[2003] NSWCA 131Argy v Blunts (1990) 94 ALR 719[1990] FCA 57
Briginshaw v Briginshaw (1938) 60 CLR 336[1938] HCA 34
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592[2004] HCA 60
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465[1963] 3 WLR 101[1959] HCA 8
Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392[1992] HCA 66
Morley v Australian Securities and Investments Commission (No 2) (2011) 83 ACSR 620[2011] NSWCA 110Paciocco v ANZ (2015) 236 FCR 199321 ALR 584[2015] FCAFC 50Polon v Dorian [2014] NSWSC 571
Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121[2000] HCA 18
Tillett v Varnell Holdings Pty Ltd & Ors [2009] NSWSC 1040
Thorne v Kennedy (2017) 263 CLR 85[2017] HCA 49
Tonto Home Loans Australia Pty Ltd v TavaresFirstmac Ltd v Di BenedettoP Braham SC with R Goodridge on 13 December 2018 and 5 March 2019 (Plaintiffs)
Judgment (43 paragraphs)
[1]
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)
[2]
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)
[3]
D Lloyd; M Kalyk on 13 December 2018 (Third, Fifth and Eleventh Defendants)
[4]
Solicitors:
Firths Lawyers (Plaintiffs)
[5]
Mullane & Lindsay Lawyers (Third, Fifth and Eleventh Defendants)
[6]
Lillas & Loel Lawyers up to March to April and June 2018; Kekatos Lawyers December 2018 to March 2019 (First, Eighth and Ninth Defendants)
[7]
Kent Attorneys (Seventh and Tenth Defendants)
File Number(s): 2014/311738
[8]
Judgment
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.
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.
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.
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.
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).
[9]
(a) Affidavit and other evidence and pleadings regarding special disadvantage
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] .
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]
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.
In October 2010, she "recommenced full-time employment" as a real estate agent in Balmain. [3]
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.
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.
[10]
(b) The conduct of the Defendants complained of in the Further Amended Statement of Claim
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.
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.
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]
[11]
(c) The "Counts" or causes of action relied on by the Plaintiffs
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.
The third Count was said to be a breach of guarantee by Mr Spencer.
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.
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.
The sixth Count asserts that each of the defendants contravened s 236 of the Australian Consumer Law causing loss and damage.
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".
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".
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.
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.
[12]
(d) The Oral and Documentary Evidence of the Plaintiffs
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.
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]
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.
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.
[13]
i) Cross-examination by Mr Ball on behalf of the Huxley parties
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]
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]
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]
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]
[14]
ii) Cross-examination by Mr Lloyd on behalf of the Dib parties
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]
Shortly after this Ms McDonagh became upset and the Court adjourned early, with the cross-examination to resume the next day.
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]
[15]
iii) Documentary evidence
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.
[16]
(a) The Superannuation Company - McDonagh Management
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.
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.
[17]
(b) Griffith Loan Documents
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".
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.
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.
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.
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.
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.
[18]
(c) Beechworth Loan Documents
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.
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".
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".
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.
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.
[19]
(d) The provenance of the documents used in the loan transactions
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.
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.
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.
[20]
Regards,
Greg Huxley"
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
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.
[21]
(e) Events and correspondence after 29 November 2013
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.
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]
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]
[22]
The First, Eighth and Ninth Defendants: Greg Huxley, Vangory Holdings and Vangory Services
[23]
(a) Affidavit of Greg Huxley 4 October 2016
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.
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.
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.
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".
[24]
(b) Correspondence of Greg Huxley around the transactions
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]
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".
[25]
(c) Supplementary Oral Evidence
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.
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".
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.
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]
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.
[26]
(i) By Mr McNally on behalf of the Dawson Parties
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]
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.
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.
[27]
(ii) By Mr Lloyd on behalf of the Dib Parties
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".
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]
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.
[28]
(iii) By Mr Goodridge on behalf of the Plaintiffs
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.
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.
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]
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.
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".
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.
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.
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]
[29]
(iv) Re-examination
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]
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]
[30]
Submissions, evaluation of evidence and factual findings
[31]
i) Introductory observations
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.
Second, I will outline the submissions of the active defendants under the headings the Dawson parties, the Dib parties, and the Huxley parties.
Third, I will set out my factual findings based upon the evidence that I have accepted.
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.
[32]
ii) Plaintiffs' submissions
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.
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.
This comprised misleading and deceptive conduct by Greg Huxley, Adam and Gus Dib. Every defendant was an accessory to that activity.
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.
Separately, Greg Huxley and Mr Spencer are liable to the plaintiffs for deceit and exemplary damages.
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.
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.
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".
[33]
iii) Dawson Parties' Submissions
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.
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.
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].
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.
[34]
iv) Dib Parties' Submissions
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.
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.
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.
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.
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…"
[35]
v) Greg Huxley and Vangory Holdings' and Vangory Services' submissions
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.
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).
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.
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.
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.
[36]
vi) Factual Findings
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.
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.
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.
The expert assessments suggest that as at early 2013, Ms McDonagh had fluctuating problems with memory, thinking speed and anxiety.
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.
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.
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.
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.
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.
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.
[37]
Unconscionable conduct - principles
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".
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".
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].
[38]
Drawing of Inferences: Jones v Dunkel
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.
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]".
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]
[39]
Analyses of Counts Pleaded in the Further Amended Statement of Claim
Counts 1 and 2: Conversion on the part of Rory McDonnell
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
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)
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.
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.
Third, there is no evidence that any of the defendants had a predatory state of mind.
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
[40]
Default Judgment enter in 2016 against the second and fourth defendants
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.
[41]
Orders
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.
[42]
Endnotes
Exhibit A, Plaintiffs' three volumes tender bundle of documents and evidentiary material
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 8
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 11
Exhibit A, Plaintiffs' three volumes of tender bundle of documents and evidentiary material, Volumes 1 and 3
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 37
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 38
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 18
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 19-24
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 27
Exhibit GD3, Letter of Firths to Ms McDonagh dated 13 August 2013
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 43-45
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 47-48
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 49-53
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 54-58
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 59-64
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 66-68
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 72
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 78
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 80
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 82-89
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 90-95
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 96-101
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 104-115
Further Amended Statement of Claim at par 44 (a) to (o)
Tcpt, 6 April 2018, p 471(4-35)
Tcpt, 6 April 2018, p 471(26-31)
Tcpt, 6 April 2018, p 471
Tcpt, 6 April 2018, p 471
[43]
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
Parties
Applicant/Plaintiff:
McDonagh
Respondent/Defendant:
Huxley
Legislation Cited (10)
Australian Consumer Law, the Australian Securities and Investments Commission Act 2001(Cth)
There is a claim for exemplary damages made against Gregory (Greg) Huxley, Vanessa Huxley, Rory McDonnell, Ghassan (Gus) Dib and James Edward Spencer (Mr Spencer), although in the closing submissions this claim was confined to Greg Huxley and Rory McDonnell only. There is a single count of admission and guarantee made against Gregory Huxley arising from correspondence in 2014.
Default judgment for "liquidated damages" was entered against Vanessa Huxley and Rory McDonnell on 19 February 2016 by Registrar Bradford pursuant to a Notice of Motion filed on behalf of the plaintiffs. The Registrar initially entered judgment against each of them in the sum of $1,098,183.60 but in August 2018, he corrected that judgment under the "slip rule" (Uniform Civil Procedure Rules 2005 (NSW), r 37.17) to remove the $250,000 exemplary damages that had been initially included in the default judgment sum.
Vanessa Huxley has taken no part at all in the proceedings.
Rory McDonnell did nothing until June 2018 and then made two belated and unsuccessful applications to set aside the default judgment, one filed on 20 June 2018 after the evidence had been heard and submissions had been completed, and then another, in November 2018, three months after rejection of the first application.
The first application was heard and determined on 20 August 2018; McDonagh v Huxley [2018] NSWSC 1316 (an application for adjournment) and McDonagh v Huxley (No. 2) [2018] NSWSC 1317 (rejection of the application to set aside default judgment). The second was, with the consent of all involved having been filed in the midst of a plethora of other applications, decided on the papers in Chambers: McDonagh v Huxley (No. 3) [2020] NSWSC 1181.
Mr Spencer, (the sixth defendant), took no active part in the proceedings and as I understand it, was both at the time of trial and now, an undischarged bankrupt. An appearance was initially filed on his behalf by Kent Lawyers. It was formally withdrawn, with leave, on 20 June 2018 just before the closing oral submissions were made. The reasons for that leave being given appear from the record and are further canvassed to the extent necessary in dealing with Mr Spencer's bankruptcy and the absence of leave to proceed against him under the Bankruptcy Act 1966 (Cth).
Mr Ball of counsel appeared for Greg Huxley, Vangory Holdings Pty Ltd and Vangory Services Pty Ltd, (the "Huxley parties") instructed by Lillas & Loel Lawyers during the hearing in March and April 2018. Mr Hii appeared for these parties on 20 June 2018. In December 2018 Mr Katsoulas appeared, instructed by Kekatos Lawyers, and in March 2019, Mr Allen appeared instructed by Kekatos Lawyers. Kekatos Lawyers subsequently filed a Notice of Ceasing to Act on 5 June 2019.
Mr Lloyd of counsel appeared for Adam Huxley, Dib Lawyers, and Gus Dib (the "Dib Lawyer parties") throughout the proceedings and interlocutory hearings.
Mr McNally SC appeared for Jeffrey Dawson and Benitch Investments Pty Ltd (the "Dawson/Benitch parties") throughout.
All of the active defendants deny liability to the plaintiffs and vigorously disputed all allegations. At the beginning of the trial, the plaintiffs confirmed they did not press their case against the fifth defendant. Exception was taken to the expansive opening provided by counsel for the plaintiffs, Mr Goodridge, because it was far wider than the pleadings set out in the Amended Statement of Claim. Needless to say, the case will be determined on the pleadings, not the opening submissions. No leave to amend was sought at that stage. The positions of the defendants was set out in their written submissions received by the Court on day three of the trial, 28 March 2018, and as articulated in opening oral submissions that counsel made at the Court's invitation.
Various interlocutory applications interrupted and delayed completion of the proceedings. Some of these interlocutory disputes were the subject of ex-tempore judgments, some evaporated soon after they were commenced and others, (notably the October 2018 Notice of Motion filed by the Huxley parties and heard in March 2019), were commenced but then withdrawn after some hours of cross-examination and argument, with costs, and a personal costs orders sought against the solicitors, Kekatos Lawyers, then acting for the Huxley parties. This issue of the personal costs orders was the subject of various countering affidavits, submissions and directions, and was ultimately resolved between the parties in June 2020.
McDonagh Management was also the subject of reinstatement proceedings in the Equity Division of this Court. This is because of machinations behind the scenes, apparently by Gregory Huxley and some of his associates, found to be suspect by Rees J in: In the Matter of McDonagh Management Pty Limited [2019] NSWSC 1099. In the context of a discussion of the facts of In the Matter of ACN 063 346 708 (formerly known as South Passage Pty Limited) [2018] NSWSC 1709, her Honour described the circumstances here as "…a far more elaborate series of attempts to frustrate the processes of the Court by twice lodging Change of Company Details forms with ASIC without the knowledge or consent of the sole director and shareholder of the company, Ms McDonagh".
Those machinations included a solicitor from Kekatos Lawyers attending Long Bay prison in October 2018 to see a Mr Steven Vickers, the second replacement director, secretary and shareholder of McDonagh Management, where he was serving a sentence of three years imprisonment for dealing with property suspected of being proceeds of crime, to have him execute a Deed of Release purporting to release the Huxley and Dawson parties from any liability to McDonagh Management in these Common Law proceedings.
Unsurprisingly, Rees J found it just to reinstate the company and to make ancillary orders to ensure that Ms McDonagh regained control of her company and so that "…on reinstatement, Mr Vickers and whoever stands behind him cannot easily repeat their mischief under the guise of his position on reinstatement as sole director and shareholder of the company": [44].
The asserted roles of each defendant will be explained in the following outline of the plaintiffs' case, but to briefly introduce them, the first and second defendant, Gregory and Vanessa Huxley were friends of Ms McDonagh.
The fourth defendant, Rory McDonnell was a person introduced Ms McDonagh by Gregory Huxley to assist her in setting up a superannuation fund and a loan facility that would provide her with competitive interest payments.
The third defendant, Adam Huxley (referred to in this judgment as "Adam") is Greg Huxley's son, a paralegal at Dib Lawyers Pty Ltd.
The fifth defendant, Dib Lawyers Pty Ltd was incorrectly named as a defendant and by consent, a verdict is to be entered in its favour with no order as to costs.
The sixth defendant, Mr Spencer is a bankrupt who took no active role in these proceedings and never filed a Defence. He took on the role of guarantor in respect of both the Beechworth and the Griffith loans made by Ms McDonagh and McDonagh Management. He also signed loan documents as the Director/Secretary of Griffith and Beechworth.
The seventh defendant, Jeffrey Dawson, was a director of Vangory Holdings and Vangory Services at the time of the transaction and a long-time friend of Greg Huxley. He was also the director of Benitch Investments (the tenth defendant).
The eighth defendant, Vangory Holdings is a company that was set up in August 2006 with Jeffrey Dawson and Vanessa Huxley as directors. Vangory Services was incorporated on 24 November 2013. Mr Dawson was a director of both Vangory Holdings and Vangory Services at the time of the transaction, but was not a shareholder.
The eleventh defendant, Gus Dib, is a solicitor, the principal of Dib Lawyers and was the employer of Adam. It is accepted that as such he is vicariously liable for any acts or omissions on the part of Adam.
Ms McDonagh says she returned to full time employment as a real estate agent on 22 August 2011. She says that she found it difficult to work, and could not cope with the stress of juggling multiple tasks, she had memory and cognition issues, and within three weeks of her return left the job because she was unable to perform the necessary tasks. [5]
She changed employment and worked from December 2011 to February 2012 at Devine Real Estate, but says she was unable to continue. [6]
Ms McDonagh reported to various practitioners who assessed her in 2011, 2012 and 2013 that she suffered from anxiety and panic attacks since the accident, as well as headaches, dizziness and memory problems.
A psychologist, Derya Gucel, provided a report dated 5 April 2012 stating that Ms McDonagh had been referred to her by her GP for treatment for anxiety and depression symptoms that developed after the accident. Ms McDonagh commenced treatment with Ms Gucel in August 2011 and ceased in November 2011 because her symptoms were reportedly "more manageable". Ms McDonagh reported that she was later unable to continue in her employment and in early 2012 her symptoms deteriorated and she returned for more treatment. The report referred to consultations between August 2011 and 29 March 2012. Ms Gucel concluded that Ms McDonagh would meet the diagnosis for post-traumatic stress disorder and "major depressive disorder single episode" and that she has severe psychological symptoms as a result of the motor vehicle accident and that her difficulties were chronic in nature but she may continue to achieve fluctuating progress in her psychological state.
Dr Sarah Lucas, a neuropsychologist, carried out cognitive and other neuropsychological testing on 5 June 2012. She concluded that compared with Ms McDonagh's high-average premorbid intellectual function, she had ongoing problems, including mildly reduced processing speed, moderately reduced free delayed recall of new material but much better recognition, suggesting Ms McDonagh had sound retention over time. She had poor planning and organisation, but sound performance in relation to other executive functions. Dr Lucas concluded that Ms McDonagh had sustained a significant traumatic brain injury, (TBI), as evidenced by her fractured skull and small subdural haematoma, referring to this as a "complicated mild head injury". Dr Lucas noted that in the 12 months after this injury, Ms McDonagh continued to experience mild to moderate cognitive changes evident on neuropsychological testing and that these were broadly in keeping with the ongoing effects of TBI which has likely caused some mild cognitive changes, but is markedly exacerbated by her anxiety on a day-to-day basis. Dr Lucas concluded that Ms McDonagh should be reassessed to determine her longer term outcome and work capacity and that her memory and day-to-day cognition will improve as her anxiety symptoms improve, but there still may be longer term mild cognitive problems that will need to be assessed.
Dr Bywater, psychologist, provided a short report dated 13 June 2012. She noted that Ms McDonagh had been referred by her GP for symptoms related to cognitive impairment, anxiety and difficulty coping following a motor vehicle accident approximately one year ago. Dr Bywater referred to Ms McDonagh providing a history suggesting that she had a high level of psychosocial functioning prior to the accident and had returned to full-time employment as a real estate agent following separation from her husband and that she felt happy and settled in her job and was not experiencing any difficulties. Following the accident however she had poor concentration and memory problems, could not do her job and needed to keep a very detailed diary to aid her memory. Ms McDonagh reported cognitive difficulties that were affecting her relationships and that she had problems following conversations and recalling recent events. She also had panic attacks. Dr Bywater concluded based on the interview that Ms McDonagh had experienced a "significant and pervasive change" in the level of her psychosocial functioning since the accident and that what she described indicated that she had experienced significant cognitive impairment consistent with the head injury. Dr Bywater recommended cognitive behavioural therapy to assist with anxiety, and behavioural strategies to help with the psychosocial changes she has experienced since the accident.
In a follow up report dated 16 October 2012, Dr Bywater said that Ms McDonagh still reported becoming frequently overwhelmed, and feeling anxious when her memory and concentration adversely affected her ability to complete everyday tasks. However, her mood seemed significantly better in session and she was no longer tearful or showing the severity of concentration and memory difficulties that she had presented with initially.
Dr Alan Lam, a consultant in rehabilitation medicine, reviewed Ms McDonagh on 11 December 2012. He noted that there had been a couple of attendances at Royal Prince Alfred Hospital Emergency Department in June 2011 with panic attacks. He noted Ms McDonagh had difficulty coping with work stress where there was a need to juggle multiple tasks and that she reported cognitive issues such as impaired short term memory and that was why she said she could not continue in that employment. Ms McDonagh also referred to undertaking some study (after her second three month trial as a real estate agent) but found it difficult to concentrate and retain new information. Dr Lam recorded that the major issues and concerns related to cognitive difficulties especially short-term memory, and anxiety and panic attacks. He noted that Ms McDonagh had good attention and concentration span but there was evidence of impaired short-term memory. He considered that Ms McDonagh still suffered from significant cognitive difficulties which may be exacerbated by the emotional impact of the motor vehicle accident, made worse by a loss of self-esteem from not being able to work as she used to as a real estate agent. He thought that there should be ongoing psychological or psychotherapy assistance to address the anxiety and panic attacks or perhaps a psychiatrist to assist and to consider anti-anxiety medication. He also stated that if these things could be adequately addressed, Ms McDonagh should then be able to pursue paid employment in the real estate industry or be retrained to a different location.
Dr Bowers, a rehabilitation specialist, performed a Motor Accidents Authority General Assessment on 10 April 2013. He carried out a document review, recording the history given to Dr Lucas amongst others, and noted the CT of the brain on 3 June 2011 showed a left subdural haematoma and the CT of her facial bones showed a displaced fracture of the right orbit. He noted various assessments including a report by Dr Pope dated 27 July 2011 which referred to a possible post-accident loss of consciousness but no history of seizures. At that stage Dr Pope reported some short-term memory deficit which was mild and that Ms McDonagh was alert and oriented on examination and her speech was normal. The later CT on 20 July 2011 had shown complete resolution of the subdural haematoma with no mass effect or oedema. Dr Pope at that point (July 2011) thought Ms McDonagh had recovered well from her injuries. Dr Bowers set out a series of determinations under the Motor Accidents Act regarding permanent impairment and to the extent relevant for these proceedings, he thought that the information available indicated that Ms McDonagh's complaints were "consistent with emotional behavioural disorder on a psychological basis rather than associated effects of any TBI". He concluded that this was consistent with the neuro-psychometric testing results of Dr Lucas.
The last relevant medical professional in the reports tendered who made observations of Ms McDonagh's cognitive abilities was psychiatrist, Dr James Maguire. He assessed Ms McDonagh on 26 April 2013. At that time she complained mainly of "significant memory problems". Having considered the reports outlining her history and having reviewed her, Dr Maguire concluded:
"Ms McDonagh outlined a range of psychological symptoms consistent with her developing a Chronic Adjustment Disorder with Anxiety and Depressed Mood. This is [not] in response to the presence of any genuine physical problems but more importantly her belief and perception that she has significant cognitive difficulties as a result of a head injury. As noted, psychologist Dr Lucas considered that 'her anxiety is having a detrimental effect on her cognition'. One also notes that Dr Lee in a referral letter to psychologist to Ms Guzel observed that Ms McDonagh's four older daughters "are not supportive" and that she had 'received marital counselling/breakdown a few years ago'. As a result of her reported cognitive problems, Ms McDonagh has been able to keep her youngest daughter home from school as her carer. In a situation like this a patient can unconsciously exaggerate difficulties in order to obtain emotional support and attention that might not otherwise be available. One needs to stress that it is not being suggested that Ms McDonagh is 'malingering' but that her level of cognitive impairment is likely to be more related to emotional difficulties rather than the effects of a brain injury.
A better understanding of Ms McDonagh's emotional state at the time of the accident occurred would be aided by access to the clinical records of the general practitioner and psychologist who saw her in the period related to the breakdown of her marriage.
In the interim, one would recommend Ms McDonagh be referred to a psychologist who has some expertise in counselling patients with a mild traumatic brain injury. 12 sessions at a current recommended fee of $220 per visit would seem appropriate.
On her current history, Ms McDonagh is psychologically limited in her ability to resume her previous employment until she has undergone appropriate further treatment".
In a further report dated 17 June 2013 in response to specific questions, Dr Maguire said this:
"You have asked me to comment on the claimed requirement for funds management. This would appear to be on the basis that Ms McDonagh has organically based cognitive difficulties which impair her ability to make rational judgments. The question in relation to a possible organic basis for her problems still remains one for the neurosurgeons and neuropsychologists. With an appropriate anxiety management plan, there are no rational grounds for concluding that Ms McDonagh in the long term will not be able to manage her own funds. As mentioned in my first report, she may well have a strong unconscious 'need' to behave as if she has a significant degree of impairment in order to maintain the support of her daughter given the history of estrangement from her other daughters.
The question about her future earning capacity will depend on whether her current level of impairment is primarily due to an organic brain injury or whether it is due to an anxiety disorder. Anxiety disorders can be treated with appropriate counselling and medication where needed. The same can be said about her requirement for domestic assistance. One does not see any reason why she requires domestic assistance as a result of any psychological condition particularly if she has had appropriate counselling".
In her affidavit Ms McDonagh stated her perception that as a result of the accident "and the significant brain injury that I sustained, I began to suffer from a number of significant symptoms and disabilities that I had never experienced before in my life". [7] She goes on to state what she perceives her current problems to be as at June 2016:
"[19] I now suffer from significant problems with short term memory, long term memory and problem solving abilities.
[20] I am completely unable to remember basic daily tasks or activities unaided. As a result, I must prompt myself by creating notes and alarms on my mobile phone. These alarms can be for something as simple as remembering to pick up milk or to be somewhere at a particular time if I had made a previous appointment. I will check my phone multiple times throughout the day in order to continue to remind myself of my upcoming daily activities.
[21] I have difficulty with communication as I will often be unable to finish a sentence as I simply forget what I was trying to say mid-way through. I often get stuck for words and as a result I cannot articulate myself properly.
[22] My thinking speed has also been dramatically reduced. As a result of the accident I am unable to comprehend detailed concepts and I am unable to perform basic problem solving anywhere near what I was able to perform prior to the accident.
[23] I confirm that in the 3-4 years following the accident my trouble with short term and long term memory was particularly bad, however, I continue to suffer from significant problems with recall. For example, I continue to have difficulty remembering my own children's names and their order of birth. I struggle to properly attribute past events involving my children to the correct child.
[24] As a result of the accident I also suffer from significant anxiety and panic attacks. When I become forgetful and disorientated I feel incredibly anxious. In the 3-4 years following the accident I suffered from very severe anxiety as a result of my significant ongoing symptoms". [8]
In August 2013 Ms McDonagh settled her case against the driver of the car for $900,000 inclusive of costs. She was represented by a firm of very experienced personal injury solicitors who did not appoint a tutor for the proceedings, nor does it seem that they arranged for Ms McDonagh to have any financial advice on the basis of her asserted cognitive difficulties. After legal expenses Ms McDonagh received a cheque for $679,003.82 [9] by letter of 13 August 2013. [10]
The Further Amended Statement of Claim alleged that Greg and Vanessa Huxley introduced her to Rory McDonnell, representing that he was a financial advisor who could be trusted and relied upon. Ms McDonagh's affidavit however stated that it was only Greg Huxley who introduced her to Rory McDonnell and it was only Greg who made any representation to her about Rory McDonnell:
"[47] I recall that I first met Rory McDonnell in late 2013. I cannot recall the exact date that this occurred. There were three reasons I met Rory McDonnell. The first reason was Greg Huxley said words to me to the effect of "I have this mate and he's really good with this type of thing. He will be the financial advisor for you". The second reason was Greg arranged the meeting and took me to the meeting. The third reason was that I needed financial assistance and I did not have another financial advisor or anybody else helping me.
[48] I first heard about Rory McDonnell when Greg Huxley told me that he had a friend who could assist with investing the settlement money". [12]
Ms McDonagh alleged that Greg and Vanessa Huxley and Rory McDonnell advised her to "trust them" and "allow them" to assist her in setting up a superannuation fund to be established for her benefit and in organising a loan to produce income for her. This is what is asserted about this in her affidavit:
"[49] I recall that my meetings with Rory McDonnell generally took place at a local coffee shop in Concord (the Coffee Shop).
[50] I can recall one particular meeting with Rory McDonnell at the Coffee Shop when Greg Huxley was there to introduce Rory McDonnell to me. When I first met Rory McDonnell Greg introduced Rory to me as "the financial advisor that I was telling about". Mr McDonnell did not correct Greg or indicate in anyway that he was not a financial advisor. I believe this was the first meeting. I cannot recall the date that this meeting took place. I can recall that after introducing me to Rory McDonnell, Greg Huxley then left the meeting.
[51] When Rory McDonnell was introduced to me, I believed that he was a financial advisor and that his purpose in meeting me was to advise me on investments that were in my best interests.
[52] I can recall that Rory McDonnell and I had a few meetings at the local Coffee Shop. I can recall one occasion where Rory McDonnell came to my apartment to discuss the investments and to have me sign a number of documents.
[53] From my point of view it appeared to me at the time that Rory McDonnell acted as the arranger for the transactions. I say this not because I was aware of precisely what was happening but because Rory McDonnell was the person that I was immediately dealing with". [13]
In this context Ms McDonagh said the following occurred:
"[54] I recall being presented with a number of promotional booklets for different property estates by Rory McDonnell. A copy of those promotional booklets is at pages 1-19.
[55] The investment was explained to me by Rory McDonnell that I would be investing money in the development of these property estates by loaning money to two development companies, Beechworth Land Estates Pty Ltd and Griffith Estates Pty Ltd, and that I would be getting a high interest return. It was explained to me by Rory that I would receive monthly interest payments of $6,000 from the loans together. I cannot recall the exact words I was told but I can recall that they were to the effect of "as Greg explained to you will receive more money in interest payments from these loans than if you put the money in the bank. The investment will give you $6,000 per month and it will be set up in such a way that you will minimise your tax". Copies of Mortgage Summary documents for both of the loans that show the interest payments I was supposed to receive are at pages 20 and 21. I understand that both documents list Beechworth Land Estates Pty Ltd as the "Borrower", however, I believe the document listing the loan of $400,000 should be stated as Griffith Estates Pty Ltd as the borrower.
