Avery v Saree Holdings Ltd; Lava Ltd v Avery

Application of the Code 72The first issue is whether the Lava loan is a "credit contract" within Code, s 6(1). This depends upon whether the four cumulative factors in Code, s 6(1)(a)-(d), three of which Lava contests, are satisfied. Code, s 6(1) provides:- ""6(1)This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into- (a)the debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and (b)the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and (c)a charge is or may be made for providing the credit; and (d)the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider." 73Lava concedes that the Lava loan and the Lava mortgage were the provision of credit "wholly or predominantly for personal, domestic or household purposes": Code s 6(1)(b). All the other requirements for attracting the Code are in issue: Code, s 6(1)(a), (c) and (d). Thus three matters must be shown, as at the time the relevant credit contract was entered into, which in this case is 17 May 2006: that Ms Avery was ordinarily resident in the jurisdiction, New South Wales (s 6(1)(a)); that a charge is or may be made for providing the credit to her under the Lava loan or the Lava mortgage (s 6(1)(d)); and, Lava provided the credit "in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider"(s 6(1)(c)). I will deal with each of these issues in turn.

Ordinarily resident in New South Wales - Code s 6(1)(a) 74The evidence supports Ms Avery's contention that on 17 May 2006 she was a person ordinarily resident in New South Wales. Ms Avery was born at Camperdown in Sydney in 1969. I accept her evidence that she has always lived in Sydney and that the longest time that she has been away from Australia is for a period of about 6 to 7 weeks. Lava did not advance any evidence that persuasively displaced her account of her travelling life. Her passport was in evidence. But its entries only relate to the period from 17 July 2006. I accept Ms Avery's evidence that she always considered Sydney to be her place of residence. 75Lava's case was that in May 2006 Ms Avery was residing in a flat in London with Mr Donoghue and also travelling in Europe, where they lived in an apartment in Amsterdam. But Lava's case against Ms Avery on this issue in part relied on Ms Avery's own evidence (1) that through much of 2006 she was only spending two or three days in Australia and the reason she wanted to buy Apartment 901 was, as she said, that she "wanted somewhere to leave my things", but there was "a base that we used in London" and the rest of the time that she "slept on aeroplanes"; (2) that she was required to come back to Australia for her family law proceedings and did fly back to attend compulsory conciliation meetings; and (3) that her communications with her then solicitor, Ms Sarah Merrick of Messrs Dibbs Abbott Stillman were by email in May 2006, "because I was travelling so extensively throughout the Europe and the UK". 76Lava also supported its contention that Ms Avery was ordinarily resident in London on 17 May 2006 from Mr Donoghue's evidence: that (1) he was in London on 15 May 2006; that (2) Ms Avery joined him in London from 2005; that (3) in about May or June 2006 Ms Avery and he together moved to "a different apartment in London before moving to Amsterdam in December 2006"; and that (4) they moved out of the apartment in Amsterdam in about April 2008. 77Both Ms Avery and Mr Donoghue were cross-examined about their evidence on this subject and about how they rationed their time between the United Kingdom, the European continent and Australasia. 78But Lava's case about Ms Avery's ordinary residence in May 2006 curiously overlooks the significance of the transaction at the centre of this case, Ms Avery's purchase of Apartment 901. My findings about that transaction immediately present a different picture. Ms Avery had been house hunting in Sydney no later than December 2005. She had been discussing the financing of that prospective purchase with Mr Sorronsen and Mr Donoghue for a period of months. She selected Apartment 901 as the apartment in which she preferred to live. When on 3 March 2006 she exchanged contracts for the acquisition of Apartment 901, she immediately entered into a licence agreement to occupy the apartment before settlement. She moved her belongings into the apartment under that licence. She made no similar attempts to buy any equivalent form of real estate in London or Amsterdam. Nor did she have any plans to do so in May 2006. She and Mr Donoghue did rent an apartment in London. They also rented an apartment in Amsterdam. In both the Saree and the Lava proceedings Ms Avery is now fighting to maintain the real estate purchase in Sydney to which she committed herself in March 2006. 79The inference that Ms Avery was ordinarily resident in Australia is strengthened by her later acquisition with Mr Donoghue of Apartment 902, the apartment adjacent to Apartment 901. Although the acquisition of Apartment 902 was well after 17 May 2006, Ms Avery and Mr Donoghue had early plans for joining up Apartment 902 with Apartment 901 once both purchases had been completed. Although the relevant moment for assessment of Ms Avery's ordinary residence in this case is 17 May 2006, her later conduct in relation to Apartment 902 demonstrates Ms Avery's consistent and continuous attitude to Apartment 901, from the time she purchased it on 3 March 2006: she wanted to make it a comfortable place to live. In my view, from no later than 3 March 2006, if not long before, she regarded Sydney as the place that from then she planned to live for the medium to long term; and Sydney was a place that she visited regularly, every 6 to 7 weeks, by choice, to maintain her connection with it. 80Ms Avery's place of ordinary residence can also be assessed by examining her business life. She describes herself in her January 2006 Family Court financial statement as an "entrepreneur/consultant in communications". This description hints at her and Mr Donoghue's peripatetic way of life in May 2006. I accept Ms Avery's evidence that London was not so much a place of residence for her as a "base" for her and Mr Donoghue's business activities in Europe. It was cheaper and more convenient for her to operate from a London apartment rather than from an hotel in that city. I find that Ms Avery had no clear intention to live in the long term in the UK. I find that she was only in the UK to serve the exigencies of her business life for Plus SMS. I find that London never displaced Sydney in her mind as "her home". She was in Europe far more than she was in Sydney in 2006. But I accept her evidence that she returned to Sydney regularly and about every six weeks, in part to visit her parents who lived in the Sydney suburb of Winston Hills. 81Lockhart J explained the meaning of the word "ordinarily resident" in the context of the Bankruptcy Act 1966 (Cth) in judgment in Re Taylor; Ex parte Natwest Australia Bank Limited (1992) 37 FCR 194 at 198:- "To say that a person is ordinarily resident in Australia must mean something more than that he is resident in Australia. The word "ordinarily" connotes a comparison, a measure of degree. A person may have more than one residence, but he is not necessarily ordinarily resident in each of them. The question must be determined for the purposes of s 43 of the [Bankruptcy] Act at a particular time. One must ask the question whether at that time the person was ordinarily resident in Australia. The concept of "ordinary residence" for the purposes of the Act, in my opinion, connotes a place where in the ordinary course of a person's life he regularly or customarily lives. There must be some element of permanence, to be contrasted with a place where he stays only casually or intermittently." 82Lockhart J also explained that it is possible for a person to establish a place of ordinary residence in another country but nevertheless to remain ordinarily resident in Australia, a possibility which is raised on the evidence in this case:- "It depends on the facts of each case whether the debtor is ordinarily resident in Australia at the time of the commission of the relevant act of bankruptcy. At first blush it may seem strange to say that a person can be ordinarily resident in more than one country at the same time; but on closer analysis it is not. Plainly you cannot be physically present in more than one place at the same time. But the lifestyles of people vary greatly. Some people in the ordinary pursuit of their lives regularly or customarily live in more than one place, each of which has an element of permanence about it and is not merely a place of casual or intermittent resort." 83Subsequent authorities have affirmed this approach: Battenburg v Restom [2007] FCAFC 195. The state of mind of the person whose residence is in question is of central importance and the language used in the cases focuses upon whether the person habitually or normally resides in that jurisdiction and does so for a settled purpose: Logue v Hansen Technologies Ltd (2003) 125 FCR 590 per Weinberg J at [24] and [26]. In the context of the Code, the Victorian Supreme Court in Ranmor Finance Pty Limited v Dworjanyn [2010] VSC 334 (Mukhar AsJ) has applied Lockhart J's statements in Re Taylor. 84Lava's counter arguments that Ms Avery is not ordinarily resident in New South Wales are not persuasive. Although, as Lava says, Ms Avery described in her Family Court financial statement that Mr Donoghue was "an occupant of her household", her description of her London "household" was not an attempt to indicate her place of ordinary residence. Although Ms Avery's then solicitor at Piper Alderman asserted in August 2007 that she was "a resident of Europe", that is not inconsistent with ordinary residence in Australia. The Piper Alderman description was more than 12 months after the material date for assessment here. Ms Avery's Family Court financial statement was correct in this respect. I do not accept her denial that she had a "household" with Mr Donoghue in January 2006. But whether she shared a "household" or not with someone is not the legal test now to be applied. Nor does the absence of independent evidence from parents or friends relevantly impair her case. Although it can be accepted that Mr Donoghue did say in evidence that he and Ms Avery were "living together full time", that is not evidence that can easily be accepted. Mr Donoghue was otherwise married. Lava says Mr Donoghue's evidence founds an inference that he and Ms Avery were living together full time in Europe. In my view that inference is displaced by the other evidence I have identified. I take into account that detailed evidence of passports and itineraries have not been put in evidence: Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168. But the larger decisions Ms Avery's made in her life, to regularly return to Sydney, and to buy Apartment 901, do indicate ordinary residence in New South Wales. I accept her evidence on this issue without her calling a range of family and friends to corroborate her case. 85In summary, I find that Ms Avery had a purpose in regularly returning to Australia: reconnecting herself with Sydney, with her parents and with her other friends and acquaintances in Sydney, notwithstanding that her way of life was one of regular international travel. Her London apartment was only a convenient substitute for staying in hotels, when she was in the United Kingdom. That, together with her purchase of Apartment 901, show she was ordinarily resident within the jurisdiction in May 2006.

Charge for Providing the Credit - Code, s 6(1)(c) 86Code, s 6(1)(c) is also satisfied. The Lava loan was undoubtedly the provision of credit. It involves Ms Avery incurring a deferred debt to Lava: Code, s 4(1)(b). By the terms of the Lava loan "a charge is or may be made for providing the credit". I do not find Lava's case to the contrary, to be persuasive. That case is that Lava levied no "charge" at the time of entry into the loan. The Lava loan was interest free for its 12 month term. Lava says that no fees or charges were payable at the time of entry into the loan. 87Lava's contention is answered by attention in Code, s 6(1)(c), to the words that "[a charge] is or may be made" for providing the "credit". Code, s 6(1)(c) may be satisfied if the contract entered into provides a liability for the charges that "may be made" for providing the credit. The Lava loan actually imposed a liability for two kinds of financial charges: (1) default interest after 12 months, if the principal were not repaid; and, (2) legal fees and charges associated with the transaction. Both these obligations are embedded within the cluster of promises Ms Avery made in exchange for the supply of credit to her. Lava's legal fees for the transaction were in fact deducted from Lava's advance to Ms Avery. Default interest was chargeable under the terms of the Lava loan and was claimed in these proceedings. Each of these two is a charge that "is or may be made" for providing credit. 88Lava also contended that "charges" had a special meaning in the Code. But this argument is equally unpersuasive. Lava relied on the definition of "credit fees and charges" in Code, Schedule 1, which mean "fees and charges payable in connection with a credit contract or mortgage but does not include...interest charges". Lava's point was that to the extent that default interest was charged under the Lava loan, it did not qualify as a "charge" for the purposes of Code, s 6. But Lava's Code, Schedule 1 contention is not persuasive for two reasons. First, the composite expression "costs, fees and charges" in Code, Schedule 1 has a different application from the simple expression "charge" in Code, s 6(1)(c). The composite expression appears in Code, ss 61, 100(1)(b), 140(3), 146(A) and 159(1), in different contexts, to represent a group of charges that are, in their setting, not related to interest. But in contrast "charge" in Code, s 6(1)(c) does include interest. 89Secondly, the expression "costs, fees and charges" in Code, Schedule 1 includes the regular administrative fees which Lava actually charged and deducted from its advance in this case. So even if the Code, Schedule 1 definition of "costs, fees and charges" is to be read into Code, s 6(1)(c), the Lava loan's requirements upon Ms Avery to pay legal fees and other transaction fees, does qualify as "costs, fees and charges".

Provision of Credit in the Course of a Business - Code, s 6(1)(d) 90One of the alternative limbs of Code, s 6 (1)(d) is satisfied in this case. Lava established that Lava did not provide credit "in a course of a business of providing credit": Code, s 6(1)(d). Lava does not conduct such a business. But Lava did not displace the alternative: that Lava was a credit provider providing credit "as part of or incidentally to any other business of the credit provider". 91Lava's provision of credit incidentally to another business emerges from Lava's operations as a nominee company. Mr Gibson's accounting practice used Lava for acquiring, holding and disposing of property held on trust for his clients. Mr Gibson himself explained, Lava's business operations were incidental to the conduct of his accounting practice. Charges for Lava's services were sometimes included in the hourly rate Mr Gibson charged to his clients. Sometimes Mr Gibson made specific charges for Lava's services related to the particular transactions in which his clients were involved. Lava did not itself operate trust or other accounts or receive money. Such operations occurred within Mr Gibson's practice, in transactions otherwise organised between himself and his clients. 92When the Lava loan was made, Lava was one of three such nominee companies through which the clients of Gibson and Associates Limited, could on a fee-for-service basis use Lava as a vehicle through which they could buy, hold and sell shares or conduct other similar share related transactions. Saree was another. The evidence of Mr Gibson and Mr Wikeley supports this finding. Notwithstanding the absence of Lava financial accounts and that Lava did not itself receive money, Lava's business operations involved acquiring property, holding property, disposing of property, entering into contracts for the sale of shares, call options and other subsidiary transactions to facilitate the acquisition, holding and disposal of property, principally shares. Mr Gibson insisted that all this business was really that of his clients, who were the beneficial owners of the property Lava held. But Lava itself was in my view still carrying on a business. 93The Call Option Deed records a transaction in shares that falls within Lava's ordinary business, so described. The Lava loan was executed in May 2006 at approximately the same time as the Call Option Deed. They are really two aspects of the same transaction. Mr Gibson, Lava's director, agreed that in making an advance to Ms Avery, Lava was acting "in the course of its usual activities as a nominee" and Lava conducts a business as a nominee company. It provides the credit reflected in the Lava loan and the Lava mortgage, incidentally to [that] other business of the credit provider [Lava]": Code, s 6(1)(d). The words in Code, s 6(1)(d) "incidental to" are expression of wide import but there must be some connection between, in this case, the business of the credit provider and the particular loan that provides the credit, which in turn does involve the questions of degree: R v Holmes; Ex parte Public Service Association (NSW) (1977) 140 CLR 63 at 77 per Gibbs J. Here the Lava loan is directly contemplated by the terms of the Call Option Deed: cf the definition of "Loan Agreement" and Clause 4(1)(b) in the Call Option Deed. The Call Option Deed explains Lava's acquisition and holding of the subject shares, functions that are within its ordinary business. The Lava loan is incidental to that business. 94This is sufficient to establish that Code, s 6(1)(d) is satisfied in this case. But Ms Avery put her Code, s 6(1)(d) case in two other ways, one of which is also made out. Ms Avery submitted that the Lava loan was also provided incidentally to Mr Wikeley's business as an investor. Mr Gibson said that Mr Wikeley held the benefit of the Lava loan. Mr Wikeley was undoubtedly an active investor/entrepreneur. But I prefer Mr Wikeley's and Mr Sorensen's own evidence on this issue, that Mr Sorensen, not Mr Wikeley held the benefit of the Lava loan. Thus, Ms Avery's next way of putting the Code, s 6(1)(d) case fails. 95Ms Avery finally submitted that Mr Sorensen held the benefit of the Lava loan, as he and Mr Wikeley claimed it was held. She submitted that the Lava loan was provided incidentally to Mr Sorensen's business. Mr Sorensen was a self employed company director. He had experience in listing public companies, buying and selling shares and providing loans to purchase shares, in all of which he was well experienced. But Mr Sorensen gave other confusing evidence about who else held the benefit of the Lava loan. Among the other beneficial owners of the Lava loan that he named were 8 to 10 corporate or trust entities with which he was associated, entities described as "Crown Holdings" and "Crown Trust". But even if these associated entities did hold the benefit of the Lava loan, it is nevertheless reasonable to infer that the Lava loan was provided incidentally to their businesses or to Mr Sorensen's business operated through them. Mr Sorensen's confusing evidence is certainly not enough to alter the standing presumption that the Code applies to the Lava loan: Code, s 11(1). 96I conclude therefore the Code applied to the Lava loan and the Lava mortgage. Lava's arguments do not displace this conclusion. Lava emphasises: that Ms Avery approached Mr Sorensen for a loan; that the transaction was an isolated one; that it was not entered into in the course of trading activities that Lava was promoting; and, that no interest was payable on the loan if its terms were satisfied. All of this can be accepted. But even an isolated loan, not promoted by Lava, can attract the Code, provided it is incidental to what can be described as Lava's "other business". 97Lava concedes that it commenced the Lava proceedings for enforcement of the Lava loan and the Lava mortgage, without prior service of a notice in conformity with Code, s 80(2). The Lava proceedings were therefore brought in contravention of Code, s 80(1) and (2). But the next question is about the relevant legal effect of this contravention.

