Connam Pty Ltd as trustee for Christodoulou Family Trust v Lazarou

The applicants' affidavit evidence

1. The notice of motion was supported by a very short and inadequate affidavit of Andreas Lazarou sworn 24 July 2019. That affidavit stated that he and his wife Sofia in September 2017 were in Cyprus when a solicitor from Sydney called Nick Khosh, arrived with George and spoke to them about a loan to George from Con Christodoulou to help with the football training business run by George.
2. Andreas stated that George indicated a document, and that Nick told them the document set out the loan between Mr Christodoulou and George. He says that the document was in English and that he did not understand it. Nick said he would explain the document to him using an interpreter. Nick told him the loan was to help George set up the business and the loan would be over in about three months. Andreas stated that Nick spoke to them for "about half an hour" and that he did not give them a copy of the document in Greek. Andreas said that he trusted George and Nick, so he signed the document.
3. Andreas stated that George told him that a solicitor and barrister were retained to deal with the later court case about the loan, and that he did not need to be involved. He says that on 26 June 2019 he was told by George that they were going to lose their house because the loan was not paid.
4. Andreas stated that he had no involvement with the court case and did not know that the loan might cause he and his wife to lose their house "until April or May 2019". The affidavit is silent as to how he came to know about that and he does not depose at all to any conversations he had with George or anybody else as to how and precisely when he became aware the house was at risk.
5. The affidavit does not explain why it was not until 28 June 2019 that Andreas first used the services of a solicitor and or barrister to represent him, and nor does it explain why it took over 3 weeks before the notice of motion was filed despite the urgency of the situation, default judgment having been entered in May 2019.
6. On 6 August 2019 the Registrar further stayed execution of the writ of possession until the notice of motion has been determined and made orders for service of evidence and submissions. The applicant failed to comply with those orders; no court book was provided by the applicants and written submissions were not filed as required by the timetable. Further affidavits sworn on 21 August 2019 by Andreas and Sofia still had not been filed when the matter came before me for hearing on 18 September. Leave was sought by Mr Berg to rely on those additional affidavits. Neither Andreas nor Sofia were present in Court, but the George was present in Court, and appeared on occasion to be speaking to and/or instructing counsel.
7. I have significant concerns about the adequacy of the affidavit material relied upon by the applicants. It comprises one affidavit of Sofia and two affidavits Andreas. The affidavits are all witnessed by a Chris Christou JP of Campsie. The affidavits are basically identical, other than in paragraphs 3 and 4 where there are differences as to the date things are stated to have occurred in Cyprus when George and the "solicitor from Sydney" attended.
8. In the July affidavit the date typed is "September 2016" and that is overwritten "2017" and initialled. In the August affidavit the date typed in is "July 2017".
9. Sofia's August affidavit is not properly executed in that the date it was sworn is not entered. The date she gives for the Cyprus visit is September 2016. It is otherwise in identical terms to the affidavits of her husband. It was also witnessed by Chris Christou JP.
10. The affidavits basically identically and baldly state: "…(3) In July 2017 I was in Cyprus. My wife Sofia Lazarou was with me and she is the third defendant. (4) In July 2017 George came to Cyprus with a solicitor from Sydney, Nick Kosch. (5) At that time George and Nick spoke to me and my wife about a loan to George from Con Christodoulou. The loan was to help with the football training business run by George. (6) George and Nick had a document. Nick told us the document set out the loan between Con and George. The document was in English. I did not understand the document. (7) Nick said he would explain the document to me using an interpreter. He told me: (a) The loan was to help George with his business; (b) The loan would be over in about 3 months. (8) Nick spoke to us about the document for about half an hour. Nick did not give us a copy of the document in Greek. (9) I trusted George and Nick and I signed the document. (10) In 2019 George used the services of a solicitor and barrister for the court case about the loan. They advised me I did not need to be involved in the court case. (11) On 26 June 2019 George told me that we were going to lose our house because he could not repay the loan. This was the outcome of the court case. (12) I had no involvement with the court case. I did not know the loan might cause us to lose our house until April or May 2019. (13) On 28 June 2019 I first used the services of a solicitor and barrister to represent me."
11. The August affidavits have an additional paragraph "I have a defence to the judgment against me" and each annexed the unsigned proposed Defence.
12. The proposed defence denies that pursuant to a loan agreement dated 6 July 2017 the plaintiff advanced to the Australian Youth Football Institute (now in liquidation) the sum of $2,000,122.50. It pleads that the loan agreement is an "unfair, unjust and unreasonable transaction", that it was signed without independent legal advice, financial advice or having the loan agreement provided in the language that they read, namely Greek.
13. The proposed defence denies that pursuant to the loan agreement they, together with their son, guaranteed to the plaintiff punctual payment of the principal sum, interest or any other monies due, it denies default and denies that the defendants refused, failed or neglected to pay the outstanding interest requested in the two breach notices. The defence claims that the mortgage pleaded is an "unfair, unjust and unreasonable transaction". There are no admissions made as to the terms of the loan agreement.