[56] I can recall the investment being explained to me as being two separate loans. One loan totalling $200,000.00 to Beechworth Land Estates Pty Ltd and another loan of $400,000.00 to Griffith Estates Pty Ltd.
[57] As security for the loan to Beechworth Land Estates Pty Ltd, it was explained to me that I would have a registered Caveat on the mortgage held by Beechworth Land Estates Pty Ltd over a parcel of land in the development. I was told by Rory, words to the effect that "Greg will arrange a lawyer to do all the legal work on your behalf so that the money is safely secured".
[58] As security for the loan to Griffith Estates Pty Ltd, it was explained to me in words to the following effect, "You will be given a mortgage over property being developed by Griffith Estates Pty Ltd so that you are fully secured and your money will be guaranteed". [14]
In respect of McDonagh Management, Ms McDonagh said this:
"[59] In late 2013, I was unaware or I do not recall that a superannuation fund was set up in my name. I say "I was unaware or I do not recall" because as explained above I accept that I have memory problems. Notwithstanding the shortcomings of my memory I am certain that I did not initiate or play any active role in the establishment or administration of the superannuation fund.
[60] I have been shown a document titled "The McDonagh Family Superannuation Fund SMS Trust Deed". I have been shown the "Execution" page of that document dated 12 November 2013. I have been shown my signature on that document next to a "sign here" tab. I have also been shown Rory McDonnell's name and signature as my witness. I confirm that I have no recollection of signing this document. A copy of the The McDonagh Family Superannuation Fund SMSF Trust Deed document is at pages 22-98.
[61] I was also unaware that in late 2013, a management company was set up in my name and that I am a named Director and Secretary of this company. Given my disabilities and restricted intellectual abilities as detailed above I doubt that I would have had the capacity to manage a company or fulfil the roles of either director or secretary. I would not have felt comfortable knowingly agreeing to any of these roles.
[62] I have been shown a document titled "Application for Registration as an Australian Company" lodged on 12 November 2013. I was unaware or I do not recall ever being told that this document was being lodged with the Australian Securities and Investment Commission. A copy of that application form is at pages 99-102.
[63] I have been shown a document titled "McDonagh Management Pty Ltd A.C.N. 166 719 839 Company Constitution". I have been shown the "Execution" page of that document dated 13 November 2013. I have been shown my signature on that document next to a "sign here" tab. I have been shown Rory McDonnell's name and signature as witness. I confirm that I have no recollection of signing this document. A copy of the McDonagh Management Pty Ltd A.C.N. 166 719 839 Company Constitution document is at pages 103-141.
[64] I am unaware of what the current status of McDonagh Management Pty Ltd A.C.N. 166 719 839 is". [15]
Ms McDonagh alleges that she "had been made aware by her solicitors" (presumably because she has no recollection of this at all) that on 27, 28 and/or 29 November 2013, she was provided with a number of documents to sign:
"[66] I have been made aware by my solicitors that on 27, 28 and 29 November 2013, I signed a number of documents in relation to the two loan agreements to Griffith Estates Pty Limited and Beechworth Land Estates Pty Limited.
[67] I cannot recall specifically signing these documents, however, I do recall a meeting with Rory McDonnell at the local café where he presented me with a number of documents that he wanted me to sign.
[68] I recall being told words to the effect of "sign here" over and over again by Rory McDonnell. I do not recall being provided with these documents on any previous occasion and I do not have any recollection of reading these documents myself". [16]
In the Further Amended Statement of Claim it is alleged that Gregory and Vanessa Huxley and/or Rory McDonnell provided a folder of documents that had been prepared by Gus Dib and/or Dib Lawyers titled "McDonagh Management Loan and Banking Portfolio" regarding Griffith. It is alleged that this folder comprised various documents including:
(i) a Deed of Loan between McDonagh Management as trustee for the McDonagh Superannuation Fund and Griffith Estates;
(ii) a Security Agreement between Griffith Estates and the superannuation fund;
(iii) a Drawdown Notice in the sum of $400,000;
(iv) a purported Statement of Position of Spencer;
(v) a Deed of Guarantee between Spencer and the superannuation fund;
(vi) an Acknowledgement of Legal Advice signed by James Spencer as proposed borrower and guarantor;
(vii) a Business Purpose Declaration;
(viii) a Statutory Declaration completed by Spencer and promotional material regarding housing estates in Griffith NSW;
(ix) a purported mortgage over Griffith Estates' interest in Registered Mortgages number AE324437 and AE32354 ("the Griffith Estates material").
In the Further Amended Statement of Claim it is alleged that "at about the same time, Greg and Vanessa Huxley and/or Rory McDonnell" provided another folder to Ms McDonagh, also prepared by Gus Dib and/or Dib Lawyers titled "Sharon McDonagh Loan and Banking Portfolio". This entailed a similar selection of documents except they were regarding Beechworth:
(i) a Deed of Loan between Ms McDonagh and Beechworth Estates;
(ii) a General Security Agreement;
(iii) a Declaration of Independent Advice and a Deed of Guarantee executed by Spencer;
(iv) a Caveat pursuant to s 89 of the Transfer of Lands Act 1958 (Vic);
a Transfer of Land by Mortgagee pursuant to s 77 of the Transfer of Lands Act;
(v) an Acknowledgment of Legal Advice signed by Spencer as guarantor;
(vi) a Declaration of Business Purpose by Spencer;
(vii) a Statutory Declaration of solvency of Beechworth Estates by Spencer;
(viii) a purported Drawdown Notice in the sum of $200,000;
some brochures and a price list describing a housing estate at Elementary Rise, a 25 minute drive from Albury-Wodonga;
(ix) a rental appraisal document dated 17 December 2012 regarding a particular lot at 54 Hays Drive, Beechworth.
Ms McDonagh's affidavit deposed to being shown various documents by her solicitor at the time of preparing and swearing her affidavit in 2016 and that she had no recollection of reading or signing the documents. She claims however to recall seeing the "Mortgage of Lease, Mortgage or Charge" document because she had seen a document of that type during her time as a real estate agent and understood it to be an "official" government type document and she "believed it and the other documents were prepared to secure my money by the solicitor arranged for me by Greg". [17]
Ms McDonagh made similar assertions regarding the Caveat dated 29 November 2013:
"[78] I have been shown a document titled "Caveat" dated 29 November 2013. I have been shown my signature on this document. I do not recall signing this document, however, I do recall having seen this document in or about late 2013. I understand this document to represent the caveat that I had been told I would have over the mortgage to Beechworth Land Estates Pty Ltd in a parcel of land. I remember seeing this document as I had seen these types of documents during my time as a real estate agent prior to the accident on 3 June 2011. I remember feeling safe when I saw this document as I understand it as being an "official" government type document. A copy of the Caveat document dated 29 November 2013 is at page 308". [18]
Ms McDonagh made this rather extraordinary declaration at par 80 of her affidavit:
"[80] I confirm that even if I did read these documents I would not have understood them and I do not have the ability to remember doing this". [19]
In the Further Amended Statement of Claim it is asserted that the two "Portfolios" contained Dib Lawyers' office references "GAD:APH:202081" and "GAD:APH:202644" respectively, and that these references were to Gus Dib, the principal of the firm, and Adam, a paralegal at Dib Lawyers and the son of Gregory Huxley.
In her affidavit, Ms McDonagh says this about Dib Lawyers:
"[82] In relation to Dib Lawyers, I can recall Rory McDonnell saying to me a number of times words to the effect of "Dib Lawyers are great, we always use them".
[83] I can recall that some documents were provided to me with the Dib Lawyers insignia on them. On seeing this I believed that Dib Lawyers had prepared those documents for me. This belief was confirmed, at least in my mind, in a number of ways including:
1. My experience in real estate has led me to believe that there were always two lawyers involved in a real estate transaction except where the parties had agreed that a single lawyer could represent both sides or in rare cases where somebody with legal knowledge acted as their own lawyer.
2. I certainly did not and would not have acted as my own lawyer.
3. Rory McDonnell did not represent himself as having any legal qualifications.
4. Rory McDonnell had said to me a number times words to the effect of "Dib Lawyers are great, we always use them". He also said "Greg will arrange a lawyer to do all the legal work on your behalf so that the money is safely secured". Greg had said to me a number of times "I have used Rory McDonnell for a number of business deals he has always come through for me". These statements together with the whole of the circumstance led me to believe that Dib Lawyers were my solicitors.
5. I knew from many conversations with Greg and Vanessa that Adam Huxley was a lawyer and Greg and Vanessa were close to their son Adam.
6. I had understood that Greg had arranged my lawyer. It made sense to me that Dib Lawyers would be acting for me. I had no reason to think otherwise.
7. The transactions appeared to me to be far too complex to not need a lawyer.
8. The transactions involved a large number of legal documents that I considered only a lawyer would understand them.
9. From the little I did know about the transactions, I knew that they involved a mortgage or mortgages. From my experience in real estate I believed that mortgages were registered by a lawyer. Although I didn't know the process, I believed that the registration of mortgages was done by the lender's lawyers by using certain legal documents that they obtained at the time of settlement. I assumed that these documents went to my lawyers. When I was subsequently informed by my current solicitor that the relevant document needed for registration remained with Dib Lawyers, that was consistent with my belief that Dib Lawyers were my solicitors for the transactions.
10. When payments were not received and I approached Greg and told him of my concern and lack of payments, Greg said to me words to the effect "don't worry the solicitors that I arranged for you are very good. I'm sure that they crossed every "T" and dotted every "I" to make sure your money is perfectly safe. The same lawyers look after mine and Vanesa's legal work."
11. I have been informed by my current solicitors, that Dib Lawyers retained the Certificates of Title and were therefore the only lawyers who could have registered the mortgages and security. I was surprised to be told that Dib Lawyers have denied in these proceedings that they were my solicitors.
[84] I recall thinking that it was good having a lawyer look over and prepare the paperwork. This helped develop my trust in the situation.
[85] I do not recall being told to seek independent legal advice by anyone at any time. There is no way that I would have tried to be my own lawyer or refuse the assistance of a lawyer. I confirm that I did not think anything of not being told to get legal advice about the documents because I thought that Dib Lawyers had looked over the paperwork for me.
[86] At the time, I was unaware that Adam Huxley was employed by Dib Lawyers but as I understood that Dib Lawyers were appointed to act for me it would not have surprised me at the time.
[87] Equally, I was unaware that Adam Huxley had drafted the documents that Rory McDonnell asked me to sign but again as I understood that Dib Lawyers were appointed to act for me it would not have surprised me at the time. The only qualification on this is, that as I had regular contact with Greg and Vanessa at this time, and, given that I thought they were my friends at the time, I would have expected it to have come up in conversation with Greg or Vanessa. I am now surprised that Adam's involvement in the drafting of the documents was not disclosed to me.
[88] I can recall thinking that it was completely safe to sign the documents that Rory McDonnell gave me as I thought that Rory McDonnell was my financial advisor and that Dib Lawyers had prepared and looked over the documents for me as my solicitors.
[89] I am informed that Dib Lawyers and Adam Huxley now deny that they acted for me. As said it comes as a surprise to me that Dib Lawyers deny that they were acting for me. As stated, as I understand matters, when a loan for mortgage is given, the borrower needs to give the lenders solicitor's title documents so that registration of the mortgage can take place. I have been informed by my current solicitors that in about January 2016, Dib Lawyers retained the title documents and they were not passed on to any other lawyers to register any security interests. Dib Lawyers retaining the title deeds and certificates of title is consistent with my understanding as well as what I had been told by Greg and Rory McDonnell that the solicitors were acting for me to protect me". [20]
I interpolate here that there is no evidence at all that Gus Dib had any knowledge of these documents, these files or the papers that were prepared by Adam and provided to Greg Huxley in response to Greg Huxley's email request on 27 November 2013. Nor is there any evidence that Vanessa Huxley was involved at all in any of these steps.
It is alleged in the Further Amended Statement of Claim that Ms McDonagh was "advised by Rory McDonnell and Gregory and Vanessa Huxley to execute the various documents", but there is no evidence of any involvement of Vanessa Huxley in these steps. This allegation seems to be a reconstruction, not a recollection and is not consistent with the narrative in Ms McDonagh's affidavit.
At the time of preparing her affidavit in 2016, Ms McDonagh says that she was unaware of all the documents she had been requested to sign in 2013 and says that she was never provided with a complete set of the executed documents.
It is common ground that the funds were withdrawn from Ms McDonagh's bank accounts on 29 November 2013.
Ms McDonagh alleged that she does not personally know whether the funds were dispersed in accordance with the Drawdown Notices she had been given or not.
From such documents as were made available on discovery, she (and McDonagh Management) allege that the following sums were disbursed:
(i) $177,390 to Vangory Holdings
(ii) $5,000 to Rory McDonnell
(iii) $127,036 to Benitch
(iv) $290,574 to Beechworth Estates and Griffith Estates, and
(v) Disbursements to Rory McDonnell in excess of $6,000 per month.
It is alleged in the Further Amended Statement of Claim that the funds disbursed in this way caused advantage to flow to each of the defendants:
(i) Vanessa Huxley: owned all the shares in Vangory Holdings at the relevant time and Vangory Holdings were owed money by Griffith Estates Pty Ltd.
(ii) Rory McDonnell: was a director and held a financial interest in York Street Capital which was owed money by both Beechworth Estates and Griffith Estates and he was a director of Griffith Estates Pty Ltd.
(iii) Ghassan Dib: was owed money by both Beechworth Estates and Griffith Estates and his firm, Dib Lawyers, was owed money by both Beechworth Estates and Griffith Estates.
(iv) Spencer: was a shareholder of Beechworth Estates; he was owed money by Beechworth Estates; he was a guarantor of Beechworth Estates; he was a significant shareholder of Griffith Estates; he was owed money by Griffith Estates and was a guarantor of Griffith Estates.
(v) Benitch and Dawson: Dawson was a director of Vangory Holdings and Benitch Investments; both Vangory Holdings and Benitch Investments were owed money by Beechworth Estates and/or Griffith Estates; Vangory Holdings and Benitch Investments received a total of $304,426 of Ms McDonagh's money.
(vi) Gregory Huxley: this was not clearly pleaded but it seems to be asserted that Gregory Huxley had some potential to obtain a benefit from Vangory Holdings, but the basis of this assertion was not specifically pleaded.
It was pleaded in par 35 (y) of the Further Amended Statement of Claim that "further particulars will be provided when the defendants cease withholding the plaintiffs' documents and/or after discovery", but no further particulars were ever provided. There was no pleading at all identifying the alleged advantage said to flow to Adam.
Under the heading "Requests for loan repayments" Ms McDonagh states her understanding of what occurred:
"[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 occasion when I met with Rory McDonnell following November 2013 to ask him questions about the loan return 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". [21]
Ms McDonagh then states:
"[96] I have been shown a document by my solicitors purporting to be a letter from me to Rory McDonnell dated 2 May 2014. The letter requests a lump sum repayment of $30,000.00 from the loan to Griffith 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 brining 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 repayments 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 Griffiths 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". [22]
Ms McDonagh states that she was told both companies were under administration [23] and that on at least one occasion a "proxy" she had never heard of attended a creditors meeting under a proxy form signed by Rory McDonnell.
The Further Amended Statement of Claim goes on to delineate what it collectively describes as "The Defendants' conduct".
The first part, pars 36 to 69 inclusive, make factual assertions and conclusions regarding actions the plaintiffs assert were taken by various defendants.
The second part, pars 70 to 103, sets out the 22 separate "Counts" said to apply to the conduct of the defendants. Some counts apply to one or some of the defendants so it will be necessary to refer to each separately.
In respect of the Griffith loan, Ms McDonagh and her company allege that on the funds disbursement date, Rory McDonnell was director of Griffith but the next day Mr Spencer was swapped in as director. At all times Griffith was insolvent and this insolvency was known to all of the defendants. The Statement of Position of Mr Spencer provided to the plaintiffs was materially false, misleading and deceptive regarding Mr Spencer's true financial position which included false account about property he owned in value, his earnings, his occupation and his net wealth. [24]
Ms McDonagh and her company allege that the documents contained in the McDonagh Management Loan and Banking portfolio were provided by Rory McDonnell, Greg, Vanessa and Adam, Gus Dib, Dib Lawyers, Griffith and Mr Spencer and were materially false, misleading and deceptive and were intended to, and in fact, misled Ms McDonagh and her company.
These falsities are listed in pars 45 (a) to (o) of the Further Amended Statement of Claim and include that Mr Spencer was a director of Griffith at the funds disbursement date (when in fact Rory McDonnell was), that Rory McDonnell was providing independent advice, that Rory McDonnell would manage the transactions for the plaintiffs' benefit and hold all the necessary documents for the plaintiffs, that Greg and Vanessa Huxley were providing independent advice in the interests of the first plaintiff, that Griffith was solvent, that Mr Spencer was a creditworthy guarantor, that Mr Spencer's statement of position was true. Other falsities alleged were that McDonagh Management would hold security by a registered charge over all of Griffith's interest in the loan security documents, that McDonagh Management would be secured by registered charges over specific registered mortgages and by charges over all security documents collateral to those registered mortgages, that the effect of this would be that the company would be secured by registered charges over the land set out in the specified folio identifiers corresponding to land situated at particular nominated addresses in Griffith. Further, that there would be stamped mortgages available and, that McDonagh Management would be "secured by the "certificate of title for registration of the registered charge" over all that land situated at the addresses listed, as set out in Clause 1 of the Deed of Loan.
McDonagh Management asserts that no such security was in fact provided.
In respect of the Beechworth Loan, it is alleged that the documents provided by Rory McDonnell, Greg, Vanessa and Adam, Gus Dib, Dib Lawyers, Griffith Estates and Mr Spencer were materially false and misleading and deceptive and did in fact mislead Ms McDonagh.
The falsities are listed in pars 46 (a) to (n) of the Further Amended Statement of Claim. Some of those are identical to the falsities alleged regarding Griffith, namely that Rory McDonnell was providing independent advice, that he would manage the transaction "to the plaintiffs' benefit" and "hold all necessary documents for the benefit of the plaintiffs", that Mr and Mrs Huxley were providing independent advice in the interests of Ms McDonagh, that Beechworth was solvent, that Mr Spencer was a credit worthy guarantor and that his Statement of Financial Position was true.
Other falsities pleaded are that Mr Spencer was said to have replaced Rory McDonnell as director of Beechworth on 18 November 2018 when the fact was that he replaced him on 22 November 2013, six days before the funds were taken from Ms McDonagh's account. Further, that Ms McDonagh would "have security by a charge over all or any of Beechworth's title and interest in the first registered mortgage over a particular nominated registered dealing and over part of the land known as Red Hill Estate" located at Beechworth, Victoria at the address (and folio Identifier) specified. It was alleged that this would be secured by a caveat over that property and that this interest would be secured by "original signed documents granting an interest over any security", and that this would be further secured by a certificate of title to allow for registration of the mortgage over the described land. The effect was described as security that would "allow for the first plaintiff as mortgagee to exercise any purported right over the purported security" and was defined in this way in Clause 1 of the Deed of Loan.
Ms McDonagh asserts that no such security was provided to her.
It was alleged in pars 47 and 50 of the Further Amended Statement of Claim that before it was legitimate to take any sums from Ms McDonagh or McDonagh Management, the respective Deeds of Loan required certain conditions precedent to be met, but in the case of both loans, those conditions precedent were not met. These included setting up a compliant registered superannuation fund, proper execution of the Deed(s) of Loan by a director of Beechworth and Griffith, delivery of relevant corporate documents and Drawdown Notices signed by an authorised signatory of Griffith (and Beechworth) specifying the purpose of the advance.
It was alleged that Beechworth had "no title, or no title of value to grant in any security, because it had on 10 October 2013 granted such security to a third person by way of loan agreement and General Security Deed". At the time Beechworth did that, Rory McDonnell and Mr Spencer were directors of Beechworth.
In respect of Griffith, it is alleged that it was not disclosed to, or known by Ms McDonagh (and her company), that at the time the money was taken from her, Griffith was the subject of a winding up application, had entered into a Loan Agreement and General Security Deed with a third party, did not provide any valuable security to her company and only purported to give security over two mortgages to which it was not a party and had no interest to grant: (par 60 of the Further Amended Statement of Claim).
It was asserted that neither Ms McDonagh nor McDonagh Management received any payments in accordance with the documents. Demands for payment were made on 22 August 2014 to Griffith, to Beechworth and to Mr Spencer as guarantor, but no funds were paid.
It was alleged that at the time of the taking of the funds, all defendants knew that the loan documents issued to Ms McDonagh and her company were materially false and all of the defendants were "knowingly concerned in misleading the plaintiffs": (pars 67 to 69 of the Further Amended Statement of Claim).
It was further alleged, as well as pleaded in the alternative, that the failure to provide Ms McDonagh and her company with the whole of the necessary documentation meant that "in law no transaction was agreed to or entered into by either plaintiff": (pars 58 and 59 of the Further Amended Statement of Claim).
The eleventh Count is made under s 1041H of the Corporations Act and asserts that the defendants "engaged in conduct in relation to a financial product or a financial service that was misleading or likely to mislead or deceive".
The twelfth Count comprises an assertion that the defendants arranged for Rory McDonnell, Griffith, Beechworth and Mr Spencer "to deal in financial products" contrary to s 766C of the Corporations Act, but seems to be claiming injunctive relief under s 1324 of the Corporations Act. Mr Goodridge disavowed any injunctive relief was being sought and was to clarify the position with this Count. He did not do so, [25] but in failing to return to it or deal with it in written submissions, I take this allegation to not be pressed.
The thirteenth Court alleges that the defendants each "aided and abetted, counselled or procured" the contravention of the Corporations Act.
The fourteenth Count alleges that because of the "conversations and advice by Rory McDonnell" and advice by him set out in an email of 30 June 2013, Greg Huxley, Vanessa Huxley and Rory McDonnell were each in breach of s 911A of the Corporations Act for "carrying on a financial services business" without an Australian Financial Services Licence.
The fifteenth Count alleges that Greg Huxley, Vanessa Huxley, Rory McDonnell, Adam, Gus Dib, Dib Lawyers, Mr Spencer, Griffith and Beechworth "made statements and disseminated information" that was "false and materially misleading", to "induce the plaintiffs to apply for, or acquire, a financial product or products" in breach of s 1041E of the Corporations Act.
The sixteenth Count is headed "s 1041F Corporations Act" and asserts that Greg Huxley, Vanessa Huxley, Rory McDonnell, Adam, Gus Dib, Dib Lawyers, Mr Spencer, Griffith and Beechworth "induced the plaintiffs to purchase or deal in a financial product by making misleading, false and deceptive statements and or the dishonest concealment of facts".
The seventeenth Count is headed "s 1041G Corporations Act" and asserts that Gregory Huxley, Vanessa Huxley, Rory McDonnell, Adam Huxley, Gus Dib, Dib Lawyers, Mr Spencer, Griffith and Beechworth "engaged in dishonest conduct in relation to a financial product or service".
The eighteenth Count is headed "s 1041I Corporations Act" and asserts that the plaintiffs "suffered damage by conduct of the defendants in respect of conduct in contravention of ss 911A, 777C, 1324, 1041E, 1041F, 1041G and 1041H" of the Act and that "each and every other defendant was a person involved in that contravention" and that the contravention(s) caused the plaintiffs loss. It seems from what Mr Goodridge submitted at the close of the evidence on 6 April 2018, Counts 15 - 18 should be read together as statutory breaches that ground the damages sought under s 1041I. [26]
The nineteenth Count is headed "Negligent Misstatement" and asserts that Gregory Huxley, Vanessa Huxley, Mr Spencer, Rory McDonnell, Gus Dib and/or Dib Lawyers made misrepresentations to the plaintiffs "without having a reasonable ground for making their representations". The representations are particularised:
96. Particulars of Misrepresentation
a) Mr Spencer was a director of Griffith Estate as at the funds disbursement date.
b) Beechworth was financially secure and creditworthy.
c) Griffith Estate was financially secure and creditworthy.
d) Mr Rory McDonnell was not a related party to Beechworth when in fact he had been a director until his replacement by Mr Spencer on 18 November 2013.
e) Mr Rory McDonnell was not a related person to Beechworth when in fact he had been secretary of Beechworth until replaced by Mr Spencer on 22 November 2013.
f) That Beechworth was not a related entity to Mr Huxley and/or Mrs Huxley and/or Adam Huxley when in fact both its principal place of business and registered address was c/- Adam Huxley at DIB Lawyers, Stromboli House, Suite 4, Level 1, 434 Chapel Road, Bankstown NSW 2200 and that such address had been the principal place of business for Beechworth since at least 17 October 2012.
g) Neither Mr Huxley nor Mrs Huxley nor Rory McDonnell were a related entity to Vangory Holdings Pty Limited when in fact, Mrs Huxley owned both the legal and beneficial title to all 4 shares in the company.
h) Mrs Huxley, Mr Huxley and Rory McDonnell were not a related or interested person in Vangory Holdings Pty Limited when in truth and in fact, Vangory Holdings Pty Limited operated as a mechanism to fund monies from the Plaintiffs to the First, Second and Third defendants.
i) That Vangory Holdings Pty Limited was not a related entity to Mrs Huxley, Mr Huxley or Rory McDonnell when in truth the name "Vangory" is a combination of their first names being Vanessa, Gregory and Rory.
j) Mr Spencer was a creditworthy guarantor who had gross assets in his name to the value of $3,790.000.00 and had net asset position of $1,855,000 as at the funds disbursement date.
k) Mr Spencer was the CEO of Property Strore (sic) earning a taxable gross annual income of $185,000.00 per annum.
l) The loan agreement between the Second Plaintiff and Griffith Estate had been executed by a current director.
m) That the loan agreement between the Second Plaintiff and Griffith Estate had been executed by a current secretary.
n) That the general security agreement between the Second Plaintiff and Griffith Estate had been executed by a current director and secretary.
o) That the general security agreement between the Second Plaintiff and Griffith Estate provided the Plaintiffs with valuable security.
p) That the general security agreement between the Second Plaintiff and Griffith Estate would be registered.
q) That the statutory declaration by Mr Spencer declared 28 November 2013 was truthful.
r) That Mr Spencer truthfully declared that Griffith Estates was not insolvent and was able to pay its debts as and when they fell due when in fact the company was not solvent and had not been able to pay its debts when they fell due.
s) That Griffith Estate owned 13 properties in Griffith with each property having an unencumbered value of between $309,500.00 and $315,000.00.
t) That the Plaintiffs received a valuable mortgage from Griffith Estate when in fact and in truth, the Plaintiffs received only a photocopy of a single page which falsely purported to be executed under Section 127 of the Corporation Act, 2001 and did not enclose Annexure A and did not include the original mortgage required for registration and which was not dated.
u) Griffith Estate [sic] owned unencumbered 34 blocks of land and such blocks of land were unencumbered, located in Elm Tree Rise and had a net value of between $125,000.00 and $140,000.00 each.
v) That there was a company called Property Store Pty Limited or Property Store Limited.
w) That Mr Spencer was the Chief Executive Officer of a corporation called "Property Store".
x) That the copy of the caveat in the second suite of documents was the copy of an original which would be lodged on behalf of the First Plaintiff and provide security to the First Plaintiff for the personal injury damages.
y) That the copy of the transfer of land provided by Beechworth was valuable security which the first named Plaintiff could use to ensure that there was no loss of personal injury damages.
z) That the Certificate of Title in Volume 11449 Folio 464 would be provided to the First Plaintiff to empower the Plaintiff to exercise power of sale and/or foreclosure.
aa) That Beechworth had provided a drawdown notice as prescribed in the Deed of Loan contained in the second suite of documents.
bb) That Griffith Estates had provided the draw down notice as prescribed in the Deed of Loan in the first suite of documents.
cc) That the defendants and each of them were acting in the best interests of the Plaintiffs.
dd) That the First and Second Plaintiffs were fully secured against loss or default.
ee) That Beechworth and Griffith Estates would pay monies to the Plaintiffs in accordance with the loan agreement when in fact no monies were ever paid to the Plaintiffs.