Engaging UCPR, r 36.15 98Lava argues that even if the Code applies and it is found to have contravened Code, s 80, the contravention does not mean that the judgment for possession was entered "irregularly" within UCPR, r 36.15. Nor, Lava says, does it mean that the judgment should be set aside, as there are still strong discretionary reasons against that result. Moreover, Lava argues, even if it were entered irregularly that any such irregularity could, now easily be rectified a number of ways: the Court can, for example, authorise Lava's commencement of the proceedings after the event, or nunc pro tunc. 99Ms Avery submits in response: that entry of the judgment for possession before Price J occurred irregularly; that the judgment should be set aside; and that authorisation of any contravention of Code, s 80 after the event is not possible and, that such late authorisation should not be given in this case. These arguments are dealt with in this section.

Was there a UCPR, r 36.16 Irregularity? 100Lava's first argument is that UCPR, r 36.15(1) is not engaged. The principles that govern the operation of UCPR, r 36.15(1) are clear. The Court of Appeal recently considered them in Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) [2009] NSWCA 387. Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) is authority for the following propositions: (a)it is a central and pervading tenent of the judicial system, as the High Court stated in Burrell v R (2008) 238 CLR 218; [2008] HCA 34, that controversies once resolved are not to be re-opened except in a few, narrowly defined circumstances, at [32]; (b)this tenent requires powers to re-open proceedings such as those conferred by UCPR, r 36.15 to be narrowly confined and sparingly exercised, at [33] and [45]; (c)the focus of the UCPR, r 36.15 power is on irregularity in the steps which resulted in the entry of judgment itself, not on the merits of the judgment or irregularities in the anterior conduct of the proceedings, at [16]; and (d)if follows that UCPR, r 36.15 principally operates in cases of default or consent judgments or those given ex parte and can only have limited application to judgments and orders made or entered after hearing on the merits at which all parties were represented and fully heard, at [17]. 101The irregularity said to justify the setting aside of judgment in Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) was said to be that the appellant/defendant had conducted its defence on the basis it was the correct defendant but on appeal it was contended that the correct defendant was a subsidiary, thus, it was said, all the respondent/plaintiff's steps in the proceedings up to the point of judgment were taken on a false basis. The Court of Appeal decided that UCPR, r 36.15 was not engaged because it could not be said that judgment itself had been given "irregularly". The relevant irregularity alleged in Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) related to an earlier part of the proceedings and could not itself be relied upon to attack the giving of judgment: Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) [2009] NSWCA 387 at [18]. 102I accept Lava's argument that the principles stated in Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) are decisive here against Ms Avery's motion to set aside judgment. The Lava judgment was neither made nor entered "irregularly". It should be accepted that these proceedings are not a nullity by reason of the conceded non compliance with Code, s 80, a matter explained below. The relevant Code, s 80 irregularity relates to the commencement of the proceedings. It was an irregularity which had it been pleaded may well have caused the proceedings to take a different procedural course in the short term. An application may have been made for the proceedings to have been dismissed. That may have in turn been met by various counter applications by Lava. But Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) directs the Court's attention to the time of making or entry of judgment, as the time of which any irregularity should be assessed. At that time there was no irregularity. 103The process of entering judgment before Price J was unexceptionable. Indeed, objectively assessed Ms Avery appears to have been well served throughout that process. She at all times had counsel and solicitors representing her. Her legal advisors apparently took a view about the strengths and weaknesses of the Lava case compared with the Saree case, a view which this judgment demonstrates to have been quite correct. She received the benefit of a six-month stay on execution of the writ for possession, a stay which has now become extended. She does not have to pay ongoing interest on the Lava loan, until these proceedings are resolved. As her own evidence in March 2009 explained and Price J's judgment records, she not unwisely pursued a course which would give her some security against the uncertainties of her defences in the Lava litigation. In substance, all that has really happened now is that, although she did not perhaps appreciate it at the time this tactical course was taken, there was indeed another defence to the litigation that she could have deployed. In my view that does not make any difference. That sometimes occurs in litigation. Ms Avery had months to consider her defences with her lawyers and was legally represented throughout. 104I should add that I accept Lava's argument that Ms Avery's advance of her proposed defence based upon Exhibit 17, the alleged true version of the agreement between Plus Trustee (Mr Donoghue) and Lava (Mr Sorensen), does not assist in inferring that the judgment for possession was made or entered "irregularly or illegally or in bad faith". This is just one of the possible defences that Ms Avery could have deployed before judgment but chose not to. Indeed, Mr Donoghue's evidence supports the finding, which I make, that he was aware of this possible defence and told Ms Avery about it but he was cautious about Ms Avery relying upon the Defence in the absence of his finding Exhibit 17. 105Accordingly, Lava's non-compliance with Code, s 80 did not result in an "irregularly" made or entered judgment for possession. As a result there is strictly no need to consider the exercise of the Court's UCPR, r 36.15 discretion to set the judgment for possession aside. But the issue has been fully argued, and the exercise of the discretion is an independent basis on which the Court declines to set the judgment aside.

Exercising the UCPR, r 36.15 Discretion 106Lava submits that the UCPR, r 36.15 requirement for judgment to be set aside, on "sufficient cause being shown", has not been satisfied even if the judgment were entered irregularly. Lava submits this expression in UCPR, r 36.15 recognises the need for finality in litigation by preventing judgments from being set aside "for slight or uncertain causes": Kendell v Carnegie (2006) 68 NSWLR 193, [2006] NSWCA 302 at [45]. In my view, this judgment would not have been set aside, if it had been entered irregularly. 107Lava's arguments that "sufficient cause" has not been shown to set aside the judgment for possession really fall into three baskets: (1) any Code, s 80 contravention was only slight and of no causative effect; (2) Ms Avery took a deliberate decision to consent to the entry of the judgment, for tactical reasons, and should not now be permitted to resile from that decision; and (3) it would be pointless to set aside judgment as Ms Avery would not be able to propound the arguments she now raises. The second and third of these arguments were the most persuasive. 108(1) Code, s 80 Illegality Only Minor. Lava's first argument is any Code, s 80 contravention here is a minor illegality; that Lava's failure to comply with Code, s 80 did not cause any identifiable injustice that Code, s 80 was intended to prevent; and Ms Avery did not need the grace period Code, s 80 would provide, because she had no intention of paying the debt claimed in any event, her position being that she was not indebted, as alleged. 109This argument takes too narrow view of Code, s 80 and is not supported by the evidence. A defendant who pleads he or she is not indebted to a credit provider, may nevertheless suffer an injustice because of the credit provider's contravention of Code, s 80. Code, s 80 provides an opportunity to negotiate a refinancing or to put the borrower's affairs into order, before the borrower deals with the credit provider. A borrower taking advantage of the procedural opportunities Code, s 80 offers, is not acting inconsistently by also denying liability on the substantive claim the credit provider brings. 110Moreover, at the time Price J gave the judgment for possession he recorded that Ms Avery did propose to refinance, with GAP Finance and the CBA, to pay out the Lava mortgage. The statutory pause that Code, s 80 provides would perhaps have been of some benefit to her. It can and should be inferred from Ms Avery's later conduct in approaching GAP Finance that, presented much earlier with a Code, s 80 notice, she may well have used the statutory opportunity, to commence a re-financing. 111(2) A Tactical Decision. But Lava's best argument against the exercise of the UCPR, r 36.15 discretion is that Ms Avery took a considered tactical decision to consent to the judgment for possession. In my view, this is a decisive reason why the judgment should not be set aside. The strategic calculus in which Ms Avery engaged with her lawyers, leading to her consent to the judgment for possession is sufficiently described above under the previous hearing, "Was there a UCPR, r 36.15 irregularity?" It does not need to be repeated. But it resulted in her making a deliberate choice on legal advice and without any demonstrable disadvantage, other than the usual uncomfortable pressures of the litigation itself. 112Moreover, if judgment were set aside, the cost of the proceedings before Price J would have been entirely wasted. Ms Avery does not undertake to secure to Lava the costs of the proceedings in the event that judgment is set aside. Now that more interest has accrued and given the concessions that Ms Avery has made, the Court would not contemplate setting aside judgment without some such security being provided. Of course, it could be made a condition of setting aside judgment but there is no evidence it could be met. 113Nor is Ms Avery's failure to advance the defences that she now identifies Lava's fault. Indeed, Ms Avery was aware in March 2009 of the possible availability of an Exhibit 17 related Defence. There is no evidence that Mr Sorensen or anyone else associated with Lava was aware that the Code applied and deliberately took steps to commence proceedings without serving a Code, s 80 notice. 114(3) Setting Aside Pointless. Lava put its argument about discretion another way. If offered a "see through" argument that assumed that the UCPR, r 36.15 discretion was exercised in Ms Avery's favour, but looked at what would then happen. Lava submitted that even if the judgment were set aside Ms Avery must face several more exercises of discretion, all or most of which would be likely to go against her. These were: the Court's discretion to deal with the Code, s 80 defence; the discretion to refuse Ms Avery leave to withdraw admissions; and, the discretion to decline leave to amend her Defence. 115First, Lava submitted there was no point in the Court exercising the UCPR, r 36.15 discretion in Ms Avery's favour, when the Court was likely to excuse the contravention of Code, s 80 in this case. That argument is persuasive. 116The effect on proceedings of a plaintiff credit provider failing to comply with Code, s 80 was considered by Davies J in Bank of Queensland Limited v Dutta [2010] NSWSC 574. Applying the High Court's decision Berowa Holdings Pty Limited v Gordon (2006) 225 CLR 364; [2006] HCA 32, Davies J found in Dutta that proceedings commenced in contravention of Code, s 80 are not invalid or a nullity but rather the contravention gives rise to an irregularity in the commencement of proceedings. Davies J concluded that if the irregularity is drawn to its attention the Court may in its discretion summarily dismiss the proceedings, but also may take other courses. In so deciding in Dutta, Davies J departed from or distinguished a number of earlier decisions on Code, s 80. I respectfully agree with his analysis and his reasons for distinguishing those other decisions. 117In Dutta, Davies J accepted that there had been a contravention of Code, s 80 but he neither stayed nor dismissed those proceedings. In substance he declined, in his discretion, to hold that the Code, s 80 contravention could be used as any kind of defence. Davies J found: that the credit provider's failure in Dutta to serve a s 80 notice was neither a contumelious Code contravention nor was the credit provider acting in intentional disregard of its statutory obligations; that the borrowers had not been disadvantaged in that case; and, that the borrowers had no other defence of substance: Bank of Queensland Limited v Dutta [2010] NSWSC 574, at [157] - [160]. 118Many of the same features are present in this case. Here, these reasons establish Ms Avery had no other defence of substance. I accept that Lava was unaware of its statutory obligations. This is hardly surprising. Ms Avery's long absences from New South Wales that have occasioned genuine debate in this case about the place of her ordinary residence. Lava was simply unaware that the Code might apply to her, that does not warrant strong disapproval and Lava is hardly to be criticised for overlooking it. 119Nor do I think that can it be concluded that Ms Avery was disadvantaged by the contravention of Code, s 80. Whilst the opportunity to negotiate may have assisted her to go to GAP Finance or a similar mortgage broker much earlier, the evidence does not allow the Court to infer that the extra month she would have obtained through Lava's compliance with Code, s 80 would have made much practical difference to her situation. 120Secondly, if the Court were to set aside this judgment, it would result in setting aside the order for possession. But it would not automatically undo all that Ms Avery had permitted and encouraged to occur in the partial trial that actually took place before Price J. With her acquiescence Price J found in Lava Limited v Avery [2009] NSWSC 177: that secured monies had been advanced, at [4]; Ms Avery had withdrawn her Defence and her Cross-Claim that the secured monies had been repaid; and on the facts found the plaintiff is entitled to an order for possession, at [19]. Moreover in a later judgment, on 2 April 2009, Price J found that Ms Avery was in default under the terms of the mortgage, at [4]. Setting aside the judgment would not itself give Ms Avery leave to withdraw her concessions in the proceedings, leave she would be unlikely to gain, given the circumstances in which the concessions were made. 121Thirdly, if judgment were set aside, Ms Avery would need leave to amend her pleadings to raise her new Defence before proceeding to hearing on those new pleadings. Lava submits she would have considerable difficulty in gaining leave to amend her Defence to rely upon Exhibit 17, given what the evidence establishes she and Mr Donoghue knew about that potential defence at the time judgment was entered in March 2009. 122In my view, Lava would also be successful on this argument. Lava says Ms Avery now wishes to propound a defence that was always available to her: the new defence based on Mr Donoghue's email to Mr Lowther of 16 May 2006, Exhibit 17. Lava says that this documentary evidence was always available to Mr Donoghue and Ms Avery and she could have located them before; and a similar defence could have been deployed before the entry of the judgment for possession, merely using Mr Donoghue's own recollection of the conversations that Exhibit 17 reflects. Lava says Ms Avery and Mr Donoghue did not undertake adequate efforts to find the 16 May 2006 email, Exhibit 17, prior to the hearing before Justice Price and then after that hearing they did not move quickly to set aside the Lava judgment when the document did become available to them. 123Lava's argument does not perhaps take full account of the dynamic of Ms Avery's situation in March 2009. She is the defendant in the Lava proceedings, not Mr Donoghue. She placed reliance upon Mr Donoghue to gather evidence to assist in her defence. This was understandable. The transactions that bear on whether the liability on the Lava mortgage was discharged, were between Mr Sorensen and Mr Donoghue. Ms Avery was not involved in them. Despite the need to prepare for the hearing before Price J at the time, I accept that Mr Donoghue was concerned with other litigation and business issues in New Zealand, which was taking up much of his time and energy. His strategy, one in which Ms Avery acquiesced, was to defer investigating the Exhibit 17 issue until these other matters had been sorted out. Mr Donoghue certainly did not look for the 16 May 2006 email, Exhibit 17, as quickly as ordinary prudence demanded, were he the defendant. I accept too Ms Avery and Mr Donoghue had been advised, as they said, that without having a document like Exhibit 17 their claim that the Call Option Deed was not the true agreement would be difficult. But I still do not think it was reasonable for Ms Avery just to defer amending her Defence until Mr Donoghue found Exhibit 17. She knew enough through Mr Donoghue to plead a defence and based on what he remembered of Exhibit 17. The search for the document could be pursued to assist the pleaded defence. 124For all these reasons the Court declines to set aside the judgment in the exercise of its UCPR, r 36.15 discretion.

