Parfit Investments Pty Ltd v Caterjian

History of the parties' dealings

1. Set out below are my findings of fact in chronological order. The transactions with which the case is directly concerned were entered into in the period July to September 2017. It is necessary to refer to abortive negotiations that took place between the same parties in mid to late 2015. Those negotiations were directed towards transactions of the same kind as the disputed ones of 2017. The course of the earlier negotiations and the circumstances in which they failed bear upon my assessment of Mr Caterjian's credit, which is very much in issue in relation to the parties' dealings in 2017. My findings as to the events of mid to late 2015 also directly affect the probabilities of the defendants' claims that they were induced by misrepresentations from Ms Brenton to enter into their 2017 contracts with LRA and that unconscionable conduct of the plaintiff caused them to draw down the loan and to grant the guarantee and the second mortgage that the plaintiff now seeks to enforce.

First and second defendants' background

1. Mr Caterjian successfully completed a Master of Arts degree course in clinical psychology at Bond University in 2007. He was then 35. He married Mrs Mina Sclavos-Caterjian in September 2009. She is three and a half years younger than Mr Caterjian. Mrs Sclavos-Caterjian had attained a Bachelor of Arts degree with a political science major from Macquarie University in 2001. From 2007 to 2009 Mr Caterjian worked as a Job Capacity Assessor for Centrelink in Western Sydney (Mt Druitt to Penrith). From 2008 to 2015 he carried on a part-time private psychology practice in Sydney and from 2014 to 2015 he also provided psychology services at Macquarie Hospital, North Ryde as an employee of the Northern Sydney Local Health District.

2010-2013 - initial dealings with LRA

1. In October 2010 Mr Caterjian attended an LRA information seminar conducted by Ms Magalotti. LRA conducted a business of franchising psychology practices. It offered to enter into Business Associate agreements with psychologists or owners of psychology practices, under which it provided branding, marketing, training in LRA's systems and a central administration and booking service, all in exchange for a substantial initial fee and ongoing remittance to LRA of a percentage of the Business Associate's practice revenue. Mr Caterjian became interested in the possibility of entering into a Business Associate agreement. In January 2011 he met with Ms Brenton.
2. In 2013 Mr Caterjian applied to the ANZ Bank for a loan of $25,000 to fund his entry into a Business Associate agreement. In 2005 a default judgment had been entered against Mr Caterjian for a debt of $12,000 in respect of a car. He had made a debt agreement under Pt IX of the Bankruptcy Act 1966 (Cth) to deal with the judgment debt and with some credit card debts. The ANZ Bank refused his loan application in 2013, according to Mr Caterjian's evidence, because of that financial history. He was therefore unable to advance his discussions with LRA.

2014 - purchase of Bexley property and first mortgage loan

1. In October 2014 the defendants purchased the Bexley property for $750,000. This was financed as to $712,000 by the Bendigo and Adelaide Bank, secured by first mortgage. On 8 October 2014 Mr Caterjian completed a mortgage application to a broker in which he answered the following question in the negative: Have you, or the co-applicant, ever had a judgment entered against you, been bankrupt, insolvent, assigned your estate for the benefit of creditors or entered into a scheme of arrangement with your creditors? If YES, provide details.
2. The answer "No" was false. Despite Mr Caterjian's oral evidence to the contrary, I am satisfied that he knew the answer was false. His application to the ANZ bank only the year before, for a much smaller loan, had been refused on account of his past credit history. While Mr Caterjian appears to have minimal business acumen, he is intelligent enough to have understood the thrust of this question in a mortgage application and to have known that it should have been answered in the affirmative, with details of the 2005 Pt IX debt agreement disclosed. In cross-examination Mr Caterjian said that he did not know what the word "creditor" meant. I find his answers to that effect untruthful. He was born in Australia, his first language is English and he is tertiary educated.

July 2015 - motor vehicle lease application

1. On 15 July 2015 Mr Caterjian applied in writing to Smartsalary Pty Ltd for lease finance in respect of a Mercedes motor vehicle. The amount financed was either $35,000 or $40,000 - Mr Caterjian's evidence was not clear as to which. In this application he claimed that he owned freehold property to the value of $900,000. This was a reference to the home at Bexley in which he had a half interest that had been purchased only nine months earlier for $750,000. He represented that the mortgage debt was $670,000, whereas it was still $712,000. A credit card debt of $9,000 was disclosed. Taking into account a small amount of cash at bank and the value of some investments and furniture, he claimed to have a net worth of $263,400. This was grossly inflated, as Mr Caterjian would have well known.

July 2015 - Area Representative negotiation with LRA

1. In mid-2015 Ms Magalotti proposed to Mr Caterjian that he enter into an Area Representative Agreement with LRA. The terms in which this proposal was originally explained to Mr Caterjian orally are not fully recounted in his evidence. I infer that the explanation would have been, in broad terms, to the general effect of a draft Area Representative Agreement that was later submitted to him in July 2015, containing provisions to the following effect: 1. As Area Representative Mr Caterjian would have, for a term of five years, the right to identify prospective Business Associates for a Territory, defined as the entire Sydney region. He would also have the obligation to undertake due diligence on prospective Associates and to provide business support to all Associates who entered into agreements with LRA during the Term. 2. Mr Caterjian would be required to pay to LRA an Area Representative Fee of $605,000, a training fee of $13,200 and legal fees of $6,600 - a total of $624,800. 3. Upon Mr Caterjian securing an agreement between a new Business Associate and LRA, the Business Associate would be required to pay a fee of $55,000 plus GST to LRA. That amount was specified at item 11 of the Schedule to the draft Area Representative Agreement. LRA would in turn pay a Business Associate Recruitment Payment to Mr Caterjian. He understood that the Payment would be $15,000 but according to cl 5(a) of the draft Area Representative Agreement it was intended by LRA to be the whole $55,000 received from the Business Associate. 4. Minimum Performance Criteria were prescribed such that Mr Caterjian, as Area Representative, would have to secure six new Business Associate agreements in each of the first three years of the term and maintain a minimum number of ongoing Business Associate Agreements. The effect of this was that there had to be 18 current Business Associate Agreements at the end of the third year. Therefore, if any of the Business Associates who were recruited and introduced by Mr Caterjian should cease to operate under their franchise, he would be required to find replacements. For the fourth and fifth years of the Area Representative Agreement, the number of new Business Associates to be introduced each year and the total number to be maintained was to be negotiated. 5. In the event of failure to meet the Minimum Performance Criteria, LRA would have the right to reduce the Territory, or require the Area Representative to assign the agreement or terminate the agreement - amongst other alternative rights. 6. The Area Representative would be required to provide two days of on-site training for each Business Associate signed up within the Territory and ongoing business support for each of them.
2. On Friday, 19 June 2015 Ms Magalotti discussed the Area Representative proposal with the defendants by phone. This was prior to either of them having seen the terms of the agreement in writing. On the following Tuesday, 23 June Mr Caterjian wrote to Ms Magalotti to thank her, in these terms: Thanks for going over the proposal for Mina's sake. She walked away from the call with a positive attitude toward your proposal. Also thank you for inviting us to Melbourne to discuss things in further detail, including looking over a draft copy of the proposed contract and relevant financials.
3. The meeting in Melbourne took place on Monday 20 July, with Ms Magalotti and Ms Brenton. On 21 July 2015 Mr Caterjian wrote to Ms Magalotti as follows: Mina and I just wanted to pass on our sincere gratitude to both you and your team for having taken the time out to meet with us, and spend the day providing us with a glimpse of the hard work you've put in over the years. We walked away feeling positive and excited about the opportunity presented. I look forward to receiving a copy of the contract, and discussing further over the coming week.
4. In cross-examination Mr Caterjian gave these answers about the Melbourne meeting: Q. How did that meeting go? A. We walked away with a lot of questions from that meeting. Q. Overall, would you say that you were positive about the opportunity? A. Mixed.
5. Counsel then read back to Mr Caterjian his email to Ms Magalotti of 21 July, quoted above, and the following questions were asked: Q Was that statement true? A. Pleasantries. Q. Pleasantries. A. Pleasantries. Q. Are you saying that that statement is untrue? A. I'm saying that I want - I needed to know more, and I wasn't going to shut the door on the opportunity. Q. Do you deny that you were feeling positive and excited about the opportunity? A. Well, I was feeling positive and excited, but I wouldn't say I was feeling completely positive.
6. In these answers Mr Caterjian endeavoured to downplay the enthusiasm that he felt at the time for entering into an Area Representative Agreement. I do not accept that he had any significant reservations about the proposal after the meeting in Melbourne. His oral evidence is inconsistent with the sentiments expressed in contemporaneous emails and with parts of his affidavit. The affidavit includes the following: [20] In 2015, the idea of having a small business empire within the LRA banner was something that I dreamt of. During one of our conversations, I said to Ms Magalotti words to the effect of: "I would love to own a number of LRA practices myself."
7. Mr Caterjian also deposed to the following: [11] My desperation for financial growth was becoming greater as the personal challenges of starting a family increased - something I shared with Ms Magalotti on most phone calls. Paragraph [11] refers to the period from mid to late 2015. That was when "the personal challenges of starting a family increased" for the defendants. They had experienced difficulty in conceiving from 2010 and Mrs Sclavos-Caterjian had suffered a number of early term miscarriages. They had commenced an IVF program in either 2014 or 2015.
8. Mrs Sclavos-Caterjian, in contrast with her husband, was resistant to LRA's proposal in 2015. She deposed that she was aware of the discussions between her husband and Ms Magalotti and Ms Brenton between "about 2010 and 2017". She gave this answer in cross-examination: Q. You were supportive of your husband exploring the opportunities that were presented to him by LRA, weren't you? A. I thought it was a frivolous folly.
9. Mrs Sclavos-Caterjian also said that, from a point in 2015 when Ms Magalotti and Ms Brenton were discussing with her husband a new proposal "about […] buying into a practice", she decided that she "just didn't trust Jodie Brenton". Mrs Sclavos-Caterjian had very little recollection of the dealings with Ms Magalotti and Ms Brenton during mid-2015 in which, according to contemporaneous emails, she had some involvement. Regarding the meeting in Melbourne on 20 July of that year, she described her husband's assessment of the LRA presentation and her own reaction, as follows: He may have felt happy but […] I was probably apprehensive.

July 2015 - application to plaintiff for a loan of $635,800

1. On 29 July 2015 Mr Caterjian informed Ms Magalotti that he wished to proceed with the Area Representative Agreement and to borrow the necessary funds. On that day Ms Magalotti sent out to him application forms, addressed to LRA for entry into the agreement and to the plaintiff for finance. Mr Caterjian proposed to borrow the whole $624,800 required to be paid under the Area Representative Agreement plus a further $11,000 for working capital. Later that day Ms Magalotti offered that, to support the loan application, LRA would guarantee Mr Caterjian's interest payments during the early part of the loan term. That evening Mr Caterjian sent an email to Ms Magalotti as follows: […] I've had discussions with Mina and we're excited about the "new" plan. I'll send through the completed forms and credit card details first thing in the morning! Thanks so much for your support.
2. On 30 July 2015 Ms Magalotti received from Mr Caterjian a completed application to the plaintiff for the loan, a copy of Mr Caterjian's curriculum vitae and a completed and signed Area Representative Application Form. Ms Magalotti replied with an email advising the following: They are still going to ask for the title to your property even as me going guarantor.
3. With Mr Caterjian's approval, Ms Magalotti submitted the loan application to the plaintiff, for the total amount of $635,800. This was accompanied by a covering email from Ms Magalotti, the curriculum vitae and the Area Representative Application Form. Mr Caterjian had made significant misrepresentations in the last-mentioned document. It contained this question: Are you, or have you ever been not creditworthy? (A person is not credit worthy when suppliers will no longer provide supplies on credit because of the person's past record of bad payment of accounts). Mr Caterjian answered "No". He did not disclose the Pt IX debt agreement that had been entered into in 2005 or the refusal of the ANZ bank to lend him $25,000 in 2013.
4. Mr Caterjian agreed in cross examination that he knew his answer to this question was untrue and that it would be relied upon by the plaintiff in considering his application for a loan. He said that Ms Magalotti knew about his previous Pt IX debt agreement and that it had caused the ANZ Bank to refuse him finance in 2013. Mr Caterjian gave these answers: A […] [She] said that she would be mediating the loan between myself and Parfit, and she's got the whole history of it. I never at any point hid that I had a part 9 from her. And she said she would be able to explain it to Parfit and negotiate it. A […] [She] instructed me to just tick "no", and she would - she would deal with it herself. A She said, "Well, that was back then. It's not now." I said I wasn't comfortable with it. And she said, "Well, just tick it 'no', and I will deal with it with Parfit when I discuss with them about the loan."
5. I accept this part of Mr Caterjian's evidence. His account of having negotiated with Ms Magalotti for a Business Associate agreement in 2013 was not challenged, nor was his explanation of why the ANZ Bank had refused finance or his claim that that prevented him concluding a transaction with LRA. It is credible that he would have disclosed to Ms Magalotti in 2013 that this was the reason he could not proceed. She would therefore have been, at least, aware of the untruthfulness of his answer to the question in the Area Representative Application Form about creditworthiness. Her willingness to proceed with Mr Caterjian's application nonetheless and to try to obtain finance for him means that she was complicit in concealing from the plaintiff his financial background. Ms Magalotti's participation in this does not detract from the dishonesty of Mr Caterjian in providing the false answer.
6. Another section of the Application Form called for details of any proceedings to which the applicant may have been subject. Mr Caterjian inserted dashes in the spaces provided for answers to questions on this subject. He agreed in cross examination that this was intended to indicate that he had not been the subject of any past legal proceedings. He agreed that that was deliberately false. A truthful response would have been to disclose the 2005 proceedings and the default judgment for $12,000. When it was put to him that Ms Magalotti had not instructed him to falsify this part of the Form he said, "I don't recall". The concealment of proceedings for a relatively small debt that had had resulted in a judgment against him 10 years earlier was not inherently of enormous significance. However I find it to be part of a consistent pattern.
7. In another part of the Area Representative Application Form Mr Caterjian set out his assets and liabilities. This contained the information in the second and third columns of the following table. The figures in the fourth column reflect the true position as at 30 July 2015: Description $ on Form Actual $ 1 Bexley Road property 980,000 750,000 2 Cash on hand (ING and Virgin) 9,000 (9,000) 3 Other assets 55,000 20,000 4 Total assets 1,043,000 761,000

