it was suggested to Mr Alptekin that he had set up a courier service in 2008 called ALP Couriers which he accepted was true. A letter was then tendered which was dated 11 July 2008 which was a letter of retainer with ALC signed by Mrs Alptekin for a $10,000 loan 'for business purposes'. However, Mr Alptekin's evidence was that by this time Mrs Alptekin had become psychotic and had been hospitalised at Cumberland Hospital. Mr Alptekin denied any knowledge of the letter and I accept this evidence. The only explanations seem to be that Mrs Alptekin signed it whilst in some kind of state or that it is a forgery. Fortunately, I do not need to resolve that question. It suffices to say instead that I am quite satisfied that the original loan was not for business purposes. For completeness, it should be noted that the parties were in agreement that no significance was to be attached to the fact that Mrs Alptekin was not called as a witness by ASIC.

(e) The evidence of Mr Carnovale 66 Mr Carnovale is the sole director of Ginelle Pty Limited ('Ginelle'). He is 87 years of age and is married to his wife Nelle. Ginelle is in the business of lending through solicitors on first mortgage. Mr Carnovale's involvement in this case springs from his identity - through Ginelle - as the source of the funds which were slated to be lent to Mr and Mrs Polimeni (but which did not ultimately go through). 67 Mr Carnovale was not initially aware of the difference for credit purposes between business and personal loans. It seems, however, that at some stage in the past he became aware that lending on personal loans was attended by a significant risk that the capital advanced might not be recovered and that this was not, however, a problem with business loans. Consequently he thereafter eschewed making personal loans and confined the business of Ginelle to business loans. 68 Mr Carnovale was introduced to Mr Riotto through a common acquaintance. Mr Riotto rang Mr Carnovale, introduced himself as a broker and inquired whether Mr Carnovale might not be interested in making a loan on premises at Balgowlah. Mr Carnovale thought that this transaction had occurred a number of years ago. Subsequently, Mr Carnovale told Mr Riotto that he had funds available to lend and that Mr Riotto should let him know if there was anything available. It is reasonably clear that Mr Carnovale dealt with Mr Riotto and SLC or ALC on multiple occasions. Mr Carnovale visited the premises of ALC/SLC at 107 Chandos Street. He confirmed, as several other witnesses did, that the premises were residential in appearance on the exterior. But his evidence about the interior was that it was 'very professional'; that there were a number of offices; several computers; and that there were five or six women at work. Mr Carnovale was plainly impressed by the set-up. He spoke during this visit with Mr Riotto who he said struck him as a 'very nice gentleman' and honest. Mr Carnovale was quite sure that Mr Riotto was aware of his desire only to extend business, and not personal, loans. 69 On a day-to-day basis Mr Carnovale dealt not with Mr Riotto but instead with a woman called Helen Youssef who Mr Carnovale believed was Mr Riotto's 'right-hand person'. He told Ms Youssef that he only wished to do business loans and that he needed the problems attending personal loans 'like a hole in the head'. I accept that ALC and SLC, through Mr Riotto and Ms Youssef, were well aware that Mr Carnovale - and Ginelle - only wished to extend business loans. 70 Mr Carnovale's recollection of the failed Polimeni loan was, understandably, fairly limited for, as he observed, there was not much to remember about a transaction which failed to proceed. It seems reasonably clear that Ms Therese Griffiths sent Mr Carnovale an email about the Polimeni loan on or about 15 February 2008. It was to be a loan for $27,000 for one year at 16.5% secured by a second mortgage. The documents sent through by Ms Griffiths included a valuation of the Kurrajong property at $800,000 which, when compared with the amount owing on the Polimenis' home loan of $320,678, suggested abundant equity. Mr Carnovale appears to have been happy to lend the money provided interest was paid in advance and this, so it seems, the Polimenis were willing to do if the loan was increased to $35,000. The instruction to do that appears to have come from the Polimenis' daughter or at least her email address. In none of the materials passing between Mr and Mrs Carnovale and ALC is there any suggestion that what was proposed was a personal loan. Mr Carnovale was not told the Polimeni loan was a personal loan and had that been said he would not have been willing to extend the funds. I accept this.

(f) The evidence of Mr Hinds 71 Mr Hinds is presently 72 years old. He is married with a wife who is 75 years old. They own their own home which is situated at 33 Fowler Road, Merrylands, a suburb of Sydney which they purchased in 1960 or thereabouts. Mr Hinds himself left high school in third year and has no tertiary or other qualifications. On the other hand, I accept that Mr Hinds is reasonably articulate. This is not only because of his role - explained more fully below - as an occasional speaker but also because of a lively correspondence he agreed he had conducted in the letter pages of several Sydney metropolitan newspapers including with the late Sir Frank Packer. Mr Hinds spent his working life in clerical roles, but has also worked within the field of social work and in what he termed 'library work'. Upon his retirement he went on the pension but worked for the Uniting Church through its Parramatta Mission. That involved working with the aged or the homeless. 72 The present issues concern a loan Mr Hinds obtained in March 2006 through ALC. At that time Mr and Mrs Hinds were in receipt of pensions totalling around $400 each per fortnight. In addition to this it seems that Mr Hinds gave speeches from time to time relating, inter alia, to self-worth for which he was sometimes, but not always, paid. As he explained it, he welcomed payment but did not require it. When he was paid it was usually about $70 or $80. He gave such speeches perhaps once per month. 73 Mr Hinds testified that in 2006 he had found himself in financial difficulty. His wife had been in hospital and he said he had incurred speeding fines in visiting her. In addition, he had friends who were in trouble and needed his support. More importantly, so he said, he needed to visit the Philippines where he proposed to speak together with the doing of other charitable works. In order to achieve this he believed he needed about $4,000. Later in these reasons I conclude that the reasons advanced by Mr Hinds for wanting this loan should not be accepted. 74 Mr Hinds' links to the Philippines went back some way. He had first visited them in 1999 as part of a teaching team from the Parramatta Mission following a difficult time in his life when his son had been sent to prison. He felt that the Filipino people whom he had visited had been very good to him and he returned in 2005 when the opportunity arose. In 2006 he had received another opportunity to return, to speak and also to provide support to the people he had met. 75 Mr Hinds' evidence was that his financial position at that time was not good and that was why, when he saw an advertisement for ALC in the Daily Telegraph, he had telephoned them. He had been attracted by the advertisement's promise of 'immediate approvals' and 'low interest rates'. 76 When he called he initially spoke with an employee named Hayley, whom I find to be Ms Hayley Sutherland. Subsequently, however, Mr Hinds dealt with Ms Helen Youssef and told her that he needed a loan of $4,000 to travel to the Philippines and also to pay some bills. I assume these bills were the speeding fines and troubled friends to which reference has already been made. In any event, Mr Hinds was not able to recall whether he provided Ms Youssef with details of these bills although he was clear that he would have told her the size of his pension. Ms Youssef apparently indicated a loan was possible. 77 On Thursday 9 March 2006 Mr Hinds received three documents from ALC. These were: (a) a letter retaining ALC to raise a loan for $8,000 with a term of one year interest-only with the interest prepaid secured by the premises at 33 Fowler Street; (b) a letter appearing to be a loan approval from an undisclosed lender on the same terms; (c) a privacy declaration. Both of the letters recorded the purpose of the loan as being for business purposes; in one case 'strictly' for such purposes. Mr Hinds was adamant that he had not realised that the loan was for business purposes and that he had not told Ms Youssef the loan was for business purposes. He said that he had no such business. He explained the fact that both letters referred to the loan as being for business purposes on the basis that he had not read the fine print because of his lack of education. 78 Thereafter, according to Mr Hinds, Ms Youssef had sent him to see a solicitor, Mr Joseph Trimarchi. Mr Trimarchi had presented him with a series of documents which included a mortgage and also a document entitled 'Declaration of Purposes for which Credit is Provided' which, if executed, had Mr Hinds declaring that the loan was 'to be applied wholly or predominantly for business or investment purposes'. Mr Hinds' evidence in chief about this was that Mr Trimarchi had told him that the description of the loan as a business loan was necessary to get around the fact that Mrs Hinds was not a party to the loan agreement (I interpolate here that Mr Hinds' evidence was that at this time his wife was in hospital and that the house was in both their names). Mr Hinds also thought that Mr Trimarchi had also suggested that a reference to a caveat was for a similar purpose. Mr Hinds thought that he had to sign the documents to get the loan: 'Well, I sign it or I don't get the money'. Mr Hinds then read the documents in Mr Trimarchi's office before signing them although he said 'not carefully'. He did notice, however, that loan was for $8,000 not $4,000 as he had sought which left him 'stunned', but he did not object. In the end, after the deduction of various fees and charges, an 'Authority to Draw Funds' indicated that he was to receive $3,934 which appears to have occurred on 17 March 2006 (less an additional amount paid to Mr Trimarchi of which, more below). The meeting with Mr Trimarchi seems likely to have occurred two days before on 15 March 2006. One explanation for the difference between what Mr Hinds wished to borrow and what he was lent springs from the fact that the loan was for 12 months at 12% per annum but that the interest was prepaid; another is to be found in the loan offer of 9 March 2006 and the retainer letter of the same date which provided between them for fees of $2,900. 79 Mr Hinds says that Mr Trimarchi was not his solicitor and that he was not retained by him. Indeed it was Mr Hinds' evidence that Mr Trimarchi was the solicitor for ALC. There is in evidence a retainer letter signed by Mr Trimarchi dated 14 March 2006 (the day before the meeting) but this does not appear to have been signed by Mr Hinds. On 10 April 2006 there appears to have been created two documents by Mr Trimarchi: a letter of advice of that date, and a tax invoice for $330 but reduced to $0 on account of $330 already paid (the account was paid on settlement of the loan). The letter of advice refers to the meeting having occurred on 15 March 2006, the day after the retainer letter. ALC's file for Mr Hinds for this loan was opened on 14 March 2006 so that the sequence appears to have been that Mr Hinds returned the signed loan offer and retainer on Tuesday 14 March 2006; that Mr Trimarchi opened his file the same day drafting a costs agreement of that date; that Mr Hinds saw Mr Trimarchi the following day, that is, Wednesday 15 March 2006; and that the net loan funds recorded in ALC's file as being $3,604.25 were handed to Mr Hinds on Friday 17 March 2006. 80 Ms Youssef gave evidence that ALC would provide the names of solicitors in the area who had acted for ALC clients in the past but that it never told its clients to see particular solicitors. I see no reason not to accept that aspect of Ms Youssef's evidence. Apart from Mr Hinds' oral testimony there is no other material which suggests that Mr Trimarchi's retainer is other than what it appears to be. I do not need to conclude that Mr Hinds' evidence is knowingly false to arrive at that conclusion. Given his lack of sophistication and his apparent failure to attend to the contents of documents it is possible in his mind that he was seeing Mr Trimarchi because ALC had sent him there and, viewed from that (inaccurate) perspective, he could have arrived at the erroneous view that Mr Trimarchi was acting for ALC. I do not find that this misperception on Mr Hinds' part about who Mr Trimarchi was retained by was fostered either by ALC or Mr Trimarchi. 81 I am disinclined also to accept Mr Hinds' account of his discussion with Mr Trimarchi about the business loan declaration. The burden of Mr Hinds' evidence was that Mr Trimarchi had said that the business loan declaration was necessary to overcome the fact that Mrs Hinds was not a signatory to the mortgage and this was also the end sought to be achieved by the caveat. But this makes no sense. The mortgage granted was a first mortgage and there was no need for any caveat. Further, there was no evidence before me of any caveat (apart from that contemplated to service ALC's fees under the retainer letter). Quite apart from that, the explanation allegedly proffered by Mr Trimarchi makes no sense. I do not accept that Mr Trimarchi said these things. 82 The effect of Mr Hinds having prepaid the interest was that he was not obliged to make any payments for 12 months but he was required to repay the whole of the $8,000 at the end of that time. It is not entirely clear what happened at the end of that year but the terms of the mortgage are likely to have had the effect that the loan became an $8,000 loan at 14% per annum which required monthly payments of $93.33. In any event, regardless of what the mortgage provided for (and its terms, particularly cl 4, are beset with difficulties) Mr Hinds testified that he started paying about $60 per week but fell by the way within 12 weeks or so. Upon that occurring he was put in touch with the Consumer Credit Legal Centre and thereafter proceedings were commenced in the CTTT which were eventually settled on the terms of a deed of settlement dated 9 December 2009 with Mr Hinds agreeing to repay $5,000 by fortnightly repayments of $50. Mr Hinds testified that he had been making these payments; further, that with the help of a relative he had also paid a lump sum of $2,000. I accept this evidence.

(g) The evidence of Mr McIlwraith 83 Mr McIlwraith is 48 years old and lives in his mother's house at Port Kembla. When he was 16 years old he was involved in a serious car accident in which he suffered a cracked skull. His brain tissue was cut into by about an inch and a three inch steel plate inserted into his skull. The consequences of that accident have shaped Mr McIlwraith's life. His short term memory is defective and, as he put it, his long term memory is not the best either. Unsurprisingly, these injuries have affected his employment prospects in respect of which he has been largely confined to cleaning jobs. Presently, he works one day per week in a radiator store. My impression of Mr McIlwraith was that he had limited capacity for abstract thought. It was evident that he did not understand some of the questions which he was asked. For example, he was cross-examined as to whether he had informed Mr Riotto of his mental difficulties and in the course of this he was shown an affidavit sworn by him in earlier proceedings before the CTTT. That affidavit, Mr McIlwraith accepted, did not refer to him as having informed Mr Riotto of his mental difficulties. The point of this cross-examination was to expose a conflict between Mr McIlwraith's present testimony (to which I turn below) that he informed Mr Riotto of those difficulties and his earlier testimony, in which he made no reference to this having occured. Although Mr McIlwraith eventually understood the question it was only after several false starts in which he appeared unable to distinguish between the concept of what he told Mr Riotto and the concept of what he told the CTTT that he told Mr Riotto. The following exchange exemplified the problem: Mr Newlinds SC: What I'm trying to say to you is that the fact that you didn't write in this affidavit that you told Mr Riotto that you had a mental problem, suggests very strongly that in fact you didn't tell Mr Riotto that you had a mental problem. That's the point I'm trying to make? Mr McIlwraith: Yes, all right. Mr Newlinds SC: Right. Now, do you want to comment on that point? Mr McIlwraith: There was quite a - there was an oral understanding between me and Mr Riotto that, number 1, I was on a disability pension, or Newstart at that time, I'm not sure, but somewhere in that - in the first loan - in the second loan, the $11,000 loan, that I went from Newstart over to disability, the disability pension. And I sat right in front of him in my office with the scar in full view, outside of what we spoke about, it was plain, there for all to [see]. 84 Further, I am bound to say, and with respect to Mr McIlwraith, the fact that he suffers from cognitive defects is reasonably apparent after a very short period of time. The precise nature of the deficits may not be clear but the fact of the existence of some limitation plainly is. The very visible and significant scar down his forehead does not naturally tend to allay concerns which might otherwise arise. Others too have taken this view. In 2007 a financial management order was made in respect of Mr McIlwraith's affairs by the Guardianship Board of New South Wales for which Mr McIlwraith now expresses gratitude ('They've got money in the bank, I can now at least afford to bury myself if it came to that'). 85 Many of Mr McIlwraith's answers were discursive and confused. At times there were emotive outbursts which proceeded from misperceptions both as to what the issues were and what was being put. Despite these difficulties I did not form the impression that Mr McIlwraith was not trying to tell the truth; and, most often, with some patience he did eventually grasp what was being put to him. 86 Mr McIlwraith was married in around 1988 and lived with his wife in Canberra. They purchased a house together using the proceeds of the insurance settlement arising from the car accident. Mr McIlwraith says that he also maintained a recording studio in Canberra for which he needed to get an Australian Business Number (ABN). He thought this had occurred about 25 years ago. I cannot accept this evidence; not only because the system of registration involving ABNs did not become law until 1999 (A New Tax System (Australian Business Number) Act 1999 (Cth)) in preparation for the passage of the GST legislation (A New Tax System for Australians (Goods and Services Tax) Act 1999 (Cth)) but because Mr McIlwraith's ABN history was placed in evidence and showed a registration from July 2000 and in respect of which there appeared never to have been any activity. 87 In any event, Mr and Mrs McIlwraith divorced and the house was sold. He received half of the proceeds of sale and with them purchased a home to live in at Port Kembla in cash. It was after this time that Mr McIlwraith entered into the first of the transactions involving SLC and Mr Riotto. Because there are different issues arising with respect to each I will treat them separately.

