McDonagh v Huxley

Vangory Holdings Pty Ltd (Eighth Defendant) Vangory Services Pty Ltd (Ninth Defendant) Benitch Investments Pty Ltd (Tenth Defendant) Ghassan Dib (Eleventh Defendant) Representation: Counsel: R Goodridge; P Braham SC with R Goodridge on 13 December 2018 and 5 March 2019 (Plaintiffs)

E Ball in March and April 2018; R Hii on 20 June 2018; A Katsoulas on 13 December 2018; D Allen on 5 March 2019 (First, Eighth and Ninth Defendants)

D Lloyd; M Kalyk on 13 December 2018 (Third, Fifth and Eleventh Defendants)

Solicitors: Firths Lawyers (Plaintiffs)

Mullane & Lindsay Lawyers (Third, Fifth and Eleventh Defendants)

Lillas & Loel Lawyers up to March to April and June 2018; Kekatos Lawyers December 2018 to March 2019 (First, Eighth and Ninth Defendants)

Kent Attorneys (Seventh and Tenth Defendants) File Number(s): 2014/311738

Judgment

1. The first plaintiff, Sharon McDonagh, and the second plaintiff, McDonagh Management Pty Limited ("McDonagh Management"), (a superannuation fund set up on Ms McDonagh's behalf), commenced proceedings in 2014 against 11 named defendants. They claim that the defendants, by a combination of fraudulent representations and dishonest activities, executed a plan in late 2013 to dupe Ms McDonagh (and her company) into making unsecured loans to two insolvent companies, Griffith Estates Pty Ltd ("Griffith") and Beechworth Land Estates Pty Ltd ("Beechworth") that deprived her of $600,000.
2. It is alleged that these events occurred with manipulative urgency in November 2013, shortly after the defendants became aware that Ms McDonagh had received over $600,000 in settlement money from a personal injury claim.
3. Because of the prolix way that the Amended Statement of Claim has been pleaded, it is difficult to succinctly summarise the bases of the plaintiffs' case. The pleading extends to over 100 paragraphs. Some of the bases are pressed against only some of the defendants. Some of the asserted grounds for relief are tenuous, inadequately or inappropriately pleaded and/or clumsily expressed. Some "counts" were abandoned at the trial, leading to the filing of a Further Amended Statement of Claim which apart from abandoning counts 23 and 24 regarding injunctive relief, remained otherwise the same.
4. In the opening by counsel for the plaintiffs at trial, voluble descriptions of conduct were attributed, the activities termed a "scam in which all defendants participated", setting up a scheme to give the appearance of legitimacy and independent advice, rushing Ms McDonagh into setting up a superannuation fund (McDonagh Management) and making loans to insolvent companies of which the family of the first and second defendants were "beneficial owners". It was asserted that a package of documents was created that was "full of legalese", purporting to secure the loans of $600,000, but security was not achieved, and the documents were never registered.
5. The scattergun approach to the legal bases for relief, listed as 22 separate "counts", include conversion, breach of guarantee, unconscionable conduct because Ms McDonagh had a "special disadvantage", negligent misstatement, deceit, misleading and deceptive conduct and various breaches of the Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law, the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), and the Corporations Act 2001 (Cth).

(a) Affidavit and other evidence and pleadings regarding special disadvantage

1. The allegations have been extracted from the Further Amended Statement of Claim filed in Court with leave on 4 April 2018 and Ms McDonagh's affidavit dated 23 June 2016 that was tendered as her evidence in chief, as well as, to the extent relevant, some of the medical reports tendered in support of the allegations of special disadvantage, and documents tendered in the Court Book said to evidence the transactions in issue [1] .
2. Ms McDonagh was born on 9 May 1958 and so was almost 60 years old at the time she gave evidence at trial. She had attended school to year 11, completing her HSC at TAFE. She is the mother of five daughters, who were aged 23 to 45 years old at the time of trial. [2]
3. Ms McDonagh says that she "began working in accounts and administration work" in the real estate industry and later worked as a qualified and licensed real estate agent. There is no evidence of the date or nature of her qualifications, nor is there a detailed history of her employment in evidence.
4. In October 2010, she "recommenced full-time employment" as a real estate agent in Balmain. [3]
5. On 3 June 2011, aged 52, Ms McDonagh was hit by a utility and sustained a number of injuries including a laceration to her forehead, a right periorbital haematoma and a fracture to her nose and right orbit. She was admitted to hospital. There was apparently some concern about the nature and extent of the injuries to her head. She underwent CT scans which showed a subdural haemorrhage that was resolving on repeat CT some days later. Post traumatic amnesia testing was performed at the hospital. Reports tendered concluded that Ms McDonagh performed normally in that testing. She was discharged five days after the accident, (not eight days as she asserts in her affidavit), with follow up plans which included a repeat CT brain scan and neurosurgical review.
6. In her affidavit, Ms McDonagh described her injuries as "severe brain and head injuries" and claims that she "underwent extensive medical treatment for my severe brain injury and physical injuries". It is evident from the medical and hospital records tendered [4] that her subdural haemorrhage did not require operative treatment. She says that after discharge from hospital, she and her youngest daughter stayed at the Huxley's St Ives home for two to three weeks and that Vanessa Huxley provided her with care.

(b) The conduct of the Defendants complained of in the Further Amended Statement of Claim

1. Ms McDonagh had been friends with Greg and Vanessa Huxley for some years. She described in her affidavit being close friends with Vanessa and regularly being invited for dinners and parties and minding their home when the Huxleys were overseas.
2. The Further Amended Statement of Claim alleges that Greg and Vanessa Huxley represented themselves to her as people who were "financially knowledgeable" and able to assist her with financial management of her damages, although Ms McDonagh's affidavit stated that it was Greg Huxley who represented himself as knowledgeable, and that Vanessa, his wife, "agreed" with what he said.
3. There is a gap between what is alleged in the Further Amended Statement of Claim, and what Ms McDonagh says in her affidavit: "[43] I confirm that I spoke with Vanessa and Greg Huxley about the settlement and the money that I had been awarded as I trusted them and I thought of Greg as a "business man". I had this impression of Greg as he often said words to the effect of "You don't get to be as successful as me in business without knowing what you are doing". I knew nothing of Greg's then current and past bankruptcies and the bankruptcy of Adam Huxley was when I was told this by my solicitor at about the time these current proceedings were commenced. [44] I confirm that following my years of friendship with both Vanessa and Greg Huxley I thought of them as being very trustworthy and caring people as they had cared for me so well following the accident. [45] I recall that it was Greg Huxley who first suggested investing the money. He said words to the effect, "You don't want to put your money in a bank. You will be lucky to get $2,000 per month and worse still you will have to pay full tax on that. I can arrange for $600,000 of your settlement money to be invested so that you will receive enough money in interest for you to live on. In fact with $600,000 of your money you will receive $6,000 per month and it will be set up in such a way that you will minimise your tax". This was said to me in front of Vanessa. Vanessa did not interrupt Greg other than to say words to the effect, "You should trust Greg. He knows what he's doing". I recall that at this time Vanessa stopped having conversations with me about the settlement and about any conversations that Greg Huxley and I had. I remember thinking at the time that Vanessa appeared careful not to interrupt Greg or otherwise comment on advice to me or Greg's business dealings generally". [11]

(c) The "Counts" or causes of action relied on by the Plaintiffs

1. The first and second Counts claim the "purported loans" to Griffith and Beechworth (in the sums of $400,000 and $200,000 respectively) were in effect, conversions by Rory McDonnell.
2. The third Count was said to be a breach of guarantee by Mr Spencer.
3. The fourth Count was said to be "unconscionable conduct" on the basis that Ms McDonagh was under a special disadvantage and that all of the defendants took advantage of her special disadvantage and exploited her disadvantage.
4. The fifth Count was that the unconscionability on the part of each of the defendants occurred during "engaging in trade or commerce" as defined in the Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law, s 20 (Australian Consumer Law), and caused loss and damage.
5. The sixth Count asserts that each of the defendants contravened s 236 of the Australian Consumer Law causing loss and damage.
6. The seventh Count asserts that each of the defendants have engaged in conduct that requires they compensate the plaintiffs for the "whole of the loss", or to "reduce the loss or damage" and that each of them were involved in the "contraventions" of the Australian Consumer Law by Griffith and/or Beechworth, in that they each "aided or abetted or procured the contraventions" because they were "directly or indirectly knowingly concerned in the contraventions". The particulars of loss and damage are described as "$600,000 plus interest and legal costs as a damage".
7. The eighth Count asserts a breach of s 12CA of the ASIC Act because the defendants "in trade and commerce" engaged in conduct in relation to financial services where such conduct was "unconscionable within the meaning of the unwritten law of Australia". It is also asserted as "particulars" that Ms McDonagh was under special disadvantage and the defendants took advantage of and exploited that "against good conscience".
8. The ninth Count is alleged to be pursuant to s 12CB of the ASIC Act that the conduct of the defendants was "in trade and commerce" and "in connection with the supply or possible supply of financial circumstances (sic)" to the plaintiffs that was unconscionable. The "special disadvantage" particulars are repeated.
9. The tenth Count is expressed to be pressed against all defendants under s 21 of the Competition and Consumer Act and repeats similar allegations as those under s 12CB of the ASIC Act. (This should no doubt be a reference to s 21 of the Australian Consumer Law and is in reference to the "supply of goods and services"). I interpolate here to observe that what "goods and services" are claimed to have been supplied by each active defendant and when has not been particularised and so this allegation is fatally flawed.