5 Mortgage balance 650,000 712,000 6 Other debts and obligations 7,500 7,500 7 Total liabilities 657,500 719,500

8 Net worth 385,500 41,500

1. With respect to line 1, Mr Caterjian gave evidence that he had adopted a value of $980,000 on the basis of "whatever realestate.com.au values it at". I do not accept that he had any such basis for inserting this figure. No independent evidence was adduced of what value "realestate.com.au" placed on the Bexley property at 30 July 2015. I do not accept that Mr Caterjian believed or had any ground for believing that the property had appreciated in value by 30% in the nine months since he and his wife purchased it. He showed the date of acquisition in the Application Form as "10/13" and the "original cost" as $750,000. In evidence Mr Caterjian said that his nomination of an acquisition date that was one year earlier than the true date was "an error", not deliberate. I do not accept that. I am satisfied that he falsified the acquisition date in order to make it appear possible that the property might have appreciated so greatly in value. Mr Caterjian had valued the Bexley property at $900,000 in connection with his car lease application only two weeks earlier. He cannot have believed that the value had increased by 9% in two weeks. Mr Caterjian tried to explain this by suggesting that, in relation to the car lease, "Smartsalary got it wrong and they put 900 instead of 980, or I got it wrong". I reject that explanation.
2. With respect to line 2, Mr Caterjian admitted in cross-examination that his accounts with ING and Virgin were on credit cards and that they were both in debit as at 30 July 2015, for $2,000 and $7,000 respectively. He claimed in cross-examination that this was an inadvertent error of classification. I reject that and find that it was a deliberate attempt to inflate his financial position. The Form on which these entries were made was very clear and logical in its separation of questions concerning assets and liabilities. It is not credible that a man of Mr Caterjian's intelligence and education could have made a mistake such as this.
3. With respect to line 3, on a supplementary page of the Application Form Mr Caterjian provided a breakup of his "other assets": $36,000 for a Mercedes-Benz motor vehicle and $19,000 for household property. He agreed in cross-examination that the motor vehicle was the one for which he had obtained lease finance only two weeks before completing this Form. In one answer he agreed that he had deliberately refrained from showing the lease obligation as a liability, in another he denied that this was done in order to inflate his net assets. Whereas the "household property" was shown at $19,000, the item of "Furniture - $10,000" in the motor vehicle lease finance application appears to cover the same items. The combined value of household furniture and of Mr Caterjian's residual interest in the motor vehicle seems to have been no more than $20,000.
4. At line 5, the figure of $650,000 was wrong, as Mr Caterjian admitted in cross-examination. He denied that this was deliberate. He did not suggest that the original mortgage loan of $712,000 had been paid down to any extent during the nine months since it was drawn. He claimed that the figure of $650,000 was arrived at on the basis that the purchase price of the property was $750,000 and he had contributed $80,000 of his own funds. However, the home loan application document that he submitted to the mortgage broker on 8 October 2014 showed that the total amount he required in order to purchase the property and to pay stamp duty and legal expenses was $812,000 and that $80,000 of his own funds plus $20,000 from another credit source enabled him to complete the purchase with a borrowing under the mortgage of only $712,000.
5. That loan was split by the Bank into two accounts, one for $691,000 and one for $21,000. Mr Caterjian tried to explain the understatement of his mortgage debt in the Application Form on the basis that he had inadvertently failed to allow for the smaller of these two accounts. The attempted explanation was not coherent. I am satisfied that the $62,000 understatement of the secured debt to the Bank was a deliberate misrepresentation to the plaintiff in connection with his application for finance and that Mr Caterjian's attempts to explain this away during his oral evidence were also deliberately false.
6. The result of all this is that in submitting the Application Form Mr Caterjian knowingly exaggerated his financial position from a net worth of about $41,500 to a net worth of $385,500. When counsel had established those figures in cross-examination, Mr Caterjian agreed that in July 2015 he was seeking to borrow from the plaintiff $635,800 in circumstances where the home he had purchased for $750,000 nine months earlier was fully mortgaged and he had no other significant assets. He gave the following answer to a question from the bench: Q. What was your perception of the degree of risk about borrowing another 635,000 in those circumstances? A. Frightening. […]
7. With respect to his reason for falsifying his financial position Mr Caterjian gave the following answer in cross-examination: Q. You were concerned that if you didn't have a sufficiently high net worth, you wouldn't get a loan. A. That didn't cross my mind. I find that answer untenable and untruthful.
8. Ms Magalotti's covering email to the plaintiff, dated 30 July 2015, contained the following support for Mr Caterjian's loan application: Alex and I have kept in contact for a number of years, he has watched the progress of LR with great interest. He is a gentle and engaging character suited to "sell" BA practices, but also has the smarts to answer any questions that may be thrown at him in the recruitment process by candidates. His wife Mina, who has a legal background, will also potentially add value as a secondary interviewer to make decisions about candidates and to explain the legal documents to them. Alex is very driven to create financial security for his family (they are trying to start a family) and is taking the commitment to LR very seriously as well as the commitment to a sizeable loan that he is motivated to clear as soon as possible. Meanwhile he is able to keep his employment to cover interest payments and is flexible with [creating] space to interview candidates. Life Resolutions has agreed to pay 50% of interest up to the first 6mths, by way of loan, or until the first BA is granted.
9. The reality behind Mrs Sclavos-Caterjian's "legal background" was that, in 2015, she was approximately two thirds of the way through a postgraduate Juris Doctor degree course. She did not ultimately complete it. In Mrs Sclavos-Caterjian's evidence she expanded upon her difficulty conceiving a child. She had understandably found the experience very distressing and during 2014 she became depressed to the point of requiring medication. She eventually conceived in late 2015 and her daughter was born on 1 September 2016.
10. On 4 September 2015 the plaintiff offered Mr Caterjian a loan of $635,800 for a term of three years at an interest rate of 12%pa. A second mortgage over the Bexley property was required, as Ms Magalotti had foreshadowed in her email to Mr Caterjian of 30 July 2015. Under cross examination Mr Caterjian gave evidence that his wife was "not happy" about the plaintiff's requirement of a second mortgage of the Bexley property. He said that she "didn't want to support me in that respect" but this did not immediately bring his consideration of the proposal to an end. That was because, as he put it: I would convince her.

September 2015 - advice on the Area Representative agreement

1. On 30 July 2015 Ms Magalotti sent to Mr Caterjian a draft Area Representative agreement upon which he could take legal advice. Notwithstanding the "frightening" prospect of borrowing the amount of money that he would need in order to proceed, on 2 September Mr Caterjian pressed on towards that goal by seeking the advice of Anthony Cordato, solicitor. Mr Cordato's advice was given by email of 11 September 2015. He summarised the core obligations of the Area Representative Agreement and concluded with the following: 7) Your ability to successfully sell franchises to psychologists for well in excess of $100,000 ($55,000 to go to you) is therefore at the core of this particular business model. It assumes that there are good numbers of psychologists prepared to pay this kind of money for a franchise and that competition has not depleted the numbers of psychologists prepared to pay this amount for a franchise or that competition has not undercut these franchise fees. This is your due diligence task! 9) There are some harsh terms which need to be made more reasonable, which you have made handwritten notations upon. Terms which stand out are the termination terms, the territory amendment notice, the non-compete clause, the indemnity clause, the prohibition on your assigning the agreement.
2. Mr Caterjian did not carry out any effectual "due diligence" as referred to at the end of par 7 of Mr Cordato's advice. He gave the following evidence: Q. […] And what due diligence did you do? A. Well, I mean, in terms of having carried out the business, then yes, it would have - would have been important to know. And this was one of the reasons why we backed away. Q. Sorry. You said, "In terms of having carried out the business". What do you mean by carried out? A. So, in terms of going ahead with it. Q. I see. A. Then, that would be something I would have definitely have needed to invest a lot time in. Q. So, you're saying that you didn't do any due diligence as Mr Cordato suggested you should. A. I would have done minimum. Q. Minimum. A. Absolute minimum. Q. Right. Do you recall what you did? A. I had a look at how many psychologists there were in the regions. Q. Yes. A. And when I saw that there quite a few, I got both a little bit excited and concerned about the fact that how many could you convert over to a - to a BA practice. Q. Excited because there were a lot of potential conversions? A. There were potential Q. And concerned because there was a lot of competition? A. A lot of competition. HIS HONOUR Q. What competition? Of other people wanting to offer these kind of standardised chain arrangements and name? A. Competition in terms of taking up the opportunity to be converted to a BA practice. Competition in terms of having a number of group practices in the regions. Not just in LRA practice, but there are quite a few good [scil group] practices across Sydney. As well as how that would compete against an LR business. Q. Well, there are other group practices you found out across the Sydney metropolitan area. A. Yes. A lot of group practices. Q. So, a whole lot of psychologists operating in different professional suites, but with a common name, and common branding, and logos -- A. Correct. Q. -- getup, and so on. Is that right? A. Correct. […] Q. And with common internet advertising [and the like]? A. Yes. […] […] Q. Now, was there competition for that sort of thing [referring to a model such as LRA's] that you identified? A. For that sort of business? There were other organisations where they provided referrals across Sydney to - to individual practitioners, but not in the same way LRA was proposing or had modelled themselves. Associated Counsellors is one example where they - they have a network of counsellors and psychologists who contract for them, and they send out the referrals for - based on the client's residence. But not - not under an umbrella like LR was. Q. All right. Well, in any event, in 2015, so far as you got with this in the latter part of 2015, you were not confident that there would be much prospect, if you were an area representative, of the greater metropolitan Sydney area, being able to recruit people to form themselves into practices branded under the name of LRA? A. Correct. It was scary - it was a scary thought at the time, as well as Q. Scary in that? A. The amount of money that would need to have been brought in, and the - the amount of opportunities that might be available. Q. The amount of money to be brought in meaning what you'd have to pay for this area representative right? A. That's right. Q. The 600,000? A. The 600,000, yes. Q. Compared against concerns that you had about how well you could sell this to recruit business agreements? A. That's right. Yeah. [PLAINTIFF'S COUNSEL] Q. And you understood that, if you didn't meet the minimum performance criteria by selling a sufficient number of BAs each year, then this would be a loss making venture for you, correct? A. Potentially, yes.
3. Mr Caterjian undertook no research to quantify the psychology practices in the Sydney region whose proprietors might be interested in paying to LRA a very substantial fee and a percentage of their revenue for the somewhat intangible benefits of branding, marketing, training and centralised administration and booking of appointments. He did not ascertain whether it was realistic to expect that six per year could be found so that he could meet the minimum performance standards specified by LRA, to avoid going into default and potentially losing the benefit of the Area Representative Agreement altogether. He did not ascertain by any form of market research or analysis whether it could realistically be expected that 12 Business Associate Agreements might be entered into over the term of the agreement, so that he would derive sufficient payments to cover his investment. No cash flow forecasting was undertaken and no calculation was made of the cost of finance or the amount of other outgoings that would have to be met from gross revenue. Mr Caterjian said that he had only a general discussion with an accountant about the proposed Area Representative Agreement with LRA, in the course of which he received some advice of which he provided no details in his evidence.
4. Derivation of income under the Area Representative Agreement was critically dependent upon LRA continuing in business. If it should fail, no further Business Associate Agreements could be entered into and therefore no earnings under the Area Representative Agreement could be generated. Mr Caterjian made no enquiry into the financial standing of LRA, nor did he engage any suitably qualified accountant to examine the company's net asset position, its profitability, its cash flows or its business forecasts. I infer that he assumed LRA would remain solvent and would continue to operate and that he did not appreciate the importance of verifying that.
5. By email sent in the middle of the day on 14 September 2015 Mr Caterjian paraphrased to Ms Magiotti the advice he had received from Mr Cordato. His summary and additional comments did not disclose that he found the commercial risk and uncertainty of paying out over $600,000 for the right to recruit Business Associates "scary", or that he had any hesitation about proceeding with the transaction, notwithstanding that he had not developed or analysed a business case. He concluded the email as follows: With amendments and/or an annex to the above, I look forward to moving forward! Mr Caterjian gave evidence that at that point it was his intention to proceed.

15 September - withdrawal from the Area Representative proposal

1. Almost exactly 24 hours later, at 12:22pm on 15 September 2015, Mr Caterjian wrote again to Ms Magiotti in these terms: Thank you for the opportunity to be part of Life Resolutions, however upon further consultations with my lawyer today, it was emphasised to me that it may not be the right time to enter into a business venture, and I must decline your kind offer. […] there are many aspects of the venture which are very appealing to me. For this very reason, it has been a very difficult decision but the appropriate decision for me.
2. Mr Cordato's invoice for his advice, issued on 18 September 2015, refers to his email of 11 September 2015 and to advice given by phone on 14 September 2015. There is no record of any further consultation on 15 September. I am not satisfied that there was any further discussion between Mr Caterjian and his solicitor on 15 September. Other evidence persuades me that he withdrew from LRA's proposal due to Mrs Sclavos-Caterjian's opposition to granting a second mortgage over their home and the stress that she, particularly, was under as a result of difficulty in conceiving. Mr Caterjian answered questions from the bench about his reasons for withdrawing, as follows: A […] I think the - that second part is more to do with a discussion with my wife because we were going through IVF in 2015. So maybe not being the right time to enter a business venture would have been because she was highly stressed about getting pregnant and having miscarriages. Q. As far as you were concerned at that time, was that the only parameter affecting timing, that is, your wife's fertility and endeavours to conceive? Was that the only thing that affected timing? […] Q. As opposed to matters that might have affected the overall wisdom or the […] legal appropriateness of the arrangement? A. Well, I think it was - it was a combination of the discussions I've - I had with Mr Cordato, and then weighing that up with what was going on in my life at the time as well, and Q. Referring to the difficulties of your wife conceiving? A. That's right. Because we did have quite a few - we had a stressful several years of trying to conceive and it was a reminder that the stress of having this venture with all these conditions and considerations probably is not the right time if we wanted to start a family.
3. Mrs Sclavos-Caterjian agreed that she was involved in Mr Caterjian's decision to apply for a loan to fund the Area Representative Agreement that was proposed in 2015. She gave these answers with respect that transaction: Q. Indeed, you supported his decision to apply for finance to the company Parfit in 2015 for that loan, correct? A. I was badgered into it. Q. Nevertheless, you agreed that he could do it. A. Yes, yeah. HIS HONOUR Q. Who badgered you? A. My husband.
4. Mrs Sclavos-Caterjian was reminded that the application to borrow $635,800 and the discussions with LRA progressed quite a long way before Mr Caterjian informed Ms Magalotti that he did not wish to proceed. When she was asked whether she recalled any part of that sequence Mrs Sclavos-Caterjian said: A. No. I kept saying to Alex, "We just bought - we just bought a house. What are we going to use as security? Are you going to use our house as security? We've - you just left" - he came round for (not transcribable) and I didn't want - I didn't want anyone to touch our house. That's the answer.
5. Mrs Sclavos-Caterjian recalled that her husband received a copy of the proposed Area Representative Agreement and she thought that she "probably" went through it with him. At some time between July and September 2015 Mr Caterjian accompanied her when she met with her tax accountant. He asked the accountant for an opinion on the proposal. Mrs Sclavos-Caterjian described the accountant's response as follows: A. I've been trying to - he basically said he had a client trying to get out of - trying to - legally or financially trying to get out of the practice, and we said, "Which practice?", and he said, "I can't advise you that because of privacy." The accountant informed the defendants that it was a Life Resolutions practice but he could not disclose his client's name. Mrs Sclavos-Caterjian said that the accountant did not give direct advice to her husband but that she understood what he said as a warning.
6. Mrs Sclavos-Caterjian's evidence as to why the 2015 Area Representative proposal did not proceed was as follows: A. I didn't want to use the house. I didn't want to use the house. I just got sick of being badgered into - I just got sick of it. HIS HONOUR Q. When you say you were badgered into it, again, you're referring to A. It was a constant on and on and on. If it wasn't this, it was other courses, it was webinars. It was going overseas. I just got sick of it. Sorry. The witness became very distressed when giving this evidence.

Conclusions from the aborted 2015 negotiation

1. Mr Caterjian made false statements in connection with all of his business and financial dealings that have come to light in the present proceedings. By accumulation the Court is driven to scrutinise with great care all aspects of his evidence in this case. Having done so I am unable to accept much of what he has sworn to.
2. I am satisfied that in September 2015 Mr Caterjian was fully committed to signing the Area Representative Agreement with LRA and drawing down the loan from the plaintiff. He dreamed of having a business empire. In 2015 his gross salary from the New South Wales government was about $90,000 and Mrs Sclavos-Caterjian's salary was about $60,000. He felt desperate to lift his earnings at a rate beyond what could be expected from increasing seniority and promotion. Mrs Sclavos-Caterjian's evidence, considered further below, reveals that her husband characteristically pursued unaffordable objectives compulsively and persistently. The 2015 negotiation was an instance of this.
3. Despite his limited income and minimal net worth, Mr Caterjian was undeterred by the prospect of having to borrow $635,800. He was undeterred by Mr Cordato's warning of the need for due diligence. Mr Caterjian had no business experience and sought no professional business advice. He made no attempt to gather data or to calculate the feasibility of profiting from the transaction with LRA. He clearly had no idea of what would be important in assessing such a project. His decision-making on the proposed borrowing and on the 2015 Area Representative Agreement was a product of his compulsive personality and dreams, not of any representations made to him about the prospect. He was reckless of rational cautions that were drawn to his attention and that were in any event self evident.
4. I am satisfied that Mr Caterjian would have gone ahead in September 2015 had Mrs Sclavos-Caterjian not stood her ground. He withdrew only because Mrs Sclavos-Caterjian was frantically opposed. He could not secure her execution of a guarantee and mortgage. I infer that he must have realised that her fragile, depressed and anxious state of health would deteriorate further if he tried to force the issue. Mr Caterjian's abandonment of the negotiation was not accompanied by any reconsideration of his irrational commitment. The attraction lay in his imagination, which resumed its influence in 2017.