Factual and Legal Conclusions in the Lava Proceedings 125Price J's judgment for possession will not be set aside. But because it was procedurally efficient to do so, the Court has heard the contest that would have arisen had it been set aside. The Court now makes factual findings below in relation to that contest. But first Lava argued, that it should succeed in the Lava proceedings, even if that factual contest went against it. 126There is a dispute between the parties as to what the legal effect would be of the Court preferring Exhibit 17 over the Call Option Deed as expressing the true agreement between Mr Donoghue for Plus Trustee and Mr Sorensen for Lava. Ms Avery argues that if Exhibit 17 represents the true Plus Trustee - Lava agreement then both the Lava loan agreement and the Lava mortgage must be set aside. Lava disputes this and says that, even in that event, the Lava loan and Lava mortgage would remain. 127The Lava mortgage was registered. Lava contends that the mortgage has the benefit of indefeasibility under Real Property Act, s 42. Lava says the Lava mortgage was only vulnerable to attack if Ms Avery could show (1) that nothing was owing under the Lava loan agreement, so that the mortgage, while valid, secured nothing, or (2) that Ms Avery could establish a personal remedy against Lava falling outside the protection conferred by Real Property Act, s 42. 128Lava's argument (2) rightly points out that Ms Avery herself does not say she was misled in entering into the Lava loan or the Lava mortgage. She did not negotiate them; she was not misled; she does not have her own cause of action to set them aside. 129But Lava's argument based on (1) is more complex. Ms Avery was not a party to either Exhibit 17 or the Call Option Deed. They were agreements between Plus Trustee and Lava. Plus Trustee held the relevant shares in Plus SMS. If Exhibit 17 was the true Plus Trustee - Lava agreement on 19 May 2006 and Lava was obliged to acquire the Plus SMS shares but did not, that would give Plus Trustee a right to sue Lava for breach of contract and to recover Plus Trustee's entitlements under that contract. Such an action would be one for unliquidated damages for the difference, if any, between the option price, and the price at which the Plus SMS shares were in fact sold. There is no evidence as to what that price was. 130But Ms Avery counters this by connecting the first and second arguments. If Exhibit 17 was the agreement between Plus Trustee and Lava it may be that in any calculation of the amount due under the Lava mortgage, that Lava would have to give credit pro tanto for those damages. If those damages were sufficiently large, it may be possible for Ms Avery to show that there was nothing owing on the Lava mortgage. Thus, the issue would become whether the Lava mortgage secures anything or not. In my view it does because the Call Option Deed, not Exhibit 17, is the true Plus Trustee - Lava agreement. This conclusion follows from the reasons and factual findings below. 131Any other cause of action that could be mounted to set aside the Call Option Deed for misleading and deceptive conduct would be an action available to Plus Trustee and not to Ms Avery. But if such an action were successful it might only result in the Call Option Deed being set aside and Exhibit 17 being re-instated. But this in turn would place the parties in the same position they would have been in if Plus Trustee were to sue Lava for damages for breach of contract, which has already been considered. In the end none of this had to be tested, because the Court has found that the Call Option Deed represents the 19 May 2006 Plus Trustee - Lava agreement.

Ms Avery's Cross-Claim in the Lava Proceedings 132Ms Avery's cross-claim in the Lava proceedings seeks to set aside both the Lava loan and the Lava mortgage. She alleges Lava, through Mr Sorensen, engaged in misleading and deceptive conduct by inducing Plus Trustee's signing agent, Mr Lowther, to execute the Call Option Deed on 17 May 2006, when that document did not embody the true agreement between Lava and Plus Trustee. Ms Avery alleges that Mr Sorensen, as agent for Lava, negotiated a share sale agreement with Mr Donoghue, acting as agent for Plus Trustee, and that the agreement they negotiated was in substance reflected in the terms of Exhibit 17. Mr Donoghue claims he faxed Exhibit 17 to Mr Lowther on about 16 May 2006 as a preliminary to Mr Lowther executing it on behalf of Plus Trustee. It is said that instead Mr Sorensen induced Mr Lowther to sign the Call Option Deed on behalf of Plus Trustee. Lava denies Ms Avery's allegations and says the Call Option Deed represents the true agreement between the parties. Moreover, Lava says that Lava did not mislead Plus Trustee into executing the Call Option Deed. 133To decide the issues on the cross-claim the Court must determine (1) what actual agreement was negotiated between Mr Donoghue on behalf of Plus Trustee and Mr Sorensen on behalf of Lava, and if Mr Donoghue's version of the Lava - Plus Trustee agreement is accepted (2) whether Mr Sorensen's misleading and deceptive conduct caused Mr Donoghue's agent, Mr Lowther, to execute the Call Option Deed, rather than a document more like Exhibit 17. 134The contest is between a contract or an option to purchase shares in Plus SMS. Ms Avery's contention that Exhibit 17 was the Plus Trustee - Lava agreement meant the parties had agreed that: (a) Plus Trustee would sell the 5 million Plus SMS shares to Lava over twelve months for a fixed price of 35 cents per share (total consideration NZD1.75 million); and (b) in return Lava would: (i) initially advance NZD1.5 million to Ms Avery by way of loan, but within 12 months would release Ms Avery from her obligations under the Lava loan upon completion of the purchase of the shares; and then (ii) at the end of the twelve months, pay to Plus Trustee NZD250,000 (NZD1.75 million less NZD1.5 million). 135But if the Call Option Deed were the true agreement between the parties the consensus was less favourable to Ms Avery and Mr Donoghue. The Call Option Deed only provided an option for Lava to purchase 5 million shares from Plus Trustee at 35 cents per share in Plus SMS but for the consideration paid upon exercise of the share option, whether in whole or in part, to be offset by the monies lent to Ms Avery. 136In short, under Exhibit 17 Ms Avery had a guaranteed $1.5 million repayment of the Lava loan. But under the Call Option Deed there may be no $1.5 million to repay the Lava loan. 137These two competing documents must be examined, first Exhibit 17 then the Call Option Deed, before examining their negotiation, drafting and execution.

Exhibit 17 - The Loan and Option Agreement 138Exhibit 17 was a paper facsimile of two pages. The first page was a facsimile coversheet. The second page was an unsigned draft agreement headed up "Terms of Loan and Option Agreement". Both documents had facsimile tracers at the top of the page. The first page was in Mr Donoghue's handwriting. The second page was mostly typed, but for the addition of the name "Leanne Avery" instead of the words "Plus Trustee" in paragraph 2, and except for the addition of the ordinal number 19th before "May 2006". 139The first handwritten page of Exhibit 17 is reproduced below in typescript:- "Att. John Lowther Hi John, Attached is an agreement to cover Sorro [Mr Sorrensen] taking 5 million shares that he has told me he is bringing in to sign tomorrow afternoon. Regards, Garry P.S. In para 2 there is a mistake that needs correction. I have marked it. G." 140The second typed page of Exhibit 17 appears below. This reproduction of the second page of Exhibit 17 is accurate although the addition of the words "Leanne Avery" and "19th" are, of course, reproduced here in typescript, not in handwriting as they appear in the original of Exhibit 17. "TERMS OF LOAN AND OPTION AGREEMENT PARTIES: LAVA LIMITED (Lava) PLUS TRUSTEE LIMITED (NZCN 1636422) (1)Lava has requested an option to purchase 5 million ordinary fully paid shares in Plus SMS Holdings Limited held in the name of the Plus Trustee on behalf of the Donoghue Family Trust and Plus Trustee has agreed to grant the option. Lava has agreed to exercise the option within 12 months of the date of this agreement at a price of 35c. (2)Leanne Avery, an associated interest of the Donoghue Family Trust, has agreed to purchase a property and requires funds to settle the purchase. Lava has agreed to lend Plus Trustee [line drawn through 'Plus Trustee' and Leanne Avery inserted] $1,500,000 on or before [19th inserted] May 2006 in order to settle the purchase of the property. (3)Leanne Avery has agreed to grant a mortgage to Lava to secure the loan amount. As additional security, Plus Trustee will transfer to Lava the 5 million shares by way of mortgage. Plus Trustees will provide Lava an executed share transfer for the shares in favour of Lava, duly executed by Plus Trustee. (4)Lava has agreed that when it exercises it's option, it shall release the mortgage over the property and pay the Donoghue Family Trust $250,000 being the balance of the purchase price of the shares. SIGNED by LAVA LIMITED In the presence of dated SIGNED by PLUS TRUSTEE LIMITED In the presence of dated" 141The fax tracers (Exhibit 17) became an integer in the Court's fact finding and reasoning in the Court's choice between these two documents. The fax tracers on both pages were almost identical, and were the following. "6 May 06 09.28aGarry J Donoghue+442073801271 +442073801271" 142It was common ground that the telephone number was that of Mr Donoghue's London apartment fax machine. 143On the second page, the number "6" in the date "6 May 2006" may have a "1" in front of it, and thus the date on that page might be "16 May 2006". But whether the stroke on the second page is a actually "1" is doubtful, as any direct examination of the Exhibit 17 original shows. Neither party proffered any expert evidence on this issue, or on any other issue as to the provenance of Exhibit 17. The Court was simply invited to draw its own inferences from the form of the original exhibit. To a limited extent, the Court has done this, as appears below. Other circumstantial evidence strongly suggests that the fax must have been sent on 16 May 2006. 144Exhibit 17 was found among Mr Lowther's papers on 12 November 2009, after Mr Donoghue made a request to search them, and well after the entry of the judgment for possession. I accept Mr Donoghue's account that is where he found Exhibit 17, how he found it and that he found Exhibit 17 in the exact form in which the original is now in evidence. Nothing in Mr Lowther's evidence permits room to infer that the document had somehow been surreptitiously planted among Mr Lowther's professional papers after May 2006 and before Mr Donoghue found it in November 2009. Mr Lowther appeared to be a competent and organised professional, whose papers could be expected to be kept in a regular and thorough order. In my view Mr Lowther did receive the facsimile, Exhibit 17, on or about the time that the facsimile tracer indicates that it was sent. The original document, Exhibit 17, is on yellow paper, paper which Mr Lowther agreed was consistent with the use of the lower quality paper used in facsimile machines to generate documents for storage in paper office files. 145In the debate about the authenticity of this document, the Court's foundational finding is that, Mr Donoghue sent it to Mr Lowther on or about the date that its facsimile tracer bears. In my view, it was sent on 6 May 2006.

The Call Option Deed 146There were several drafts of the Call Option Deed. It was revised before execution by the solicitor acting for Lava in New Zealand, Ms Kirstin Poole. Ms Poole sent the final version of the Call Option Deed and the Loan Agreement from the offices of Jones Young Auckland by email at 1.24pm New Zealand time on Wednesday, 17 May 2006. She attached to this email her final redrafts of the Loan Agreement and the Call Option Deed, both marked up with the latest amendments and in an unmarked, as she described it, "final form". This indeed was the form in which the documents were executed between Mr Lowther and Mr Sorensen. 147In the Call Option Deed Ms Avery is defined as "Leanne", the "purchase price" is NZD0.35 per Option share, the "Company" means Plus SMS Holdings Limited and "shares" means ordinary fully paid shares in the Company. Clause 2 of the Call Option Deed grants the "Call Option". In consideration of $1.00 paid by the option holder [Lava] to the grantor [Plus Trustee] the grantee irrevocably granted to the option holder a call option to require the grantor transfer of up to 5 million option shares on the terms set out in the deed. 148After providing for the effect of any re-structure of the capital of Plus SMS on the exercise of the option, the Call Option Deed provided a time for exercise of the "Call Option" in clause 3, and the effect of the exercise of the call option in clause 4, in the following terms:- "3.TIME FOR EXERCISE OF CALL OPTION 3.1(The Optionholder may exercise the Call Option in whole or in part (provided that the aggregate Purchase Price for the Call Option exercised is NZD250,000 or more) during the Exercise Period by the Optionholder giving notice of the Optionholder's exercise of the Call Option in writing to the Grantor (each an 'Election Notice'). 3.2In the event that the Call Option is not exercised by the Optionholder on or before 19 February 2007, time being of the essence, this Deed shall be at an end and of no further effect. 3.3On or prior to the date of this Deed, the Grantor shall provide to the Optionholder the executed share transfers for the Option shares in favour of the Optionholder, duly executed by the Grantor in the forms annexed to this Deed. The Grantor appoints the Optionholder as its attorney to make any amendments required to the share transfers that may be required due to changes in the number of Option Shares and/or the Purchase Price pursuant to any event described in clause 2.3. 4.EFFECT OF EXERCISE OF CALL OPTION 4.1In the event that the Call Option is exercised in whole or in part, the Grantor shall sell and the Optionholder shall purchase the relevant number of Option Shares at the Purchase Price as follows: (a)Settlement of the sale and purchase of such Option Shares shall take place at the offices of the Optionholder on that date being five Business Days following the date of the service of the relevant Election Notice on the Grantor (each a 'Completion Date'); (b)Payment of the Purchase Price for such Option Shares must be satisfied as follows:- (i)in the event that Leanne is at the relevant Completion Date indebted to the Optionholder under the Loan Agreement for an amount in excess of the Purchase Price payable in respect of the relevant Exercise Notice, the parties unconditionally and irrevocably agree that the Purchase Price shall be satisfied by the Optionholder setting the Purchase Price payable off against the Loan. For example, if the Purchase Price payable under the relevant Exercise Notice is NZD500,000, then that sum shall be satisfied by the Optionholder accepting that the Loan is reduced by NZD500,000; and (ii)in the event that Leanne is at the relevant Completion Date indebted to the Optionholder under the Loan Agreement for an amount less than Purchase Price payable in respect of the relevant Exercise Notice, then the Optionholder shall pay the difference, between the balance of the Loan (which shall be reduced by an amount equal to the balance of the Loan) and the Purchase Price payable, in cash to the Grantor on the Completion Date. (c)Subject to the satisfaction of the Purchase Price in accordance with this Deed, which shall be deemed to be satisfied by the Optionholder confirming in writing that the Loan has been reduced in accordance with clauses 4.1(b)(i) and (ii) and that any balance required to be paid in cash has been paid by the Grantor, the Grantor shall transfer title to the relevant Option Shares to the Optionholder on the Completion Date free of all encumbrances and adverse interests." 149The Call Option Deed then provided for a number of machinery matters, including the provision of notices to Plus Trustee, care of Lowther and Associates, and to Lava, care of Gibson and Associates (clause 5), an entire agreement clause (clause 6), prohibition against assignment (clause 7), for governing laws to be the laws of New Zealand (clause 8) and for execution in counterparts (clause 9). The execution clause provides for execution by each of the two corporate entities by director and two witnesses. 150Thus if the option were exercised under the Call Option Deed, the result could be sale proceeds of NZD1.75 million (NZD0.35 x 5,000,000). But Mr Sorensen was under no legal requirement to exercise the option.