The first loan of $50,000 88 Mr McIlwraith testified that he had wanted to fix a few loose ends at the house at Port Kembla and had sought a $50,000 loan from SLC which he had become aware of because of a newspaper advertisement. He telephoned and spoke with Mr Riotto at which time a meeting was arranged at SLC's premises at Chandos Street. Mr McIlwraith says that he told Mr Riotto what he wanted to do with the house; that he was in receipt of Centrelink benefits and that he had a degree of brain damage. I accept this evidence. Some of it was expressed in the form 'I was aware that he knew' but I do not think that Mr McIlwraith was attempting any more than to report what was said. In any event, no objection was taken to the answer. He also told Mr Riotto that he could not raise the money elsewhere. Mr Riotto was not called to contradict any of this. Fortunately, Mr Riotto was able to help and a loan of $50,000 was extended. 89 There was no dispute before me that this loan was handled as a personal loan. The actual lender appears to have been the NAB; it is not clear whether there was a mortgage involved but given the circumstances it would be surprising if there were not. 90 Mr McIlwraith then appears to have decided to sell his home at Port Kembla and to move 'up the country'. This he did, purchasing a block of land on the Old Oxley Highway at Yarras which is near Wauchope on the midcoast of NSW. A subsequent valuation report prepared in the lead up to a subsequent mortgagee sale described this land as 16.187 hectares of undulating land, 50% of which was covered with bush. The land was zoned rural and did not permit the construction of a dwelling. Mr McIlwraith intended to live there nevertheless and to that end built a little shanty out of a caravan. It was without power apart from a 12 volt solar panel. The pictures attached to the valuation report reveal a dwelling to which the description commodious does not readily attach. It appears that Mr McIlwraith attempted to persuade the Hastings Council to erect a letterbox on the property which he appeared to believe would mean that the land was residential. This appears, however, to have been in vain. With that background it is then necessary to turn to the second loan.

The second loan of $11,000 91 At this time Mr McIlwraith had a girlfriend whom he had met through an introduction agency. She was Chinese by origin although Mr McIlwraith thought she had Japanese nationality. When he met her she had told him that she had a permanent visa for Australia but at some later time it turned out that, in fact, she only held a student visa. Further, it emerged that she was married to a man in Japan. Although she had stayed with Mr McIlwraith at the property the relationship ended and she wanted to return to Japan. Her ability to do so was limited, however, because, she left a satchel containing $4,000 at a McDonald's restaurant. I am not able to throw any more light on this perplexing evidence. I am, however, satisfied that Mr McIlwraith genuinely believed it to be so, and that he decided to help her out. Part of this help was to consist of paying her airfare back to Japan; and part of it to provide a residential bond so that she could have somewhere to stay. 92 After the relationship ended, Mr McIlwraith decided to sell the property and, as he said, move back to his mother's home at Wollongong. He approached a real estate agent to assist in its sale and they told him the property was worth between $150,000 and $170,000. Mr McIlwraith determined that he needed about $10,000 which would be used to provide the ex-girlfriend with a plane ticket to Japan and the bond for a home and the balance would be used by him to do some things 'to make the block sellable'. 93 Mr McIlwraith says that it was at this time that he contacted Mr Riotto again, once more by telephone as a result of which an appointment was made for a meeting. He says he told him all of the above matters and that he needed a loan for $10,000. He then went to SLC's office at Chandos Street and met with Mr Riotto. Mr McIlwraith had sought a loan of $10,000 but this, according to Mr McIlwraith, was elevated to $15,000 of which $4,000 was to be 'in lieu, which would then safeguard me against foreclosure'. Mr McIlwraith said that at that point during the meeting Mr Riotto had all of a sudden decided that the loan was to be a business loan and left the room. Mr McIlwraith was clear that Mr Riotto knew that he was in receipt of Centrelink benefits and that he had not told him that the land was an investment property. 94 He was then presented by Mr Riotto, upon his return, with two documents: a letter of retainer for SLC as finance broker and a letter of offer from an unnamed financier for a loan for $11,000. Under the retainer letter SLC agreed to procure the loan in return for a fee of $825 which would be payable even if the loan did not proceed. The loan would be for six months at an interest rate of 5% per month. Interest was payable monthly and, if not paid, capitalised. Mr McIlwraith accepted that Mr Riotto told him it was a business loan; indeed, it was his evidence that the determination that the loan would be for business purposes was made by Mr Riotto. I accept this evidence which Mr Riotto was not called to contradict. 95 There was a second set of documents which needed to be executed including a mortgage and a declaration of purpose for which the credit was to be provided. Mr Riotto sent Mr McIlwraith around the corner to the chemist where a Justice of the Peace was available to witness the documents. The two letters are dated 3 May 2005 and the mortgage document 5 May 2005 from which I infer that Mr McIlwraith must have visited SLC twice in two days. Although Mr McIlwraith can recall only one visit I do not think his recollection is correct. 96 I do not think there was any prospect that Mr McIlwraith understood any of the documents which he was asked to sign. Having seen Mr McIlwraith in the witness box I also have no doubt that this would have been abundantly obvious to Mr Riotto who could not have failed to have understood at once Mr McIlwraith's deficiencies. 97 After the payment of fees Mr McIlwraith received $9,243.50. His evidence was that he used this money to tidy up the land probably by clearing it; repairing the fences; buying some corrugated iron to stop the leaking in the shanty; sending his former girlfriend back to Japan and also to live on. I think it is likely that he also advanced the former girlfriend a bond. 98 At this time Mr McIlwraith continued his efforts to sell the land. He maintained his postal address at his mother's house but was living in his car on the land to be there in his efforts to sell it. Mr McIlwraith accepted that he planned to repay the loan from the proceeds of the sale of the land and that he expected this to occur in a period of about three to six months.

The third loan of $5,000 99 These efforts proved unsuccessful. After about three months, on 31 August 2005, Mr McIlwraith again approached Mr Riotto for a further loan of $5,000. Mr McIlwraith said that this was because he had run out of funds. Under cross-examination it was put to him that the purpose of this further loan was to pay for advertising of the property. His response on this occasion was that he could not recall his purpose although his earlier position was that he had run out of funds. It is difficult to know what to make of this. Since he was living in a car or at his mother's house he had no accommodation costs. His testimony was that he had never made any repayments on the loan. He was in receipt of benefits of between $450-$550 per fortnight. There was evidence that new real estate agents did advertise the property in the Acreage Review November edition but I do not think that it can have cost $5,000. Further, the dates do not match. The second loan of $5,000 was advanced in August or, at the latest, early September 2005, but the advertising in the Acreage Review was not placed until November. It seems to me more likely that Mr McIlwraith was simply using money to supplement his Centrelink payments. I do not accept, therefore, that he was intending to use the money for advertising. 100 It might be added that insofar as the August loan itself is concerned Mr McIlwraith initially spoke with Mr Riotto. He says that he told him that it was money to get by on. Mr Riotto was not called to contradict this or to give any weight to the proposition that the loan was for advertising purposes. 101 Mr McIlwraith also thought that there might have been a woman in the office called 'Amy' but his evidence about the loan related principally to Mr Riotto. I return to the role of Amy below. For the third loan these documents were signed: a retainer letter dated 31 August 2005 of which only the first page is now available under which he agreed to pay $330 to have SLC procure the loan; a loan offer expressed to be for business purposes for $5,000 at 10% per month with a term of three months secured by 'second mortgage'; a variation of mortgage increasing the principal under the first mortgage to $16,000. Three features are to be noted: first, Mr McIlwraith was not meeting the payments under the $11,000 loan when this loan was extended; secondly, the lender was in both cases the same - Mr Riotto's company, AMR; thirdly, the reference to the second mortgage is incorrect; no new loan was being arranged nor was a second mortgage involved. Mr McIlwraith denies telling Mr Riotto that the loan was for business purposes. I accept the thrust of that evidence. The topic of the business nature of the loan was either not mentioned at all, or if it was, as it had been with the loan for $11,000, it was Mr Riotto's suggestion. In any event, the terminus of the finding is the same; Mr Riotto knew it was not a business loan. 102 Of this loan for $5,000, which was running at 120% per annum, Mr McIlwraith received $4,037.75. Thereafter, Mr McIlwraith's attempts to sell the land were unsuccessful. By March 2006 the amount Mr McIlwraith owed to SLC had ballooned to nearly $40,000. It is apparent that a refinancing of Mr Riotto's loans was attempted with a different financier. This appears to have been handled by 'Amy'. An offer of finance was made by Stacks Finance on 30 March 2006 for $45,000 at 9.75% per annum. Mr McIlwraith says he knows nothing of that loan. In any event, it did not proceed which I think is the reason Mr McIlwraith has no memory of it. 103 The reason the refinancing did not proceed was not before me. A letter from SLC to Mr McIlwraith of 13 April 2006 suggests that he determined not to proceed ('We recently received notice from you of your decision to discontinue your loan application …'). Indeed it is likely, I think, that Stacks Finance had been told there was a building on the land and had been pressing for photographs of the building. This seems to have led Mr McIlwraith to cancel the transaction possibly because the description of the shanty as a 'building' involved overreach. Mr McIlwraith did not succeed in selling the property which was sold by mortgagee sale on 14 November 2007. The mortgagee was Mr Riotto's company, AMR. 104 By that time Mr McIlwraith owed Mr Riotto's company $16,000 in principal, over $44,096.99 in interest and, under the terms of the mortgage the sum of $15,988.39 in legal expenses together with Supreme Court filing fees of $1,911. This totalled $77,996.38. The property was sold for $80,000 and resulted in cleared funds of $72,257.00 which were remitted to AMR. 105 Finally, Mr McIlwraith commenced proceedings against SLC in 2008 before the CTTT in respect of both the loan of $11,000 and the loan of $5,000. The CTTT determined that an objective lender would have considered the purpose of the loans was not 'predominantly for personal, domestic or household purposes' since most of the proceeds were to be used to improve the Yarras Property for sale purposes. This meant that it had no jurisdiction and it dismissed his proceedings.

(h) The evidence of Ms Youssef 106 At the times relevant to this litigation Mrs Helen Melhem was known as Ms Youssef and, for convenience, I will refer to her by her former name. No disrespect is intended. Ms Youssef worked for SLC and ALC between March 2005 and October 2010. She now works for TC Communications. Whilst at ALC/SLC she was the sales and processing manager. She confirmed that the businesses of SLC and ALC were identical. She described the premises at 107 Chandos Street as having five offices in which five to 15 people worked. The offices each had varying numbers of desks and was supported by a sophisticated computer system the servers for which were housed in separate rooms. 107 Ms Youssef described the business of ALC/SLC as having two elements. The first was a business loan section which was headed by Ms Youssef who reported to Mr Riotto. She described him as exercising a high level of supervision. This section extended loans for business purposes. The second was the refinance department which dealt with refinancing mortgages as well as debt consolidation. These transactions were consumer loans to which the Code applied. This section was operated by Ms Verushka Naidoo and Ms Lili Amphone together with some other staff who were not identified. Ms Youssef thought the split in terms of customers between these transactions was 'fifty-fifty'. 108 When a customer sought a loan the inquiry would come either via the website or the telephone. The application could be completed over the phone. Because the procedures were different it was necessary to determine whether the loan involved was a business loan or a consumer loan and this Ms Youssef determined up front. Ms Youssef was aware, she said, of how other members of staff went about resolving that issue because she overheard conversations. 109 One important distinction between business and consumer loans related to the terms which could be offered. In relation to business loans of a short-term variety there were three distinct funding options. Under the first, interest could be prepaid at the outset; under the second, it could be capitalised; and under the third, it would be paid by the month. The prepaid interest option was not available on consumer loans. 110 Ms Youssef was very clear that she was not aware of any instances in which a customer wanting a personal loan was offered a short-term business loan. She claimed that she turned away customers who wanted a short-term loan for consumer purposes or who wanted to pay interest in advance. Further, she said she was unaware of any such practices occurring while she was there. 111 For reasons which I set out below when I deal with the evidence of Ms Amphone, I reject this aspect of Ms Youssef's evidence about which I do not believe she was telling the truth. 112 Her procedure for making offers for business loans was as follows: when the inquiry was first made an entry would be made in a computer system called Money Maker. Each client was given a numerical assignation. Entries could be made in the system each time the file was assessed so that, in effect, there was maintained a complete customer record. People could operate on the file leaving comments and annotations. It was customary for each person doing so to leave their initials next to the remark they had entered. It was possible for the entries to be edited by anyone in the office including Mr Riotto. Once Ms Youssef had decided that a business loan could be offered she sent out two standard form letters. One was a retainer letter for ALC/SLC; the other an offer of loan. At that stage, however, Ms Youssef did not approach any lenders. 113 The terms of the 'loan offer' concluded with the statement 'This letter of offer is open for acceptance for forty-eight (48) hours from the time you receive it. The Lender reserves the right to withdraw this letter of offer prior to acceptance'. Later in these reasons I reject the defendants' courageous argument that this did not involve an offer of a loan. Ms Youssef's evidence was that she would call the client within two days to chase up signing of the documents and she would do this 'maybe five or six times'. Ms Youssef believed that Mr Riotto wanted every letter of offer which was sent out to be returned. 114 If loan documentation was returned and the loan was a short-term one with a clear exit strategy Ms Youssef would usually refer the loan to Mr Riotto's company, AMR. Only if he was not interested would she take the further step of seeking another lender. She maintained a list of such lenders who were generally private lenders interested only in business loans. By contrast, the lenders on the consumer loan side of the business were usually banks or 'non-conforming' lenders (that is, non-individual lenders who would lend to those the banks would not). The documents suggest that thereafter loan documentation would be prepared by the lender. Ordinarily this would occur at a later date. 115 Insofar as solicitors were concerned, Ms Youssef knew Mr Trimarchi (to whom it will be recalled Mr Hinds went) but she was very clear that whilst ALC/SLC often provided the names of solicitors who had previously acted for clients to new clients she never directed clients that they had to use particular solicitors. I accept this. 116 Ms Youssef was aware of no situation in which, having sent the initial 'offer' she had not been able to find a lender. Ms Youssef's recollection of individual clients was limited. She recalled that Mr Hinds had wanted a 'business purpose loan' to travel as a paid motivational speaker to a conference in the Philippines. The entry in Mr Hinds' file recorded that 'This client needs the funds to assist his business travel HS'. Ms Youssef thought that she was the person who had handled Mr Hinds but she identified 'HS' as Hayley Sutherland. She explained this apparent contradiction by saying that she often dealt with the initial phone call and then passed the matter on to someone else to complete the application. 117 I do not accept that Ms Youssef spoke with Mr Hinds in the initial discussion. I prefer the contemporaneous record contained in Mr Hinds' file. Ms Youssef endeavoured to persuade me that she was able to recall Mr Hinds because he had sent her pictures of himself even after the loan had settled. There were several emails from Mr Hinds to Ms Youssef in evidence. One of them - early in the piece - does say 'Have a good week - tell your husband/partner or boyfriend he's a lucky guy'. Another attaches a picture of the 'bright young boy [Mr Hinds had] been supporting' although none contain any pictures of Mr Hinds. I do not accept this aspect of Ms Youssef's evidence. 118 Ms Youssef had a very vague recollection of Ms James. This was limited largely to recalling that Ms James' excuse for avoiding a valuer - that her house had burned down - had caused some laughter in the office particularly when the valuation then took place two days later.

(i) The evidence of Mr Hundsdorfer 119 Mr Hundsdorfer gave his evidence by affidavit and was not cross-examined. He is the directing mind of Avahlon Pty Limited ('Avahlon') which was approached to lend Ms James $120,000 by ALC. That loan did not proceed. Mr Hundsdorfer has little recollection of the transaction save that it did not proceed. It was Avahlon's practice only to extend loans for business or investment purposes since his experience of the consumer laws was that they were unreasonable. He did not communicate this requirement directly to ALC. Mr Hundsdorfer says that if he had been told that Ms James' loan was to refinance her home and repay credit cards he would not have offered to lend her money.