(d) The Oral and Documentary Evidence of the Plaintiffs

1. It is difficult to know what to make of Ms McDonagh's oral evidence. She was cross-examined by Mr Ball on behalf of the Huxley parties and then Mr Lloyd on behalf of the Dib parties. I note that the cross-examination on the part of both counsel was at all times conducted with courtesy, fairness, care and patience.
2. Ms McDonagh seemed on occasion to have difficulty focusing on the question asked and often gave deflective answers or flippant non-sequiturs. It was hard to assess why this was happening. She appeared distracted and at points seemed to be confused as to what was being asked. At other points she was clear and firm and answered quickly such as when she was asked if she knew at least in broad terms what the nature of a caveat was and she said "Yeah I do" and she was then asked: "You knew that back in November 2013" and she answered: "Before that". [29]
3. The content of the answers bore little resemblance to the clarity of expression contained in her lengthy 2016 affidavit, even bearing in mind her solicitor's assertion that the preparation of that affidavit [30] was completed over seven to eight conferences.
4. There was no up to date cognitive assessment. If there was a concern that Ms McDonagh did not have the capacity to give evidence, I would expect that a firm as experienced as Firths would have appointed a tutor and informed the Court that there was capacity issues. That did not occur, so I must proceed on the basis that she had sufficient cognitive capacity to give instructions and to be cross-examined.

i) Cross-examination by Mr Ball on behalf of the Huxley parties

1. Ms McDonagh was shown her affidavits and asked whether she remembered taking the oath each time and signing them. She answered: "I've just done it so many times that its if I have to go back and go 'there's one in here and one in there and there's two in this one' and since it's been a bit of a schmozzle for a while, so it's been a bit of time dropped off but now we're back in". [31] She said that she does read them: "And sometimes they're a bit this way because it's this person signing and other times it's this thing because it's something they want to sign just go through with it and make sure it hits all the right buttons". She was then asked: Q. Hits all the right buttons and those buttons you believe are true? A. I do. Especially after you've been going through ones that thick all the time. [32]
2. Ms McDonagh gave the following evidence regarding her recollection at the time she swore her affidavits: Q. … So when you swore these affidavits, you were able to recall the events that you say in your affidavits you could recall? A. Yeah, mostly, I would think. I mean, other than that there's some, like, there's other people coming in and they go "We'll just use this and put it back" and it's not what I wanted at all. If I can't do it myself, then I'm just… [33]
3. She also agreed that each time she swore an affidavit she understood that they were very important documents and that she needed to be truthful. [34]
4. This exchange followed, again on the subject of the preparation of her affidavits: Q. Thank you, Ms McDonagh. Just a few more questions about your affidavits. When you prepared these affidavits, did you type them out yourself? A. I took somewhere. Q. Did you‑‑ A. I took it somewhere because I wasn't sure. Besides, which I'd had a bad ‑ what would you say ‑ there was lot of things happening at the time and I'd had a fall and so that's, yeah, it still came back up the way it was, but it just took a lot, probably another two or three weeks to sort of get to the stage where you can just put it in there but you can't always do that. Q. So would you dictate or tell somebody else‑‑ A. I'd tell somebody that's a bit higher up in that sort of sphere and say, "Can you" and give them the piece that I had before that really didn't sort of fit into the other ones. So, anyway, we got it all sorted and then they said it was a lot better that way. Q. And each time it was your words, wasn't it? A. Except for a time I've had a fall and didn't get in there on the day that, you know, sort of, people put some nice little notes in there and I just picked it up the next day. --- A. I'm always‑‑ Q. ‑‑notes into your affidavits? A. Sorry? Q. People, not you, would put notes into your affidavits? A. I'd do it myself. Q. You do it yourself, I see‑‑ A. I haven't had any problems from anybody saying "Why did you do it that way?" Or "how come you didn't do that?" I'm very careful to go back and look over it. Q. You're careful, you've gone through your affidavits? A. (Nodded). Q. And you've checked to make sure‑‑ HER HONOUR: Wait, Mr Ball. The witness nodded in answer to your earlier question. BALL Q. So you carefully went through your affidavit each time? A. Yep. Because I hate even not getting the right spelling, that annoys me as well, so I've got to go back and make sure I've got it all ticked up. Q. You check the spelling, you make sure it was your words, no one else's? A. Mm. HER HONOUR: That was a nodding and a "mm". BALL: I'm grateful, your Honour. [35]

ii) Cross-examination by Mr Lloyd on behalf of the Dib parties

1. Ms McDonagh was asked about engaging Firths Lawyers for her personal injury case. She deflected questions about her understanding of her case and the role of Firths as her lawyers and deflected questions about her settlement money in a way that appeared again quite contrary to the clarity about these matters in her 2016 affidavit: Q. Do you remember you got paid $900,000 as part of the settlement for your case where you were involved in‑‑ A. It never came home. Q. Ms McDonagh, do you recall being paid about $670,000‑odd as a result of your case about the motor vehicle accident? A. I've had different things said to me about everything that's happened about that case, the same thing as you; why didn't you do it earlier? There was all these particular little things that they wanted to poke in there. Q. Can I remind you of what you say in paragraph 27 of the main affidavit that after payment of your legal costs and expenses you received $679,000? A. Which also went somewhere else. It didn't come near me. That's why I've still got to get the extra money I put in there before it all started. Q. Ms McDonagh, at the moment I am not asking you about those other things. I am just asking you to accept that what you say in your affidavit about receiving, at the end of your case, that sum, as in a cheque being sent to you‑‑ A. No, I didn't get it. I really didn't get it. I can get something, a lot less than that, and keep it on a nice even keel. [40] And later: Q. You say again in paragraph 27 of your affidavit that you received a cheque in the sum of $679,000‑odd‑‑ A. I didn't see a thing. Q. But the case settled for $900,000? A. No, I don't remember that, because it was around the $650,000 was the original money that was sent. So, I don't know what happened to the other $300,000 because I didn't get it. Q. I want to suggest to you the difference between the $900,000 that you refer to in your affidavit, and the money that you were sent, was comprised of legal fees and other expenses with your case, true? A. No, I didn't get them. [41]
2. Shortly after this Ms McDonagh became upset and the Court adjourned early, with the cross-examination to resume the next day.
3. The next morning Ms McDonagh was asked about her understanding of the role of lawyers in advising her about her settlement. Her answers were difficult to interpret: Q. The case, I suggest to you, settled for $900,000 inclusive of costs? A. Well that's strange because even people that we've known for quite a long time have been saying, like, we've got to do something about this, you haven't ‑ you know, it's got to go, it's got to go, and that's all I get out of it. And I haven't had any money given to me so I'm not using that either. Q. The money that you lent, the subject of this case now, that money came from the settlement of your personal injury damages case, didn't it? A. It's about three years ago. Q. That's not my question, though, Ms McDonagh. I'm asking you to focus, please, and I'm putting this to you. The money that you came to lend, that's the subject of this case, you got that money from your personal injury damages case, didn't you? A. I don't believe so, but. Q. Where did you get the money from to lend‑‑ A. Still there's a couple of other people there who were actually trying to help as well. Q. Let me put this to you; when your damages case settled, you were given advice by your lawyers about that settlement, weren't you? A. I don't remember it, I must say. Q. Do you have any reason to doubt that you were given some legal advice before you entered into that settlement? A. I don't just sit here and try and make, you know, noises and things like that, it's just the fact that that was the first time in my life when I've been put somewhere and been made to do what had to go and I don't think I actually say anything bad to anybody here. Q. And the settlement of that case was something that obviously was very important to you, wasn't it? A. Well I thought it was fair when they sort of rang and said that's what they were going to do but then I haven't seen the money. [42] And later: Q. I'm not asking about yesterday, I'm asking about the retainer or engagement of Firths in your personal injury case; do you understand? A. It's so far back. Q. And you knew by the end of that personal injury case that an ordinary feature of engaging lawyers is that, when you ask for it, they give you legal advice? A. I was just doing what I was asked to do when I got here so I can't sort of say, like, you know, I got a list of things this long or anything like that because I don't need it. I was there before and I've seen the people that were here yesterday, it's just not ‑ nobody got done out of anything, or. Q. And you knew that another feature of engaging lawyers was that they charged you for the time that they spent doing the work, correct? A. Well, when was that? Q. Let me put this to you and it comes from your own affidavit in paragraph 27, Ms McDonagh. That the settlement of your personal injury case in total was $900,000, but about a little over $220,000 of that money went to paying legal fees and other expenses with the case. You know that to be true, don't you? A. I ‑ this makes it so hard because I've got ‑ I've been hit in the head and I wasn't in the full thing of the ‑ I mean, I'm a lot better today than what I was when that was happening. But, you know, like, it was just ‑ I couldn't do anything else because I didn't know what to do. It has got better obviously because I've been speaking to some very, very good people and I believe them. I'm sorry if that offends anybody, but I think you've got two of the best here. [43]