In oral argument on 6 April 2018, Mr Goodridge said that this allegation was pressed against Gus Dib, Adam and Greg Huxley. [27]
The twentieth Count is headed "Deceit" and is pressed against Greg Huxley, Vanessa Huxley, Rory McDonnell and Mr Spencer. [28] It states:
97. Particulars of Deceit
a) Mr Spencer was a director of Griffith Estates as at the funds disbursement date.
b) Beechworth was financially secure and creditworthy.
c) Griffith Estates was financially secure and creditworthy.
d) Beechworth, Griffith Estate and Mr Spencer were individually and collectively providing the plaintiffs with valuable security sufficient to fully secure the indebtedness of Griffith Estate and Beechworth to the plaintiffs.
e) Rory McDonnell and Mr Huxley were looking out for the interests of the Plaintiffs and would arrange all documentation and registration of all interests of the First Plaintiff in establishing a Self Managed Superannuation Fund and the safe investment of the personal injury damages and the collection, registration and management of all documentation and securities.
f) Rory McDonnell was not a related party to Beechworth when in fact he had been a director until his replacement by Mr Spencer on 18 November 2013.
g) Rory McDonnell was not a related person to Beechworth when in fact he had been secretary of Beechworth until replaced by Mr Spencer on 22 November 2013.
h) That Beechworth was not a related entity to Mr Huxley and/or Adam Huxley when in fact both its principal place of business and registered address was c/- Adam Huxley at DIB Lawyers, Stromboli House, Suite 4, Level 1, 434 Chapel Road, Bankstown NSW 2002 and that such address had been the principal place of business for Beechworth since at least 17 October 2012.
i) Neither Mr Huxley nor Mrs Huxley nor Rory McDonnell were a related entity to Vangory Holdings Pty Limited when in fact, Mrs Huxley owned both the legal and beneficial title to all 4 shares in the company.
j) Mrs Huxley, Mr Huxley and Rory McDonnell were not a related or interested person in Vangory Holdings Pty Limited when in truth and in fact, Vangory Holdings Pty Limited operated as a mechanism to fund monies from the Plaintiffs to the First, Second and Third Defendants.
k) That Vangory Holdings Pty Limited was not a related entity to Mrs Huxley, Mr Huxley or Rory McDonnell when in truth the name "Vangory" is a combination of their first names being Vanessa, Gregory and Rory.
l) Mr Spencer was a creditworthy guarantor who had gross assets in his name to the value of $3,790,000.00 and had net asset position of $1,855,000 as at the funds disbursement date.
m) Mr Spencer was the CEO of Property Strore (sic) earning a taxable gross annual income of $185,000.00 per annum.
n) The loan agreement between the Second Plaintiff and Griffith Estates had been executed by a current director.
o) That the loan agreement between the Second Plaintiff and Griffith Estates had been executed by a current secretary.
p) That the general security agreement between the Second Plaintiff and Griffith Estates had been executed by a current director and secretary.
q) That the general security agreement between the Second Plaintiff and Griffith Estates provided the Plaintiffs with valuable security.
r) That the general security agreement between the Second Plaintiff and Griffith Estates would be registered.
s) That the statutory declaration by Mr Spencer declared 28 November 2013 was truthful.
t) That Mr Spencer truthfully declared that Griffith Estates was not insolvent and was able to pay its debts as and when they fell due when in fact the company was not solvent and had not been able to pay its debts when they fell due.
u) That Griffith Estates owned 13 properties in Griffith with each property having an unencumbered value of between $309,500.00 and $315,000.00.
v) That the Plaintiffs received a valuable mortgage from Griffith Estates when in fact and in truth, the Plaintiffs received only a photocopy of a single page which falsely purported to be executed under Section 127 of the Corporations Act, 2001 and did not enclose Annexure A and did not include the original mortgage required for registration and which was not dated.
w) Griffith Estate owned unencumbered 34 blocks of land and such blocks of land were unencumbered, located in Elm Tree Rise and had a net value of between $125,000.00 and $140,000.00 each.
x) That there was a company called Property Store Pty Limited or Property Store Limited.
y) That Mr Spencer was the Chief Executive Officer of a corporation called "Property Store".
z) That the copy of the caveat in the second suite of documents was the copy of an original which would be lodged on behalf of the First Plaintiff and provide security to the First Plaintiff for the personal injury damages.
aa) That the copy of the transfer of land provided by Beechworth was valuable security which the first named Plaintiff could use to ensure that there was no loss of personal injury damages.
bb) That the Certificate of Title in Volume 11449 Folio 464 would be provided to the First Plaintiff to empower the Plaintiff to exercise power of sale and/or foreclosure.
cc) That Beechworth had provided a drawdown notice as prescribed in the Deed of Loan contained in the second suite of documents.
dd) That Griffiths Estates had provided the drawdown notice as prescribed in the Deed of Loan in the first suite of documents.
ee) That the defendants and each of them were acting in the best interests of the Plaintiffs.
ff) That the First and Second Plaintiffs were fully secured against loss or default.
gg) That Beechworth and Griffith Estates would pay monies to the Plaintiffs in accordance with the loan agreement when in fact no monies were ever paid to the Plaintiffs.
The twenty-first Count comprises a claim for exemplary damages to be paid by Greg Huxley, Vanessa Huxley, Rory McDonnell, Gus Dib and Mr Spencer "because of their conscious and contumelious disregard for the plaintiffs' rights and to deter them from committing like conduct again". (This head of damages was confined in final written submissions to apply only to the conduct of Greg Huxley and Rory McDonnell and said to be was limited to $45,000 for each plaintiff).
The twenty-second Count is headed "Admission and Guarantee by Mr Greg Huxley" and pleads certain facts regarding representations made by Greg Huxley in an email to the plaintiffs in June 2014:
"Rory discussed a first mortgage on Beechworth … Vanessa has a loan interest in the same project … Rory has actually funded himself more than $6,000 per month since 26 November - he showed me the ledger … I know that Rory is trying to refinance part of your investment because he was using the same lender to refinance part of Vanessa's investment as well … I will be speaking to Rory again and I will do whatever I can to help. You know I have helped before. However, at no cost to you, I recommend that you authorise, say, Rory to commence basic legal Demand process to get that underway in addition to what he is doing in regards to refinance. In the meantime, you hold the first mortgage security. I presume Rory holds the documents and the Deeds …".
And,
"… regarding your mortgage loan investment … I take full responsibility".
And in respect of the contents of that email the plaintiffs plead:
102. The said representations in the email of 19 June 2014 was intended and did deceive and mislead the Plaintiffs into a belief that Mr Huxley, Mrs Huxley and Rory McDonnell were at arms' length to Beechworth and Griffith Estates, and Mr Spencer when in fact and truth, Rory McDonnell was a director of Beechworth both before and after Mr Spencer and the secretary of Beechworth both before and after Mr Spencer and a director of Griffith Estates from 5 July 2013 until 29 November 2013 and for the period of 26 June 2013 until 1 July 2013 and for the period 5 July 2013 to 29 November 2013 both before and after Mr Spencer and the secretary of Griffith Estates for the periods 26 June 2013 to 1 July 2013 and 5 July 2013 to 29 November 2013 both before and after Mr Spencer was secretary of Griffith Estates.
103. The said representations in the email of 19 June 2014 were intended to mislead and deceive and did mislead and deceive the Plaintiffs and caused the Plaintiffs to not seek legal redress against the defendants and the assets of Griffith Estates and Beechworth at an earlier time causing the Plaintiffs loss of damage.
104. The Plaintiffs claim, on this count, the sum of $600,000 plus interest of $96,324.50 plus interest accruing at the rate of $343.39 per day plus costs from Mr Huxley.
However, what damage is said to arise specifically from this "admission and guarantee" was not particularised and was never articulated.
In conclusion, Ms McDonagh and McDonagh Management claim damages in the sum of $600,000, plus interest in the sum of $96,324.50 as at the date of the filing of the Further Amended Statement of Claim, (24 November 2014), accruing at the rate of $343.39 per day, "or such other sum as the court may determine", as well as "costs as damages", exemplary damages in the sum of $250,000 payable to each plaintiff, as well as costs on an indemnity basis. (The claim for exemplary damages was modified in closing submissions to be limited to $45,000 for each plaintiff and claim to be payable only by Gregory Huxley and Rory McDonnell).
Further facts were established in cross-examination that had been left unclear in the affidavit. Ms McDonagh confirmed that she had "worked in real estate" for approximately 30 years, but only completed her qualifications to become a registered licensed real estate agent in 2015, i.e. after her accident.
Regarding McDonagh Management, she understood that she had been a director but that she was not currently a director. (At this time the events the subject of the criticism in judgment of Rees J's decision referred to in pars 17 to 19 of this judgment had taken effect and Ms McDonagh has been surreptitiously unseated as director without her knowledge).
In terms of her investment in 2013, she was asked:
Q. It was your understanding that after you made the investments in 2013 that you'd get money in return?
A. Yes, and that went right through the air and never came back. It was all gone.
Q. You never got any money back?
A. Not a single solitary cent. It's quite a lot of money, but I don't know who ended up with it. [36]
Ms McDonagh was then shown Commonwealth Bank records which indicated certain sums had left an account in the name of "Business Vangory" and which Greg Huxley said were paid to her. The first was for $15,000 with the description "three months interest" as well as another showing $3,000, both on 30 November 2013. There was another of $5,000 on 28 December 2013 and another of $1,000 on 28 December 2013. Ms McDonagh claimed that she did not receive any of that money. She was also asked about payments made by Vangory in February and March 2014 to her landlord TPM Solutions in the sum of $4,775.00 and $2,817.00 but she denied that company was her landlord and stated that she "did not ask for it to come from there". [37]
There was also a transfer of $2,000 from an account styled "Business Vangory Holdings" showing as the transferor's receipt "Sharon McDonagh, Bank of Queensland" on 31 March 2014. Again she denied that she had received that payment. She was asked "These documents show that money was paid to you after these investments doesn't it?" and she replied "Not to me they don't. I haven't had any of them". [38]
When pressed on whether she was truly suffering from poor memory or was exaggerating her problems, there was an exchange that started and ended with deflection:
Q. Madam, you've made a number of claims in your affidavit about your memory?
A. Yes, I've been in a bad accident.
Q. And you say your thinking speed and your ability to understand things has diminished?
A. No, I think because I'm now at the same house all the time, so I'm just fine. I'm not‑‑
Q. All that you said ma'am is an exaggeration, isn't it?
A. Sorry?
HER HONOUR: I'll reject that. Mr Ball, you're going to have to give some clarity to the witness as to what proposition you want her to accept. You're going to have to be quite specific.
BALL
Q. Your claims that you suffer from poor memory‑‑
A. I was at a stage where it was poor memory et cetera because there was a few bad things going on at home.
Q. That's not true is it?
A. Yes it is, and I'm not going to jump in the air because that's what you want it to be, it's not what it is. I'd like to go and talk to the nice people.
Q. Your thinking speed, you say that's been diminished?
A. What was I doing?
Q. Your thinking speed?
A. Speed of what?
Q. Your thinking speed. In your affidavit‑‑
A. It was, yes. I had a bad head injury
Q. That is not true either, is it?
A. No it's not, that is exactly what happened. I was in hospital for about a week and a half.
Q. And you say that you no longer have the ability to understand things?
A. No, I didn't say that at all. That was not my saying at all.
Q. That's not true either, is it?
A. Well I don't believe what you've said is true because I know the sort of things that people say about what's happening, and it's usually pretty simple and like, this is what this stuff's about, all the stuff I've been trying to get done so that we don't have to be in this sort of rigmarole.
Q. You weren't actually financially illiterate in November 2013, were you?
A. No, I was having accidents because I'd been hit by a car. [39]
Ms McDonagh was then shown various documents that she signed on 28 or 29 November 2013 and this exchange ensued:
Q. … Now, this is the first page of one of the documents that you identify that I think it's fair that you believe you signed on 28 or 29 November 2013, true?
A. I don't remember that. See, I've also been through some very hard things with, you know, sort of being hit and, you know, hit by a car and things like that, so.
Q. Let me just try and deal with this this way. Just turn, please, to page 451, it's the pagination down the very bottom.
A. These one start at ‑ I see, it's 420 there. What was‑‑
Q. 451.
A. I didn't hear that one properly.
Q. That's all right.
A. Got it.
Q. Just have a look at signature which appears about halfway down the page, Sharon McDonagh; do you see that?
A. Yep.
Q. Is your position with respect to this document this; you don't have an actual recollection of signing this document but you don't doubt that you did, is that fair?
A. Oh no, well, that's my writing and that one's the writing as well.
Q. But you don't have an actual recollection of the day that you put your signature on there, but you don't doubt that that's what happened, true?
A. Yep.
Q. Can you go back now to page 420. I want to ask you some questions about the things that you knew in your mind that were occurring when you signed this document; do you understand?
A. Well, when I was doing this one this time, which is a lot of paperwork, I didn't go into the full ‑ because, I mean, there were people that were still trying to settle this one as well.
Q. Ms McDonagh, I'm just identifying to you the questions that I am proposing to ask you which are about the things that you knew that were occurring in your mind when you signed this document. Do you understand the line of questioning?
A. The only reason I did it was because I wanted to be part of it rather than not being part of it. [44]
Ms McDonagh was asked specifically whether she noticed the reference Dib Lawyers and what she recalls was on the documents at the time she signed them:
Q. You see down toward the bottom right‑hand corner there's the reference to "Dib Lawyers"?
A. Mm.
Q. And the address and telephone number; do you see that?
A. Yep. It's the first time I've seen it but I am looking at it right now.
Q. Is that the first time that you say you've either seen or focused attention on that entry on page 1 of this document being the details for Dib Lawyers?
A. I have seen the Dib Lawyers but without the, all the, like the "Bankstown" and the "Chapel Road" and "Stromboli House", that wasn't on it because it wasn't this one that I was looking at, it was an older one.
Q. Is this right, that when you signed this deed of loan on 28 or 29 November 2013 that Dib Lawyers' details, as in the address and phone number, were not contained on the version that you signed?
A. I don't remember because I had a bad accident around that time so I'm just ‑ I've just been trying to get back to normal. [45]
And further:
Q. Is this a fair summary of your recollection, Ms McDonagh, that you don't have an actual recollection of whether the Dib Lawyers' address and phone number was on the document when you signed it ‑ I'll stop there. Is that correct?
A. Well it's on here.
Q. No, no, no. At the time you signed it. I thought what you said to her Honour was that your recollection, at least initially, was that the details as to address and phone number may not have been there when you signed it?
A. Well this is what I was given.
Q. And is this a fair summary of your position; if those details as to address and phone number were on it when you signed it, they weren't details that you paid any particular attention to?
A. That's because I've got them here.
Q. Is that a yes to my question?
A. I don't know which part of yes you wanted to know.
Q. Just the agreeing with the proposition part that I put to you. Do you want me to put the proposition again?
A. Well it's the same as this, it's got all the things down here on the bottom. Why have we got to go through and pull it all out again?
Q. One of the things that you say, Ms McDonagh, in your affidavit that led you to a belief when you entered this agreement that Dib Lawyers were your solicitors, is the presence of the information I'm asking you about on the document. You know that to be true, don't you?
A. That's what I keep getting told but I've never actually seen it happen.
Q. When you say you've never seen it happen, you have no recollection, sitting there right now, of ever paying any attention to the existence of‑‑
A. No, that's not the case. I was in a bad accident. [46]
Ms McDonagh then asserted that she had "spoken to them but it was quite a while ago", followed by this exchange:
Q. I want to put to you that you've never spoken to Gus Dib?
A. You can think of it that way but I know what has happened otherwise.
Q. Do you see, Ms McDonagh, you knew at the time you entered into this agreement that if you wanted to get legal advice, one of the things that you could do was to pick up the telephone and speak to a lawyer to get that advice, true?
A. Well I don't normally ring lawyers.
Q. Or you could go to their office and have a conference to get the advice?
A. I've done my very best up until now, and I'm sorry if it doesn't fit in with you, but, I mean, it's ‑ I don't ever walk out on something like, you know, who's there or what's happening or who's, you know, doing it or where's the paperwork, all those sort of things. I'm not an idiot, so.
Q. You knew when you entered into this agreement that this document, and none of the others that you signed on 28 or 29 November, had been sent to you by anyone at Dib Lawyers, you knew that for a fact, didn't you?
A. But he was getting the paperwork.
Q. You knew when you entered into this agreement that Dib Lawyers had not sent this document or any of the others to you, correct?
A. That's probably it because that's exactly what they said to me.
Q. You knew you had not sought any advice about this transaction from anyone at Dib Lawyers, didn't you?
A. No.
Q. You didn't know that?
A. No.
Q. When did you seek advice?
A. On the day that I was ‑ I went to the place to find out what, you know, like all this stuff. [47]
This was followed by very confused evidence that seemed to be at odds with her affidavit evidence.
Q. When did you seek advice?
A. On the day that I was ‑ I went to the place to find out what, you know, like all this stuff.
Q. I see. And how was it that you sought that advice from Dib Lawyers?
A. Well somebody told me that it had to be fixed, you can't just go in there and then worry what it's supposed to be about. I mean, I've got the whole book and I didn't make the book.
Q. You see, isn't this the truth, Ms McDonagh, that what happened here was that Rory McDonnell, and on your case Greg Huxley, said to you more than once things to the effect that Dib Lawyers were your lawyers and that they were looking after you; that's true, isn't it?
A. No, because I've only ever seen them here once, that's it, and that was yesterday, or the day before or whatever.
Q. Ms McDonagh, you say in your affidavit, and I can take you to the paragraphs, that on more than one occasion Rory and Greg Huxley made statements to you to the effect that Dib Lawyers‑‑
A. Yeah, that was when I'd been in hospital.
Q. You say that those statements about Dib Lawyers looking after you were made to you in the period leading up to you signing the documents for these transactions. That's what you say in your affidavit, isn't it?
A. I have no idea. I'm not saying that just to be difficult, but I've had some bad experiences in the last six months or so and you can ask me something and I get, I can do it, or on the next page it might not be the same and then I get very upset that I'm doing something that I shouldn't have been doing, but look, I hadn't done anything on these things, I've been reading it.
Q. And one of things that you did not do before entering into the agreements or at any time is seek advice from anyone at Dib Lawyers; that's true, isn't it?
A. I don't know where the lawyers' place is.
Q. And you knew that no one from Dib Lawyers attended on the occasion when you signed the documents, correct?
A. No.
Q. You knew that you hadn't had a conference, either face‑to‑face or on the telephone, with anyone from Dib Lawyers about the transactions?
A. We weren't asked.
Q. You knew that you hadn't received any correspondence, letters, emails or anything of the kind from anyone at Dib Lawyers about these transactions?
A. I have spoken to them on two different occasions going back a lot further than this, but other than that, I just thought you ‑ that's what you wanted to do so that's why I just sat and sort of thought, you know, tell me what you want me do and I'll do it.
Q. And you knew they hadn't given you any cost disclosure and they‑‑
A. There's still no cost disclosure.
Q. And that they didn't charge you any fees; you knew that?
A. Well I must be pulling things out of the air then in that case. [48]
When shown other documents that she signed in November 2013, this exchange occurred:
Q. Can you just look at page 452, please? [49]
A. Where is it? Yes, it's here.
Q. This was another of the documents that it's fair, isn't it, that you don't remember signing but that you accept that you probably did, correct?
A. Well there's been a few that I've signed on but that doesn't mean that they're still the right people. I don't know.
Q. And in relation to the entry on this document, Dib Lawyers, you see, I want to suggest to you that you paid no attention when you signed this document to the significance of that information, did you?
A. I did what I was asked to.
Q. Can you turn‑‑
A. Which is what people were talking about. Even yesterday it was a matter of "Oh, well you did this and you did that and this is this and this is that" and I said, "that's great", you know, like, it's all in paper.
Q. Isn't this the truth, Ms McDonagh, to the extent that you ever believed that Dib Lawyers were doing anything for you in this transaction, that belief was based on things that Greg Huxley and Rory McDonald (sic) were saying to you; that's true, isn't it?
A. I've spoken to Rory once and that was it. I don't go looking for them to talk to. I'd rather to have you to talk to.
Q. Did they say anything to you about Dib Lawyers looking after you?
A. No. [50]
When pressed, the answers became resistant:
Q. 23 June 2016. Do you understand the affidavit I'm asking about was affirmed 23 June 2016?
A. Mm.
Q. What you say in that affidavit about these things is true?
A. Okay, fine.
Q. And you say something similar at paragraph 89 that you've been told by Greg and Rory that solicitors were acting to protect you; that's true too, isn't it? You've been told that?
A. I don't have to listen to people that are telling me do something, I've done my very best.
Q. And to the extent you held any belief that Dib Lawyers were doing anything to protect your interests, that belief was based on things that Rory and Greg Huxley had said to you, wasn't it?
A. Don't start me on those two.
Q. Please answer my question. To the extent that you held any belief that Dib Lawyers were doing anything to protect your interests for these transactions, that belief was based on things that Greg Huxley and Rory McDonnell had said to you; that's true, isn't it?
A. That was a long time ago.
Q. That's not my question.
A. Well then don't ask me questions because I've got just as much right to tell you that I've had problems with the whole damn thing anyway to start with. It's not dreadfully bad but some of things you've said, I've really wanted to pick up my bag and just walk out the door. [51]
Upon resumption after the morning tea adjournment further propositions were put regarding a lack of interface on Ms McDonagh's part with Dib Lawyers. Again her answers are difficult to interpret:
Q. To the extent that you ever did believe in your mind that Dib Lawyers were doing anything to protect you, you only believed that because of the statements that you say that Greg Huxley and Rory McDonnell were making to you, that's the truth, isn't it?
A. I presume there'd be something out of it, but, yeah, I didn't think anything bad about it.
Q. I want to be fair I'll just repeat the question and I ask you to please listen to what I say‑‑
A. Yep.
Q. ‑‑and then give a response. To the extent that you ever believed that Dib Lawyers were doing anything to protect you in relation to these transactions that belief was based on the things that you say Greg Huxley and Rory McDonnell were saying to you, that's the truth, isn't it?
A. On most of it, yes, it probably was. I didn't ask them to do anything.
Q. When you say "most of it" those statements made by Greg Huxley and Rory McDonnell they were the things that if it's true that you believed Dib Lawyers were acting those were things that led you to that belief, that's right, isn't it?
A. I don't normally do these sort of things. So, I mean, it's not something that I know and I trust, because it's pretty much what was on today was what was going to happen.
Q. I want to put this to you, there was not a single thing that Dib Lawyers or anyone associated with that firm said to you or did that led you to believe they were acting for you or protecting you in any way, that's right, isn't it?
A. I don't get that one because I was ‑ there were about three or four things that we were trying to get done at once. So, no, I didn't get it actually. I can certainly go, yes, I would give it a go, but I couldn't ‑ I mean, everybody's running around sort of doing their business. So, I mean, I don't get a chance to sit down and talk about it. [52]
And later:
Q. I put it to you again to give you an opportunity to answer, Dib Lawyers or anyone associated with that firm did not say anything to you in relation to these two transactions, the subject of these proceedings, which you relied upon to believe that they were doing anything to protect you in relation to these transactions, that's the truth, isn't it?
A. I don't understand what you mean though. I just don't understand. Like, if ‑ it's not hard to just go and tell somebody, you know, this is how it is going and it's doing well and everything like that, and there's nothing else to argue about it.
Q. I think you've agreed with me that you never made any attempt yourself to get in contact with Dib Lawyers for them to give you any advice about these matters, that's right, isn't it?
A. No.
Q. It's not right. Well, when did you?
A. When did I do what?
Q. When did you get in touch with Dib Lawyers or anyone‑‑
A. It was somebody else. Where's Peter? Dib Lawyers, where do they come from? [53]
Ms McDonagh did confirm that she knew what a mortgage was, but when she was asked about what she thought about it in November 2013 and its role in the papers that she signed, she gave some non-committal answers, contrary to her affidavit (in which she had said that the mortgage gave her some comfort as it appeared to be a "legal, government type document"):
Q. That is what you believed, isn't it?
A. Well, I thought it was pretty close to that, yes.
Q. In saying that you had an actual understanding when you signed the document, going back to the mortgage, you had an actual understanding that that document did give you or the superannuation fund some security?
A. Hm mm.
Q. Correct?
A. Hm mm. [54]
And later:
Q. When you signed this document you understood that it was giving the super fund a form of security for the money it was lending, didn't you?
A. I believe so. I haven't seen the full content of it but that's what's coming in here.
Q. When you say you hadn't, you say you hadn't seen the formal content of it?
A. Not, not the paper before anybody gets to see it. That was the whole idea of what I'm trying to do.
Q. You had seen it before you signed it?
A. Well, they weren't because they weren't all filled in, not with all this filled in (indicated).
Q. Well, it's only a one‑page document?
A. It seems that way but there was a few other people that have asked me and there's more than one going around. [55]
She was asked about her understanding of the Caveat relevant to Beechworth:
Q. But you knew what a caveat was?
A. I hadn't looked at this one. At any rate it is there and it's got all the information on it.
Q. But you knew, at least in your terms, what a caveat was?
A. Yeah. I think I've been through all that with letting legal bits and pieces, so it's only a very small caveat really when you look at it.
Q. When you say "small" you mean‑‑
A. Well, it's not pages and pages of it.
Q. Is that what you are saying about half a page?
A. A little bit more than half a page but, yes, everything else seems to be fine.
Q. You understood when you signed that document that that was a document which gave you a kind of security interest in that property?
A. When did it go, 29th of November 2013, so that's last year.
HER HONOUR: Mr Lloyd, you might want to put the question again.
LLOYD
Q. You understood when you signed that caveat that that document also gave you a form of security for the loan you made in your personal name. True?
A. When was that?
Q. You signed it on 29 November 2013?
A. But that was last year.
Q. Well, it was in the year 2013?
A. (No answer).
Q. I think you have told her Honour already you knew, at least in broad terms, what the nature of a caveat was?
A. Yeah, I do.
Q. You knew that back in November 2013?
A. Before that. [56]
Ms McDonagh was pressed again about whether she truthfully held a belief that Dib Lawyers or anyone from that firm were acting for her in the transactions the subject of this case which led to the following rather confusing exchange:
A. I hadn't had anything come back on it that sort of says you can't do this and you can't do that. I mean, I only did it from what they told me to do it.
Q. When you say "they", you are not talking about Dib Lawyers, are you?
A. I don't actually know. Dib Lawyers, sometimes they're there and sometimes they're just not around.
Q. In relation to the transactions the subject of this case you brought‑‑
A. That's the first I've heard of it so that's okay.
Q. You don't truthfully believe that they were engaged by you to give you any advice or to do anything to protect your interests in these transactions, do you?
A. Well, that's because Dib Lawyers have not a whole stack of people that goes through them and that's what they were trying to do.
