First Plaintiff v Defendant

2 Applications of this type are often straightforward. This application has not been. The reasons for the complexity stem largely from the nature of the transaction, the nature of the proposed defence and the lack of evidence on certain points. However, the conduct of the application by both the plaintiffs and the defendant has also played a part. The matters that a lender/mortgagee must prove to obtain an order for possession of a mortgaged property where the mortgage is in default are well known.[1] The plaintiffs', however, both failed to address in their pleading some of the necessary elements and complicated the proof of their case by multiple documents and multiple affidavits. The statement of claim also contained a significant error in paragraph 4, to the effect that the advance was made to the defendant when the evidence in the plaintiffs' case is that the borrower was a company, the defendant being the guarantor and mortgagor. This error lent some support to the defendant's initial contention that the loan was regulated by the National Credit Code, although this claim was not consistent with the undisputed transaction documents. This and other deficiencies in the plaintiffs' case were ultimately overcome, but only because some necessary elements of their case were not in dispute, and after amendment to the statement of claim, consequential adjournment, and multiple supplementary affidavits in the plaintiffs' case.

3 The defendant was also responsible for unnecessary complication of the hearing and so cost by first advancing the proposed defence based on the National Credit Code, and later abandoning it. Further, the defendant did not fully articulate his proposed replacement defence, that the loan was unconscionable, and in particular did not identify with any precision how the matters of which he complains show moral fault on the part of the plaintiffs or their agents, as opposed to other persons.

4 After consideration I have concluded that summary judgment for the plaintiffs should be refused, but only pursuant to the residual discretion contained within s 64 of the Civil Procedure Act 2010 (Vic) ('Civil Procedure Act'). On the current material, I do not consider that the defendant has a real prospect of success in relation to his proposed defence that the transaction was unconscionable as against the plaintiffs. However, I do conclude that the dispute is of such a nature that only a full hearing on the merits is appropriate, within paragraph (b) of s 64.

5 As the loan discharged some existing obligations of the defendant, I will grant him leave to defend only on security that adequately reflects that benefit and the likely time to trial. I will hear the parties further as to that security, and orders to give effect to these reasons.

6 I elaborate my reasons for this conclusion as follows.

7 At the first hearing on 21 September 2016, the defendant resisted the application for summary judgment on the basis of three proposed defences in accordance with his amended defence filed on 16 August 2016. These defences were as follows:

(1) That the loan in question was regulated by the National Credit Code as in truth it was a loan to the defendant personally to acquire a property for residential purposes (the Fingal property) and not, as the plaintiffs contend, to a company controlled by the defendant for business purposes. Accordingly, the defendant contended that the notice of default given to him was insufficient and that he could now seek to reopen the transaction under the National Credit Code ('the Code') as an unjust transaction.

(2) That the defendant has a claim against an accountant, Mr Jordan Topalidis, and a solicitor, Mr Con Kiatos, who had each given to the plaintiffs a certificate that they had given him independent financial advice (in the case of Mr Topalidis) and independent legal advice (in the case of Mr Kiatos) when in fact they had not done so. This was said to be a claim against those persons, who are not parties to the proceeding, for breach of their duty of care to him.

(3) That those two persons in conjunction with the plaintiffs had conspired to inflict economic harm on the defendant. The amended defence asserts that each of these persons knew or ought to have known that the loan was not for business purposes; that the defendant had no means to repay it; and that he did not understand the true nature of the loan and the mortgages he gave over the three properties.

8 On the first day of hearing, the plaintiffs had evidence to show that the advance in question of $1,059,000 was made not to the defendant personally but to his company, the Victorian Boat Clinic Pty Ltd. The plaintiffs relied on a number of authorities[2] to the effect that in these circumstances the purpose of the loan was irrelevant because a loan to a company (which is not a strata corporation) cannot be a Code loan.

9 The application of the Code is determined by s 5. Section 5(1) provides (emphasis added):

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 precontractual obligations) is proposed to be entered into:

(a) the debtor is a natural person or a strata corporation; and

(b) the credit is provided or intended to be provided wholly or predominantly:

(i) for personal, domestic or household purposes; or

(ii) to purchase, renovate or improve residential property for investment purposes; or

(iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and

(c) (not relevant);

(d) (not relevant).

10 It is plain that both paragraphs (a) and (b) must be satisfied for the provision of credit to be governed by the Code. There is evidence in the defendant's case that the purpose of the loan was for a Code purpose, within s 5(1)(b), but no evidence from the defendant to counter the evidence in the plaintiffs' case that the borrower named on the loan documents was a company, the Victorian Boat Clinic Pty Ltd, and not the defendant personally, so taking the transaction out of paragraph (a).

11 At the conclusion of the hearing on 21 September 2016, I granted leave to the plaintiffs to amend paragraph 4 of the statement of claim to bring the averments in that paragraph into line with the evidence in the plaintiffs' case that the advance was made to the Victorian Boat Clinic Pty Ltd. On the application of the defendant, I then granted an adjournment and allowed the defendant to file further evidence and a further amended defence.

12 On the second day of hearing, the defendant, now represented by counsel, took a different tack. He withdrew his assertion that the Code applied to the loan, and instead relied on a proposed defence to the effect that the loan and mortgage were unconscionable. The defendant still asserted that the purpose of the loan, to the knowledge of the plaintiffs, was personal and not business, i.e. a Code purpose, but put this submission as part of his proposed defence of unconscionability by asserting that the plaintiffs acted in concert with others in a scheme to circumvent the operation of the Code. The defendant relied on submissions and his further affidavit to support his proposed defence of unconscionability. He did not file a further amended defence pleading out that case.

13 As is well-known, where a mortgagee seeks summary judgment for possession it must first prove its case for ejectment on evidence. It must then show that the defendant mortgagor has no real prospect of success in respect of the defence or defences proposed to be advanced. In Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd[3] ('Lysaght v Blanalko') the Court of Appeal held that the test for summary judgment under s 63 of the Civil Procedure Act is whether the respondent to the application for summary judgment has a 'real' as opposed to a 'fanciful' chance of success. The Court emphasised that the power to grant summary judgment should be exercised with caution and should not be exercised unless it is clear that there is no real question to be tried.[4]

14 Section 64 of the Civil Procedure Act provides for a residual discretion. That section provides:

Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because -

(a) it is not in the interests of justice to do so; or

(b) the dispute is of such a nature that only a full hearing on the merits is appropriate.

15 The plaintiffs' case is that the advance was for one year and involved the refinance of existing mortgages in favour of the Commonwealth Bank over the two Narre Warren properties, already owned by the defendant, together with a further advance to enable the purchase of the Fingal property. The advance was to be secured by a first registered mortgage over the three properties. Counsel for the plaintiffs frankly concedes that this was an asset lending loan. It is apparent from the material and from the submissions of counsel for the plaintiffs that the plaintiffs are clients of the solicitors who act in this proceeding and that firm conducts a solicitors' mortgage practice.

