Commonwealth Bank of Australia v Hilellis & Ors

In my view the Plaintiff has shown that it had relied upon each of the representations in question. I am satisfied that if the truth of any of the misleading matters had been disclosed to the Plaintiff prior to the approval of the loan then the property would not have qualified for valuation and therefore it would not have qualified for lending according to the Plaintiff's lending policy on the basis of the content of the front page of the contract for sale which would have meant that the Plaintiff would then have required an external valuation. In my view, had an external valuation been obtained, this would have revealed an opinion along the lines of the opinion of Mr Hubbard. I find that if that had been the case the application to the Plaintiff for finance for the transaction would have been effectively scuttled without mortgage insurance being obtained, which would have been an entirely different lending transaction with entirely different risk assessment parameters.

On 12 August 2005 the Plaintiff's settlement officer Mr Siganos requested a completed front page of the contract for sale. I am satisfied that this was done to obtain written confirmation of details of the transaction as a precursor to the bank confirming and communicating its approval for the loan requested by the Second and Third Defendants. I find that the faxed reply from Mr Caramanlis on the same date, which contained the relevant representations in response to that enquiry, was specifically relied upon by the Plaintiff as a precursor to the advancement of the purchase monies. I find that if the impugned material statements of fact contained in the contract were disclosed to have been untrue on 12 August 2005 the Plaintiff would not have proceeded to advance the purchase monies and would not have transacted the mortgage which ultimately caused the losses claimed in these proceedings. This would have been so because the transaction would have been exposed as being suspicious and I am satisfied that in those circumstances it would not have then gone ahead.

In my view the Plaintiff has adduced ample evidence to demonstrate that its losses were caused by the misleading and deceptive representations made by the Second, Third, Fourth and Fifth Defendants. It has done so by introducing evidence of the receipt of the representations, showing how, according to the internal business processes of the bank, it relied upon those representations for data entry into the Plaintiff's computerised loan application assessment tool known as VAS which was part of the Plaintiff's assessment process. Whilst the VAS process may have been one which was inherently vulnerable to fraudulent manipulation if incorrect and untrue data was permitted to be entered into its assessment processes without supervision, the evidence discloses that it was nevertheless a business system used by banks to assess low document loan applications. The Defendants argued that it was the computer system that made the Plaintiff vulnerable to suffer the loss. The Defendants have argued that it was not the misrepresentations but the computerised assessment process that caused the loss. In my view that is an untenable argument because it ignores the effect of the underpinning representations and I reject it.

I am satisfied that in making the advance of $440,000 to enable the transaction to be completed, the Plaintiff relied on the representations made by the Defendants on 12 August 2005. I am satisfied that had those representations not been made the transaction would not have met the Plaintiff's policy for approval of finance without formal valuation otherwise known as low document or sub-prime mortgage lending. In my view, having regard to the valuation evidence of Mr Hubbard, I am satisfied that if a formal valuation had been undertaken, the loan advance would not have been approved. I therefore find that in the relevant sense the Plaintiff's losses were therefore caused by the conduct of the Fourth and Fifth Defendants.

There was no defence pleading contributory negligence. I find that the Plaintiff's losses were caused by the misleading and deceptive conduct of the Defendants.

The seventh issue - The quantum of the Plaintiff's loss

The Plaintiff tendered Exhibit "E" which incorporated calculations of its claimed loss totalling $121,804.54 including interest. That calculation comprised the shortfall following the mortgagee sale and the addition of the contracted rates of interest. The Defendants did not dispute the calculation and I therefore assess the Plaintiff's quantum of loss in the sum of $121,804.54.

The eighth issue - Whether the First Defendant has accessorial liability under Trade Practices Act 1974 s.75B / Fair Trading Act 1987 s.61

The Plaintiff submits that the First Defendant has incurred accessorial liability for the Plaintiff's losses pursuant to s.75B of the Trade Practices Act, 1974 (Cwth) and under s.61 of the Fair Trading Act, 1987 (NSW). The Plaintiff similarly argues that s.61 is invoked. The difference in these two provisions is that the former applies to corporations and the latter applies to individuals.

Intention is not a necessary element for establishing liability for misleading and deceptive conduct in trade or commerce and therefore it is not an essential element in the case against the Fourth and Fifth Defendants. However, for the Plaintiff to succeed against the First Defendant under the accessorial liability provision as a 'person involved' the accessory must be shown to have knowledge of the essential elements of the contravention : Yorke v Lucas (1985) 158 CLR 661 at 666-699. That is, the Plaintiff must show that the First Defendant's accessorial conduct was intentional.

In order to establish the requisite intent the Plaintiff relies upon a combination of suspicious circumstances and the failure to make inquiries to infer that the First Defendant had knowledge of essential matters : King v GIO Australian Holdings Pty Ltd [2001] FCA 308 at [7]. The test for circumstantial proof has been stated in Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5, namely: "Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough in the circumstances appearing in the evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture: (see per Lord Robson, Richard Evans & Co Ltd v Astley [1911] AC 674, at 687). But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as mere conjecture or surmise ..."