Q. So is it your understanding from that that your understanding of the involvement of Dib Lawyers in these transactions was based on things you were told by Greg Huxley and Rory McDonagh?
A. I do not, I don't recall having anything to do with it. I talked to Melissa Bouliers and that sort of thing but I don't go and talk to somebody I don't normally talk to.
Q. You did not talk to Dib Lawyers about those transactions?
A. I rang them.
Q. When?
A. Back in last year.
Q. What about at any time before you put your signature on the documents entering into these transactions, you didn't call them before then, did you? [57]
When pressed further on this subject the following exchange ensued:
Q. What you are saying about that is not based on any communication at all between you and Dib Lawyers, is it?
A. I'd been trying to ring them back then in December. That's when I was trying to ring them.
Q. December of which year?
A. Last year, towards the end of the year.
Q. Let me confine my questions then to the year following
A. 2013.
Q. to the year following 2013?
A. Okay, 2014.
Q. You did not when you knew you were not being paid the money for your loans, you did not actually make any attempt to get in touch with Dib Lawyers to find out what had gone wrong, did you?
A. No, because I rang them and I said, you know, "I can't work out what's going on" and they said "we'll get back to you". I didn't hear a damn thing after it.
Q. You have never before saying that in the witness box there given that version of events or had any contact with Dib Lawyers in 2014?
A. It was only a very, very short, sort of, you know, "come in" and saying "we can help you". No, they can't.
Q. Ms McDonagh, you are making up
A. No, I'm not.
Q. the contact that you say you had?
A. No. I have had enough of this today. No offence to you. I appreciate the fact that you've got a lot of things to do and everything but I've already been through about three hours of absolute rubbish to come back here to try and help with this and I might as well have stuck my head in a bloody box. So‑‑ [58]
The cross-examination ended here. There was no re-examination.
There is an unexecuted Deed of Guarantee with Mr Spencer cited as Guarantor.
A separate and incomplete "Acknowledgment of Legal Advice by proposed Guarantor" refers to a solicitor "Bill Redmond", and Mr Spencer as the recipient of advice.
A Business Purpose Declaration is signed by Mr Spencer on behalf of Griffith and is dated 24 November 2013.
A Drawdown Notice signed by Mr Spencer "on behalf of Beechworth" and dated 28 November 2013 specifies the various payees for the $400,000 from the loan from McDonagh Management.
The next correspondence relevant to the transactions in evidence seems to be the emails dated 3 February 2014 annexed to Ms Pinkus's affidavit from Warner Meredith to Greg Huxley, with one in similar terms at the same time addressed to Rory McDonell.
Mr Meredith's role in the transaction and its aftermath was never explained. No questions were asked of Greg Huxley about this email. Mr Meredith refers to himself in the signature bar of the email as:
"Warner Meredith, LLB.
Manager Legal and Administration
One group"
One Group is the company from which Greg Huxley sent various emails, including emails in November 2013. His role in that company was never explained, and hence the extent to which he "directed" Warner Meredith, in any capacity, remains a mystery.
Mr Meredith's email seems to be in response to an email at 11:46am that morning from Rory McDonnell. Mr McDonnell email's subject line is "Fwd:NEW FAX" and states:
"Warner. Summary of the two loan advances made by Sharon McDonagh. Regards Rory McDonnell".
Why that email was sent that day about a transaction that settled over two months before remains unexplained.
Mr McDonnell's signature bar on this email describes himself as "Consultant York Street Capital (Equity) Pty Ltd" and provides an address at Level 15 Goldfields House, 1 Alfred Street, Sydney and a mobile phone number.
In his 3 February 2014 email to Greg Huxley, copying in Mr McDonell, Mr Meredith says:
"Greg
Rory handed me a bundle of documents on Saturday relating to McDonagh matter. Amongst them was a Mortgage of Mortgage RPO5ML, which I attach. It has the following anomalies:
1. The document has two (2) dealing numbers recorded on it. However dealing No AE 324437 is not recorded on the Certificates of Title I have. The dealing will not be accepted if that dealing is not recorded on the folio at the LTO. May need to search one of the titles on the document to check.
2. The other problem is I was only given 6 titles, document contains 8. I don't have 2/1131234 and 3/1131234. Will need these to register the dealing.
3. I will need original mortgages AE 324437 and AE 324354. There is stamp duty payable on the Mortgage of Mortgage OSR says $1541.00 on the primary document and $50 for each copy.
4. ATO registration fees $104.50.
5. I assume they will pay for my time.
Please let me know your instructions".
It seems that the matters raised in this email were not responded to given what was stated in Mr Meredith's email of 3 November 2014 to Greg Huxley. I will return to this email chronologically in this exposition.
On 19 March 2014 a repayment notice was prepared. It is unclear by whom but it may have been Rory McDonnell - addressed to Beechworth, "By email", signed by Ms McDonagh requesting a drawdown of $20,000 against Ms McDonagh's loan principal to be paid to the Bank of Queensland account.
A caveat was prepared on 2 April 2014 (registered on 22 May 2014) by Vangory Holdings Pty Ltd signed by Vanessa Huxley as sole director and secretary claiming "a legal interest as Chargee over Mortgage AF 168070Y on the basis of a Loan Agreement dated 10 October 2013 between Vangory Holdings Pty Ltd and Beechworth". [64]
A document dated 2 May 2014 appears on its face to be an agreement between Ms McDonagh and Rory McDonnell for him to use lots 69 and 78 of Griffith "to arrange funds for me (Ms McDonagh) against each title…" and instructing him to set up a separate fund to ensure that she receives $1,500 per week.
On 1 August 2014, a letter was emailed by Firths to Greg Huxley at "1group" at 4:47pm. That letter confirmed that Firths acted on behalf of Ms McDonagh and that she had provided them with a copy of Greg Huxley's letter of 19 June 2014.
Greg Huxley's email to Ms McDonagh of 19 June 2014 reads as follows:
"Dear Sharon,
I thought I would put my thoughts in writing. You are under stress and so am I - so is Vanessa. You have repeatedly told me that you don't hold me responsible regarding your mortgage loan investment. Sharon, you are too kind, but I take full responsibility.
When you first came to me, as I understood, unless you had a self managed super fund set up within a day or so, your money would be liable to be taxed. I rang around - the people who do this cut corners so you need to be careful - and the only person I had who could do it at short notice was Rory.
I've used Rory on lots of matters - it is hard to hold his attention to any one thing, but I have seen him work absolute miracles. Not everything works out but, in difficult circumstances, he is one man who I know can deliver.
Now, I should have checked out all of this much better from the start. But when we spoke, you needed a certain level of income. I have to tell you - I've avoided doing business with friends like the plague. But faced with a big tax bill that would have taken a chunk of your money and, given that you needed a certain level of income, the self managed super fund route seemed to be the only way and that seem to be your preference, so I got involved.
On that note and leaving aside what you would have lost through tax, if $600,000 had been invested in a savings bank with an interest rate of say 3 or 4%, that would have earned you before tax 18,000 per year. Your rent is more than that amount.
So Rory discussed a first mortgage on Beechworth. Because Vanessa had a loan interest to the same project, I did not want to be directly involved. I referred it to Rory - I asked him to handle the whole matter on your behalf and I stayed out of it. I didn't go to the accountant and/or your advisers, or the bank.
At that stage, however, I can say that interest and bills were being paid by the Borrower and, together with property sales in the pipeline, I had no reason to doubt that your Borrower would not pay you on time. You might recall that I ensured that three months was paid in advance - so this got you through the Christmas period.
Again, at the interest rate discussed, this resulted in $6000 a month rather than something like $1,500 per month if the money had been invested, for example in a bank.
Where we are is that Rory has actually funded himself more than $6000 a month since 26 November - he showed me the ledger. But this still left you short. I know that Rory is trying to re-finance part of your investment because he was using the same lender to refinance part of Vanessa's investment as well. So I know the problems first hand.
I mentioned some time ago that we should send a simple Legal Demand to the Borrower. Borrowers always have the capacity to refinance or do something if placed under pressure. This Borrower is not being put under pressure and it makes it difficult for me to help in any negotiation unless some pressure is actually applied.
I will be speaking to Rory again and I will do whatever I can to help. You know I have helped before. However, at no cost to you, I recommend that you authorise, say, Rory to commence a basic Legal Demand process and get that underway in addition to what he's doing in regards to refinance.
In the meantime, you hold the first mortgage security. I presume Rory holds the documents and the deeds. Once legal action is commenced these documents should perhaps be left with those lawyers to hold on your behalf.
Please let me know if I can help in any way".
External administrators were appointed to both Beechworth and Griffith on 14 July 2014.
ASIC records indicate that there was a meeting of creditors of both Griffith and Beechworth on 24 July 2014. The ASIC records show that a person referred to as "John Batiste" is noted to have attended on behalf of creditors York Street Capital, (Rory McDonnell's company), and McDonagh Management and Ms McDonagh at both the Griffith and Beechworth meetings.
Subsequent correspondence between Firths and the Administrator (Mr Cussen of Deloitte) indicated that Mr Batiste had represented McDonagh Management pursuant to a proxy form signed by Rory McDonnell, at least in respect of the second meeting of creditors held on 18 August 2014. Whilst the letter from Mr Cussen to Firths (dated 5 November 2014) undertook to seek an explanation from Rory McDonnell as to how that happened given Firths assertion that this was done without Ms McDonagh's consent or knowledge, there is no material in the tendered documents that reveals the outcome of that enquiry.
Returning to Firths' letter of 1 August 2014 to Greg Huxley, Firths requested his help to "try to secure their client's funds that were lent through her superannuation fund and personally to Griffith and Beechworth", stating:
"In that respect we note that the transactions appear to be curious to say the least. We also note that it appears that you have a relationship with Mr McDonnell and that you put our client in contact with Mr McDonnell. We also note that your relationship appears to be close enough that you have been able to review Mr McDonnell's records as you advised in your letter of 19 June 2014. We also note that it appears your son was the "lawyer" who drew up the relevant documents and allowed Ms McDonagh to be unrepresented by a lawyer. We also note that your wife appears to have benefited from the drawdown of funds.
We also note that you have indicated that you take full responsibility. In those circumstances we request that you apply any pressure you can upon those involved in the transactions, that being Mr McDonnell and the various companies to have our clients money is returned to her as soon as possible.
We intend to commence proceedings on behalf of our client and her superannuation fund in the very near future to recover her monies as well as interest. We have requested that Mr McDonnell provides us with all copies in respect of our client including the supposed securities which are mentioned in the loan documents. We would appreciate your assistance in insuring that Mr McDonnell complies with our request.
Further to this we ask that you please advise us of any further information should you have any. If you need to discuss any matter with me please feel free to contact me at any stage. We look forward to your assistance".
This was followed by a reply email from Greg Huxley at 5:25pm (less than an hour later). The email is reproduced in full:
"Good afternoon
A quick response to your email just to hand.
1. My wife, myself and Sharon have been close friends for over 15 years;
2. The reason for approaching Rory McDonnell was that Sharon advised that she had days to invest her funds into a SMSF otherwise there were certain unfavourable tax implications for her in regards to the compensation monies. I did not check this but understand from third parties that this is true.
3. I told Sharon at the time that I had dealings with a broker who worked in this area. I called him and he advised that he could get an ABN and SMSF set up within days. My own accountant told me that it could take up to 28 days just to get an ABN for an SMSF. I did not know the accountant who has recommended to do this set up.
4. I called Sharon and told her that I had someone. I then met Sharon with Rory McDonnell. Given that she had a bad history with advisers etc. I did say to her that I had lots of dealings with Rory McDonnell and knew him very well. She was more than likely comforted from this rather than cautioned. I knew that he had experience as an intermediary with SMSF. This was the need at the time. I was obviously close to McDonnell as I then met Sharon and him at Concord for coffee etc and disclosed that long friendship.
5. The net balance of loan proceeds (gross about $150,000) was paid to a company associated with my wife and another. From that, Sharon's interest was prepared (sic) approx $18,000 and a number of other costs. That company had a second ranking charge over the real estate and the company. I disclosed to Sharon that my family company had a substantial interest in the project.
6. After the SMSF was set up, Rory spoke to Sharon about lending moneys. Sharon spoke to me. Based on her budget, she needed to earn more to survive than the bank was ever going to pay her. I did not give advice however I did say to her that her SMSF could only lend on a first mortgage. I certainly discussed the proposal with Rory McDonnell.
7. I know from discussions with Rory that he did some work on budgets and costs etc for Sharon. Although Sharon has an issue with memory she is on the ball and came back to me with questions based on what Rory had discussed. Given that I am close to Rory, I went back to him on most occasions etc and chased him up.
8. I set up an interest ledger for the loan and provided that to Rory McDonnell as he took on the role of then subsequently advising Sharon and in the end making payments himself to her when the Borrower stopped paying.
9. When [illegible] was reached I asked Dib Lawyers,(yes, my son works at the firm) who had prepared other loan documents over the same project to [illegible] loan documents over certain securities in favour of Sharon and/or her SMSF.
Dib Law acted for the Borrower in the preparation of loan documents. They did not act for Sharon. No one from Dib Law spoke to Sharon.
Should I have, as a friend and with hindsight now, sent Sharon to a third party lawyer yes, I should have. Others have used third party lawyers using the exact same security documentation and the transactions have proceeded so I have no reason to have any issue there.
At the time, Sharon mentioned that her daughter was a lawyer BUT she had just complained about a bad experience with a lawyer etc and seemed reluctant to go down that party (sic). Again, given that parties all had an interest in this being done (including Sharon) I should have simply sent her elsewhere. I did not.
10. I have (unsigned) copies of most if not all documents, I think. Over the weekend, I will get them, scan them and send them to you. I am sure that these are the final format. Sharon was handed a folder that had a copy of all documents. If she does not have it, she must have handed it to Rory McDonnell. I will call him now and see if he has it.
11. Rory is a close friend. I will discuss the contents of your email with him. I am confident that he will gather up all material requested of him.
I will email you prior to Monday 5 PM".
On 11 August 2014 Greg Huxley emailed Firths enclosing multiple documents that he said he had "collated":
"Dear Mr McQuilkin
I apologise for the delay regarding this. I do NOT hold any signed documents. I had the documents prepared for the Borrower and passed them on. What I do have is a range of material that I either received and passed on, or was sent, including payment receipts, check list, loan ledger/s; and related paperwork.
I have prefixed each annexure as follows - "A" relates to Griffith (NSW) security and "B" relates to Beechworth (Vic) security.
I am told that there is a folder of signed documents with both Sharon and York Street Capital.
As I did not attend settlement, I was not provided with any signed copies BUT I imagine that all of the attached documents were executed.
If I can assist in ANY way, let me know.
Regards
Greg Huxley".
There is a hiatus in the correspondence tendered between 11 August 2014 and 3 November 2014, other than Firths' letters of demand on 22 August 2014 to Griffith and Beechworth respectively requesting repayment of the loan amounts in full plus interest exit fees and costs because of asserted breach of agreements.
The Court file indicates that the originating Statement of Claim was filed on 23 October 2014 naming the first to tenth defendants.
An email from Warner Meredith to Greg Huxley dated Monday 3 November 2014 at 2:12pm refers back to his February 2014 email:
"Greg
Below is the email I sent to you and Rory on 3/2/2014 relating to McDonagh and the shortcomings with the documents.
I (sic) email was mainly directed to Rory as I understood he had carriage of the matter.
The shortcomings I refer to have not been answered although I have made a number of approaches to Rory to answer them.
I am currently holding the following original signed documents, awaiting instructions to register them where applicable:…"
This is followed by a long list of documents signed by Ms McDonagh in November 2013 as well as Certificates of Title folio identifiers 67/1131234, 70/1121234, 75/1131234 and 76/1131234. Mr Meredith also mentions that, as he had stated in his February 2014 email, he never held 2/1131234 and 3/1131234, and he had recently returned 69/1131234 and 70/81113 1234 to Rory McDonnell at his request.
He closed the email with this: "I await further instructions regarding the documents and registration".
At 2:27pm on 3 November 2014, Greg Huxley sent a response to Warner Meredith. The subject line stated: "Thank you - McDonagh matter" and attached something referred to as "140203115437 - 001 PDF" but what that attachment comprised is not clear. The email stated:
"Warner
1. Rory did mention to at one stage that he was going to get you to register the securities - I heard no more.
2. I think that I emailed you and Rory in July 2014, when I did a tile (sic) search and saw no registration. He was going to get it done.
3. $2000 was deducted from settlement et cetera to cover stamp duty
4. Rory is in Melbourne re-his mum's funeral
5. So, you hold 4 out of 8 titles? I know that Rory had an agreement with Sharon that he was arranging a new loan through Fundco, against some of the Griffith titles etc, so that she could get a capital reduction. I know that the loan has not settled. I will email Rory now re: those deeds, so that you get them etc. He was doing the same for Vanessa on two of her security titles.
6. The lawyer acting for Sharon will more than likely want the original documents et cetera so that he can register on her behalf. If that is the case, I will get his instructions etc and ask you to express secure post all the material listed hereunder to him".
On 7 November 2014 Greg Huxley emailed Firths stating that "Warner Meredith holds on behalf of Rory McDonnell the security documents. Do you want these collected and delivered to you?", and noting "Rory McDonnell is away as his mother's funeral is today. I will take steps to locate a copy of the SMSF and advise you who holds it and who provided the advice etc regarding that and the investment, and then revert to you".
An email from Firths on 13 November 2014 to Greg Huxley requested that the documents referred to be provided. About 17 minutes later Greg Huxley responded by email saying "I will take steps to uplift all material that is held by third parties."
On 21 November 2014 a Further Amended Statement of Claim was filed adding Gus Dib as the eleventh defendant.
On 22 November 2014 Greg Huxley sent an email to Firths, headed "Your client McDonagh: Without prejudice and rights reserved". That email sets out a series of assertions regarding alleged fraud perpetrated by an accountant, Salvatore Arcuri, against Beechworth in the period 22 to 26 November 2013. This email is difficult to follow and is full of assertions and cross-references to documents not attached to the copy of the email that was tendered. The letter purports to enclose police statements and other documents in relation to what Greg Huxley describes as "the fraud" against a Mr Taylor and Beechworth about which he asserts Mr Arcuri has been charged and is "before the court" on 2 December 2014.
Because none of the supporting material referred to is included it is impossible to assess the relevance of these assertions by Greg Huxley. He says this in relation to Ms McDonagh in numbered paragraph 15:
"In regard to your client it should be noted that McDonell (acting purely as a broker/advisor) and Vangory Holdings Pty Ltd (as an outgoing mortgagee) made interest payments to McDonagh up until June 2014. Spencer (and the supposed directors of the company) simply refused to acknowledge the obligation, in line with their plan exposed in an email 16 March 2014".
The email of 16 March 2014 is not in evidence.
Other correspondence tendered reveals some wrestling over who should have possession of the various Certificates of Title relating to Beechworth and Griffith. This dispute seems to have been the subject of orders and directions in proceedings before the Commercial Division in this Court involving the Administrator, ASIC and others.
On 28 November 2014 Firths wrote to Greg Huxley stating that "following on from discussions this morning" a timeframe in respect of the provision of the "two outstanding CTs" is required to be given by him, stating that:
"if you can give me that, we will hold off pursuing the Huxley interests so we can sort things out i.e. we won't apply for default judgement against you, Vanessa, Adam, Vangory Services and Vangory Holdings, Benitch or Geoffrey Dawson without giving you at least 14 days notice".
What this correspondence shows is that as late as November 2014, Firths were proceeding on the basis, it seems, that their clients' security may still be proved, perfected and/or registered or was at least in the running with other creditors in circumstances where the companies to which Ms McDonagh had loaned money seemed to be mired in confusion.
The plaintiffs tendered Deloitte reports to creditors dated August 2014 in relation to Beechworth and Griffith and sought to rely on that as evidence of insolvency of each of the companies as at November 2013, asking the Court, without evidence, to draw inferences or make assumptions about Beechworth and Griffith's respective solvencies in November 2013 and what the defendants knew about that. As canvassed later in this judgment, that was a risky and problematic approach to take.
He set out his dealings with Ms McDonagh in details as follows:
"[17] Ms McDonagh was a friend of my ex-wife Vanessa. I saw her socially. She often came to our house at St Ives. Our discussions were purely social - we did not discuss business.
[18] In about October 2013, Vanessa asked me to call Ms McDonagh. Vanessa said "Sharon McDonagh is desperate to speak to you." I then telephoned Ms McDonagh. We had a conversation to the following effect:
McDonagh said: "I have received a legal settlement a while back. I have been told that unless l roll over those funds into a superannuation fund by next Wednesday, I will have to pay substantial penalty tax. Can you help?"
I said: "l do know an accountant who has some experience in selfmanaged super funds [the person I was referring to was Mr. Arcuri, but I did not give the name to Ms McDonagh ] But I am concerned about a business deal that he was involved in and I cannot recommend him."
McDonagh said: "You must know someone. I'm begging you."
I said: "Why don't you speak to the solicitors who got you this money?"
McDonagh said: "I don't trust them. They've taken a lot of my money. I did not realise they would take so much. I don't know what to do."
I said: "I will ring a finance broker who I know. He may have an accountant who can do this work. I will call you back."
[19] I then telephoned two people who I know worked in the financial planning area. One of them was Rory McDonnell, with whom I had a discussion to the following effect:
I said: "I have a friend who is stuck. She needs a self-managed superfund set up quickly."
McDonnell said: "It can take up to 28 days to get an ABN number for the company to act as trustee."
I said: "Do you know anybody who could set it up."
McDonnell said: "I know these accountants in Kogarah who are licensed to do this. I'll call them if you like and come back to you."
[20] Rory McDonnell called me back and said words to the effect of "The accountants I told you about can help out. Get your friend to give me a call."
[21] I then called Ms McDonagh and we had a conversation to the following effect:
I said: "I have done a bit of ringing around. The finance broker I spoke to, Rory McDonnell has an accountant I don't know who they are, but Rory says they can set up a self-managed super fund quickly. I will give you Rory's number and you can speak to him."
I then gave Ms McDonagh the mobile number of Rory McDonnell. The conversation continued:
I said: "If all this has to happen quickly, you need to read everything carefully and you should get advice from someone else."
McDonagh said: "I can speak to my oldest daughter. She is a lawyer, but I don't really want her to know how much money I've got."
I said: "WeII. you really should get her to look into it."
[22] On 10 or 11 November 2013, Rory McDonnell called me and said words to the following effect: "They have got this covered for Sharon [McDonagh]. They are going to set up a self-managed super fund and open up accounts with Bank of Queensland, as that is the best interest rate around. They are recommending $400,000 into superannuation and $200,000 in her own name, maybe to use it to buy a property."
[23] I then called Ms McDonagh and we had a conversation to the following effect:
I said: How did you get on with Rory?"
McDonagh said: "He seemed nice. We talked about the super fund. I nominated Savannah as the other beneficiary. He said that if the money was put away in super, I couldn't access the money. I didn't understand this, but I was too embarrassed to ask him about it."
I said: "You shouldn't be embarrassed about asking questions. Rory will be able to answer your questions. The access to your super fund is governed by law and you have to comply with the law to get the tax benefits. You can receive income but the capital has to be kept in the fund or in an authorised investment. I will send you a note about this."
McDonagh said: "That would be great."
[24] On 11 November 2013, I prepared a Memo to Ms McDonagh, which I emailed to her. Annexed hereto and marked "A" is a copy of this Memo.
[25] The next day, Ms McDonagh called me and we had a conversation to the following effect:
McDonagh said: "Thank you for your note. I am concerned about setting up everything by tomorrow. I'm still not quite clear on how this will all be done."
I said: "Rory will get these accountants to help you open up the bank accounts and set up the super fund."
McDonagh said: "Could you please send me another note telling me how it will be set up."
I said: "OK. I will send you a note now."
[26] On 12 November 2013, I prepared a Memo to Ms McDonagh, which I emailed to her. Annexed hereto and marked "B" is a copy of this Memo.
[27] On 14 November 2013, I received a telephone call from Rory McDonnell. He said words to the following effect: - "Everything has been set up. The self-managed super fund and the bank accounts."
[28] I then sent an email to Ms McDonagh, a copy of which is annexed hereto and marked "C".
[29] A day or so later, Ms McDonagh called me and said words to the effect of: "Greg, thanks for referring me to Rory and the accountants. They've set everything up. They've done a good job. I've paid them. Everything is okay. I am worried though as the interest that I am going to get won't pay the rent. I've spoken to Rory about it. I need to earn more money. Rory said he will help me."
[30] Annexed hereto and marked "D" are copies of two emails passing between Rory McDonnell, Ms McDonagh and me dated 18 November 2013.
[31] A few days later, Ms McDonagh called me and we had a conversation to the following effect:
McDonagh said: "Rory's talking about a mortgage on some properties that you and Vanessa have loaned on. I can get higher rate of interest."
I said: "You could do that. At the moment you are living off the capital."
McDonagh said: "I know. That is worrying me."
I said: "Whatever you do, you've got to hold back enough money to buy yourself a place. The rent you're paying is what kills your budget. If you buy with a decent deposit, you'll get a low rate loan and that will save you money."
McDonagh said: "That makes sense."
I said: "I think I know what Rory is talking about. [At this time, the Beechworth and Griffith projects were the only projects my family had invested in.] We've got our own money tied up in there. I know the guy involved well. He's got sales happening. But you know from your own experience the higher the rate, the higher the risk."
McDonagh said: "I can't afford to lose my money."
I said: "Sharon, you can't have it both ways. If it is in the bank, you get bank interest. You want higher interest, there's an element of risk. All I can say is we've got our money in there. Get your daughter to look at the documents and take it from there."
[32] A day or two later, Ms McDonagh called me. We had a conversation to the following effect:
McDonagh said: "I would like to give the settlement money to you to look after. I don't want to handle it."
I said: "Look Sharon. I've had a terrible run in the last few years. I have made it a policy that I not do business with friends. You are close to Vanessa. You know Anne [McEvedy]. She had a divorce settlement of $3 million. She approached me to invest it for her. I did not want to be involved and I sent her away. Now I get blamed because she gave all the money to her nephew who has robbed her. I can't win. Sharon, you've got people looking after it. Stick with them."
McDonagh said: "That's OK, Greg I understand."
[33] On 27 November 2013, or possibly a day or two before, I received a telephone call from Rory McDonnell. We had a conversation to the following effect:
McDonnell said: "Sharon McDonagh has agreed to lend some money to Beechworth. It will be secured over Griffith real estate. Can you arrange for Dib Law to prepare the documents?"
I said: "Yes. I will arrange it with Adam [Adam Huxley, my son, who then worked with Dib Lawyers]. Could you give me the details?"
[34] Rory McDonnell told me to (sic) the parties to the loan, the terms and security. I then prepared a Memo to Adam Huxley, a copy of which is annexed and marked "E". I was aware that Dib Lawyers had recently prepared similar documents for BLE and thought that they could prepare the documents for the loan by Ms McDonagh.
[35] On 28 November 2013, I received an email from Adam Huxley attaching the documents his firm prepared. This email is AH-02 to the Affidavit of Adam Huxley sworn 5 August 2016. I forwarded this email to Rory McDonnell and, I think (but I am not sure) Ms McDonagh. I do not have copies of these emails as I no longer have access to the server where the emails were stored.