16 Proof of a case for ejectment under s 78 of the Transfer of Land Act 1958 (Vic) requires proof of the following:

• the mortgage and where the mortgagor covenants to comply with obligations in an underlying transaction, that transaction;

• notice of default (where the mortgage requires it);

• failure to remedy the default (where the mortgage gives an opportunity to remedy); and

17 The plaintiffs have put into evidence not just the principal transaction documents but also an almost bewildering number of further documents.

18 A copy of the loan contract is 'MJ-9' to the first affidavit of Mr Jeruzalski, affirmed on 28 July 2016. The borrower is named as the Victorian Boat Clinic Pty Ltd; the three plaintiffs are collectively identified as the lender; and the defendant is identified as the guarantor. The loan contract is dated 30 September 2015; is apparently executed by all parties; and records a loan of $1,059,000 and a proposed security over the three properties. Both the borrower (the company) and the guarantor (the defendant) covenant to repay the loan in one year. The borrower covenants to pay interest and the guarantor (the defendant) guarantees payment of all moneys owed by the borrower and the performance of all covenants on the part of the borrower.

19 A copy of the mortgage appears as 'MJ-18' to Mr Jeruzalski's first affidavit. It is executed as a deed and records an advance of $1,059,000. The mortgage is dated 30 September 2015. It is marked in handwriting as a first mortgage. As I will discuss shortly, there was also taken over the three properties at this time through the same solicitors a second mortgage in favour of another mortgagee in respect of another advance.

20 The mortgage incorporates Memorandum of Common Provisions AA 1955. It also contains a further covenant on the part of the mortgagor to comply with all the conditions of the loan agreement.

21 The mortgage was subsequently registered as a first mortgage over the three properties in question on 5 October 2015, as is evidenced by the title searches which appear as 'MJ-4', 'MJ-5' and 'MJ-6' to Mr Jeruzalski's first affidavit.

22 The Memorandum of Common Provisions is in evidence as a separate exhibit, exhibit 'A'. The defendant acknowledged receipt of a copy of the Memorandum of Common Provisions by a document, a copy of which is 'MJ-17' to Mr Jeruzalski's first affidavit. That document, as is the case with most of the documents executed by the defendant, is dated 19 September 2015.

23 The plaintiffs have also put into evidence a number of other documents apparently signed by the defendant and dated in handwriting 19 September 2015. This is the date on which the defendant concedes that he attended both a solicitor, Mr Kiatos, and an accountant, Mr Topalidis, and signed a number of documents. These documents are as follows:

• A resolution by the defendant as sole director of the Victorian Boat Clinic Pty Ltd to execute both the loan agreement and a debenture to be given by the company as further security. The document states that the resolution was at a meeting held at North Caulfield. The address of Mr Kiatos is in North Caulfield and I infer that that is where this document was signed. A copy of this document is 'MJ-12' to Mr Jeruzalski's first affidavit.

• A document headed 'Acknowledgement from the Borrower' executed on behalf of the Victorian Boat Clinic Pty Ltd by the defendant as director directed to the solicitors for the plaintiffs, acknowledging that the loan agreement and the debenture have been read and understood and freely given after consulting an independent solicitor. A copy of this document is MJ-10 to Mr Jeruzlaski's first affidavit.

• A 'Certificate of Independent Legal Advice' signed by the defendant as guarantor and Mr Kiatos as solicitor for the guarantor in which the defendant acknowledges amongst other things receipt of the loan agreement and debenture charge; that they have been fully explained to him by his solicitor; that the loan is to the Victorian Boat Clinic Pty Ltd as borrower; and that he can be called upon to repay moneys due by the borrower. Mr Kiatos certifies that he has explained the loan agreement and debenture charge fully to the defendant. A copy of this document is 'MJ-11' to Mr Jeruzalski's first affidavit.

• A 'Certificate on Execution by a Company' directed to the plaintiffs, apparently signed by Mr Kiatos and certifying that he acts for the company, Victorian Boat Clinic Pty Ltd, and that the person who has executed the documents for the company, is one and the same person as Jeffrey Stubbings, the sole director and sole company secretary of the company. The certificate states that Mr Kiatos has explained the loan agreement and debenture to Mr Stubbings and that Mr Stubbings indicated that he read and understood the effect of those documents. A copy of this certificate appears as 'MJ-13' to Mr Jeruzalski's first affidavit.

• A 'Certificate of Independent Financial Advice' directed to the plaintiffs, given by Jordan Topalidis, stating that the loan is required for business purposes, being to 'set up and expand the business' and that Mr Topalidis has been instructed by Mr Stubbings to explain the financial risk he is assuming and that he has done so. A copy of this document is 'MJ16' to Mr Jeruzalski's first affidavit.

24 The plaintiffs have also put into evidence further documents which are less essential to proof of their case and, in at least one instance, may have introduced confusion. 'MJ8' to Mr Jeruzalski's first affidavit is a statutory declaration given by the defendant directed to establishing that he is the same person as the sole director of the Victorian Boat Clinic Pty Ltd. This statutory declaration is stated to have been declared at North Caulfield on 19 September 2015 before Mr Kiatos. Perhaps it was considered required because the defendant's full name does not appear on the company search. 'MJ15' is another statutory declaration said to have been declared by the defendant at North Caulfield on 19 September 2015 before Mr Kiatos, which is directed to establishing that he will give clear title to the plaintiffs as proposed first mortgagees.

25 Rather confusingly, the plaintiffs have also put into evidence as Exhibit 'MJ-14' to this first affidavit of Mr Jeruzalski, a copy deed dated 30 September 2015, executed by the defendant personally and also on behalf of the Victorian Boat Clinic Pty Ltd, identified in the deed as 'the borrower'. The deed is directed to the current plaintiffs, collectively identified as 'the lender', in respect of a proposed loan of $1,059,000 (the advance secured by the first mortgage) but records that the defendant as guarantor/mortgagor will grant a second mortgage to be registered over the properties as security for that loan. The statutory declaration also records, and in its operative portion agrees, that the purposes of the loan are not Code purposes.

26 The title searches show that there was in fact a second mortgage also dated 30 September 2015 and also registered on the same date as the first mortgage the subject of these proceedings over each of the three properties. This second mortgage was not, however, in favour of these plaintiffs but in favour of another lender, Southside Industries (Aust) Pty Ltd. That second mortgage has been put into evidence not by the plaintiffs but by the defendant as 'ARW1' to the affidavit of Amy Ronit Weiner, affirmed 19 October 2016. The second mortgage records an advance of $133,500. The full circumstances surrounding this second mortgage are not in evidence.

27 There is no evidence in support of the plaintiffs' case from any officer or any of the plaintiffs themselves as is conventional in mortgage recovery cases where the lending is by a financial institution. Instead, in this case the plaintiffs rely on the recital of the advance in the mortgage, which is expressed to be a deed. That is sufficient, although perhaps not ideal, proof.

28 There is also some evidence that the loan was advanced in the first affidavit of Mr Jeruzalski sworn 28 July 2016 at paragraph 16. In that paragraph, Mr Jeruzalski deposes that the loan 'as agreed was duly advanced to the borrower "the Victorian Boat Clinic Pty Ltd".' Mr Jeruzalski does not say in that paragraph or anywhere in that affidavit the basis on which he makes that assertion, save that in paragraph 2 of the affidavit he says that 'I make this affidavit from my own knowledge unless otherwise stated'. From the Bar table, counsel for the plaintiffs says that the basis of Mr Jeruzalski's knowledge is that the advance was made from the trust account of the plaintiffs' solicitors. It would have been preferable for this to be stated on oath in the affidavit.