iii) Documentary evidence

1. Tendered in the plaintiffs' case was a series of documents that appear to be relevant to, or comprise part of, the transaction but Ms McDonagh was in 2016, and remains, unable to state what documents she saw, read or signed. This summary is based on the documents collated by her lawyers [59] which the plaintiffs assert were signed by Ms McDonagh and in some cases, specifically "relied on" by her.

(a) The Superannuation Company - McDonagh Management

1. A Self-Managed Superannuation Fund Trust Deed for the McDonagh Family Superannuation Fund which noted as "Supplied by Alpha Consulting Pty Ltd" with an address at 341 Princes Highway, Carlton NSW was provided. On the inside page there is a heading and copyright notice for a firm called "battalion legal" of 379 Pitt Street, Sydney, as well as a web address of the firm and a phone number. On the last page of the Trust Deed, (page 80), Ms McDonagh's signature appears witnessed by Rory McDonnell. The signature bar is dated 12 November 2013.
2. A Constitution for McDonagh Management also bears the "battalion legal" insignia and is annotated as "Supplied by Alpha Consulting". Two schedules are appended, one containing the name and address of the "initial directors" referring only to Ms McDonagh, and the second, comprising an unexecuted "Default Loan Agreement". On the last page of the Constitution there is an execution box stating that Ms McDonagh "consents to becoming a member of the Company" and agreeing to the terms of the Constitution. This too is signed by Ms McDonagh and witnessed by Rory McDonnell, and dated 13 November 2013.

(b) Griffith Loan Documents

1. The Deed of Loan between McDonagh Management and Griffith has on the front page on the bottom left, the firm details of Dib Lawyers and an address: Stromboli House Suite 4 of 434 Chapel Street, Bankstown and phone contact details with a reference: "GAD:202081". It provides amongst other things that the Lender, McDonagh Management, has agreed to provide a loan facility to the Borrower, Griffith, in the sum of $400,000 with Mr Spencer as "Guarantor".
2. On page 31 of the Deed there is an illegible and unattributed signature for and on behalf of Griffith, certifying that "the conditions precedent set out in Cl 2(1) of the agreement have all been satisfied". From the following page, it appears that the signature belongs to Mr Spencer who executed it as an authorised officer of Griffith Estates, as well as Guarantor. Ms McDonagh executed the document for McDonagh Management. Rory McDonnell witnessed the signature of Mr Spencer. The signatures are not dated.
3. A "General Security Agreement" between Griffith and McDonagh Management has Dib Lawyers' details on the front page but with an address at 88 Phillip Street, Parramatta and the reference: "APH:202081". Near the end of this unpaginated document is a Reference Schedule that refers to the "Maximum Priority Amount" as "400,000" and the "Priority Ranking" as "Second ranking charge". The document is not dated. It is signed by Mr Spencer as "Sole Director/Secretary". It is also signed by Ms McDonagh.
4. A Deed of Guarantee also bears Dib Lawyers' details on the first page and the Parramatta address and the "APH" reference. It is signed by Mr Spencer and witnessed by Rory McDonnell. It is not dated.
5. There is a NSW Real Property Act Form O5ML, "Mortgage of Lease, Mortgage or Charge" that provides in the "Firm Name" box "Dib Lawyers". On its face it purports to formalise a mortgage of lease, mortgage or charge over certain nominated titles. The Lodgement box is empty. The mortgagor is noted as Griffith and the mortgagee as McDonagh Management. It is executed by Mr Spencer on behalf of Griffith and is signed by Ms McDonagh on behalf of McDonagh Management. It is not dated.
6. A "Consent by Borrower/Guarantor to Legal Advice" is signed by Mr Spencer as Director/Secretary of Griffith and Guarantor and is dated 28 November 2013 but the "solicitor" who is said to have advised, is not stated and that part of the form is blank.

(c) Beechworth Loan Documents

1. The Beechworth documents followed a similar, although not identical, pattern. There is a Deed of Loan with Dib Lawyers insignia and the Bankstown address and reference GAD:202644. There is a typed date in the header: 28 November 2013. It also has typed in Beechworth as the Borrower having its registered office c/o Dib Lawyers and cites the Bankstown address. Mr Spencer is cited as Guarantor. It is executed on page 32 by Mr Spencer as Sole Director/Secretary and by Ms McDonagh. Both signatures are witnessed by Rory McDonnell. The signatures are not dated.
2. There is a General Security Agreement with Dib Lawyers' insignia but citing the Parramatta address and providing reference: "APH:202644". The maximum priority amount is referred to on page 47 in the "Reference Schedule" to be $300,000, the agreement date is blank and the interest rate is referred to as "0.5% per calendar month as specified in the loan agreement" and the priority ranking is described as "Second Ranking Charge".
3. There is a caveat under s 89 of the Transfer of Land Act 1958 (Vic) partly completed in hand, apparently in Ms McDonagh's handwriting, and dated 29 November 2013. The "Estate and Interest Claimed" is typed on the document as "A legal interest as chargee". The "grounds of claim" are also typed: "Pursuant to Deed of Loan Dated - November 2013 entered into between the 'caveator as charge' (sic) and Beechworth Land Estates Pty Ltd (as charger) over all of the chargers' interest in mortgage numbered AF 168070Y over the land". The "Land" is described as "Volume 11449 Folio 464, Mortgage numbered AF 168070Y".
4. A Drawdown Notice directed to Ms McDonagh is dated 28 November 2013 and is signed on behalf of Beechworth by Mr Spencer and refers to $200,000 to be made payable to SNZ Holdings Pty Ltd.
5. A Statement of Position of Mr Spencer, undated, sets out property worth $3.790 million and debts of $1.935 million and cites his occupation as CEO of "Property Store" and states that his gross income "last year" was $185,000.