July 2017 - execution of 2017 Area Representative Agreement

1. From January 2017 representatives of LRA exchanged communications with Mr Caterjian concerning the possibility of reviving discussions about an Area Representative Agreement. Mr Caterjian deposed that in May 2017 his wife told him: I do not trust Ms Magalotti or Ms Brenton and I do not support you entering into a business venture with LRA. Despite this, on 4 July 2017 Mr Caterjian phoned Ms Brenton and requested that she provide a draft of an Area Representative Agreement that he could discuss with Mrs Sclavos-Caterjian.
2. Between 11 and 13 July 2017 Mr Caterjian's telephone discussions with Ms Brenton moved rapidly to the point where, by 13 July, Ms Brenton proposed that they would jointly incorporate a company that would enter into an Area Representative Agreement with LRA for the Western Sydney region, for a fee of $400,000 to be shared equally, with Mr Caterjian also to pay $12,000 for his own training, $3,000 for legal fees and $500 to incorporate the company - total $215,500 plus GST. Ms Brenton also proposed that they, together with a third participant, would enter into a Business Associate Agreement with LRA for the conduct of a practice in the Sydney central business district (:CBD"). In the email containing this proposal Ms Brenton offered to speak with the plaintiff's personnel about obtaining a loan to fund his contribution. The approval granted in September 2015 for the loan of $635,800 had by this time expired.
3. On 13 July 2017 an Area Representative Agreement was drawn up between LRA and Ellie and Mac Pty Ltd. That was the name agreed upon by Mr Caterjian and Ms Brenton for their joint-venture vehicle. Mr Caterjian executed the agreement, as a director of Ellie and Mac Pty Ltd and as a Principal, and forwarded the signed document to Ms Brenton on 18 July. Ellie and Mac Pty Ltd was not registered until 12 September 2017. The agreement was thereafter ratified by Mr Caterjian and Ms Brenton as directors and it was enforceable by the operation of s 131 of the Corporations Act 2001 (Cth). Pursuant to s 131(2), if the company had not been registered or if it had failed to ratify the Area Representative Agreement, Mr Caterjian and Ms Brenton would have been jointly liable to the counterparty, LRA, in damages equivalent to the amount payable under the agreement.
4. The 2017 Area Representative Agreement was identical to the agreement that Mr Caterjian had been on the verge of signing in September 2015 except that the Schedule contained different particulars. Notably, the Territory was specified by a list of postcodes in the western part of Sydney only, the fee was $400,000 and the minimum performance criteria called for four Business Associate agreements to be signed up in each of the first two years of the term, six in the third year and a number that was subject to negotiation in the fourth and fifth years.
5. The 2017 agreement named Mr Caterjian and Ms Brenton as Principals. By cl 18 the Principals were subject to a non-competition restraint during the term. The agreement did not otherwise create any direct contractual obligation of the Principals to LRA. In particular, cl 4 did not stipulate that the Principals would be jointly or severally responsible for payment of the Area Representative Fee of $400,000 or for other fees, all of which were payable by Ellie and Mac Pty Ltd as the Area Representative.
6. The Area Representative Fee was defined in the agreement by reference to item 8 of the Schedule. There it was specified as follows: $400,000 plus GST total payable on signing: a) $200,000 plus GST by Alex Caterjian b) $200,000 plus GST by Jodie Brenton
7. That item of the Schedule did not give rise to a direct personal liability of Mr Caterjian to LRA for the $200,000. A similar position obtains in relation to the $6,000 plus GST Documentation Fee, half of whichw as said to be payable by Mr Caterjian according to item 9 of the Schedule, and the $12,000 plus GST Initial Training Fee, the whole of which was said to be payable by Mr Caterjian at item 10. Those provisions do, however, substantiate an agreement between Mr Caterjian on the one hand and Ellie and Mac Pty Ltd and Ms Brenton on the other hand that he would contribute his share, being in total $215,000 plus GST. Liability for the contribution arose upon delivery of the executed agreement to Ms Brenton and it was certainly enforceable from when Ellie and Mac Pty Ltd was registered.

Mr Caterjian's understanding of the 2017 Area Representative Agreement

1. Mr Caterjian deposed to the following: [47] In July 2017, Ms Brenton and I had a conversation in words to the effect of: Me: I would like to get legal advice about this ARA. Ms Brenton: You can do that afterwards; because it isn't a contract, it's not all that important. You need to get the paperwork in, before someone else signs up; I've got someone else interested in the region. We can worry about it later and deal with any questions afterwards. [48] For this reason, I felt confident that I did not need to get legal advice about the ARA. I believed Ms Brenton that it was not a legal contract, just a document setting out the parameters of our business relationship between Ms Brenton and myself, and Ellie and Mac Pty Ltd and LRA, should we continue to move forward.
2. Mr Caterjian maintained under cross examination that he did not understand that the 2017 Area Representative Agreement would be legally binding upon execution. He acknowledged that, apart from the Schedule, it was almost identical to the agreement upon which he had obtained Mr Cordato's advice in 2015. He gave these answers: Q. Jodie Brenton says to you [in an email of 12 July 2017 enclosing a draft of the 2017 Area Representative agreement], "You did a lot of work on this with Mary [Magalotti], if I remember." A. Yes. Q. That is not because it was simply a document setting out some parameters, but because it was an important legal document, wasn't it? A. Yes. It was an - it was an important document. A legal document. Well, there were no changes between the two documents. HIS HONOUR Q. Between which two? A. The 2015 and this - this version. Q. When you say there were no changes, you read and compared, did you? A. Yes. Q. You still had the old one that you had got Mr Cordato's advice on? A. Yes. I - I looked at Mr Cordato - Mr Cordato's advice, and I compared those paragraphs to - to this current thing, and there were no changes. Q. When you got Mr Cordato's advice, you understood that the document that he was advising you on, if signed, would be a legally binding contract, didn't you? A. I would say so, but I - I didn't think of it that way. I mean, when it came to this one, I didn't think of it the same way and I just don't know why.
3. The last answer effectively disavows any reliance upon the alleged representation by Ms Brenton as to the status of the document. In any event, Mr Caterjian's claim not to have understood it as a binding legal contract, when signed, is not believable and I reject it. In August 2015, when corresponding with Mr Cordato's office to seek his advice, he had referred to the equivalent document that was then under discussion as a "business contract". Mr Caterjian's email to Ms Magalotti of 14 September 2015, in which he recounted the advice he had received, concluded with the following paragraph that clearly showed his appreciation of the binding nature of the then proposed agreement: I recall you mentioned that the lawyer won't be happy with the agreement and true to your word he wasn't; but the above were sticking points for him, and his explanation was that although Life Resolutions wouldn't carry out/enforce clauses (as you mentioned in our phone call) in reality these clauses hold up in court and can be enforced strictly.
4. In light of that email, the following answer from Mr Caterjian with respect to the 2017 Area Representative Agreement cannot be accepted and is damaging to his credit overall: A. I understood it was a contract. But I didn't understand what the legal implications were by - by signing it.

No due diligence for the 2017 Area Representative Agreement

1. As had occurred in 2015, Mr Caterjian undertook no investigation prior to executing the 2017 agreement to ascertain what prospect there might be of signing up 14 psychology practices under Business Associate Agreements during the first three years in which Ellie and Mac Pty Ltd was to operate as an Area Representative. He gave the following answers concerning this: Q. Now, you just described the amount of due diligence that you did in 2015 after receiving Mr Cordato's email A. Yes. Q. as minimum due diligence? A. That's right. Q. Did you ever do any due diligence between 2015 after completing your minimum due diligence, and deciding not to go ahead, and entering into the agreement in 2017? A. No.

Mrs Sclavos-Caterjian's attitude to the 2017 Area Representative agreement

1. Mrs Sclavos-Caterjian deposed that in March 2017 her husband advised her that he had been contacted by LRA concerning "a new business opportunity" and that he wanted her to accompany him to a meeting in Melbourne. She deposed that she responded to the following effect: I thought we were done with this, we've got no money, we've got no capital, we've just bought the house, I am on maternity leave. What could they possibly want? I accept Mrs Sclavos-Caterjian's evidence generally. The above deposition is consistent with the attitude towards her husband's pursuit of a transaction with LRA that Mrs Sclavos-Caterjian had developed in 2015: see [24]-[25], [49]-[53] and [57] above.
2. Mr Caterjian evidently persuaded his wife to attend the meeting. He deposed that that the two of them met Ms Magalotti, Ms Brenton and two other representatives of LRA at their office in Melbourne in March 2017. They discussed Mr Caterjian becoming an Area Representative for part of the Sydney Metropolitan area. Mr Caterjian deposed that within the next few weeks he had the following conversation with his wife: Mina made her position clear. She said to me words to the effect of: I do not trust Ms Magalotti or Ms Brenton and I do not support you entering into a business venture with LRA. That evidence is consistent with Mrs Sclavos-Caterjian's deposition quoted above and I accept it.
3. Mrs Sclavos-Caterjian further deposed that in late June or early July 2017 her husband told her he was thinking of signing an Area Representative Agreement, to which she responded in the following terms: I really don't think you should be thinking about doing anything like that at the moment. Ellie [their daughter, then 10 months old] is not well. She's falling behind in her milestones like crawling or standing - all she can do is sit, she's refusing to eat and constantly vomiting.
4. Mrs Sclavos-Caterjian said that after the above conversation she was aware that her husband continued to speak with Ms Brenton but she was "under the impression that they were just having discussions". She described her attitude at that time in these terms: I was not keen to get involved, I did not have a good feeling about either Ms Brenton or Mary Magalotti.
5. Mrs Sclavos-Caterjian was not aware that her husband had been holding the Area Representative Agreement since 13 July or that he executed it and sent it to Ms Brenton on 18 July. I accept Mrs Sclavos-Caterjian's oral evidence refuting her husband's deposition that he went through the proposed Area Representative Agreement with her and that on 17 July 2017 they discussed whether she should be "on the contract" (par 55). The Agreement provided for Mrs Sclavos-Caterjian to be a party, as Principal, but that provision was deleted in handwriting. I am satisfied Mr Caterjian knew that his wife would oppose the transaction if she was informed of it and, based upon what had occurred in September 2015, he knew that she would likely refuse to sign it as a party. He was not prepared bring this to a head with her in mid July.
6. Mrs Sclavos-Caterjian did not claim to have a clear recollection of all relevant events in mid 2017. Apart from acute concern about her baby daughter's health at that time, Mrs Sclavos-Caterjian was distressed and distracted when Mr Caterjian was injured while riding a motorcycle on the Anzac Bridge in about mid July. She became very upset when recalling this circumstance in oral evidence, as may be gathered from the following answers: Q. So you're referring to that as another incident that caused a lot of upset and distraction in your life at that time. Is that why you're mentioning this? A. Because he bought his bloody motorcycle, and I never supported him on that one, and he still bought it, and then he gets hit on the bridge. Q. So he was riding a motorcycle at the time, was he? A. He - he was constantly badgering. "I need to get a bike. I need to get a bike." He buys a bike. I said, "Don't buy the bike. We've got a child," and then he gets hit - hit and run.
7. In mid-2017 the baby daughter whom the defendants had had such difficulty conceiving was in worsening ill-health. Mrs Sclavos-Caterjian suffered profound anxiety on that account. This was compounded by concern about her husband's pursuit of follies, as she perceived them, that the family could ill afford, including his contemplation of a transaction with people at LRA whom she did not trust. I am satisfied that Mrs Sclavos-Caterjian never expressed to her husband any support for him entering into the 2017 Area Representative Agreement or any other business engagement with LRA in that year.
8. In oral evidence Mr Caterjian claimed that although Mrs Sclavos-Caterjian had initially expressed hostility to further dealings with LRA following the March 2017 meeting in Melbourne, as referred to at [70]-[71] above, she had changed her mind by mid July. He gave these answers: A. Yes, but she changed her mind. My wife changes her mind constantly, so I can only say she changed her mind. […] A […] She still distrusted them [as at 17 July 2017] but she saw that it was something I wanted to do and so she was supporting me in what I wanted to do. She was still completely distrustful of them and she herself wanted nothing to do with them but she was being supportive of me. […] A […] I was constantly trying to figure out how to better improve our financial position and so towards - towards this period in June, July when I was constantly speaking to her about it, because our daughter was getting worse and worse, she was - she was just - I think she just had enough of me and was supportive. […] Q. Who had had enough of you? A. My wife, just going on and on about it, about trying to figure out how to - how to make ends meet.
9. For forensic reasons that are not apparent to me, counsel for the plaintiff put to Mr Caterjian repeatedly that in his affidavit and oral evidence he was "trying to paint a picture that your wife wanted nothing to do with this transaction from a few weeks after March onwards". He put that "you want his Honour to believe that she entered into these transactions against her will". I found that cross examination confusing. The propositions put do not capture the tendency of Mr Caterjian's evidence, on affidavit or in oral testimony, at all. Mr Caterjian's contention was that although Mrs Sclavos-Caterjian did not wish to be a party to the 2017 Area Representative Agreement and was mistrustful of LRA, she submitted to supporting his entry into the agreement because he was persistent about doing so. I reject his evidence to that effect.
10. The real position was that which the plaintiff's counsel accused Mr Caterjian of fabricating. Mrs Sclavos-Caterjian was consistently opposed to her husband entering into an agreement with LRA. He sent off the executed document on 18 July 2017 without telling her that he was doing so. Counsel's suggestion in cross-examination that Mrs Sclavos-Caterjian supported the transaction is against the probabilities indicated by the evidence. On the findings I have made, it is untenable.
11. As for Mr Caterjian himself, he deposed to the following reasons for having entered into the Area Representative Agreement: I went ahead with the ARA because I became desperate financially. Mina was on maternity leave and finances were tight. In addition to that, [our daughter) was demonstrating worsening ill-health, I thought that I need to do something to take Mina's mind of money difficulties.
12. I accept that Mr Caterjian believed the Agreement with LRA would improve his position, although he had no rational basis for thinking so. At the time he was working at Macquarie Hospital three days per week and in a private psychology practice two days per week. Mr Caterjian's income from these sources was modest but he had made no attempt to substantiate whether, or when, or in what amount he could reasonably expect to derive any net profit under the Area Representative Agreement. I do not accept that he genuinely believed entering into the Agreement would "take [Mrs Sclavos-Caterjian's] mind off money difficulties". He knew that she would regard this transaction with LRA and the borrowing against their house that it would necessitate as a significant aggravation of their "money difficulties".