29 I make the same observations in relation to proof by the plaintiffs of default. There are no account statements originating with the plaintiffs themselves or, if payments were to be made to the solicitors for the plaintiffs, of the relevant solicitors' trust accounts. Mr Jeruzalski merely deposes in his first affidavit that interest payments due on 30 October 2015 and 20 November 2015 were not paid in full, and that subsequent interest payments due on 30 December 2015, 30 January 2016 and 28 February 2016 were not paid.[5]

30 Proof of default is not, however, required because the fact of nonpayment on the later dates is not disputed in the amended defence; only that the defendant was obliged to pay interest on those dates.

31 Clause 8.3 of the Memorandum of Common Provisions requires that a notice of default be given no earlier than seven days after the default relied upon. The notice must allow no less than seven days to remedy the default. Pursuant to this clause, the plaintiffs cannot exercise their rights unless the default is not remedied within that period.

32 The plaintiffs rely on Notice to Pay dated 24 March 2016 addressed to the defendant.[6] At the first hearing the defendant did not dispute the form or adequacy of this notice (subject to his submission that the Code applied, which was later abandoned) but he did dispute receipt. Proof of receipt is not required by the Memorandum of Common Provisions, but proof of service is. Under the Memorandum of Common Provisions at clause 10.1, service is permitted by post to the defendant's last known or business address or his address on the 'titles office form'. Service is not pleaded in the statement of claim and nor was it deposed to in Mr Jeruzalski's first affidavit.

33 I permitted the plaintiffs to file in court after lunch on the first day a further affidavit to prove service. Mr Jeruzalski exhibits to his further affidavit sworn 21 September 2016 a copy of a covering letter from his firm enclosing the Notice to Pay dated 24 March 2016 and addressed to the defendant at 380 Truemans Road, Fingal. He deposes on information and belief that it was posted on that day to that address. That address is the address given for the defendant on the title to that property. The defendant did not further dispute service and I find it proved for the purposes of this application.

34 There is no dispute that the defendant did not pay the amount required by the Notice to Pay, although he disputes an obligation to do so.

35 The plaintiffs attempted to take possession of the two properties at Narre Warren pursuant to their power of sale. The defendant objected to this course and retook possession. It is not in contention that he remains in possession.

36 The defendant does not dispute that he executed all of the transaction documents on which the plaintiffs rely. Indeed, he acknowledges in both his first and further affidavit that he signed documents on 19 September 2015 at the offices of Mr Topalidis and Mr Kiatos.[7] As to what then occurred, the defendant deposes that after he signed those documents at those offices he gave them to a Johnny Tee. He deposes that he met Johnny Tee early the following week out the front of the offices of the plaintiffs' solicitors. Mr Tee went upstairs with the documents and returned saying 'It's all done'.[8]

37 Nor does the defendant deny the advance or that the required interest payments were not made. He contends that the balance made available to him of the advance after refinance of his existing mortgages, payment of various charges encumbering the earlier properties, and purchase of his new property, was less than had been represented to him it would be. For this and other reasons, he contends that he was not obliged to make the further interest payments.

38 In other words, the defendant does not deny he entered into the mortgage, that further interest payments were not made, that he received a notice of default to that effect and that he did not remedy the claimed default. I conclude that subject to the prospects of success of the defences on which the defendant relies, the plaintiffs have proved their case.

39 As noted earlier in the Procedural History, on the first day of hearing and in his amended defence, the defendant asserted that Mr Topalidis and Mr Kiatos breached their duties of care to him in that, on his account, they did not give him the financial and legal advice respectively that they claimed they had in the certificates they signed.

40 Any such claim is a claim against those persons only. The defendant has not sought to this point to join those persons to the proceeding, nor, indeed, indicated if he will do so if leave to defend is given. In my view, there is no real prospect of success in his claims against Mr Topalidis and Mr Kiatos, without more, constituting a defence against the plaintiffs.

41 On the first day of hearing and in his amended defence, the defendant asserted that there was a link between the conduct of Mr Topalidis and Mr Kiatos and that of the plaintiffs in that the plaintiffs, in conjunction with Mr Topalidis and Mr Kiatos, conspired to inflict economic harm on him. This proposed defence was not referred to by counsel for the defendant on the second day of hearing in these terms. Rather, the claimed link between the conduct of Mr Topalidis, Mr Kiatos and others and the plaintiffs was presented as part of the proposed defence that the plaintiffs acted unconscionably in that they were party to an arrangement to avoid the Code. The legal representatives for the defendant did not identify on either day the elements of conspiracy to inflict economic harm or how the evidence shows that those elements are arguably satisfied. They did not refer me to any authority in support of this claim as a proposed defence. I consider any proposed defence of conspiracy to inflict economic harm to be abandoned. If I am wrong in that conclusion, in the absence of identification of the elements and the evidence that support them, I do not consider that it has any real prospect of success.

42 The proposed defence that was argued at length at the second hearing is that the loan and the mortgage were unconscionable at the hands of the plaintiffs.

43 The defendant has not pleaded out in a proposed further amended defence or identified with precision in argument the exact source of this proposed defence i.e. whether the proposed defence arises under a statutory provision, and if so which statute, or at common law. If statutory unconscionability, the Court of Appeal in Violet Home Loans Pty Ltd v Schmidt and anor ('Violet Home Loans')[9] has held that moral obloquy on the part of the lender is required. This is more than negligence and usually requires deliberate wrongdoing, although in some cases recklessness in the form of wilful blindness may be sufficient.[10] I will apply that same requirement to all potential bases of this proposed defence, as I have not been referred to any authority that the test is less stringent at common law. The elements were treated the same by J Forrest J in Perpetual Trustees Australia Limited v Schmidt[11], the first instance judgment which on appeal became Violet Home Loans, and there was no comment to the contrary in the appeal judgment.[12]

44 The defendant places considerable emphasis on the fact that this advance was assetbased lending, that is, there was no identified source of repayment of the principal and interest other than the first month of interest within the advance itself or by way of recourse to the securities. The plaintiffs frankly concede that this was assetbased lending. The authorities establish, however, that that alone is not enough to show that the loan was unconscionable.[13] To determine whether such a loan is unconscionable as against the lender, the Court of Appeal in Violet Home Loans made it plain that all the circumstances must be examined, including the business, commercial or previous lending experience of the borrower; together with other factors such as whether the first language of the borrower is English and whether he or she suffers from a disability by reason of age or other factor.