(d) The provenance of the documents used in the loan transactions

1. The provenance of the prepared documents was an issue at trial and the evidence about that was patchy to say the least. It appears a number of the documents Ms McDonagh signed particularly regarding the Griffith loan were not prepared by Adam and may have been in a different form to those prepared by him and provided to Greg Huxley by email on the morning of 28 November 2013. The provenance of a number of the Beechworth documents is simply not known. Ms McDonagh does not recollect what she did see, read or sign so it is now impossible to accurately reconstruct what documents she was shown, which ones she read, if any, and what she relied upon or was induced to rely upon in completing the transaction.
2. Ms McDonagh's affidavit evidence suggested that she relied on the caveat form regarding Beechworth and the "Mortgage on Mortgage" form in relation to the Griffith loan as reassurance that the transaction "looked legal", but her evidence in answer to questions in cross-examination about this was inconsistent with that position. It is evident that to a very large extent the affidavit of Ms McDonagh is reconstruction.
3. Some of the documents at least had their origin in the hands of Adam. An email by Greg Huxley to Adam Huxley dated 27 November 2013 was annexed to Greg Huxley's affidavit: "To: Adam Huxley From: Greg Huxley Date: 27th November 2013 Re: SMSF FINANCE MCDONAGH Dear Adam, Under Ed Spencer's instructions, I have had a number of meetings with Sharon McDonagh. You will be preparing these documents for Ed Spencer as borrower. Borrower has undertaken to attend registration on his behalf. 1. Borrower name: Beechworth Land Estates Pty Limited (see point 11) a) Guarantor: James Edward Spencer b) Signing officer: James Edward Spencer 2. Lender name: McDonagh Management Pty Ltd ACN 166719839 As trustee for The McDonagh Superannuation Fund ABN 63 951 464 696 341 Princes Highway Carlton NSW 2218 3. Loan Amount: $400,000 4. Loan Term: Up to 12 months 5. Partial Discharges: Allowed with interest calculated to the end of the and at a rate of $50,000 per allotment 6. Interest rate and default: Paid monthly 15% p.a. (paid 1.25% per month) with a default rate of 18% p.a (paid 1.5% per month) Continuation Page 7. Accrual rate: Nil 8. Exit fee: paid to Lender at loan repayment time 2% - $8,000 9. Establishment fee: $3,000 10. Interest buffer: at settlement, interest is to be paid in advance for 3 months - $15,000 11. Security: Third party security that is being provided by Griffith Estates Pty Limited (or, if easier make Borrower Griffith Estates Pty Ltd). Eight residential allotments, being: Region Deposited Plan Lot Street Name Mortgage No. Griffith 1131234 2 51A Walla Avenue, Griffith AE324437 Griffith 1131234 3 3 Zirilli Avenue, Griffith AE324437 Griffith 1131234 67 37 Waila Avenue, Griffith AE324354 Griffith 1131234 69 6 Spencer Road, Griffith AE324354 Griffith 1131234 70 8 Spencer Road, Griffith AE324354 Griffith 1131234 75 18 Spencer Road, Griffith AE324354 Griffith 1131234 76 20 Spencer Road, Griffith AE324354 Griffith 1131234 78 24 Spencer Road, Griffith AE324354 1. Documents: You (sic) standard package:- 1 Deed of Loan 2 General Security Agreement (charge) second ranking 3 Deed of guarantee 4 Caveats for lots; 5 Transfers by Mortgagee or Annuitant 6 Mortgage on Mortgage 7 Advice certificates 8 Acknowledge of advice certificate Continuation Page 9 Business purpose declaration; and 10 Declaration as solvency Items 6, 7, 8 and 9 can probably all be dealt with on a standard Draw Down notice Please prepare the appropriate loan document/s in draft (word version) so that they may be reviewed with Ed Spencer. Would like to get these by 12noon, 28th November 2013.

Regards, Greg Huxley"

1. The reply from Adam forwarded at 9.15am on 28 November 2013 [60] was titled "McDonagh Management Pty Ltd as trustee for The McDonagh Superannuation Fund Advanced to Griffith Estates Pty Ltd" and stated: "Dear Greg, please see all documents attached". The attachments are listed as: 1. Mortgage of lease mortgage of charge - Form 05ML - LL - NSW - RPA037.PDF 2. LOAN AGREEMENT - mcdonagh management to griffith - 28.11.13.PDF 3. Annexure A - mortgage on mortgage - griffith to mcdonagh -28.11.13PDF 4. Business purpose declaration - griffith - 28.11.13.PDF 5. Deed of guarantee and explanation - spencer - 28.11.13PDF 6. GDA - griffith estates to mcdonagh superfund - 28.11.13.PDF 7. Acknowledgement of legal advice by proposed guarantor-28.11.13.PDF 8. Acknowledgement of legal advice by proposed guarantor-28.11.13.PDF 9. Acknowledgement of legal advice by Griffith Estates_28.11.13.PDF 10. Consent to same solicitor legal advice - 28.11.13.PDF 11. STAT DEC that company is solvent - Griffith.PDF
2. Records referred to in the affidavit of Gus Dib suggest that Adam also sent a draft caveat on 29 November 2013 to Greg Huxley at 11.16am [61] under s 89 of the Transfer of Land Act 1958 (Vic) "expressed to protect an interest of Sharon McDonagh" in land at Volume 11449 Folio 464, Mortgage number AF 168070Y pursuant to Deed of Loan "dated - November" between the caveator and Beechworth.

(e) Events and correspondence after 29 November 2013

1. What documents tendered show after November 2013 is relevant in that some of the correspondence between some of the protagonists and what Greg Huxley said to Firths in some of his emails may shed some light on what had occurred.
2. Some of this material was tendered as part of Exhibit A, and some of it was appended to the affidavit of Ms Pinkus, a solicitor from Firths, sworn 24 June 2016. [62]
3. There is dispute about whether any interest payments at all were made to Ms McDonagh or to McDonagh Management. Ms McDonagh asserts that no payments were made. I query the reliability of that assertion given the Commonwealth Bank records and Greg Huxley's evidence about it. The position is complicated by Ms McDonagh's poor memory about that time period and the obvious gaps in her recollection as set out in her 2016 affidavit: "[90] Following being asked to sign all of the documentation in late November 2013, I recall that I started to become worried that something was wrong as none of the investment returns had been provided to me as promised. First Greg then Rory McDonnell had told me that I would "receive monthly returns on the loans". [91] I recall trying to contact Greg Huxley and Rory McDonnell and being unable to make contact with them. I recall feeling that my calls were being ignored. [92] I confirm that I never received any Certificate of Title or any registered Caveat documents or any notice of registration of any security documentation. I have been informed by my current solicitor that neither Dib Lawyers nor any other person registered any security. [93] I recall on one particular occasion when I met with Rory McDonnell following November 2013 to ask him questions about the loan returns that I was expecting and on this occasion Rory McDonnell gave me $50.00 out of his own wallet and he said words to the effect that the money would, "tide me over". [94] I have been shown a document by my solicitors titled "Repayment Notice" dated 19 March 2014 addressed to Beechworth Land Estates Pty Ltd. I can see that this document is for a drawdown of $20,000.00 against the loan principle (sic) that I lent to Beechworth Land Estates. I have been shown my signature on this document. I cannot recall preparing this document. I cannot recall ever receiving $20,000.00 from Beechworth Land Estates after 19 March 2014. A copy of the Repayment Notice dated 19 March 2014 is at page 312. [95] I recall that during this time, I was not paid any interest payments or loan repayments. [96] I have been shown a document by my solicitors purporting to be a letter from me to Rory McDonnell date 2 May 2014. The letter requests a lump sum payment of $30,000.00 from the loan to Griffiths Estates Pty Limited, $1,500 per week in repayments until the loan is repaid and the ability to request up to $10,000.00 for emergency funds within 7 days. I do not believe that I prepared this document as I can recall Rory bringing it to my apartment. I believe Rory prepared this document and brought it to my apartment. I recognise the signature above the word "witness" to be that of my daughter, Jennifer. I do not recall receiving any lump sum repayment or interest payments after 2 May 2014. A copy of the letter addressed to Rory McDonnell dated 2 May 2014 is at page 313. [97] I have been shown a letter addressed to me from Greg Huxley dated 19 June 2014. I can recall receiving this letter and the general content of the letter, however, I cannot recall the specific details contained in the letter. To the best of my knowledge, I had still not received any money from either my loan to Griffith Estates or Beechworth Land Estates. A copy of the letter from Greg Huxley dated 19 June 2014 is at pages 314-316. [98] As a result of not receiving any interest payments or loan repayments from either of the loans to Beechworth Land Estates or Griffith Estates, I was unable to pay my rent for the apartment that I lived in at Breakfast Point, NSW. As a result, my landlord brought a claim against me in the NSW Civil and Administrative Tribunal Consumer and Commercial Division, for the payment of rental arrears. A copy of the application form lodged with the NSW Civil and Administrative Tribunal on 25 June 2014 is at page 317. [99] I recall that after not receiving any moneys from either Griffith Estates or Beechworth Land Estates I went back to my personal injury solicitors (my current solicitors) for assistance. [100] I understand and verily believe that my solicitors, under cover of a letter dated 24 August 2014, sent a letter of demand to Griffith Estates Pty Ltd for payment of the principle (sic) loan of $400,000.00, plus interest and legal fees. A copy of that letter of demand is at page 318. [101] I understand and verily believe that my solicitors, under cover of a letter dated 24 August 2014, sent a letter of demand to Beechworth Estates Pty Ltd for payment of the principle (sic) loan of $200,000.00, plus interest and legal fees. A copy of that letter of demand is at page 319". [63]

The First, Eighth and Ninth Defendants: Greg Huxley, Vangory Holdings and Vangory Services