July-August 2017 - plaintiff's approval of finance for Mr Caterjian

1. By 11 July 2017 Ms Brenton had enquired of Mr Cookes whether the plaintiff could finance the first defendant to pay the Area Representative Fee if he should enter into an agreement with LRA for the Western Sydney region. By this time the plaintiff had more than $1,00,000 on loan to LRA for its own capital requirements and it had financed a number of other Area Representatives and Business Associates in their transactions with LRA. By email of 11 July 2017 Mr Cookes responded to Ms Brenton's enquiry, attaching the first defendant's loan application documents of 30 July 2015 in relation to the borrowing of $635,800 that had then been proposed but did not proceed.
2. Mr Cookes' email contained the following: In view of what has transpired with AR borrowers over the last 2 years, Parfit doing a new loan offer would be very problematic. I'll discuss with Chris and Andrew this afternoon and then come back to you. Chris and Andrew were contributory lenders who from time to time and in varying proportions supplied funds through private companies to the plaintiff, which then used those funds to provide finance to third parties, as a nominal lender on behalf of the contributories. Mr Cookes explained in evidence what had "transpired with AR borrowers over the last 2 years", namely, that the plaintiff had made loans to persons introduced by LRA, who used the borrowings to enter into Area Representative Agreements but who then defaulted on their loan obligations. He said that over a period of about two to three years there had been seven or eight such Area Representative borrowers, of whom four or five met their finance obligations but the others did not.
3. Mr Cookes gave this evidence: A. We were concerned about the performance of some of the ARs in relation to their loans and also in relation to their agreements and we're reaching a capacity in terms of the amount that we had available as a Parfit group of lenders to lend to this organisation. We had other corporate customers who we lent to and we're near the limit of our capacity. At that time, we probably had out 3 million, three to 4 million with this group. If I could call it a group.
4. On 13 July 2017 Mr Cookes was informed by Ms Brenton that she was going to be a 50% partner with Mr Caterjian in the Area Representative Agreement for which finance was required. Mr Cookes said that Ms Brenton's partnership with the first defendant influenced him towards approving the finance sought. He said that her involvement was critical.
5. Solucionar Pty Ltd, whose principal was Mr del Cid, was an Area Representative to which the plaintiff had made a loan that was substantially in default by July 2017. The loan was secured by a charge over LRA's assets. On 17 July 2017 Mr Cookes emailed Ms Brenton in the following terms: I note from our meeting on 13 July your advice of going into a 50/50 JV with [Mr Caterjian] for this AR region. It sounds like an innovative idea, which might provide a range of beneficial outcomes. I would recommend a loan of $250k from Parfit, but on condition that the $250k is applied by LRA to refinance payout of the $210k principal plus arrears of interest due […] on [Solucionar Pty Ltd's] loan. Once this payout occurred […] then the PPSR registered charge over LRA securing Parfit's loan to [Solucionar Pty Ltd] could be released. A good step forward. […] The net result of this would be extracting parfit from [Solucionar Pty Ltd's] loan (taken over by LRA), funding Alex's loan, better security for the Parfit loan (Alex's loan v [Solucionar Pty Ltd's] loan) […]. Mr Cookes explained in evidence that the statement that he would "would recommend a loan of $250k" to the first defendant was a reference to the fact that he would have to put the proposal to his contributory lenders.
6. On 26 July 2017 Ms Brenton emailed Mr Caterjian with a breakdown of the total funds that would be required from him under the 2017 Area Representative Agreement and under the Business Associate Agreement that was to be entered into for a psychology practice in the Sydney CBD. She recommended that he take out a loan of $250,000 to cover the required total, being $225,500 plus GST of $22,550. The GST would be recoverable as an input credit as soon as the loan had been advanced and the requisite payments had been made to LRA. Ms Brenton forwarded to Mr Cookes a copy of her recommendation to Mr Caterjian. The latter responded on 27 July 2017 that "overall, it's what I expected and happy to go with that". I infer that Ms Brenton must have passed on Mr Caterjian's response, because Mr Cookes thereafter proceeded on the basis that finance was definitely being sought from the plaintiff.
7. No formal loan application was submitted. Mr Cookes took into account the first defendant's curriculum vitae and the financial details that had been supplied in connection with the 2015 loan application. He said in evidence that he felt able to offer the finance without close scrutiny of the first defendant's standing because he had approved the larger loan, which was not taken up, two years earlier and because Ms Brenton was involved.
8. Counsel for the defendants put to Mr Cookes that the amount of $250,000 to be loaned to the first defendant was not calculated by reference to any requirement to fund the fees payable to LRA under the Area Representative Agreement but was simply the amount that the plaintiff required to reimburse its contributory lenders in respect of the non-performing loan to Solucionar Pty Ltd. It was put that the whole object of the exercise was to convert the exposure of those contributories into an exposure to Mr Caterjian, secured by second mortgage over real property, and to substitute LRA as the sole contributory to the Solucionar Pty Ltd loan - which would remain nominally a loan from the plaintiff but as bare trustee for LRA.
9. Mr Cookes rejected those propositions and I accept his evidence. As between the plaintiff and Mr Caterjian the $250,000 loan had the clear purpose of enabling him to fulfil the contractual obligation he had undertaken, with Ms Brenton and through Ellie and Mac Pty Ltd, to LRA. The plaintiff was only willing to lend to Mr Caterjian if LRA agreed that it would apply the fees that would come to it under the Area Representative Agreement towards paying out the contributories to the Solucionar Pty Ltd loan. In the plaintiff's dealings with LRA, as a borrower in its own right and as an introducer of Area Representatives and Business Associates who required finance, it was commercial and reasonable for the plaintiff to insist that LRA take over a non-performing loan before the plaintiff would advance a new one. This aspect of management of the plaintiff's loan portfolio made no legal difference to the substance of its lending transaction with Mr Caterjian.

August 2017 - Mr Caterjian's acceptance of the plaintiff's loan offer

1. Mrs Sclavos-Caterjian deposed that "around July 2017" she had the following conversation with her husband: Alex: I'm looking to borrow funds to take up an opportunity with LRA. Me: How are you going to do that? With what capital - you're not going to use the house - we've just bought it. She further deposed that she had been repeatedly advised by her mother never to risk her home as security for a business. She was aware of a number of older couples who had faced the risk of losing their homes as a result of their children persuading them to provide guarantee mortgages. I have no doubt that Mrs Sclavos-Caterjian was at all times opposed to her husband granting security over the Bexley property and that she tried to dissuade him from doing so.
2. Although Ellie and Mac Pty Ltd was not registered until 12 September 2017 the name had been reserved from 13 July 2017. That was apparently sufficient for the plaintiff to prepare loan documentation. On 4 August 2017 Mr Cookes emailed to Mr Caterjian a letter of offer of finance in the sum of $250,000 at an interest rate of 12% for three years, supported by a personal guarantee from Mrs Sclavos-Caterjian and a second mortgage of the Bexley property. Mr Caterjian countersigned the letter of offer by way of acceptance and emailed it back to the plaintiff on 7 August 2017.
3. Mr Caterjian made no reference to this in his affidavit. In oral evidence he claimed that he had discussed acceptance of the loan offer with Mrs Sclavos-Caterjian before signing the letter and returning it. He gave this evidence about the discussion: Q. Given that you accepted the loan offer from Parfit, it is likely, is it not that Mina supported you in going ahead and accepting it? A. I can't recall. Q. Is it likely that you accepted it in the face of her expressed disapproval? A. Unlikely. […] HIS HONOUR […] Q. […] what was the effect of the words that she spoke? A […] She would have said, "I do not want a - a mortgage over the property, a second mortgage". […] [PLAINTIFF'S COUNSEL] […] Q. But you agreed with me earlier that it was likely that you didn't sign this document in the face of Mina's expressed disapproval. A. I - I would - I would say no. Q. No to? A. That I wouldn't have signed it if there wasn't some element of Mina supporting me in what I did, yes. HIS HONOUR […] Q. This document stated that a loan was offered to you on terms that you would be the borrower or I think you would be the borrower. There would be a personal guarantee from your wife. A. Yes. Q. And there would be a mortgage over the property which would necessitate that it would be given by both of you. A. Yes. Q. This is really quite specific. Before you signed this thing on 8 July or dated 8 July [scil 7 August], did she or did she not agree that she would sign the personal guarantee and sign the registered mortgage when it was prepared so that you could promise to fulfil these conditions of borrowing? A. Yes, she did. Well, she - I mean, she would have because that's why I signed it. Q. That's why you signed this letter? A. Yes.
4. I do not accept any of that evidence. I am not satisfied that Mr Caterjian discussed the letter of offer with his wife at all. If he had discussed it with her, having regard to Mrs Sclavos-Caterjian's convincing evidence about her opposition to mortgaging the family home, I have no doubt she would have remonstrated with Mr Caterjian vociferously and made it plain that she did not agree. Presumably the point of counsel's cross-examination was, first, to try to establish through Mr Caterjian that his wife was willing about this loan and the guarantee mortgage and, secondly, to argue from that premise that Mrs Sclavos-Caterjian was not induced to grant the mortgage by any misleading conduct on the part of the plaintiff.
5. If those were the objectives, the first of them was not attained. Mr Caterjian was self-serving in his claim that Mrs Sclavos-Caterjian supported him with respect to the loan. I find that in fact he went behind her back in signing and despatching the plaintiff's letter of offer, without consulting her, as he had done in signing and despatching the Area Representative Agreement on 18 July.
6. Counsel's second objective is reached by a different route. As will be seen, when Mrs Sclavos-Caterjian was eventually informed of the loan and mortgage proposal on 29 August 2017, it was Mr Caterjian and no-one else who overbore her and induced her to sign the documents, at a time when she was still opposed but acutely vulnerable.

August 2017 - execution of loan and mortgage documents

1. The defendants' 11 month old daughter was admitted to hospital on 10 August 2017 and was diagnosed with a large tumour over her left lung that restricted respiration. She remained in the hospital until 13 October 2017. During her admission she was intubated to assist her breathing and she underwent chemotherapy to reduce the mass of the tumour. Both defendants spent most of their time at the hospital while the child was under treatment. They more or less lived there, in the parents' accommodation. Ms Brenton was informed on 10 August 2017 that the child had been admitted to hospital and she in turn informed Mr Cookes.
2. On 18 August 2017 the plaintiff's solicitors sent a Loan Facility Agreement, a Guarantee and Indemnity and a Mortgage instrument, together with ancillary documents, to Mr Caterjian's parents' address in Frenchs Forest. The plaintiff had the address on file from the 2015 loan application. A covering letter from the plaintiff's solicitors contained the following advice printed in bold type on the first page: We strongly recommend that you each obtain individual and independent legal advice in respect of the Loan Documents. We cannot advise you or explain the Loan Documents to you as we act for the Lender
3. The Loan Facility Agreement was for an advance of $250,000 to Mr Caterjian at a rate of 15% per annum reducible to 12% for prompt payment, monthly in arrears. Mrs Sclavos-Caterjian was nominated as a party to the agreement as guarantor. She was also required to execute the Guarantee and Indemnity between herself and the plaintiff whereby she guaranteed performance of Mr Caterjian's obligations under the Loan Facility Agreement. The mortgage was required to be signed by both defendants as registered proprietors of the Bexley property. It secured all monies owing to the plaintiff by either of them, at any time, under the Loan Facility Agreement or any other financial accommodation.
4. The documents sent out to the defendants in this package included a direction to pay. This provided for disbursement of a loan application fee to the plaintiff itself, disbursement of legal costs to the plaintiff's solicitors and a payment of $231,050 to LRA, described as "AR Application Fee and Training, BA Legals including GST". The reference to "BA Legals" was to legal expenses for a Business Associate Agreement in respect of the proposed Sydney CBD psychology practice. It had been discussed between Mr Caterjian and Ms Brenton that there would be no Business Associate fee payable to LRA in respect of this agreement because the Area Representative was Ms Michelle Opacic who was to be the third joint-venturer in this Business Associate Agreement. The agreement was to be entered into by a corporate vehicle of Mr Caterjian, Ms Brenton and Ms Opacic with the name JAM Sydney Pty Ltd.
5. Emails exchanged in mid August 2017 demonstrate that Mr Cookes on behalf the plaintiff was at pains not to pressure the defendants about executing the loan documentation given their circumstances of attending to a sick child in hospital. If either of the defendants felt any pressure I am satisfied that the plaintiff was unaware of it. I accept the following paragraphs of Mr Cookes' affidavit of 30 April 2021: [6] I never pursued or pressured the Caterjians to enter into the loan. Execution of the loan documents was facilitated through Parfit's lawyers, Swaab. I was not aware of any pressure placed on the Caterjians by Parfit, Swaab or [Ms] Brenton. [7] I cannot locate, nor do I recall, any email or other request from the Caterjians (or anybody else for that matter) asking for delay in the execution of any loan documents for any reason, including by reason of [their daughter's] illness. [9] I had no knowledge of the Caterjians' state of mind around the time of the execution of the loan documents. I have never met the Caterjians or spoken to them prior to the commencement of these proceedings.
6. On 25 August 2017 Ms Brenton provided to Mr Caterjian a list of matters that required his attention in order to advance their business dealings. He agreed in evidence that he was "happy for her to keep things moving along on [his] behalf at this time". The items listed by Ms Brenton included collection of the plaintiff's loan documentation from the Frenchs Forest address and obtaining proof of identity, so that arrangements could be made for a witness to attend the hospital and secure the defendants' execution of the documents.
7. On 25 August 2017 a reply email from Mr Caterjian to Ms Brenton included the following: I've received the package of documents. It's huge and has lots of tags. It's difficult to get my head around the long legal documents - thought it was much simpler contract. With all that's going on, as you can appreciate, trying to get my head around the long contracts right now is unlikely […] Also I'm unsure about Mina being a guarantor - I hadn't thought I needed one as the house was being used as security (guarantee). I need to discuss to find out why Mina as guarantor is a requirement. […] Can we slow this down just a little bit as Ellie's medical condition is too consuming of time, energy and focus? Just until we get some positive prognoses?
8. In cross-examination Mr Caterjian denied that he had inspected the loan documents at this time. He said that he only inferred they were long contracts because of the thickness of the packet and that he could tell they had tags on them by feel. I find that evidence to be untruthful. It was given in order to avoid having to acknowledge that he read the covering letter and was aware of the strong recommendation that he and Mrs Sclavos-Caterjian each obtain independent legal advice. I am satisfied that he was aware of that recommendation and that he disregarded it because he was bent upon obtaining the loan and proceeding with the Area Representative Agreement. He did not want advice for himself and he certainly did not want it for his wife because it might reinforce her opposition, which was already well known to him. Mr Caterjian gave very unconvincing oral evidence, which I reject, that he wished to consult a lawyer about the loan documentation but had insufficient time because of pressure to sign. The email of 25 August 2017 contained no suggestion that he wanted to defer execution until he could consult a solicitor.
9. The assertion in the email about being surprised at the requirement of a guarantee from Mrs Sclavos-Caterjian was false. Mr Caterjian had known from 2015 that his wife would have to execute a guarantee and second mortgage as security for a loan. This was also made clear in relation to the current transaction by the letter of offer from the plaintiff, which Mr Caterjian had signed 18 days earlier. His email of 25 August 2017 was a naive attempt to avoid, at the last minute, involvement of Mrs Sclavos-Caterjian in the borrowing. This paragraph of the email also demonstrates that Mr Caterjian had not up to this date discussed with his wife that he intended to proceed with this large borrowing upon security of their home. It indicates that he certainly had not obtained her agreement to that.
10. In cross-examination Mr Caterjian claimed that at the time of sending this email he was "fuming" at Ms Brenton and the plaintiff for requiring him to attend to the loan documents while his daughter was in hospital. I reject that evidence. Another passage of the email to Ms Brenton expresses his appreciation for "all the work that you're putting in to cover my load". There is no hint of "fuming" or even mild irritation. This is something Mr Caterjian made up in order to give the impression that communications with him about the loan documentation while his daughter was critically unwell placed him under duress and gave rise to unfairness in procuring his signature. Mr Caterjian agreed in cross-examination that he wanted to proceed with execution of all documents and to get on with the joint-ventures. He was aware that early November 2017 was a critical date for commencing the business of the Sydney CBD Business Associate practice, in order to service a party that would refer numerous patients under arrangements with their employers. An email and text message from Ms Brenton in response to Mr Caterjian's email of 25 August 2017 assured him of her understanding and sympathy and that there was "no pressure".
11. The plaintiff's insistence on a guarantee from Mrs Sclavos-Caterjian was confirmed in an email from Mr Cookes on 26 August 2017. Arrangements were made for a witness to attend the hospital and have the loan documents signed on 29 August. I am satisfied that Mrs Sclavos-Caterjian had not been informed in advance by her husband that this would occur. At par 106 of his affidavit Mr Caterjian deposed the following conversation with his wife on 29 August: Me: The man [who is] here to get our signatures on the loan documents told me to ask you to go downstairs to the enclave in the general reception area to sign the documents. Mina: I can't understand why I am being forced to participate, as my "life" (referring to Ellie) is lying on the bed on ventilation. Me: I have no other way to support you, and if you don't sign the documents then I will leave you.
12. Mr Caterjian gave the following further evidence about this in cross-examination: A. […] At one point - at one point I did threaten her to - of leaving her. [The witness subsequently confirmed that this was on the occasion referred to in his affidavit, 29 August 2017, when the loan documents were first signed]. Q. What did you say in that regard? [A]. That I would - I would leave her if she didn't sign it. Q. How would that help? A. Because I know she was - she was dedicated to me. Ellie was quite unwell. I was in a lot of distress. She was in a lot of emotional and mental distress. It would have tipped her over the edge to sign the document.
13. Further with respect to the same occasion Mr Caterjian gave these answers: Q. And that threat was made on about 29 August in hospital, correct? A. Yes. Q. And Mina didn't want to sign the documentation because she didn't want to give a second mortgage over the house, correct? A. Partially, yes. Q. That was one of her reasons. A. One of the reasons. Q. And as far as you're aware, she only signed it because you threatened to leave her. Is that right? A. Yes.
14. The documents were signed by both defendants that day. In her affidavit Mrs Sclavos-Caterjian confirmed that her husband threatened to leave me if I did not sign the documents because he had lost his job in about mid August because we were at the hospital. Alex stated that he wanted to support his family and expressed he felt like a failure. Mrs Sclavos-Caterjian was on maternity leave, without her own income, desperately worried about her infant child and extremely vulnerable to this pressure from her husband.
15. Mrs Sclavos-Caterjian deposed to having no recollection of the execution of the documents, apart from meeting "a man of Asian appearance waiting for me with an electronic machine" near the entrance to the hospital café. She deposed that the signatures on the documents dated 29 August 2017 are not hers. They must in fact be hers, although she may not have signed with a steady hand or with her usual signature due to the tension she must have felt, given her personal reluctance and the ultimatum from her husband.
16. Mr Caterjian also signed all of the loan transaction documents on 29 August 2017. Both defendants signed a document entitled "Authority to date and complete documents, direction to pay and waiver". This contained the following: In consideration of you providing the Facility each signatory: 3 […] 4 acknowledges and confirm that they have had the opportunity and right to seek legal advice and financial advice in relation to this transaction with Parfit Investments Pty Ltd and the loan and security documents and have waived their right to seek such legal advice and financial advice.