The plaintiff's evidence

1. The plaintiff's evidence comprises affidavits of Con Christodoulou and Despina Chambers both sworn on 4 September 2019. There are also three affidavits of service of Martin Folkes.
2. Mr Christodoulou's affidavit deposed to financial prejudice to him arising from the delay in finalising judgment. It also annexed the signed loan agreement together with statutory declarations of independent legal advice signed by Mr Khosh and statutory declarations of independent financial advice from Ms White of R.C. White & Co. There are also interpreter certificates completed by an Andri Pavlou who describes his/her occupation as "Lawyer". The certificates state that he/she attended a conference at Limassol in Greece with Andreas Lazarou and Nick Khosh solicitor and Sofia Lazarou and Nick Khosh for two and a half hours on 26 June 2017 at the offices of Agathokleous-Neophytou and Co at Thessalonikis D Nicolaou Pentadromos Center. The author states that he/she is fluent in English and Greek and competent to translate between those languages and spoke to the guarantors in Greek and that before any documents were signed, the statements made by the solicitor were translated from English to Greek.
3. The Christodoulou affidavit also annexed letters dated 5 July 2017 to the Directors of Connam from Rapid Lawyers signed by Mr Khosh recording that the loan agreement, the mortgage and annexure and the Deed between Connam and the mortgagee were provided, certifying that he had explained the effect of the documents to George, Andreas and Sofia Lazarou.
4. There are also three letters from R.C.White & Co chartered accountants to the Directors of Connam recording that independent advice was provided to each of the guarantors and that they appeared to be aware of, and understood, the nature and effect of the documents referred to - i.e the loan agreement, mortgage and deed - and their obligations therein.
5. Some information about Mr Christodoulou's financial circumstances was also provided as well as a document from "Mint Property Agents" addressed to "Con" (Mr Christodoulou's first name) thanking him for the opportunity of presenting their marketing assessment and proposal of sale "of your home" regarding 2A William St. It goes on to give a suggested listing price and an appraisal price range of $2,000,000 to $2,100,000, but gives no description whatsoever of the dimensions or details of the property. It provides one "recent sale" in Croydon Park as a comparison.
6. The affidavit of Ms Chambers describes the documents she received from Mr Khosh of Rapid Lawyers and the certificates of legal advice, as well as photographs taken on the occasion of the advice provided in Cyprus. She also noted that both Andreas and Sofia were shareholders of the borrower company at the time of the execution of the documents. She deposed also to repeated service of notices of default and the history of the proceedings leading up to the filing of the notice of motion on 24 July 2019.
7. Exhibited to Ms Chambers' affidavit is, amongst other documents, a letter to Rapid Lawyers asking for provision of "the certificate of verification of identity in respect of his clients as mortgagors to satisfy the mortgagee and conveyancing rules".
8. This is followed by a series of photographs certified as showing each of the guarantors with their passport and medicare card, certified by the solicitor as a photograph taken on 26 June 2017 at about 4pm at Limassol, Cyprus.