45 In Violet Home Loans at first instance, the trial judge found that there were various discrepancies in the application documents that should have put the agent of the lender on notice of possible irregularity. The trial judge held that in proceeding with the loan regardless of these discrepancies and without making further enquiry of the borrower the agent, and so the lender, acted deliberately and in a manner attended by moral fault and lack of moral responsibility. The Court of Appeal found no error in this conclusion of the trial judge. They held that this was a case of wilful blindness constituting recklessness and thus supplying the necessary element of moral fault.[14]

46 The defendant also places considerable reliance on a decision of the New South Wales Court of Appeal concerning a number of related appeals, the first named of which is Tonto Home Loans Australia Pty Ltd v Tavares and ors ('Tonto Home Loans').[15] In those appeals, relief was ultimately granted in favour of some or all of the borrowers as against the lenders but that relief was on the basis of the Contracts Review Act 1980 (NSW) ('Contracts Review Act') , not on the basis of unconscionability.[16] In my view, the defendant has not sufficiently identified the distinction in his submissions.

47 Tonto Home Loans emphasises that the enquiry as to whether the necessary element of moral obloquy is present on the part of the lenders must be directed to the conduct of the lenders (or their agents) not to the conduct of a third party. Where a third party has been guilty of fraud or other wrongful conduct, unconscionability on the part of the lender is not made out unless the lender is on notice or should have been on notice of that wrongful conduct.

48 In that case, a sub-introducer, Streetwise, had engaged in deceptive and dishonest conduct that ultimately led to the borrowers engaging in the subject transactions. Streetwise introduced potential borrowers to a mortgage originator, Tonto HL. It was conceded that the mortgage originator, Tonto HL, was an agent of the lender. At trial, it was held the sub-introducer was an agent of Tonto HL, thus attributing its conduct to the lender. On appeal, however, it was held that the sub-introducer Streetwise was not an agent of Tonto HL, and as it was not shown that Tonto HL otherwise had knowledge of the fraud, the Court of Appeal held that the loan was not unconscionable as against the lender.[17]

49 Counsel for the defendant relies on portions of the leading judgment of Allsop P as follows:

The position of the lenders should not be judged as detached third parties, distinct and separate from what happened. Nor should they be seen as complicit with, or actually knowing of, Streetwise's deception, fraud and predatory conduct towards the borrowers. While not having actual knowledge or actual notice of Streetwise's behaviour, the lender's position should be assessed by reference to the reality of the significant responsibility of those structuring the elements of the lending programs or, in the case of Permanent, those providing the wholesale funds. The mortgage manager (Tonto HL) with delegated lending authority operated the guidelines loosely and in a way which reflected a lack of concern with the suitability of the borrowers and serviceability. The mortgage manager brought into the roles of interviewing and selecting prospective borrowers an intermediary whose commercial attractiveness bespoke the inhering risks to which I have referred, heightened by Tonto HL's agreement not to contact prospective borrowers before settlement. These considerations materially facilitated the ability of Streetwise to effect these frauds.

In all the circumstances, these considerations are relevant to conclude that the unjustness of the contracts can be seen as unjustness affecting Tonto HL and the lenders.[18]

50 These observations by Allsop P relate, however, to the claim under the New South Wales Contracts Review Act and not to the claim that the lenders acted unconscionably. The claim under the New South Wales legislation is not here available to the defendant. Later in the judgment, Allsop P clearly distinguishes between the two causes of action. He held that the circumstances justified relief being given against the lenders under the Contracts Review Act but the conduct did not amount to unconscionable conduct.[19]

51 Each party has also relied on some single instance decisions to illuminate the application of these principles. The defendant relies on Small & Ors v Gray & Ors[20] ('Small v Gray'). In that case, defences under the Contracts Review Act and on the ground of unconscionability on the part of the lender, both succeeded at trial. As a result, the mortgage could not be enforced against one of the mortgagors. That mortgagor was the mother of one of the borrowers and gave the mortgage to secure a loan to them. In that case, as here, the lenders relied on a certificate of independent legal advice and a certificate of independent financial advice. Notwithstanding these certificates, the trial judge found that the loan was unconscionable by reason of two factors. The first is that the information the accountant supplied on his certificate was inconsistent with the information on the application, and yet the lender made no further enquiry. The second factor was that the mortgagor there had no material interest in the transaction.[21] She received no benefit from the loan.

52 The defendant also relies on a Victorian single instance decision, Butler and ors v Vavladelis and anor [22] ('Butler'). This was a decision of Hargrave J by which he set aside a default judgment against the mortgagors on the basis that they had an arguable defence that the loan was unconscionable. In that case, the mortgage had been procured by fraud, probably the fraud of the daughter of the mortgagors, but this fraud was not known to the lender. The lenders relied on a certificate of independent legal advice from a solicitor but his Honour held that, for the purposes of setting aside the judgment, that was not enough given the absence of enquiry as to the circumstances of the borrowers themselves, in particular as to their age, ability to understand the English language, health, purpose of the mortgage loan, their income or their ability to repay the amounts due from time to time under the proposed mortgage.[23] His Honour only set aside the default judgment on the condition that substantial security was paid by the mortgagors given that the loan in part discharged existing obligations of theirs, and that there would be some time before trial, which would necessarily be a multi-party trial involving new legal representation, during which time outstanding interest would continue to accrue.

53 The defendant has also referred me to Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd and ors.[24] I do not consider this case to be of any particular assistance. The facts are quite dissimilar from those before me on this application and to the extent the judgment refers to the test for summary judgment, it is prior to the determinative decision of the Court of Appeal in Lysaght v Blanalko,[25] in which the required elements were conclusively determined, to correct an earlier inconsistency in the authorities.

54 The plaintiff refers me to Perpetual Trustee Company Limited v Burniston (No 2).[26] That is a single instance decision of Edelman J. The plaintiffs rely on it for their submission that a lender is under no obligation to make enquiries as to the capacity of the borrower to make payments.[27] The plaintiffs also rely on a Queensland Court of Appeal decision Barker v GE Mortgage Solutions Limited[28] to the same effect.[29]

55 If the defendant were to succeed at trial with his proposed defence that the loan was unconscionable in the hands of the plaintiffs, he would need to show moral obloquy on their part or on the part of their agents. In that regard, it is not sufficient that the loan was asset-based lending - something more is required. The authorities suggest that absence of enquiry alone is unlikely to be enough, given that there is no duty on the part of a lender to make enquiries as to the capacity of the borrower to repay. The defence has succeeded, however, where there is a discrepancy in the information supplied to the lenders, but nevertheless they, or their agents, make no further enquiry.

56 The cases where the defence has succeeded have generally, or perhaps as the plaintiffs submit entirely, consisted of cases where there has been fraud on the part of someone other than the mortgagor. In cases such as these, the Court is faced with the dilemma of determining whether an innocent mortgagor should be burdened with the consequences of that fraud. Cases where the defence have succeeded have also often involved special disadvantage afflicting the mortgagors, although this is not essential.[30]

57 The defendant's case is most fully set out in his Further Affidavit, sworn 18 October 2016. The factors on which he relies are summarised in a table prepared by his counsel headed 'Relevant factors/badges of unconscionable conduct'. I summarise his case as follows.

58 It is submitted that on his evidence the defendant has only intermittent and low income, and, indeed in his Further Affidavit he deposes that he was unemployed at the time he started looking for a further property in June 2015.[31] It is also submitted that the defendant is 'uneducated' and has 'difficult family issues'.