Exhibit 17 or the Call Option Deed? 151This section covers the period of the negotiation, drafting and execution of the Call Option Deed, as Ms Avery would have it, or Exhibit 17. The Court's conclusions as to which of these documents reflects the true Plus Trustee - Lava agreement, follow not only from analysis of their negotiation, drafting and execution. It also follows from the two parties' subsequent dealings with these documents, dealt with in the next section. The analysis mostly points to the direction: the true Plus Trustee- Lava agreement is recorded in the Call Option Deed, signed between Mr Sorensen and Mr Lowther in Auckland and dated 19 May 2006. The narrative and the finding on contested issues of fact start with the early discussions between Mr Donoghue and Mr Sorensen about the Lava loan.

The Negotiations between Mr Sorensen and Mr Donoghue 152The Lava - Plus Trustee agreement relating to the Sale of Shares in Plus SMS was negotiated between Mr Sorensen and Mr Donoghue. According to Mr Donoghue, he and Mr Sorensen agreed upon the text of the agreement. The purpose was that Mr Sorensen would arrange NZD1.5 million to assist Ms Avery. Then Plus SMS shares may be sold to pay back the advance. I accept Mr Sorensen's evidence that after agreeing to arrange funding of NZD1.5 million to assist Ms Avery he informed Mr Donoghue that Jones Young would prepare the Lava loan form of agreement and the Call Option Deed. 153Mr Donoghue's version of these discussions was that he telephoned Mr Sorensen the day after the "we must chat" email and had a conversation with him to the following effect:- "Mr Donoghue:'You owe me money from the deal. I want to get paid.' Mr Sorensen:'I don't have the money. If I sell shares to make the payment, it will deflate the share price seriously.' Mr Donoghue:'I am going to sell 10 million shares on the open market. I have sought approval.' Mr Sorensen:'That would completely ruin the share price and the company. It is only the work I'm doing with Ken Wikeley and John Sheffield that is keeping the price high. Without it, the price would be at least 50% lower.' Mr Donoghue:'Well I need NZ$1.5mil for Leanne's apartment.' Mr Sorensen:'I will see what I can do'. Mr Donoghue:'You will have to'." 154Then, Mr Donoghue says about a week went by and Mr Sorensen called him back and they had the following conversation:- "Mr Sorensen:'I can't find anyone to buy the shares off market unless I drop the offer price to NZ$0.20c per share or less. John Sheffield, Ken Wikeley and myself have been propping up the market for some time. If it wasn't for this, the share price would be NZ$0.30c or lower'. Mr Donoghue:'That's not good enough'." Mr Sorensen:'Okay, what about this, I have found a group of investors who will buy some shares 'off-market' to cover the NZ$1.5 mil you need for Leanne's apartment. They want to spread the purchase out over 12 months. Lava will give you a loan for NZ$1.5mil secured by a mortgage over the property. It will be structured as an option to purchase 5 million shares within a 12 month period. The 12 months will be a forced completion date. Even if the deal has not been completed earlier it would set off the NZ$1.5 mil mortgage. The mortgage would be at 0% interest rate. The deal is for NZ$0.35c per share.' Mr Donoghue:'That will mean that by the end of the 12 months Plus Trustee Ltd will get a cheque for NZ$250,000.00.' Mr Sorensen:'Okay, it's a deal. I'll get something in writing and I'll send it to you.'" 155Mr Sorensen's version of the arrangement was a single conversation to the following effect:- "Mr Donoghue:'Leanne (who I knew to be a close personal friend of Mr Donoghue) has agreed to purchase a property in Sydney. She doesn't have the money to settle. Can you arrange funding for her?' Mr Sorensen:'How much?' Mr Donoghue:'About $1.5 million.' Mr Sorensen:'I will arrange it but she will need to give a mortgage and an option over 5 million shares in Plus SMS Holdings Limited as a sweetener'." 156Mr Donoghue says that this agreement was then recorded in page 2 of Exhibit 17. Mr Sorensen says, and I accept, that he never saw the one page agreement that forms part of Exhibit 17. This is an essential part of his evidence of these early discussions and one of the major points of difference between himself and Mr Sorensen. 157If Mr Donoghue had either given or sent Exhibit 17 to Mr Sorensen, at the time of their discussions one would expect Mr Donoghue to be able to give some sensible account of when or how he did so. He says he was faxed it by Mr Sorenson and he rang Mr Sorensen and pointed out that "You've got the wrong name on the document. Shouldn't the loan be to Leanne not Plus Trustee?" and Mr Sorensen is said to have agreed to a change. There is a second facsimile number on Exhibit 17. But this is Mr Donoghue's own fax number - the same one that appears on the fax to Mr Lowther - not Mr Sorensen's number. If the fax had been sent before, the fax tracer is the only evidence that Mr Donoghue has collected from some third party's fax the copy he later faxed to Mr Lowther. This was one of the least satisfactory parts of Mr Donoghue's evidence.

The Lawyers Drafting 158Each of Plus Trustee, Ms Avery and Lava were legally represented in May 2006 in the final negotiations for the Lava loan and the Call Option Deed. Both documents were eventually dated 19 May 2006. These lawyers in the period 16 and 19 May 2006, are an important basis for the Court's findings. Lava instructed Messrs Jones Young solicitors of Auckland, New Zealand to act for it in relation to the preparation of the Lava loan and the Call Option Deed. Mr Sorensen first gave instructions to the solicitor with carriage of the drafting, Ms Kirstin Poole, on 15 May 2006. Ms Poole was not cross-examined and her evidence can be accepted. 159I find that Messrs Dibbs Abbott Stillman represented Ms Avery and Mr Donoghue's interest in Plus Trustee. Two different partners of Messrs Dibbs Abbott Stillman acted: Mr David Sharp for Ms Avery and Mr Peter Burden for Plus Trustee. I infer this both from Mr Sorenson's evidence, which I accept, that Mr Donoghue told him that these two Dibbs Abbott Stillman lawyers were acting in these respective capacities. I also infer it from their subsequent email correspondence. I also accept that Mr Sorensen instructed Ms Poole to copy the relevant correspondence to Ms Avery, which she did. Ms Poole was also instructed to send correspondence to Ms Judith Burson, of Gibson and Associates, Chartered Accountants; Mr Don Gibson being the sole director and shareholder of Lava and the person who was to execute both instruments on behalf of Lava. 160The start of lawyer action on the transaction was Mr Sorensen's instructions to Ms Poole on 15 May 2006, which was a Tuesday. I accept Ms Poole's evidence about Mr Sorensen's instructions to her. She says that he came into her office in Auckland on 15 May 2006 and explained the transaction as one in which he was lending money to "a woman called Leanne Avery to buy a house in Australia". He explained that she was late in settling the conveyance and the amount to be loaned was NZD1.5 million, to be secured by first mortgage and repaid within a year interest free and thereafter if not repaid within the year, interest would run at 15 per cent per annum. Mr Sorensen's instructions then were to the effect:- "A man called Garry Donoghue, whose Family Trust, which is with Lowther and Co and is called Plus Trustee Limited is also giving me an option to purchase shares in Plus SMS Holdings Limited at 35 cents NZ. It is a Call Option. If I exercise it the amount payable for the shares is to come off Ms Avery's loan. I want you to prepare the Loan Agreement and the Call Option Deed. The lender will be Lava Limited and Lava Limited will take the option." 161Ms Poole's note of Mr Sorensen's instructions bears out her recollection of the conversation. Her note refers to the grant of a "Call Option". 162Lava submits, persuasively in my view, that there is no creditable reason to accept that Mr Sorensen would have misrepresented the true nature of the transaction to his own solicitor. Ms Poole's recollection is that she was drafting an Option Agreement and that is indeed what she subsequently did. 163The initial instructions to lawyers led to another incidental evidentiary conflict between Mr Donoghue and Mr Sorensen; one upon which I prefer Mr Sorensen. Mr Sorensen said that Mr Donoghue asked Mr Sorensen to request Mr Sorensen's lawyers, Jones Young, to send the documentation to Mr Donoghue's solicitor, Mr Burden, and Ms Avery's solicitor, Mr Sharpe, both at Messrs Dibbs Abbott Stillman. Ms Poole's evidence on this issue is as set out above. She corroborates Mr Sorensen's version that the draft documents were to be passed on to Mr Burden and Mr Sharpe. Although her version is not precise about whether Mr Sharpe or Mr Burden was acting for Mr Donoghue, it is nevertheless sufficient for the Court to conclude that Mr Burden was looking after Mr Donoghue's interests in relation to the Call Option Deed. There were two solicitors acting at Messrs Dibbs Abbott Stillman. They represented the separate, but not conflicting, interests of Ms Avery and Plus Trustee. 164Moreover, the correctness of Mr Sorensen's version is further confirmed by his own email to Mr Donoghue on 16 May 2006, in which he stated, "I spoke to Peter [Burden] late this afternoon and he appears to have everything under control". 165The first draft of the Call Option Deed and Lava loan that Ms Poole sent out to Plus Trustee and others was consistent with the instructions that Mr Sorensen and she says that he had given to her. Ms Poole prepared the first draft on 15 May. Mr Sorensen reviewed them and instructed her to send them out. Her draft of the Call Option Deed resembled the structure of the final document, but clause 3.2 provided, "in the event that the Call Option is not exercised by the Option holder during the exercise period, time being of the essence, this Deed shall be at an end and of no further effect". This was clearly an option, which may, or may not, be exercised, rather than an agreement to acquire shares with consideration payable over time, as is reflected in Exhibit 17. 166Mr Sharpe at Messrs Dibbs Abbott Stillman considered amendments to the Lava loan and Call Option Deed, and emailed Ms Avery on 16 May 2006 (copied to Mr Burden and Ms Merrick) some documents to facilitate settlement of the transaction. He stated to her, "the amended loan agreement and Call Option Deed will be emailed to you separately by the lawyers for Lava Limited". The amendment was relatively minor, adding to clause 3.2 the words, "on or before 19 February 2007" after the words "Call Option is not exercised by the option holder". But the amendment affirms the characteristics of the proposed contract as an option, and continues to distinguish it from an agreement to purchase. 167This same day, 16 May 2006, Ms Avery and Mr Donoghue consulted and Ms Avery then gave further instructions to Messrs Dibbs Abbott Stillman. Ms Avery agreed that her email of 4.57am on 16 May 2006 to them reflected her position and her "understanding of Mr Donoghue's position". Ms Avery could be open with her lawyers about the true nature of the agreement that she thought Mr Donoghue had negotiated. But her email of this time and date makes no reference to the share sale contract Mr Donoghue claims to have made with Mr Sorensen on the 15 May 2006. 168Whatever instructions Ms Avery had given her own lawyers, it is clear from their own internal correspondence that they had no doubt that the documents that Ms Poole had circulated were the ones they thought they were authorised to effect. In Mr Burden's 16 May 2006 email to Mr Sharpe and Ms Merrick, he records a contemporaneous telephone call directly from Mr Sorensen, who says he has not heard from Ms Avery. Mr Burden continues, "I told him [Mr Sorensen] that we were authorised to go ahead on the commercial terms in the docs subject to some minor amendments in the wording in the docs and we were preparing a power of attorney and mortgage and that DAS [Messrs Dibbs Abbott Stillman] would email to confirm and send [draft] mortgage and power shortly. He has already deleted the offending provision in the Call Option and has deleted some unnecessary wording in the loan". In my view, this language is only consistent with Ms Avery and Mr Donoghue continuing to give Mr Burden instructions to proceed with the drafting of the Call Option Deed and not to change course to reflect any other kind of agreement such as an agreement for purchase. In her oral evidence Ms Avery did not have a recollection, which could contradict this inference. It is difficult to understand what Mr Sharpe and Mr Burden were doing if they were not carrying out Ms Avery and Plus Trustee's instructions in this drafting process. They were not called to give evidence. 169I infer that Ms Avery or Mr Donoghue gave instructions to Mr Burden "to go ahead on the commercial terms in the docs" meaning the Lava loan and the Call Option Deed.