(j) The evidence of Ms Naidoo 120 Ms Naidoo is a present employee of ALC having started work there in 2007. Her involvement in the present proceedings arises from her having dealt with Ms James' proposed loan of $120,000 (which was in 2008). Initially she worked in sales but thereafter in sales and processing. Her sales roles consisted of taking initial inquiries from clients and filling out the application forms. When she had finished filling out each application she would then choose whether to send it to the business or refinancing/consumer loans department of ALC. She says she did this on the basis of what the client told her. Before me Ms Naidoo gave some evidence that in 2008 (that is, at the time of Ms James' loan application) she 'might have' asked a series of questions to business loan applicants about their income and their proposed means of repaying the loan. However, under cross-examination from Mr Cook of counsel, who appeared for ASIC, she accepted that an earlier statement she had made during a compulsory examination to the effect that she made no inquiries of that kind was correct. In that circumstance, I do not accept that in 2008 it was Ms Naidoo's practice to inquire as to the authenticity of a business loan applicant's proposed business. 121 On the issue of whether business loans were sometimes offered to customers seeking what were, in substance, consumer loans Ms Naidoo's evidence was as follows. She was absolutely clear that no customer who did not qualify for a consumer loan was ever offered a business loan. But the inflexibility of that position was ameliorated to an extent by the existence, according to her, of a consumer loan in which there did not need to be any repayments until the end of the loan. This was a loan which 'possibly' had interest prepaid and was made available through the refinance (i.e. consumer loan) section. It will be recalled that Ms Youssef's evidence was to the contrary and that loans in which there were to be no repayments until the end of the loan were not available as consumer loans. Ms Naidoo was not able to nominate any lenders who made this kind of loan. I do not accept that such a loan exists. I reject her evidence that persons seeking consumer loans were not offered business loans for the following reasons: (a) It is contrary to the evidence of Ms Amphone (to which I turn next) who was a former employee of ALC and whose evidence I accept; (b) ALC had an incentive to do so and no disincentive not to do so and this, I am sure, Ms Naidoo was well aware of given Mr Riotto's hands-on management style. Whether the loan was business or personal had no relevance to ALC except insofar as it allowed the transaction to proceed. (c) Ms Naidoo was, to my observation, willing to tell other untruths. For example, as already mentioned, she initially attempted to give the impression that she might have asked Ms James about the details of her business but retreated from this once confronted by her earlier contrary testimony during her compulsory examination before ASIC. To that may be added this: Ms Naidoo's evidence in chief was that she was unable to recall whether Ms James told her she wanted to start up a business; that she was unable to recall whether Ms James had told her that she had been a 'stay at home mum' since 2006 because the discussion with Ms James was 'very many years ago, and - and I don't remember'; more generally, her evidence in general supports the quite plausible proposition that she did not have any independent recollection of the conversation she had with Ms James. There is no difficulty with accepting that inherently likely evidence. What is difficult to accept is the evidence she gave shortly after going into the witness box. Having been asked whether her evidence was that she was not able to remember the details of her discussion with Ms James the following exchange took place: Mr Cook: Is that your recollection today? Ms Naidoo: I do remember a bit more, because I have been thinking about it. I remember getting a phone call from Ms James and she needed to speak to one of the other sales people, Helen, who was handling her file. I remember saying something to the effect of - because the client had said to me her son, I believe, wasn't feeling well - I remember saying to Helen, "Look, you know, Ms James has called. You know, she is a bit concerned; her child is not well so the valuer can't go out to value the property." A few days later the client called again and, again, [I] put her through to Helen, and when Helen got the phone she goes, "The lady has had a really bad run of luck. Her son was ill and then her house has actually burnt down." And then Helen got in touch with the valuer to let them know not to go out to do the valuation. I can remember that we were a bit confused. A little while after - I think it could have been a space of a few days after that - when - because I don't think that Helen was able to get in touch with the valuer. She had left a message for him, but we ended up getting word that the valuation had actually been done after the house had burnt down, and so we were just confused. That's the last thing I can remember about it. [sic] Mr Cook: Now, when you say you have been going through some things, and you have just said - and your memory has improved a little bit - what exactly did you do to improve your memory? Ms Naidoo: I was just thinking about it, because I knew that I had to come here today and I was trying to remember as much as I could of it, and that's all I can grasp to remember. Mr Cook: Have you looked at any documents ­ ­ ­? Ms Naidoo: No. Mr Cook: ­ ­ ­ to refresh your memory? Ms Naidoo: No. Mr Cook: Have you looked at the computer system? Ms Naidoo: No. Mr Cook: You just ­ ­ ­? Ms Naidoo: Not with regards to that application, no. Mr Cook: ­ ­ ­ thought about it? Ms Naidoo: I have been thinking about it. I mean, sometimes if you think of something long enough, something might just pop up. Mr Cook: And other than what you have just told his Honour now, is there anything else you recall about this? Ms Naidoo: No. 122 What is important about this exchange is Ms Naidoo's insistence that she had not refreshed her memory from anything else but that, upon meditation (over three years after the event) the memory has just 'popped up'. That testimony is to be weighed against Exhibit 82 which is the entry in the Money Maker system for Ms James' proposed loan. There are three relevant entries in it made by Ms Youssef (initials 'HY') as follows: Hy - 13/08/2008 1:19:48 PM - client wasn't able to sign documents, as her son was being taken to the hospital. She will advise when appt is rescheduled. and Hy - 4/08/2008 5:42:13 PM - spoke to client briefly and then her phone cut out. Apparently her house caught on fire. Doesn't know when she can reschedule an appt. [sic] and HY - 24/09/2008 3:14:23 PM ** this is the client that told us that her house burnt down so no valuation could be done, but valuation was done a few days later… [sic] 123 Ms Naidoo has access to those records because she is still employed by ALC. The similarities between what Ms Naidoo can now serendipitously recall and what appears in those records makes it impossible to accept that she had not accessed those records. 124 Returning to the transaction, the loan application which Ms Naidoo completed for Ms James recorded these matters of interest: Description: Client want's [sic] to borrow some funds for a start up business … Current Employment: Employer: Vegie Patch Café … Basis: Part time Occupation: Waitress and Other Employer: Employer: Stay at home mum since 2006 125 On the basis of this Ms Naidoo was able to deny that Ms James could have told her that she wanted to refinance her home loan and pay off her credit card: I would be able to refer to the application to interpret for you what would have happened, and I would believe my notes on that application against somebody else's word. Further, she was absolutely certain that the entry on the form would not have been a mistake: I could not make that big a mistake. 126 I do not accept Ms Naidoo's evidence about this and I regard the entries in Ms James' file as unreliable. Those entries may be explained in four different ways: (a) Ms Naidoo simply made up the entries without discussing them with Ms James at all; (b) Ms Naidoo told Ms James that she could have a loan but only if it was for business purposes and Ms James then volunteered that she wanted to start up a business; (c) Ms Naidoo told Ms James that she could have loan but only if it was a business loan, that Ms James could say that she was starting up a business and that Ms James then said exactly that; or (d) The entries in the system have been entered more recently to aid in this litigation. 127 I do not think that I should embrace (d) which would involve findings consistent only with serious criminal misconduct. That would be a grave conclusion and I do not feel sufficiently certain that that occurred to say that it did. On the other hand, whilst I am unable to say which of (a) to (c) occurred I am able to find that Ms Naidoo knew that Ms James, who was a part-time waitress, was not starting up a business and the entries were made in the system by Ms Naidoo either not believing them or, at least, recklessly indifferent to their truth. 128 Ms Naidoo was aware that there were legislative changes in 2008 which required greater inquiry into the bona fides of proposed business loans and her evidence was that after those changes took effect she asked many more questions of borrowers. I accept this. 129 Ms Naidoo also gave evidence about ALC's Sales and Administration Staff Policies and Procedures Manual. Her evidence was that it had been issued a couple of years ago. The manual contains a section dealing with the National Consumer Credit Protection Act 2009 (Cth) which commenced on 1 April 2010 and I conclude that it was prepared not less than 18 months ago. Ms Naidoo gave evidence that the manual was put together by an Eleanor Bailey who was then a staff member. But importantly Ms Naidoo says that she and the other people in the sales department 'were asked about what our procedures were, how we did things, what questions were asked, things like that, and then the [draft copy] was put together'. After that occurred the draft was given to Ms Naidoo to check. 130 She gave further evidence that the manual was used for training of new staff which was conducted by Mr Riotto.

(k) The evidence of Ms Amphone 131 Ms Amphone was the last but most important witness called during the trial. She was employed at ALC between September 2006 and the end of January 2011, that is, a period of about four and a half years. She currently works for Suncorp Bank as a lending consultant. She started at ALC when she was 19 and served first as a receptionist before becoming a lending manager. She worked in the refinancing section, that is, the section concerned with consumer loans. Her work consisted of assessing applications including the conducting of credit checks and the selection of the appropriate lender. Her immediate superior was, so she said, Mrs Amelia Riotto who is Mr Riotto's wife. I accept this evidence which is substantially consistent in that regard with Ms Youssef's. 132 Ms Amphone was aware of the legislative changes which came into effect during 2008 and she was asked questions about ALC's practice before the changes. Her initial evidence was that it was not possible for a person seeking a short-term personal loan (that is, a loan of less than 12 months duration) to obtain a loan in which all the payments of interest occurred at the end. There was no such consumer loan according to Ms Amphone's initial evidence. She was pressed on whether she was aware of circumstances in which borrowers seeking short-term loans which were, in truth, consumer loans were given business loans. To this she responded that she 'had never actually dealt with it' or had not been there 'when it happened or if it did happen'; finally that 'from my recollection there was nothing'. 133 At this point in her evidence I believe Ms Amphone had a change of heart. Pressed again as to whether it might just not be possible for a person seeking a short-term loan for personal purposes, but with no payments until the time that the loan was due to be repaid, to be lent money Ms Amphone answered 'yes, there would have been a chance we could have lent them money'. The loan involved would have been a short-term business loan. 134 She was then pressed a third time and this time her evidence was unequivocal. I will set it out: Mr Cook: They're saying, "I've got a lovely piece of property out in rural Australia. It's a beautiful piece of property with three rivers. I'm going to sell it within the next six months. It's worth [$200,000], there's no mortgage on it. I need $20,000 just to keep me in food and living expenses until the six months are up. Can you help me?" What would have happened to such a person? Ms Amphone: They would have - in fact, then, they would have been able to get the loan. Mr Cook: And they would have got a short-term loan? Ms Amphone: Short-term loan; interest only, and they would have had to pay the full amount at the end of the term. Mr Cook: And that would have been a business loan? Ms Amphone: Yes. Mr Cook: And they would have been sent a letter of offer? Ms Amphone: Letter of offer, terms of engagement and business declaration. Mr Cook: Nothing further, your Honour. 135 Ms Amphone was not shaken in cross-examination as to how she could be certain of these matters: as she explained it, she saw a lot of what happened in the office. There were 'moments and times that you would hear things that probably, looking back, I would probably disagree, that probably wasn't right'. She was aware that there was a species of short-term loan which was not covered by the Code but she did not think she was mixing them up. 136 Ms Amphone's initial evidence that she was not able to recall the practice of giving short-term business loans to persons seeking loans for personal purposes is, of course, consistent with Ms Youssef's and Ms Naidoo's evidence but her final evidence is not. I accept her final evidence. It is not usually an easy thing to give damaging evidence about one's former employer unless there can be the suggestion of some kind of animus on the former employee's part towards the employer. Here there was no such suggestion. The course of Ms Amphone's evidence revealed a tension in Ms Amphone between some sense of loyalty to Mr Riotto - or at least a desire not to cause him problems - and her obligations to tell the truth. In my opinion, after a brief tussle the latter predominated. It was my distinct impression that Ms Amphone's final unequivocal evidence was the evidence of a witness who was telling the truth. 137 It is for that reason that I have preferred her evidence to that of both Ms Youssef and Ms Naidoo. There were ample reasons to reject Ms Naidoo's evidence to which I have already referred. In Ms Youssef's case, she too had left Mr Riotto's employment and so, in that sense, was in a similar position to Ms Amphone. Ultimately, I conclude that Ms Youssef's desire not to cause problems for Mr Riotto outweighed her desire to tell the truth. Where Ms Youssef's evidence conflicts with that of Ms Amphone I reject it. I reject the defendants' argument that Ms Amphone's evidence was pitched at such a high level of generality that it could be of no use. In my opinion, the opposite is the case - here the evidence constituted powerful confirmation of ASIC's case. The failure of Mr Riotto to give evidence contradicting Ms Amphone's evidence was, to my mind, a most significant matter. Her evidence was plainly capable of supporting the inference that ALC engaged in this practice. I am more comfortable with that inference in circumstances where Mr Riotto did not contradict Ms Amphone. In any event, I would have drawn it anyway. 138 For completeness it should be noted that Ms Amphone also gave evidence that she had never engaged in the practice she described herself. In that regard, it is worth noting that although Ms Amphone did speak with Mrs Polimeni it was not her, but rather Ms Griffiths, who dealt with the Polimenis' initial loan application.

III. Inferences and additional findings of fact 139 In the preceding section I have dealt generally with the direct testimony and evidence which is available. In this section I deal with some of the inferences and conclusions which should be drawn from that evidence. It is convenient to consider the matter transaction by transaction.

(a) The Polimenis 140 I have already found that Mrs Polimeni had only a single source of income as a packer; was in financial need as a result of having three outstanding credit card debts; and wholly failed to understand the nature of the business loan. On the other hand, the Polimenis were also in receipt of Mr Polimeni's salary as a rigger. I have made similar findings in relation to Mr Polimeni with the additional finding that he has no substantive grasp of English. ASIC alleges that Mrs Polimeni had a limited understanding of English but this is not correct. 141 The person from ALC who spoke with Mrs Polimeni was, as has already been mentioned, Ms Therese Griffiths. There is no evidence which suggests that Ms Griffiths ever met with Mr Polimeni and I conclude therefore that, subject to one matter, Ms Griffiths knew only what Mrs Polimeni is likely to have told her. The matter concerns the nature of the loan as a business loan as indicated in the two letters of 7 February 2008. Of this four matters should be noted. First, I am satisfied that Mrs Polimeni (and hence Mr Polimeni) had no understanding of the potential legal significance of the loan being a business loan. Secondly, I infer from the nature of Ms Griffiths' employment at ALC that she did know the legal consequences of the loan being declared to be one 'wholly or predominantly for business or investment purposes'. Thirdly, there is nothing to suggest that Ms Griffiths explained this to Mrs Polimeni; Mrs Polimeni gave no such evidence and Ms Griffiths was not called. Finally, whilst I do not think one can say definitively that Ms Griffiths must have known that Mrs Polimeni was unaware of the potential significance of the loan being designated a business loan, I do accept that the circumstances of which she was aware - Mrs Polimeni's job as a packer; and the fact of her seeking to refinance outstanding credit card debt (hardly a sign of financial sophistication) - would have caused a reasonable person in Ms Griffiths' position strongly to suspect that Mrs Polimeni had no idea that the fact that the loan was designated a business loan had the potential to degrade the Polimenis' legal protections. I infer, in the absence of evidence to the contrary, that Ms Griffiths was a reasonable person from which I deduce that she did suspect that Mrs Polimeni did not have any idea what the potential significance of the loan being for business purposes was. There is no reason to think her suspicions were any different in the case of Mr Polimeni in circumstances where Ms Griffiths knew that he was a rigger. 142 In those circumstances my findings are that Ms Griffiths (and hence ALC) knew the following: (a) Mrs Polimeni had a single source of income earning about $28,000; (b) Mr Polimeni had a single source of income of about $73,000; and (c) The Polimenis were financially distressed and were seeking to consolidate three outstanding credit card debts. 143 I find that Ms Griffiths strongly suspected that the Polimenis did not understand the potential significance of the loan being for business purposes. 144 I also conclude that Mr and Mrs Polimeni would not have signed the two letters of 7 February 2008 if they had known that the loan was for business purposes or if they had understood what that meant. So much is clear from Mrs Polimeni's evidence that when she was told by the solicitor Mr Bennett that the loan was for business purposes she told him she did not want such a loan and declined to sign the second set of documents which had been provided for execution.