Purpose of the loan and alleged scheme to circumvent the National Credit Code

59 At paragraph 34 of his Further Affidavit the defendant asserts that although his company is named as the borrower and he executed the loan documents as the director of his company, not in his own right, the plaintiffs knew, or ought to have known, that in truth it was a loan for residential purposes, so that he could acquire the Fingal property as a residence, not for a business. The defendant asserts that the utilisation of the defendant's company as borrower was a scheme to circumvent the Code and so deny the defendant his rights under the Code.

60 Counsel for the defendant asserts that although the loan was made to the defendant's company, and not to him personally, as guarantor and mortgagor he and his properties were at immediate risk given that there is no evidence of any information having been required by the plaintiffs, such as work records or tax returns, to show that the company could make the necessary interest payments or how the loan was to be repaid, and the interest rate on the loan was high and even higher under the second mortgage. Counsel points to the evidence that the loan went into default almost immediately, and submits that it should never have been made.

No explanation or independent legal or financial advice

61 The defendant contends that he did not receive proper explanation of the documents the broker 'JT' or 'Mr Tee' asked him to sign or the independent financial and legal advice from Mr Topalidis or Mr Kiatos that they respectively certified they had given to him.

62 It is apparent from paragraphs 17 and 22 of the Further Affidavit that a significant grievance of the defendant is that Mr Tee told him that he would have '$53,000 in residual money to enable me to cover interest payments and to renovate the NW and NSW Properties' (which I take to be a reference to the two Narre Warren properties) when he received substantially less than that. The defendant has not squarely put into evidence how he intended to repay the loan, but I infer from this evidence that he intended to repay the advance or obtain refinance by virtue of the sale proceeds from the two Narre Warren properties after he had renovated them.

63 The defendant deposes in his further affidavit that he received only $16,360.47. In fact, if the trust account statement exhibited to the affidavit of Mr Jeruzlaski's assistant Ms Rochelle Robinson is correct, and no reason was advanced why it is not, then the borrower, the Victorian Boat Clinic Pty Ltd, received at the end of the transaction only $6,959.09 in surplus funds.[32]

Misrepresentation as to likelihood of refinancing by Westpac

64 The defendant says that his concern that even $53,000 was insufficient for his purposes was met by Mr Tee by a further representation by him that after three months 'we' will organise refinance by Westpac at bank rates which would in turn release three months of interest payments.[33]

65 The defendant says that he was not aware that there was to be a second mortgage registered over the properties, and submits that the absence of explanation for this second mortgage in the plaintiffs' evidence is a serious omission.

66 The defendant says that he was also not aware that procuration and legal fees for each mortgage payable to the plaintiffs' lawyers totalling in excess of $31,000 would be charged, or that he would be charged a 'consultancy fee' of $27,000 until after the loan had been advanced and the purchase of the Fingal property settled.[34] These various fees total $58,561.94, which the defendant asserts was 'roughly' the amount that Mr Tee had represented to him would be available.[35]

Misrepresentation by employee of the plaintiffs' lawyers

67 The defendant deposes that when he expressed concern about these fees to Ms Rochelle Robinson, who is conceded to be an employee of the plaintiffs' lawyers, she told him that applications were being made in conjunction with 'Theo' (i.e. Mr Kassinidis, the broker who introduced the defendant to Mr Tee) 'as we speak' to 'exit the loan with a mainstream bank', which she identified as ANZ or Westpac, and not to worry because 'this is how we always do it'.[36] No such refinance occurred.

68 The defendant also relies on this alleged conversation to support his case that the plaintiffs through their lawyers were acting in concert with the other persons about whose conduct he complains, and so the plaintiffs are tainted with the wrongfulness of the conduct of those other persons.

69 Finally, the defendant asserts that after his attempt to refinance the loan from the plaintiffs by refinance from ANZ failed, he became aware of documents prepared by others for that attempt which contained untruths.

Plaintiffs acting in concert with other actors

70 It is apparent that some of these grievances arise from actions of persons other than the plaintiffs or their lawyers. The defendant asserts that the actions of these other persons can be attributed to the plaintiffs, or their agents their lawyers, because he asserts that the plaintiffs, the plaintiffs' lawyers, the intermediary Mr Tee and a subsequent intermediary involved in attempts to refinance the loan were all acting in concert to his detriment; and that had he known these matters he would not have entered into the loan. In submissions, counsel for the defendant extends the claim that the plaintiffs were acting in concert with others about whom the defendant complains to Mr Kiatos and Mr Topalidis.

71 Finally, the defendant sets out some matters that more properly relate to a stay application, including that he wishes to renovate the properties for sale.

72 On the application before me the plaintiffs must show that the defendant has no real prospect of success in his proposed defence that the transaction was unconscionable so far as the plaintiffs were concerned. It is not appropriate on this application nor possible to reach concluded views as to the defendant's assertions where they are disputed. If the matter proceeds to trial there will be interlocutory steps that may reveal further evidence, and at trial oral evidence including cross examination to illuminate these matters on the basis of which findings of fact can be made and conclusions of law reached. For the purpose of the current application, it is appropriate for me to assess the defendant's prospects of success on the basis that his assertions of fact can be established, noting that many of them are disputed.

73 However, even on that basis it is apparent that many of the factors that in other cases have been held sufficient at trial to constitute a defence of unconscionability are not present.

74 First, this is not a case where the loan was not for the personal benefit of the mortgagor. There is no dispute that the loan refinanced existing obligations of the defendant in respect of the two Narre Warren properties and provided finance to him for a new purchase for his benefit, whether that benefit was for business or residential purposes or both. The case is different from Small v Gray, for example, in that regard as there the successful mortgagor obtained no personal benefit from the impugned transaction.

75 Next, although the defendant asserts in submission that he is 'uneducated' and has 'difficult family issues', in my view his evidence does not go that high. Indeed, he deposes that he is a marine mechanic and has 30 years' experience in that industry. The only indication of 'difficult family issues' is that one of his grandchildren has disabilities arising from premature birth. The fact that he or his children live in the properties the subject of the application and would require rehousing if judgment for possession is given to the plaintiffs is a matter that goes to a stay application, not a defence. On his own evidence, the defendant is not under the sort of personal disadvantage that appears in other cases. He is English speaking; has bought property before including for investment, and he actively sought funds for this further purchase knowing that he needed 100 per cent finance.

76 That knowledge and the fact that the defendant had bought property before for a 'property portfolio'[37] would make it very difficult for him to prove that he was unaware of the risk he was undertaking. In fact, on his evidence in this application I consider that it is plain that he was prepared to undertake significant risk. He executed a contract for sale of the Fingal property for $900,000 initially with only $100 by way of deposit and no offer of finance. Neither that first contract of sale, which he executed on 30 June 2015[38], nor the later contract of sale in the reduced sum of $815,000 which he executed on 27 August 2015[39], by which time he had a further $5000 by way of deposit but still no finance, is expressed to be subject of finance. In other words, the defendant was exposed in respect of each contract to potential liability for the whole of the purchase price of the Fingal property without any guarantee that he could meet that liability.