29 September 2017 - re-execution of loan and mortgage documents

1. The defendants' daughter was moved from intensive care to a ward on about 19 September 2017. From then she responded well to a trial drug and was improving over the next month until her discharge on 13 October. On 28 September 2017 Ms Brenton informed Mr Caterjian by text message that some of the loan documents had to be re-signed because some of Mrs Sclavos-Caterjian's signatures "haven't matched up". She advised that arrangements were in train to have the documents re-presented, at the hospital, the next day.
2. I accept the following evidence from Mr Cookes, given in par 10 of his affidavit of 30 April 2021: [10] The loan documents signed by the Caterjians on 29 September 2017 were the same document signed on 29 August 2017. As at 29 September 2017 I was of the view that the Caterjians had had time before to look over and consider the documents and hence it was unlikely that any further substantial period of time would be required by them to consider the documents prior to signing.
3. Mr Caterjian claimed in oral evidence that he sought to defer the re-signing because he was in a debilitated mental state due to stress concerning his daughter. There is no request for deferral in any of the contemporaneous text and email communications and I do not accept that such a request was made. This was another attempt by Mr Caterjian to create in his evidence a false impression of duress with respect to signing. His own text messages are to the contrary of duress. After the re-signing on Friday, 29 September 2017 he sent a text message to Ms Brenton as follows: "Re-signing has been done. Looking forward to moving onto the next step. Speak to you on Tuesday. Have a great long weekend! Regards Alex
4. In cross-examination Mr Caterjian sought to deny the evident satisfaction and goodwill that he expressed in this message concerning arrangement of the borrowing. His denial lacked any credibility. At par 131 of his affidavit he said that at about the time when he received confirmation from the plaintiff's solicitors on 29 September 2017 that all loan documents were in order, he said to Ms Brenton words to the effect: I'm very excited. I want so desperately to be financially independent. In cross-examination he agreed "absolutely" that he "saw this deal with LRA as [his] ticket to financial independence". Mr Caterjian was unable to reconcile, in any coherent fashion, the sentiments that he expressed contemporaneously and that he deposed to in his affidavit with his oral evidence that he was very unhappy about "what [had] happened to date".
5. Mrs Sclavos-Caterjian deposed to very little recollection of the re-signing on 29 September. She did not say that her husband repeated his threat that he would desert her but I am satisfied that that would have continued to influence her. Mrs Sclavos-Caterjian has acknowledged that some of the signatures and initials placed on the documents on 29 September 2017 are hers but she has denied others. I am satisfied that they are all hers, as the entire signing was witnessed by the one person and variance in her signatures and initials is understandable given the mental state she was in at the time. Mrs Sclavos-Caterjian deposed as follows: [60] […] All I remember is being angry that I was being taken away from Ellie. [64] The trauma of our child being critical and close to death has impacted me greatly, and that includes my long-term memory and decision-making. So much so, that my employer has put me on reduced duties which is still ongoing [as at 16 September 2020]. […] [69] I recall I was angry and frustrated that I had to be taken away from Ellie's bedside to meet with someone on the balcony [of the hospital ward, to resign] […] Ellie was still critical and had a tracheostomy tube in her throat, a central line in her chest, and a nasal gastric tube to administer fluids/food.
6. The loan documents signed by both defendants on 29 September 2017 included a waiver of legal advice in the same terms as that which they had signed on 29 August 2017 (see [112] above).

LRA's direction to the plaintiff to pay

1. Mr Caterjian's authority to the plaintiff for disbursement of the $250,000 advance was signed by him on 29 August 2017 and re-signed on 29 September 2017. It required that $231,050 be paid to LRA. This was intended to take care of his half share of the amount payable by Ellie and Mac Pty Ltd for the Area Representative Agreement and his obligation under the proposed Business Associate Agreement for the Sydney CBD practice, which was subsequently entered into by JAM Pty Ltd. There was an error in the direction to pay. The total amount due to LRA was $500 greater, that is, $231,550. Mr Caterjian was notified of this correction by email from the plaintiff on 17 October 2017.
2. LRA issued a direction to the plaintiff, signed by Mrs Brenton, for disbursement of the funds that were to be received by it out of the advance to Mr Caterjian, as follows (the error as to $500 was repeated): 1 Parfit Investments Pty Ltd (repayment of Parfit Short Term Loan Advances - Timsim $45,000 and MGIT $40,000) $85,000.00 2 Timsim Holdings Pty Ltd (repayment balance Solucionar Pty Ltd (Elton del Cid) loan) $16,361.65 3 CLCL Pty Ltd (repayment balance Solucionar Pty Ltd (Elton del Cid) loan) $50,291.77 4 Regnans Super Pty Ltd (repayment balance Solucionar Pty Ltd (Elton del Cid) loan) $54,331.19 5 Balance by cash to LRA CBA account $25,065.39 Total $231,050.00

1. Apart from Solucionar Pty Ltd the entities referred to in the above table were contributories whose funds were loaned out on their behalf by the plaintiff acting as bare trustee. Timsim Holdings Pty Ltd ("Timsim") was a company controlled by Mr Cookes. CLCL Pty Ltd ("CLCL") and Regnans Super Pty Ltd ("Regnans") were controlled by two of Mr Cookes' business associates respectively. MGIT Pty Ltd ("MGIT") was Mr Cookes' superannuation fund trustee.
2. From June 2014 the plaintiff had established a commercial loan facility for LRA, the funds for which were contributed by Timsim and up to five other entities, in varying proportions from time to time. As at August 2017 the principal on loan under this facility was $800,000. The plaintiff also provided LRA with a short term loan from April 2017, the contributories for which were Timsim, CLCL, Regnans and Ms Magalotti. At 1 August 2017 the balance outstanding on the short term loan was $518,351.65.
3. The entry at line 1 of the table at [120] above arose as follows. Between 7 and 16 August 2017 Timsim had contributed $45,000 to the plaintiff to be loaned to LRA under the short-term facility and MGIT had contributed $40,000. Of the $231,050 that Mr Caterjian had directed should be paid to LRA from the $250,000 loan, LRA in turn directed that $85,000 should be applied to repaying those recent drawdowns on its short term facility.
4. The entries at lines 2, 3 and 4 in the table at [120] reflect the implementation of the arrangement between the plaintiff and LRA recounted at [86] and [90] above, as a result of which LRA became the sole contributory lender of $120,000 of the plaintiff's loan to Solucionar Pty Ltd and the original contributories of that portion of the loan were repaid.
5. The advance to Mr Caterjian was made on 30 August 2017, after the first signing of the loan documentation. Upon correction of the $500 error referred to at [119] and [120], the balance payable into LRA's account with the CBA was $25,565.39. That sum was transferred on 30 August 2017. The remaining application of funds advanced to Mr Caterjian, up to the total of $231,550 that he was required to pay to LRA, was effected by entries in the books of the plaintiff. The result was that the plaintiff's exposure to LRA and to Solucionar Pty Ltd was reduced by nearly $206,000 and replaced by an exposure to Mr Caterjian, secured by a guarantee from Mrs Sclavos-Caterjian and a second mortgage over their home.

Initial servicing of loan, commencement of business, external administration of LRA

1. There is no dispute that Mr Caterjian paid to the plaintiff a total of $17,500 in interest from the commencement of the loan up to 29 March 2018. Nothing has been paid since. By email of 11 October 2018 Mr Caterjian sought a suspension of interest payments and an extension of time within which to pay the arrears, which were $15,000 at that date. Mr Cookes made a counter-proposal on 1 December 2018 but no agreement was reached.
2. JAM Pty Ltd entered into its Business Associate Agreement with LRA on 17 October 2017, although the company was not incorporated until 25 October 2017. From 1 November 2017 JAM Pty Ltd commenced to conduct a Sydney CBD psychology practice under the Agreement. Mr Caterjian was the principal psychiatrist on a salary of $120,000pa. Mr Caterjian and Mrs Brenton failed to recruit, through Ellie and Mac Pty Ltd, any new Business Associates in the western Sydney region. Accordingly, Ellie and Mac Pty Ltd derived no revenue under the Area Representative Agreement. Mr Caterjian deposed that he had no opportunity to "canvass the potential market" because his time was fully occupied with managing the Sydney CBD practice and performing clinical work in that practice.
3. In September 2018 Mrs Brenton concluded that LRA was insolvent and unable to continue trading. She arranged for novation agreements to be prepared, whereby LRA's obligations under the Business Associate Agreement with JAM Pty Ltd were to be novated to a company named Good to Listen Pty Ltd. She had caused that company to be incorporated on 30 August 2018 and she was its sole director. Mrs Brenton caused another of her entities, Here to Help Pty Ltd, to purchase from LRA its office furniture and computer equipment and to take over LRA's debit balances in various bank overdraft accounts. There was no novation of LRA's obligations under the Area Representative Agreement with Ellie and Mac Pty Ltd. Mr Caterjian's investment of over $200,000 in that joint venture became worthless upon the winding up of LRA.
4. On 4 October 2018 a liquidator was appointed to LRA pursuant to a creditors' voluntary winding up. A report as to affairs was signed by Mrs Brenton on 19 October 2018. She disclosed that the company's only numerically significant assets, totalling approximately $1.41 million, were loans to related entities. LRA's liabilities were shown as including $1.044 million owed to the plaintiff and $835,682 owed to Ms Magalotti. Both of those debts were secured over the company's assets. There were additional unsecured creditors of $2,012,679.
5. From September 2018 until Mr Caterjian continued to conduct the Sydney CBD psychology practice in the name of JAM Pty Ltd, with Good to Listen Pty Ltd as the nominal franchisor under the Business Associate Agreement. In March 2019 Mr Caterjian ceased to conduct the practice. There was no further performance of the Business Associate Agreement or of the Area Representative Agreement thereafter.

Loan default by Mr Caterjian

1. By the terms of the Loan Facility Agreement Mr Caterjian's default for more than 10 days in the due and punctual payment of interest entitled the plaintiff to demand immediate repayment of the principal and all outstanding interest. A letter of demand was sent to Mr Caterjian on 12 July 2019 and a corresponding demand under the Guarantee and Indemnity agreement was sent to Mrs Sclavos-Caterjian on the same day. Those demands were not met. On 14 October 2019 the plaintiff served on the defendants notices pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW), requiring payment within one month of $63,207.53, being all arrears of interest plus $500 in costs. The defendants were informed by these notices that if payment was not made the plaintiff proposed to exercise its power of sale in respect of the Bexley property. No payment was made.

Issues

1. The causes of action pleaded by the plaintiff and the matters alleged in the defence and, more particularly, the defendants' cross claim, give rise to the issues identified in subheadings below, which I determine as follows.

Issue 1: Were the loan funds advanced to the first defendant?

1. The defendants allege that because Mr Caterjian directed the plaintiff to pay to LRA the bulk of the loan funds that he was to receive and because LRA directed most of that money to be repaid to contributories of the plaintiff's loan to Solucionar Pty Ltd, therefore the loan funds were not advanced to Mr Caterjian at all. That contention is misconceived. Mr Caterjian was borrowing money in order to contribute his half share of what Ellie and Mac Pty Ltd was liable to pay to LRA under the Area Representative Agreement. His direction to pay the bulk of the loan directly to LRA for this purpose was a normal commercial arrangement, following a pattern that is very common in the settlement of advances from lending organisations. Upon the direction being carried out, the advance to Mr Caterjian was effected and what LRA chose to do with the funds it received could not alter the fact that the Loan Facility agreement had been performed by the plaintiff.

Issue 2: Is Mrs Sclavos-Caterjian's guarantee unenforceable because of the way the loan funds were applied?

1. The defendants submit that the manner of advancing the loan pursuant to Mr Caterjian's direction, whereby LRA received the bulk of the funds, amounted to failure of the plaintiff to observe the terms of its lending arrangement with the principal debtor, so that the liability of Mrs Sclavos-Caterjian as guarantor is discharged in accordance with the principle explained by Deane J in Ankar Pty Ltd v National Westminster Finance (Australia) Pty Ltd (1987) 162 CLR 549; [1987] HCA 15 at [11]. This also has no substance, for the reasons already given in relation to Issue 1.