(a) Affidavit of Greg Huxley 4 October 2016

1. The evidence in chief of Greg Huxley comprised his affidavit evidence sworn 4 October 2016. He described himself as director of both the ninth and tenth defendants, Vangory Services and Vangory Holdings, but only since April 2015. At the time material to the transaction in issue, his ex-wife Vanessa and the seventh defendant Jeffrey Dawson were the directors.
2. He described the background to the Beechworth and Griffith projects as something he became aware of as an investment opportunity in October 2012. He says that he learned that Suncorp was the mortgagee of a number of properties in Victoria and was looking to sell its debt and security interests and that there was a similar opportunity in relation to some properties in Griffith to which receivers had been appointed and that he saw significant profit potential in these projects.
3. He deposed to holding a belief that if these assets could be purchased at an acceptably low price, "we, that is my family, could sell the properties one by one or in small blocks to individuals; superannuation funds or investment clubs such as Home Corp and Members Alliance". He says that he discussed these potential opportunities with his wife Vanessa and Jeff Dawson and investigated these as business opportunities and discussed them with Mr Spencer whom he described as "a real estate marketing agent" whom he had known for approximately six years.
4. He described the arrangements as follows: "[11] The business arrangement that was discussed with Leon Stephan, Ed Spencer and Vanessa and Jeff Dawson was the incorporation of two companies, one to be the vehicle for the Beechworth project and the other to be the vehicle of the Griffith project. I arranged for the incorporation of Beechworth Land Estates Pty Ltd (BLE) and Griffith Estates Pty Ltd (GE) to proceed with the Beechworth Project and the Griffith Project respectively. Rockcliffe Ltd (a Hong Kong company of which Leon Stephan was a director) would hold 95% of the shares in the companies on trust for VHoldings and Ed Spencer, who would hold 5% of the shares beneficially. Ed Spencer would be the director of both companies and I would consult to them, as well as maintaining some of the financial records. [12] In relation to the BLE, the development comprised three stages. BLE purchased the mortgage over all the stages and arranged funding to enable it to complete the development of stage 2 has meant that in addition to the 13 lots that comprised stage 1, it had an additional 26 lots. Stage 3 comprised a completed house and a further subdivision for 27 lots. Spencer then arranged sales on individual allotments [inadmissible]. The total development in its incomplete stage was acquired for approximately $1.6 million. [inadmissible] [13] In relation to GE, it acquired 59 substantially completed allotments in a subdivision at Griffith. The development originally comprised in excess of 80 lots and approximately 30 lots had been sold by Valencia Grove Estates Pty Ltd [inadmissible]. They also sold a number of house and land packages. Spencer had negotiated arrangements with Home Corp in Queensland for house and land packages to be sold to investors. Spencer had also negotiated arrangements with respected builder Hadar Homes to build house and land packages. [inadmissible] Given this information, I was very happy with the investment in that project. [14] Once the BLE and GE were incorporated and the assets purchased, the companies commenced operating out of premises at The Rocks. Ed Spencer had the day to management of the companies. Karl Bounader was retained as head of sales and Vera Velevska was employed as book keeper and office manager. My role was to act as a liaison between VHoldings and VServices in relation to the provision of day to day funds through a secured loan facility. I also provided assistance to Ed Spencer as and when required. [15] It took several months before properties started being sold. The sales process was going slower than I liked. The key was to get the first few sales, which would set a market price for the lots. The properties would then have appeal to investors, who could work out the purchase for a lot, how much they could borrow on the property and the profit after building houses on the land. [16] BLE had negotiated either settled sales or contracted sales on all of stage 1; some of stage 2 and had not yet undertaken marketing of stage 3 at Beechworth. In relation to GE, six lots had been sold and a marketing plan had been put in place with a put and call option arrangement with Home Corp".

(b) Correspondence of Greg Huxley around the transactions

1. Despite the assertions in the affidavit that he had in effect no role in the transactions, the emails appended to it, on one analysis, suggest an active role was performed by Greg Huxley in at the very least facilitating the loans by Ms McDonagh to Beechworth and Griffith. This role appears to be more than just "friend and messenger" as his counsel suggests was the case. [67]
2. There are two emails from Greg Huxley that centre on general financial matters and the Self Managed Super Fund. The first is dated 11 November 2013: "Dear Sharon, Firstly, don't be upset and don't be embarrassed. The matters are not simple and they are very important in your life. It is better to stop and take your time before deciding to do anything. When any of us are confronted with material in an area where we are not familiar, any of us can get confused - do not be embarrassed about this. Put on the brakes and ask questions you must do that. Let me summarise where things are at as I understand from Rory. 1. Get onto the Real Estate Institute and see what is involved in terms of cost and time to renew your real estate agent's licence. I presume your licence is for New South Wales only - but find out what is required. 2. Rory is having an accountant prepare a self managed super fund for you. There will be two beneficiaries you and Savannah. 3. Once the self managed super fund is set up, it will have its own bank account. You will be the sole signatory to that bank account. Remember, you just can't write cheques out for anything because if you do, your self managed super fund will no longer comply with tax law and you will not maintain tax-free status. Basically you are entitled to draw your income from the super fund but you cannot withdraw capital lump sums without penalty unless they are approved investments 4. Rory has suggested the self managed super fund bank account should be at the Bank of Queensland he was going to speak to them about you having internet banking access and he was also going to speak to them about opening a separate bank account in your name to hold your investment capital and see about getting the highest interest rate available. 5. Other options were discussed but none need to be dealt with now. The most important function is to get your self managed super fund set up so that you can roll your capital into this account by close of business 13 November 2013. 6. Then you have to get an income coming in on your funds - you know that you cannot live on the capital or you will soon have nothing. Rory will help there. Generally what was also discussed was how you apply the moneys. Based upon the numbers that I've seen, it seems to me that you should consider a. $400,000.00 into your self-managed super fund which should provide a high enough income for you to live (tax free) and provide servicing capacity to a housing loan. b. An amount of approximately $200,000.00 be held out of the super fund and banked into the Sharon McDonagh Investment bank account at the best interest available. These funds would be earmarked to form the deposit on a future property acquisition. If you buy the property sooner than the expiry of your property lease, you could rent it out in the meanwhile. The rent from that investment property and you being able to show regular interest on your self managed super fund investment will provide you with an ability to prove servicing ability to a lender who will in turn lend you on your proposed property acquisition. Sharon, there is nothing wrong with taking your time. This will stop you getting into trouble. It is better to be slow than rushed. I am happy to discuss any part of this matter with you. Rory sometimes discusses these things quickly - I know that - but, he knows this area well and is very good with finance. I am confident he will get you the best deal. He mentioned to you that he does get a trail from funders which he must disclose by law. There is no other fee from you that he is proposing in relation to this work. The Borrowers always pay all fees and costs. I am happy for you to ring or e-mail me at any time. Don't get upset and don't feel embarrassed about this".

(c) Supplementary Oral Evidence

1. Short oral evidence was led from Greg Huxley with leave, about his understanding of the value of the sale of various allotments in the Griffith and Beechworth holdings. This evidence consisted of a broad outline of the proposed approach to selling the allotments owned by Griffith and Beechworth and therefore, potentially, the expectations surrounding the wealth and solvency of those companies as at November 2013.
2. Mr Huxley said that the plan in relation to Beechworth was a three stage development with a mortgage over all the stages to arrange funding to enable the complete development of stage 2. He had a firm recollection that Beechworth had acquired the mortgage on 2 February 2012. [72] He explained that in addition to the 13 lots that comprised stage 1, there was an additional 26 lots in stage 2. He said that the stage 1 sales were between $117,000 and about $125,000 and took place between June 2012 up to December 2013 or January 2014 and that the lots in stage 2 were sold for at least $120,000 per lot, and those sales took place between July 2013 and December 2013. Stage 3, however, with the completed houses on the allotments, was not sold whilst he was involved with Beechworth and instead was sold subsequently by the Receivers, "in globo".
3. His understanding of this situation was based on him seeing copies of sale contracts at certain times in his role as director of the Vangory companies. In that role he had to consent to settlements engaged in by the liquidators and consent to the partial repayments these companies received as mortgagee.
4. In respect of Griffith, Mr Huxley explained that Griffith acquired the first mortgage security interest with the secured property comprising 59 completed residential lots. He said that he believed that Griffith acquired the first mortgage interest over those lots in August 2012. [73]
5. The project had initially comprised over 80 lots and approximately 30 of them were sold by a company known as Valencia Grove Estates for amounts exceeding $120,000 per allotment. Mr Huxley explained that he knew that, because first, he was told in response to direct enquiry to the CEO of Equititrust Ltd, second, he was told that by a third party he made contact with, Joe Presier, who was the former managing director of Valencia Grove who marketed the properties, and third, by online enquiry through real estate.com.