77 Further, on his own evidence the defendant was fully aware of many of the unusual features of the transaction about which he now complains. The defendant first sought funds through a finance broker, Mr Theo Kassinidis. Mr Kassinidis attempted unsuccessfully to obtain bank finance from ANZ and told the defendant that he would have to go 'second tier'.[40] In other words, the defendant was aware before he entered into the contract for sale not only that he needed 'almost 100% finance' as he told Mr Kassinidis, but also, as informed by Mr Kassinidis, that he could not obtain this funding from a bank as he had with his Narre Warren purchases.

78 Mr Kassinidis introduced the defendant to a further broker, Mr 'Johnny Tee' or 'JT'. The defendant met Mr Tee at a series of cafes, not at business premises; paid him in cash; and was prepared to deal with a person whose business card[41] does not give any surname, any business name or address, or any indication of any appropriate qualification to act in the business of obtaining mortgage finance. Given that the defendant had previous obtained loans from a bank, these matters objectively suggest at least unconventionality.

79 Further, and significantly, when the defendant first met Mr Tee, Mr Tee told him that he would not be able to get a loan except through a company.[42] The defendant proceeded then to sign the first contract for sale for $900,000, without finance, and proceeded to pay further sums of money in cash to various persons to obtain a loan that he knew had to be to his company. The defendant also signed all the documents he was requested to sign, or at least all those which the plaintiffs have now put into evidence, without ensuring, on his account, that he or his company received adequate advice as to the implications. Although the defendant says that he did not realise there was to be a second mortgage, the plaintiffs have put into evidence documents including the second mortgage and other documents relating to it that he signed.

80 It may be that, as he says, the defendant did not understand the implications of what he was being asked to do and what he did, but even on his best case, I do not consider that he has any real prospect of success in establishing that he did not appreciate that the transaction was attended by significant risk.

81 I now turn to the other matters about which the defendant complains.

82 The defendant has withdrawn his assertion that the Code applies to the loan, and so his evidence and submissions as to the purpose of the loan are relevant only to the limb of his proposed defence of unconscionability that asserts that the plaintiffs and others were engaged in a scheme to ensure the Code did not apply.

83 The plaintiffs deny the defendant's evidence that the purpose of the loan was to acquire a residence, or, if this was the purpose, that that they knew that. Mr Jeruzalski deposes that the defendant 'advised' at the time the loan was procured that it was required to assist with the purchase of the Fingal property for 'the purpose of boat building and/or repairs'.[43] As there was no direct personal contact between the defendant and the plaintiffs or their lawyers, I infer that this is reference to the statement of purpose in a document or documents supplied to the plaintiffs. The deed dated 30 September 2015 signed by the defendant both as director of the borrower and as guarantor/mortgagor states that the purpose of the loan is for business, and is not for any of the enumerated Code purposes.[44] Further, the Certificate of Independent Financial Advice signed by Mr Topalides states that the loan is for business purposes to 'set up and expand the business'.[45] The plaintiffs also say that the number of boats on the Fingal land show that indeed it is being used for business purposes.[46]

84 Given the documents that he and Mr Topalides signed as to the purpose of the loan, the defendant's prospects of successfully proving that the plaintiffs knew or ought to have known that, notwithstanding what these documents state, the loan was in truth for a Code purpose depend on him being able to prove that intermediaries knew this, and their knowledge should be imputed to the plaintiffs. I discuss the connections between the intermediaries and the plaintiffs or their lawyers further below.

85 The defendant complains that the loan was pure asset based lending and that there is no evidence in the plaintiffs' case as to how his company could repay the loan other than by recourse to the securities.

86 On the authorities, this matter alone does not show that he has a real prospect of success in his proposed defence. In other cases where the defence as succeeded, such as Violet Home Loans, there has been material before the lenders or their agents that should have put them on enquiry, such as discrepancies in the loan application. Here there is no loan application in evidence, and no evidence of any discrepancy or other aspect of the financial information supplied to the plaintiffs that should have put them on enquiry. Indeed there does not appear to have been any financial information provided to the plaintiffs. Not only is there no evidence in the plaintiffs' case of any information supplied to them as to the defendant's financial circumstances or the capacity of his company, the borrower, to make the required payments; the defendant does not assert that there was any such documentation or information. The defendant told Mr Tee that he had no work records or tax returns to supply to a proposed lender[47]. The only financial information before the plaintiffs was the certificate given by Mr Topalides, but this does not certify capacity to pay, merely that the risk has been explained.

87 To provide a substantial loan in the absence of evidence of capacity to pay may well be risky for a lender, but I do not think it can be said that it makes the loan unconscionable. The authorities to which I referred earlier establish that a lender is not required to make enquiries as to capacity to repay, for example by requiring such records.

88 The only inference on the evidence is that the defendant intended to repay the loan or some of it from the sale of either one or both of the Narre Warren properties or perhaps all three properties after renovation. The defendant asserts that the plaintiffs were on notice that this was his intention by virtue of conversations he says he had with Ms Robinson. It is unclear, however, from his Further Affidavit when the first conversation with Ms Robinson to which he deposes took place, but the implication is that it was after settlement.[48] If indeed this conversation was after settlement, and so well after the defendant had signed the loan documents, there is no evidence in his case that the plaintiffs were aware of his proposed method of repayment.

89 In any event, even if the plaintiffs were aware that this was the intended method of repayment I do not consider that that in itself would be enough to show that the loan was unconscionable. Indeed, it suggests that there was a method of repayment other than by forced sale of the properties by the mortgagee and so runs against the argument as to unconscionability.

90 I note here that the defendant seeks to say that the absence of direct contact with the lenders or their lawyers is a 'factor or badge' of unconscionable conduct. The utilisation of intermediaries between ultimate lender and borrower was the subject of adverse comment in Tonto Home Loans, but as noted earlier, it was nevertheless held that the lenders had not acted unconscionably by reason of the wrongful conduct of the persons in direct contact with the borrower in the absence of those persons being the agents of the lender.

91 I now turn to the submissions put by the defendant that seek to impute to the plaintiffs the wrongful conduct of the persons with whom the defendant dealt directly.

92 The defendant complains that there was a misrepresentation as to how much in funds would be available to him to enable him to renovate the properties for sale, I infer to repay the loan. The fundamental difficulty with this aspect of his proposed defence is that the representation was made not by the plaintiffs or the plaintiffs' lawyers but by Mr Tee. To succeed at trial the defendant would have to show that Mr Tee was an agent of the plaintiffs or acting in concert with them, or at least that the plaintiffs were on notice of this representation and did not correct it.

93 The only matters that the defendant asserts to show such a link are that Mr Tee had documents on the letterhead of the plaintiffs' lawyers; that Mr Tee took him to the offices of the plaintiffs' lawyers and finalised the transaction for him; and that Mr Tee told the defendant to contact Ms Robinson with his concerns because she 'manages all the loans that they procure'.[49] Interestingly, the defendant does not depose to Ms Robinson referring to Mr Tee in their subsequent conversations, but only to 'Theo' i.e. Mr Kassinidis, who had referred the defendant to Mr Tee.