Unconscionable conduct under ss 20 and 21 of the Australian Consumer Law

1. The defendants allege that in securing their signatures to the Loan Facility Agreement, the Guarantee and Indemnity and the second mortgage and associated documents, the plaintiff acted unconscionably in contravention of ss 20 and 21 of the Australian Consumer Law, being Schedule 2 to the Competition and Consumer Act 2010 (Cth). Sections 20 and 21 must be considered together with s 22. The sections are in the following terms, extracted so far as relevant. Subsections and paragraphs that have no application to the present case and that are concerned with matters not raised in evidence or argument have been omitted: 20 Unconscionable conduct within 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. Note: A pecuniary penalty may be imposed for a contravention of this subsection. (2) This section does not apply to conduct that is prohibited by section 21. 21 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) […]; engage in conduct that is, in all the circumstances, unconscionable. (2) […] (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. 22 Matters the court may have regard to for the purposes of section 21 (1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the customer; and […] (c) whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and […] (i) the extent to which the supplier unreasonably failed to disclose to the customer: (i) any intended conduct of the supplier that might affect the interests of the customer; and (ii) any risks to the customer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer); and […] (l) the extent to which the supplier and the customer acted in good faith. (2) […]
2. In Australian Securities and Investments Commission v Kobelt [2019] HCA 18 Kiefel CJ and Bell J elaborated the meaning of "unconscionable" conduct in s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth), which is in terms identical to s 21 of the Australian Consumer Law except that it is concerned with the supply or possible supply of "financial services" rather than "goods or services". Their Honours held as follows: [14] The term "unconscionable" is not defined in the ASIC Act and is to be understood as bearing its ordinary meaning. The proscription in s 12CB(1) is of conduct in connection with the supply of financial services that objectively answers the description of being against conscience. The values that inform the standard of conscience fixed by s 12CB(1) include those identified by Allsop CJ in Paciocco v Australia and New Zealand Banking Group Ltd 2015) 236 FCR 199 at 274 [296]: certainty in commercial transactions, honesty, the absence of trickery or sharp practice, fairness when dealing with customers, the faithful performance of bargains and promises freely made, and: "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". [15] It is the application of the last-mentioned value with which the appeal is concerned. In Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [124] and Thorne v Kennedy [2017] HCA 49 at [38] it was said that a conclusion of unconscionable conduct requires not only that the innocent party be subject to special disadvantage, but that the other party must also unconscientiously take advantage of that special disadvantage. This has variously been described as requiring victimisation, unconscientious conduct or exploitation.
3. Gaegler J considered the relationship between s 12CA Australian Securities and Investments Commission Act, which equates to s 20 of the Australian Consumer Law, and s 12CB which equates to s 21, as follows (citations omitted): [81] "Unconscionable" is an obscure English word which centuries of use by courts administering equity have transformed into a legal term of art. In Australia, the central concern of a court administering equity in identifying conduct as unconscionable has long been understood to be to relieve against a stronger party to a transaction exploiting some special disadvantage which has operated to impair the ability of a weaker party to form a judgment as to his or her interests. [82] Section 12CA of [the ASIC Act] gives statutory expression to that equitable conception of unconscionable conduct. The section's prohibition against engaging in conduct in relation to financial services that is "unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories" operates to impose an additional statutory sanction on conduct that is unconscionable in equity. Suggestions that its reference to conduct that is unconscionable within the meaning of the unwritten law imports some more expansive and less precise denotation are contradicted by extrinsic material explaining the precise choice of statutory language and have been properly refuted. [83] Section 12CB of the ASIC Act does something more. The section's prohibition against engaging in conduct in connection with the supply or possible supply of financial services "that is, in all the circumstances, unconscionable" is expressed to be "not limited by the unwritten law of the States and Territories relating to unconscionable conduct". Those words make clear that the statutory conception of unconscionable conduct is unconfined to conduct that is remediable on that basis by a court exercising jurisdiction in equity. Furthermore, determination by a court exercising jurisdiction in a matter arising under the section of whether conduct is, in all the circumstances, unconscionable is required by s 12CC [equivalent to s 22 of the Australian Consumer Law] to be informed by the numerous considerations specified in that section, each of which has the potential to bear positively or negatively on the characterisation of conduct as conduct that is or is not unconscionable, and each of which must be taken into account if and to the extent that it is applicable in all the circumstances.
4. His Honour explained the meaning of "unconscionable" conduct in s 12CB as follows (some citations omitted): [92] What I meant to convey by the reference [to "a high degree of moral obloquy", in his Honour's judgment in Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 at [188]] was that conduct proscribed by the section as unconscionable is conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience. To that view of the statutory standard I adhere. [93] The judgment required of a court exercising jurisdiction in a matter arising under s 12CB is a heavy one. For a court to pronounce conduct unconscionable is for the court to denounce that conduct as offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society. Those values are not entirely confined to, or entirely removed from, the values which historically informed courts administering equity in the development of the unwritten law of unconscionable conduct. They include respect for the dignity and autonomy and equality of individuals. […]
5. Keane J held as follows (some citations omitted): [118] The use of the word "unconscionable" in s 12CB - rather than terms such as "unjust", "unfair" or "unreasonable" which are familiar in consumer protection legislation - reflects a deliberate legislative choice to proscribe a particular type of conduct. In its ordinary meaning, the term "unconscionable" requires an element of exploitation. The term imports the "high level of moral obloquy" associated with the victimisation of the vulnerable. As five members of this Court observed recently in Thorne v Kennedy, a finding of unconscionable conduct requires the unconscientious taking advantage of a special disadvantage, which has "been variously described as requiring 'victimisation', 'unconscientious conduct', or 'exploitation'". And in Kakavas v Crown Melbourne Ltd, this Court unanimously confirmed that "[h]eedlessness of, or indifference to, the best interests of the other party is not sufficient" to establish the "predatory state of mind" that must be shown. [119] The legislative choice of "unconscionability" as the key statutory concept, rather than less morally freighted terms such as "unjust", "unfair" or "unreasonable", confirms that the moral obloquy involved in the exploitation or victimisation that is characteristic of unconscionable conduct is also required for a finding of unconscionability under s 12CB. Section 12CB(4)(a) of the ASIC Act [equivalent to s 21(4)(a) of the Australian Consumer Law] does not require a contrary conclusion. The direction in s 12CB(4)(a) means that the application of s 12CB(1) is not limited to conduct that has been held to be "unconscionable" under the general law, but it does not operate to give the term "unconscionable" a meaning different from its ordinary meaning. Adherence to the ordinary meaning of the term "unconscionable" is appropriate for two reasons rooted in the nature of the judicial function. First, the courts must give effect to what Parliament has enacted. Here, it must be acknowledged that the Parliament has deliberately chosen to use this expression as the focus of attention, and not a more open-textured or morally neutral expression that would be less certain in its scope. And secondly, the appellant did not propound a meaning for "unconscionable" different from its ordinary meaning; and so the respondent had no occasion or opportunity to meet such a contention. [120] In addition, the circumstance that s 12CB is to be applied by way of a multi-factorial judgment informed by the considerations listed in s 12CC [equivalent to s 22 of the Australian Consumer Law] does not suggest that the evaluative judgment ultimately to be made as to unconscionability is morally neutral. The approach contemplated by s 12CC to the determination of "unconscionability" for the purposes of s 12CB is consistent with the settled approach of a court of equity, which takes a "more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case". The ultimate issue under the statute is whether the conduct in question is rightly to be characterised as unconscionable. In determining that issue, s 12CB calls for a judgment as to whether the impugned conduct exhibits the level of moral obloquy associated with predatory conduct.
6. The above statements from Australian Securities and Investments Commission v Kobelt are recent and authoritative. Having regard to the equivalence of statutory language those statements must apply equally to the operation of ss 20 and 21 of the Australian Consumer Law. The parties did not submit otherwise.

Issue 3: Did the plaintiff unconscionably pressure the defendants to sign the loan transaction documents at a time of vulnerability?

1. The defendants allege two circumstances that are said to have constituted unconscionable conduct of the plaintiff in providing the loan to the first defendant and obtaining the second mortgage: 1. First, it is said that at the time of concluding the borrowing transaction the defendants were under "severe emotional and physical strain [as a result of their daughter's hospitalisation] such as to impede their ability to comprehend the contents of the loan documents". 2. Secondly, it is alleged that in August complete/September 2017 LRA was insolvent or close to insolvency, to the plaintiff's knowledge, and that the plaintiff took advantage of the defendants' ignorance of that fact, which had the consequence that the loan obligations were unlikely to be satisfied.
2. As to the first matter, on the findings I have made concerning the circumstances in which the loan documentation was signed, it has not been shown that the plaintiff exerted pressure on either defendant to conclude the transaction while their daughter was in hospital and while they were deeply concerned about her prognosis. It was Mr Caterjian who wanted to press on with this because he saw completion of the borrowing and commencement of business under the Agreements with LRA, to which the loan funds were to be applied, as essential to attaining financial security for his family. He did not want to defer the loan transaction until his daughter's health improved or until she was discharged. I do not accept that he felt any pressure from the plaintiff but, if he did, I am not satisfied that Mr Cookes was aware of that. On the contrary, to Mr Cookes' perception the essential parameters of the lending had been agreed upon when Mr Caterjian returned to the plaintiff the signed letter of offer on 7 August 2017, three days before Mr Cookes was informed that the child had been hospitalised.
3. I have found that Mrs Sclavos-Caterjian was placed under pressure by her husband to sign the loan documents but there is no evidence that this became known to Mr Cookes or that he should have been aware of it. The same is true of Ms Brenton, if that be relevant to the plaintiff's position. I do not regard it as relevant because Ms Brenton did not act as agent of the plaintiff in securing execution of the loan documents. Any knowledge she may have had of the perceived circumstances of either of the defendants at the time of signing is not attributable to the plaintiff.
4. Far from Mr Cookes being aware of any pressure that either of the defendants felt about executing the loan documents, he had every reason to believe that they were comfortable in doing so. So far as he knew, they had been on the verge of signing for a much larger loan, for a similar purpose, in September 2015. It had never been suggested by the defendants, either to the plaintiff or to anyone else, that their reason for not proceeding at that time had to do with unease concerning the plaintiff's lending terms. Further, both defendants signed waivers of any requirement for independent legal advice, indicating confidence regarding the details of the transaction. That impression would have been conveyed, particularly, by the defendants proceeding to re-sign on 29 September more than one month after the transaction documents were first sent out for their consideration.
5. The cross-claim based upon this ground of alleged unconscionable conduct could not, on its own, support any relief. The defendants have not shown their entry into the transaction was caused by any pressure of time that they felt under, to sign the documents while they were experiencing emotional strain. There is no evidence from either of them that they would not have signed if they had had more time and had not been distracted by the ill-health of their daughter. There is evidence to the contrary from both of them. Mr Caterjian signed irrespective of any other party's desire for expedition because he wished to get on with the business and Mrs Sclavos-Caterjian signed because she was worn down by her husband's insistence and by his threat to leave her.

Issue 4: Was LRA insolvent or nearly so in August/September 2017?

1. Relevantly to the defendant's second particular of unconscionable conduct, paraphrased at [141] above, the defendants allege that LRA was insolvent, or close to insolvent, when the plaintiff made its advance to Mr Caterjian in August 2017 and when the loan documents were executed. In the absence of any submission to the contrary, I approach this issue on the basis that the concept of solvency in s 95A of the Corporations Act 2001 (Cth) is to be applied. The question is whether LRA was able to pay its debts as and when they became due and payable taking into account not only the company's capacity to pay out of its own money but also the willingness of any third parties to make funds available without security: Treloar Constructions Pty Limited v McMillan [2017] NSWCA 72 at [77].
2. In Lewis v Doran [2005] NSWCA 243 the test of insolvency was elaborated at [109] (Giles JA) as follows: (emphasis in original) Particularly when the limiting words [out of the company's own funds] are no longer part of the test, there is no compelling reason to exclude from consideration funds which can be gained from borrowings secured on assets of third parties, or even unsecured borrowings. If the company can borrow without security, it will have funds to pay its debts as they fall due and will be solvent, provided of course that the borrowing is on deferred payment terms or otherwise such that the lender itself is not a creditor whose debt can not be repaid as and when it becomes due and payable. It comes down to a question of fact, in which the key concept is ability to pay the company's debts as and when they become due and payable. That passage was applied in Treloar Constructions Pty Limited v McMillan at [82] (judgment of the Court).
3. Retrospective proof of the solvency or otherwise of LRA called for expert analysis by an accountant. Such an expert would have examined the financial statements of the entity at the relevant time, verified that they were prepared in accordance with accounting standards, checked that the company's assets, liabilities and transactions are correctly classified in each line entry and confirmed that, overall, the statements accurately reflect LRA's financial position and performance. If necessary the expert would have reconstructed accurate financial statements from the company's primary records. He or she would also have investigated the company's contemporaneous trading record, particularly to identify any defaults on timely payment of creditors, or requests for extension of time, or precarious and short term indulgences obtained from creditors.
4. The defendants did not obtain or tender such a report. As a result there was no pre-trial notification of an analysis upon which it would be alleged that LRA was insolvent in mid to late 2017. In light of what occurred during the hearing I does not appear that the defendants' case on insolvency was informed by any analysis by a person with the requisite skills. The defendants did not obtain the company's financial records, on which they would attempt to erect their insolvency case, until very close to the commencement of the trial and during it. Those records were not included in the Court books so that neither the plaintiff nor the Court could consider them in advance of the hearing, which would have been of some limited benefit even without notice of how it would be contended that the records disclosed insolvency. In the course of Mr Cookes cross-examination the defendants tendered financial records of LRA and related entities, including full year financial statements, loan agreements, cash flow forecasts and management accounts, and then sought from the witness acknowledgement that various features gave rise to doubt about LRA's solvency. Mr Cookes made no such acknowledgement.
5. The defendants' approach blurred the line between the question of whether LRA was in fact insolvent, or near to it, and the question of whether the plaintiff, through Mr Cookes knew or believed that this was the case. As a result of not calling an accounting expert and then conflating the two issues in cross-examination, the task the defendants had set themselves of proving LRA's insolvency at mid to late 2017 was not the subject of any coherent, organised body of evidence. A conclusion that LRA was insolvent at that time does not leap from the pages of the material on which Mr Cookes was questioned. Nor did the cross-examination disclose any unifying theory of the defendants as to how insolvency might be deduced from the documents.
6. If the defendants' case on unconscionable conduct arising from undisclosed insolvency of LRA was to have any prospect of success, insolvency as a fact would have to have been demonstrated independently of the answers Mr Cookes gave. Only on that foundation could Mr Cookes have been usefully cross-examined as to his knowledge of circumstances that must have caused him to realise the insolvent state. Instead, the cross-examiner put to Mr Cookes a variety of features of LRA's debt position and trading performance. Mr Cookes was asked to agree that each feature caused him concern. He explained why none of them did. I accept that the features raised were not probative of insolvency, either individually or collectively. Even if Mr Cookes had felt concern about some or all of these matters, the defendants' case would not have been advanced. A mere series of points of concern about LRA's financial health, if established, was not the case that the defendants pleaded and that they had to prove in order to engage ss 20 and 21 of the Australian Consumer Law. By conflating the issue of what the plaintiff knew with the issue of whether a conclusion of insolvency could actually be drawn, the defendants failed to substantiate the latter, which was critical to the case set out in their cross-claim.
7. The defendants' approach to proof of this part of their case leaves the Court to sift the documents and the transcript for any indicia of insolvency and to make an analysis, on a clean slate, towards a conclusion on the topic. Separately, the Court must then examine whether Mr Cookes knew that LRA was financially distressed to the point of insolvency, or to the brink, and whether he acted unconscionably towards the defendants by lending to them for investment in LRA without sharing his knowledge.
8. From 3 March 2017 the shareholders of LRA were Ms Magalotti as to 50.1%, Ms Brenton as to 20% and Mr Cookes' company, Timsim, together with two other contributory lenders of the plaintiff, as to 29.9%. It appears that from its incorporation in 2006 up to March 2017 LRA was beneficially owned by the trustees of, respectively, The Magalotti Franchise Trust and The Brenton Franchise Trust. Until the end of August 2016 financial statements for LRA were prepared as if the company's business was owned and carried on by a partnership of the two trusts.
9. LRA's balance sheet and profit and loss statement for each relevant financial year are in evidence as follows: For the year ended 30 June 2015 ("FY15"): a comparison column in the FY16 financial reports, prepared on a partnership basis. For FY16: reports signed on 11 November 2016, prepared on a partnership basis. For the first two months of FY17 (July and August 2016): management accounts issued in October 2017, prepared on a partnership basis. For the last 10 months of FY17: reports dated 21 November 2018, prepared on a corporate basis. For FY18: reports dated 21 November 2018, prepared on a corporate basis.
10. In order to obtain comparative figures for the whole of FY17 it is necessary to combine the entries in the partnership-basis accounts for July and August 2016 with the company financial statements for the last 10 months. The year by year figures recorded in these financial statements are as follows. Income and expense figures are shown as combined totals of "operating", "other" and "non-operating" figures. Those categories are dissected in the statements: FY15 FY16 FY17 FY18 1 Current assets 467,377 1,013,229 804,439 862,946 2 Current liabilities 2,166,959 2,521,203 841,174 1,397,085 3 Working capital (1,699,582) (1,507,974) (36,735) (434,039)