(b) Ms James 145 Ms James' application was dealt with by Ms Naidoo. One undisputable fact about this loan transaction is that the loan never took place. Ms James' evidence was that when she was informed by her solicitor, Mr Franke, that the loan was a business loan and was not interest free for a year she decided not to proceed with it. Her testimony that she did not want a business loan and did not ask for one is, therefore, consistent with her subsequent behaviour. The ALC file for Ms James records the loan description as 'Client want's [sic] to borrow some funds for a start up business'. It was not entirely clear who filled this form out at ALC; Ms Naidoo thought that it would have been the person doing the loan application, which does not take matters far. What the form does, however, show is that the suggestion that Ms James was about to embark on 'a start up business' is absurd. It is, for example, plain from that form that: (a) Ms James had worked as a part-time waitress at the Vegie Patch Café for two months; (b) prior to that she had worked part-time at 'Carol's Take Away' for four months; (c) prior to that she was a stay at home mum; (d) she was a divorced woman with three children aged 10, 11 and 14; (e) her total monthly income including all benefits was $3,927 of which $865 went on monthly repayments leaving this mother of three with approximately $3,000 per month to live on; and (f) she had credit card debts totalling more than $13,000, that is, more than three months of her income. 146 Ms James' evidence, as I have already mentioned, was that she wanted to refinance her home loan and consolidate her credit card debt for which she required $90,000. I accept her evidence and I do not believe that she said anything to the person completing the application form about a start-up business. The entry in the file for Ms James suggesting that she did is most likely the result of a false entry by the person completing the form. I draw that conclusion because I am satisfied that the practice of giving business loans to people who, like Ms James, did not qualify for a proper consumer loan was extant within ALC. I am satisfied of that because of the evidence of Ms Amphone. 147 I also conclude that the person who completed the loan application form strongly suspected that Ms James had no idea what the consequences of the loan being designated a business loan might be. My reasons for that are: (a) the facts known to the ALC employee in question included Ms James' intermittent record of part-time jobs in take-away food shops; (b) her financial position with her credit cards was an obvious indicator of financial inexperience; and (c) with respect to Ms James, her speaking voice, to my observation, is the voice of a very uneducated person. 148 I have no doubt that the person Ms James spoke with believed herself to be speaking to a simple person lacking financial sophistication.

(c) The Alptekins 149 After the original telephone call Mr Alptekin's discussions were initially with Mr Riotto in his office and thereafter with Ms Soula Lazaris. As in the case of Ms Sutherland, which I discuss below, I draw no adverse inference against SLC for not calling Ms Lazaris since Ms Naidoo testified that she was no longer employed there. I accept Mr Alptekin's evidence that he never sought a business loan and conveyed at no time any such idea. His evidence in that regard is supported by SLC's own records which fail to refer to any business purpose. I also conclude that Ms Lazaris did not seek to explain to him anything about the business loan declaration when the documents were signed. I find that both Mr Riotto and Ms Lazaris were aware that what Mr Alptekin sought was not a business loan. Further, I conclude both that Mr Alptekin had no idea what the effect of a business loan declaration was and also that Mr Riotto and Ms Lazaris strongly suspected that this was the case. On the other hand, I do not doubt that Mr Alptekin would have proceeded with the transaction even if he had fully understood the significance of the business loan declaration for, as he testified, as long as he obtained the money he did not mind. This is because he anticipated that the loan would be repaid from the proceeds of his settlement. I accept that both Mr Riotto and Ms Lazaris were told this too.

(d) Mr Hinds 150 Mr Hinds' dealings were largely with Ms Youssef. Apart from Mr Hinds' evidence that he is certain that he did not ask for a business loan there is no other direct evidence of what was said between them. There is the following indirect evidence: (a) Ms Youssef's evidence that she was aware of no instance in which customers seeking personal loans were given short-term business loans. Ms Amphone gave evidence that she was aware of such a practice, of course, because she heard it discussed in the office. This could justify the conclusion that Ms Youssef must also have been aware of the practice, particularly given her more senior position. I draw that conclusion. It does not directly justify the conclusion that Ms Youssef herself engaged in the practice as distinct from merely being aware of it. But it does mean that her statement that she was unaware of the practice is itself untrue and this provides a reason to approach her other testimony with some care; (b) Mr Hinds' evidence that the reason he wanted the money was to travel to the Philippines and to pay some bills; (c) The ALC file for Mr Hinds which includes an entry: 'This client needs the funds to assist his business travels HS'. Ms Youssef's evidence was that this suggested that the initial application form had been filled out by Hayley Sutherland and Ms Naidoo's evidence was that Ms Sutherland had stopped working for ALC a few years ago. I accept that evidence; (d) An email sent after the initial loan by Mr Hinds to Ms Youssef seeking a further loan of $1,600. The relevance of this email lies in two passages as follows: However, the people inviting me to give my SELF WORTH talks over there have arranged for me to visit two other Islands of the Philippines to speak, and visit the projects I have been raising support for here - the couple with their Learning Centre for special needs kids, and the Church leader trying to set up the Food Centre for the poor. There is also the boy I run for, for his Education, in Manila … If you cannot help - okay! Just an enquiry. The inviters are talking about re-imbursing me but not till I do my jobs. (e) the letter from Mr Trimarchi recording advice given to Mr Hinds that he was signing a declaration that the loan was for business purposes; and (f) the two letters dated 9 March 2006 signed by Mr Hinds indicating that the loan was for business purposes. 151 There is no easy way to synthesise this contradictory material. However, doing the best that one can I believe that the following occurred: Mr Hinds did wish to travel to the Philippines for what might be termed pastoral purposes. Those purposes included the giving of some talks concerned with self-worth. Mr Hinds did not expect to be paid for these but he did anticipate a possibility that his expenses might well be reimbursed and these, naturally enough, would have included his airfare. Mr Hinds did not have the money to pay for such a ticket and it was for that reason he rang ALC. On balance, I am not inclined to accept that he was suffering from a financial crisis caused, as he testified, by incurring speeding fines on the way to visit his wife in hospital, nor am I inclined to accept that he was financially distressed because of other friends who had problems. Those two matters make little sense to me. 152 Mr Hinds then called ALC having seen their advertisement. His intention was to secure a short-term loan to cover the airfare with the expectation that it would be repaid upon his being reimbursed for the airfare. He spoke with Hayley Sutherland and told her that he wanted the loan to buy a return airfare to the Philippines. 153 What occurred next is not altogether clear. One possibility is that Ms Sutherland told Mr Hinds that he could only get the loan if it was for business purposes to which he volunteered that the loan was of that character; another is that Ms Sutherland told him that the loan would be extended as a business loan and based on what he had told her it appeared to be such a loan; a third possibility is that the topic of business loans was not mentioned at all and the entry in the file for Mr Hinds that reads 'This client needs the funds to assist his business travels' is a false entry. I do not think that I should find the third given its gravity for Ms Sutherland and the paucity of the material upon which such a conclusion might rest. As to the remaining two, three matters should be noted. First, the second scenario is supported by Mr Hinds' evidence that he never asked for such a loan whereas the first is not. Secondly, Ms Sutherland may have been able to give evidence about this but it is by no means obvious that she would have had a recollection about it given the passage of time. Regardless of that issue, however, as a former employee of ALC I do not think it is to be criticised for not calling her: 'The significance of the inference depends on the closeness of the relationship of the absent witness with the party who did not call the witness' (JD Heydon, Cross on Evidence, (LexisNexis Butterworths, 8th ed, 2010) at [1215] 41). In Claremont Petroleum NL v Cummings (1992) 110 ALR 239 Wilcox J concluded (at 259) that a former director of Claremont was equally available to both parties to call so that a Jones v Dunkel (1959) 101 CLR 298 inference was available against both which had the effect that each would cancel the other out. I am not concerned with the correctness of the cancellation procedure which may assume a symmetry of inferential strength which may not always be warranted: cf. the remarks of Finkelstein J in AMP Services Ltd v Manning [2006] FCA 256 at [49]. Instead, the point to be grasped is that a severance of the initial relationship may reduce or eliminate the availability of the Jones v Dunkel inference. A similar conclusion was assumed, although not directly described, in Adeels Palace Pty Limited v Moubarak [2009] NSWCA 29 at [98]-[100] per Giles JA (with whom the other members of the Court agreed). This is unlikely to be an absolute proposition. In this case, however, Ms Naidoo's evidence was that Ms Sutherland had left 'a few years ago'. In the absence of any suggested ongoing involvement on her part with ALC or Mr Riotto it is not appropriate to apply the principle in Jones v Dunkel to the decision by ALC not to call her. 154 The third and final matter concerns Ms Amphone's evidence. Her evidence was about a practice of offering business loans to persons seeking what were, in fact, consumer loans. It was evidence of a general kind not directed to any person and, in particular, not directed to Ms Sutherland. Nevertheless, it does demonstrate that such occurrences were not unknown in the office and that, in turn, provides a degree of support for Mr Hinds' evidence that he did not seek a business loan. The second scenario is more supported by evidence than the first and I, therefore, accept it: Ms Sutherland told Mr Hinds that the loan could only be made if it was a business loan and suggested to him that on what he had told her it was probably such a loan. 155 Ms Sutherland then referred Mr Hinds' application to Ms Youssef. Although Ms Youssef thought that she had dealt with it initially this is inconsistent with the 'HS' entry in Mr Hinds' file. Instead, it is more likely that she spoke to him after he was referred to her. In that regard it is to be noted that the letters of offer were signed by her and hence that she had done more than merely take the initial phone call (as she had testified). Ms Youssef testified that she thought that Mr Hinds had told her that he was a paid motivational speaker, that he needed to get to the Philippines to do a job and thereby to get paid. Leaving to one side whether Mr Hinds said this I do not accept that Ms Youssef is capable of remembering that matter independently. A much more likely source of her recollection is the email sent by Mr Hinds to her some months after the loan was advanced seeking a fresh loan (set out, in its more important elements, above). 156 In any event I do not think that Mr Hinds said any such thing to Ms Youssef whatever she can remember. Ms Naidoo eventually accepted under cross-examination that, during the period when this loan was advanced, business loan applicants were not asked to verify the details of the business transaction or to go into the details of the loan. I infer that that was the general practice of ALC at the time. Consistently, Ms Youssef's account of the questions she asked of a business loan applicant was: Mr Cook: If the borrower had - if you determine that the borrower was seeking a business loan ---? Ms Youssef: Yes Mr Cook: --- what would ask them to tell you about? Would you ask them about their income ---? Ms Youssef: Yes Mr Cook: --- their property, what sort of information would you ask them? Ms Youssef: I would ask them what - if they owned or paying off any real estate property. Mr Cook: Yes? Ms Youssef: I would ask them how much they estimated the property to be valued at; how much is currently owing on the property and then how much they were looking at borrowing to determine the [loan to value ratio], and then once I was able to determine the [loan to value ratio], then I would see if they wanted to proceed with a business loan application. Mr Cook: Yes. Now, is that all you asked them about? Ms Youssef: Yes. Depending on the conversation, we might go into detail, but that was the core questions that we would ask. [sic] 157 On the basis of that practice, I can see no reason why the business nature of the transaction would have arisen in the discussion between Ms Youssef and Mr Hinds and I find that it did not. 158 I have already concluded that Mr Trimarchi did explain to Mr Hinds, at the time the mortgage documents were prepared, that by signing the business loan declaration Mr Hinds was certifying that the loan was for such purposes and that this affected his rights under the Code. This, however, is not inconsistent with my conclusions. The only mention of the business purpose of the loan was raised by Ms Sutherland and not again thereafter. Mr Trimarchi's mention of it is only likely to have flagged in Mr Hinds' mind an earlier recollection that Ms Sutherland had mentioned something similar. 159 In Mr Hinds' case the appropriate conclusions are therefore that Mr Hinds: (a) was a pensioner in receipt of Centrelink benefits; (b) had limited education; (c) wanted to buy a ticket to the Philippines; (d) did not understand that the effect of the business loan declaration would be to deprive him of certain rights under the Code at the times that he spoke to Ms Sutherland and Ms Youssef; and (e) did, however, understand this at the time that it was later explained to him by Mr Trimarchi and nevertheless went through with the transaction. Consequently I conclude that even if Mr Hinds had understood when he spoke to Ms Sutherland that he was potentially giving up his rights under the Code he would nevertheless have proceeded with the transaction. 160 In relation to ALC I conclude that: (a) Ms Sutherland was aware that it was most unlikely that Mr Hinds' loan was a business loan; (b) Ms Youssef was not aware of this; and (c) Ms Sutherland and Ms Youssef would have appreciated that Mr Hinds had no idea what the legal significance of that loan being designated a business loan was.

(e) Mr McIlwraith 161 The first loan to Mr McIlwraith is not in dispute. Accordingly, I commence with the second loan of $11,000. The purposes to which the loan was to be put were: (a) to tidy up the land at Yarras probably by clearing it, repairing the fences and buying some corrugated iron to stop the leaking in the shanty; (b) to send his ex-girlfriend back to Japan; (c) to provide her with a residential bond in the meantime; and (d) to live on. 162 Prior to the breakup with his ex-girlfriend Mr McIlwraith certainly lived, at least some of the time, in the dwelling at Yarras. After the breakup he decided to sell it and to return to his mother's house. At this time the dwelling on the land was uninhabitable. I draw that conclusion because of Mr McIlwraith's testimony that the roof leaked and, more importantly, from the fact that at this time he was living in his car when on the land. I do not think he was there all of the time; it is apparent from his testimony that he was travelling with some frequency to his mother's house. The most likely conclusion, and the one which I draw, is that he ceased to reside on the land at about the time that he broke up with his girlfriend and that his presence on it thereafter was not in the nature of residence. Although Mr McIlwraith testified that he stayed part of the time at the Star Hotel, I find he slept mostly in his car. He was doing this to aid in his endeavours to sell the land. It was after that time that he decided to seek the $11,000 loan. The critical matter is the moneys he was spending on the property were being spent on a property which was not, by then if ever, residential. 163 The proceeds of the second loan came to $9,243.50. I am unable to determine how that money was split between the four purposes I have set out above. In particular, I am unable to conclude that the amount spent on living expenses accounted for more than half. Consequently I cannot conclude that the loan was not a business loan. 164 There then arises the issue of how Mr Riotto understood the transaction. As I have already said I do not doubt that Mr Riotto understood within moments of talking to Mr McIlwraith that he was suffering from a significant degree of mental impairment. I do not accept the submission made on Mr Riotto's behalf that Mr McIlwraith might have appeared reasonably clear thinking or that the difficulties were not obvious. Mr Riotto's failure to give evidence about this matter - which was directly raised as part of ASIC's case - allows me more comfortably to draw that conclusion which I do. 165 I find that Mr McIlwraith told Mr Riotto that his purposes in seeking the loan were getting an airline ticket for his ex-girlfriend, fixing up the land at Yarras and providing his ex-girlfriend with a bond. I do not think that Mr McIlwraith told Mr Riotto that he wanted to live off the loan proceeds. He did not say that he did and I do not think that he would so candidly explain that he wished to spend the loan on day-to-day expenses. 166 Finally, whether the loan was for business purposes or not I still think that Mr McIlwraith would nevertheless have proceeded with the loan even he had understood the significance of signing the business purposes declaration. He was planning to sell the land and there was essentially no other way for him to get the funds which he needed. He would have proceeded with the loan because he had no choice. 167 I turn then to the third loan of $5,000. Mr McIlwraith's evidence was that he told Mr Riotto that this money was to be used to get by on. I accept this evidence for reasons I have already given at [100]. It is apparent that the documentation was then carried into effect by Ms Youssef for the file for the loan at the relevant times bears her initials. There is another document on the file which relates to the application. It is not clear who prepared it but it describes the loan thus: 'Client needs extra 5K to complete the Property Is on the market to be sold' [sic]. 168 This written record contradicts Mr McIlwraith's evidence about what he told Mr Riotto. It is capable of suggesting that Mr McIlwraith did not speak to Mr Riotto but this was not put to him in cross-examination. I do not think I should proceed on the basis that the discussion was not with Mr Riotto. Accepting that, it is also capable of demonstrating that what Mr McIlwraith had asked Mr Riotto for was a loan 'to complete the property' but this was not put to him either. At [99] above I have rejected the notion that this $5,000 related to advertising. 169 There are, therefore, difficulties resolving the contradiction between this document and Mr McIlwraith's testimony. It would be open to me to conclude that Mr McIlwraith's recollection is incorrect; it would also be open to me to conclude that the document was created by Mr Riotto entering incorrect information in the system. There are matters which support both views: Mr McIlwraith accepted his memory was not good; but there is also material which suggests that the records kept in the Money Maker system may not be reliable. 170 The records for Mrs Polimeni record a 'small business venture' which I am quite certain Mrs Polimeni never mentioned. I am equally confident that Ms James never mentioned the start-up business which she is recorded to have requested in her Money Maker file. Of course, Mr Riotto was not responsible for those entries. But he was most likely responsible for the entry for Mr McIlwraith's loan of $11,000 which is itself an interesting document. It records: We have a few different solutions long term loan with liberty or Latrobe Client has ask for a short term loan so he clean up the investment property and he will then sell it. He is ABN registered under his name, once the property is cleared it will go on the market interest is to be capitalised. [sic] 171 There are three things wrong with this. I am confident Mr McIlwraith never referred to the property as an investment property in his discussions with Mr Riotto. I am certain he never mentioned his ABN registration. Mr Riotto's source for that information was evidently an ABN search which was placed on Mr McIlwraith's file but it had no relevance to this transaction. The reference to it in Mr McIlwraith's file is self-serving and justificatory. Nor do I accept that Mr McIlwraith told Mr Riotto, as Mr Riotto's note suggests, that once the property was cleared it would be put on the market. One thing Mr McIlwraith was clear about - and which I accept - is that the property was on the market before he approached Mr Riotto for either the $11,000 or the $5,000 loan. 172 For that reason I regard the documentary records of ALC and SLC, in general, with some scepticism. Returning to the document in question - the entry for the third loan of $5,000 - I would have been assisted by Mr Riotto's testimony. His failing to give evidence more readily allows me to accept the correctness of Mr McIlwraith's evidence that he said the money was to live on than the veracity of the file entry in Money Maker. 173 For those reasons, I accept that Mr McIlwraith told Mr Riotto that he wanted the $5,000 to live on. He said nothing about completing the property.