Execution with Mr Lowther 170Mr Sorensen says, and I accept, that he attended on Mr Lowther on 16 May 2006 with what he, Mr Sorensen says was a final version of the transaction documents and requested Mr Lowther to execute the documents. I further accept that Mr Lowther first declined to sign on 16 May 2006, because he would not sign without Mr Donoghue's express instructions to do so. Mr Lowther says that after he refused and until he had instructions from Mr Donoghue he did not go ahead. In this respect Mr Sorensen's evidence about Mr Lowther was consistent with the impression which the Court gained of him, as a careful accountant. 171Mr Donoghue sent those instructions Mr Lowther on 16 May in an email which read "Hi John, Can you please take this email as an authorisation for you and Plus Trustee Limited to sign the share option agreement and the share transfers on behalf of the Donoghue Family Trust that I believe you have received for 5 million shares in Plus SMS. Thank You Garry" Oddly there is no cross-reference here to sending or proposing to send Exhibit 17. 172I accept Mr Lowther's evidence that the next day he replied to Mr Donoghue, who was in London, informing him that he had received Mr Donoghue's emailed instructions. It was clear from this reply email, "No problem Garry. Have spoken to John S and he is coming at 4,00pm" that Mr Lowther did not have Exhibit 17. Mr Sorensen says that he returned the following day, 17 May 2006, to Mr Lowther, and collected the documents from him. I accept that evidence. 173With considerable industry in going through the various versions of the Call Option Deed, counsel for Ms Avery makes a persuasive case that Mr Sorenson must be mistaken that he took the final version of the Call Option Deed in and left it with Mr Lowther on 16 May. It does seem more likely that the final version was only brought in on 17 May. But that does not prove that Mr Sorensen defrauded Mr Lowther. It only proves Mr Sorensen's mistake. 174Finally, Mr Lowther's affidavit evidence does not support the submission put on behalf of Ms Avery that Mr Lowther said he "just signed because Mr Sorenson directed him". Mr Lowther did not act at Mr Sorenson's direction. His overall conduct is quite inconsistent with that conclusion, in my view. 175There are also improbabilities with Ms Avery's case at the time of execution. If Mr Sorensen was deliberately putting the wrong version of the Lava-Plus Trustee agreement before Mr Lowther to be signed, he did so in a way that was risky and unlikely to succeed. It is improbable, in my view that a man of his quick business intelligence would have have engaged in such a clueless ruse. Only a moment's resistance from Mr Lowther: a request to check with Mr Donoghue; a reading of the Call Option Deed, which was very different from the other document, would have exposed the stratagem. On Ms Avery's case Mr Donoghue only succeeded because Mr Lowther did not read the document he was signing. 176And then there is the lack of follow up after the signing. If Mr Donoghue had sent an important document to Mr Lowther that he, Mr Donoghue wanted signed, and no other document that might be confused with it, then it is to be expected that Mr Donoghue himself might have, made some attempt to check quickly with Mr Lowther that the right document had been signed. After all there were well known to be documents passing between the lawyers at this time.

Conduct After Execution 177When Lava commenced its proceedings in July 2007 and first indicates it relied upon the Call Option Deed, Mr Donoghue's conduct does not ring true. If he had genuinely thought that Exhibit 17 governed Plus Trustee's contractual relations with Lava, in my view, he would have behaved very differently from the way he did. 178Mr Donoghue says that he was first shown, and therefore became clearly aware that Lava was relying upon the Call Option Deed in November or December 2007. When it became clear to him that the Call Option Deed was Lava's version of the Plus Trustee - Lava agreement, his first reaction, would have been firm and memorable if Mr Sorensen had tricked him. But he does not give satisfactory evidence of exactly what he did. 179If Mr Donoghue genuinely believed Exhibit 17 reflected the true Plus Trustee - Lava agreement, he would, in my view have taken several predicable steps: (a)Unless fraud were a regular part of his daily existence, he would have felt an abiding sense of outrage that Mr Sorensen and Lava were propounding a wholly false document, a feeling which was likely to have caused him to confront Mr Sorensen, who appeared to be the author of fraud; (b)Even if Mr Donoghue took a more benevolent view of Mr Sorensen's conduct, some immediate direct written or verbal contact with Mr Sorensen would have been the order of the day; (c)But Mr Donoghue could also hardly have forgotten his own instructions to Mr Lowther to execute Exhibit 17; the intelligent businessman that I find Mr Donoghue was, would undoubtedly have pressed his professional adviser, Mr Lowther, how he came to sign the wrong document; after all, by then Mr Donoghue must have appreciated that this was a very expensive mistake, if it was a mistake; (d)It can also be expected that Mr Donoghue would have sought immediately to put his hands on the original of Exhibit 17, because as his later evidence showed, he appreciated its importance to his attempt to displace Lava's reliance on the Call Option Deed. 180But strangely Mr Donoghue did none of (1), (2), (3) or (4). Indeed in oral evidence he seemed uncommonly relaxed about having been defrauded in this way. It is to be expected that someone who was actually defrauded would have done at least one of (1), (2), (3) or (4). But Mr Donoghue did not take any of these steps. He did explain, as to (4), and quite convincingly, that he had many issues pressing on his attention in the period 2006 - 2008. But despite these excuses he does not react quickly enough to be persuasive on this. This is not the behaviour of someone who really believed that Exhibit 17 recorded Plus Trustee's contractual relationship with Lava. 181Moreover, Ms Avery was required during the course of 2008 to respond to Lava's pleaded case and filed evidence in the Lava proceedings that were then on foot. Mr Donoghue responded in an even more puzzling way for a person who believed that the Call Option Deed was the product of Mr Sorensen's trickery: he propounded the Call Option Deed. In his affidavit of 15 September 2008 he said of the Call Option Deed, "On 17 May 2006, on my instructions on behalf of the trust, the bare trustee entered into a call option agreement with Lava Limited". He then went on to explain his logic for giving this option. 182Lava's pleadings at this time called for a counter assertion that there was a Plus Trustee - Lava agreement in terms of Exhibit 17, even if the document was not physically available to Mr Donoghue and Ms Avery. Instead, Ms Avery's solicitors pleaded an arrangement that answered the Lava plea of the Call Option Deed but which was nevertheless quite different from the terms of Exhibit 17. After all, when Mr Donoghue came to adduce affidavit evidence in July 2010 of his version of what he had discussed with Mr Sorenson (set out above) before Exhibit 17 passed, he gave a quite detailed account of the exchange. Although he blames his lawyers, I do not accept that he did not have enough recollection to give a good account of his side of the Exhibit 17 story. 183If Mr Donoghue had been the victim of fraud he is unlikely ever to have forgotten the terms of the oral Plus Trustee - Lava agreement, out of which he alleged Mr Sorensen had cheated him. Exhibit 17 was only said to be its written form. It is almost impossible to explain how she, with his assistance, could have propounded an entirely different agreement for use in her defence. He must have been the source of information for that defence, as she was not a party to the Plus Trustee - Lava negotiations. Moreover, this defence, inconsistent with Exhibit 17 as it is, remained on the record until the entry of the judgment for possession.

Finding Exhibit 17 184I accept that Mr Donoghue found Exhibit 17 the way he says he did, by going into Mr Lowther's office in about November 2009 and by looking through Mr Lowther's file, where he found it. Mr Lowther corroborates this occurring. Mr Lowther was a witness of truth. 185But a curious aspect of this part of the history of Exhibit 17 is that again, Mr Donoghue does not behave like a man who was a victim of Mr Sorensen's apparently deliberate cheating. At the moment he finds the document in Mr Lowther's office, Mr Donoghue can be expected to have been both puzzled and annoyed: puzzled as to how Mr Lowther could possibly have made the mistake of signing the wrong document; and, annoyed with Mr Sorensen that it was now clear to him from this new evidence that a fraud had been committed. It is true that by this time judgment had been entered in the Lava proceedings and the Saree proceedings were under way. In fact when the document was found in November 2009, it was only about 3 months before the Saree proceedings were due to be heard. But despite the distractions of the Saree litigation, if Mr Donoghue had genuinely believed that Exhibit 17 was an authentic record of the true Plus Trustee - Lava agreement he would be expected to have done at least two things. 186First, Mr Donoghue would be expected again to enquire of his own accountant, Mr Lowther, how Mr Lowther had allowed himself to be so deceived. Neither he nor Mr Lowther gives any account of any such conversation. This discovery of this document would show that Mr Lowther had missed a very important communication before signing. He would have some explaining to do to his client. 187Secondly, it can be accepted that it perhaps may not have been automatic for Mr Donoghue to confront Mr Sorensen directly about his discovery, given that the Lava proceedings were over and the Saree proceedings, in which Mr Sorensen was a proposed witness, were about to be heard. But the discovery of Exhibit 17 filled the very gap that Mr Donoghue said had caused him to doubt the wisdom of propounding his remembered version of the Plus Trustee - Lava agreement. Now he had the documentary evidence he needed. It could be expected that a man who had been cheated and now had the evidence to vindicate himself, would quickly do something about this. Mr Donoghue blames Ms Avery's then lawyers for not pushing this issue in early 2010. It is not easy to judge the correctness of this from the Court's perspective. All that can be said is that Ms Avery's failure to quickly make the most of this important document is most surprising. This failure to quickly propound Exhibit 17 is not consistent with the belief that Mr Donoghue now professes in its authenticity. It is particularly surprising in a context where Ms Avery showed herself from time to time quite capable of changing lawyers, barristers and solicitors, to secure for herself the precise legal support she wanted.

The Original of Exhibit 17 and what happened 188The yellow paper form of Exhibit 17 itself provides few additional clues as to what probably happened in this case. A document such as page 2 of Exhibit 17 may well have been discussed between Mr Donoghue and Mr Lowther on 15 or 16 May 2006. But either Mr Sorensen rejected it in an early part of the negotiations and put it aside or it was simply was superseded by Ms Poole's work. It was a layman's document representing an early version of what Mr Donoghue hoped to agree with Mr Sorensen. But I accept that Mr Sorensen was not prepared to commit, as Exhibit 17 says for Lava "to exercise the option within 12 months of the date of this agreement at a price of 35c." 189I accept that Mr Donoghue found the document while he was searching the complete file in Mr Lowther's office on 12 November 2009. Mr Lowther corroborates this. But in my view he seized upon it wrongly as evidence of his final execution instructions to Mr Lowther. It was not. Rather it was probably a negotiating proposal, surpassed by later lawyers' drafts and dealings; perhaps faxed by Mr Donogue to Mr Sorensen. 190The fax tracer on the first page found in Mr Lowther's office might support an inference that the document was sent to Mr Lowther on 6 May 2006 at 9.28am London time. So does the second page but for the fact that there is a very thin line immediately before the "6" in the date "6 May 06" on that page. The thin line could be the number "1" (the "number theory"). Alternatively, it could be a stray line (the "stray line theory"), only indicating the border of the fax tracer field, a line that came out on the second page of the two page fax but not on the first page. 191The undisputed evidence is consistent with the number theory. Exhibit 17 was undoubtedly sent in May 2006 and at no other time. Accepting as I do that it was actually faxed to Mr Lowther; the only transaction that Mr Lowther was handling involving Plus Trustee and Mr Donoghue at that time was this one. Mr Sorensen and Mr Donoghue did not commence discussions about this transaction before about 15 May 2006, and certainly not before 8 May. The facsimile therefore cannot have been sent on 6 May 2006. 192Whilst the stray line theory has some evidentiary support it is not consistent with the course of discussions. It is highly improbable that Mr Donoghue was discussing that Mr Sorensen would come in and sign such a document as early as 6 May 2006. But the stroke in front of the "6" is much thinner than the number "1", a number that appears in several places elsewhere on the document. If the marking before the "6" in the fax tracer was the number "1", it is difficult to see why it would not come clearly out on the first page of the fax as well as the second page. But placed one page on top of the other, it does appear that the first and second pages of the Exhibit 17 fax were each fed into Mr Donoghue's London machine aligned slightly differently from one another: the facsimile centre arrows do not line up when the documents are placed over each other. This may account for why part of the number "1" appears on the second page but not the first. 193The number theory is consistent with other observations about Exhibit 17. The stroke could be a number cut off. Examination of the other number "1" on both pages of Exhibit 17 shows that any horizontal features of the "1" are in the part of the number that has been apparently cut off; only less than half than the number seems to have survived into print. Moreover, it is possible that the left hand side of the "1" may have been cut off, because the "m" of "am" seems to have been cut off at the other end of the tracer's time/date field. On the other hand, it may be that because "am" and "pm" have a common "m" that is only necessary in fax technology to put the "a" or the "p" there. None of this is the subject of expert evidence and the Court cannot speculate.

In Summary 194In summary, the form of Exhibit 17 is consistent with it having been sent on 16 May and with the number "1" in "16" being recorded only in the fax tracer on its second page. In my view Exhibit 17 was an earlier version of the agreement that Mr Donoghue proposed but which was superseded by the subsequent negotiations between the solicitors. But why Mr Donoghue would send an outdated document in this form to Mr Lowther is not explained in the evidence. Although he does not accept this, his sending it is consistent with him using the version of the agreement, which was most close to hand and faxing that to Mr Lowther. Perhaps he did not take sufficient note of the work that his lawyers had done for him when he sent the document. I prefer Mr Sorensen's evidence over Mr Donoghue on this issue. Moreover, given the way that Mr Donoghue reacted to Lava's propounding a competing document, the Call Option Deed, and the way he dealt with this document, Exhibit 17 when it was discovered, and the pre-eminence that the Call Option Deed had in the dealings between the lawyers, the probabilities suggest that Exhibit 17 did not reflect the exact agreement Mr Donoghue expected Mr Lowther to sign. 195Lava criticises Ms Avery and Mr Donoghue for the lack of supporting documents to back up their claim that Exhibit 17 was sent to Mr Lowther to record Mr Donoghue's signing instructions. Mr Donoghue does not have a copy of what he faxed to Mr Lowther even though he knew the document was important. And it is also true that the second facsimile tracer indicates that Mr Donoghue transmitted Exhibit 17 on an occasion prior to Mr Lowther receiving it. But there is no evidence of what this earlier communication was. Nor is there any evidence of the facsimile transmission records of the fax to Mr Lowther. In my view the absence of all of this facsimile material is as much to be explained by the passage of time as any other factor and is not particularly decisive against Mr Donoghue or Ms Avery's case. 196But another factor that the Court takes into account against Mr Donoghue's version is that there is no contemporaneous May 2006 document that records or refers to the Plus Trustee - Lava agreement passing to or from Mr Sorensen in the terms or form of Exhibit 17. Page 2 of the exhibit does not bear any evidence of any facsimile communication from Mr Sorensen. Mr Donoghue may have sent it to Mr Sorensen but there is no objective evidence that Mr Sorensen ever sent it back or adopted it. 197But there are other oddities in Mr Donoghue's account. Exhibit 17 is sufficiently important for Mr Donoghue to arrange for it to be signed in a written form through Mr Lowther. Its principal importance was to secure funds from the sale of Plus SMS shares to assist the discharge of the Lava loan. This was all to aid Ms Avery's secure occupation of Apartment 901. Whether out of affection for Ms Avery, or to avoid the possibility of misadventure, if he did not keep a copy himself it would be logical for him to give a copy of this document to Ms Avery in May 2006. But there is no evidence that he did that. 198Then there is the message on the first page. The language of the first page is somewhat strange, "attached is an agreement to cover Sorro [Mr Sorensen] taking 5 million shares" [emphasis added]. Mr Donoghue's statement here is consistent with this agreement only covering the subject matter. The agreement "he is bringing in to sign tomorrow afternoon" could still be a different. The first page of Exhibit 17 also refers to Sorro "taking" 5 million shares; it does not sound exactly like the purchase that Mr Donoghue says now that it was. 199If this document was supposed to be a final set of signing instructions, then it is surprising that Mr Lowther did not carry those instructions out. Mr Lowther struck the Court as a careful man who would carry out his clients' instructions. Mr Lowther could certainly not explain the document not coming to his attention nor his not acting on it on 16 May 2006, nor why the "PS" did not come to his attention. 200Mr Lowther did not pay attention to Exhibit 17 when he signed the Call Option Deed with Mr Sorensen. Mr Donoghue struck the Court as someone who would not be slow to check with Mr Lowther whether for example the "PS" correction had been made. It was a natural thing for Mr Donoghue to do if this were a final instruction, to ring Mr Lowther and check that his instructions had been carried out in such an important matter. That was not done either. The better view is that Mr Donoghue had no expectation on 16 or 17 May 2006 that Mr Lowther was going to execute Exhibit 17 with Mr Sorensen. 201In the result, this means that Plus Trustee did not have the benefit of the proceeds of sale of the 5,000,000 Plus SMS shares and to be able to require Lava to release the $1.5 million mortgage over Apartment 901.