[36] The next day Rory McDonnell called me and asked me to meet with him and Ms McDonagh at a coffee shop at Concord. When I got there, Ms McDonagh and Rory McDonnell were already sitting there. I saw that there was some loan documents there on the table. I believe that they had not been signed - Rory McDonnell said words to the effect of: "We are going to get the documents signed". I had brought the Certificates of Title of the properties that were to be provided as security. I had earlier obtained them from the outgoing lenders. I said, as I gave them to Rory McDonnell, "Here are the CT's for you to get registered once the finance is settled." Rory McDonnell took the Certificates of Title and he and Ms McDonagh left the coffee shop together and I went home. I remember thinking that they were going to see the accountants who had set up the super fund and Ms McDonagh's daughter who was a lawyer. I can't recall whether we had discussed this, or whether I just thought this based on previous discussions I had with them.
[37] I understand from Ms McDonagh's Affidavit that she executed some loan documents. I do not know whether the documents she signed were the documents I received from Adam Huxley and forwarded to Rory McDonnell. I do not know the circumstances in which she signed the documents.
[38] In my dealings with Ms McDonagh, I was acting on my own account. I was not acting on behalf of VHoldings or VServices. I never mentioned these companies to Ms McDonagh".
Greg Huxley then outlined what he said was conduct by Mr Arcuri, Mr Photios and Mr Spencer which he described as fraud. It is somewhat unclear in this account exactly how it caused the cashflow issues at Griffith and Beechworth is not fully explained. He said that this activity was a prompt for Vangory Holdings and Vangory Services as secured creditors to appoint voluntary administrators to Beechworth and Griffith in July 2014. I observe that the Deloitte S439A reports for both Griffith and Beechworth dated August 2014 confirmed that the corporate records showed shareholder and directorship disputes at Beechworth and offered the opinion that these matters probably had the effect of disrupting the sales campaign and caused cashflow problems at both Beechworth and Griffith.
There were legal proceedings in the Supreme Court which according to Greg Huxley were "commenced by Photios, Spencer and others". He says that the proceedings were discontinued in February 2015 by "them", and by other plaintiffs in May 2015. It is unclear if the proceedings relate to both Griffith and Beechworth.
He stated that in June 2016, the voluntary administrators of Griffith were appointed liquidators of that company and that he understood that after the remuneration of the voluntary administrators/liquidators were paid, there would be no return to creditors and that at that stage his "own family had lost in excess of $3 million in relation to Beechworth and Griffith".
He deposed to Beechworth remaining in administration at the time he swore his affidavit, and that the current position was that the administrators have sold the large subdivided Beechworth lot and some other lots and that 22 lots remained unsold and that he could not say whether there will be any return to creditors of Beechworth after the secured creditor, BAD Nominees, is paid out and the administrators fees are paid.
He specifically disputed a number of things said by Ms McDonagh in her June 2016 affidavit. He said that based on what his wife told him, he understood that Ms McDonagh had an accident but he was not told what injury she suffered "or what disability she continued to be under". He says that he knew that she had received a compensation settlement but had not been told any details about the settlement but assumed it was due to her accident.
He said he had met her on three or four occasions and on those occasions she did not display any sign of disability. He said that at least once she told him that she felt tired and had headaches as a result of her accident. In terms of work she told him that she had gone back into business with her former husband in the real estate agency but he had "ripped her off" but he did not hear the details. She did not seem to be suffering from any mental disability and the conversations he had with her were "quite normal". He stated:
"The only thing I can say is that she seemed a bit anxious but I thought then (and still think) that this was the product of the urgency with which she had to deal with the issues relating to the settlement amount, her superannuation and taxation". [65]
I interpolate here that taken at face value, there seems to be a slight tension between this description and what he said in his 5:25pm email to Firths on 1 August 2014:
"… Although Sharon has an issue with memory, she is on the ball and came back to be with questions based on what Rory had discussed…".
but in my view the answer in cross-examination is reconcilable with his remark in the 1 August 2014 letter.
He recollected only two occasions he went away with his wife since their honeymoon in 2002, and he thinks only once did Ms McDonagh stay in their house and look after their children.
He deposed to not being aware of the exact settlement amount, but knew there was at least $600,000 in the days before her superannuation fund was set up. He denied that he kept his bankruptcy secret from Ms McDonagh. He says that he never spoke to Ms McDonagh about what investment return she might receive on the amount of $600,000, or that he would arrange to invest it, or that she should not put it in the bank.
He denied that he gave her any recommendation about Rory McDonnell's abilities but admits that he put her in touch with Rory McDonnell. He recalled having coffee with her and Rory McDonnell at a coffee shop in Concord having been invited there by Rory McDonnell. He says this occasion was just after Ms McDonagh told him about depositing the money with the Bank of Queensland and it was clear to him that she and Rory McDonnell had discussed matters and he described the occasion as "purely social, essentially Rory McDonnell thanking me for introducing Ms McDonagh to him". (I interpolate that this seems to be at odds with par 36 of his affidavit where he said he had obtained Certificates of Title from the "the outgoing lenders" to the "properties that were to be provided as security" and took them to the meeting).
He denied that he ever explained anything about the investment to Ms McDonagh and denied that he ever told Rory McDonnell that he had given any explanation to Ms McDonagh and denied that he ever said he was going to arrange a lawyer for her or that he had any discussion with Ms McDonagh or Rory McDonnell about arranging a lawyer for her.
He said that in respect of the documents, apart from receiving the drafts from Adam and passing them on to Rory McDonnell and possibly Ms McDonagh, he had no involvement in negotiating them or drafting them. He says that he first saw the documents relating to the superannuation fund and McDonagh Management after the proceedings were commenced, and that he saw some of the executed loan documents relating to Beechworth and Griffith "in mid 2014 after the issues in relation to governance of Beechworth and Griffith arose".
He said that Dib Lawyers drafted the transactional documents, but they were acting for the borrowers from Ms McDonagh, not for Ms McDonagh.
He says that Ms McDonagh called him "after the time that Photios and Spencer had taken control of Beechworth and Griffith" to complain about payments of interest not being made and he says that he explained what Photios and Spencer had done and said that he would do his best to try and help her out.
His recollection was that at the time of the transactions in November 2013, he suggested that she seek advice and that Ms McDonagh had told him that she had a daughter who was a lawyer. He denied ever saying that Dib Lawyers were acting for her, or were there to "protect her", because he was aware that Dib Lawyers acted for the borrowers. He was aware that Dib Lawyers would have been in a conflict if they also acted for Ms McDonagh.
He denied ever making any statement to Ms McDonagh about what returns she would receive.
He says that after he investigated the position in mid 2014, he became aware that Ms McDonagh had been paid 90 days interest in advance on the loans and that all payments had been made up to April 2014. (I note that this does seem to be borne out by the Commonwealth Bank records [66] as the plaintiffs were due $6,000 per month and this seems to have been paid to her or paid on her behalf, up to a little over $32,000 by April 2014).
Mr Huxley says that in January 2014, he met Ms McDonagh and her daughter on holidays at Hamilton Island and that they socialised and had dinner together and that in a general discussion she thanked him for the introduction to Rory McDonnell and said that she had received her interest and that that had paid for the holiday.
He denied that he told Ms McDonagh that Beechworth and Griffith had gone into administration because by July 2014, they were not speaking to each other.
The second is dated 12 November 2013 and stated:
"Dear Sharon,
Good morning. I'm putting this in writing so that you can go over it and be clear:
1. Rory should have your self-managed super fund set up today so that you can sign all the necessary paperwork on it tomorrow.
2. Tomorrow, 13 November 2013, is an important date because I understand your roll over must be done by then.
3. Rory will take you to the Bank of Queensland and or Macquarie Bank so that you can open up two bank accounts. (Note: Both of these bank accounts will be under your control - you will be the sole signatory. You should ensure that you also have internet banking setup on both accounts).
4. The bank accounts that you will be opening are
a. A self managed super fund bank account; and
b. A Sharon McDonagh investment account - an account in your own name.
5. At this stage, you cannot just draw money out of the SMSF. Once the funds are in the account, they must be invested in either complying investments or you can draw the income from the account - that's as I understand.
6. Once these things are done, Rory [illegible] mortgage investment for the self managed super fund and … the interest free (as long as the fund continues to apply); and you can draw that income out each month. You need to get this in place a.s.a.p.
7. I would not lock any of your cash money into term investments with the bank. Keep it at call because you will then be flexible in order to get some investment in place.
8. I know you have prepaid your rent, but I still think you should (particularly while home interest rates are so low) look at the home unit market with the view to buying a unit in the range of $500,000 to $550,000. If you find something now that you like, you can rent it out until you are ready to relocate. Alternatively, if you can get your income sorted out, you can hold the investment property as a backstop and stay exactly where you are for a year or two - your call.
9. Make sure you ring the real estate institute and check as to what is involved in cost and training to reinstate your licence.
10. Mobile Phones: I can get online and purchase Amaysim SIM cards and have set up for you and Savannah. You will keep your existing phone numbers. But what I need for each individual phone numbers is the name of the account holder (I presume you); the name of the service provider (that is, Telstra or Optus); and the account number on the invoice that they sent out (somewhere on that invoice will be an actual account number - not the Bill No.). I need that as well.
I can then go on line and port all this data across and get the SIM cards sent direct to your address.
Sharon, I expect that Rory will call you today/tonight.
He will more than likely need you tomorrow morning over in the Kogarah area to:
a. meet the accountant and sign the self managed super fund documents and
b. go to the bank and open the bank accounts
It may be a good idea to bring your cheque where the funds are presently invested as you will need to roll over from your account to the new self managed super fund account.
$400,000 00 as your one-off complying investment, I suggest the balance (approximately $200.000 00) should go into the Sharon McDonagh investment account at Bank of Queensland. Alternatively, you can leave it where it is - that is up to you.
If you don't have a cheque book, that does not matter because you can go in to the nearest branch of your bank (at Kogarah) and purchase a bank cheque and take it back to the Bank of Queensland and deposit it. You just need to make sure that this roll over is done by 5pm 13 November 2013. Rory will be happy to help you with this.
I am sending a copy of this email to Rory so that he is aware of what I have put to you.
Sharon, please call me at any time: 0450 683 111".
These first two emails do not appear to contemplate anything past the setting up a self-managed super fund (SMSF) for her and raising the possibility of purchasing property using $200,000 as deposit and paying the interest from the SMSF.
Third, there is a short email dated 14 November 2013 from Greg Huxley to McDonagh at 8:06am:
"Good morning Sharon,
I understand from Rory that you were looked after yesterday. I have not seen any documents. Can you give me a call when you are free and let me pop over and go through them with you. I have no doubts at all just also a good idea to get a second set of eyes to check Bank accounts etc too. All under your name and control. Give me a call when you are right - sooner the better.
GH"
Fourth, there is an email from Rory McDonnell to Sharon McDonagh cc'ing Greg Huxley dated 18 November 2013 at 7:36pm:
"Dear Sharon
As we discussed we have now obtained your ABN for your self managed superfund. It says active from October 12 so I think the accountant put it a month early just to be sure.
I have also attached the Certificate of Incorporation for the company which is trustee. I can get copies of the trust deed and operating instructions if you like a soft copy but I think you have the bound versions so I don't want to overload you with documents.
Now you have the ABN you can start the money working for you. As I said I am getting this mortgage fund together which will pay a high return at 1.5% per month so I will prepare a package for you and we can meet up to discuss it later this week if that suits you. I will come over your way this time.
I should have some news by then on your disability pension and getting your Real estate license course paid for by Centrelink.
Regards
Rory McDonnell B. Agr.Sc
Consultant"
Fifth, there is a reply from Greg Huxley 10 minutes later:
"All sounds good Rory.
I am seeing Sharon this week to review what she has in place.
She has to get:-
1. Income - can only be lstM
2. Needs to ensure that she can access at least $200K within say 6 months for unit purchase - she has to get some capital gain working as well".
Greg Huxley says on 27 November 2013 or possibly a day before that, Rory McDonnell contacted him stating that Ms McDonagh had agreed to lend money to Beechworth secured over Griffith and that he would have Dib Lawyers prepare the documents. He did that and forwarded them to Rory McDonnell when received on 28 November 2013.
Sixth, there is this curious exchange between Rory McDonnell and Greg Huxley at 7:05am on 29 November 2013 which Greg Huxley fails to refer to at all in his affidavit:
"Greg
Some issues we have identified with the loan from McDonagh and McDonagh Family Superfund. Now we do not expect any issues but based on past experiences it is prudent for us and in particular me as in the current circumstances with Bikas matter that we prepare for the worst. I know you don't want any issues as she is a family friend but with a daughter who is a lawyer if anything went wrong and we were seen to be talking her into a loan that she didn't understand and just trusted us it could be turned around in about 5 minutes to make us look very bad. So here are some issues:
1. There is a serious issue with value of security. Ed said that at Griffith realistic values for sales is $70,000 and we will net $55,000. So I am brokering her into a $200,000 loan on $210,000 security which is 95% LVR at gross value with no allowance for costs etc. For the larger loan of $400,000 its 5 lots say, $350,000 plus $120,000 in Beechworth its 85% without commissions and costs. This raises the question that even if everything goes to plan how do we pay her back? We will obviously have to allocate other funds as we do so that shouldn't be an issue.
2. Ed is not a current director of Griffith Land Estates Pty Ltd - Peter Mitchell will need to do this today as it will seem odd to Sharon if I am signing the loan docs.
3. Payment direction. Ed is saying he can only ever remember doing a $100,000 loan from SNZ with Jim Kekatos giving legal advices. Is the extra $100,000 just interest or have they made some further advances under that loan agreement?
4. Benitch Investments of $127,036. You mentioned Jeff is saying its $157,000! What were these loans just so I can refresh Ed's memory.
5. Ed mentioned the payment to him of $20,000 should have been $30,000. Were you going to allocate $10,000 later?
Regards,
Rory McDonnell B. Agr.Sc
Consultant"
Seventh, although not attached to his affidavit there is the undated "Checklist" tendered in the plaintiffs' case that seems to give directions about payment on settlement. Greg Huxley said in cross-examination that he prepared it. [68] The checklist seems to evidence a detailed level of knowledge and some direct involvement in the transaction as well as plans for exchange of cheques and documents and who will retain them, but nothing about registration of documents:
"CLIENT CHECK LIST
1. There are three bundles of material.
a. One set which is to be signed throughout by Company, its Director and in some instances, the Lender. So double check where each "flag" is that the Lender may also have to sign;
b. Second set marked "COPY" once signed these are returned to LENDER and then filed under TAB 12 in their BINDER
c. BINDER: has a full unsigned set of all documents for Lender to hold. This BINDER also contains other project material etc.
2. DRAW DOWN notice:
This is the same as the notice contained within the DEED OF LOAN. This is the legal request form BORROWER to LENDER and sets out interest rate; exit fee etc. It also notes the party to whom the settlement bank cheques are to be drawn.
There are 3 of these - one for the LENDER; one for the BORROWER (both to be signed) and an unsigned copy is in the LENDER binder.
Bank cheques are to be drawn as follows:-
BAD Nominees Pty Limited $ 37,500.00
SNZ Holdings Pty Limited $200,000.00
Benitch Investments Pty Ltd $127,036.00
Sharon McDonagh (set up fee/s) $ 3,000.00
Loan Plus $ 2,000.00
Beechworth Land Estates Pty Limited $ 53,074.00
Vangory Holdings Pty Ltd $177,390.00
TOTAL: $600,000.00
3. LENDER retains the BINDER with copies. Lender accepts settlement agents undertaking to exchange BANK cheques for counter signed material; land titles; Mortgages/ Caveats etc.
4. NOTE: the agreements provide for 3 months interest prepayment. The LENDER has provided their bank details. After settlement, the BORROWER will remit the:-
a. Set up fee - this is actually being drawn as a bank cheque as listed above.
b. Interest in advance to the bank accounts notified. Although 3 days for that to appear.
5. The BANKING to be done by BORROWER is as follows:-
Ed Spencer has instructed VANGORY to pay as follows:-
a. Sharon McDonagh $ 3,000.00
b. McDonagh Superannuation Fund $15,000.00
6. Please double check the bank account details:
a. Sharon McDonagh
i. BSB: 124-001
ii. Account:
b. McDonagh Superannuation Fund:
i. BSB: 124-001
ii. Account:
7. OTHER FEE PAYMENTS:
Ed Spencer has directed that VANGORY HOLDINGS PTY LTD remit the following:
a. Ed Spencer (director fee) $20,000.00
b. Rory McDonnell (brokerage) $18,000.00
c. Rory McDonnell (director fee) $10,000.00
This is separate from other company payments". [69]
ANZ Bank records show a telegraphic transfer receipt dated 29 November 2013 at 14:19pm from "Sharon McDonagh to SNZ Holdings Pty Ltd" in the sum of $200,000 titled "Griffith Settlement". [70] The timing of payments to identified recipients from the $400,000 loan to Griffith are set out in Bank of Queensland records [71] and appear to be timed at between 3:31pm to 3:56pm on 29 November 2013 and are each titled "Griffith settl SMD".
There is no other correspondence in evidence between Greg Huxley and Rory McDonnell until the February 2014 exchange referred to in par 173 of this judgment, where Warner Meredith emails Greg Huxley and Rory McDonnell in response to documents provided to him "on Saturday" by Rory, in which he outlines problems he sees with those documents.
The information he obtained suggested that these sales had taken place "in the period 2008 to about 2010, and then the subdivision lay dormant under the control of the Equititrust for close enough to two years". [74]
He explained that Mr Spencer had negotiated an arrangement with Homecorp, a Queensland entity, for the house and land packages to be sold to investors and that he had also negotiated with a builder called Hadar Homes to build houses on the land packages. He understood that Mr Spencer himself acquired six allotments.
Mr Huxley's understanding of the value of the sale prices was limited to awareness of one of them being settled at either $90,000 or $95,000, but that the others went down a different path because Mr Spencer was placed under the control of the Trustee in Bankruptcy and the mortgagee, for whatever reason, would not settle the other sales contracts in relation to the other five allotments.
Mr Huxley's recollection was that the lot that settled was settled between August and October 2014.
In further explanation to why the sales ceased due to other events, he explained that was because Beechworth was "illegally hijacked" by Salvatore Arcuri and James Photios and the ASIC portal for the company was illegally accessed by Mr Arcuri who perpetrated a misappropriation of funds against Beechworth and that there were legal proceedings before Rothman J about that. [76]
Mr Huxley explained that Vangory Services provided the funds to Griffith to purchase the mortgage interest from Equititrust which at that stage held a first and second mortgage interest over the Griffith properties.
He acknowledged that on 24 November 2013, Vangory Services entered into a formal loan agreement with Griffith which was associated with a General Security deed, although he could not remember the amount of the security, but thought $1.192 million "sounded about right".
He clarified the position [81] that Vangory Services "had started to advance funds to Griffith Estates and by 24 November 2013 it had aggregated to $1.192 million" and so at that stage the Deed was entered into.
Mr Goodridge then proceeded to examine Mr Huxley in respect of a Deloitte report which set out its understandings of the financial circumstances in respect of Griffith in August 2014. This report included the assertions of a number of unsecured creditors, including the Chief Commissioner of State Revenue and an entity called PSA Pty Ltd, both of whom had lodged caveats in respect of money they assert that they were owed.
Questions were asked about other people and corporations appearing in the Deloitte report, including a Mr Batiste and Mr Bounader. He noted that Mr Batiste and Mr Bounader, appeared, according to the creditors report, not to have provided any documents in support of their claim. Mr Boundader was a sales manager and Mr Huxley said that he assumed the claim was for expenses and/or commissions, but he was unable to say whether the sales related to the claim took place before 29 November 2013 or not.
There was further examination about other unsecured debts asserted to be owed to Dib Law. He was asked why Dib Law would be owed $165,000, and he responded that as the Deloitte report points out, there was no documentation to support that claim and he did not know what basis there would be for any such claim.
He specifically did not agree that all those monies referred to in the Deloitte report were owing as at 29 November 2013.
In respect of money said to be owed to Batmore Securities, he said that was a company associated with John Batiste and his recollection was that that company was a secured creditor.
He was unable to say whether or why money was owed to York Street Capital, (Rory McDonnell's company) or Hadar Homes.
He was asked about an assertion in the Deloitte report that Gus Dib was owed $4 million. He said that he simply could not explain that, and in the absence of a proof of debt and any supporting documents, Mr Dib also appeared not to be able to explain it. Mr Huxley said that he was not aware of any such debt.
Mr Huxley agreed that shortly after incorporation, Griffith borrowed $1.77 million and acquired as an asset 59 lots at Griffith and the plan "and process" was to recoup the $1.77 million as the lots were sold and if all the lots were sold as planned, Griffith would have made a profit. By November 2013 some blocks of land had been sold and there were 46 blocks left.
It was put to Mr Huxley bluntly that Griffith was "hopelessly insolvent" as at 29 November 2013. That proposition was put, it seems, based on the claims asserted in the Deloitte August 2014 report. Mr Huxley responded that that was "absolutely incorrect". Mr Goodridge also put that what the Deloitte report showed is that "Griffith had gone dramatically backwards since originally owing $1.77 million in that it now owed between $3 and $7 million" which Mr Huxley rejected, describing the proposition as "wildly inaccurate".
Mr Huxley denied that creditors were "pressing for unpaid bills" and that as at November 2013 he was "juggling funds to creditors to try and find money to pay bills". He also flatly denied the proposition put to him that at that time he was "financially desperate". [82]
Turning to Beechworth, Mr Huxley agreed that the company was incorporated in 2012 and that 95 of the 100 shares were owned by Rockliff on trust for Vangory Holdings. He did not agree that Rockliff's 95% shareholding in Beechworth was "in trust for Vangory Holdings, which in turn held though shares in trust for the Huxley family".
There were some questions regarding his dealings with his son Adam. Mr Huxley said that he had been estranged from him for three years and that he had last spoken to him in August 2014 and his relationship with Adam in November 2013 was "professional only".
He said that any trust related to Rockliff was in the form of a discretionary trust, the beneficiaries of whom would be the youngest four of his seven children.
Mr Huxley was then taken to the August 2014 Deloitte report for Beechworth. He denied that there was a valid claim by First Debenture for a principal loan of $3.282 million in place in November 2013. He disputed Mr Goodridge's proposition that the entire realisable value of the assets of Beechworth as of November 2013 was only $2.2 million and the company had an excess of liabilities over assets, even before considering the interests of unsecured creditors or caveat holders' interests.
Mr Huxley pointed out that there was a number of problems with the assumptions Mr Goodridge had made, including that Mr Dean was not owed $1.4 million in November 2013 because by 29 November 2013 he had been repaid over $1 million of that debt.
He agreed that based on what was said in the Deloitte report, by August 2014 Beechworth's secured interest holders "appeared" to be owed $4.360 million, but he would not agree that secured interest holders as of November 2013 were in fact owed approximately $4 million, although he conceded that was what the Deloitte report "tended to show".
The Deloitte report also referred to unsecured creditors, Mr Batiste and Mr Bounard, and CMEA Pty Ltd, a superannuation fund he understood was set up by a Mr Taylor and his wife.
Mr Huxley did not agree that "mere days" before Ms McDonagh's transaction, Mr Taylor, through CMEA, provided a sum of money to Beechworth stating that he became aware on 1 December 2012 (no doubt this should be a reference to 2013) that Mr Arcuri had "misappropriated Mr Taylor's money and it was never received by Beechworth".
He did not agree that "EDM Group" were owed $3,000 as at 29 November 2013. He described the $165,000 to Dib Law referred to in the Deloitte report as a "copycat figure of the Griffith amount" and repeated that he had "no idea what that was about", although he agreed that Dib Law did legal work for both Beechworth and Griffith separately. He was unable to say whether some work was done before 29 November 2013 or not and he did not know the amount of work done.
In terms of an amount of $121,000 stated as owed to Hadar Homes, Mr Huxley said that he thought that was part of an arrangement by Mr Spencer with Hadar Homes to build an exhibition home on one of the lots that was substantially completed around this time, but he was not able to say whether it was owing before 29 November 2013 or not.
There were other unsecured amounts referred to in the Deloitte report and Mr Huxley was unable to say whether they were correct, or when they were incurred.
He had "no idea" as to the origin of Mr Dib's claim noted on the back page of the Deloitte report for $4 million, and responded again that he thought that "Mr Dib doesn't know", given that there was no proof of debt provided, stating that there was no $4 million owed by Beechworth to Mr Dib that he was aware of.
Mr Goodridge suggested to Mr Huxley [83] that the realisable assets of Beechworth were only $2.2 million but there was an excess of liabilities over assets, to which Mr Huxley responded that the $2.2 million figure was not correct, and that he would not agree that Beechworth was "hopelessly insolvent", and he would not agree that they were being "pressed by creditors", describing that assertion as "absolutely incorrect".
Mr Huxley was examined regarding the loan between Griffith and Benitch which had a very high interest rate and was taken out in 2013. He was asked why he had not produced a copy of the loan documents about that loan. He replied that he must not have had a copy of it, and if he had ever had a copy he would have provided it to Deloitte in July 2014. (This loan document was later called for and was tendered in re-examination. It is evident also that this loan was paid out in November and was one of the disbursements at settlement of Ms McDonagh's loan to Griffith).
Mr Huxley was then asked about his relationship with Ms McDonagh and it was put to him that he knew since mid-2011 that she had suffered from "some level of mental impairment", a proposition that he denied.
He denied recalling that she "struggled to recall details of events" when he talked to her between mid-2011 and November 2013, or that, "she, when speaking, clearly would get stuck in her thoughts and go blank." It was put to him that Ms McDonagh "regularly had mental blocks" to which he replied: "I don't know how I'd know that, but no" and that he did not know that she had difficulty with memory, organisation, word finding, thinking or thinking speeds.
He explained that his involvement with financial matters and helping first occurred in 2011 when he was asked to help her with problems paying school fees and liaising with solicitors when she was facing bankruptcy and that he helped her with doing a Part 10 Scheme and offered to speak to others to help her. Then, in 2013, he was asked by his wife to help Ms McDonagh in respect of money she wanted to put into a superannuation scheme with her being under the impression that she would be penalised if she did not invest by a certain date. He said that he did not know at that time that she had received money, as it turns out, 90 days before that time, but he knew that she had an amount that she said she needed to get into a superannuation fund.
He denied ever suggesting to her that the money should be put in a superannuation fund or that he is the one who told her the money needed to be invested "urgently". He denied that he is the one who said if she did not put money into a super fund by 13 November 2013 that there would be tax problems.
He was asked questions about her presentation in court, but contrary to the clarity with which propositions were put to him by Mr McNally SC when he examined on this issue, the propositions were put in a way that made it difficult for them to be accepted:
Q. Sir, you saw Ms McDonagh in Court here clearly get upset when she became confused, didn't you?
A. I witnessed someone who was upset. I don't know whether she was confused or not.
Q. She didn't appear confused to you in Court?
A. I'm not qualified to make an observation.
Q. I'm not suggesting you're qualified, sir?
A. I'm not.
Q. Are you saying she did not appear confused to you when she was giving her evidence?
A. I don't know what her mental state was. I don't know. She was clearly upset.
Q. Sir, "confused" is an ordinary English word, we all know what it means. Now, I'm asking you for your impression. Was it your impression that Ms McDonagh was confused at times when she gave her evidence here in Court?
A. She was clearly upset.
Q. You won't accept that she appeared confused at any stage?
A. You've asked me a question and I'm giving my answer. She was clearly upset.
Q. The question is: You will not accept that she appeared confused at times when she gave her evidence. Is that what you're saying?