IV. ASIC's case as to the Polimenis 174 ASIC asserted three distinct cases arising from ALC's dealings with Mr and Mrs Polimeni. First, it contended that it was unconscionable for ALC to get the Polimenis to sign up for what was ostensibly a business loan when they had no idea what the consequences of that proposition were and where ALC must have suspected that this was so. Allied to this was the submission that the Polimenis were financially distressed to the knowledge of ALC. Secondly, it was said that ALC had misled the Polimenis by sending them a letter which purported to be an offer of a loan from an undisclosed lender when no such offer had been received by ALC. Thirdly, ASIC alleged that ALC had misled the lender - Mr Carnovale's company, Ginelle - by telling him that Mr and Mrs Polimeni's loan was predominantly for business purposes when, in truth, it was not. Before dealing with these issues it is necessary to resolve a preliminary issue concerning the concept of 'financial services'.

(a) 'Financial services' and unadvanced loans 175 All of ASIC's claims to relief turn upon particular provisions of the ASIC Act. The relevant statutory provisions are set out in the Schedule to these reasons. Each of these provisions (ss 12CA, 12CB, 12DA and 12DB) proscribes unconscionable or misleading conduct of various kinds. In each case, however, the proscribed conduct is either required to be 'in relation to financial services' (ss 12CA and 12DA) or 'in connection with the supply or possible supply of financial services' (ss 12CB and 12DB). ALC submitted that these provisions could not apply to it because no loan had ever been provided to the Polimenis since the transaction had collapsed after Mrs Polimeni saw Mr Bennett. This followed, so the argument ran, because the definition of the concept of providing a financial service (in s 12BAB), whilst complex, was in each case dependent on the presence of a 'financial product'. It was true that the definition of 'financial product' in s 12BAA(7)(k) included a credit facility and that any loan which had ultimately been extended to the Polimenis would have been such a facility; but it did not follow, so Mr Newlinds SC submitted, that a loan which had not been extended could be said to be such a facility. 176 I do not think this submission should be accepted. It is apparent from the way in which the expression 'financial product' is used in s 12BAB (which defines the concept of 'provide a financial service') that the products involved include not only those which presently exist but also those which will in the future exist. For example, s 12BAB(8) makes clear that arranging for a person to apply for, or acquire, a financial product will be 'dealing' in the financial product and by reason of s 12BAB(1)(b) that, in turn, will be the provision of a financial service. ASIC's pleaded case in relation to the Polimenis did not rely directly upon s 12BAB(1)(b) although it was put during final submissions. The point for present purposes is not to embrace a case not pleaded; it is instead merely to observe that the submission that a financial product cannot be inchoate cannot be reconciled with the text of s 12BAB(8). 177 ALC submitted that this conclusion put at nought the words 'or possible supply' in ss 12CB and 12DB. Here the argument was that if 'financial product' extended to inchoate financial products those words would be otiose. 178 With that proposition I agree. There exists therefore a conflict between two principles of statutory interpretation: the first, the necessity of construing 'financial product' coherently and uniformly throughout s 12BAB; the second, the need to ensure, so far as possible, that the words 'or possible supply' in ss 12CB and 12DB have some work to do. In this case it is more likely Parliament's intention that the words 'or possible supply' are surplusage than it is that ss 12CA and 12DA - central principal provisions dealing with unconscionable and misleading conduct - were not intended to apply to any conduct unless it related to an actual and extant financial product. 179 It follows that I reject ALC's submission. I accept, therefore, ASIC's pleaded case that ALC was providing a financial service because it was providing 'financial product advice' (s 12BAB(1)(a)) and also providing 'a service that is otherwise supplied in relation to a financial product' (s 12BAB(1)(g)). As to the former, 'financial product advice' is defined in s 12BAB(5) to mean 'a recommendation or a statement of opinion, or a report of either of those things, that: (a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products…'. The letter of 7 February 2008 which was sent by ALC to the Polimenis as a retainer letter commenced with the words: 'We advise that your application for finance has been approved…'. This, so it seems to me, was a statement of opinion viz the (incorrect) opinion that finance had been approved. I have no doubt that that statement of opinion was 'intended to influence' the Polimenis 'in making a decision in relation to' a loan. Consequently, the letter was financial product advice within the meaning of s 12BAB(5) and hence ALC provided a financial service to the Polimenis within the meaning of s 12BAB(1)(a). 180 Each of the provisions relied upon by ASIC - ss 12CA and 12CB - is, in principle, capable of being engaged.

(b) Unconscionable conduct - special disadvantage and the business loan declaration 181 I turn first to ASIC's case under s 12CA which relevantly prohibits a person from engaging 'in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories'. 182 The case was advanced on the basis that the Polimenis were labouring under a special disadvantage which the facts known to ALC would have caused it, or a reasonable person in its position, to suspect. What was the special disadvantage? In relation to Mrs Polimeni it was said to be the fact that she had only one source of income, that she had a limited grasp of English, that she was in financial need and had difficulties in paying outstanding credit card debts and did not know, or appreciate, the consequences of the loan being for business purposes. In fact, Mrs Polimeni can speak English quite competently and her sources of income include not just herself but also her husband. Together their combined income is a little shy of $100,000. It follows that the relevant special disabilities are only her financial distress arising from her credit cards and her inability to understand the business loan declaration. I deal with the issues arising from the credit cards below when I consider Mrs Polimeni's individual circumstances in the context of special disability. I will turn first to consider the business loan aspect of the matter. In the meantime, it is useful to consider the relevant principles. 183 'It goes almost without saying' according to Mason J in Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 at 461 'that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct'. But the list compiled by Fullager J in Blomley v Ryan (1956) 99 CLR 362 at 405 usually features, at least as a point of departure, in discussions of the present kind: the circumstances include 'poverty or need of any kind, sickness, age, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary'. 184 But it is not these conditions by themselves which enliven equity's concern in relation to unconscientious bargains. It is rather where a person in such a circumstance 'is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created': Amadio at 462 per Mason J. In this context, a disadvantage is not special merely because it reflects a difference in relative bargaining position; what is necessary is that the disabling 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' (Amadio at 462 per Mason J). 185 Mrs Polimeni did not know what the significance of the loan being designated as a business loan was. In particular she did not know of the operation of s 11 of the former Code. Under the provisions of s 11(2) the declaration by a debtor that the credit was to be applied wholly or predominantly for business or investment purposes created a 'conclusive' presumption that the loan would not be subject to the rigours of the Code subject only to one matter. That matter was that in any proceedings it remained open to the debtor to seek to prove that the credit provider 'knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes': s 11(3). 186 What were the rigours of the Code? The Code applied, relevantly, only to contracts with natural persons when the credit was intended to be provided 'wholly or predominantly for personal, domestic or household purposes': s 6(1). Once the Code applied it had at least the following effects which might be relevant to this case: first, it prohibited, by s 27, any requirement that interest be paid before it was due (which, I should say, only became a feature of the proposed loan to the Polimenis after the letters of 7 February 2008); secondly, it prevented the charging of default interest on the whole of the balance of the loan limiting the right to charge default interest to those amounts which were in default: s 28; thirdly, it gave the debtor a statutory right to apply to the creditor for changes in the contract because of hardship: ss 66-67; fourthly, it conferred on the debtor a right to apply for a review of an interest charge on the basis that it was 'unconscionable': s 72. In addition, requirements were placed on ALC's brokering contract by the terms of the Consumer Credit Administration Act 1995 (NSW). In particular, this legislation prevented ALC from charging any commission at all unless the requirements of s 4C had been complied with. Those included requirements that the brokering contract set out the amount of the credit, the interest rate, the repayment arrangements acceptable to the client (if the credit was not intended to be repaid at regular intervals) and a statement (in the form prescribed by the regulations) that the finance broker's recommendation would be drawn from a range of potential lenders which did not necessarily include all lenders offering consumer credit. 187 Obviously enough, none of this was known to Mrs Polimeni. ASIC's primary case was that by signing the two letters Mrs (and Mr) Polimeni had given away their right to have the régime I have just described apply to the loan and the brokering contract. 188 There are some conceptual difficulties with this which proceed from the operation of s 11 of the Code. Section 11(2) could indeed give rise to a rebuttable presumption as to the Code's inapplicability where a business loan declaration has been executed. But by s 11(4) before that could occur, the declaration had to be in the form prescribed by the regulations and would be 'ineffective for the purposes of this section if it is not'. Section 6 of the Consumer Credit (New South Wales) Act 1995 (NSW) ('the NSW Act') provided that the regulations in force under Part 4 of the Consumer Credit (Queensland) Act 1994 (QLD) applied as regulations in force for the purposes of the NSW Act and could be referred to as the Consumer Credit (New South Wales) Regulations. Clause 10 of the Consumer Credit Regulation 1995 (QLD) (and hence cl 10 of the fictional Consumer Credit (New South Wales) Regulations) provided: (1) For the purposes of section 11 of the Code, the form of the declaration is as follows- 'I/We declare that the credit to be provided to me/us by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes).'. (2) The declaration is to contain (immediately below the above words or, if the declaration is to be made by electronic communication, prominently displayed when (but not after) the person signs) a warning in the following form - IMPORTANT You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code. (3) The declaration is to contain- (a) the signature of each person making the declaration; and (b) either the date on which the declaration is signed or the date on which it is received by the credit provider. [Emphasis in original.] 189 By contrast, the two documents signed by the Polimenis touched on the topic of business loans only very briefly. The loan offer letter contained this statement: Loan Purpose: You have informed us that the loan is wholly or predominantly for business or investment purposes. The retainer letter contained this statement: You also understand that by declaring that this loan is for business or investment purposes, you may lose your protection under the Consumer Credit Code. 190 The documents contained no other reference to the topic. They certainly did not contain the boxed notice required by cl 10. It follows that neither the letter by which the Polimenis retained ALC as their finance broker nor the loan offer letter could be a declaration to which s 11 of the Act could apply. 191 The situation then seems to be this: Mrs Polimeni never signed a business loan declaration for the purposes of s 11(2) of the Code so that her act of signing the loan offer letter and brokerage letter did not have the effect of enlivening s 11(2). ASIC's primary case was that it was unconscientious for ALC to get Mrs Polimeni to give away her rights under the Code when she did not understand what those rights were. But, so it seems to me, obtaining Mrs Polimeni's signature on the two letters in question had no such consequence. 192 ASIC did, however, have a second version of this argument. True it was that s 11(2) had never been enlivened but it was necessary to take account of what had been offered under the brokering contract. If that contract were accepted by the Polimenis they became exposed to the potential risk that they would be saddled with a business loan without the protections of the Code. Because the brokering contract provided for a substantial termination fee in practical terms this meant that it would be very difficult for them to back out of the contract. There was therefore an increased risk that they would be forced into a loan in which they ran a risk that they would lose their protections under the Code. 193 To this an objection may be raised. Because the loan was not for business purposes the fact is that the Code applied with the inevitable consequence that ALC was not entitled to charge for any commission under the brokering contract. So viewed, the fact that the Polimenis signed the brokerage letter was itself of no effect for it did not cause them to be exposed to any more legal obligations than if they had not signed it. This argument, however, focuses too much on the legal and insufficiently on the practical. The realities of the situation were that the clause in the letter granting to ALC a charge to protect its entitlement to its commission combined with its express right to lodge a caveat to protect that security interest meant that the letter had real practical consequences. To have the caveat removed it would be necessary to pay the money secured under protest or embark upon the potentially perilous course of issuing a lapsing notice under s 74J of the Real Property Act 1900 (NSW). In that context, the fact that the provision authorising ALC to charge commission was unenforceable would be of little immediate comfort. In that circumstance, I accept that providing the brokerage letter to the Polimenis did expose them to a real detriment and further that it achieved that result by exploiting Mr and Mrs Polimeni's ignorance of the operation of the Code. 194 In that circumstance, I accept the second variant of ASIC's special disadvantage case in relation to the business purpose of the loan. A breach of s 12CA is established. For reasons I give below at [199] I also accept that this conduct was a breach of s 12CB.

(c) Unconscionable conduct - asset lending 195 ASIC opened its case on the basis that ALC had engaged in the practice known as 'asset lending' and that this was also unconscionable. It did not, however, pursue that case in relation to the Polimenis in its closing submissions.

(d) Unconscionable conduct - personal circumstances 196 The third basis upon which ASIC placed its unconscionability claim was that it was unconscionable to get Mr and Mrs Polimeni to sign the two letters in circumstances where ALC knew they were in financial need and had difficulties in paying outstanding credit card debts. 197 The question is whether the financial distress caused by having three credit card accounts drawn to their maximum with no obvious way of paying them down is a circumstance which, to use the words of Mason J, 'seriously affects the ability of the innocent party to make a judgment as to his own best interests' (Amadio at 462 per Mason J). I have no doubt that that circumstance made Mrs Polimeni enthusiastic to conclude the transaction but I do not think that it affected her ability to make a judgment as to her own best interests. In that last regard it should be noted that I do not think that her educational level or her job as a packer prevented her from understanding the transaction. It follows that I do not accept that the Polimenis' financial distress constituted a special disability which was exploited by ALC. It was not, therefore, unconscionable within the meaning of s 12CA. 198 There remains a question, however, of whether the same conduct might be characterised as conduct that 'is, in all circumstances, unconscionable': s 12CB(1) of the ASIC Act. It was not in dispute that the concept of unconscionability disclosed in s 12CB is not constrained by common law or equitable notions. There is no reason to think it any narrower in its operation than s 12CC, which deals with unconscionable conduct in business transactions. In Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 2) (2009) 253 ALR 324 at 347 Foster J thought that in the context of a provision such as s 12CB 'the expression requires that the actions of the alleged contravenor show no regard for conscience, and be irreconcilable with what is right or reasonable. Inevitably, the expression imports a pejorative moral judgment'. Section 12CB(2) sets out a non-exhaustive list of matters which may be taken into account in assessing that issue. They are: (a) the relative strengths of the bargaining positions of the supplier and the consumer; and (b) whether, as a result of conduct engaged in by the supplier, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the consumer was able to understand any documents relating to the supply or possible supply of the services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the services; and (e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent services from a person other than the supplier. 199 In my opinion, it is not, without more, unconscionable to offer to arrange a loan for a person who is financially distressed. But where, as here, that offer contains within it an attempt to lock the client into a business loan arrangement and thereby inappropriately increase the risk of the Code's non-application the conduct involved may properly be described as involving an unfair tactic. A breach of s 12CB is established.

(e) Misleading and deceptive conduct - whether loan offer misleading 200 I turn then to the more straightforward claims relating to misleading and deceptive conduct. The first claim is that the apparent letter of offer for finance was misleading because it suggested that a loan offer had been received when, in truth, it had not. ALC accepted that it had not received a loan offer when this letter was sent to Mrs Polimeni. The only debate, therefore, is whether the letter conveyed that ALC had indeed received such an offer. Mr Newlinds SC said, I think, all that could possibly be said in defence of this argument but it seems to me to have been a vain travail. The letter contained, so far as is relevant, the following statements: We advise that the application for finance detailed below has been approved subject to a valuation satisfactory to the Lender. The following are the terms and conditions which attach to the approval: … Interest Rate: 16.5% per annum ("lower rate")… The Lender reserves the right to vary the higher rate and the lower rate at any time prior to acceptance of the terms of this letter. Lender's Charge and Caveat in relation to Fees & Expenses The borrower, in signing this letter of offer, grants to the Lender a charge over the security property…

201 Mr Newlinds SC submitted that the first sentence referred to an offer by ALC but that cannot be reconciled with the later passages: whoever the Lender was it was not the 'we' appearing in the first line. This letter plainly appeared to be an offer from a lender. Its sending to Mr and Mrs Polimeni was conduct in relation to financial services which was misleading and deceptive. A breach of s 12DA(1) of the ASIC Act is established. ASIC also pursued a case based on s 12DB(1) which deals with a number of examples of misleading and deceptive conduct. No particular item was nominated by ASIC and, so far as I can see, none of them is apposite. I do not, in that circumstance, find a breach of s 12DB(1).