Applicants' submissions

1. Mr Berg's primary position was that the applicants have a valid "Amadio" [1] argument.
2. He also submitted that the applicants had not been validly served with the statement of claim. I will deal with this point immediately. In the face of the affidavit material from Mr Folkes and in the absence of any request to cross-examine him on his affidavits, this submission has to be rejected. There was nothing at all raised in the affidavits of the applicants that stated that they did not receive the statement of claim. The submission is tantamount to alleging that Mr Folkes lied in his affidavits in which he stated specifically that he handed the relevant process to Andreas and to Sofia on the dates specified.
3. There was a further argument that seemed to turn on professional conduct rules governing solicitors. Mr Berg argued that rule 11 of the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015 (NSW) entitled "loan and security documents" required certain things to be done by Mr Khosh in advising the applicants. The argument then seemed to proceed on the basis that the lender's solicitor ought to have requested a copy of, or noted the absence of, a Law Society of NSW Acknowledgement of Legal Advice Form which according to r 11 states must be obtained "for retention on the solicitor's file", and that somehow this should have led Ms Chambers to query the validity and completeness of the advice provided, and that the plaintiff was not entitled to rely on the documents given to him via his solicitor Ms Chambers and was not entitled to rely on what they at face value showed.
4. There is a complaint that only a half-hour explanation was provided, although it is not disputed that an interpreter was present with Mr Khosh - the solicitor who it is said explained the documents to Sofia and Andreas.
5. I provided Mr Berg with a short period to provide written submissions regarding his Amadio argument as it was articulated elliptically in oral argument. To the extent it was articulated, the argument seemed to proceed on the basis that because the applicants were 80 years old and English was not their first language, the considerations examined by the High Court in Amadio supported a submission that the applicants' position of disadvantage had been taken advantage of by the plaintiff and this dictated that the applicants had a meritorious defence that they should be permitted to now pursue.
6. Mr Berg's written submissions provided in the days after the hearing made reference to the comments of Deane J in Amadio: [2] "The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable…"
7. Mr Berg submitted that the applicants are analogous to Mr and Mrs Amadio as they are of advanced years and relied on their son for advice throughout the matter and "have less English language then Mr and Mrs Amadio" (although no basis was offered for the latter, unfounded submission). They were presented with the loan agreement for their signature. It is a lengthy and complicated document which includes "unusual terms" and secures an earlier loan as well as a new loan and they signed it in the mistaken belief that the loan would be over in three months. They received (on their account) only half an hour of advice before signature and that "may not satisfy the requirement" that it be independent advice, given that the solicitor came to Cyprus with their son George, and that the solicitor acted for George and dealt with the solicitor for the plaintiff in making the loan agreement with the purpose of the loan clearly being stated to help George's business.
8. Without citing any authority for this proposition, Mr Berg submitted that the advice from the solicitor to Andreas and Sofia needed to be independent from George's interest and it was not. Mr Berg also argued that the advice lacked proof of translation into the Greek language and that the certificate tendered in evidence by the plaintiff about translation was suspect and included an error that suggested the "process lacked integrity" and accordingly, the special disability of Andreas and Sofia was not remedied.
9. Mr Berg submitted that the plaintiff acted through a solicitor in procuring the loan and to an extent, given the certificates, the solicitor for the plaintiff Ms Chambers had some proper basis for believing Andreas and Sofia had received adequate advice, but that the circumstances in which they signed the documents should have put Ms Chambers on enquiry as it is evident the signatures were given in Cyprus and the advice was given in person by a solicitor usually based in New South Wales. Mr Berg argued that Ms Chambers should also have noted that the loan agreement had "unusual terms" and so she had an obligation to make a simple enquiry as to whether the transaction had been properly explained to Andreas and Sofia.
10. In respect of this last submission Mr Berg relies on [23] of the judgment of Deane J in Amadio, although he did not develop what aspect of that paragraph of the judgment is relied upon. To the extent I can discern the argument, it seems to be reliance upon his Honour's finding that Mr and Mrs Amadio's disability and the inequality between themselves and the bank on the facts of that case, must be held to have been evident to the bank and because there it was held that it was prima facie unfair and unconscientious of the bank to proceed to procure their signature on the guarantee/mortgage in that case, the same situation applies here.

Plaintiff respondent's submissions

1. Adopting a practical approach, counsel appearing for the plaintiff Mr Maltz did not oppose the reading of the August 2019 affidavits, but submitted that the affidavit material does not assist the applicants. The proposed draft defence, directed at Amadio [3] unconscionability is unsustainable, even if the facts pleaded in that proposed draft defence were proven.
2. Mr Maltz argued that because the Amadio defence could not succeed, and given the fact that the defendants' affidavits were unacceptably vague about what they say was said to them in 2017, the Court should refuse to upset the default judgment given in May 2019 in all the circumstances.
3. Mr Maltz submitted that the draft defence is directed at an unconscionability defence but is not very clear about the basis of the claim of unconscionability. He acknowledged that the affidavits of Andreas and Sofia state that they did not understand what they were signing and that they thought the loan that they were guaranteeing would be for three months only. Even if the facts set out in the affidavits are proven, the material does not plead or provide any evidence that the plaintiff, first, had any reason to doubt the propriety of the certificates of advice provided by an Australian solicitor and by a financial advisor as required under the loan agreement clause 5.1, or second, that he knowingly took advantage of a special disadvantage or acted in a predatory manner. A defence of Amadio unconscionability therefore cannot succeed: Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at [150]-[162], especially [160]-[161]; Amadio per Deane at 474 and 479, Mason J at 462 and 466, and Wilson JJ agreeing with Deane J at 468.
4. Mr Maltz submitted that the applicants' affidavits are unacceptably vague about what was said to them in 2017. The applicants do not even claim that they cannot read English and the affidavits on the motion do not contain a certificate under s 27A of the Oaths Act 1900 (NSW) that the oath had to be translated to them.
5. Mr Maltz submitted that the Court should refuse to upset the default judgment, mainly because there is no arguable defence, but also because the affidavits are hopelessly limited and vague: Dai v Zhu [2013] NSWCA 412 at [88]-[112].
6. Mr Maltz also argued, persuasively, that there were other considerations that militate towards the application being rejected. There was an absence of a satisfactory excuse for the delay, despite the applicants being personally served with the statement of claim many months ago. The statement of claim contained a warning notice in Greek on the front. It was plainly a serious court document but their dealing with it remains largely unexplained. The applicants would also have received default notices and have given no explanation for not seeking advice or filing a defence earlier, simply relying on their assertion that their son told them they did not need to be involved. Mr Maltz submitted that unquestioningly accepting their son's assurance was wilful blindness.
7. Further, there is clear evidence in Mr Christodoulou's affidavit that the plaintiff will suffer prejudice because the amount of shortfall continues to grow, he is facing an imminent cash flow problem and the amount owed already to him exceeds the value of any security.
8. I interpolate here that the valuation report of the property used for security tendered in support of the last submission was in my view inadequate. It was not in my opinion a sufficiently detailed basis to make a finding that the sum owed exceeds the value of the security. . It did not even refer to the fact that there are two dwellings on the property. I acknowledge however that as interest payments continue to mount there is at the very least, a risk that the amount owed will soon exceed the value of the security, if it has not already.
9. There is no useful purpose served either to the plaintiff or to the applicants or to the interests of justice in permitting a non-viable defence to be litigated: Dai v Zhu [2013] NSWCA 412 at [89].