A. I'm saying she was clearly upset.
Q. That's non‑responsive, sir.
Your Honour, would you direct the witness to answer my question?
WITNESS: No. Your Honour, I'll say no.
HER HONOUR: He said no. [84]
Mr Huxley was next cross-examined about his email of 11 November 2013 set out in par 226 of this judgment and he explained that she was "embarrassed", as he saw it, because she had left things so late, noting specifically that she can "put the brakes on and ask questions". He said that he in no way thought that Rory McDonnell "had to set up the bank account because she did not have capacity to set up her own bank account". His understanding was that Ms McDonagh was working part-time with real estate agents and that she was keen for a superannuation fund to be set up and that she would set up a bank account at the same time with a view to getting the best interest rate on her money.
In short, Mr Huxley denied that he had anything to do with the setting up of the super fund other than referring her to Rory McDonnell to help her get his done. He had never dealt with Mr Trovas, the accountant who set up the fund, and that he understood the CPA regulations required a statement of advice to be given on the establishment of a self-managed super fund but that he does not know what Mr Trovas did in that regard.
He said that he had a belief that between 27 and 29 November 2013 Ms McDonagh attended on her daughter Kate and received independent legal advice consistently with what he recommended her to do - that is, to get legal advice.
Mr Huxley was asked questions about his 13 November 2013 memo in which he "encouraged" Ms McDonagh to ensure that her Self-Managed Super Fund was set up so she could roll the capital into the account by 13 November 2013, and he said that was because of what she had told him about the importance of that date. He said that at that point she had not been to the accountant and she was discussing investing money in a "whole raft of things" and he was reminding her that the important thing was to meet the deadline of 13 August 2013 and to get to the accountant and get the super fund set up and that second, she ought to buy herself a unit of her own, and that no matter what she did with her superannuation, she should hold back an amount to pay a deposit on a property. Mr Huxley emphasised that he had said that from the start because he believed that her income from her super fund could service a loan for a property. [85]
Mr Huxley also pointed out that he had advised her to go to the Real Estate Institute and reactivate her license.
Mr Huxley was concerned about the high rent Ms McDonagh was paying [86] and therefore told her it would be better if she purchased her own property.
He explained that what he said in the 11 November 2013 email about being "confident that Mr McDonnell could get her a deal" meant that if she made an election to buy a unit, Rory McDonnell will get the best low doc loan deal that was available.
He denied that there was any "hiding" of involvement in Griffith and Beechworth on the part of he and Rory McDonnell and denied that in saying in this email:
"Mr McDonnell 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".
that this was a veiled reference to the planned transaction that "took Ms McDonagh's money".
He denied that this memo was "setting up things" so that the money could be directed into Beechworth and/or Griffith and/or to the defendants. He denied that the only reason he was giving her advice was so that he could access her money for Beechworth and Griffith stating:
"She went to an independent accountant who I presumed would put her into the highest bank rate account or whatever that money would have been completely out of my control. I was anxious to send her to someone independent. I didn't want to be involved in the process so no". [87]
Mr Huxley said that by June 2014 Ms McDonagh had been advanced $40,000 including money from himself because at that stage he was concerned that the company had been "hijacked" and he had by that time engaged Kent Attorneys to assist in relation to that and to make complaints to police and ASIC. He also said that by April 2014, he was himself considering requesting the appointment of external administrators.
He said that there was a four-year court case over issues between Vangory Holdings, Vangory Services and Rockliff.
In respect of his June 2014 email set out in par 179 of this judgment he was asked:
Q. What did you do about taking full responsibility? Did you pay her the money?
A. I was paying her monthly and I paid her a total of $44,000 at a point that our investments had been absolutely scotched by the activities of Photios Arcuri. So with limited funds, I kept paying Sharon, because I felt sorry for the position she was in; I took full responsibility for it.
Q. Why didn't you consent to judgment in this case?
A. Oh, that's silly, it's nonsense.
HER HONOUR
Q. Well, Mr Huxley, please answer the question.
A. I was paying interest payments to Ms McDonagh personally. My family was doing that personally. When I became aware of the problem, I delivered her security. Her solicitors took no steps to register those securities. Then I am ambushed. After I have co‑operated in every way with Mr McQuilkin, delivered ‑ everything that he bargained, his client had bargained to receive from me I would deliver, on his undertaking that I was released, and the next day serves an Amended Statement of Claim. So I just saw this was an opportunity for ambulance chasers to have a crack at Dawson and myself. So I personally assisted Sharon as much as I could, to the point that my marriage broke down over this transaction. [88]
He was further examined about the June 2014 letter where the subject of the first mortgage on Beechworth was introduced:
Q. Now we have established that you were actually at the meeting with Rory and Ms McDonagh. So Rory discussed a first mortgage on Beechworth?
A. Sorry, which meeting were you referring to when you said I was at the meeting with Ms McDonagh and Rory?
Q. And Rory, yes?
A. Yes, but which meeting was that?
Q. The meeting where it was discussed about money being put into Beechworth?
A. No, I wasn't.
Q. And "so Rory discussed a first mortgage on Beechworth"; you are repeating there what was said in front of you, weren't you?
A. No. What had the meeting that I understood had been held between Rory and Ms McDonagh because Ms McDonagh referred to it as well; I think there is an email somewhere that refers to it about Rory spoke to me about a lending fund or something. I rang Rory and Rory said to me, "I've spoken to Sharon. She's worried about a budget. Her interest doesn't cover her rent. Her rent is about $3,000 a month", as I recall, and she's earning it was it was 2 or 3 per cent, so the interest she was going to receive on all her money was something less than half her rent and he said, "I've talked to her about short‑term lending". And I said, "Rory, you can't put super funds into that stuff, it's high risk". You know, she understands she has got a bit of risk to get the high interest. Then Sharon rang me, I had a general discussion with her about that and that was the end of that idea
Q. So it was a high risk loan at the time it was being made?
A. Sorry?
Q. It was a high risk loan at the time it was being made?
A. At the time that it was being paid?
Q. "Made"?
A. No. Not at all. He was speaking to her about going into some mortgage fund with short‑term loans. It is a business he does. And I said "no", she spoke to me about it and I said "no". [89]
He was then examined about the extent to which this letter indicated that he had in fact disclosed to Ms McDonagh his connection with Beechworth:
Q. I take you to the next sentence?
A. Hm mm.
Q. "Because Vanessa had a loan interest in the same project"?
A. Yep.
Q. Is that being fully frank and open about your connection with Beechworth?
A. This was well after the transaction. This was me writing to a friend who had been who I had been giving money to during this thing, upset, not blaming me and me taking personal responsibility for it. And the point was that she was aware that Vanessa was aware, because I remember we discussed the name Vangory, which is Vanessa that and Gregory. It wasn't something that was hidden from her, but she was comforted by the fact that Vanessa had her own money in the transaction absolutely.
Q. Two things, sir.
A. Yes.
Q. How was Vangory disclosed in any of the documentation to Ms McDonagh?
A. On the disbursement direction.
Q. On the disbursement direction?
A. That's one that comes to mind immediately, yes.
Q. And she had that, you say. You gave it to her?
A. It was in the folder; it was given to her and she made the disbursements from her bank accounts so, yes, she must have seen it. [90]
Mr Huxley was further examined about the part of the 25 June 2014 letter where he suggested a letter of demand should be sent to Griffith and/or Beechworth in early 2014:
Q. Thank you. Now, you say in the next paragraph?
"I mentioned some time ago that we should send a simple Letter of Demand."
Now when was "some time ago" before June 2014?
A. I think it was the discussion we had ‑ I'm going ‑ I have to guess, but in that March/April period, because the interest had been pre‑paid by Vangory for three months in any event and, although the company was hijacking was not known until the end of January, Ms McDonagh was pre‑paid until December, January, February, so it was at that point that the bank account had been taken away by third parties and the only way that Ms McDonagh was going to get paid ‑ while we attacked and tried to get ASIC and the courts to sort matters out ‑ was for my family to pay Ms McDonagh. So it was about March or April.
Q. "So we should send" ‑ continuing: "So we should send a simple legal Demand" ‑ with a capital "D" ‑ "to the borrower". Seriously, you thought that that would, in some way, get Ms McDonagh's money for her?
A. It would put her in a position that she made a formal claim, formal demand on the company, because we were going through the same process. My own family was going through the same process at that time. I was speaking to Deloittes at that time. And, in fact, she subsequently didn't put in a Proof of Debt in time, so I wish I'd been more forceful with that demand
Q. And then: "Borrowers" ‑ with a "capital B" ‑ "always have capacity to refinance"?
A. Yes.
Q. So you knew that Griffith or Beechworth, or both, had some capacity to refinance at this stage, did you?
A. I knew in March and April, because Ms McDonagh told me ‑ and I saw a Letter of Authority that Ms McDonagh executed ‑ that Rory McDonnell, in concert with Ms McDonagh, was talking to a company called "Fundco" on the Gold Coast and of that Fundco were going to advance money to Ms McDonagh against the title deeds that she was holding and it was in that March, April, possibly‑even‑May period.
Q. You say that Ms McDonagh was holding the title deeds as at 19 June 2014, did you?
A. At that stage I believed she was.
Q. She wasn't, was she, sir?
A. Well, no, I found out that she wasn't, but at that stage I believed she was. [91]
There was questioning on whether the assertion that Ms McDonagh held "first mortgage security" was truthfully made or not:
Q. She didn't hold any first mortgage security on anything, did she?
A. She'd been given first mortgage security on everything. It had failed to be registered, and I go on to say, "I presume Rory holds the documents and the deeds" because I asked Sharon at one stage could we meet up and I would go through it; she mentioned to me she had given it to, I don't recall, I presumed her daughter or Rory.
Q. That's not true, is it, sir?
A. Well, it is true because when I became aware that Mr McQuilkin didn't have the documents, I went and collected them from everybody. [92]
Mr Huxley denied that he introduced Rory McDonnell as a financial advisor but said he "didn't recall his exact words", although "they may have been the words he used". He knew that Mr McDonnell had a Bachelor of Agricultural Science and he understood that Rory McDonnell did not hold an Australian Financial Services licence.
Mr Huxley asserted that he had no part in advising Ms McDonagh to lend money to Griffith or Beechworth and, as stated in his affidavit, Rory McDonnell rang him on 27 November to say that Ms McDonagh had agreed to lend money to Beechworth secured over Griffith:
A. I'm sorry. When Rory rang me, he set out the basis of a transaction he'd discussed with Sharon other than her participating in a mortgage scheme with him. I took notes, and as is my practice, I dictated a memo to Adam Huxley almost straight away and I believe I would truly believe that I sent a copy of that to Rory at the same time. [93]
He rejected the proposition that there was a "scheme" being implemented to obtain Ms McDonagh's money and that Rory's role was to act as the independent financial advisor and that Mr Spencer's role was to act as wealthy guarantor. It was put to him that the three of them had "discussed in detail each of the roles that they would play". He rejected that completely.
In terms of the assertion in Rory McDonnell's email that Peter Mitchell will need to change the directorship from him to Mr Spencer, Mr Huxley said that he believed Mr Spencer may have contacted Mr Mitchell:
A. Mr Spencer was a shareholder, he was the founding director and founding shareholder and had appointed Rory as his alternate for a short period. Mitchell had apparently failed to replace him. McDonnell must have done a search at that point and seen that and asked Mitchell to correct it. Spencer would have given him the instruction. I don't believe I gave the instruction to Mitchell. [94]
Mr Huxley was taken through the checklist document which he agreed he prepared which included an instruction that the borrower should pay $3,000 to Ms McDonagh and $15,000 to her superannuation fund. I interpolate here that the inference seemed to be, that the fact that the interest in advance was deducted from the settlement sum suggested some kind of inability to pay the money from another place. I would not draw any such inference.
Mr Huxley did not dispute that the brochures regarding the projects may well have been the "promotional material" referred to in the checklist documents provided, and his recollection is that he obtained that material from Mr Spencer to give to Ms McDonagh.
It was put to him [95] that that material was put into the binder as part of the plan to encourage Ms McDonagh into the transactions, to which Mr Huxley replied that he understood that she had already decided to proceed when she asked for that material.
It was put to him that Beechworth and Griffith were "incapable of making payments from the beginning". He rejected that proposition.
It was asserted that the amount of $154,000 to Vangory Holdings meant that there would be a benefit accruing to him but he rejected that, and rejected an assertion that "his family" would benefit from that. It was also put to him that Rory McDonnell's true role was as "introducer" and as such he would be entitled to a brokerage fee and so it was a "pretend role", to pretend to be the financial advisor to Ms McDonagh. That assertion too was rejected.
It was suggested that although the directors of Vangory Holdings and Vangory Services at the relevant time were Vanessa Huxley and Mr Dawson, those directors acted at his direction. This too was rejected.
I interpolate here that any suggestion that those companies were a puppet for Mr Huxley is not a proposition that should have been put to Mr Huxley given that no such allegation had been pleaded.
Mr Huxley explained why a caveat was lodged in respect of Beechworth by Vangory Holdings in May 2014 as follows:
A. Yes, Vangory Holdings put a caveat over the entire Beechworth estate at the time that it was discussing with Deloittes blocking any dealings on all titles because I became aware that a fraudulent statutory declaration had been filed with the Land Titles Office in both New South Wales and Victoria by two parties who I've known previously to have replacement title deeds issued.
So I took advice, put a caveat over everything in New South Wales. I contacted Mr Greg Bartier, the senior legal officer, Land Titles Office in relation to the Griffith titles, and he then alerted me to the fact that a fraudulent statutory declaration had been filed seeking the issue of replacement title deeds. As to why it's 10 October 2013 sir, I can't answer you. [96]
In terms of his involvement around 28, 29 or 30 of November 2013 speaking to Mr Dib or Adam, Mr Huxley said that he did not speak to Mr Dib at all and "at best had one conversation with Adam, a brief one after I sent the detailed memorandum".
Questions were asked about the caveat prepared for lodgement over Beechworth and much was made of an assertion that Adam and Gus Dib "denied" creating the document in their Defence.
This is not in fact an accurate reflection of the Defences which simply put in issue by denying the rolled up allegation that the caveat was created by Adam or Gus Dib and that folders of documents were presented by them to the plaintiffs. In respect of Gus Dib, the plaintiffs have not shown that he created it Adam may have created it, and it certainly appears he attached a "draft" caveat to his email of 11:16am on 28 November 2013 by Adam to Greg Huxley. The email and attachment is not in evidence so it is unclear precisely how the "draft" appeared at the time. The final version of the caveat has additional handwriting on it, (apparently belonging to Ms McDonagh).
Mr Huxley was asked whether he "really believed" as at 19 June 2014 that Ms McDonagh had a first mortgage security over the Griffith properties and he responded that he did believe that. He rejected the proposition that just because the Office of State Revenue had filed a caveat, that this meant that Ms McDonagh "did not have any security" over those properties.
In respect of Beechworth it was put by Mr Goodridge that Beechworth was "not even the registered proprietor or the mortgagee of the land in Victoria", to which Mr Huxley responded that he believed that that title was available, and that he had been provided with a schedule of titles that were available by Mr Spencer, and was informed that the title deeds were held and that is what he in fact delivered to Rory McDonnell.
It was again put to him that Griffith and Beechworth were insolvent in November 2013 and he again rejected that proposition.
In respect of Beechworth, it was argued that because the mortgage interest formerly held by Beechworth had been discharged on 12 November 2013 and the property sold to BLE Properties with a mortgage to Fundco, Beechworth had no interest in the property and so no caveatable interest and nothing over which security could be given.
Second, it was argued that the Deed of Loan to Vangory Holdings on 10 October 2013 was an "egregious transaction" although why it is described as egregious is not adequately explained. Complaint was made that the loan was registered on the PPSR in January 2014 and so although unsecured in November 2013, ended up prevailing over Ms McDonagh's interests.
It was submitted in relation to Mr Spencer that the breach of guarantee was made out by virtue of the application of r 14.26 UCPR and that this meant all allegations against Mr Spencer had been admitted, including an admission that his Statement of Financial Position was false and misleading.
I interpolate here that the claim for breach of guarantee was in effect withdrawn by the concession made by Mr Goodridge on 20 June 2018 that the plaintiffs could not pursue any claim for breach of guarantee against Mr Spencer because they did not have leave under the Bankruptcy Act to pursue such a claim. [100] I also interpolate that the effect of r 14.26 UCPR, which is simply a rule dealing with traversal in pleadings, in no way removes from the plaintiffs the responsibility to prove allegations they make in their pleadings to the requisite standard, by evidence led or tendered in the proceedings, in respect of the unconscionable conduct and other conduct alleged on the part of Mr Spencer and indeed, any of the defendants.
The plaintiffs submit, based, it seems, upon the subsequent bankrupting of Mr Spencer in April 2015, that the Court should infer that as at November 2013, he was in a financial position that does not reflect the matters set out in his Statement of Assets and Liabilities. That is not an inference I am prepared to draw.
The plaintiffs also submit that because the conditions precedent to the loans were not satisfied by Beechworth and Griffith, this too somehow provides a basis for liability or a finding of unconscionability on the part of all the defendants. I hasten to add that despite the repeated mention of conduct by Beechworth and Griffith as problematic, obviously Beechworth and Griffith are not parties to the proceedings. Equally obviously, a breach of contract case against Beechworth and Griffith would have substantial merit however that is not the case brought in these proceedings.
The plaintiffs then make the bald assertion that whoever drafted the loan and related documents for Beechworth is the "mind behind the fraud" and that Vangory Holdings and Vangory Services were "part of" the scheme and had a role, although their role is not specified with any clarity at any point in the submissions.
In respect of Griffith, it was submitted that the plaintiffs did not receive a registered charge over all the proposed lots in the estate. It is asserted, (incorrectly) that because there was a caveat held by the Commissioner for State Revenue regarding unpaid stamp duty, this would have prevented registration of McDonagh Management's mortgage on mortgage. However, the simple fact that there is a caveat of that nature does not mean that the dealing in question could not have been registered. The fact is, however, that it was not registered.
Voluble submissions were made in relation to the loan from Griffith to Benitch, describing it as "audacious", presumably because of the interest rate, and querying why it did not turn up in the Administrators' S439A Report in August 2014. I interpolate here to observe that it is obvious that the loan was paid out before, or in preparation for, the McDonagh Management loan to be able to take that security. There is nothing surprising about that, given that the Benitch loan was at a high rate of interest and it makes commercial sense for Griffith to pay out that loan.
The submissions in respect of purported insolvency of Beechworth and Griffith work backwards from the s439A reports prepared by Deloitte in July 2014. As previously stated, this is a problematic approach, as the reports deal only with interests claimed, not interests proven, and deal with the position eight months after the plaintiffs' transactions and make no conclusions at all about when and in relation to what transactions or events there was any insolvent trading by either company.
It is asserted that the persons involved in the unconscionability regarding the Griffith loans include the person who drafted the documents, Vangory services, Vangory Holdings, Mr Spencer, Rory McDonnell and Greg Huxley.
It is asserted that the 29 November 2013 email of Rory McDonnell comprises contemporaneous evidence that he, Greg Huxley and Mr Spencer all knew that Ms McDonagh did not understand the transactions, that each of them knew that the security being offered was an issue and that Mr Spencer was not the current director of Beechworth, all of which means that the email comprises evidence that they all knew she was being misled, that they planned to continue to mislead her and that they were all "role-playing".
Broad assertions that both Beechworth and Griffith as companies engaged in fraud and unconscionable conduct are also made, but given that Beechworth and Griffith are not parties to the proceedings these submissions are misplaced. In the written submissions there is mention of ss 181(1)(a) and (b) and 182(1)(a) of the Corporations Act and s 22 (1) of the Australian Consumer Law, causes of actions that are not pleaded and which cannot be pleaded by virtue of mentioning them in written submissions after the evidence is closed, and so they will be put to one side.
Turning to the individual liability of parties, it was asserted that the effect of Mr Huxley's position and evidence regarding him was that he was a person who had a mortgage over his home in relation to money provided by Gus Dib, that he was a trustee for trusts for the benefit of his family held by Vangory Holdings and Vangory Services, that he was deliberately evasive regarding that position and evasive generally, that he was close enough in his relationship with the trustees in Vangory Holdings and Vangory Services to tell them what to do and that he persuaded Ms McDonagh to make the loans.
It was further asserted that the evidence established ownership of 95% of Beechworth and Griffith was "held by his family" and that he was the initiator and central organiser of the impugned transactions. It was submitted that because he prepared the checklist for settlement, that meant he was the initiator and central organiser. His email of June 2014 was trying to mislead Ms McDonagh from concluding that he had that role. The Court should reject all of his evidence unless it is supported by other evidence.
In respect of Gus Dib and Adam, it was submitted that they aided and abetted the Beechworth transaction because they represented that security was available over certain land in Victoria when it was not. They aided and abetted Greg Huxley, Mr Spencer and Rory McDonnell, although precisely how is not specified, other than reference to the preparation of the documents in respect of Griffith and the single draft caveat in respect of Beechworth.
It is asserted that they drew unconscionable and misleading transactional documents. Much was made regarding an assertion that they both denied in their Defences creating Beechworth documents including the Caveat, and that this was somehow reflected a guilty mind and was in effect perjury given the Defences were verified. It was further asserted that the Court should infer that they did prepare the loan documents and other material for the Beechworth loan and that such documents should be considered to be "missing communications", deliberately not disclosed by Gus Dib and Adam. I interpolate here that the pleading in pars 26 and 27 of the Further Amended Statement of Claim created the problem by pleading a "rolled up" series of facts the denial of which was unsurprising.
There were further allegations regarding the Legal Profession Uniform Law (NSW) and asserted breaches in respect of it because of the inadequacy of instructions and potential conflict of interests in preparing the documents, given that they were instructed by Greg Huxley who was not a director of Beechworth or Griffith. (Again, matters not pleaded and/or irrelevant).
It was submitted that Adam must have been somebody who had intricate knowledge of the transactions and plans to dupe Ms McDonagh because there was a change in the transactional documents between the email of Greg Huxley of 27 November and the documents sent by him on 28 November, and the Court should conclude that he was a "guiding mind" and "one of the ultimate decision makers".
It was asserted that in his evidence, Greg Huxley shifted blame to Adam regarding what Mr Goodridge termed the "misleading caveat" regarding Beechworth.
It was submitted that because Adam and Gus Dib did not give evidence, the Court should draw certain negative inferences regarding their motivation and nefarious intent in creating documents that would provide a false sense of comfort to Ms McDonagh and that they therefore aided and abetted the unconscionability of others.
In support of these submissions it was suggested that Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 should be utilised to draw certain inferences regarding the missing documents, and that the Court should draw an inference that communications and loan documents not produced in respect of Beechworth were deliberately not produced because they would not have advanced the case made by the Dib parties.
Given that affidavits were prepared by Gus Dib and Adam, the fact that they were not called meant that they were "not prepared to subject themselves to cross examination" or alternatively, that they "could not give any evidence to advance the defence case against them." I interpolate here to observe that neither of these inferences have a basis in Jones v Dunkel and are not inferences I propose to draw.
The same submission was made regarding the Dawson parties, and that the absence of financial records produced and tendered by Benitch meant that the Court should conclude that the loan to Benitch was not legitimate. Again this is not an inference available to draw and appears again to be based on a mistaken understanding of the law in relation to onus of proof and the drawing of inferences.
In respect of Vangory Holdings and Vangory Services, it is asserted again, somewhat volubly, that they "took benefits for the Huxley family". It was said that those companies were "central parties to creating the illusion of security" and "falsely uttered" in respect of the previous loan said to have been advanced. Complaint is made that there was "no evidence of the bona fides of that loan" and that those companies took an unregistered security position over both Griffith and Beechworth, and that the Court should infer that Greg Huxley, (who was not a director, nor was there any pleading that he was a shadow or puppet director), and the directors, Mr Dawson and Vanessa Huxley, knew that these were "false utterances" and also knew that McDonagh Management's ranking in terms of other claims, was worthless. I note that these submissions are baseless hindsight complaints and are inconsistent with the plaintiffs' own pleading that the loan was in fact made by Vangory Services (see par 56 of the Further Amended Statement of Claim).
In respect of the Dawson parties, it was submitted that because of the simple fact that there was a repayment to Benitch mentioned in correspondence between Rory McDonnell, Mr Huxley and Mr Spencer in November 2013, the Court should infer that Mr Dawson knew that the transaction was an unconscionable one. The plaintiffs queried whether there was any entitlement to repayment of the sum to Benitch, implying that the loan document was not legitimate, although citing no evidence in support of that serious assertion. That assertion is also contrary to the pleading in par 60 of the Further Amended Statement of Claim, and perhaps more fundamentally, flies in the face of the subsequent oral concession made by Mr Goodridge that he: "cannot find any evidence of them being direct principals in their own right". [101]
It was submitted that somehow Benitch had an evidentiary obligation to produce other documents such as bank records to prove that the loan was legitimate and absent that material, the Court should assume that Dawson and Benitch were part of aiding and abetting and were knowingly involved in the unconscionable transaction. For reasons I will come to, if not already obvious, I will not be drawing any such inference. There is also no pleading that would allow me to base accessorial liability on knowledge of particular elements of a principal's conduct.
The bases for the submissions against the Dawson Parties become more desperate, ultimately summarised in the plaintiffs' written submissions to be that Mr Dawson was a long-time friend of Greg Huxley, a director of Vangory Holdings and Vangory Services, that he received a "significant payment" from the McDonagh superannuation fund and that it was "unexplained" why Mr Dawson did not give evidence and that Jones v Dunkel meant that the Court should assume Mr Dawson's failure to give evidence is a "sufficient bases for drawing any and all inferences in favour of the plaintiff". I note that these arguments simply have to be stated to see how meritless they are.
The plaintiffs' reply submissions were basically a repetition of the primary submissions, other than asserting that Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [123] - [124] per McHugh J provides authority for the submission that a solicitor can engage in misleading and deceptive conduct without intention, and that conduct for which a solicitor will be liable can include misrepresentation to other parties, even where there was not a mental element but where the conduct "conveyed or communicated a message or information which, objectively considered, had the tendency to mislead". It was argued that the documents prepared by Adam and Gus Dib fell into this category.
Similar to the submissions made by Mr McNally on behalf of the Dawson parties, the nature of the inferences the plaintiffs ask the Court to draw are inappropriate and not available. Even if all the inferences sought were drawn, the cases are not made out.
The counts based on misrepresentation and negligent misstatement are without merit because Gus Dib and Adam did not make a single representation or statement to the plaintiffs.
The elements for a claim in negligent misstatement have not been adequately pleaded and are not supported by evidence.
The accessorial liability asserted is inadequately pleaded. The details of the contraventions of Griffith and/or Beechworth and/or others in which Adam and Gus Dib were said to be knowingly concerned or to have aided or abetted or procured, has not been anywhere articulated. There is no evidence that either of them had any knowledge of any such contravention.
The evidence tendered does not support a finding of special disadvantage. There is no evidence that the transactions were improvident at the time they were entered into, as opposed to in hindsight. There is no evidence of a predatory state of mind on the part of Adam and/or Gus Dib. There is no evidence that either transaction provided any advantage to Adam or Gus Dib, nor is there a pleading as to what that asserted advantage would be.
All of the causes of action levelled against Adam and Gus Dib should fail.
The dishonest conduct allegation, apparently based on s 1041G of the Corporations Act is only relevant if the person in question was carrying on a financial services "business". There are no facts or circumstances alleged that indicate Mr Huxley was carrying on such a business.