(f) Misleading and deceptive conduct - whether misleading behaviour towards lender 202 The second misleading and deceptive conduct case was said to consist of a representation made by ALC to the proposed lender, Ginelle, through its director Mr Carnovale that the Polimenis' loan was for business purposes when it was not. I accept, based upon Mr Carnovale's testimony, that ALC was well aware that Mr Carnovale was expecting only to receive offers of business loans. Consequently, if ALC knew that the loan to Mrs Polimeni was not for such purposes it would be expected in ordinary discourse to warn him of this fact. It did not do so wherein the result is that its conduct misled Mr Carnovale into believing that the loan was for business purposes. Since I have concluded that the loan was not in fact for such purposes this was misleading and contrary to s 12DA. Section 12DB(1)(e) prohibits false or misleading statements that services have 'performance characteristics, uses or benefits'. In this case the Polimenis' proposed loan did not have the 'performance characteristics' of being a business loan. Accordingly, a breach of s 12DB(1)(e) is also established.

(a) Unconscionable conduct - special disadvantage and the business loan declaration 203 Ms James has in common with the Polimenis the fact that her loan did not proceed. More particularly, Ms James never signed a declaration (within the meaning of the regulations) that the loan was for a business purpose. Such a document was sent to her by Morabito Legal but Ms James never signed it. Consequently, as in the case of the Polimenis, s 11(2) of the Code has never had any effect upon her. However, for the reasons I have given in the case of the Polimenis I do accept that ALC did exploit Ms James' non-comprehension of the potential significance of business loans on the operation of the Code and thereby exposed her to the risk of being compelled to meet ALC's commission by means of the operation of the charging and caveat clauses. I conclude that this was the exploitation of a special disadvantage and hence that ASIC has established a breach of ss 12CA and 12CB.

(b) Unconscionable conduct - asset lending 204 ASIC's second unconscionability claim in relation to Ms James concerned what Mr Cook termed 'asset lending'. It was alleged that Ms James had no capacity to meet the repayments on the loan and that the loan had no identified exit strategy. The inevitable result would be, so the argument ran, that she would default and that the equity she had in her property would be consumed. 205 In the case of Ms James some care is required in identifying just how ASIC puts its case. The claim pleaded is that the unconscionable conduct occurred at the time that ALC secured Ms James' acceptance of its broking contract and the purported loan offer. At that time, it is not disputed that there was no loan contract in existence. It is not correct to say, therefore, that ALC could have engaged in asset lending. What ALC had engaged in, if ASIC's allegations be made good, was obtaining Ms James' consent to a brokering contract under which it promised to arrange a loan which, if completed, might be characterised as an example of asset lending and getting Ms James, at the same time, to make an offer to agree to such a loan. So viewed, the question Ms James' case gives rise to is not whether asset lending is unconscionable but whether arranging an asset lending transaction is unconscionable. 206 Plainly, these two questions are related. It would not generally be relevantly unconscionable for a broker to arrange a loan whose advance by a lender was not itself unconscionable. It follows that it is useful, although not determinative, to assess whether the loan which ALC undertook to arrange by the retainer letter of 23 July 2008, would have been unconscionable based on what ALC knew of Ms James' circumstances. 207 The critical features are this: what was proposed was a loan of $120,000 which would carry an interest rate of 13% per annum. It would be secured by a first mortgage. The loan was to be of one year's duration and the interest was to be prepaid. Ms James had no capacity to pay that interest in a prepaid form which amounted to a lump sum of $15,600. It was therefore inevitable that the interest would need to be deducted from the loan proceeds. At that time Ms James owed Liberty $70,900 which was secured by a first mortgage. The materials available to ALC indicated that her property was worth $280,000 so that Ms James' available equity was $209,100. In order to make way for a first mortgage with ALC the two letters of 23 July 2008 contemplated that it would be necessary for Liberty to be paid out. Consequently, there would be deducted from the $120,000 not only the $15,600 due to the proposed lender in prepaid interest and ALC's own brokerage fee of $5,000 but Liberty's loan of $70,900. Leaving aside all questions of the lender's costs as incoming mortgagee, Liberty's costs as outgoing mortgagee and the additional fees and charges described in the two letters it was inevitable, on that which was known to ALC, that Ms James would receive no more than $28,500 ($120,000 - $70,900 - $15,600 - $5,000). In the documents subsequently prepared, this was amended to provide for a loan of $120,000 at 13.30% per annum secured by second mortgage. The Authority to Draw Funds which was prepared described Ms James as receiving $95,491 from the loan in cash, with nothing paid to Liberty. 208 Of course, all that Ms James had wanted to do was to refinance her credit card debt, believed by her to be about $20,000, on to her home loan. The transaction described above would have left her with an obligation to pay $120,000 in one year's time with the immediate cash receipt of about $8,000 remaining from the net $28,500 raised after paying off the credit card debt of $20,000 or, in the documents subsequently prepared, with some $75,491. Where would a woman in Ms James' position find $120,000 in a single year? The only answer can be that she would have to borrow it. Although her monthly income of $3,927 would remain free of any obligation to make loan repayments for the year (due to the interest having been prepaid) this still left her with an annual disposable income of $47,100 and three children (even assuming she kept her job). 209 The effect of the proposed loan was therefore to transmute $20,000 of the equity in Ms James' home into $15,600 of interest in the hands of the proposed lender and $5,000 in the form of ALC's brokerage fees. The only way in which the loan could thereafter be repaid was by way of a refinancing of the whole amount. Significantly, this was not a loan which might be described as being incidental to some larger purpose having some economic rationality (as, for example, bridging finance might be characterised). What was proposed instead was descent down a slippery slope as a result of which, for little benefit and almost certain ruin, Ms James' equity in her residential home would be rapidly consumed. Viewed through that lens it will be apparent that Ms James' capacity to meet the loan obligations was not relevant to ALC's analysis. All that mattered from its perspective was that she had sufficient equity in her home to ensure that there could be a refinancing by some other later financier. 210 Speaking in the context of whether a contract of loan was 'unjust' within the meaning of s 7(1) of the Contracts Review Act 1980 (NSW) Spigelman CJ (with whom Basten and Handley JJA agreed) was moved to remark in Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 at [83]: On the information actually available to the Appellant, a husband and wife - one with a $43,000 per annum income and the other a pensioner - borrowed $120,000 for, as far as the Appellant cared to know, immediate expenditure. Enforcing a security against the personal residence of such borrowers should not be treated as if it were the first resort. That is what, on paper, the Appellant can be described as having done. Indeed, Basten JA went further (at [128]): To engage in pure asset lending, namely to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default, is to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests, for the purpose of, for example, s 9(2)(e) or (f). That does not mean that the Act will permit intervention merely where the borrower has been foolish, gullible or greedy. Something more is required: see Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491 (Handley JA) cited with approval in [Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413] at [77] by Beazley, JA. 211 Beazley JA earlier had reached the view that such a lending practice was unconscientious within the principles established in Amadio. In Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 her Honour thought (at [59]) that 'it was unconscientious for the respondent to lend a large sum of money to a person with no income with full knowledge that if the repayments under the loan were not met, it could sell that person's only asset'. Santow JA and Campbell AJA agreed. 212 In that circumstance, I am bound to accept that if a loan was advanced to Ms James with knowledge that she would be unable to meet the repayments and that her home would be lost then this would be unconscionable within Amadio and hence within s 12CA of the ASIC Act. In this case, the loan as a matter of formality had no ongoing repayments which Ms James would be able to fail to meet for the interest was prepaid. What there was instead was a monthly prepaid interest bill of $1,300. The critical question then, so it seems to me, is whether Ms James could have serviced the loan. This is because the reasoning in both Elkofairi and Khoshaba depends on the inability of the borrower to meet the repayments and the inevitability, therefore, of default and recourse to the security. I accept that a loan which cannot be serviced and in respect of which default is inevitable may not be disguised by making an unaffordable interest bill prepaid and thereafter deducted from the initial loan proceeds. Attention must therefore be focussed on whether the loan would inevitably have led to default if the interest had not been prepaid. 213 The evidence does not directly establish either that Ms James would have been unable to service interest only repayments of $1,300 per month or that ALC, through Ms Naidoo, should have been aware of this. It does establish that ALC knew that the loan was to refinance existing credit card debt. 214 The material available to ALC indicated that Ms James' monthly debt servicing obligations were $865; that is, an annual charge of $10,380. This obligation was being replaced by an annual obligation of $15,600 (as opposed to $10,380) or a monthly obligation of $1,300 (as opposed to $865). 215 The critical question is whether $435 per month (the difference between $1,300 and $865) was something that would inevitably have driven Ms James into default and whether, assuming that it was, this was something that a person in Ms Naidoo's position should have appreciated. As to the first question, Ms James' evidence was that she was in trouble with her credit cards from which I infer she was having difficulty in meeting the scheduled repayments. As a matter of fact I am prepared to conclude that she was having difficulty servicing $865 per month and that she would have no chance of servicing $1,300 per month (or its annual equivalent). As to the second question, matters are not so clear. The evidence did not establish that ALC or Ms Naidoo was aware that Ms James was in difficulty with her credit cards. To Ms Naidoo's and ALC's knowledge Ms James' income was made up as follows: Income Type Amount Child Support $1,029 FTB - Part A (net) $551 Parenting Payment Single $1,144 Pharmaceutical Allowance $13 Pension Basic Supplement $41 FTB - Part B (net) $189 Large Family Supplement $22 Salary (Gross) 1st Job $938 Total: $3,925

[The total is in error and should be $3,927.] 216 They also knew she was responsible for three children. With only that knowledge I am unable to say that Ms Naidoo should have realised that Ms James would inevitably have been unable to pay $1,300 per month in loan repayments. So far as Ms Naidoo knew Ms James could service $865 per month. I have considered whether I may nevertheless draw the conclusion that $1,300 per month was beyond Ms James' capacity by an alternate path. The proposed repayments would have represented 33% of Ms James' gross income and, I am prepared to assume, maybe 40% of her net income. But, even assuming that, I am unable to conclude from those ratios that Ms Naidoo should have perceived inevitable default. Nor is there sufficient information for me to judge whether the cost of living for a household of four should have led to the same conclusion. 217 In those circumstances I cannot conclude Ms Naidoo or ALC were aware that Ms James would inevitably have defaulted if the interest had not been prepaid on the proposed loan. That conclusion takes it outside Elkofairi. Further, once that is appreciated it is difficult to describe the proposed loan as unconscionable within Amadio. This was not a transaction in which ALC must have known that Ms James' equity was simply being accessed. 218 Would the proposed loan have been unconscionable within the meaning of s 12CB? Here it seems to me the relevant issue is moral turpitude. But again, if it be not shown that the $1,300 per month was known by ALC to be beyond Ms James' ability to service then the only difficulty lies in the fact that the interest was prepaid. This, however, was not ASIC's case. 219 It follows that I do not accept that the loan transaction proposed by ALC to Ms James would have been unconscionable either under the general law or under s 12CB. Subject to ASIC's third unconscionability claim, I do not think it was unconscionable for ALC to offer to arrange such a loan.

(c) Unconscionable conduct - personal circumstances 220 ASIC's third claim turned upon the other personal circumstances of Ms James: her single source of modest income, her status as a single mother with three dependent children and her financial need and difficulties in meeting her credit card debts. ASIC did not pursue a case of special disadvantage based upon Ms James' lack of sophistication. Further, whilst I accept that Ms James was experiencing difficulties in meeting her credit card debts I do not believe that it has been established that ALC was aware of this. That being so the special disability case consists only of her status as a single mother with a modest income and three dependent children. I do not think those circumstances robbed Ms James of an ability to understand what was in her own best interests. No doubt the circumstances were difficult, but difficulty by itself does not constitute a special disadvantage.

(d) Misleading and deceptive conduct 221 So far as the two misleading and deceptive conduct cases are concerned they are to be resolved in the same way they have been in the case of the Polimenis: as to the former the letter of offer sent to Ms James was misleading. As to the latter, Ms James sought, to Ms Naidoo's knowledge, a refinancing of her credit card debt which was not a business loan. It was misleading to present to Mr Hundsdorfer and Avahlon Ms James as a customer seeking a business loan when she was no such thing.

(a) Unconscionable conduct - special disadvantage and the business loan declaration 222 ASIC pursued the same three unconscionability cases in relation to Mr and Mrs Alptekin. As to the first, in my opinion it was unconscionable for SLC to have persuaded Mrs Alptekin (through Mr Alptekin) to sign the brokerage letter, the loan offer letter and the business loan declaration when both Mr Riotto and Ms Lazaris knew that neither Mr nor Mrs Alptekin had any idea what the consequences of signing the declaration were. The facts to make good that allegation are, as I have found, established. 223 This, on its face, was a clear case of unconscionable conduct within equitable principles. The Alptekins did not appreciate the protections to which they were entitled and they had no idea that signing the business loan declaration increased the chances of the lender (here Mr Riotto's company, AMR) successfully avoiding the protections afforded by the Code. Further, this was a matter understood by Mr Riotto and Ms Lazaris and suspected by them of not being understood by Mr Alptekin. The transaction was exploitative of the demonstrable inability of Mr Alptekin to understand the legal significance of what he was doing. That lack of comprehension on Mr Alptekin's part and the need for explanation which arose as a result made this a case where there was, as Fullager J put it in Blomley, a 'lack of assistance or explanation where assistance or explanation is necessary'. Further, it was one which seriously affected Mr Alptekin's ability to make a judgment as to his own best interests. 224 Against this conclusion Mr Newlinds SC advanced two submissions. The first was that Mr Alptekin was sufficiently financially sophisticated that any special disadvantage should be seen not to arise. The basis for that submission was evidence given by Mr Alptekin that later in the same year - October in fact - Mr Alptekin had again approached SLC for another loan which had resulted in another finance offer. Mr Newlinds SC's point was that Mr Alptekin had rejected SLC's offer because he had found a superior interest rate elsewhere through his own efforts. So viewed, it followed that if he was sufficiently sophisticated to grasp the financial significance of an interest rate difference between the loans it must be the case - and this last step was left, perhaps understandably, implied in Mr Newlinds SC's argument - that he could understand the significance of signing a business loan declaration under the Code. 225 I do not think that this argument should be accepted. The loan offer in question was an offer to obtain a loan to refinance the whole of the Alptekins' loan on the apartment ($226,000). It was not expressed to be a business loan; it was an offer for a straightforward home loan. I do not think that Mr Alptekin's ability to grasp that the current rate he was paying the National Australia Bank (which was 7%) was much less than SLC's offer of 10.75% throws any light on his ability to understand the significance of the business loan declaration under the Code. 226 The second argument relied upon the fact that Mr Alptekin had ultimately been successful in asserting his rights under the Code so that the special disadvantage, even if exploited, had not resulted in any harm to the Alptekins. I do not accept this argument either. It is true that despite the loan apparently ballooning out to $18,000 at one point SLC eventually settled for $4,000 but this was only after it had sued the Alptekins in the Supreme Court and forced them to cross-claim. This must have been a stressful occasion for them, more so when the amount they had originally borrowed to pay the strata levies and fix the kitchen was so trivial in comparison to the size of their home loan. If one adds to that Mr Alptekin's lack of a full time job, his physical injuries, Mrs Alptekin's health issues and their three young children then one sees that to say that the Alptekins' rights were not ultimately effected is a distinctly hollow proposition. I reject it. I therefore also reject a related argument that the signing of the business loan declaration did not deprive the Alptekins of their rights under the Code. This argument works by observing that a declaration under s 11(2) of the Code is not conclusive insofar as the matters in s 11(3) are concerned. Under its terms the declaration is not conclusive 'if the credit provider… knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes'. Accordingly, on this view of things, the Alptekins still had the right to seek to show that SLC was aware that the loan was a personal loan even after Mrs Alptekin had signed the declaration. 227 I cannot accept this argument either. Without the declaration having been signed the matter was governed by s 11(1) which had strong procedural consequences: 'In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established'. Consequently, what occurred upon Mrs Alptekin signing the declaration was that in any proceedings about the loan it was not for SLC to prove it was not a loan to which the Code applied but rather for the Alptekins to prove it was. This was the loss of an important procedural protection. I do not accept, therefore, that it can be said that the Alptekins were not affected by signing the declaration. 228 Accordingly ASIC is entitled to succeed on its first unconscionability claim under s 12CA(1): the conduct of SLC in obtaining Mrs Alptekin's signature on the business loan declaration was unconscionable within the meaning of the unwritten law. Largely for the same reasons the same conduct was a breach of s 12CB, that is, unconscionable 'in all the circumstances'. 229 As in the case of the Polimenis I also accept that ASIC's alternative version of this claim based upon the brokerage letter and loan offer letter should succeed for the same reasons.