(i) By Mr McNally on behalf of the Dawson Parties

1. Mr McNally SC briefly cross-examined on behalf of the Dawson parties. Mr Huxley agreed that Ms McDonagh "seemed quite confused during her evidence" and agreed with the proposition that she "appeared to be unable to give a responsive answer to many many questions". He agreed that he spoke to her reasonably regularly in November 2013 and said that she appeared to be a "completely different person" then, to her appearance in the witness box: Q. How did your observations of her presentation to you in 2013 compare with what you observed of her in the witness box in the last two days? A. Different person. Q. In what way? A. Physically, demeanour. Q. Just expand on this, demeanour? A. I was on Hamilton Island with Sharon and her daughter in 2014. We went out to dinner, we were dancing, she was outgoing and effervescent; not the lady I saw today. Q. Any other observations that you made in 2013 that were different to what you observed in the last two days? A. (No verbal reply). Q. What about her ability to understand questions, is that different, was it the same? A. Absolutely different person. Q. In what way? A. She was quite articulate in 2013. [75]
2. Mr McNally then asked some clarifying questions about the sale of the Beechworth lots. Mr Huxley said that it was his recollection that all bar two lots in stage 1 were sold - that would be 11 lots - and that they had settled. He based that on a recollection that one lot had a partially completed house on it which was subsequently in the hands of the receivers, and that there were a handful, maybe 34 lots, in stage 2 because that subdivision had just been completed under Mr Spencer's control. Mr Huxley concluded that it might be 15 or 16 blocks in total being a small number in stage 2 and just about all of stage 1 had been sold during the period 2012 to December 2013.
3. He further explained that stage 1 progressed basically in accordance with the marketing plan that Mr Spencer had prepared, but that stage 2 had started slower because there was a delay in completing the subdivision. Once that had completed, sales progressed in accordance with his understanding of the plan. The subdivision was not completed until July 2013. He explained that subdivision works differently in Victoria to New South Wales because bonding has to be put in place of "a couple of hundred thousand dollars" before they will release the titles.

(ii) By Mr Lloyd on behalf of the Dib Parties

1. Mr Lloyd then cross-examined in respect of the Dib parties in an effort to clarify the position regarding the documents sent by Adam to Mr Huxley in response to his 28 November 2013 email request. Mr Huxley was shown the bundle of documents [77] which comprised the email from Mr Huxley to Adam and Adam's response the following morning which appended the documents listed in par 163 of this judgment, stated in the attachments parts of the email as "PDFs".
2. He was asked: Q. … You didn't receive loan documents like the ones that I've just taken you to from Adam Huxley with respect to the Beechworth transaction, correct? A. I can't recall receiving these. I say yes because I had them. Q. You say yes that you received these because you had them and you've seen the emails? A. Well this ‑ this would remind me, I haven't had my email service since some time in February 2015 so I have ‑ I'm prompted by this document. [78]
3. It is evident that Exhibit GDI, the bundle of documents sent by Adam on 28 November 2013, does not include any documents in regard to Beechworth.

(iii) By Mr Goodridge on behalf of the Plaintiffs

1. Mr Goodridge then cross-examined over a number of days. Unfortunately the level of generality of many of the questions posed introduced confusion rather than clarification. What follows is what seems to me to be the relevant cross-examination and relevant responses by Mr Huxley that are germane to the issues I need to determine.
2. It was put to Mr Huxley that he was a Chartered Accountant. He said that was not correct but stated that he completed the examination course with the Institute of Chartered Accountants in 1973 and had worked in the capacity of an accountant for his family companies.
3. From 1973 to 1981 Mr Huxley was Finance Director of Huxley Homes, a shareholder in the company and financial controller for the business with an accounting staff of 10 to 12 people. [79]
4. From 1981 to 1988 he maintained a business that was involved in construction with an employed accountant. He owned a stockbroking firm for a period, not working as an accountant but would occasionally oversee and look at figures and analyse them but had accountants working for him up to about 2012.
5. Mr Huxley said that after 2012 he only did accounting in relation to his own family companies but some of that accounting was also done by practising accountants. He described the family companies as "primarily Vangory Holdings and Vangory Services".
6. Mr Huxley agreed that there were other "family companies" or at least companies in which his family had an interest. One of those was First Adventure Ltd for which he did no accounting work and did not regard that as a family company. There were a number of subsidiaries through First Adventure.
7. The Vangory companies had an interest in an AFS held entity called One Group Capital and a beneficial interest in a company called Rockliff Ltd, a financial services company operating out of Hong Kong. It also had 50% shareholding in a company called Gladstone Mortgagee which had acquired a mortgage over a property interest in Gladstone.
8. Mr Goodridge put to Mr Huxley that Vangory Holdings and Vangory Services were companies where the benefit "flowed through to the family through trust arrangements" to which Mr Huxley replied "No, that's not correct". When the question was re-put after a discussion as to the parameters of the pleadings and to what extent, if at all, the pleadings allowed the proposition to be put, this series of questions and answers followed: Q. If the benefit didn't flow to the family through the trust arrangements, how did the benefits flow to the family? A. (No verbal reply). HER HONOUR Q. So that's the question, Mr Huxley. A. I'm confused. But I'll say, none. Q. I beg your pardon? A. I'm confused with the way that the question has been put, but as I understand it I will say that there was none. [80]

(iv) Re-examination

1. In re-examination, Mr Huxley explained why he rejected the proposition that Beechworth was "hopelessly insolvent" by 28 November 2013: A. … The gross sales value of stages 1, 2 and 3 were 25 allotments circa 120, 125,000 a lot, which would be probably in the order of $3 million. And stage 3, being lot A, as an in globo lot of 27 allotments, I think, was worth in the order of a million dollars. So that got the gross asset realisation around $4 million‑‑ [97]
2. Mr Huxley also explained why it was incorrect to say that Griffith was insolvent on 28 November 2013: A. Because I knew the sales prices of the allotments, I knew what that gross realisation would be as a result of that knowledge‑‑ [98] and A. And I knew what the gross realisation would be as a result of that knowledge, that being what the individual allotments were selling for and that well exceeded the debts. [99]

Submissions, evaluation of evidence and factual findings

i) Introductory observations

1. The written submissions relied upon by the plaintiffs suffer from the same problems as their pleadings. They are prolix, repetitive, unfocused and full of generalities. It is not feasible or useful for me to address every argument and inaccuracy contained within them. There are inaccuracies of law and inaccuracies of fact. There are submissions not based on the evidence and not based on counts or facts that have been pleaded. I will extract the relevant arguments as I understand them and deal with them as succinctly as possible.
2. Second, I will outline the submissions of the active defendants under the headings the Dawson parties, the Dib parties, and the Huxley parties.
3. Third, I will set out my factual findings based upon the evidence that I have accepted.
4. Fourth and finally, I will deal individually with the 22 counts pleaded and decide whether and in what respects any of them have been made out and the reasons for my conclusions.

ii) Plaintiffs' submissions

1. It is the plaintiffs' position that they were deceived by a single scheme. Each defendant performed a role in the scheme. The transactions were unconscionable when considered on their own, independently of any question of personal disadvantage on the part of Ms McDonagh.
2. Greg Huxley, Gus Dib and Adam prepared the documents that purported to provide security that was not in fact provided by the documents. Those three men also "proffered" the documents. Every defendant was party to the preparing and proffering of the documents and thus was accessory to their preparation and proffering.
3. This comprised misleading and deceptive conduct by Greg Huxley, Adam and Gus Dib. Every defendant was an accessory to that activity.
4. Every defendant knew that the arrangements were unconscionable because of Ms McDonagh's special disadvantage and so were all knowingly accessories to the unconscionable conduct of Greg Huxley, Rory McDonnell and Mr Spencer.
5. Separately, Greg Huxley and Mr Spencer are liable to the plaintiffs for deceit and exemplary damages.
6. The special disadvantage was said to arise based on, in particular the June 2012 report of a neuropsychologist, Sarah Lucas, to the effect that Ms McDonagh had memory problems, organisation problems, word finding difficulties, thinking speed problems, headaches, anxiety, panic attacks, loss of confidence and emotionality.
7. There seems to be an assumption that all of those problems were continuing to operate upon Ms McDonagh in November 2013, although why the Court should reach that conclusion has not been stated. How these difficulties were said to be known by or manifest to the (lay) defendants was not stated. The basis upon which that combination of problems was said to satisfy the legal definitions and/or discussion in the authorities that deal with "special disadvantage" has not been stated.
8. A general submission was made that the unconscionability upon which the plaintiffs rely falls into the category of conduct frowned upon by the Full Court of the Federal Court in Paciocco v ANZ (2015) 236 FCR 199; 321 ALR 584; [2015] FCAFC 50 at [296] per Allsop J in that it was a "scheme" comprising commercial dishonesty, trickery and sharp practice and that Greg Huxley "callously influenced" his friend to enter into the "scheme": "The working through of what a modern Australian commercial, business or trade conscience contains and requires, in both consumer and business contexts, will take its inspiration and formative direction from the nation's legal heritage in Equity and the common law, and from modern social and commercial legal values identified by Australian Parliaments and courts. The evaluation of conduct will be made by the judicial technique referred to in Jenyns. It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon".