Consideration

1. I am not persuaded that the fact that the mortgage documents were executed in Greece or the certificates and documents provided should have put Ms Chambers on notice that there was something amiss.
2. The "unusual terms" that Mr Berg submits should have caused Ms Chambers to make inquiry remain unspecified and I do not read Amadio as casting some obligation upon Ms Chambers to make further inquiry as alleged, or that it was unfair for the plaintiff to proceed in the circumstances.
3. Ms Chambers went to the additional trouble of requesting photographs and identity verification, which were provided. The documents on the face of them including the certificates from a lawyer and a financial advisor and a translator had nothing that betrayed invalidity.
4. The applicants allege the advice was only half an hour but the translator's certificate says it was two and half hours. I have no way of resolving this conflict in the evidence, but even if the explanation was in fact only half an hour that does not mean the documents were not adequately explained. More relevantly, the documents received at the time by the plaintiff stated the time spent was two and half hours.
5. No allegation of fraud has been made and it is difficult to see how any such allegation could legitimately be raised against the plaintiff, although the circumstances between Andreas and Sofia and their son remain somewhat ambiguous.
6. The argument that the applicants seek to potentially make based on Amadio is not made out on the evidence tendered. In Amadio the bank had made itself party to a particular arrangement where prior to taking guarantees from Mr and Mrs Amadio, they had made specific arrangements between the bank and the company run by the Amadio's son providing a kind of temporary respite for that company's insolvency, by which the bank improved its existing and inadequate security. The bank had been selectively dishonouring cheques in an endeavour to maintain the facade of prosperity of that company although they knew that company was insolvent. It was these matters that led to the conclusion that the instruments in question should be set aside unconditionally basically finding that the bank owed a duty to the mortgagors to disclose these unusual features relating to the overdrawn account and that the nondisclosure in the circumstances amounted to a misrepresentation which was sufficient to entitle the mortgagors to have the deed set aside.
7. There was no such situation here and no parallels can be drawn.
8. Even in terms of asserted "special disability", in my view the age of the defendants (in their 80s), not English speaking and the fact that the mortgage and deeds were signed in Greece does not of itself necessarily count as disabilities. Importantly the disability has to be sufficiently evident to the plaintiff to make it prima facie unconscionable for it to be allowed to rely on the guarantee.
9. There is a requirement to be found to be "unconscientious" within the meaning of the relevant equitable principles, for the party seeking to enforce a transaction to have taken unfair advantage of his or its own superior bargaining power or of the position of disadvantage in which the other party was placed. As stated by Gibbs CJ: "The principle of equity applies "whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands": Blomley v. Ryan (31), per Kitto J., and see at pp. 405-406, per Fullagar J."
10. It seems to me no criticism can be made of the plaintiff relying upon the documents provided that evidenced the loan agreement and the advice, legal and financial, and the translations that appeared to be duly certified.
11. I am not persuaded that the proposed defence has any merit.
12. The affidavits relied upon are also inadequate to explain the delay between becoming aware they "may lose their house" - said to have been in April or May - and retaining a lawyer (very late June) and the further delay between late June and the filing of the application on 24 July 2019.
13. I have a vague sense of unease about the same legal representative appearing for both the first defendant and the applicants. If there is indeed an issue between those three defendants, it cannot be explored in these proceedings. However I am satisfied that there was no conduct by the plaintiff or his solicitor that can be considered to be unconscionable or that there should have been a recognition of special disadvantage that could lead to Amadio type findings.

Orders 1. The notice of motion is dismissed. 2. The applicants are to pay the plaintiff's costs.

Endnotes

1. Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447; [1983] HCA 14 ("Amadio").
2. At page 474.
3. Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447; [1983] HCA 14. 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: 20 December 2019