(b) Unconscionable conduct - asset lending 230 ASIC's second case that the loan to Mr and Mrs Alptekin was unconscionable because it was an example of asset lending cannot succeed on the facts. Mr Alptekin was expecting to receive a compensation payment which he was going to use to repay the loan. This is not a case, therefore, where the lender must have understood that default was inevitable. Indeed, the loan most closely resembles an example of bridging finance.

(c) Unconscionable conduct - personal circumstances 231 The personal circumstances upon which ASIC relied in relation to Mr Alptekin were: (a) his part-time employment due to injury; (b) his marriage to Mrs Alptekin who was unemployed and receiving Centrelink benefits; (c) his inability to understand legal documents; and (d) his financial need arising from the difficulty with the strata levies. 232 I do not accept that these matters constituted a special disadvantage. Mr Alptekin at all times remained capable of understanding the transaction (save for those aspects concerning the operation of the Code related to the business loan declaration). Apart from that matter SLC was not exploiting anything other than Mr Alptekin's understandable enthusiasm for the transaction. ASIC pursued a similar case in relation to Mrs Alptekin. It is plain that she looked to her husband and I do not think she can stand in a different situation. 233 The personal circumstances of the Alptekins do not, therefore, constitute an additional special disability beyond the matter arising from their non-comprehension of the business loan declaration. Unconscionability on this basis under s 12CA is not established. Nor do I think, if attention be confined to these personal circumstances, that it was unconscionable for SLC to deal with the Alptekins under s 12CB.

(d) Misleading and deceptive conduct 234 ASIC pursued the same two misleading and deceptive conduct cases in relation to Mr Alptekin that it had pursued in relation to Ms James and Mrs Polimeni: as to the first, the letter of loan offer of 17 June 2005 is not materially different to the loan offers in their cases and the same conclusion that it was misleading and deceptive must flow. 235 As to the second claim viz that SLC misled the lender by suggesting that the loan was a business loan when, in truth, it was a loan predominantly for personal, domestic or household use, matters are more difficult. This is because the lender was Mr Riotto's own company, AMR. Mr Cook put the matter this way: if Mr Riotto or Ms Lazaris genuinely believed the loan was for business purposes then a representation to that effect was made by SLC to AMR. The fact, however, was that loan was not for business purposes so that this representation was false albeit not deliberately so. Accordingly, SLC and Mr Riotto misrepresented the true position to AMR thereby breaching ss 12DA and 12DB(1)(c). 236 There are two difficulties with this argument. First, as a matter of fact I do not accept that Mr Riotto or Ms Lazaris had any belief that Mr Alptekin's loan was a business loan. Secondly, even if they had believed that it was it is impossible to imagine that AMR relied upon anything SLC said to it. AMR's understanding was derived from the knowledge of its director Mr Riotto. Mr Riotto's understanding of whether the loan was a business loan or not was derived from his own opinions about the matter. Mr Riotto was not swayed in the formation of that opinion by what he implicitly said to himself. Accordingly there has been no contravention of s 12DA or s 12DB.

(a) Unconscionable conduct - special disadvantage and the business loan declaration 237 As in the case of Mrs Polimeni and Ms James there is a structural difficulty with ASIC's case in relation to Mr Hinds albeit of a different kind. Mr Hinds did not sign the business loan declaration at the offices of ALC, as Mrs Alptekin had but, rather, six days later at the offices of the solicitor Mr Trimarchi. ASIC's first case that it was unconscionable to procure Mr Hinds to give away his rights under the Code by getting him to sign the declaration encounters the factual problem that this did not occur. What ALC did was to give Mr Hinds the name of a solicitor who then advised - as I have accepted - Mr Hinds of the nature of the business loan declaration. Until such time as the business loan declaration was signed none of Mr Hinds' rights under the Code were affected. I do however accept ASIC's variant on this first argument; that is, it was unconscionable to get Mr Hinds to sign the brokerage contract and loan offer letter given the terms for the same reasons given in the case of Mrs Polimeni. In that regard, breaches of ss 12CA and 12CB are established.

(b) Unconscionable conduct - asset lending 238 I turn then to ASIC's claim that it was unconscionable to arrange a loan to Mr Hinds of $8,000 because it was pure asset lending. This case was pursued against ALC as broker. I have accepted above that, in principle, the advance of a loan secured by the borrower's only asset is unconscionable when it is obvious to the lender that default is inevitable and that the security is to serve as the primary means by which the loan will be repaid. In the case of Mr Hinds the cashflows are thus: on the drawdown of the loan he received $3,604.25 which was on 17 March 2006. One year later he was required to repay $8,000. Whether it was Hayley Sutherland or Helen Youssef who took down Mr Hinds' details, what was plainly recorded in ALC's files was Mr Hinds' income of $1,200 per month which is an annual income of $14,400 or a weekly income of just under $277. The repayments would have needed to have been $154 ($8000/52). This would have left Mr Hinds with $123 per week upon which to live. The question then is whether Ms Youssef or Ms Sutherland knew that Mr Hinds had no prospects of repaying this loan. Into that question must be injected the fact that Mr Hinds lived in an unencumbered house and had no accommodation outgoings beyond charges for council rates, electricity and, perhaps, gas utilities. However, granted all these matters I do not think that Mr Hinds could have lived on such a modest sum nor do I think that Ms Youssef or Ms Sutherland would have thought that he could. I have excluded from my assessment of that matter, in ALC's favour, the disguising effect of the prepayment of the interest. 239 ALC submitted that it had a reasonable expectation that the loan would be repaid out of Mr Hinds' earnings from his speaking engagement in the Philippines. I do not accept this. All that Mr Hinds told Ms Sutherland and/or Ms Youssef was that he hoped that he might be reimbursed for his expenses. But this was certainly not a given and, even if it had been, there is no way that a reimbursement of his airfare and other expenses would have approached $8,000. In those circumstances, I accept that this was a case of asset lending. Was it unconscionable for ALC to arrange such a loan? I think so; ASIC's case against ALC is made good both under ss 12CA and 12CB.

(c) Unconscionable conduct - personal circumstances 240 ASIC's third case was that Mr Hinds was of limited education, did not understand legal documents and desperately needed the money. These factual matters are not made good. As to the first matter Mr Hinds' education might not have been expansive but he seemed reasonably astute. His understanding of legal documents has less relevance when Mr Trimarchi's letter of advice is considered. As to the second matter Mr Hinds was very keen to go the Philippines but that is not the same as being in financial distress. In any event, I do not accept that Ms Sutherland or Ms Youssef had any reason to think that Mr Hinds suffered from a lack of education. Whilst I accept that ALC should be taken to have been aware of Mr Hinds' enthusiasm to buy a ticket to the Philippines I do not accept that such enthusiasm amounted to a special disability. As a result, there has been no contravention of s 12CA or s 12CB. 241 It was submitted on ALC's behalf that Mr Hinds would have raised the $8,000 from somewhere else even if ALC had declined to extend the loan. The factual basis for this argument is that Mr Hinds had worked out that to get a short-term loan all one needed to do was to say it was for business purposes. I accept that Mr Hinds had indeed worked that out by 14 June 2006 when he sent an email to Ms Youssef seeking a further loan which was expressed in terms indicating an understanding of the need for ALC to be told the loan was for business purposes. I do not, however, accept that this was so when Mr Hinds was seeking the original $8,000 loan or even for some short period of time thereafter. As a matter of fact, therefore, I do not accept that Mr Hinds would have been able to obtain the money at the relevant time from another lender unless that lender were willing to engage in the same kind of unconscionable conduct as ALC.

(d) Misleading and deceptive conduct 242 In relation to ASIC's first case about misleading and deceptive conduct the conclusions about Mr Hinds should be the same as in the case of Mr and Mrs Alptekin: the letter of loan offer was misleading because it suggested that an offer of a loan had been received when this was not so. 243 ASIC's second misleading and deceptive conduct case involves different considerations. Here the idea must be that ALC (through Ms Youssef) mislead AMR (through Mr Riotto) by suggesting to him that Mr Hinds' loan was a business loan when in truth it was not. If I were prepared to accept that Mr Riotto believed that the business loan declarations obtained by ALC in the course of its business indicated that the loan in question was a business loan then this argument would make sense. If that were accepted it would mean that Ms Youssef's communication to Mr Riotto could be reasonably expected to mislead. But I do not think that Mr Riotto placed any faith in the business loan declarations generated by ALC. I draw that conclusion because of Ms Amphone's evidence as to the existence of this practice within ALC generally; more importantly, because of Mr Riotto's personal involvement in that practice in the case of Mr and Mrs Alptekin and in the case of Mr McIlwraith. I do not, therefore, accept that this second misleading and deceptive conduct case is made out.

VIII. ASIC's case as to Mr McIlwraith 244 The position of Mr McIlwraith is the most complicated in this litigation. This is because he borrowed two amounts from AMR at different times. It is also because those loans were the subject of proceedings in the CTTT in which that Tribunal made certain findings of fact. ALC contends that those findings give rise to an issue estoppel. In addition, ASIC seeks compensation on behalf of Mr McIlwraith. 245 There is no dispute about the first loan to Mr McIlwraith from the NAB. It is useful then to begin with the second loan which was made to Mr McIlwraith of $11,000.

(a) The second loan of $11,000 246 This loan was not sought for predominantly personal, household or domestic purposes. Rather the loan was sought for the four purposes to which I have made reference above viz, to tidy up the land, to send his ex-girlfriend back to Japan, to provide her with a bond and to live on. Accordingly, I do not accept that the loan was one to which the Code applied.

(i) Unconscionable conduct - special disadvantage and the business loan declaration 247 ASIC's first case turns on whether it was unconscionable for Mr Riotto to obtain Mr McIlwraith's signature on the business loan declaration in circumstances where it was plain that Mr McIlwraith could not have understood the significance of that to which he was agreeing. 248 Plainly Mr McIlwraith could not have understood the significance of the loan being designated for business purposes. But against that it may be said that the loan was for business purposes. Viewed that way, Mr McIlwraith's non-comprehension may be seen as causally irrelevant; if he had understood what a business loan was he agreed that he would have agreed anyway. Put another way, assuming the conduct to be unconscionable it caused Mr McIlwraith no loss - what caused loss, if loss there was, were the high interest rates. 249 I do not think this argument should be accepted for equity does not permit the stronger party to an unconscientious bargain to avoid the consequences of its exploitative behaviour by means of notions of causation. 'It does not appear to be essential in all cases that the party at a disadvantage should suffer loss or detriment by the bargain': Blomley at 405 per Fullager J. 250 Accordingly I accept ASIC's case in relation to the business loan declaration. For the reasons I have given in the case of the Polimenis I also accept the second variant of this argument arising from the brokerage letter and loan offer letter.

(ii) Unconscionable conduct - asset lending 251 On the other hand, I do not think ASIC's second case based upon asset lending is made good. Both Mr Riotto and Mr McIlwraith understood that Mr McIlwraith was trying to sell the property. Default was by no means inevitable. Had the property been sold, as had been intended, the loan would have been easily repaid.

(iii) Unconscionable conduct - personal circumstances 252 ASIC's third case - based upon Mr McIlwraith's disability - should succeed. 253 Mr Riotto knew that Mr McIlwraith was suffering from significant mental impairment - he did not chance the witness box to suggest to the contrary - and he knew that Mr McIlwraith had no grasp of what the pieces of paper, which were to be witnessed at the chemist, implied. 254 As a matter of equitable jurisprudence this was a canonical example of a special disability; it was the deliberate exploitation of mental infirmity. It reflects poorly on Mr Riotto. The case under s 12CA is, therefore, made out. Since I have not found any facts which are different to those found by the CTTT in the proceedings before it there is no need to inquire how the principles of issue estoppel might have operated in the present circumstances. 255 The question under s 12CB is whether this conduct is unconscionable; whether it has about it an air of moral turpitude; or a departure from acceptable norms of behaviour. At times the boundaries between robust commercial behaviour and unconscionable conduct may be indistinct. Where the facts which arise concern a loan to an obviously mentally disabled man, with no income beyond his disability pension, of $11,000 at 5% per month secured over his only asset the answer comes easily: this is reprehensible conduct. A breach of s 12CB is established. 256 ASIC also pursued a case based on s 12CC which proscribes conduct which is 'in all the circumstances, unconscionable' if the conduct is in connexion with the supply or possible supply of financial services. The content of the unconscionability contemplated by s 12CC is thus the same as that obtaining under s 12CB; the only difference is the connexion with the supply of financial services. I have no doubt that SLC's services related to the provision of financial services. It follows that a breach of s 12CC by SLC is also established.

(b) The third loan of $5,000 257 So far as the third loan of $5,000 is concerned the analysis is different. There is no evidence that Mr McIlwraith ever executed a business loan declaration for this loan so that for the reasons already given in relation to Mrs Polimeni and Ms James, there could be no unconscionable exploitation. On the other hand, for the reasons given in the case of the Polimenis I accept that procuring Mr McIlwraith's signature on the brokerage letter and loan offer letter was unconscionable. Although only the first page of the brokerage letter is available, tendered as Exhibit 61, I find that it would have contained the critical provisions dealing with the charge and the right to lodge a caveat. Each of the other brokerage letters which were in evidence contained these terms and I draw the conclusion they were standard terms which would have been included in the missing pages of Exhibit 61. The contrary was not suggested. 258 As with the second loan of $11,000 I accept that both Mr McIlwraith and SLC had an anticipation that the property would be sold so that what is presented is not an example of asset lending. However, both of those conclusions are immaterial because, as with the second loan, it was entirely unconscionable - under ss 12CA, 12CB and 12CC - to extend this loan to Mr McIlwraith because Mr Riotto knew that he was obviously mentally impaired, and had no capacity to understand the import of what he was doing.

(c) Misleading and deceptive conduct 259 As a matter of formality ASIC's pleaded case did not include a claim that SLC had engaged in misleading and deceptive conduct in relation to Mr McIlwraith. Such a case was, however, conducted at trial by ASIC. It is true that the various defendants frequently submitted that they were only meeting the pleaded case - and no other - nevertheless I conclude that this case was not only put by ASIC but defended by SLC on the same basis as in the case of the Alptekins. Useful comparison may be made with Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356 at 374-375 [51]-[59] per the Court. In those circumstances, I regard the misleading and deceptive conduct arguments as having been run in Mr McIlwraith's case. 260 They are, however, to be dealt with on the same basis as the Alptekins' case. The loan offer letter was misleading but SLC did not mislead AMR into thinking that the loan was a business loan because Mr Riotto was not misled by himself.

IX. Vicarious Liability 261 Insofar as ALC's or SLC's liability was said to arise from the actions of its employees they submitted that they should not be held vicariously liable for those actions. I do not think that vicarious liability is, however, the relevant concept. The present case involves no attempt to saddle ALC or SLC with a liability imposed by law on their employees. Rather, ASIC's case is that ALC and SLC have themselves directly committed breaches of the ASIC Act. 262 The breaches alleged fall into four categories. The first concerns claims that by offering to enter into a brokering contract on certain terms ALC/SLC engaged in breaches of the ASIC Act because they were aware that the relevant clients had not sought business loans. There is no doubt that letters on such terms were sent. The only question is whether ALC/SLC should be taken to have known that the loans were not for business purposes. I have already concluded that the relevant staff members did know these matters, except in the case of the second loan to Mr McIlwraith of $11,000. The critical question therefore is whether their knowledge is to be attributed to ALC/SLC and that turns on principles of agency law, not vicarious liability. 263 Those principles are relatively clear. There is a presumption that knowledge which is imparted to an agent (like Ms Naidoo) by a third party (like Mr Hinds) is imputed to the principal. Mr GE Dal Pont's useful book Law of Agency (Butterworths, 2001) cites at [22.43] p 263 the United States Supreme Court's decision in Mutual Life Insurance Company of New York v Hilton-Greene (1916) 241 US 613 at 622 per McReynolds J for that proposition. The knowledge which results in the principal is actual knowledge. 264 There are exceptions to this but none I think are pertinent to this case. A principal is not fixed, for example, with knowledge of a kind that an agent had no duty to communicate to the principal: El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 at 698 per Nourse LJ, 700 per Rose LJ and 703-4 per Hoffmann LJ. In this case, it goes without saying that ALC and SLC's employees should have reported at once to them that the loans in question were not for business purposes. 265 The second class of breaches consists of those claims where it is said that ALC/SLC arranged loans knowing they were not business loans or where what was involved was asset lending. Like the first class this turns on the knowledge of ALC/SLC staff. In each case I have found the relevant staff members had the requisite knowledge, except in the case of the second loan to Mr McIlwraith of $11,000. Because they were under a duty to inform ALC/SLC of the matter of which they knew, ALC/SLC also knew those matters. 266 The third class of breaches concerned the position of Mr McIlwraith, where it was said that it was unconscionable to lend money on such terms to an obviously impaired individual. In that case, Mr Riotto was, as I have found, aware of Mr McIlwraith's condition and this knowledge is plainly attributable to SLC. 267 The fourth class consists of the misleading letters. These were sent on ALC or SLC's letterhead. I do not accept that ALC/SLC did not authorise their terms.