4 Total assets 513,114 1,072,936 924,125 996,161 5 Total liabilities 3,152,775 3,354,676 2,726,769 3,778,774 6 Equity (2,639,661) (2,281,740) (1,802,644) (2,782,614)

7 Total income 1,423,432 2,303,649 2,702,219 1,448,079 8 Total expenses 1,665,516 1,937,759 2,956,710 2,305,201 9 Net profit (loss) (242,084) 365,890 (254,491) (857,122)

1. In FY17, the total income in all categories for the months of July and August 2016 appears to have been $695,020 and for the last 10 months $2,007,199, giving the total of $2,702,219 (line 7 in the table above). For the same periods respectively, the total expenses in all categories appear to have been $504,309 and $2,452,371, for a total of $2,956,710 (line 8).
2. The consistent negative equity of the company (line 6) is not determinative of insolvency. The working capital position (line 3) has more bearing but, again, is not conclusive without examination of the circumstances of individual current assets and liabilities. In the absence of competent expert analysis of the financial statements, the Court cannot rely on them as proof of insolvency. An example of this is that at 30 June 2016 over $2 million of LRA's current liabilities (line 2) was owed to related entities: Life Resolutions Membership Pty Ltd and Life Resolutions Pty Ltd. After 30 June 2016 LRA carried on as a going concern for more than two years indicating that the related entities continued to extend credit. Mr Cookes said that the related entities were guarantors of the plaintiff's corporate loan to LRA, which was $800,000 at the balance date of 30 June 2016 and was reported as LRA's only substantial non-current liability. Mr Cookes' said that the related entities had assets and "had surpluses or may have had surpluses". In those circumstances they would not be calling up from LRA the debts of over $2 million owed to them where that would cause LRA to fail and the plaintiff to invoke the guarantees. Mr Cookes explained this in the following answer: [The] proprietors of the other subsidiaries, although they're expressed as current liabilities, would not be calling up those related party loans to render insolvent their own company [LRA].
3. In this instance, on the basis of Mr Cookes' evidence, the classification of the intercompany debts as "Current liabilities" may well be incorrect according to accounting standards. If those debts should properly be regarded as fixed liabilities, the company would have working capital of approximately $500,000. The reclassification would not ameliorate the net deficiency (line 9) but that does not amount to, or provide evidence of, insolvency according to generally accepted concepts. Mr Cookes stated, and I accept: companies in a growth phase do have, from time to time, negative net worth. That's my experience. A company with negative net worth will be solvent while its current assets - those that can be readily liquidated in the ordinary course of operations during the ensuing accounting period - are sufficient to cover current liabilities - those that will fall due within the ensuing accounting period.
4. According to the LRA's balance sheet at 30 June 2017 current liabilities to related entities had been discharged by that date and two of those entities now owed to LRA, between them, $180,000. The only substantial current liability reported was the corporate loan from the plaintiff, now $808,831, reclassified from non-current to current. The balance sheet did not bring to account the short term working capital loan that the plaintiff had commenced to make available to LRA from April 2017. The balance owing on that account at 30 June 2017 was $316,026. The FY17 balance sheet cannot be accepted at face value. Without competent explanation of it by reference to the underlying transactions, and either verification or correction of the way assets and liabilities have been reported, the Court cannot rely on the document as a basis for any affirmative finding about solvency at 30 June 2017.
5. A set of management reports for LRA prepared on 9 October 2017 included a balance sheet as at 30 September 2017. This showed current assets of $4.1 million, mainly consisting of a loan to "Life Resolutions Australia Partnership" of $3.8 million and trade debtors of $279,000. Current liabilities were shown as $1.7 million, resulting in a working capital surplus of $2.4 million. The short term working capital borrowing from the plaintiff, which by then had increased to $662,325, was included in the current liabilities. The plaintiff's corporate loan to LRA, $800,000 was also shown, as a non-current liability.
6. There is no evidence of transactions between 30 June 2017 and 30 September 2017 that could have transformed LRA's balance sheet as suggested by these successive financial statements. It would be unsound for the Court to rely upon the tendered balance sheets at either of the two dates as a basis for drawing any conclusion about the sufficiency of the company's working capital at any time. Notwithstanding this, Mr Cookes was questioned extensively on the management balance sheet of 30 September 2017. That aspect of the cross-examination exemplified the inefficacy of going straight to the issue of what the plaintiff knew about LRA's financial circumstances without first having established what those circumstances were according to financial statements, either contemporaneous or reconstructed, verified by an expert as providing a true picture.
7. Other features of LRA's financial records for FY17 and FY18 are considered under the following subheading, where Mr Crookes' evidence about his perception of the company's financial health is discussed. Taking into account all of that evidence and the matters referred to above, the defendants have failed to prove on the balance of probabilities that LRA was insolvent or approaching that condition in August or September 2017 or at any time up to when the external administration commenced.

Issue 5: Did the plaintiff know that LRA was insolvent or close to insolvency and take advantage of the defendants' ignorance of that fact?

1. If, contrary to my conclusion, LRA was insolvent or close to it in August/ September 2017, this part of the defendants' case on unconscionable conduct would depend upon the Court being satisfied that the plaintiff knew that that was the situation. The defendants sought to establish what the plaintiff knew by proof of what was known to Mr Cookes, as the plaintiff's mind and will.

Mr Cookes was not involved in LRA's management

1. The defendants claimed that Mr Cookes engaged himself in the management and decision making of LRA to such a degree that knowledge of every aspect of its financial affairs could be attributed to him and to the plaintiff. Contrary to that, Mr Cookes' affidavit included the following: [14] On 7 October 2015 [the plaintiff] entered into an agreement with LRA in respect of the advances of funds by [the plaintiff] to LRA and to the [Area Representatives and Business Associates] of LRA. This Agreement, among other things, gave extended rights to [the plaintiff] to monitor the trading and financial position of LRA and is why I as [the plaintiff's] representative had many meetings with LRA's directors and management at LRA's premises to allow for such monitoring. I was not however at any stage involved in the business decisions of LRA. [16] In relation to [the plaintiff's] relationship with LRA: (a) [The plaintiff] is not (nor has it ever been) a shareholder of LRA; (b) I am not (nor have I ever been) a director of LRA; (c) I do not participate in the making of business decisions of LRA, whether formally or informally; (d) I am not a member of any LRA committee; and (e) I am not (nor have I ever been) a shareholder of LRA in my personal capacity, nor have I ever received any dividends from LRA.
2. By June 2016, as a condition of extending the term of LRA's corporate loan of $800,000, the plaintiff proposed that LRA and its associated entities reorganise themselves into a corporate group. An aspect of the proposal was that LRA should cease to be accounted for as a partnership of the Magalotti and Brenton Franchise Trusts and that 29.9% of its shares should be issued to Timsim and two other companies that were then contributory lenders to LRA through the plaintiff. The restructure was effected from 1 September 2016, as referred to at [153] above. It was put to Mr Cookes that the plaintiff thereby became "involved" in the conduct of LRA's business. The point of the cross examination was to try to ascribe to the plaintiff comprehensive knowledge of LRA's financial state. Mr Cookes refuted the premise of the argument.
3. He explained that there was a specific reason why he could not participate in the management of LRA, as follows: A […] I was restrained by a restraint covenant under a contract with a company that was sold into a public company. I was not permitted to compete with the company sold, a company called Lifecare Physio. So that's why I couldn't be a director or be involved in [LRA's] affairs. It was a restraint covenant. Q. But you were involved in making business decisions for LRA, weren't you? A. No, I couldn't, for the reason I stated. Q. There's a difference between 'couldn't' and 'didn't', and I'm putting to you that you were involved. A. No, I wasn't. […] A. I was involved with a company called Lifecare Physio. Q. When? A. From about 2000, up until it was sold in around 2015 to a public company called Zenitas. And as part of that sale, we were constrained to not compete - we, being myself and Chris Trafford. We were constrained not to compete in the allied health sector because physiotherapy and psychology were in the allied health sector. We disclosed our interest as lenders to and minority shareholders in Life Resolutions, and that was accepted, but we were restrained from being involved in the business. They knew we had loans to Life Resolutions, which we were entitled to administer and monitor, but we weren't entitled to get involved in the business affairs of LRA.
4. I accept that evidence. It was not put in doubt by anything in the defendants' case. I am satisfied that Mr Cookes' understanding of LRA's financial position, both in the critical period of August/September 2017 and generally, was based only upon such information as the company supplied from time to time in response to his inquiries, undertaken as a prudent lender.
5. The defendants' counsel seized upon an entry at the end of LRA's FY16 balance sheet that purported to show the company's net assets represented by "Partners' funds", listing the plaintiff as a partner. I accept Mr Cookes' evidence that upon receipt of that financial report he pointed out to LRA personnel that that was an error. Clearly it was. There is no contemporaneous document to substantiate that the plaintiff was ever in partnership with the Magalotti and Brenton Franchise Trusts. This is another instance of the unreliability of the contemporaneous financial reporting of this company. The defendants' endeavour to rely upon it as evidence that the plaintiff took part in the management of LRA was opportunistic and was readily refuted.

Mr Cookes' affirmative view that LRA was solvent

1. Mr Cookes deposed as follows: [21] In August and September 2017, being around 6 months before LRA's default [with respect to interest payable to the plaintiff] and more than a year before its winding up, I did not consider that LRA was insolvent, close to insolvent or likely to cease trading in the short or medium term. At that time, although I could see that LRA had a need for further working capital, I knew that LRA was able to raise that money both through loans from [the plaintiff] and from other lenders, and was able to service those loans.
2. One indication that in August/September 2017 Mr Cookes positively did not believe LRA to be insolvent is that the plaintiff continued to make advances under the working capital loan facility it had established from 21 April 2017. With contributions from Mr Cookes' company Timsim, from his superannuation fund MGIT and from the companies of two of Mr Cookes' business associates, the plaintiff made additional advances to LRA up to 5 October 2017. $138,000 had been advanced by 30 June 2017. Another $200,000 was loaned in July and August, of which $85,000 was repaid by LRA out of Mr Caterjian's Area Representative Fee. Timsim advanced a further $50,000 on 5 October 2017. I find it highly unlikely that Mr Cookes would have caused his entities and those of his business associates to contribute funds for this working capital loan in July, August and October if he had believed in that period that LRA was unable to pay its debts as they became due and payable.
3. A second positive indication of the plaintiff's confidence in LRA as a going concern is Mr Cookes' unchallenged evidence that the company paid interest promptly, on both the corporate loan of approximately $800,000 and on the variable working capital facility, throughout 2017. The balance of the working capital loan varied between $255,000 and $340,000 over the period from 1 July to 30 September 2017. The first interest default on either facility was in February 2018.
4. Thirdly, in January 2018 Ms Magalotti contributed $335,000 for the plaintiff to lend to LRA under this facility. Ms Magalotti had contributed to the plaintiff's advances to LRA in June and September 2017. She did so again in November 2017 and then provided this substantial sum in January 2018. Her contributions comprised funds that she raised on security of her farm property. Mr Cookes said that Ms Magalotti's contributions demonstrated to him LRA's continuing access to working capital to meet its requirements. In cross-examination Mr Cookes identified other lenders that provided working capital during 2018. The plaintiff's corporate facility was refinanced by Ms Magalotti as substitute lender on 31 August 2018, being the due date of the loan. I accept that up to this time Mr Cookes perceived LRA to be adequately supported to meet its debts as they became due and payable.
5. Fourthly, I accept Mr Cookes' evidence that he considered LRA's business strategy was sound and that its need to borrow working capital in 2017 was a normal incident of the company's growth phase. He attributed LRA's failure in October 2018 to the inability of Area Representatives to recruit Business Associates, a failure that he had not anticipated. He gave this answer: Q. Well, what do you think the causes of failure were? A. The fact that they could no longer have funds available to them or put money in to support the business, and also primarily the failure of ARs to generate BAs to increase the size of the franchise network to a critical mass. That was their strategic plan which I thought was a good plan.
6. Mr Cookes gave this further explanation of his perception of value in LRA, notwithstanding its requirement for debt funded working capital in the medium term: A. […] The intangible asset was the key and that's [not] on the balance sheet. In a franchise organisation it's the model, it's the business model, it's the ability to generate income which is the key asset. And that doesn't appear on a balance sheet. […] A. […] [In] accounting standards you cannot put goodwill into a balance sheet as an asset. This business had a franchise group which has an asset goodwill. Accounting standards do not allow you to put goodwill into a balance sheet as an asset unless it is purchased goodwill. This company had significant goodwill in the strategy and the framework that it put together and its franchise network and its business plan with the AR structure. In our view, that was substantially valuable and it was only a matter of that business plan strategy being - being able to be implemented over a period of years probably, to enable the true value of the network to be - to - to emerge. It - it had a 20 to 25 BAs. The objective was to get to 100 to 150 BAs within two years and the AR strategy was part of the strategy to grow the number of BAs to that critical mass, which would have produced a very fine company in my view.

Cross-examination of Mr Cookes on cashflow forecasts

1. On 21 July 2017, 2 August 2017, 20 October 2017 and 12 February 2018 LRA provided to the plaintiff cashflow forecasts for periods of four to five weeks ahead. It was put to Mr Cookes that where these showed negative flows the deficiency must have caused him concern. With respect to the forecast dated 21 July 2017 Mr Cookes said this: Q. Save for the first week, which incorporated 21 July, all of the other weeks, there were insufficient funds to meet those payments; is that correct? A. That's what this shows, yes. Q. That was a consistent predicament that LRA Pty Ltd found itself in. A. No. Q. I put it to you, Mr Cookes, that it was. A. Well, the - the between settlements of AR settlements or BA settlements coming through, they did have negative months. It's a lumpy cash flow from time to time. It was a growing business that until it reached a critical mass, this was not unexpected and it had the support of its owners and funders. Q. Noting this is July 2017. A. Yes. Q. Mr Cookes, at this point, you were unconcerned. A. No. Sorry, I was unconcerned.
2. Mr Cookes answered similarly with respect to cashflow forecasts issued by LRA in August and October 2017. I accept that he reasonably regarded negative trading cashflow as a normal incident of any business, particularly an expanding one. It does not signify insolvency provided there are available sources of working capital to tide the company through until the trading cashflow can be reversed.