The claim for exemplary damages also is not properly pleaded and so must fail as must the unconscionable conduct claim because neither identify the impugned conduct with any degree of specificity beyond stating that it is "for reasons of the facts and circumstances set out above" and then references pars 1 to 69 of the Further Amended Statement of Claim.
Nor is there any attempt to particularise the specific requirements of the statutory prohibition against unconscionable conduct, such as whether the conduct was "in trade or commerce", whether the conduct was "in relation to financial services" or whether it was "conduct in connection with the supply or possible supply of financial services". These matters must be pleaded.
The count based on s 1041H of the Corporations Act fails to plead or particularise the state of mind required by subs (1)(c) of that provision. There needs to be a pleading as to whether and when the person made the statement or disseminated the information, that the person either does not care whether it is false, or knows, or ought reasonably have known that it was false in a material particular, or that it is materially misleading, but none of those necessary elements have been pleaded in the Further Amended Statement of Claim.
The pleading of damage asserted to have occurred to the plaintiffs because of conduct of the defendants that was in contravention of ss 911A, 777C, 1324, 1041E, 1041F, 1041G and/or 1041H against the Vangory Companies is also problematic because there are no particulars anywhere in the Further Amended Statement of Claim as to how the Vangory companies were "a person" involved in the asserted contraventions, and so the basis upon which those companies are liable under s 1041I cannot be discerned.
The aid and abet, counsel or procure contraventions assertions must fail because of the problems with the pleadings already identified, with the difficulty accentuated by the fact that the subject of the allegation is simply the asserted contravention(s) of the Corporations Act, but the contravention(s) asserted is/are not particularised, nor is a relationship between each defendant and that contravention.
The negligent misstatement allegation is asserted in par 96 of the Further Amended Statement of Claim to be on the basis that Greg Huxley made misrepresentations to the plaintiffs without having a reasonable ground for making those representations and the "particulars" are stated as a series of propositions, but nowhere in the pleading is the existence of the necessary duty of care pleaded or particularised, nor is the basis upon which that duty, if one existed, was breached on or before 29 November 2013.
In respect of the allegation under s 1041H of the Corporations Act, the conduct alleged to contravene it is not pleaded or specified and the general reference to the "facts and circumstances particularised in pars 1 to 69 of the Further Amended Statement of Claim" is not sufficient.
Greg Huxley had no particular role in the setting up of the McDonagh Management superannuation fund other than connecting her to Rory McDonnell and then being kept generally informed about its progress. He acted as her friend and messenger assisting her in understanding the loan transactions. Significantly, Rory McDonnell assisted her with the loans transactions, and she and McDonagh Management received a return on their investments which only collapsed due to the intervening actions of third parties.
The evidence does not support findings of any fraudulent or dishonest state of mind or scheme by Greg Huxley or the Vangory companies. There is no evidence of representations that were misleading or deceptive or intended to mislead or deceive.
There is no evidence that there was any financial benefit to Greg Huxley or the Vangory companies; just a series of unproven assumptions. There is no pleading in the Further Amended Statement of Claim which identified a particular advantage or benefit to Greg Huxley.
The test for establishing unconscionable conduct has not been met based on what the full bench of the High Court explained in Kakavas by reference to each of Mason J and Dean J's judgments in Amadio [103] that:
"[118] Essential to the principle stated by both Mason J and Deane J in Amadio is that there should be an unconscientious taking advantage by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests. It may well be that an unconscientious taking of advantage will not always be manifest in a demonstrated inequality of bargaining power or in a demonstrated inadequacy in the consideration moving from the stronger party to the weaker; but the abiding rationale of the principle is to ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the impugned transaction."
The special disability must be sufficiently known or evident to the party against whom relief is claimed on the grounds of unconscionability. [104]
It is not sufficient for the plaintiffs to seek to invoke the principle against unconscionable conduct merely to allege that they suffered from some form of "mental disorder" at the time of entry into the transactions complained of. There must be nexus between the illness and the plaintiff's ability to protect their own interests: Brereton J in Tillett v Varnell Holdings Pty Ltd & Ors [2009] NSWSC 1040 at [54].
There was no separate evidence of financial illiteracy or inability to decide best interests beyond Ms McDonagh's own self reporting and self-diagnosis. There is no evidence that her alleged mental disorder related to or had any bearing on the impugned transactions. The evidence shows that she appreciated the nature and effect of the transactions into which she was entering.
The highest the medical records regarding special disadvantage rose was that Ms McDonagh had anxiety with occasional symptoms affecting her memory and her memory was up-and-down but her mental skills, other than memory, were reported as "sound", "average", "high" or even "very superior". She was also described as "hypervigilant". These descriptions are not consistent with a person suffering special disadvantage affecting their ability to decide their best interests. The medical records suggest that to the extent Ms McDonagh may have displayed symptoms noticeable to others, they were occasional, transient and apparently improving over time. Mr Huxley's evidence was clear that he was unaware that she suffered from disabilities of the kind she alleges.
It was emphasised that parts of Ms McDonagh's affidavit indicated an understanding of the nature and practical effect of the loans that she entered into. [105] That is consistent with her deciding "something was wrong" [106] because none of the investment returns had been provided to her as promised, although that statement was untrue because she did in fact receive a substantial sum of money between November 2013 and June 2014.
The fact that the affidavit took nine to ten conferences over nine to ten days to complete does not detract from the fact that it appears from that affidavit material that Ms McDonagh understood the transactions at the time. It was also submitted that it was telling that the solicitors formed the view that she was able to consider advice and give instructions to settle a personal injury claim, and there was no tutor appointed in those proceedings and so she did not present to her very experienced lawyers as a person under legal incapacity. This tells against any submission that Greg Huxley should have been able to conclude that she was under some kind of special disadvantage at the time of the transactions.
Greg Huxley was not a director of the Vangory companies at the time of the transactions and he was not cross-examined about any basis upon which Mr Dawson or Vanessa Huxley could have been aware or were aware that Ms McDonagh suffered any special disadvantage. There is no knowledge of any special disadvantage that could be levelled at the Vangory companies.
In terms of the unconscionability allegations, consistently with s 140(2) of the Evidence Act 1995 (NSW), the Court should not lightly make a finding on the balance of probabilities that a party in civil litigation has been guilty of such conduct: Neat Holdings Pty v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66 at p 450 per Mason CJ, Brennan, Deane, and Gordon JJ; Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34. The plaintiffs' evidence does not support such findings.
The unconscionable conduct under the general law is a freestanding claim. Equity's jurisdiction to provide relief on the grounds of unconscionable conduct or dealing is limited to the setting aside of the impugned transaction, refusal of its specific performance or Lord Cairns Act damages as an alternative to that relief. There is no freestanding claim to damages as there is under statutory enactments. Since Greg Huxley and the Vangory Companies were not parties to any of the transactions sought to be impugned, the relief available in Equity, including Lord Cairns Act damages, is not available against them.
The allegations of unconscionable conduct "in trade or commerce" all fail because they are premised on the defendants having engaged in conduct that was "in trade or commerce", but it has not been pleaded as to how the conduct amounts to "conduct in trade or commerce". The facts suggest that Greg Huxley's conduct was consistent with a friend, holding the hand of a friend having refused to himself invest or look after her money for her, encouraging her to "put the brakes on and ask questions" and seek independent legal advice and facilitating and assisting her by referring her to someone to assist her with the unfamiliar exercise of registering the Self-Managed Superannuation Fund and investing her money.
In respect of the allegations that require "financial services" or "goods or services" to be "supplied" or "possibly supplied" within the meanings of ss 12CA and 12CB of the ASIC Act and s 21 of the Australian Consumer Law, (erroneously referred to as s 21 of the Competition and Consumer Act 2010 (Cth), in the Further Amended Statement of Claim), there has been no pleading as to what those "services" or "goods or services" were, and thus those allegations must fail.
The misleading or deceptive conduct allegations must fail due to inadequate pleading addressing the elements of ss 1041H, 1041E and 1041F of the Corporations Act.
The deceit and dishonesty pleadings must fail due to the inadequate pleading. Also there has been a failure to demonstrate on the evidence to a reasonably satisfactory level, first, proof of knowledge of or intention to conceal or defraud the nature of the investments in the Griffith and Beechworth projects in circumstances where Greg Huxley cautioned the plaintiff to seek independent legal advice and acted merely as a conduit between her and Rory McDonnell, and second, the alleged insolvency of Beechworth and Griffith at the time Ms McDonagh executed the loan documents.
In summary, these claims hinge on a wide range of inferences, none of which are available on the facts which have been admitted or proved.
The negligent misstatement claim has not been made out on the facts and in any event was not properly pleaded because the relevant duty of care that allegedly arose as a result of the relationship between the plaintiffs and Greg Huxley and the Vangory companies was not pleaded or particularised.
The accessorial liability claims fail because for liability to be established, it must be established on the evidence that first, the principal contravention was committed, second, that the defendants knew the essential circumstances establishing that principal contravention and third, that the defendants intentionally assisted or encouraged the primary contravener to commit that contravention. Fatal to this allegation is the fact that such primary liability has not been properly particularised or identified to enable inferences to be drawn that Greg Huxley or the Vangory companies aided and abetted, counselled or procured the contravention by Mr Spencer and Rory McDonnell of breaches of the Corporations Act or the Australian Consumer Law.
In the absence of impugned conduct which has been clearly pleaded and proved, no evidence has been adduced demonstrating the defendants' knowledge of those contraventions. Particularly fatal is the absence of evidence of the defendants' knowledge of one, Mr Spencer's solvency, two, the plaintiffs asserted special disadvantage and three, the alleged falsities in Rory McDonnell's representations.
In terms of any suggestion of inducement, there is no evidence at all that Mr Huxley or the Vangory companies induced Rory McDonnell or anyone else to contravene the Corporations Act or the Australian Consumer Law.
There is no evidence of Mr Huxley or the Vangory companies being knowingly concerned in the contravention(s). This requires knowledge of the essential matters which make up the contravention(s) and in the case of liability for misleading and deceptive conduct, this requires that that person must know that the relevant conduct had occurred and at least, the facts that make up the conduct that is misleading or likely to mislead or deceive. The plaintiffs have not demonstrated that the defendants were knowingly concerned in the contravention(s) because there has been a failure to plead with sufficient specificity or to prove to a reasonably satisfactory standard that the defendants had knowledge of Ms McDonagh's alleged disadvantage and the representations made by Rory McDonnell.
There was never any particularisation of what "financial services" as defined in s 766A of the Corporations Act had been provided to the plaintiffs by the defendants. All the evidence demonstrates is that Greg Huxley assisted Ms McDonagh to complete a complicated financial transaction by connecting her with Rory McDonnell and clarifying communications between them. There was nothing in the evidence that suggested he was dealing with a "financial product". He did not provide advice to Ms McDonagh on the nature of her investments and instead urged her to seek independent advice. If there was any advice or dealing with a "financial product", it was by Rory McDonnell. Accordingly, the plaintiffs' case with respect to breaches of the "financial services" provisions of the Corporations Act should all fail.
The twenty-second count entitled "admission and guarantee" is difficult to understand. It appears the subject of that count is Greg Huxley's email dated 19 June 2014 which was doing nothing more than expressing remorse for Ms McDonagh's plight. First, the basis upon which it is said it was intended to deceive and mislead the plaintiffs has never been pleaded and the fraudulent intention ascribed to it remains unclear and not made out on the evidence. Second, there is no clarity as to what steps in the way of legal redress the plaintiffs could have had but for the email and third, there is no pleading or evidence as to how that email caused damage. Instead it appears that email was actually used to instruct solicitors to pursue claims on the plaintiffs' behalf.
In terms of causation, the plaintiffs need to establish that the financial investments were not viable or not adequately secured at the time they were entered into on 29 November 2013. The plaintiffs' case in essence seems to be that first, some or all of the defendants engaged in unconscionable conduct, second, that that conduct caused the plaintiffs to make the financial investments and third, that those financial investments turned out to be worthless.
The cause of loss is said to be the failure to properly secure the loans by perfected securities over assets owned by Beechworth and Griffith, but these claims should be rejected for three key reasons. First, it overlooks the plaintiffs' solicitors' own culpability for failing to take those steps to perfect the plaintiffs' security despite being provided with the relevant documents to do so, second, the argument as to non-viability of the investments at the time rests solely on the alleged insolvency of the relevant companies as at 29 November 2013 which has not been made good, and third, the plaintiffs received interest payments under the loan terms until the companies passed into voluntary administration.
There are problems with the relief claimed which was said to be based on the loss valued as the "loss of the bargain" in investing in the Beechworth and Griffith projects. This is not correct. Claims for damages for unconscionable conduct both under general law and statute for misleading and deceptive conduct, are not claims where damages are normally assessed as the loss of the bargain. Such claims can be made in contract, but that is not the case put here. Rather the damages need to be calculated on the basis of tort, that is to put the plaintiff in the position she would have been in but for the breach. It follows that the plaintiffs are not entitled to claim interest at the rates expected to be received under the loan agreements, only to interest under the UCPR.
I conclude that Greg Huxley introduced Ms McDonagh to Rory McDonnell as "the financial adviser that I was telling you about", but that he made no particular representation about Mr McDonnell's competence or independence. I accept that Greg Huxley told Ms McDonagh "we've got our own money" tied up in Griffith and Beechworth, and that was true.
There were a number of meetings between Ms McDonagh and Rory McDonnell at which Greg Huxley was not present. He was present at one meeting which comprised, I accept, of him delivering various certificates of title he understood were required for registration of securities and the proposed settlement in relation to Beechworth and Griffith.
I accept that the investments in Beechworth and Griffith were explained to Ms McDonagh by Rory McDonnell and that based on the contents of pars 55 to 58 of her affidavit, she understood the nature of the mortgage transactions and that she could expect to receive monthly interest payments of $6,000 from the loans together.
On 28 November 2013, Adam sent an email to Greg Huxley in response to a request made by Greg Huxley by email the day before, annexing the documents set out in par 163 of this judgment.
Those documents did not include the statement of financial circumstances of Mr Spencer or any documents regarding the Beechworth loan.
The documents were sent in draft form.
There is no evidence that Adam or Gus Dib prepared any document in relation to the loan by Ms McDonagh to Beechworth, other than the evidence that a draft caveat was sent by Adam by email to Greg Huxley later on the morning of 28 November 2013.
There is no evidence as to what was typed or written on the draft caveat at the time it was forwarded by Adam to Greg Huxley. The only version of the caveat in evidence is the completed version, which includes Ms McDonagh's handwriting.
Either on 28 or 29 November 2013, Ms McDonagh signed various documents involving a loan by McDonagh Management to Griffith and a loan by herself to Beechworth.
By the time she prepared and executed her affidavit in June 2016, Ms McDonagh had no recollection of what documents she saw or signed to facilitate the loan agreements. There is no evidence that she read any of the documents. She said that she had no recollection of reading the documents and her account that she recalled being told words to the effect of "sign here" over and over by Rory McDonnell, suggests that she did not read the documents before she signed them.
I can make no conclusion therefore as to what documents Ms McDonagh saw other than ones that bear her signature, and no conclusion as to which of the documents, if any, or what parts of them she relied upon in being satisfied that she should enter into the loans.
Early on the morning of 29 November 2013, Rory McDonnell sent an email to Greg Huxley raising issues with the security and suggesting that arrangements would have to be made to effect interest payments going forward. I do not interpret that email as evidence that Rory McDonnell or Greg Huxley or anyone else knew or suspected that Ms McDonagh did not understand the transactions.
On 29 November 2013 sums were conveyed from bank accounts of Ms McDonough and McDonagh Management reflecting the advances of $200,000 and $400,000 made.
The security documents with respect to the transactions were not registered.
Ms McDonagh was paid three months interest in advance on 30 November 2013, and other payments were made to her, or on her behalf, in the following months as set out in pars [124] - [125] of this judgment, totalling $33,592. I find that Ms McDonagh had forgotten about these payments.
The principal sums advanced by McDonagh Management and Ms McDonagh have not been repaid, despite requests for the agreements to be honoured, made in writing by Firths, on 22 August 2014.
There was no communication orally or in writing between Ms McDonagh or McDonagh Management and Adam and/or Gus Dib.
There is no evidence that Gus Dib took any steps in relation to the transactions, or that he ever met Ms McDonagh or had any knowledge about any special disadvantage that she asserted or that she suffered.
There is no evidence that Adam ever met Ms McDonagh or had any knowledge about any special disadvantage that she asserted or that she suffered.
There is no evidence that Mr Dawson ever met Ms McDonagh or had any knowledge about any special disadvantage that she asserted or that she suffered.
Ms McDonagh acknowledged that she had never met Mr Spencer. There is no evidence that he had any knowledge about any special disadvantage she asserted or that she suffered.
Adam and/or Gus Dib were not informed by the plaintiffs, the borrowers, or anyone else, that the transactions settled or had proceeded to completion. They were not given copies of any of the loan documents in completed form with respect to either transaction.
Neither Adam nor Gus Dib were advised of the date the transactions were settled and were not asked to attend settlement and did not attend any settlement.
Neither Adam nor Gus Dib were paid any part of the loans advanced by the plaintiffs, and were not advised by any person that the plaintiffs were not represented by a lawyer or that the plaintiffs had not received legal advice about the transactions.
There is no suggestion that there was a request made by any person to Adam or Gus Dib at any time before July 2014 to release any certificates of title they held with respect to these transactions.
I do not accept that Ms McDonagh thought that Dib Lawyers were her lawyers. She had no contact with any person from Dib Lawyers, she had no correspondence sent to her by Dib Lawyers, she had no conversation herself with anyone at Dib Lawyers, she was never sent a bill or retainer letter by Dib Lawyers and, most significantly, she did not complain to Dib Lawyers when the transactions did not result in the payments she said that she expected to receive. I consider her assertions that she thought Dib Lawyers were her lawyers for the transactions to be a reconstruction after the event.
I do not accept that Ms McDonagh was unable to understand the basic nature of the transactions in which she engaged in November 2013. She was, in my view, able to understand that she was investing her money in companies for a time where she would be expecting to receive mortgage payments of a total of $6,000 per month and she wanted those repayments to assist in financing her life expenses.
I accept Mr Huxley's evidence regarding her thanking him for helping her arrange the facilities that provided her with the payments of interest in advance and I accept that she told him at Hamilton Island in early 2014 that she was grateful for the referral to Mr McDonnell because it had assisted in financing her holiday to Hamilton Island with her daughter.
I accept that in about March 2014, an expected interest repayment did not arrive and there was some contact between Ms McDonagh and Rory McDonnell, probably in March 2014, although what that contact entailed is unclear.
In May 2014 there was contact between Ms McDonagh and Rory McDonnell, but the nature and content of that contact is not established on the evidence.
I am unable to conclude what effect the email from Greg Huxley to Ms McDonagh on 19 June 2014 had on Ms McDonagh at the time and whether she took, or failed to take, any steps in relation to her position with Beechworth and or Griffith in response to the matters set out in that email.
At some time between May 2014 and 1 August 2014, Ms McDonagh retained Firths to assist her in relation to the transactions with Griffith and Beechworth.
At some time around or after 29 November 2013, certain persons engaged in conduct that interfered with the directorship of both Griffith and Beechworth and did things that affected the solvency of Griffith and Beechworth and the property holdings of Beechworth. Who did precisely what and when has not been established on the evidence.
The plaintiffs have not established on the evidence tendered that either Griffith or Beechworth were insolvent as at 29 November 2013. The highest the evidence comes to in that respect, is that by August 2014, the companies were probably insolvent, based on the various claims asserted to the Administrators set out in the s 439A Corporations Act reports of Deloitte. Those reports indicate that on unidentified dates before August 2014, there may have been insolvent trading carried out, but the transactions that fall into that category, and when they occurred, have not been specified or identified.
There is no meaningful evidence as to Griffith's or Beechworth's financial position as at 29 November 2013. Absent that evidence, solvency or insolvency as at that date is not established.
The plaintiffs have not established that the statement of financial position of Mr Spencer was untrue, nor have they established that it was read by Ms McDonagh or relied upon by her as an inducement to engage in the loans to Griffith and Beechworth.
Based on the affidavit of Mr Orlizki sworn 10 May 2018, Mr Spencer received a notice of sequestration on 28 April 2015 and as at 10 May 2018, he remained an undischarged bankrupt. It is common ground that no leave was sought under s 58 of the Bankruptcy Act to proceed against him, although the plaintiffs' solicitors were informed by email dated 25 June 2015 that Mr Spencer had become bankrupt after the proceedings were commenced, and in order for the plaintiffs to take any fresh step in the proceedings, leave of the Court was required pursuant to s 58(3)(b) of the Bankruptcy Act.
Mr Goodridge's opening clarified the position in that what is alleged against the defendants is actual knowledge: see plaintiffs' written opening at [92]-[101].
In Wu v Ling [2016] NSWCA 322, Leeming JA made the following observations in relation to the intervention of equity and special disadvantage:
"[7] Equitable intervention in a case such as this is based upon "a precise examination of the particular facts" and "a scrutiny of the exact relations established between the parties", as the unanimous decisions of the High Court in Jenyns v Public Curator (Q) (1953) 90 CLR 113; [1953] HCA 2 at 118-119 and Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [18] confirm ... The same point has been made in relation to the width of the statutory jurisdiction to relieve against unconscionable conduct: see (for example) Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [291]-[293] (Allsop P, Bathurst CJ and Campbell JA agreeing) and PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446 at [93]-[106] (Sackville AJA, with whom McColl JA and I agreed).
…
[10] First, the High Court in Kakavas at [17] reiterated and confirmed Lord Hardwicke's formulation in Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125 at 155-156; 28 ER 82 at 100 of that species of equitable fraud which prevents a party "taking surreptitious advantage of the weakness or necessity of another". Just as the High Court said in Kakavas at [25] that there was nothing "surreptitious" about Crown's conduct, so too here there was nothing surreptitious about Mr Ling's conduct.
[11] Secondly, people do foolish things. Knowledge or belief of a plaintiff's foolishness alone is not sufficient to affect the defendant's conscience. ... Thus Deane J (with whose reasons Dawson, Gaudron and McHugh JJ agreed) observed at 638 that:
"The intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to prevent his victimization."
…
[13] Thirdly, in Kakavas at [18] the High Court cited the passage from Louth v Diprose reproduced above to explain the principle on which equitable intervention was based. The Court said at [117] that "the concern which engages the principle is to prevent victimisation of the weaker party by the stronger". The Court returned at the conclusion of its reasons at [161] to the notion of victimisation:
"Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned."
…
[18] Finally, I turn to the "proof of a predatory state of mind" to which the High Court referred in Kakavas at [161], recalling what Gleeson CJ, McHugh, Gummow, Hayne and Heyden JJ had said in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [23]:
"the governing equitable principle in this field is concerned with the production by malign means of an intention to act".
At [107] Bergin CJ in Eq, with whom Payne JA agreed, cited with approval Turner v Windever [2005] NSWCA 73, where Giles JA (with whom Santow JA (writing separately and agreeing with the outcome) and Bryson JA agreed)) said at [72]:
"Mere unawareness of a matter material to the interests of a party to a transaction is not a special disadvantage. That is a commonplace of commercial and other negotiations, and good conscience does not require the other party to guard against the party inadequately informing himself any more than it requires the forfeiture of a superior bargaining position (see Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at [10], [15]-[17], [56], [185])".
At [110] Bergin CJ in Eq said:
"Even on the basis that the appellant was suffering from a special disadvantage, it was necessary for the primary judge to decide whether the respondent's conduct amounted to taking "unconscientious" advantage of the appellant".
Tonto Home Loans Australia Pty Ltd v Tavares; Firstmac Ltd v Di Benedetto; Firstmac Ltd v O'Donnell [2011] NSWCA 389 was a case concerning unconscionable conduct under the ASIC Act in relation to a financier (Tonto) engaging in asset lending where its mortgage originator's sub introducers (Streetwise) engaged in unconscionable conduct in relation to the borrowers. The borrowers claimed that Tonto had engaged in unconscionable conduct under the ASIC Act by seeking to recover the loans in those circumstances. At [292] Allsop P (Bathurst CJ and Campbell JA agreeing) said:
"There is no real suggestion in the argument or the evidence that those at Tonto HL understood the actuality of the trickery and lies that were being undertaken by Streetwise or had any notice of them. I do not think that the structural creation of risk and the heightening of that risk by the arrangements with Streetwise meet the notion of moral obloquy required. The true facts are now known, but in circumstances where those at Tonto HL were innocent of the conduct at the time it is not unconscionable to be seeking to maintain the transaction".
The above observations can be distilled into the proposition that for one party to have engaged in unconscionable conduct in respect of a party with a special disadvantage, there needs to be a precise examination of the particular facts and a scrutiny of the exact relations established between the parties and then what must be established is that there needs to be:
1. knowledge of the special disadvantage;
2. a taking of surreptitious advantage of the weakness or necessity of another;
3. victimisation or exploitation; and
4. proof of a predatory state of mind on the part of the party against whom the allegation of unconscionable conduct is made.
In summary, it is not possible to act "against conscience" if the conscience has no knowledge of the special disadvantage of the other party.
This statement was applied by Ward J in In the Matter of Idylic Solutions Pty Ltd - Australian Securities and Investments Commission v Hobbs [2012] NSWSC 1276 at [1545]. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference: Adler and Anor v Australian Securities and Investments Commissions; Williams v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1.
The approach to inferences argued for by the plaintiffs in relation to the absence from the witness box of Mr Dawson, Mr Dib and Adam is simply wrong. There is no inference available from the evidence tendered or called to support a conclusion that Mr Dawson did or knew anything that required explanation or that Adam (or Mr Dib) acted as anything other than lawyers who performed a limited role preparing transactional documents for Griffith and a security document (draft caveat) for Beechworth. Those circumstances do not require response by the calling of evidence from those parties, and I decline to draw the inferences argued for by the plaintiffs in respect of the Dawson and Dib parties.
Count 5 relies upon s 20 of the Australian Consumer Law which provides:
Unconscionable conduct with the meaning of the unwritten law
(1) A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time.
(2) This section does not apply to conduct that is prohibited by section 21.
Count 6 relies upon s 236 of the Australian Consumer Law which provides:
Actions for damages
(1) If:
(a) a person (the claimant ) suffers loss or damage because of the conduct of another person; and
(b) the conduct contravened a provision of Chapter 2 or 3
the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.
(2) An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.
Count 7 appears to be an aid and abet allegation levelled against all defendants that they knew and participated in the statutory contraventions of the others.
Counts 8 and 9 rely upon ss 12CA 12CB of the ASIC Act which provide:
12CA Unconscionable conduct within the meaning of the unwritten law of the States and Territories
(1) A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.
(2) This section does not apply to conduct that is prohibited by section 12CB.
12CB Unconscionable conduct in connection with financial services
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of financial services to a person; or
(b) the acquisition or possible acquisition of financial services from a person;
engage in conduct that is, in all the circumstances, unconscionable.
(2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct:
(a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or
(b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition.
(3) For the purpose of determining whether a person has contravened subsection (1):
(a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
Count 10 relies upon s 21 of the Australian Consumer Law which provides:
Unconscionable conduct in connection with goods or services
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person; or
(b) the acquisition or possible acquisition of goods or services from a person;
engage in conduct that is, in all the circumstances, unconscionable.
(2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct:
(a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or
(b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition.