Ms Avery's Causes of Action on the Lava Cross Claim 202Ms Avery contends that Mr Sorensen engaged in misleading and deceptive conduct by presenting the Call Option Deed to Mr Lowther to sign and by telling Mr Lowther he was authorised to sign it, when Mr Donoghue had never given such authorisation to Mr Lowther. It is said that Mr Sorensen knew that Mr Lowther did not have the instructions to sign the Call Option Deed but knowingly procured Mr Lowther's mistaken signature regardless. 203As the analysis above indicates a flaw in this reasoning is that Mr Sorensen was entitled to believe, in my view, that Mr Donoghue was communicating with solicitors at Messrs Dibbs Abbott Stillman who were then acting in Mr Donoghue's/Plus Trustee's interests and Ms Avery's interests. A number of drafts of the Call Option Deed had circulated among those solicitors and had been copied to Ms Avery. The presentation of the final form of Call Option Deed to Mr Lowther in these circumstances was not misleading or deceptive. Mr Sorensen on behalf of Lava was entitled to expect that whatever he was putting in front of Mr Lowther, that it, or a version relevantly indistinguishable from it, had been communicated to Mr Donoghue and that Mr Donoghue would not have himself authorised Mr Lowther to sign it unless, in his own judgment Mr Donoghue thought it appropriate for Mr Lowther to do so. I find that Mr Lowther was not induced by Mr Sorensen to sign a form of the agreement which he was otherwise unwilling to sign without Mr Sorensen's assurance. He was a professional who acted on his own judgment and in his client's best interests. He signed the agreement put in front of him, because upon his interpretation of Mr Donoghue's existing instructions he thought that that is what he should do. 204These findings also dispose of Ms Avery's other claimed relief in the Lava proceedings. Ms Avery relied upon Fair Trading Act 1986 (NZ), ss 9 and 43 as entitling her to relief declaring void or varying the Call Option Deed to conform with Exhibit 17, thereby, after the grant of such relief, allowing the Lava loan and Lava mortgage to be discharged. But the cause of action is based upon Ms Avery's contention that Mr Sorensen misled Mr Lowther into signing the Call Option Deed instead of Exhibit 17 in contravention of Fair Trading Act 1986 (NZ). My findings in the Lava proceedings do not support that case. So any claim under Fair Trading Act 1986 (NZ) also fails. This means the Court does not have to deal with the wider questions concerning the application of Australian authority to the New Zealand Fair Trading Act: cf Taylor Brothers Limited v Taylor Group Limited (1988) 2 NZLR 1. Nor does the Court have to examine questions of the scope of the word "trade" in the New Zealand legislation, and whether this New Zealand legislation has relevant application to this transaction. 205Ms Avery also sought relief under the Contracts (Privity) Act 1982 (NZ). She says that she was a third party beneficiary of the contract contained in Exhibit 17, and that she would ordinarily be excluded as a volunteer from enforcing its terms. But she says that under Contracts (Privity) Act 1982 (NZ), the ordinary bar is removed. But this cause of action too, depends wholly upon the Court finding that a contract between Lava and Plus Trustee is accurately reflected in Exhibit 17, a finding that the Court has not made.

Background to the Issues 206The issues in the Saree proceedings have been described earlier in these reasons. But at the heart of the Saree proceedings is a contest between Ms Avery and Mr Sorensen about what passed between them in March 2006. Here is the background to that contest and the competing versions.

Ms Avery's Version 207Ms Avery had separated from her former husband in December 2003. As these reasons explain earlier, she began to look for a new residence. At the same time, she says she was negotiating a property settlement with her former husband. I accept this as correct. She was then in a personal relationship with Mr Donoghue. But she says, and I accept, that she kept him at arms length from the details of her divorce. 208But she did look to him for assistance with the purchase of a new home for her. She says, and I accept, that in December 2005 she and Mr Donoghue had a conversation, to the following effect, about her looking for a property in which to live:- "Ms Avery:'I'm looking to buy a place in Sydney so that I've got somewhere to leave my things and somewhere that I can call home when we're back in Australia (we had been based in London for the previous approximate 2 years). You can stay there when you're in Sydney.' Mr Donoghue:'That's a great idea, I will sell some more shares (referring to PlusSMS Holdings Limited ("PlusSMS")) to cover the purchase price. To get a nice apartment how much do you think you'll need to spend?' Ms Avery:'Probably a few million.' Mr Donoghue:'Great. Why don't you start looking and send me the ones you actually like.' Ms Avery:'Ok.'" 209As these reasons explained earlier, Ms Avery acted on Mr Donoghue's invitation and commenced to look for a suitable place. She soon reported to him that she was looking for apartments in the price range of AUD3,000,000 to AUD4,000,000. I accept her evidence that on hearing this he offered to sell more Plus SMS shares than he had perhaps originally planned, to fund this higher consideration. When she found Apartment 901 in early February 2006 she emailed a copy of its floor plan to Mr Donoghue. The apartment also gained Mr Donoghue's approval. 210But on Ms Avery's case, she then had a problem. She says she feared the acquisition of Apartment 901 would disadvantage her in negotiating a property settlement in the family law proceedings with her ex husband. She says that she felt sufficiently familiar with Mr Sorensen to telephone him to help resolve her problem. She says that she asked him to help set up a scheme designed to pretend to her former spouse that the apartment she was acquiring was actually heavily encumbered. Mr Sorensen disputes her version of this conversation. 211According to Ms Avery the conversation between them was to the following effect:- "Ms Avery:'John, I've decided to buy an apartment in Sydney and as my family law matter with the ex is still ongoing, I want to protect it by making it look as though the property is mortgaged to the hilt. Are you happy to sign a mortgage and a full release that completely cancels it out?' Mr Sorensen:'Fine, not a problem. I can do that - draw up the papers'. Ms Avery:'Great. I'll get the paperwork drawn up. Thanks.'" 212Mr Sorensen denies accepting Ms Avery's apparently casual invitation for him to participate in misleading two third parties, the Family Court of Australia and Ms Avery's ex husband. Mr Sorensen's version is set out later. 213Ms Avery was scheduled to exchange contracts for the purchase of Apartment 901 on 3 March 2006. Just before that she did arrange to execute with Mr Sorensen two documents, a loan agreement ("the Saree loan") and a document entitled "Discharge and Release" ("the Saree Discharge and Release"). Both the Saree loan and the Saree Discharge and Release are reproduced below. 214Ms Avery says that these documents were prepared by "her lawyers" in the Isle of Man. The loan agreement is marked on its fly leaf as having been drafted by Laurence Keenan, advocates and solicitors of the Douglas in the Isle of Man. 215Ms Avery further says that several times before the execution of these two documents, the Saree loan and the Saree Discharge and Release, that she had a similar conversation to the one recorded above with Mr Sorensen about the need to declare the property in the Family Court proceedings and that she wanted it "mortgaged to the hilt". 216Ms Avery says she then spoke to her Sydney solicitor, Ms Sarah Merrick and then to the lawyer in the Isle of Man, about drawing up an agreement to reflect the arrangement that she had made with Mr Sorensen. Ms Avery says that her discussions with her Sydney solicitor, Ms Sarah Merrick, of Dibbs Abbott Stillman, did not provide her with any assistance. 217Ms Avery's explanation of how the Saree Discharge and Release came to be drafted by the Isle of Man solicitors, contains an event that places herself in a discreditable light. Her account might perhaps be thought more probable for this reason. Ms Avery says that Ms Sarah Merrick of her Sydney solicitors, Dibbs Barker Stillman, declined to draft the discharge and release agreement that Ms Avery wanted. Ms Avery says that she explained to Ms Merrick that she wanted to create a false document which would create the appearance of a liability over Apartment 901 in the family law proceedings, when in truth such liability did not exist. She says that Ms Merrick refused to become involved in aiding a scheme designed to mislead the Family Court and Ms Avery's former husband. 218Benefiting from the experience of Ms Merrick's principled rebuff, Ms Avery says that once more she tried to obtain a suitable agreement to serve her purpose of overstating her liabilities in the Family Court proceedings. She says she put her request to Mr Laurence Keenan in the Isle of Man. On Ms Avery's version, the earlier experience with Ms Merrick taught Ms Avery, that she should not explain fully to Mr Laurence Keenan just why she wanted this agreement. She says that when she went to Messrs Laurence Keenan in the Isle of Man, she did not fully explain the purpose for which she wanted this agreement. She seems to have simply asked Laurence Keenan for a form of loan agreement which might be able to serve a number of purposes. 219Ms Merrick's rebuff could be an important and reliable moment in the fact finding process. It shows that Ms Avery was going to do something with the Saree loan document that Ms Merrick then regarded as unethical. It is just what is expected of a competent and ethical legal practitioner in this jurisdiction. But Ms Merrick was not called to give evidence to rebut the case put against Ms Avery that she had recently invented this whole story of a transaction to advantage her in the Family Court. 220Once Ms Avery received the draft from Laurence Keenan, Mr Sorensen gave her information so she could create the final form of the Saree loan agreement before she flew to New Zealand. Importantly she says she added the figure of AUD3.7million as the loan amount and she added the name Saree Holdings Limited to the agreement. It should be inferred that Saree's name was supplied to her by Mr Sorensen. It is likely that they did have a conversation, where he conveyed at least this information to her. She knew the purchase price of Apartment 901. Mr Sorensen was unlikely to know that by any independent means. I accept her evidence about the events of this time, that she told him that figure, and as a result it was incorporated into the agreement. 221There was then a signing in New Zealand. Ms Avery says she flew to New Zealand with a hard copy of the documents. She seems somewhat confused in oral evidence as to whether Mr Donoghue was with her at this time. She says that Mr Sorensen signed both the Saree loan and the Saree Discharge and Release and said to her, "we don't need to worry about signing the Release now, we can do that later". She says that she replied to this, "no no John. We are both sitting here now, let's do it altogether as we agreed". She says that Mr Sorensen then signed the Saree Discharge and Release and gave signed copies to her and that he retained signed copies. 222Ms Avery says that Mr Donoghue was unaware of the arrangements that she had made with Mr Sorensen about the Saree loan. She says that she did not discuss the issue with Mr Donoghue until at least twelve months after execution of these two documents, that is after March 2007. As I have indicated earlier in these reasons, I do accept that Ms Avery kept details of her divorce away from Mr Donoghue. But exactly what she did or did not tell him about this transaction is in issue in the proceedings. 223Ms Avery says that the overall effect of what had occurred was that it was never intended that monies be advanced by Saree and no money was ever advanced to her by Saree pursuant to the loan. She says that the purpose of the arrangement was to encumber the property to its full value "because of my concern that the property may become caught up in my family law proceedings". She says that Mr Sorensen "well knew Saree was never going to loan any monies to me". She says that is implicit in the statements that she claims she made to him about the purpose of the execution of these documents. She says that the whole purpose of the Saree Discharge and Release was to put her in a position to be able to cancel the loan obligation when required. 224Mr Sorensen had quite a different version of what happened between himself and Ms Avery.

Mr Sorensen's Version 225Mr Sorensen agrees that there was contact between himself and Ms Avery in December 2005. But he says that the arrangement he and Ms Avery made was more complicated than Ms Avery's account. He recalls that the first contact about a new apartment for Ms Avery came from Mr Donoghue in a conversation to the following effect: - "Mr Donoghue:'Leanne wants to purchase an apartment in Sydney. I propose to help her with finance. I am selling some of my shares and options in Plus SMS Holdings Limited. Ken Wikeley has agreed to help in this process. The shares are in the name of Plus Trustee Limited but they are held on trust for my family trust the trustee of which is my wife, Sandra. The options are in my name. I do not want to fund the purchase of Leanne's property through the Family Trust. I need an entity through which the apartment can be funded and which can take a mortgage. Are you able to help?' Mr Sorensen:'I have a company called Saree Holdings Limited. The money can go through it and it can take a mortgage to secure the position of your Family Trust and you.' Mr Donoghue:'This is what I want. Thank you for your help.'" 226On Mr Sorensen's version the mortgage was real and was part of the scheme by which Mr Donoghue was to fund the purchase of Apartment 901 for Ms Avery. 227Mr Sorensen's version also helps explain why the Lava mortgage was executed in May 2006. He says that it was taken out to allow the purchase of Apartment 901 to settle and that it resulted in Lava Limited advancing approximately NZD1,500,000 to Ms Avery in May 2006 to allow her to complete the purchase. He says that in April 2006, preceding the Lava mortgage, he had the following conversation with Mr Donoghue about the funding of the purchase:- "Mr Donoghue:'Leanne does not have enough money to settle the purchase of her property in Sydney. Can you arrange funding for her?' Mr Sorensen:'How much?' Mr Donoghue:'About $1.5 million.' Mr Sorensen:'I will arrange it but she will need to give a mortgage and an option over 5 million shares in Plus SMS Holdings Limited as a sweetener.'" 228Ms Avery had exchanged contracts for the purchase of Apartment 901 through her solicitors Messrs Dibbs Abbott Stillman on 3 March 2006. Ms Avery and Mr Sorensen were in contact a number of times before the purchase of Apartment 901. Mr Sorensen has a different account of what happened at the time of execution of the Saree loan document and the Saree Discharge and Release. He says that Ms Avery handed him both documents and said to him "here is the Loan Agreement for the funds for my Sydney apartment and a Release. I wish you to execute them. The Release will be held by a third party until the debt to Garry is discharged". He says that he signed the Saree loan agreement which was dated 1 March 2006 and the Saree Discharge and Release which was undated, and then handed them to Ms Avery. 229Mr Sorensen says that he was involved in some share sales by Plus Trustee between late October 2005 and 31 January 2006. He says that at Mr Donoghue's request he was involved in the application of some of those funds. A short summary of what he says about this is the following. He says the following share option transactions took place, on the following dates generating the following amounts: 21 October 2005 Mr Donoghue's Family Trust, 8 million shares in Plus SMS for NZD2,500,000; 25 January 2006 Mr Donoghue's Family Trust, 3 million shares in Plus SMS for NZD600,000; 31 January 2006 6 million options in Plus SMS for NZD2,100,000; and, 31 January 2006 Mr Donogue's Family Trust, 7 million shares in Plus SMS for NZD2,100,000. Thus the share sales generated a total of NZD7.3 million. In summary he says that NZD3,710,215.40 of this money was paid at the direction of Mr Donoghue to Mr Donoghue's wife, to lawyers, to bankers and other persons who had nothing to do with Ms Avery's apartment purchase. That left a balance of the share sales of NZD3,589,784.60 to be applied in relation to the purchase of Apartment 901. 230Mr Sorensen says that indeed that sum was paid on behalf of Saree at the direction of Mr Donoghue in three transactions, the first of which was designed to fund the deposit of NZD370,000 referred to previously and the balance to put Dibbs Abbott Stillman in funds to settle the conveyancing transaction. Those payments were the following: a payment on 1 March 2006 of NZD416,291.63 to the trust account of Allen Wong and Co solicitors in respect of the deposit; a payment on 31 March 2008 of NZD1,950,000 to the trust account of Dibbs Abbott Stilmman; a payment on 5 April 2006 of NZD1,223,493 to Dibbs Abbott Stillman. This was part of a payment of NZD1,533,000 made by Lava on that date. These monies totalled NZD3,589,784.60. 231One of Saree's contentions in the proceedings is that the difference between NZD1,533,000 last payment to the trust account of Dibbs Abbott Stillman and the amount supposed to be paid at Mr Donoghue's direction was NZD309,507 (being NZD1,533,000 less NZD1,223,493). Saree claimed this was a mistaken overpayment that it made to Ms Avery of Lava's own funds rather than funds of the Donoghue Family Trust. This figure may feature in the nature of the relief to be moulded at the end of these proceedings.