Further, in Chamberlain v R (No 2) [1984] HCA 7; (1984) 153 CLR 521 Gibbs CJ and Mason J said at 536: "When the evidence is circumstantial, the jury, whether in a civil or in a criminal case, are required to draw an inference from the circumstances of the case; in a civil case the circumstances must raise a more probable inference in favour of what is alleged ..." 89. In approaching the evaluation of the conduct of the First Defendant I propose to follow the approach in Palmer v Dolman; Dolman v Palmer [2005] NSWCA 361 at [35]-[37] in which the abovementioned authorities were reviewed in the following terms: "In Doney v R [1990] HCA 51; (1990) 171 CLR 207 Deane, Dawson, Toohey, Gaudron and McHugh JJ said at 211 that when a lesser standard of proof than beyond reasonable doubt will suffice, "the existence of other reasonable hypotheses is simply a matter to be taken into account in determining whether the fact in issue should be inferred from the facts proved". … "It is worth repeating, I think, that in Chamberlain v R (No 2) at 536 Gibbs CJ and Mason J said that in a civil case "the circumstances must raise a more probable inference in favour of what is alleged".

With these principles in mind I turn to an analysis of the evidence given by the First Defendant. The first matter to note in that analysis is that the First Defendant swore an affidavit on 2 February 2007 which was tendered in the proceedings as Exhibit "L" and which was in large part inconsistent with a subsequent affidavit he had sworn on 25 June 2008 and which was read in the proceedings. In his oral evidence he disavowed aspects of his first affidavit was as being incorrect. That disavowal requires scrutiny.

The First Defendant's first affidavit was prepared by R F Bergagnin & Co, the solicitors who were then acting for him. In that affidavit he deposed to having had a conversation with his grandfather, the Fourth Defendant, in late July 2005 in the presence of three other persons, namely the First and Second Defendants and the father of those Defendants, Mr Elsadir. The conversation was to the effect that the Fourth Defendant introduced the other persons present as purchasers of the property in question with the aim of obtaining the First Defendant's assistance with arranging finance for the purchase. In that conversation the First Defendant discussed the services his business could offer but then concluded that he could not help because of the time frame for the transaction envisaged by the purchasers. He then provided them with the business card of a person who was at that time a loan officer employed by the Plaintiff. I infer that employee was Lily Stojkovic. The affidavit goes on to describe how, on a later occasion in late July 2005 the First Defendant referred the purchasers to Daniels Lawyers in response to their inquiry for a recommendation for conveyancing lawyers. The affidavit also refers to another occasion in late July 2005 when the purchasers visited the First Defendant at his office and requested him to witness their signatures on mortgage documents which he proceeded to do after sighting identifying documents. Those identifying documents, namely the mortgage document, and a Consumer Credit Contract Schedule were annexed to that affidavit along with a letter dated 1 June 2006 from the Plaintiff's solicitors seeking comments and assistance from the First Defendant after the fraudulent conduct of the purchasers had come to light.

The First Defendant's second affidavit, which was prepared by his present solicitors, presents a different factual picture. In this subsequent affidavit the First Defendant distanced himself from the transaction and asserted that it was his father Mr Ignatios Hilellis who was going to arrange finance for the purchase of the property in question but "… because we had been slow in getting finance organised, the Second and Third defendants went direct to the bank and sorted it out themselves". The second affidavit went on to assert that the First Defendant would occasionally go to his father's office to help out with filing, banking and general office duties. In my view the First Defendant was, in his second affidavit, seeking to cynically distance himself from his prior involvement in the transaction. The second affidavit asserts that on a date in late July 2005 he was coincidentally in the Plaintiff's Marrickville branch when Lily Stojkovic, who was then an employee of the Plaintiff called upon him to witness the signatures of the Second and Third Defendants, and after sighting identification documents, he did as he was asked. The affidavit concludes by stating: "18. I was never privy to any of the sale negotiations or discussions or anything to do with Contracts other than witnessing the signatures of the borrowers in the offices of the Commonwealth Bank in Marrickville in the presence of Lily Stojkovic."

Counsel for the Defendants indicated that he was not relying upon the first affidavit however it was tendered by the Plaintiff during the cross-examination of the First Defendant.

The First Defendant was cross-examined about the discrepancies in the differing account of the events that emerge from these two affidavits that were sworn some 16 months apart. The First Defendant proffered various explanations for the glaring discrepancies between the two accounts given. I will review some of those discrepancies in the ensuing paragraphs.

In relation to whether the purchasers and their father Mr Sam Elsadir were present at the meeting in late July 2005, in the first affidavit the First Defendant said they were present and in his oral evidence he said he did not know whether they were present: T62.1. I concluded from his answer in cross-examination that the First Defendant was being evasive in his evidence.