94 The plaintiffs say that even if proved, the conversations between the defendant and Ms Robinson are irrelevant because they were after the event of entering into the transaction. In my view, that is incorrect at least on the current application. I consider them to be part of the matrix of facts and to be assessed on that basis in this application.

95 Even on that view, however, I do not consider that these matters necessarily suggest that Mr Tee was an agent of the plaintiffs or their lawyers or otherwise acting in concert with them. Ordinarily a broker is the agent of the borrower. All of these matters could well have occurred in that capacity.

96 The only statement said to have been made by Ms Robinson that could suggest something improper in the relationship or the transaction is her alleged reference to working with 'Theo' to obtain bank refinance immediately after the transaction.[50] Ms Robinson denies this conversation, or any direct dealings with 'Theo'. The formulation of this aspect of her evidence suggests that Mr Kassinidis is known to the plaintiffs' lawyers, although Ms Robinson may not have had direct dealings with him. Ms Robinson does not deny having some conversations with the defendant, in particular a conversation in which she 'discussed with him the balance which was available after settlement of the purchase of the Fingal property and refinance of the two Narre Warren properties'.[51]

97 The defendant's evidence on these matters in this application is not enough in my view to show that he has a real prospect of establishing that Mr Tee was the agent of the plaintiffs or their lawyers, or otherwise acting in concert with them, at trial. It does raise concerns about the nature of the relationship, however. In combination with other matters to which I will now refer, I consider that the nature of the relationship between Mr Kassinidis, Mr Tee and Mr Kiatos on the one hand and the plaintiffs' lawyers on the other should be examined in a full hearing at trial.

98 The shortfall between what the defendant says Mr Tee promised him and what in fact he received is principally accounted for by the very large fees paid by way of 'consultancy fee' and fees paid to the plaintiffs' lawyers. The plaintiffs in reply have produced documents apparently signed by the defendant and not disputed by him to be signed by him which they say authorised these payments. The first is a document headed:

99 The document is dated 22 August 2015, i.e. shortly before the defendant signed the second contract for sale. It refers to two amounts as being required, one being in the sum of $1,059,000 at a ten per cent rate and the other as being $133,500 at an 18 per cent rate. The first amount corresponds to the amount later advanced and secured by the first mortgage and the second amount corresponds to the amount advanced and secured by the second mortgage. The operative part of the document states that the defendant 'hereby agrees to pay consultancy fee of $27,000' to a consultant who is named as Trayan Zourkas.[52]

100 In relation to the procuration and legal fees paid to the plaintiffs' lawyers Mr Jeruzalski puts into evidence a document headed 'Disbursement Authority' dated 19 September 2015 signed by the defendant ('Disbursement Authority') which refers to an enclosed tax invoice issued by the lawyers for the plaintiffs in the sum of $19,269.44 ('Tax Invoice'). The Tax Invoice in turn itemises this sum into two components- as 'our procuration fee herein - as agreed 1% of $1,059,000' being $10,590; and professional charges of $6,500 together with various disbursements.[53]

101 In my view, these documents do not sufficiently answer the matters raised by the defendant. First, there is simply no evidence advanced by the plaintiffs as to how they came to be in possession of the 'Legally binding document: mandate', or who Trayan Zourkas is. 'Trayan' is the name given on the business card given to the defendant by Mr Tee and so I infer that Trayan Zourkas is in fact Mr Tee. It remains completely unexplained, however, how the plaintiffs' lawyers came to be in possession of this document. Amongst other curiosities, the document as exhibited is apparently a faxed document from an entity known as 'Pateras Transport'.

102 Nor are the Disbursement Authority and enclosed Tax Invoice in my view sufficient answer to the concerns expressed by the defendant. First, the Disbursement Authority is expressed to be in respect of the first mortgage, yet the enclosed Tax Invoice refers to professional fees incurred not just in respect of the first mortgage but also fees incurred in respect of the second mortgage. This appears inconsistent with the trust account statement exhibited to Ms Robinson's affidavit[54], which has separate items for 'procuration fee, costs and disbursements' in relation to each of the first and second mortgages. The amount appearing in the trust account statement for these fees for the first mortgage is $19,269.44, the amount in the Tax Invoice. The amount appearing in the trust account statement for these fees in respect of the second mortgage is $12,292.50. This entry in the trust account statement implies that separate professional fees were charged for the second mortgage, but in the absence of that document it is unclear whether there was any duplication. Further, there is no evidence of any agreement by way of disbursement authority from the defendant to pay the plaintiffs' lawyers a procuration fee in respect of the second mortgage, or how much of the total $12,292.50 this was. Finally, there is nothing in the plaintiffs' case to show that the procuration fees were indeed appropriate and in what circumstances and on what basis they were levied.

Alleged wrongful conduct by Mr Kiatos and Mr Topalides; fraud in attempts at refinance

103 The defendant seeks to attribute the alleged failures of Mr Kiatos and Mr Topalides in respect of the certificates they gave to the plaintiffs. There are a number of difficulties that the defendant would face in this regard. First, the certificates on which the plaintiffs rely executed by those persons assert that they acted for the borrower or the mortgagor, not that they are in any way associated with the plaintiffs or the plaintiffs' lawyers. The defendant was referred to Mr Kiatos and Mr Topalides not by the plaintiffs, but by Mr Tee. Further, on his account, when he went into default the defendant returned to Mr Kiatos to seek assistance. This could suggest that he saw Mr Kiatos as his agent, not that of the plaintiffs.

104 There are only two matters that arise on the evidence before me that in my view may be capable, if proved, of showing an improper link between Mr Kiatos and the plaintiffs' lawyers. They both arise from events after the transaction was completed, but nevertheless if proved they may be capable of casting light on the relationship prior to the transaction.

105 The first matter is the false statement made on the letterhead of the plaintiffs' lawyers after the loans were in default that the conduct of the loans had been satisfactory. The second is that on Ms Robinson's own account payment was made to Mr Kiatos for himself and Mr Topalides at his request, but without any evidence in the plaintiffs' case that the defendant had authorised this payment.

106 Both Ms Robinson and Mr Jeruzalski deny that the good conduct assertions on the letterhead of the plaintiffs' lawyers were created by them. Mr Jeruzalski concedes that Mr Kiatos asked him for such a letter but deposes that he refused to provide it because both loans were in default. Ms Robinson sets out in detail how she can tell that the letters were not created by her or their firm, although it is apparent both from her evidence and that of Mr Jeruzalski that on occasion and where appropriate, such letters have been provided by the firm. The circumstances in which the letters in this case were created should in my view be examined at trial.

107 The defendant asserts that other documents created in an attempt to obtain refinance for him after he was in default also create concern. These are a certificate given by Mr Topalides dated 6 April 2016 in relation to his company to the effect that the company has been inactive since its incorporation, and documents on the letterhead of 'CCK Interior Pty Ltd' that state falsely that the defendant had worked with that company for the past two years on a full time basis at a given salary.[55] If, as the defendant asserts, the assertions by CCK Interior Pty Ltd are false the matter should be investigated. There is, however, nothing in the defendant's case or on the plaintiffs' evidence to link these particular documents to the plaintiffs or the plaintiffs' lawyers. To the contrary- the defendant says that they came into existence after he contacted Mr Kiatos to seek refinance. If the creation of the documents is to be investigated, the first enquiry should perhaps be directed to Mr Kiatos, who, of course, has not had the opportunity of a party to answer the allegations against him in this application.