(3) For the purpose of determining whether a person has contravened subsection (1):
(a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a) this section is not limited by the unwritten law relating to unconscionable conduct; and
(b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of:
(i) the terms of the contract; and
(ii) the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
It is self-evident that a number of these statutory unconscionability conduct claims are premised upon the defendants having engaged in conduct that was "in trade or commerce". The pleadings do not even attempt to address that prerequisite.
Nor is it evident from the pleadings, or, for that matter, the evidence called what "financial services", or "goods or services" the plaintiffs are asserting the active defendants were supplying that would correspond to the requirements of ss 12CA and 12CB of the ASIC Act and s 21 of the Australian Consumer Law.
Even taking into account the statutory principles that suggest perhaps a wider range of behaviours that it is alleged may, broadly considered, correspond to a finding of unconscionability, it is still essential that the conduct said to have been undertaken by each defendant is specifically identified rather than referred to by a scattergun list of unattributed acts.
For count 7 to succeed there needed to be clear identification and particularisation of the principal conduct that comprised the statutory contravention(s). This has not been done and there is no evidence that allows the task of ascertaining "accessorial" liability to be done. The bald assertion that "everybody knew", is inadequate and in any event, is not made out on the evidence.
In respect of the Dawson parties, the unconscionability claims all fail for the same reasons the claim in general law fails. There was no contact and no knowledge of the alleged special disadvantage. Additionally there was no pleading or evidence that anything done by the Dawson parties corresponded with any of the prohibitions provided for in the statutory framework.
In respect of the Dib parties, any claim under the ASIC Act and the Australian Consumer Law must fail because Adam and Gus Dib supplied no "goods" or "services" to Ms McDonagh or McDonagh Management.
I accept that Greg Huxley requested Adam to prepare certain documents and that Greg Huxley then emailed them to Mr McDonnell. Even on Ms McDonagh's account, Greg Huxley was not present during the explanation of those documents or their signing by her. There is nothing in Mr Huxley's conduct established on the evidence that demonstrated that he was providing "financial services" or "goods or services" within the meaning of the legislation. There is also no evidence that either Vangory Services or Vangory Holdings did anything at all in that regard.
In relation to Mr Spencer, who did not appear and was not represented at the hearing, there is insufficient particularity in the Further Amended Statement of Claim as to what it is alleged he did, and insufficient evidence as to what he in fact did in respect of the transactions, (other than as guarantor and signing the documents as director of Beechworth and Griffith), that would allow a conclusion to be reached that he engaged in conduct corresponding to the statutory descriptions and definitions. The claims against him as guarantor have been abandoned, and relief is not sought against Griffith or Beechworth directly, no doubt because of their financial difficulties spoken about in the August 2014 Deloitte S439A Reports.
Counts 11, 13, and 14 to 18: Corporations Act
Count 11 is based on s 1041H of the Corporations Act:
1041H Misleading or deceptive conduct (civil liability only)
(1) A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.
(2) The reference in subsection (1) to engaging in conduct in relation to a financial product includes (but is not limited to) any of the following:
(a) dealing in a financial product;
(b) without limiting paragraph (a):
(i) issuing a financial product;
(ii) publishing a notice in relation to a financial product;
(iii) making, or making an evaluation of, an offer under a takeover bid or a recommendation relating to such an offer;
(iv) applying to become a standard employer‑sponsor (within the meaning of the Superannuation Industry (Supervision) Act 1993) of a superannuation entity (within the meaning of that Act);
(v) permitting a person to become a standard employer‑sponsor (within the meaning of the Superannuation Industry (Supervision) Act 1993) of a superannuation entity (within the meaning of that Act);
(vi) a trustee of a superannuation entity (within the meaning of the Superannuation Industry (Supervision) Act 1993) dealing with a beneficiary of that entity as such a beneficiary;
(vii) a trustee of a superannuation entity (within the meaning of the Superannuation Industry (Supervision) Act 1993) dealing with an employer‑sponsor (within the meaning of that Act), or an associate (within the meaning of that Act) of an employer‑sponsor, of that entity as such an employer‑sponsor or associate;
(viii) applying, on behalf of an employee (within the meaning of the Retirement Savings Accounts Act 1997), for the employee to become the holder of an RSA product;
(ix) an RSA provider (within the meaning of the Retirement Savings Accounts Act 1997) dealing with an employer
(within the meaning of that Act), or an associate (within the meaning of that Act) of an employer, who makes an application, on behalf of an employee (within the meaning of that Act) of the employer, for the employee to become the holder of an RSA product, as such an employer;
(x) carrying on negotiations, or making arrangements, or doing any other act, preparatory to, or in any way related to, an activity covered by any of subparagraphs (i) to (ix).
(3) Conduct:
(a) that contravenes:
(i) section 670A (misleading or deceptive takeover document); or
(ii) section 728 (misleading or deceptive fundraising document); or
(iia) section 738Y (other liabilities relating to defective CSF offer documents); or
(iii) section 1021NA, 1021NB or 1021NC; or
(b) in relation to a disclosure document or statement within the meaning of section 953A; or
(c) in relation to a disclosure document or statement within the meaning of section 1022A;
does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence.
This count proscribes misleading and deceptive conduct in relation to a "financial product" or a "financial service".
Neither the pleadings, nor the plaintiffs' written submissions, grapple with whether the conduct of any of the defendants was in relation to a "financial product" or a "financial service". How the conduct complained of was in relation to "financial product" or a "financial service" is simply glossed over.
The definition of a "financial product" is in Subdiv B of Div 3 of Pt 7.1 of Ch 7 of the Corporations Act, commencing at s 763A. The transactions involving the Plaintiffs are excluded from the definition of a "financial product":
1. section 765A of the Corporations Act lists items that are not "financial products";
2. section 765A(1 )(h)(i) provides that a credit facility within the meaning of the regulations (other than a margin lending facility) is not a "financial product";
3. regulation 7.1.06(1)(a) of the Corporations Regulations provides that the provision of credit is a credit facility;
4. "credit" is defined regulation 7.1.06(3)(a) as a contract, arrangement of understanding under which:
a. payment of a debt owed by one person (a debtor) to another person (a credit provider) is deferred; or
b. one person (a debtor) incurs a deferred debt to another person (a credit provider) is deferred.
1. the transactions entered into by the Plaintiffs are loans between Beechworth and Griffith as debtors and the Plaintiffs as credit providers;
2. it follows that the transactions entered into by the Plaintiffs are not financial products.
The definition of a "financial service" is set out in Div 4 of Pt 7.1 of Ch 7 of the Corporations Act. Section 766A(1) provides the starting point, with reference to other provisions of the Corporations Act and regulations, as follows:
1. For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:
1. provide financial product advice (see section 766B); or
2. deal in a financial product (see section 766C); or
3. make a market for a financial product (see section 766D); or
4. operate a registered scheme; or
5. provide a custodial or depository service (see section 766E); or
6. engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.
Sub-section (2)(b) provides that the regulations may set out the circumstances in which persons are taken to provide, or are taken not to provide, a financial service.
The alleged conduct of the defendants did not constitute the provision of a financial service within the terms of s 766A of the Corporations Act for the following reasons:
1. the alleged conduct of the defendants was not the provision of financial product advice under s 766A(1)(a) as s 766B requires a recommendation or opinion intended to influence the decision of someone in relation to a "financial product" and, for the reasons detailed above, the transactions entered into by the Plaintiffs were not financial products;
2. the alleged conduct of the defendants was not the provision of financial product advice under s 766A(1)(b) as s 766C requires the dealing in a "financial product" and, for the reasons detailed above, the transactions entered into by the Plaintiffs were not financial products;
3. the alleged conduct of the defendants was not the provision of financial product advice under s 766A(1)(c) as s 766D requires the creation of a market in relation to a "financial product" and, for the reasons detailed above, the transactions entered into by the Plaintiffs were not financial products;
4. the alleged conduct of the defendants was not the provision of financial product advice under s 766A(1)(d) as the transactions entered into by the Plaintiffs did not involve a "registered scheme" - the definition of that term in s 9 is a managed investment scheme registered under s 601EB and there is no evidence, or even allegation, of there being a relevant registered managed investment scheme;
5. the alleged conduct of the defendants was not the provision of financial product advice under s 766A(1)(e) as s 766E requires a custodial or depository service whereby a financial product is held upon trust for another and, for the reasons detailed above, the transactions entered into by the Plaintiffs were not financial products;
6. there is no conduct prescribed by the regulations for the purposes of s 766A(1)(f);
7. there are no regulations setting out the circumstances in which persons are taken to provide, or are taken not to provide, a financial service under s 766A(2)(b).
The claim in respect of contravention of s 1041H of the Corporations Act is thus also fundamentally misconceived.
Count 13 is based on allegations of "aid and abet, counsel or procure" under the Corporations Act but is fatally flawed for a number of reasons.
It is expressed to be under s 1324 of the Corporations Act and pleads that, "by reason of the facts and circumstances set out in pars 1 to 69", the defendants, and each of them aided, abetted, counselled or procured the contravention of the Corporations Act. This is not an adequate identification of the principal conduct.
It is in any event unnecessary to delve into the detail and merits of what contravention(s) of the Corporations Act there were, or by whom, or what they did to aid, abet, counsel or procure the contravention, because this claim fails at the threshold level.
In the plaintiffs' written submissions (par 324), reference is made to the thirteenth count as being a "jurisdictional power to award damages where there has been conduct or contravention".
Section 1324(1) of the Corporations Act gives power to the Court to grant an injunction against a person who has engaged, is engaging, or proposed to engage in a contravention of the Act or being involved in a contravention of the Act by another person.
Section 1324(10) gives the Court discretion to order the person who is, or would otherwise be, the subject of the injunction, to pay damages to any other person.
Damages under s 1324(10) of the Corporations Act can only be awarded in proceedings where an injunction is actually sought: Polon v Dorian [2014] NSWSC 571 at [787] - [800].
By reason of the filing of the Further Amended Statement of Claim, the plaintiffs no longer seek an injunction against anyone. It follows that the Court cannot award damages under s 1324(10) of the Corporations Act. This count also fails.
Count 14 asserted that Greg Huxley, Vanessa Huxley and Rory McDonnell breached s 911A of the Corporations Act for "carrying on a financial services business without an Australian Financial Services licence". Section 911A provides that a person who carries on a financial services business in this jurisdiction, must hold an Australian financial services licence covering the provision of the financial services. It then goes on to provide a long list of exemptions.
There is no basis upon which to conclude Vanessa Huxley or Greg Huxley were carrying on such a business, although Rory McDonnell may well have been. However, he is not an active defendant, judgment having been entered against him in 2016, and I have not been asked to make any findings about him. In any event, the pleading does not sufficiently identify the basis upon which I would reach this conclusion.
Count 15 asserted that there were false and misleading statements by Greg Huxley, Rory McDonnell, Vanessa Huxley, Adam, Mr Spencer and Gus Dib in breach of s 1041E of the Corporations Act:
1041E False or misleading statements
(1) A person must not (whether in this jurisdiction or elsewhere) make a statement, or disseminate information, if:
(a) the statement or information is false in a material particular or is materially misleading; and
(b) the statement or information is likely:
(i) to induce persons in this jurisdiction to apply for financial products; or
(ii) to induce persons in this jurisdiction to dispose of or acquire financial products; or
(iii) to have the effect of increasing, reducing, maintaining or stabilising the price for trading in financial products on a financial market operated in this jurisdiction; and
(c) when the person makes the statement, or disseminates the information:
(i) the person does not care whether the statement or information is true or false; or
(ii) the person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading.
(2) For the purposes of the application of the Criminal Code in relation to an offence based on subsection (1), paragraph (1)(a) is a physical element, the fault element for which is as specified in paragraph (1)(c).
(3) For the purposes of an offence based on subsection (1), strict liability applies to subparagraphs (1)(b)(i), (ii) and (iii).
Again, this count requires activity in relation to "financial products". This count fails for the same reason as count eleven.
Count 16 asserts that there was inducement, on the part of Greg Huxley, Vanessa Huxley, Rory McDonnell, Mr Spencer, Adam and Gus Dub in breach of s 1041F, to deal with financial products:
1041F Inducing persons to deal
(1) A person must not, in this jurisdiction, induce another person to deal in financial products:
(a) by making or publishing a statement, promise or forecast if the person knows, or is reckless as to whether, the statement is misleading, false or deceptive; or
(b) by a dishonest concealment of material facts; or
(c) by recording or storing information that the person knows to be false or misleading in a material particular or materially misleading if:
(i) the information is recorded or stored in, or by means of, a mechanical, electronic or other device; and
(ii) when the information was so recorded or stored, the person had reasonable grounds for expecting that it would be available to the other person, or a class of persons that includes the other person.
(2) In this section:
dishonest means:
(a) dishonest according to the standards of ordinary people; and
(b) known by the person to be dishonest according to the standards of ordinary people.
(3) This section applies in relation to the following conduct as if that conduct were dealing in financial products:
(a) applying to become a standard employer‑sponsor (within the meaning of the Superannuation Industry (Supervision) Act 1993) of a superannuation entity (within the meaning of that Act);
(b) permitting a person to become a standard employer‑sponsor (within the meaning of the Superannuation Industry (Supervision) Act 1993) of a superannuation entity (within the meaning of that Act);
(c) applying, on behalf of an employee (within the meaning of the Retirement Savings Accounts Act 1997), for the employee to become the holder of an RSA product.
This count too fails on the same basis as count eleven.
Count 17 is based on s 1041G:
1041G Dishonest conduct
(1) A person must not, in the course of carrying on a financial services business in this jurisdiction, engage in dishonest conduct in relation to a financial product or financial service.
(2) In this section:
dishonest means:
(a) dishonest according to the standards of ordinary people; and
(b) known by the person to be dishonest according to the standards of ordinary people.
The only defendant who could be said to be "carrying on a financial service business" is Rory McDonnell and he is not an active defendant. In any event, the pleadings do not address the necessary components with sufficient particularity to allow a conclusion to be reached that he was dealing with a "financial product" or "financial service" as defined.
Count 18, although pleaded as a "count", is simply a damages provision:
1041I Civil action for loss or damage for contravention of sections 1041E to 1041H
(1) A person who suffers loss or damage by conduct of another person that was engaged in in contravention of section 1041E, 1041F, 1041G or 1041H may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention, whether or not that other person or any person involved in the contravention has been convicted of an offence in respect of the contravention.
(1A) Subsection (1) has effect subject to section 1044B.
(1B) Despite subsection (1), if:
(a) a person (the claimant) makes a claim under subsection (1) in relation to:
(i) economic loss; or
(ii) damage to property;
caused by conduct of another person (the defendant) that was done in contravention of section 1041H; and
(b) the claimant suffered the loss or damage:
(i) as a result partly of the claimant's failure to take reasonable care; and
(ii) as a result partly of the conduct referred to in paragraph (a); and
(c) the defendant:
(i) did not intend to cause the loss or damage; and
(ii) did not fraudulently cause the loss or damage;
the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks
just and equitable having regard to the claimant's share in the responsibility for the loss or damage.
(2) An action under subsection (1) may be begun at any time within 6 years after the day on which the cause of action arose.
(3) This section does not affect any liability that a person has under any other law.
(4) Section 1317S (which provides for relief from liability) applies in relation to liability under subsection (1) as if:
(a) the sections referred to in subsection (1) were civil penalty provisions; and
(b) proceedings under subsection (1) were eligible proceedings.
Section 1041I of the Corporations Act refers only to contraventions of ss 1041E, 1041F, 1041G and 1041H. To the extent that Further Amended Statement of Claim (par 94) refers to contraventions of ss 911A, 777C [sic: 766C] and 1324, the claim for damages under s 1041I in respect of those contraventions is fundamentally misconceived.
Under ss 1041E, 1041F and 1041G, the relevant conduct proscribed concerns "financial products" and "financial services". The claims based upon contraventions of these provisions are fundamentally misconceived for the same reason as the claim under s1041H, the eleventh count.
Count 19: Negligent Misstatement
Count 19 alleges that there was negligent misstatement on the part of Greg Huxley, Vanessa Huxley, Rory McDonnell, Mr Spencer and Gus Dib and Adam. This count also is inadequately pleaded in respects fatal to its success. Negligent misstatement is a tort that requires a pleading of the relationship between the plaintiffs and the alleged tortfeasor(s) and which specifies the consequent duty of care owed. No attempt has been made to formulate any such pleading.
To establish damages for negligent misstatement, four conditions have to be met. First, that a fiduciary relationship of trust and confidence arises or exists between the parties, second, that the party preparing the advice or information has voluntarily assumed the risk, third, that there has been reliance on the advice or information by the other party and fourth, that such reliance was reasonable in the circumstances: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; [1963] 3 WLR 101; [1963] 2 All ER 575. In this case, none of those four conditions have been satisfied in respect of any of the active defendants identified as liable to the plaintiffs under this count.
As I have already concluded, there was no contact either in writing or in person or on the telephone between Adam and Gus Dib and the plaintiffs.
A "scattergun" approach has again been used for this allegation, listing a series of asserted misrepresentations, most of which have not been made out on the evidence. It has also not been demonstrated that those specific representations were in fact made, or if they were, by whom and when. A pleading of this nature, in addition to needing to specify the relationship between the plaintiffs and the party said to have engaged in the conduct, requires particularisation as to when and by what means the asserted representations were made. That has not been done and in my view that is fatal to the count alleged.
Additionally, as submitted by Mr Lloyd on behalf of the Dib parties, any papers prepared by Dib Lawyers in the form of transactional documents were prepared for the borrower pursuant to a circumscribed retainer with that borrower.
With respect to any asserted misrepresentation based on the forwarding of the draft caveat by Adam to Greg Huxley on 28 November 2013 regarding Beechworth, and it being read as a possible representation that Beechworth owned certain lots set out on the final form of the caveat that is in evidence, I make two observations. First, there is no satisfactory evidence as to what the draft caveat comprised when it was emailed by Adam to Greg Huxley. Second, and fatally, this is not one of the particulars of misrepresentation set out in par 96 of the Further Amended Statement of Claim and so must be disregarded.
Further, there is no evidence that Adam or Gus Dib voluntarily assumed any risk associated with giving any advice to Ms McDonagh or McDonagh Management. They did not give any advice, much less assume the risk of doing so.
As I have already concluded, Ms McDonagh did not believe that Dib Lawyers or anyone at that firm were acting for her. There was no evidence in her lengthy affidavit [108] that deposed to reliance or any belief held by her based on anything done or said by Adam or Gus Dib other than a vague reference to being "comforted" by documents that "looked like legal documents". There was nothing asserted by Mr Dib or Adam to Ms McDonagh that suggested to her that they were carrying out steps to protect her interests. Any impression she may have had to that effect - although I have found she in truth had no such impression - would have been as a result of things she was told by others.
As submitted by Mr Lloyd, there are further problems with recognition of any duty owed of this nature by Adam and/or Gus Dib to the plaintiffs and that is foreseeability of economic loss as a necessary condition for the existence of a duty of care. I accept that Adam and Gus Dib exercised no control at all over Ms McDonagh's ability to obtain legal advice about the transactions and there is no evidence at all to suggest that Adam or Gus Dib were ever aware that McDonagh Management or Ms McDonagh were not advised by a lawyer about the transactions.
The sending of transactional documents in draft to a client by a solicitor does not involve the solicitor who has prepared the documents in making any representation to the other party in the transaction. This has been demonstrated by a number of decisions including Argy v Blunts (1990) 94 ALR 719; [1990] FCA 57.
The reliance by Mr Goodridge on Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 is irrelevant and misplaced given the circumstances always require specific analysis of the relationships between the relevant parties to the asserted misrepresentation before any conclusion can be reached as to liability for any such misrepresentation.
An additional problem with the pleading in respect of all the defendants against whom it is levelled, is that it contains nothing more than a list of assertions headed "particulars of misrepresentation" without any explanation as to how those matters support a claim. The claim fails.
Count 20: Deceit
Count 20 alleges the tort of deceit against Greg Huxley, Vanessa Huxley, Rory McDonnell and Mr Spencer.
This allegation is in effect an allegation of fraud, and as I have already observed, allegations of this type attract a serious onus of pleading, particularisation and proof. The Briginshaw standard of proof applies and I have exercised the necessary care before drawing the adverse inferences contended for by the plaintiffs.
Again, the plaintiffs have sought to accomplish particularisation of this count by a scattergun series of propositions thrown down under a heading. Again, I have concluded that this is an inadequate and unsatisfactory approach to a pleading of this nature, where multiple persons are said to have engaged in the conduct and the times at which these incidents of deceit were engaged in by each of them has not been identified, other than to say it was before or at the time that the loan documents were signed.
I am not satisfied that the plaintiffs have demonstrated to the required standard of proof that there was any knowledge of, or intention to, conceal or defraud the plaintiffs regarding the nature of the investment in the Beechworth and Griffith projects in the ways listed, on the part of Greg Huxley or Vanessa Huxley or Rory McDonnell or Mr Spencer. Further and significantly, the alleged insolvency of Beechworth and Griffith at the time Ms McDonagh executed the loan documents has not been demonstrated.
This count fails.
Count 21: Exemplary damages
Count 21 comprises a claim for exemplary damages, now confined to Greg Huxley and Rory McDonnell. The pleading is inadequate, simply referencing "the facts set out in pars 1 - 70" of the lengthy Further Amended Statement of Claim as providing a basis, baldly asserting "conscious and contumelious disregard for the plaintiffs' rights" and "to deter them from committing like conduct again". This count is dismissed due to both inadequate particularisation of the basis of the claim and the absence of evidence that would justify any such evaluation of the conduct of either Rory McDonnell or Greg Huxley.
Count 22 - Admission and Guarantee
Count 22 comprises a vague pleading of admission and guarantee against Greg Huxley arising out of his 19 June 2014 email to Ms McDonagh.
It is claimed that the representations were "intended to mislead and deceive" the plaintiffs and caused them "not to seek legal redress against the defendants and the assets of Griffith and Beechworth at an earlier time".
I accept Mr Ball's submission on behalf of Mr Huxley that the pleading is in effect one of fraud and so attracts a high standard of pleading, particularisation and persuasion on the evidence.
In my view, there is no evidence to suggest that the email is anything but an apology. The fraudulent intent ascribed is unclear and not made out on the evidence.
The steps alleged to have been available to avoid or lessen damage, (as at 19 June 2014), are not disclosed, nor is it at all clear how the email "caused" any damage. Ms McDonagh's affidavit although it refers to having seen the letter, says nothing at all about its effect on her conduct or instructions to Firths. It seems the letter actually was utilised by Firths, the solicitors retained by the plaintiffs, as a basis for a request to Mr Huxley on 1 August 2014 assist them and the plaintiffs to the extent he was able. This count also fails as it is not supported by evidence and goes nowhere in terms of causation of any identified loss.
Tcpt, 29 March 2018, p 180(40-45)
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016
Tcpt, 28 March 2018, pp 123(48)-124(3)
Tcpt, 28 March 2018, p 124(38-49)
Tcpt, 28 March 2018, p 125(30-35)
Tcpt, 28 March 2018, p 127(1-7)
Tcpt, 28 March 2018, pp 128(27)-129(32)
Tcpt, 28 March 2018, p 136(10-17)
Tcpt, 28 March 2018, p 137(16); p 140(16)
Tcpt, 28 March 2018, p 140(17-26)
Tcpt, 28 March 2018, pp 141(27)-142(26)
Tcpt, 28 March 2018, p 145(30-49)
Tcpt, 28 March 2018, p 147(34-46)
Tcpt, 29 March 2018, pp 151(21)-152(5)
Tcpt, 29 March 2018, p 153(18-45)
Tcpt, 29 March 2018, p 155(1-43)
Tcpt, 29 March 2018, p 156(30-47)
Tcpt, 29 March 2018, pp 157(21)-158(3)
Tcpt, 29 March 2018, p 158(10-43)
Tcpt, 29 March 2018, pp 158(41)-159(44)
Exhibit A, Plaintiff's Tender Bundle, General Security Agreement between Griffith and McDonagh Management
Tcpt, 29 March 2018, p 160(11-37)
Tcpt, 29 March 2018, pp 161(32)-162(15)
Tcpt, 29 March 2018, p 168(5-37)
Tcpt, 29 March 2018, pp 168(47)-169(18)
Tcpt, 29 March 2018, p 117(13-23)
Tcpt, 29 March 2018, p 179(12-27)
Tcpt, 29 March 2018, p 180(8-45)
Tcpt, 29 March 2018, pp 181(21)-182(25)
Tcpt, 29 March 2018, pp 183(18)-184(1)
Appended to her affidavit, Exhibit B and/or included in the Plaintiffs' tender bundle, Exhibit A
Exhibit GDI, Emails between Greg Huxley and Adam and bundle of appended documents sent by email of Adam on 28 November 2013
Exhibit H, par 39 of the affidavit of Gus Dib
Exhibit B, Affidavit, Jessica Sarah Pinkus dated 24 June 2016
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 90-101
Exhibit L, Caveat signed Vanessa Huxley dated 22 May 2018
Exhibit GH3, Affidavit, Greg Huxley dated 4 October 2016 at par 47
Exhibit GH2, 7 pages of a series of Commonwealth Bank transfer records
Written submissions of the eighth and ninth defendant dated 11 June 2018.
Tcpt, 4 April 2018, p 332(40)
Exhibit A, Plaintiffs' three volumes tender bundle documents and evidentiary material
Exhibit A, Plaintiffs' three volumes tender bundle documents and evidentiary material, tab 32
Exhibit A, Plaintiffs' three volumes tender bundle documents and evidentiary material, tab 33
Tcpt, 29 March 2018, p 215(40)
Tcpt, 29 March 2018, p 215(26-35)
Tcpt, 29 March 2018, p 217(3-5)
Tcpt, 29 March 2018, p 221(16-37)
Tcpt, 29 March 2018, pp 221(3)- 223(40)
Exhibit GD1
Tcpt, 29 March 2018, p 227(23-31)
Tcpt, 29 March 2018, p 228(1-43)
Tcpt, 3 April 2018, p 238(21-32)
Tcpt, 3 April 2018, p 244(13-18)
Tcpt, 3 April 2018, p 251(20-47)
Tcpt, 3 April 2018, p 268
Tcpt, 3 April 2018, pp 276(17)-277(3)
Tcpt, 3 April 2018, p 284
Tcpt, 3 April 2018, p 287(11-12)
Tcpt, 3 April 2018, p 291(15-18)
Tcpt, 3 April 2018, p 309(7-29)
Tcpt, 3 April 2018, pp 311(30)-312(17)
Tcpt, 3 April 2018, p 312(19-46)
Tcpt, 3 April 2018, p 314(1-45)
Tcpt, 3 April 2018, p 315(1-11)
Tcpt, 4 April 2018, p 329(19-23)
Tcpt, 4 April 2018, p 331.15
Tcpt, 4 April 2018, p 335(11-13)
Tcpt, 4 April 2018, p 364(23-33)
Tcpt, 5 April 2018, p 442(32-36)
Tcpt, 5 April 2018, p 445(37-38)
Tcpt, 5 April 2018, p 445(43-45)
Tcpt, 20 June 2018, p 553(33-40)
Tcpt, 20 June 2020, p 562(21)
Exhibit R, Request for particulars of Kent Attorneys dated 19 January 2015, and the responses from Firths Lawyers dated 28 May 2018
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14
Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [158]-[159]
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at pars 54-58
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016 at par 90
Tcpt, 20 June 2018, p 533(34-43)
Exhibit D, Affidavit, Sharon McDonagh dated 23 June 2016