iii) Dawson Parties' Submissions

1. Mr McNally SC submitted that in considering the principles in respect of unconscionable conduct and in examining the particular facts and scrutinising the exact relations established between the parties, there is nothing at all that indicates that the Dawson parties had any knowledge of the first plaintiff or of any disability she suffered or even knew that she was the source of the funds for the repayment of Benitch's loan.
2. There is no evidence therefore of any taking of surreptitious advantage of the weakness or necessity of Ms McDonagh, no victimisation or exploitation, and no proof of a predatory state of mind. This means that all the unconscionability assertions must be dismissed.
3. In respect of asserted knowledge of misleading and deceptive conduct by others, and thus accessorial liability, there is no pleading that Mr Dawson had actual knowledge of any of the elements of the contravention. Actual knowledge of the essential elements of the contravention must be alleged and proved: Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65 at [666] - [670].
4. The arguments in respect of the drawing of the inferences negative to Benitch and Mr Dawson are simply wrong and misplaced. The drawing of inferences cannot fill gaps in the evidence or convert conjecture and suspicion into inference.

iv) Dib Parties' Submissions

1. Mr Lloyd submitted that the causes of action pleaded in the Further Amended Statement of Claim overlap and raise issues of substantial complexity. The plaintiffs' approach, to group them together and gloss over the necessary elements of pleading and particularisation without providing the necessary precision and identifying the relevant evidence, is not a proper approach. In taking that approach, the plaintiffs have failed to address fundamental elements of the many causes of action pleaded.
2. The fourth to tenth counts comprise common law and statutory unconscionability. There are fundamental problems with those given there is no evidence that Adam or Gus Dib knew of any special disadvantage suffered by the plaintiffs. Indeed there is no evidence that they had ever met Ms McDonagh.
3. The tenth and eleventh counts require a supply of goods or services or supply of financial services and the involvement of the Dib parties cannot come within those statutory provisions and therefore those counts fail. It is disputed that the aiding and abetting count can be made out - the thirteenth count. The fifteenth and sixteenth counts again require conduct with respect to financial products or financial services. Gus Dib and Adam provided legal services only and to their clients, the borrowers, not to the plaintiffs.
4. Dishonest conduct, the seventeenth count, cannot be made out and there are problems with the nineteenth count, negligent misstatement because of inadequate pleading and particularisation and lack of evidence.
5. Significantly, the inferences that the plaintiffs ask the Court to draw to the effect that Gus Dib and or Adam were the "guiding mind" or "ultimate decision-maker" behind the transactions are simply not available. The permissible drawing of inferences and the principles in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 apply, given the seriousness of the allegations of dishonesty and unconscionability (per Dixon J at pp 361 to 362): "… The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proof, indefinite testimony, or indirect inferences. … This does not mean that some standard of persuasion is fixed intermediate between the satisfaction beyond reasonable doubt required upon a criminal inquest and the reasonable satisfaction which in a civil issue may, not must, be based on a preponderance of probability. It means that the nature of the issue necessarily affects the process by which reasonable satisfaction is attained…"

v) Greg Huxley and Vangory Holdings' and Vangory Services' submissions

1. Mr Ball, counsel for Greg Huxley and the Vangory companies, raised concerns both in his written submissions provided to the Court on 28 March 2018, and in oral submissions made on that day, that the cases the plaintiffs sought to make against his clients had not been properly pleaded and that the approach taken by Mr Goodridge in the opening went significantly outside the case that had been pleaded.
2. I note that this was not the first time these issues had been raised with the plaintiffs' legal representatives. Detailed requests for particulars forwarded in January 2015 courteously and appropriately pointed out the problems with, and inadequacies of, many aspects of the pleadings, in particular drawing attention to the fact that key elements of alleged counts had not been pleaded. Attention was drawn to the requirements of r 15.4 UCPR multiple times. The request from Kent Attorneys dated 19 January 2015 was made at that time on behalf of Greg and Vanessa Huxley, Mr Spencer, Mr Dawson, the Vangory companies and Benitch. [102] Kent Attorneys made it clear that they would consent to an amended statement of claim being filed that attended to the many identified issues. The invitation to replead was rejected in the tersely worded, elliptical response, (which the Court record suggests was only provided after an application was made to dismiss proceedings due to a failure to initially respond. Adams J ordered that the particulars had to be answered).
3. The deceit claim, which is a representation claim, has not been properly pleaded. There are no particulars stated of the circumstances in which the representations were made, no reference to the documents or conversation(s) said to comprise the representations, and no specification of how that material is alleged to constitute the misrepresentation.
4. In respect of the admission and guarantee case, there are no particulars of the causative element of this allegation and thus it is unable to be understood.
5. The dishonest concealment allegation, (s 1041F of the Corporations Act), fails to address the two requirements imposed by subs (1)(a) first, that such misleading or deceptive statements are only actionable if they are made when the person making them knows or is reckless as to whether the statement is misleading false or deceptive, and second, the materiality of those asserted concealed facts. Neither aspects have been pleaded.

vi) Factual Findings

1. Ms McDonagh was injured when she was hit by a utility on 5 June 2011. The injuries she sustained included a brain injury that was assessed by various medical practitioners during 2011, 2012 and early in 2013.
2. She had experienced personal injury solicitors acting for her who secured a settlement of $900,000 inclusive of costs and pay backs, and she received $679,003 on 13 August 2013.
3. She did not have a tutor appointed in those proceedings, nor was there a basis in the evidence tendered in these proceedings to indicate that she had a brain injury that led to a requirement for her to have a tutor or a funds manager appointed.
4. The expert assessments suggest that as at early 2013, Ms McDonagh had fluctuating problems with memory, thinking speed and anxiety.
5. Ms McDonagh's memory and anxiety problems do not in my view mean that in November 2013 she was not able to understand financial transactions or to manage or further her own financial interests.
6. There is no evidence that proves that Ms McDonagh would have demonstrated outward signs of difficulty with, or inability to understand and participate in transactions such as setting up a superannuation fund company and undertaking loan transactions.
7. She had been friends with Vanessa and Greg Huxley for some years and at some point, discussed with Greg Huxley investing the money she had obtained from her settlement. I do not accept that Vanessa Huxley was anything other than a passive observer to these matters.
8. I do not accept that Ms McDonagh told any of the defendants on, or prior to, 29 November 2013 that she had any cognition problems, other than that she may have told Greg Huxley, and possibly also Vanessa Huxley, that she had some memory problems. I accept that she would, on occasion, have appeared to those who knew her well, to be stressed and anxious.
9. Ms McDonagh's problems with recollection asserted in her affidavit mean that there are significant reliability issues over that material and her oral evidence. The affidavit evidence comprises almost entirely of reconstruction and not recollection. Her oral evidence was difficult to follow.
10. I am unable to reach any conclusion as to who first suggested that some of the money should be put into a self-managed superannuation fund. I do conclude that Rory McDonnell assisted with that at the request of Greg Huxley (on behalf of Ms McDonagh) and that Mr Trovas, an accountant, was instrumental in setting up that fund.

Unconscionable conduct - principles

1. Unconscionable conduct was most recently dealt with in the High Court in Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49. At [37]-[38] Kiefel CJ, Bell, Gageler, Keane and Edelman JJ said [footnotes omitted]: "[37] There was no controversy on this appeal concerning the principles of unconscionable conduct in equity. Those principles were recently restated by this Court in Kakavas v Crown Melbourne Ltd. [38] A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage "which seriously affects the ability of the innocent party to make a judgment as to [the innocent party's] own best interests". The other party must also unconscientiously take advantage of that special disadvantage. This has been variously described as requiring "victimisation", "unconscientious conduct", or "exploitation". Before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage".
2. Gordon J said at [114] [footnotes omitted]: "Retaining a benefit conferred under a transaction, or seeking to enforce a right or obligation under a transaction, cannot attract the intervention of equity without the existence of some factor that affects the conscience of the stronger party. Once it is accepted that (1) the doctrine of unconscionable conduct seeks to identify that factor in the wrongful (scil "unconscientious" or "exploitative") conduct of the stronger party, and (2) a person commits no wrong per se by retaining a benefit or seeking to enforce a right or obligation obtained through a lawful transaction, then the basis for equitable intervention must reside in some defect in how the dealing was entered into. That defect will exist if the special disadvantage was sufficiently evident to the stronger party at the time of the transaction to make it unconscientious to procure or accept the assent of the weaker party".
3. It follows that in order for the defendants to be found to have engaged in unconscionable conduct, it is necessary for the plaintiffs to prove that those defendants both knew of Ms McDonagh's special disadvantage and took advantage of it: Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25. Actual knowledge or wilful blindness is required. Constructive notice is not sufficient: Kakavas at [150]­[162].