108 The only matter on the current evidence that is not denied and could suggest a relationship between Mr Kiatos and the plaintiffs' lawyers that was other than proper and appropriate as between lawyers acting for the parties to a loan transaction is that the plaintiffs' lawyers paid Mr Kiatos from the defendant's funds without proof of an authority from the defendant in that regard. Ms Robinson deposes that at the request of Mr Kiatos she caused him to be paid from the balance funds held in the trust account of the plaintiffs' lawyers the sum of $1,650 for his costs and $300 for Mr Topalides' costs. She exhibits his request, an email dated 9 October 2015.[56] In it Mr Kiatos asserts that 'Mr Stubbings has requested that I contact you for the payment of our fees and costs for moneys held in your trust account' and states that he makes his request 'with the authority of Jeff Stubbings'. Neither Ms Robinson, nor Mr Jeruzalski, however, exhibit any proof that the defendant gave his authority for this payment. If there was such authority, it is not in evidence. The defendant's account is that he had already paid both Mr Kiatos and Mr Topalides in cash when they gave their respective certificates.

109 To succeed at trial the defendant would have to show moral fault on the part of the plaintiffs, or their agents their lawyers. On the current evidence, I do not consider that he has a real prospect of succeeding in that regard in respect of the transaction alone. The defendant also alleges that the conduct of the intermediaries Mr Tee, Mr Kiatos and Mr Topalides about which he complains should be attributed to the plaintiffs' lawyers, but the current evidence is in my view also insufficient to show that he has a real prospect of being able to successfully do so.

110 There are, however, serious questions raised by some aspects of the evidence in this application as follows:

• No authority is in evidence to pay Mr Kiatos the fees he requests for himself and Mr Topalides;
• No authority is in evidence in relation to the second procuration fee;
• No explanation is given as to the basis on which these fees were charged or whether they were appropriate;
• The circumstances in which the 'mandate' was created and how it came to be in the position of the plaintiffs are not explained.

111 When coupled with the nature of the transaction itself, and the absence of financial information provided to the plaintiffs as to the capacity of the defendant or his company to make repayments, I consider that these matters raise real concerns as to the probity of the transaction. In my view, these concerns can only be satisfactorily put to rest by a trial on oral evidence and after interlocutory processes such as discovery and interrogatories if sought have been utilised.

112 For these reasons I conclude that only a full hearing on the merits is appropriate and I will refuse the application pursuant to an exercise of that discretion under paragraph (b) of s 64 of the Civil Procedure Act.

113 Given that the defendant received relief in respect of existing obligations by virtue of the transaction and on his own evidence was aware or should have been aware of many unusual features that attended the transaction, I do not think that leave to defend should be unconditional. I accept the submission of counsel for the plaintiffs that if leave to defend is given, it should be on terms.

114 I consider that the defendant should be required to give security in sufficient sum to adequately reflect the benefit he received in respect of his existing loans and to reflect the likely time before trial and any complexity attendant on possible joinder of other parties. This was the approach taken by Hargrave J in Butler, and I consider that it is also appropriate in this this case.

115 I will hear the parties further as to the nature, amount and timing of this security and other aspects of the orders to be made to give effect to this judgment.

[1] They are set out in the well-known judgment of Tadgell J in Commonwealth Bank of Australia v Jackson (1992) V Conv R 54-447. See also my discussion in Credit Union Australia Limited v Parkhouse [2016] VSC 462 at [39]- [48].

[2] Devon v Thirteenth Kaysan Pty Ltd [2016] FCA 357 per Davis J [22]; affirmed on appeal by Middleton J in Devon v Thirteenth Kaysan Pty Ltd [2016] FCA 1026 [12]; and Equititrust v SLJM [2010] NSWSC 1059.

[3] [2013] VSCA 158.

[4] Per Warren CJ and Nettle JA at [35].

[5] Affidavit of Myer Jeruzalski affirmed 28 July 2016 at [17].

[6] 'MJ-19' to the affidavit of Myer Jeruzalski affirmed 28 July 2016.

[7] Affidavit of Jeffrey Stubbings sworn 21 September 2016 at [8]; Further Affidavit of Jeffrey Stubbings sworn 18 October 2016 at [19].

[8] Affidavit of Jeffrey Stubbings sworn 18 October 2016 at [20].

[9] (2013) 44 VR 202; [2013] VSCA 56.

[11] Perpetual Trustees Australia Limited v Schmidt [2010] VSC 67 at [206].

[12] Indeed, in Tonto Home Loans Australia Pty Ltd v Tavares and ors [2011] NSWCA 389, Allsopp J suggests at [291] that the concept of unconscionable conduct in the statutes is wider than at general law.

[13] Violet Homes Loans at [59]. See also Perpetual Trustees Australia Limited v Schmidt [2010] VSC 67 at [200] and [207].

[14] Violet Home Loans Pty Ltd v Schmidt at [62].

[15] [2011] NSWCA 389.

[17] Tonto Home Loans per Allsop P at [288].

[18] Tonto Home Loans at [264]-[265].

[20] [2004] NSWSC 97.

[21] Small & Ors v Gray & Ors [2004] NSWSC 97 at [111].

[22] [2012] VSC 186.

[23] Butler& Ors v Vavladelis and anor at [22].

[24] [2012] VSC 490.

[25] [2013] VSCA 158.

[26] [2012] WASC 383.

[27] Perpetual Trustee Company Limited v Burniston (No 2) at [333].

[28] [2013] QCA 137.

[30] Perpetual Trustees Australia Limited v Schmidt and anor [2010] VSC 67 at [192] and [207].

[32] Affidavit of Rochelle Robinson sworn 19 October 2016 at [7] and Exhibit RR-3 to that affidavit.

[38] Exhibit JS-1 to his Further Affidavit.

[39] Exhibit JS-4 to his Further Affidavit.

[40] Further Affidavit at [11]-[13].

[41] Exhibit JS-2 to the Further Affidavit.

[42] Further Affidavit at [14]-[15].

[43] Further Affidavit of Meyer Jeruzalski sworn 24 August 2016 at [4].

[44] Exhibit MJ-14 to Mr Jeruzalski's first affidavit affirmed 28 July 2016.

[45] Exhibit MJ-16 to Mr Jeruzalski's first affidavit affirmed 28 July 2016.

[46] Exhibit MJ-1 to Mr Jeruzalski's affidavit of 24 August 2016.

[48] Further affidavit at [22]-[23].

[50] Defendant's Further Affidavit at [27].

[51] Affidavit of Rochelle Robinson sworn 19 October 2016 at [5].

[52] MJ-34 to the affidavit of Meyer Jeruzalski affirmed 20 October 2016.

[53] MJ-33 to the affidavit of Meyer Jeruzalski affirmed 20 October 2016.

[55] Contained within Exhibit JS-8 to the defendant's Further Affidavit.

[56] Exhibit RR-6 to the affidavit of Rochelle Robinson sworn 19 October 2016.