Events after March 2006 232Of course the transaction in March 2006 in which Mr Sorensen and Ms Avery had participated did not result in the creation of a mortgage in registrable form. That did not happen until September 2006. The occasion for the mortgage being put in registrable form was explained by Mr Sorensen. He said that in early September Mr Donoghue telephoned him and said, "I want to tie up any outstanding paper work including the mortgage over Leanne's apartment. I also want to transfer any remaining Plus SMS Holdings Limited shares out of Plus Trustee Limited". 233What is clear is that by email on 12 September 2006 from Sarah Merrick at Dibbs Abbott Stillman, copied to Ms Avery, Ms Merrick forwarded to Ms Poole in New Zealand a form of mortgage from Ms Avery to Saree. Ms Merrick says in that email to Ms Poole, "I understand that you have received, or will shortly be receiving, instructions from John Sorensen in relation to the above matter". She then encloses the mortgage and schedule to the mortgage. She concludes her email "please also confirm that you would like us to register a caveat on the title to the property protecting the interest of Saree Holdings Limited". 234Ms Avery did declare her liabilities in the Family Court proceedings as if the Saree loan agreement and the Saree mortgage were valid. In Part K of her statement of financial circumstances filed in the Family Court on 18 September 2006 against the heading "Other Mortgages" the form required the declarant to state the "full names of all borrowers", which she records as "Leanne Marie Avery". The form also asked for her percentage figure share and she entered "100 x 2". Under the column dealing with "amount of your share" she has inserted a figure of $4,200,000. The document is signed by Ms Avery and witnessed by a lawyer. 235Ms Avery's Family Court proceedings finally settled on 1 February 2007. Ms Avery had signed the terms of settlement a few days before, on 25 January 2007. At that stage the Saree mortgage was unregistered. In April 2007 Mr Sorensen sought registration of the mortgage on the title of the property. On 23 April 2007 Ms Poole, acting for Saree, emailed Ms Merrick at Dibbs Abbott Stillman and said, "my client is anxious to know whether there is an executed mortgage in existence, on the basis that he will probably proceed to registration (as was originally intended)". On the same day Ms Poole further emailed Ms Merrick saying "can you please proceed to register Saree Holdings Limited's mortgage ASAP?" The matter appeared to be an uncontentious one, in that Ms Poole asked Ms Merrick, who apparently agreed to carry out registration. But the immediate background to these proceedings and the entry of judgment in the Lava proceedings was an attempt to refinance the borrowings over Apartment 901 with the Commonwealth Bank of Australia ("the CBA").

The Attempted CBA Refinance 236As she had explained to Price J, in March 2009 Ms Avery was then attempting to refinance her indebtedness to Lava secured over Apartment 901. To achieve this result Ms Avery sought the assistance of a mortgage broker, GAP Financial, who approached the CBA. Ms Avery's contact with GAP Financial produced a contentious and a revealing credit issue in the proceedings. 237The CBA wanted information about Ms Avery's financial circumstances. During the refinancing discussions Mr James Krufos of GAP Finance emailed Ms Avery and Mr Henderson, an associate of Mr Donoghue's, who was assisting her with the refinancing, about what information was required for the CBA. After reporting to Ms Avery and to Mr Henderson that he had received the CBA finance application form, he explained that he still needed other information. This included evidence of Ms Avery's current income, as Mr Krufos said, "please also have employment letter signed (faxed to 9386 1490) and state the income as yearly (per annum) figure not monthly". But Ms Avery was not employed for remuneration outside of the home at the time. 238Her response to Mr Krufos' email of 1 March 2009 was to forward it onto Mr Donoghue and Mr Henderson, saying in her forwarding message the following:- "I'm confused! James [Mr Krufos] is pushing me for data to support this; and unless John & I are talking at cross purposes, John has confirmed what I do/don't need to send... are we going ahead with the CBA loan or not??..." 239This forwarded email indicates her reluctance to provide further information to the CBA. But a subpoena to GAP Finance produced a draft letter on the letter head of a company Converging Limited, dated 26 February 2009 to the following effect:- "TO WHOM IT MAY CONCERN I confirm that Leanne Avery is employed by me as a telecommunications consultant. She has worked for me on several projects over the last 11 years in Australia, Europe and the USA. Leanne's current retainer relates specifically to the development of my new business which provides roaming services to GSM subscribers who roam internationally throughout the USA and Latin America. Leanne's remuneration is 276,000 euros pa. Yours faithfully Garry Donoghue Founder, Converging Limited" 240The letter was unsigned. There was no evidence it had actually been sent to the CBA. The fact it emerged from the files of GAP Finance in an unsigned form indicates that it was not executed by Mr Donoghue before it got to GAP Finance and any inference that it was sent to CBA in a signed form is even weaker. 241Ms Avery was not employed as a telecommunications consultant in February 2009 and was not then in receipt of remuneration of 276,000 euros per annum. She says, and I accept, that she had not seen the Converging Limited unsigned letter of 26 February 2009 until sometime approximately six months before the hearing, about August 2009, when her lawyers showed it to her. 242Ms Avery was cross-examined about why she did not follow up the issue with Mr Donoghue when she found out about the existence of the Converging Limited unsigned letter of 26 February 2009. Her response, "I didn't want to know about it" is typical of two aspects of Ms Avery's evidence in this case: first Ms Avery suspected that Mr Donoghue may be prepared to mislead others in her interests; and secondly, despite the fact that she was so aware, she was content to allow Mr Donoghue to continue to act in her interests in that way, without correcting any misleading impressions that he had produced. 243I do not doubt that Ms Avery knew the document was being created. Indeed she said she believed she knew why it was being created: for provision to the Commonwealth Bank. Ms Avery said, and I accept, that her initial impression was that this was going to be a low doc loan. She wrote her "I am confused" email in a context that when the Commonwealth Bank became involved and asked for more documentation than would be required for a low doc loan, she needed help. This episode was another reason for the Court to be cautious about accepting Ms Avery's evidence.

The Saree Loan Agreement 244The Saree loan agreement executed on 1 March 2006 is not lengthy. It provides as follows:- "THIS LOAN AGREEMENT is made the 1st day of March two thousand and six (2006) BETWEEN: - 1.SAREE HOLDINGS LIMITED of c/ [address not published], Auckland New Zealand ("the Lender") 2.LEANNE AVERY of [address not published], Sydney 2001 NSW Australia ("the Borrower") Recitals 1.The Borrower has requested and the Lender has agreed to give the Loan in order that the Borrower can purchase the Property. 2.The Terms and Conditions of the Loan are set out in this Agreement. 1.Definitions In this Agreement the following words and expressions shall (unless the context otherwise requires) have the meanings opposite them: - the "Borrower" Leanne Avery and her executors and her administrators and assigns the "Default Date" the date when repayment of principal and or interest the "Interest" the Base Rate of 5% which shall be calculated on a daily basis on the balance of the above loan payable on the interest payment date the "Interest Payment Dates" quarterly on the 12th day of February May August and November in every year up to and including the Loan Repayment Date the "Interest Period" the relevant quarter year ending on each Interest Payment Date the "Lender" SAREE HOLDINGS LIMITED and their executors and their administrators and assigns the "Loan" the sum of Australian Dollars 3,700,000 (Three Million & Seven Hundred Thousand) the "Loan Period" the period commencing on the date hereof and ending on the Loan Repayment Date the "Loan Repayment Date" The date when the Loan is repaid pursuant to Clause 4 the "Property" ALL and SINGULAR the hereditaments known as the The Parbury, 901/1 Pottinger Street, Walsh Bay, New South Wales, Australia.

2.The Loan 2.1The Lender hereby agrees to lend to the Borrower and the Borrower agrees to borrow from the Lender the Loan and subject to the terms and conditions contained herein 2.2The Loan shall be drawn down in one amount upon the Borrower giving the Lender 48 hours notice of the Borrower's intention to draw down the Loan 3.Interest 3.1The Borrower will pay the Interest (accruing daily from and including the date on which the amount of the loan is paid by the Lender to the Borrower) on the Loan. 3.1.1Interest for the period in question shall be calculated on the 12th day of February May August and November in each relevant year and upon the outstanding principal sum due at such date. 3.2Interest on the Loan shall be paid by the Borrower to the Lender on the Interest Payments Dates in each year of this Agreement the first such payment to be made on the 12th day of February May August and November and quarterly yearly in arrears thereafter. 3.3If the Borrower fails to pay any sum on its due date for payment under this Agreement (whether of interest or principal) ("the Default Date") the Borrower shall pay interest on such sum from the due date up to the date of the actual payment equal to 10 percent accruing daily on the outstanding sums due from the date of default 4.Repayment of Loan 4.1The loan is repayable on demand. 4.1.1The Borrower and the Lender may agree for the Borrower to provide Consultancy work in lieu in whole or in part of the Loan Repayment 4.2The Loan shall be immediately due and payable together with accrued interest thereon (if applicable) (whether or not such repayment is demanded in writing by the Lender) 4.2.1if the Borrower becomes or is declared insolvent 4.2.2if the Borrower proposes or makes any agreement or composition with the Borrower's creditors or a petition is presented or a meeting is convened for the purpose of considering that a petition be presented for the bankruptcy of the Borrower. 4.2.3if any payment of principal sum and/or of interest is more than one calendar month in arrears 4.2.4if the Borrower shall commit an act of bankruptcy 4.2.5if an execution or judgment is granted against the Borrower and not paid or satisfied within fourteen days thereafter; 4.2.6if the Borrower shall fail to observe or comply with any of the covenants conditions agreements and stipulations herein contained 4.2.7if the Borrower shall sell or part with possession of the Property or any part thereof 4.2.8if the Borrower shall die 4.3All payments by the Borrower under this Agreement (whether in respect of principal or interest) shall so far as the law permits be made in full without any deduction or withholding (whether in respect of set off counterclaim duties taxes charges levies or otherwise howsoever). 5.Costs 5.1The costs and expenses of and incidental to this Agreement and to the security documentation required shall be borne solely by the Borrower 5.2The liability for costs and expenses together with all costs and expenses of the Lender arising out of any legal advice and assistance and any legal proceedings in connection with the enforcement of the Lender's rights hereunder shall be due on a full indemnity basis 6.Notices 6.1Every notice request demand or other communication under this Agreement shall be in writing delivered personally or by first class prepaid letter facsimile transmission or cable (confirmed in the case of a facsimile or cable by first class letter sent within twenty four hours of despatch). Every notice request demand or other communication shall subject as otherwise provided in this Agreement be deemed to have received in the case of a facsimile transmission at the time of despatch thereof (provided that if the date of despatch is not a business day in the country of the addressee it shall be deemed to have been received at the opening of business on the next such business day) in the case of a cable twenty four hours after despatch and in the case of a letter when delivered personally or three days after it has been put into the post 6.2Every notice request demand or other communication under this Agreement shall be sent to the Borrower at:- [address not published], Sydney 2001 NSW Australia shall be sent to the Lender at:- c/- [address not published], Auckland New Zealand or such other address or addresses as may be notified by one party to the other party 7.Miscellaneous 7.1The liability of the Borrower's hereunder is joint and several 7.2Simultaneous to the exchange of this Agreement, the Lender shall execute a Release and Discharge of the loan in the form annexed which will be held by a Third Party and dated and given to the Borrower when the Borrower's obligations have been discharged 8.Law and Jurisdiction 8.1This Agreement is governed by the laws of New South Wales, Australia 8.2The parties to this Agreement irrevocably submit to the exclusive jurisdiction of the Courts of New South Wales 9.Clause Headings 9.1Clause headings are for each of reference only and shall not affect construction IN WITNESS WHEREOF the parties hereto have executed these presents the day month and year first before written EXECUTED by the Lender in the presence of: [Signature of J Sorensen]

SIGNED and DELIVERED by the Borrower in the presence of: [Signature of L Avery] [Signature of G Donoghue]"

" 245The Saree loan agreement is dated 1 March 2006, two days before the sale contract for Apartment 901, but six months before Ms Avery's submission of the financial statement in her divorce proceedings.