Drawing of Inferences: Jones v Dunkel

1. It has been said that no case is more often cited, and more often misunderstood, than Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8.
2. In the joint judgment of Gleeson CJ and McHugh J in Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121, their Honours said at [51] [footnotes omitted]: "The finding that the equipment was not properly assembled, inspected or maintained, however, need not necessarily rely on the finding that the hose was "insecurely fastened". The trial judge relied on the fact that no "evidence was adduced by the defendant as to how the compressed air equipment was assembled, inspected or maintained." Thus, unless his Honour reversed the onus of proof, he drew a Jones v Dunkel inference in favour of the plaintiff. But there was nothing which called on the defendant to lead evidence in respect of these matters: its failure to call evidence therefore had no probative significance and could not assist the drawing of any inference in favour of the plaintiff. (emphasis added). In Cross on Evidence Mr Dyson Heydon QC declares that: '[T]he rule [in Jones v Dunkel] only applies where a party is 'required to explain or contradict' something. What a party is required to explain or contradict depends on the issues in the case as thrown up in the pleadings and by the course of evidence in the case. No inference can be drawn unless evidence is given of facts 'requiring an answer'. See now 10th Edition of Cross on Evidence at [1215]".
3. As to the nature of the inference that may properly be drawn if the principles of Jones v Dunkel are enlivened, the Court of Appeal in Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; (2011) 83 ACSR 620 stated (at [634]) that: "The first matter was the familiar, although often misunderstood, Jones v Dunkel reasoning from a party's unexplained failure to call a witness the party would be expected to call. The fact-finding tribunal may infer that the evidence of the absent witness would not assist the case of that party, or it may draw with greater confidence an inference unfavourable to that party. There is no compulsion to reason in either way. The reasoning cannot make up for absence of proof: before there can be greater confidence in an inference unfavourable to a party, the inference must already be available on the evidence. Conversely, if the party's case is otherwise proved, the inference that the absent witness would not assist the party's case does not detract from the proof."- [Emphasis added]

Analyses of Counts Pleaded in the Further Amended Statement of Claim Counts 1 and 2: Conversion on the part of Rory McDonnell

1. Given the judgment entered against Rory McDonnell in February 2016, I was informed by Mr Goodridge that he did not require any consideration or findings to be made in respect of counts one and two, the conversion counts. No evidence was led in respect of them and no submissions directed to them. These counts are dismissed. Count 3: Breach of guarantee(s) by Mr Spencer
2. In respect of the third count, comprising breach of guarantees by Mr Spencer, this count was abandoned [107] on the basis that it was acknowledged by Mr Goodridge that he could not press this count because no leave had been sought under s 58 of the Bankruptcy Act and in those circumstances, the plaintiffs could not take that step in these proceedings without leave. Leave was not obtained. This count is dismissed. Count 4: Unconscionability (Equity)
3. This count was pleaded as a freestanding claim under general law (Equity). This count must fail against each defendant. First, I have concluded that the difficulties that Ms McDonagh may have still been having with her memory and anxiety do not comprise a disabling condition or circumstance that seriously affected her ability to make a rational judgement as to her own best interests.
4. Second, there is no proof that the special disability asserted was sufficiently known or evident to any of the defendants, other than possibly Greg Huxley and Vanessa Huxley. Gus Dib, Adam, Mr Dawson and Mr Spencer had never even met her. There is nothing in the evidence that suggests that Rory McDonnell had any basis to know or understand that Ms McDonagh had memory and/or anxiety issues that might have still, intermittently perhaps, been affecting her in November 2013.
5. Third, there is no evidence that any of the defendants had a predatory state of mind.
6. Finally, and fatally, there is no remedy available to the plaintiffs based on unconscionable dealing against a person who is not a party to the transaction. I accept the submissions made on behalf of Mr Ball and Mr Lloyd in that regard. This count is misconceived and in any event is not supported by the necessary level of evidence to demonstrate special disadvantage. Counts 5 to 10: Statutory unconscionability under the Australian Consumer Law and ASIC Act

Default Judgment enter in 2016 against the second and fourth defendants

1. Judgments were entered on 19 February 2016 by Registrar Bradford against the second and fourth defendant. I have not been asked to make any further orders in respect of those judgments.

Orders

1. It follows that all of the causes of action claimed fail and are thus dismissed, and I make orders as follows: 1. By consent, verdict and judgment for the fifth defendant as against the plaintiffs. 2. Verdict and judgment for the first defendant as against the plaintiffs. 3. Verdict and judgment for the third defendant as against the plaintiffs. 4. Verdict and judgment for the sixth defendant as against the plaintiffs. 5. Verdict and judgment for the seventh defendant as against the plaintiffs. 6. Verdict and judgment for the eighth defendant as against the plaintiffs. 7. Verdict and judgment for the ninth defendant as against the plaintiffs. 8. Verdict and judgment for the tenth defendant as against the plaintiffs. 9. Verdict and judgment for the eleventh defendant as against the plaintiffs. 10. The parties are to file and serve any affidavit evidence and outline of written submissions in support of any costs order it, he or she seeks, on or before 27 August 2021, with a copy to be provided by email to my Associate. 11. Any affidavit in reply or submissions in reply are to be filed and served on or before 13 September 2021, with a copy to be provided by email to my Associate. 12. If the plaintiffs wish to be heard in relation to any application they wish to make regarding the default judgments entered against the second and fourth defendants, they should provide notice in writing of any such application by email to my Associate, with a copy to be served upon the defendants and in particular, the second and fourth defendants at their last known street and email address, on or before 27 August 2021. 13. The proceedings are listed for further directions before me at 9:00am on 16 September 2021.

Endnotes

1. Exhibit A, Plaintiffs' three volumes tender bundle of documents and evidentiary material
2. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 8
3. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 11
4. Exhibit A, Plaintiffs' three volumes of tender bundle of documents and evidentiary material, Volumes 1 and 3
5. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 37
6. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 38
7. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 18
8. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 19-24
9. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 27
10. Exhibit GD3, Letter of Firths to Ms McDonagh dated 13 August 2013
11. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 43-45
12. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 47-48
13. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 49-53
14. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 54-58
15. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 59-64
16. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 66-68
17. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 72
18. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 78
19. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 80
20. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 82-89
21. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 90-95
22. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 96-101
23. Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 104-115
24. Further Amended Statement of Claim at par 44 (a) to (o)
25. Tcpt, 6 April 2018, p 471(4-35)
26. Tcpt, 6 April 2018, p 471(26-31)
27. Tcpt, 6 April 2018, p 471
28. Tcpt, 6 April 2018, p 471

Amendments 13 August 2021 - • Corrections at various places to the misspelling of the surname of the first plaintiff; • 12.3 - 2018 not 2020; • 30.4 - employment not employers; • 93.1 - " was"not is; • 160.3 - Griffith not Beechworth; • 166.2 - "a" solicitor not "the" solicitor; • 203.3 - comma after "individuals"; • 206.11 - the word "resulted" is removed; • 238.2 - directory corrected to " director"; • 293.3 and 6 - misspelling of Trovas corrected; • 299.7- removed extra "and denied" • 322.2 - editing error in line 2 to read consistently with para 356 " by denying the rolled up allegation" • 322.2 - editing error : add at the end of the sentence " and that folders of documents were presented by them to the plaintiffs". • 374.5 - Ms McDonagh ( not "her"). • 385.1 - editing error - line 1 commences with : " I note that this was" • 449.4 - insert " had" before " forgotten" • 460.7 - remove "in" before the word "that" and insert "the" before "transaction" • 463.2 and 464.1- editing error: "between Ms McDonagh and Rory" not "by Ms McDonagh to Rory.." • 538.3 - comma at the end of the line removed. 16 August 2021 - • 12.2 - "Lillas & Loel Lawyers" not Kent Attorneys • 12.4 & Cover sheet - "Katsoulas" not Katsoulos DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 August 2021