Cross-examination of Mr Cookes on his email of 10 October 2017

1. Mr Cookes was extensively cross-examined on an email he sent to Ms Brenton on 10 October 2017 recording the points of a discussion that morning. The email contained his negative assessment of the then state of LRA's business. Ms Magalotti had been on maternity leave for five months, since May 2017. She was playing a very limited role in the company's operations. Mr Cookes explained his concerns at that time and his reasons for sending the email, in the following answers: A. The problem was that Mary Magalotti was working only part-time and Jodie Brenton was struggling with the business in our view as lenders, and as shareholders at that time [thought] that Mary Magalotti had to receive a jolt to get back into the business and support her company, to fund it and to put in time, to provide better service cause she was the senior psychologist, she was the founder of the business, to provide better training to the ARs so that the AR performance would increase. So, the purpose of this email was to effectively say to Ms Magalotti, "We're not going to continue funding your business directly and we believe you should get back into the business. And if you don't, these are the consequences." It was intended to scare her into coming back into the business and getting off her backside. HIS HONOUR Q. Both of these ladies were trained psychologists, were they? A. No, Jodie Brenton wasn't, she was more of a marketing commercial type person, IT, whereas Ms Magalotti was a very experienced psychologist. She was a former director of the Australian Psychologists Association. […] A. […] What was being conveyed to us as lenders was that they hadn't been able to procure BAs in a timely manner, and our observation was that they were - hadn't had sufficient training. And it was the first group of ARs, your Honour, they were not skilled at recruiting psychologists, and they, therefore, didn't generate the income under their ARA agreements that they should have, could have, and therefore, they fell behind in their interest payments. That's what we were told. We said, what are you doing about it? They said, we're going to give them more training, and the subsequent tranches of ARs will, we hope, be more skilled in recruiting psychologists. That's what we were told. But three or four of them were in default under their separate loans. […] A. […] The purpose of the email of […] October 2017, was to invigorate Mary Magalotti as to what might happen under certain circumstances if the business wasn't funded, et cetera, et cetera. My view was that the company was solvent right up to 31 August 2018.
2. The email of 10 October 2017 included the following: 6 Importantly, [the plaintiff] will not be providing any more funding to LRA. 7 LRA negative cash flow will have to be addressed by LRA directors. 9 [Ms Brenton and Ms Magalotti] would prefer to continue running LRA, under current or varied business model. Most points below address more negative outcomes, but realistic possibilities that should be considered in the event that they have to play out. 10 LRA is still negative cash flow, for a variety of reasons, and has no net worth after taking account of total liabilities (estimated at 3.5m+). 11 LRA shares worth $nil. 13 Apart from small working capital assets, the only assets of LRA are brand (? damaged reputation), footprint of circa 20 BA practices (some presently disgruntled), franchise BA legal agreements and IT/marketing collateral. 14 To prevent dispersal of BA practices out of group LRA needs to retain solvency and service needs of BAs, in order to retain enforceability of BA legal agreements. 15 As LRA cannot be sold in current condition it needs to find merger partner(s) […] or other structures if preferred by other parties. 16 Easiest option may be to find another franchise or to take an assignment of LRA's franchise or interest in the BA franchise agreements, by name, IT, etc. […] What would he pay? - $nil to $1m, but probably much less than $1m, a guess more like $100 - $200k. 17 First sale $ go to [plaintiff] corporate loan, as holder of first ranking charge over LRA. […] Consequently it is in [Ms Magalotti's] interest to do everything she can to keep LRA going, to get some realisation $ benefit from it - in short/medium or long-term. 18 [Plaintiff] investors (with other LRA creditors) will probably lose all their investment (shares, loans shortfalls, etc), but would expect some part compensation from [Ms Magalotti] of part LRA realisation proceeds […].

Improvements following the email of 10 October 2017

1. The email was not an acknowledgement of insolvency, as the defendants' counsel appeared to assume in his cross-examination quoted below. The worst outcomes adverted to by Mr Cookes were foreseen as "realistic possibilities", not certainties. Point 14 spoke of the need to "retain solvency" - it was not suggested that solvency had been lost. I find no reason to doubt Mr Cookes' evidence that he considered LRA solvent at this time and that his purpose was to motivate the principals to attend to its management and working capital requirements.
2. A long email response from Ms Brenton to Mr Cookes dated 22 October 2017 included the following assurances: [Ms Magalotti] will be coming back into the business in the new year and managing/producing the granting of AR Regions and in turn that will naturally bring grantings to BA practices. […] I will continue as I have with my major focus on sales, cash flow and debt management. […] Sales and [Ms Magalotti's] activity (AR & BA sales) in the business [will] assist our further cash flow.
3. Mr Cookes was challenged to reconcile his email with the deposition in par 21 of his affidavit, quoted at [169] above. He answered as follows: Q. It had no possibility of being a viable concern, at this date? A. I believe it did. Yes, absolutely it had a possibility, for a variety of reasons. […] Q. You say in your affidavit that you didn't consider that LRA was likely to cease trading in the short to medium term? A. Correct. Q. And yet the email makes explicit that if things didn't change that's exactly what would happen? A. If things didn't change, that's what would happen and things changed. Mary Magalotti came into the business. Funding was provided as I expected. AR settlements occurred, which had been delayed. More effort was put into training. A variety of things that occurred. More initiatives were taken by the business in other business areas. The BAPs, drive, other programs. There were range of things that I was aware of that I absolutely knew the business was not insolvent. Q. Well, […] with respect, none of them made any difference to the performance of the company, did they? A. Yes, they certainly did. Q. Sorry? A. They did. Funding was provided by Ms Magalotti and other banks and other private lenders through late 2017 into 2018. […] Q. And, Mr Cooks, in your email of 10 October 2017, you identified several problems that were never rectified. One being a negative cash flow. That was never arrested, was it? A. Yes, it was. Funding was provided by other lenders. I've said that. Q. Ms Magalotti? A. And other lenders, banks and private lenders. Q. Are you referring to credit cards issued by banks? A. I'm referring to bank facilities, private lenders. […]
4. Mr Cookes named four lenders, both banks and private, that had made loans of working capital after his email of 10 October 2017. He said, "certainly there was several hundred thousand in aggregate". As referred to at [172] above, Ms Magalotti, alone provided $335,000 of working capital credit in January 2018.

Conclusion on the defendants' unconscionable conduct claim against the plaintiff

1. There is no substance in the defendants' allegations that the plaintiff unconscionably pressured them to draw their loan and sign the loan documents, or that LRA was insolvent, or that the plaintiff knew LRA to be insolvent, or that the plaintiff took unconscientious advantage of the defendants' ignorance of the company's financial condition. The defendants have not established a cause of action against the plaintiff under ss 20 and 21 of the Australian Consumer Law, on either of their grounds noted at [141] above, and they are not entitled to any relief on that account.

Issue 6: Did Ms Brenton make false representations to Mr Caterjian in connection with entry into the Area Representative and Business Associate Agreements?

1. In pars 11, 12 and 18 of the cross-claim it is alleged that Ms Brenton, as agent for LRA and personally, made misrepresentations to Mr Caterjian in connection with the entry of Ellie and Mac Pty Ltd and JAM Pty Ltd into the Area Representative and Business Associate Agreements, respectively. In pars 21 and 22 is alleged that the misrepresentations were in trade and commerce and that Mr Caterjian relied upon them "in agreeing to a joint-venture with [Ms Brenton]". The misrepresentations are alleged to have constituted a contravention of s 18 of the Australian Consumer Law, which is in these terms: 18 Misleading or deceptive conduct (1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. The damages claimed under this cause of action are $17,500, being the total of seven instalments of interest paid by Mr Caterjian to the plaintiff pursuant to his Loan Facility Agreement.
2. The misrepresentations are pleaded as follows 1 that LRA had secured a new contract for the "Sydney Metro 2" territory that would generate $200,000 over the following two year period; 2 that [Ms Brenton] would become a 50% shareholder of Ellie and Mac Pty Ltd with [Mr Caterjian] and would pay 50% of the costs required under the [Area Representative Agreement], being in excess of $200,000 (ex GST); 3 that LRA had developed a business system […] to assist psychologists in building psychology practices that had increased growth potential and value […] and 4 that the LRA system included, among other things, valuable intellectual property, various proprietary systems, programs of business support and business processes to assist psychologists in the administration, operation and marketing of their independent psychology practices. A fifth representation that LRA would provide an "Initial Training Program" and "Ongoing Training" was not pressed in closing argument.
3. The first alleged representation is said to have been conveyed in an email sent by Ms Brenton to Mr Caterjian on 28 June 2017. Ms Brenton advised that Ms Magalotti was on maternity leave and continued as follows: I am writing to you to touch base and see where things have settled for you and also to see if there is a suitable time for me to call you early next week. Life Resolutions has secured a new program and a new contract for that region which will result in the value of approximately $2,00,000 [sic] over the next two years. I'm keen to finalise our discussions about a potential JV […]
4. Attached to the email was a draft that had been sent to Ms Brenton by Mr Alastair Way, the then General Manager of LRA. The draft stated that "the Sydney metro 2 region represents a critical growth corridor for Life Resolutions". From that reference the defendants seek to construe Ms Brenton's email to Mr Caterjian as conveying that the "new program and […] new contract" were for the "Sydney Metro 2" region. There is no evidence before the Court as to what type of contract was being referred to in Ms Brenton's email, or for whom it was being represented that the program or contract would "result in" the stated value. There is no evidence from Mr Caterjian to give context to this email. Without context I cannot be satisfied that the email was reasonably open to interpretation by Mr Caterjian as conveying that he, either alone or together with one or more parties to a joint-venture, could expect to realise $200,000 "value" from either an Area Representative Agreement in respect of the "Sydney Metro 2" region or from a Business Associate Agreement for a psychology practice to be located in that region. Further, there is no evidence from which I could be satisfied that in fact there was no "new program" or "new contract" that would fit the description in Ms Brenton's email.
5. In so far as the email makes a representation as to a future matter, namely, the "value" that would "result" from the program and the contract over the ensuing two years, the defendants submit that s 4 of the Australian Consumer Law casts the onus upon Ms Brenton to prove that she had reasonable grounds for making the representation. As Ms Brenton did not take part in the hearing and did not tender any evidence it is submitted that she has not discharged that onus. That may be accepted but the position remains that I cannot attribute to the representation any meaning that Mr Caterjian could be found reasonably to have taken from it, or that he may reasonably have relied upon, or that has been falsified or shown to be misleading by facts proved in the case. Nowhere in Mr Caterjian's affidavit or oral evidence does he say what he thought the email referred to, let alone that he relied upon any particular understanding of it as a basis for joining in the incorporation of Ellie and Mac Pty Ltd and JAM Pty Ltd and causing those companies to enter into their Agreements with LRA.
6. The defendants submitted in closing that the second representation was conveyed in various emails from Ms Brenton to Mr Caterjian between 15 March and 13 July 2017 and in the Area Representative Agreement itself. The emails referred to do not convey such a representation. However, on the basis of a number of documents tendered in the case, I find that Ms Brenton made a contractual promise to Mr Caterjian to the effect of the second representation; that is, a promise that she would become a 50% shareholder of Ellie and Mac Pty Ltd and would pay 50% of the costs required to be paid by that company to LRA under the Area Representative Agreement, being in excess of $200,000 (ex GST). The documents that establish that contractual obligation are, primarily, an email from Ms Brenton to Mr Caterjian of 13 July 2017, the Schedule to the Area Representative Agreement (Item 8), some emails exchanged after the Area Representative Agreement had been entered into, the invoice dated 7 August 2017 from LRA to "Ellie and Mac Pty Ltd, attention: Alex Caterjian" for his share of the $400,000 and the Australian Securities and Investments Commission records of incorporation of Ellie and Mac Pty Ltd.
7. I reject the characterisation of Ms Brenton's contractual undertaking in this respect as a representation in breach of s 18 of the Australian Consumer Law. The promise to become a 50% shareholder in the joint venture vehicle and to contribute her share of the vehicle's capital requirements was not a representation that induced Mr Caterjian to enter into the joint venture. It was a contractual promise for which he exchanged his reciprocal promise. He performed his side. Ms Brenton partly performed her side, to the extent of becoming a 50% shareholder in Ellie and Mac Pty Ltd. Whether or not she also paid to LRA her $200,000 share of Ellie and Mac Pty Ltd's Area Representative Fee, or accepted the status of a debtor to LRA for that amount, is not apparent from the evidence. However, whether or not she did either of those things is a question of performance or non-performance of a contractual promise to Mr Caterjian. Non-performance would not convert the promise into a misrepresentation actionable under s 18 of the Australian Consumer Law.
8. The third and fourth representations are alleged to have been conveyed by recitals A and B, respectively, of the Area Representative Agreement, executed by Ms Brenton and Ms Magalotti as directors of LRA on about 18 July 2017. I do not accept that those recitals can be treated as representations made by Ms Brenton in her personal capacity. In any event, I am not satisfied on the balance of probabilities that those two alleged representations were untrue or misleading. In the conduct of the hearing negligible attention was paid to LRA's business systems for assisting franchised psychologists, or its intellectual property, training programs and marketing capabilities applied for the benefit of counterparties to Area Representative Agreements and Business Associate Agreements. There has been no attempt by the defendants to demonstrate through evidence that recitals A and B in the Area Representation Agreement were misleading.
9. The defendants have not established a cause of action against Ms Brenton under s 18 of the Australian Consumer Law and are not entitled to any relief on the basis of that part of their cross-claim. Quite apart from the failure to prove that representations attributable to Ms Brenton were misleading, it has not been proved that Mr Caterjian acted in reliance upon any such representations in causing the Area Representative and Business Associate Agreements to be entered into by the joint-venture companies. The defendants' closing submissions do not identify any evidence of reliance. I am affirmatively satisfied that Mr Caterjian was determined to enter into both of these agreements without investigation of their prospective profitability. He did so heedless of the need to undertake due diligence and, so far as the evidence shows, without consideration of any factor that might bear upon the viability or utility of the undertaking. It is unsurprising that he was not able to give evidence of having been induced by the representations that his legal advisers have endeavoured to construct.

Issue 7: Did Ms Brenton unconscionably in contravention of ss 20 and/or 21 of the Australian Consumer Law procure the defendants' entry into the loan and mortgage transaction with the plaintiff?

1. The defendants have pleaded against Ms Brenton that she, as well as the plaintiff, acted unconscionably in the respects noted at [141] above. It is alleged that she was a "conduit" for the plaintiff in procuring the defendants' execution of the loan documentation. Whatever is intended by the word "conduit", I find that Ms Brenton did not exert any pressure upon either defendant to borrow the money or to sign the documents. From when Mr Caterjian signed the Area Representative Agreement on 18 July 2017 he was committed to borrowing the necessary funds and he was intent upon doing so. There is no allegation or evidence of pressure from Ms Brenton for him to sign the plaintiff's letter of loan offer on 7 August, as he did. From that time, execution of the formal loan and security documentation followed as of course.
2. Mr Caterjian asked that execution should proceed at the end of August 2017 so that he could commence business under the agreements with LRA from 1 November. I am not satisfied that the crisis in his daughter's health put Mr Caterjian at a disadvantage in understanding the plaintiff's documents or deciding whether to execute them. There is no basis for inferring that Ms Brenton must have perceived any such disadvantage. Ms Brenton was not aware that Mrs Sclavos-Caterjian opposed the borrowing and the mortgage, or that Mr Caterjian "badgered" her and threatened to desert her. Ms Brenton was not in direct contact with Mrs Sclavos-Caterjian at the hospital and did nothing to pressure her directly. There is no basis for a finding that Ms Brenton took unconscientious advantage of the defendants' personal stress to secure their signing of the loan, guarantee and mortgage documents.
3. With respect to the second ground of unconscionability, the defendants have not proved that LRA was insolvent or nearly insolvent in August/September 2017. It has not been proved that the company was in any such financial condition, knowledge of which Ms Brenton withheld unconscionably. There was no insolvency of which the defendants were ignorant and therefore no unconscientious taking advantage of the defendants by Ms Brenton, to secure their commitment to the borrowing and the mortgage.
4. The defendants have not established a cause of action against Ms Brenton under ss 20 and 21 of the Australian Consumer Law, on either of their grounds identified at [141] above, and they are not entitled to any relief against her for breach of those sections.

Orders

1. I have found that the first and second defendants are not entitled to any relief against enforcement of the second mortgage over the Bexley property. All pre-requisites for exercise of the plaintiff's power of sale have been satisfied and it is entitled to judgment for possession of the land. The mortgage debt, with default interest at 15%pa from 1 April 2018 to the date of this decision is $480,551.59. In that figure, interest has been compounded monthly, as claimed by the plaintiff in reliance upon cl 4.3 of the Loan Facility Agreement. Subject to any different conclusion that I may draw after hearing from the first and second defendants as to the mathematical correctness of the interest calculation, the plaintiff is entitled to judgment for that sum. It is also entitled to its costs of recovery incurred to date, on an indemnity basis, pursuant to cl 4.7 of the Loan Facility Agreement and cl 13.9 of the Second Mortgage. Judgment and orders will be entered accordingly.

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: 18 August 2022