X. The position of Mr Riotto and AMR 268 ASIC also claimed in Mr McIlwraith's case that AMR had engaged in unconscionable conduct by extending the loans in question. Because Mr Riotto was both the directing mind of SLC, as broker, and AMR, as lender, I see no reason not to embrace the proposition that the advance of the two loans was unconscionable. My reasoning for that is the same as in the case of SLC except that it does not apply in relation to the brokerage letter (in which AMR is not implicated). 269 ASIC also claimed that Mr Riotto was a person who was involved in SLC and AMR's contraventions with respect to Mr McIlwraith within the meaning of s 12GM of the ASIC Act. This involves an element of knowledge on Mr Riotto's part but I am satisfied that he was fully aware that what he was doing to Mr McIlwraith was unconscionable. In that circumstance, the knowing involvement case is against him made good.

XI. Relief 270 ASIC submitted that it was entitled to obtain declaratory relief that ALC and SLC had engaged in contravention of ss 12CA, 12CB, 12DA and 12DB (and s 12CC for Mr McIlwraith). Whilst ASIC accepted that there was no longer any live dispute between the individuals concerned and Mr Riotto's companies it nevertheless submitted that as the regulator of the ASIC Act it was entitled to have the Court make declarations. 271 The Court appears not to have an express power under the ASIC Act to declare, at the suit of ASIC, that provisions of that Act have been breached. But it does have a general power to make a binding declaration of right even where no consequential relief is claimed by virtue of s 21 of the Federal Court of Australia Act 1976 (Cth). The course of authority in this Court confirms that where a regulator seeks a declaration of a contravention of the statute it administers, it has standing to pursue that claim: cf. Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2001] ATPR 41-801 at 42,629-42,630 [30] per Carr J; Australian Competition and Consumer Commission v Kaye [2004] FCA 1363 at [199] per Kenny J. 272 Whether the power should be exercised is a different question. Against the making of these declarations it might be said that apart from Mr McIlwraith (in respect of whom ASIC also seeks compensation) there is presently no dispute between the persons to whom the loans were extended and ALC/SLC. So viewed, there is no controversy to which the proposed declarations may be seen as being apt to quell. But I do not think that this should be accepted. The declarations will fulfil the purpose of vindicating ASIC's claim that ALC/SLC's conduct did involve contraventions of the ASIC Act and this in turn is likely to provide clarity as to how comparable lending practices of the kind under consideration fit within that regulatory framework. I am satisfied in those circumstances that the making of declarations will not be moot and will serve a purpose with real utility. 273 The defendants submitted that the declarations should not, as a matter of discretion, be made because: first, the real purpose of the declarations was to facilitate an attempt by ASIC to drive Mr Riotto out of business by cancelling his financial services licence; and secondly, the breaches which were disclosed related to historical practices which had now ceased in light of the introduction of new legislation. 274 I do not accept either of these arguments. As to the first, there is no doubt that ASIC began its investigation into ALC/SLC more or less with the purpose which they now allege. According to ASIC's referral decision: 'The objective will be to establish evidence of and seek declarations as to contraventions which will highlight the unlawful practices in this currently unregulated sector, which will ultimately be relevant to the eligibility of Mr Riotto and related entities for any licence under the new regime'. 275 To understand what that implies it is necessary to say something of the National Consumer Credit Protection Act 2009 (Cth) which commenced on 1 April 2010 after all of the events with which this litigation is concerned had taken place. 276 Amongst the powers ASIC has under that Act is a power to issue a banning order against a person who has been involved in a contravention of a provision of 'credit legislation': s 80(1)(d). The expression 'credit legislation' includes Division 2 of Part 2 of the ASIC Act which contains ss 12CA, 12CB, 12CC, 12DA and 12DB. A declaration that Mr Riotto had been involved in a contravention of those provisions would permit ASIC to issue a banning order against him. Under s 81 a banning order would include an order prohibiting Mr Riotto 'from engaging in any credit activities'. I accept therefore the submission that one potential - or even likely - consequence of declaring Mr Riotto to have been involved in such a contravention is precisely as is submitted on his behalf. I also accept that this was at least one of the purposes with which the antecedent investigation and present litigation was commenced; further, that this was an important reason and not an ancillary or incidental purpose. 277 Granted that that be so, I do not accept that there is anything inappropriate or improper about that purpose. To the contrary, it is the kind of matter that a regulator such as ASIC might be expected to pursue. An alternative form of the argument focussed not on the alleged impropriety of ASIC's decision to investigate but instead on its alleged character as a shortcut. On this view of things, ASIC could decide not to grant a licence to Mr Riotto but would be obliged to give Mr Riotto a hearing before doing so. The current proceeding, with its end of seeking a declaration, was to be seen as a way of denying Mr Riotto procedural fairness. 278 Section 55 of the National Consumer Credit Protection Act certainly provides for a hearing if a licence is not renewed. By contrast, if the Court were to declare Mr Riotto to have been involved in a contravention of credit legislation then ASIC's decision on any banning order would be very straightforward. The argument did not, however, take the next step of explaining why it would be straightforward but an articulation of that reason reveals why the argument is unsound. A declaration about Mr Riotto's conduct will create an estoppel binding ASIC and Mr Riotto. ASIC will be obliged to give Mr Riotto a hearing before making any decision about banning him (s 80(4)) but that hearing will necessarily proceed on the basis of whatever this Court has determined. There is, however, no unfairness of a procedural kind involved in that course. Mr Riotto will already have had the full benefit of a trial in this Court which of course involves many more entitlements as a matter of right in terms of procedural fairness (such as cross-examination) than any hearing conducted by ASIC. For that reason, far from reducing the degree of procedural fairness Mr Riotto would be afforded if ASIC simply decided to cancel Mr Riotto's licence under s 55, the present proceedings give Mr Riotto full trial protections on the central issue which concerns him. 279 The second matter concerned the suggestion that the events in question had arisen historically and were to be seen as aberrations rather than systemic occurrences. An allied submission was that a compliance manual had been prepared in light of the new legislation. The evidence before me was that Mr Riotto was a hands-on manager. I infer that Mr Riotto knows a good deal about the provenance of the manual and of the background not only to its preparation but also its accuracy. The only evidence before me about the relationship between that manual and present practice is Ms Naidoo's about which I am more than a little sceptical. The one person who could throw light on this issue - as the apparent controlling mind of ALC/SLC - is Mr Riotto but he did not give evidence. In a situation where I am already minded to reject the proposition that the manual meant that ALC/SLC would not engage in the impugned conduct in the future I may more confidently draw that inference in Mr Riotto's absence and I do. 280 Largely for similar reasons I do not accept that the events disclosed in this litigation were instances of casual negligence by former employees. I take as my lead the evidence of Ms Amphone that these practices were known to be taking place. In order to dispel that impression I would need to hear from Mr Riotto; as it stands I accept Ms Amphone's evidence on the extent of the practices. It was submitted that ASIC had identified only five transactions and that this had to be seen in the context of the size of ALC/SLC's operation. At various points during the trial it was said that there were large numbers of transactions but no actual attempt to show precisely the number involved was undertaken. Ms Youssef gave evidence whose effect was that about 7.5 loans per week were advanced. A letter from ALC's solicitors to the Mortgage Industry Association of Australia suggested there had been over 4,500 clients over a 12 year period. This evidence is roughly consistent and suggests that there were between 375-390 loans per year. Granted that that be so, it does not follow that these five transactions are to be seen as outliers. To reach that conclusion I would need to know very much more than the defendants have revealed about their operations. 281 For those reasons I accept that ASIC is entitled to a declaration in respect of each contravention I have found. I do not think that the form of the declaration in ASIC's originating process is appropriate. The over extensive use of defined terms in it means that the declarations are difficult to understand. They will need to be unpacked into something clearer. 282 ASIC also sought an injunction restraining ALC/SLC from representing that a person had sought a loan which was wholly or predominantly for business or investment purposes when that person had sought a loan which was for personal, household or domestic purposes. I am not persuaded that the existence of the new legislation means that Mr Riotto and his companies will not commit this conduct again. I accept that the National Consumer Credit Protection Act makes the conduct herein a serious criminal offence. Section 33(2) now imposes a criminal penalty of a fine of up to $11,000 or two years imprisonment for procuring borrowers to sign loan purpose declarations which are misleading in a material particular. Generally speaking some caution must be exercised in issuing an injunction which closely tracks a criminal offence for the unconstrained penalty for contempt may exceed the prescribed penalty for the offence. In this case, I do not accept that this provides a sufficient reason not to grant injunctive relief. I will, therefore, grant such relief. 283 ASIC also sought compensation for Mr McIlwraith. Where a person consents in writing (s 12GM(3)(b)) ASIC may apply (s 12GM(2)(b)) for a compensation order 'on behalf of such person'. The kind of order is disclosed in s 12GM(1); for the purposes of this case it will suffice if Mr McIlwraith has suffered loss or damage by the conduct of SLC or Mr Riotto and for that conduct to have been a breach of s 12CA, s 12CB or s 12CC. 284 AMR, through SLC, advanced Mr McIlwraith $16,000 in all. However, ultimately the interest bill consumed the whole of the equity in his property. SLC and Mr Riotto submitted that there had been a breach in the chain of causation when Mr McIlwraith had commenced proceedings against SLC in the CTTT which were ultimately unsuccessful. I do not accept, however, that this has any effect on the issue of causation, still less constituting a break in that chain. The immediate cause of the loss was SLC's exercise of its power of sale which followed a presumably successful, if uncontested, possession proceeding in the Supreme Court. Proceedings of that kind were the very thing likely to happen and well outside anything which might relieve SLC or Mr Riotto of liability. The sale price for the property was $80,000 and it is this which Mr McIlwraith has lost. On the other hand he obtained the benefit of the loan advances which on their face were $11,000 and $5,000 respectively. Some care is required, however, in assessing these loans. The $11,000 loan included interest prepaid at the rate of 5% per month for six months which was $3,300. In fact, after deduction of proper expenses Mr McIlwraith received only the sum of $9,243.50. Whilst I consider that Mr McIlwraith should have to account for the benefit of the receipt of that money (but not the interest which he did not receive) he should not have to do so at the rate of 60% per annum. Rather the benefit is to be assessed using the published rates issued by the National Australia Bank at the relevant times for an interest only in arrears home loan calculated on weekly rates over the life of the loan. The same approach is to be taken to the third loan of $5,000. 285 That amount is then to be set off against the sum of $80,000 and interest paid at court rates thereafter. The order is to be against SLC, AMR and Mr Riotto jointly. 286 At the close of the trial ASIC applied for leave to amend its originating process and amended statement of claim to raise identical claims under the Competition and Consumer Act 2010 (Cth) (more correctly, under the former Trade Practices Act 1974 (Cth) as continued by that Act). The sole purpose of this amendment was to overcome the need for it to demonstrate that the defendants' conduct was in relation to financial services within the meaning of ss 12CA, 12CB, 12DA and 12DB. Since I have concluded that the conduct does so relate there is no utility in resolving that debate which raises some issues of significance about the capacity of ASIC to enforce both the former Trade Practices Act and the Competition and Consumer Act. There being no utility in determining the issue I decline the amendment application. Had I arrived at a different view on the meaning of the expression 'financial services' I would have granted the amendment. The defendants did not suggest prejudice; their only point was that during an earlier application before Emmett J in which the adequacy of its pleading under the ASIC Act was in issue, ASIC had not suggested that it had a case under the Trade Practices Act. The transcript of that directions hearing was placed in evidence. Only pages 43, 49 and 50 were relevant. All three of these pages contain statements by the defendants' counsel emphasising that the ASIC Act was concerned with financial services but the Trade Practices Act was not. I do not detect in such material any basis for concluding that ASIC had either elected not to make a claim under the Trade Practices Act or otherwise somehow disabled itself from relief.

XII. Orders 287 The parties are to bring in short minutes of order giving effect to these reasons within 14 days. The defendants must pay the plaintiff's costs. The matter will be listed for directions on 21 February 2012 to resolve any remaining dispute about the form of orders. I certify that the preceding two hundred and eighty-seven (287) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Associate: Dated: 3 February 2012 Schedule 1 Australian Securities and Investments Commission Act 2001 (Cth) Subdivision C - Unconscionable conduct 12CA Unconscionable conduct within the meaning of the unwritten law of the States and Territories (1) A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (2) This section does not apply to conduct that is prohibited by section 12CB. 12CB Unconscionable conduct (1) A person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable. (2) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of services to a person (the consumer), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the consumer; and (b) whether, as a result of conduct engaged in by the supplier, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the consumer was able to understand any documents relating to the supply or possible supply of the services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the services; and (e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent services from a person other than the supplier. (3) A person is not taken for the purposes of this section to engage in unconscionable conduct in connection with the supply or possible supply of financial services to another person merely because the person: (a) institutes legal proceedings in relation to that supply or possible supply; or (b) refers a dispute or claim in relation to that supply or possible supply to arbitration. (4) For the purpose of determining whether a person has contravened subsection (1) in connection with the supply or possible supply of financial services to another person: (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (5) A reference in this section to financial services is a reference to financial services of a kind ordinarily acquired for personal, domestic or household use. Subdivision D - Consumer protection 12DA Misleading or deceptive conduct (1) A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive. (1A) Conduct: (a) that contravenes: (i) section 670A of the Corporations Act (misleading or deceptive takeover document); or (ii) section 728 of the Corporations Act (misleading or deceptive fundraising document); or (b) in relation to a disclosure document or statement within the meaning of section 953A of the Corporations Act; or (c) in relation to a disclosure document or statement within the meaning of section 1022A of the Corporations Act; does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence. (2) Nothing in sections 12DB to 12DN limits by implication the generality of subsection (1). 12DB False or misleading representations (1) A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services: (a) make a false or misleading representation that services are of a particular standard, quality, value or grade; or (b) make a false or misleading representation that a particular person has agreed to acquire services; or (c) make a false or misleading representation that purports to be a testimonial by any person relating to services; or (d) make a false or misleading representation concerning: (i) a testimonial by any person; or (ii) a representation that purports to be such a testimonial; relating to services; or (e) make a false or misleading representation that services have sponsorship, approval, performance characteristics, uses or benefits; or (f) make a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation; or (g) make a false or misleading representation with respect to the price of services; or (h) make a false or misleading representation concerning the need for any services; or (i) make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including an implied warranty under section 12ED); or (j) make a false or misleading representation concerning a requirement to pay for a contractual right that: (i) is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy (including an implied warranty under section 12ED); and (ii) a person has under a law of the Commonwealth, a State or a Territory (other than an unwritten law). Note: Failure to comply with this subsection is an offence (see section 12GB). (1A) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation of a kind referred to in paragraph (1)(c) or (d), the representation is taken to be misleading unless evidence is adduced to the contrary. (1B) To avoid doubt, subsection (1A) does not: (a) have the effect that, merely because such evidence to the contrary is adduced, the representation is not misleading; or (b) have the effect of placing on any person an onus of proving that the representation is not misleading. (2) Conduct: (a) that contravenes: (i) section 670A of the Corporations Act (misleading or deceptive takeover document); or (ii) section 728 of the Corporations Act (misleading or deceptive fundraising document); or (b) in relation to a disclosure document or statement within the meaning of section 953A of the Corporations Act; or (c) in relation to a disclosure document or statement within the meaning of section 1022A of the Corporations Act; does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence. (3) An offence under subsection 12GB(1) relating to subsection (1) of this section is an offence of strict liability. Note: For strict liability, see section 6.1 of the Criminal Code.