The First Defendant said that he only skimmed the first affidavit before he signed it at the request of his former solicitor. When questioned about whether or not he had read the first affidavit before signing it he said he read it "vaguely". In cross-examination he acknowledged that he realised when signing it he was attesting to the truth of the contents: T62. I gained the impression from the former of these two answers that he was trying to downplay the significance of the contents of the first affidavit rather than provide a co-operative and truthful account.

The First Defendant confirmed that when he had sworn his first affidavit he had read over the contents, confirmed to his former solicitor, who had prepared it on his instructions, that the content was true and correct: T63. Later, at T67.33 said "... he signed it without reading it well enough" - and later at T67.42 he asserted that his former solicitor may have "many times" misunderstood his instructions. The former solicitor was not called to give evidence. I find these latter answers to be disingenuous attempts to distance himself from the consequences of the transaction. Insofar as it is necessary to ascribe to him a motive for such behaviour, I find the desire to assist and protect his grandparents in this litigation a more than sufficient explanation for motive.

Contrary to the content of his first affidavit the First Defendant asserted that he did not have a conversation with the Second and Third Defendants about the financial services his firm could offer. I find his assertion that he did not know much other than the banking and the filing to be disingenuous in the extreme given his answers at T72.2 and at T90.44 where he said he had referred the purchasers to the bank for finance and to the solicitors for the conveyancing. At T70.45 - T71.9 he sought to retreat into an explanation that he must have misunderstood and misread the words in the affidavit he had signed and again sought to suggest that the former solicitor had misunderstood his instructions. I reject such explanations as disingenuous contrivances aimed at seeking to downplay his role in these events in an endeavour to assist himself and his grandparents in this litigation.

There are other discrepancies in the evidence of the First Defendant which do not require exhaustive analysis. These include whether loan documents were signed at his employer's office or at the bank or both as well as other peripheral matters. It is not necessary for me to further analyse those other issues other than to record my reservations concerning accepting the First Defendant's evidence generally because of the matters I have already identified and in respect of which I have stated my findings.

The Plaintiff has submitted that the First Defendant was assigned the project of obtaining finance for the transaction, the aim of which was to obtain for his grandparents the Fourth and Fifth Defendants a price for their property beyond its true worth and to help document the sale of the property at a fictitious price. Whilst the motives of the Second and Third Defendants for participating in such an enterprise are not readily apparent, it is clear from the web of false information that surrounded the transaction that they never intended to comply with the obligations they were taking on with the mortgage obtained from the Plaintiff. Whilst their motives may not be readily apparent, I nevertheless infer from the web of deceit surrounding the transaction that they must have obtained some undisclosed dishonest benefit from the transaction. It is not necessary for me to identify that benefit or to make specific findings in that regard as such findings are not central to the issues calling for decision in the remainder of the proceedings following the discontinuance of the claims against the Second and Third Defendants.

In response to the Plaintiff's submissions the First Defendant argues that he was aged only 18 years at the time the events occurred and had no motive for the behaviour he was alleged to have participated in and had no intentional involvement with regard to the circumstances of the representations. For the reasons I have already stated, I reject that submission. These are not criminal proceedings where the standard of proof is higher than the civil standard. Bearing in mind the applicable test I find that the circumstances of the First Defendant's involvement in the various steps in the transaction suggest that it is more probable than not, by reason of the suspicious characteristics of the transaction already identified, the First Defendant had knowledge of the "scam" that was perpetrated against the Plaintiff even though given his young age and limited business acumen at that time he was a relatively minor player in the events in question. I am comfortably satisfied that this was the case.

I therefore conclude that the Plaintiff has established that the First Defendant has incurred accessorial liability under the legislation cited.

In my view the pleaded representations were made by the Second, Third, Fourth and Fifth Defendants. I find the issue of whether or not the representations were made by the Fourth and Fifth Defendants only in their role as vendors to be an irrelevancy in the proceedings. I am satisfied that the representations were made in trade or commerce. I find that the representations were relevantly conveyed by telephonic services. I find that each of the representations were misleading and deceptive and were likely to mislead or deceive. I find that the Plaintiff acted in reliance on those representations and a consequence has suffered losses which I assess in the liquidated sum of $121,804.54 including interest calculated from the commencement of the hearing on 2 February 2009. I find that the First Defendant has accessorial liability in respect of the representations under both s.75B of the Trade Practices Act, 1974 and s.61 of the Fair Trading Act, 1987.

It follows from the findings that I have outlined above that the Plaintiff's case against the Defendants must succeed for the full amount claimed.

I therefore make the following orders:- (a) Verdict and judgment for the Plaintiff against the First, Fourth and Fifth Defendants in the sum of $121,804.54 ;

(b) The First, Fourth and Fifth Defendants are ordered to pay the Plaintiff's costs;

(d) Liberty to apply on 7 days notice for any further orders that may be required.

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