The Saree Discharge and Release 246The Saree Discharge and Release was also executed between Mr Sorensen and Ms Avery and was in the following terms:- "THIS DISCHARGE AND RELEASE is made the 1st day of March two thousand and six (2006) BETWEEN:- 1.SAREE HOLDINGS LIMITED of c/- [address not published], Auckland, New Zealand ("the Lender") and 2.LEANNE AVERY of the [address not published], Walsh Bay, New South Wales Australia ("the Borrower") Recitals 1.By a Loan Agreement dated the 1st day of March 2006 ("the Loan Agreement") the Lender did lend to the Borrower a Loan in the sum of Australian Dollars 3,700,000 (A$ Three Million and Seven Hundred Thousand) upon the terms stated therein 2.The Borrower who has discharged the obligation contained in the Loan Agreement has called upon the Lender to execute this Discharge and Release Acknowledgement 1.The Lender hereby acknowledges that the Borrower has discharged al obligations required under the Loan Agreement and does hereby absolutely grant this Release. Law and Jurisdiction 1.This Agreement is governed by the laws of New South Wales, Australia 2.The parties to this Agreement irrevocably submit to the exclusive jurisdiction of the Courts of New South Wales IN WITNESS WHEREOF the parties hereto have executed these presents the day month and year first before written EXECUTED by the Lender in the presence of: [Signature of J Sorensen]

SIGNED and DELIVERED by the Borrower in the presence of: [Signature of L Avery] [Signature of G Donoghue]"

" 247On its fifth and final page, against the execution clause, the Saree loan agreement is signed by Mr Sorensen and also by Ms Avery. Ms Avery's signature appears to be witnessed by Mr Donoghue whose name is then spelt out as the witness. 248The circumstances of Ms Avery's execution of the Saree loan agreement were unusual. Ms Avery flew from Sydney to New Zealand in March 2006 for it to be executed with Mr Sorensen. At first Ms Avery said Mr Donoghue accompanied her on this visit. But she retreated from this. I find he was not present at the time that Ms Avery and Mr Sorensen signed the document in New Zealand. I find Mr Donoghue did not sign the Saree discharge and release at that time but signed it later, it is unlikely in my view that he did accompany her on this trip. What happened, in my view, was that she arranged for Mr Donoghue to place his signature under hers, after she had already signed it in the presence of Mr Sorensen. But her memory of when and how she did this is very weak. 249Ms Avery's recollection how long after Mr Sorensen signed the Saree discharge and release that Mr Donoghue witnessed her signature on it is poor. All she could say was that it was "shortly" after. But of course, this could be a period of days, weeks or months. When Ms Avery had Mr Donoghue sign the Saree discharge and release, she did so, as she understood it, "as part of having the document legally enforced". Ms Avery says when she had Mr Donoghue sign, she only showed him the final page, which she either removed from the rest of the document or showed to him with the preceding pages folded over. She does not recall where Mr Donoghue witnessed her signature or indeed whether she had the whole of the loan agreement and not just the last page with her at that time. Her recollection of all of this aspect of the witnessing was poor. The original of the Saree Discharge and Release that Ms Avery took away has been asked for but has not been produced. 250Although Ms Avery asked Mr Donoghue to witness the signature, she says that she did not tell him what it was about. She believes that she may have said that it was an arrangement involving Mr Sorensen but did not elaborate her reasons any further to Mr Donoghue. Ms Avery was challenged as to whether or not she explained the document to Mr Donoghue before his signature as a witness was obtained. She says she did not. She says that she had no reason to. His only task was to witness her signature. Her evidence on this was difficult to accept.

Mr Sorensen's Version or Ms Avery's Version? 251The Court cannot accept Ms Avery's version of the creation and execution of the Saree loan and Saree mortgage. The reasons for that are explained in this section. The problems with Ms Avery's version relate to both the execution and treatment of the relevant documents.

At Execution 252There were many problems with Ms Avery's version, arising from the time of execution. First, her Family Court legal advice was that there was little risk of her ex husband making a claim against Apartment 901, as it was acquired after her divorce. Her whole object of keeping the property away from her divorce proceedings could have been satisfied without any of these transactions being undertaken. It could have been left in the name of a nominee company for a short period, and then transferred to her after the Family Law proceedings were over. The Court was not satisfied that the transactions were even necessary to serve the purpose that she stated. 253Secondly, the Saree loan agreement does not contain any charging clause. The Saree loan agreement does not serve Ms Avery's purposes of giving the appearance that Apartment 901 was, in her words "mortgaged to the hilt". It does not create any legal encumbrance over the property and does not charge repayment of $3.7million on the property either at law or in equity. The document would not have withstood scrutiny. It would only show an offsetting unsecured obligation loosely related to the purchase for $3.7million. That may have partially served her purposes in the short term. But this was unlikely to have survived serious analysis by lawyers acting for Ms Avery's former husband. I accept Ms Avery did not appreciate that the document did not have a charging clause in it. But this just shows that she had not taken any steps to check that the document might serve her purposed in the Family Court. Really, the better view is that it was not to be so used. 254Thirdly, Ms Avery and Mr Donoghue planned to purchase Apartment 902, the apartment adjoining Apartment 901, in their joint names for AUD2.8 million. Ms Avery took no steps to disguise that proposed purchase from her former husband in the same way as she did from Apartment 901. The purchase of Apartment 902 proceeded at about the same time as the purchase of Apartment 901. Ms Avery could give no adequate explanation of why concealment was necessary in one and not the other. The evidence clearly supports that she was a proposed purchaser of Apartment 902. 255Fourthly, the Saree loan agreement, clause 7.2 refers to the Saree Discharge and Release, as can be seen from the text above. This actual reference to the existence of the "Release and Discharge" in the text of the Saree loan is wholly inconsistent with Ms Avery's version of creating a document that could be used in the Family Court proceedings and later discharged by deploying a secret discharge and release. Ms Avery's explanation of the consistency between clause 7.2 and her alleged scheme was not persuasive. 256Fifthly, Ms Avery's incapacity to produce the original documents, in particular the Saree Discharge and Release was very difficult to accept. She said that her previous lawyers had mislaid the document. She could have easily called evidence, with only a limited loss of client privilege from her previous lawyers to explain just that. No such evidence was called. One document which would be of critical importance for her to obtain would be the original of the Saree Discharge and Release. It was the key, on her version, to her unlocking the scheme that she had created. The better view was that there was no such scheme. 257Sixthly, two related aspects of Ms Avery's story are impossible for the Court to accept. She says that she wanted to keep this whole arrangement away from Mr Donoghue. But she asked Mr Donoghue to witness her signature on the Deed of Release and Guarantee. He did so after it had been earlier executed by both Mr Sorensen and Ms Avery. She could not adequately explain to the Court why she could not get someone else to witness her signature and why she chose Mr Donoghue in these circumstances. Equally, she involved Mr Sorensen in the alleged scheme, despite the fact that he was a close business associate and in regular contact with Mr Donoghue.

After Execution 258But there were many problems with Ms Avery's version after execution. 259First, Ms Avery's case is that she wanted the property to be "mortgaged to hilt". But no mortgage was in fact either prepared or executed until September 2006. It is true this is shortly before she filed her financial statement in the Family Court and it is true that the amount for which the mortgage was stamped at AUD2.7 million, does not bear a very obvious relationship to what then have been outstanding on the mortgage, in September 2006. But if Ms Avery was anxious to pursue the scheme for which she says she was propounding, it could be expected that she would have pushed for creation of the mortgage, and even its registration, much earlier. I do not accept her explanation that she did not wish to incur the additional expense of preparing a mortgage at that stage. 260Secondly, and most importantly, Ms Avery's Family Court proceedings were settled on 1 February 2007. In that settlement she was declared to be the owner of Apartment 901. But Mr Sorensen sought to have the mortgage registered on the property in April 2007. Here was the moment for Ms Avery to resist registration if the mortgage was created in the circumstances that she claimed. There is no evidence that she did resist in any way or seek to take the matter up with Mr Sorensen. The Court found it very puzzling that she would allow the mortgage to be registered. The following exchange took place between Ms Avery and the Court in the course of her cross examination:- "The Court:But if these facts add up, and I don't know because they're yet to be established, but the I mean, the request wouldn't make any sense, would it? Ms Avery:No, but I don't recall ringing Mr Sorensen and asking him what was happening. And I also don't recall asking Sarah Meric. I would she was my lawyer and The Court:But you know that what a mortgage does is it gives people the right to bring proceedings for possession. Ms Avery:Well, I do now. The Court:Well, you did then, didn't you? Ms Avery: Yes. The Court:Well, why would you not, if the Family Court proceedings had finished in February and that's the assumption. Why would you not resist the registration of a mortgage in May of 2007 because of the risk that might be entailed for you and the property? Ms Avery:I didn't I didn't believe there was a perceived risk because I had the discharge and release that would counter any claim over the property under under the loan, under the mortgage. The Court:Well, what was the point of Mr Sorensen, as you remember, seeking as you understood it, to register a mortgage in respect of an obligation where you had a complete release? Ms Avery:I I don't remember. The Court:Well, it doesn't make any obvious sense, does it? Ms Avery:No. The Court:Well, did it make any sense then? MS Avery:No, but I also don't understand the difference between having the caveat lodged or registered and having a mortgage registered. I presume because we're here right now that it's a stronger lien over the property, if that's the correct term, but I don't know why The Court:But why would you need a further step to be taken in relation to the property when you knew that you had a release and it was all pointless? Ms Avery:Oh, I was I couldn't say definitely but I was probably told some rationale that didn't concern me because I had the release and I don't remember whether we had Mr Sorensen and I had a conversation about it or not. I don't recall if Sarah Meric passed along to me what they wanted to do, but I wasn't concerned. I thought I had my out in my back pocket, so to speak, over any of it. " 261I do not accept Ms Avery's evidence about this. She claimed a lack of understanding of some legal transactions, which may be partly right. But there was no doubt, in my view, even in her mind that the security position was being advanced against her by registration. If the mortgage was created in the circumstances that she says, this was the time for her to say "no" and she did not.

The Legal Result of these Findings 262Although the parties also undertook a contest before me as to how much might be due under the Saree mortgage, it is important in my view to pause and examine; now the Court has rejected Ms Avery's primary case in the Saree proceedings, what is the correct procedural course. Saree submits that the conventional remedy for the mortgagor wishing to discharge a mortgage is a redemption suit which would normally require an account to be taken so as to determine the amount owing under the mortgage. This process normally requires a complete and final determination as between mortgagor and mortgagee of the amount owing and one cannot have an account in "bits" and pieces: Adams v Bank of New South Wales (1984) 1 NSWLR 285 at 296 and Equus Financial Services Limited v RMBL Investments Pty Limited (1996) 22 ACSR 744 at 745. 263I agree with that submission that that is the correct process. But the contest between the parties does not seem to have been framed before me for the taking of such account. That is very troubling. I am reluctant to proceed to make a partial determination about how much is due on the mortgage until the parties are agreed upon the procedure and what the Court is doing. For that reason, after these lengthy reasons there should be a procedural pause. The Court is prepared to determine the other issues raised, but only in a context where the parties fully agree upon the procedure. 264In this respect two observations are appropriate. First, I do not agree with Saree's submission that these proceedings have not been framed as a redemption suit. It is true that Ms Avery seeks a declaration in paragraph 1 of the Statement of Claim that she does not owe Saree any money. But in substance the other orders are sought and the conduct of the proceedings makes it clear that redemption is the object. 265As a result of my prior findings Ms Avery certainly bears the risk of having to pay Saree's legal costs of these proceedings under the terms of the mortgage and at general law. Also the mortgagor is required to pay a mortgagee's costs as a condition of obtaining relief by way of discharge, unless the mortgagee is guilty of misconduct: cf Liberty Funding Pty Ltd v Steel Smith (2004) NSWSC 1100. Given the findings that I have made any case of misconduct against Saree would be very difficult if not impossible to maintain. Saree's position in the proceedings has been vindicated so far. Thus in my view the mortgage is arguably likely to secure something. 266Saree has submitted that the proceedings should be dismissed. In my view, that will only lead to further litigation. The Court needs to quell this dispute. Accordingly, I will direct the parties to put on submissions about what further needs to be done, if anything, for the taking of a final account as between Ms Avery and Saree. I will direct that those submissions be provided by 18 May 2012.

Conclusions and Orders 267The Court has before it two proceedings, the Lava proceedings in the Saree proceedings. 268In the Lava proceedings Ms Avery has sought to set aside the judgment for possession Price J entered on 18 March 2009. The Court has found that Ms Avery's case to set aside that judgment must satisfy UCPR r 36.15. But the Court has found that Ms Avery fails on the motion. She fails both because she did not establish that the judgement was entered "irregularly" as she contended. This was so, notwithstanding the Court's finding that the Consumer Credit Code did apply to the Lava loan. Any irregularity that had occurred in Lava say to comply with code section 80 related to the commencement of proceedings, not the entry of judgement. Thus UCPR r36.15 was not enlivened. 269Nor did Ms Avery establish that sufficient cause had been shown to set aside the judgment in the Lava proceedings in accordance with the discretion conferred on the Court under UCPR r36.15. The circumstances in which Ms Avery, when legally represented and calculating what was then in her best interests, consented to the judgment for possession during the hearing before Price J in March 2009 are significant obstacles to her persuading the Court that the judgement should be set aside. The Court is not persuaded that it should exercise the discretion. 270But there were special procedural circumstances of this case that compelled the Court to decide the issues that would have decided had the judgment for possession been set aside. All parties wanted finality without risking multiple trials. Ms Avery had commenced the Saree proceedings against the second mortgagee of Apartment 901, when she sought to set aside the judgment for possession of the Lava proceedings. There was a very substantial factual overlap between the factual issues in the Saree proceedings and the factual issues in the Lava proceedings. So with the consent of the parties, the Court proceeded to determine all the issues for trial raised in the Lava proceedings. 271The principal issue for trial in the Lava proceedings was whether on or about 19 May 2006 Mr Donoghue on behalf Plus Trustee had agreed with Mr Sorensen on behalf of Lava for Plus Trustee to sell 5 million shares in Plus SMS to Lava at NZD0.35 per share, thereby generating sale proceeds of $1,750,000 from which the Lava mortgage could be repaid. On that issue the Court is not persuaded that such an agreement was made. Rather the Court has reached the view that Mr Sorensen is correct that Lava and Plus Trustee entered into a Call Option Deed, under which Lava was not obliged to acquire Plus SMS shares and did not do so. 272In the result Ms Avery fails in her attempt to have the Lava mortgage set aside. But even if it had been set aside, she would have failed in the proceedings in any event. 273In the original proceedings that Ms Avery commenced, the Saree proceedings, she sought a declaration that there is nothing owing on the Saree loan and therefore that there was nothing owing on the associated Saree mortgage. But the Court has found that Saree's contention is correct that the relief she seeks can only be obtained in proceedings for the redemption of the Saree mortgage. Nevertheless, the Court has made findings about the contested facts in the Saree proceedings and concluded that Mr Sorensen did not collude with Ms Avery to create a false second mortgage on the title of Apartment 901. But the Court has not yet determined what is owing on the mortgage as an account needs to be taken. The Court will do that. 274The Saree proceedings will not otherwise be dismissed. This combined result may lead to further argument between the parties on issues of costs. The Court therefore directs the parties to bring in agreed short minutes of order to give effect to these reasons. If the parties cannot agree upon a form of orders for that purpose, then the parties should file their competing short minutes of order by 4 pm on Friday 18 May 2012 together with any submissions on procedure (see [266] above) and costs. List the proceedings for further argument before me in relation to the making of appropriate orders, including costs at 9.30am on Friday 25 May 2012.

Amendments 16 May 2012 - quote amended - address removed and not to be published Amended paragraphs: 244 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 May 2012