Plaintiff v Defendants

Mr D R Williams QC (until 1 June 2011), Mr M J Colbran QC (from 24 July 2012) with

In person until 8 August 2012; thereafter no appearance

In person until 1 June 2011; thereafter no appearance

For the First, Third, Fifth, Seventh, Eighth and Ninth Defendants

1 The plaintiff is the Director of Consumer Affairs Victoria.

2 The first defendant, Peter Scully, devised a program to give people with regular income, but who could not get a home loan from banks or other lenders, the opportunity to buy their own home. The program became known as the 'future owner program'.

3 Mr Scully marketed the program through a company, Active Property Solutions Pty Ltd, which is the eighth defendant.[1]

4 In November 2001, Robert Gilfillan, who is the second defendant, joined Mr Scully in the business. He was appointed a director of Active Property Solutions in February 2002.

5 The third defendant, Michael Hansen, was employed in the business at relevant times.

6 Claims against other natural defendants were discontinued during the trial.

7 The essence of the future owner program was the 'matching' of 'future owners' with 'investors'. The investors were also clients of the business, and were the subject of a separate marketing program. Both future owners and investors were charged fees.

8 Scully and Gilfillan remained business partners until about 30 June 2003, when relations between them had soured and they parted ways. Mr Gilfillan remained in control of Active Property Solutions from this time and was its sole director. He later incorporated Active Group Pty Ltd to act as a second company for the promotion of the future owner program. Active Group is in liquidation and is not a defendant. Unless it is necessary to distinguish between the two companies, a reference to 'Active' is a reference to one of them.

9 After the split, Mr Scully continued in business, promoting a similar program. He conducted his continuing business through two companies: Key Result Pty Ltd and Key Result Conveyancing Pty Ltd. Both are in liquidation and are not defendants. It is unnecessary to distinguish between the two companies.

10 The program marketed by Mr Scully through Key Result was known as the 'key home buyer program'. This program was similar to the future owner program in its concept, but not in its formal structure. Under the key home buyer program, the prospective purchasers were referred to as 'home buyers'.

11 In summary, the essential point of difference between the future owner program and the key home buyer program was the method by which the future owners or home buyers would ultimately acquire title to the home:

(1) Under the future owner program, it was intended that the future owners would acquire title to the home by completing a contract to purchase it from the investor in five years time under a vendor terms contract. In the meantime, the future owners paid interest to the investor on the amount of the terms contract price.

(2) Under the key home buyer program, it was intended that the home buyers would acquire title to the home by exercising an option to purchase it from the Key Result at the end of a five year period. In the meantime, the home buyers paid above-market rent to the investor.

12 Under both programs, the participants paid their income into a bank account managed by the promoter pursuant to a 'money management' agreement, and paid substantial fees to the promoter for arranging the program and managing their finances.

13 The Director contends that, by designing, promoting and implementing the programs, the defendants engaged in unconscionable or misleading conduct in contravention of one or more of ss 8, 9, 11 or 12 of the Fair Trading Act 1999 (Vic) ('the Act'). The Director brings this proceeding in the public interest and on behalf of certain participants in the programs ('complainants'), who allege that they have suffered loss by participating. The Director seeks declarations, permanent injunctions, orders for corrective advertising and compensation orders in favour of the complainants.

14 There is no allegation in the proceeding that the Act was contravened in relation to dealings with investors.

15 I will deal first with the claims concerning the future owner program.

Summary of Director's claims concerning the future owner program

16 The Director's principal unconscionability case is a general one, based on the contention that it was unconscionable for Active to offer the future owner program to any consumers in the class to whom the program was promoted. If that is right, Mr Scully and Mr Gilfillan would be liable as the designers of the program and of the systems by which it was implemented.

17 The Director also makes specific claims. He contends the conduct towards two complainant couples was unconscionable in the particular circumstances of their participation in the program. The specific claims are made against Mr Gilfillan in respect of two complainant couples - Mr and Mrs Stevenson and Mr and Mrs Butcher;[2] and against Mr Hansen in respect of the Butchers only. Proof of any specific claim would render Active liable as principal.

18 The Director also claims that Active, by its directors and employees including Mr Scully and Mr Gilfillan, engaged in misleading or deceptive conduct. In final submissions, these claims were subsumed within the unconscionability claims. Counsel for the Director did not contend that the allegedly misleading statements formed a separate basis for relief. The Director was correct in taking that position, as the statements relied upon, when considered in their context, including subsequent statements, were not misleading.

19 Mr Gilfillan denies the Director's claims against him. He contends that he acted honestly and reasonably in all the circumstances, and that his conduct does not satisfy the statutory criterion of unconscionability.

20 Before turning to the facts in more detail, it is necessary to set out the applicable legal principles to be applied.

What kind of conduct is unconscionable under s 8 of the Act?

21 Section 8(1) of the Act, as it stood at relevant times, prohibited persons from engaging in unconscionable conduct in certain circumstances:

A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services of a kind ordinarily used for personal, household or domestic purposes to a purchaser, engage in conduct that is, in all the circumstances, unconscionable.

22 The services provided by Active were of a kind ordinarily used for personal, household or domestic purposes. They related to the proposed acquisition of a home by future owners. Section 8 therefore prohibited unconscionable conduct by Active in connection with the future owner program.

23 Section 8 of the Act mirrors s 51AB of the Trade Practices Act 1974 (Cth) as it previously stood. There are other Federal, State and Territory statutes to like effect, prohibiting unconscionable conduct in connection with a range of activities.[3] There are other statutes which prohibit unconscionable conduct under the 'unwritten law', as developed by courts of equity.[4] Section 8 of the Act and corresponding provisions in other statutes are intended to extend the concept of unconscionable conduct beyond equitable principle, to include conduct which is unconscionable within the ordinary meaning of that word.[5] I will refer to this concept of unconscionable conduct as 'statutory unconscionability'.

24 An issue arose in argument as to whether a plaintiff alleging statutory unconscionability must demonstrate that the defendant's conduct involved 'moral obloquy'. Counsel for Mr Gilfillan contends that moral obloquy must be established. Counsel for the Director disputes this, and contends that statutory unconscionability may be found in the absence of moral obloquy by the defendant if the conduct is unfair and 'irreconcilable with what was right or reasonable'.

25 For the following reasons, I reject the Director's contentions.

26 The cases concerning the content of statutory unconscionability disclose a consistent requirement that the relevant conduct must include a significant element of moral obloquy. It is not enough that the conduct is objectively unfair, unjust, wrong or unreasonable.

27 In Qantas Airways Ltd v Cameron,[6] the Full Court of the Federal Court referred to the term 'unconscionable' as importing 'a pejorative moral judgment'.[7] This approach was affirmed by another Full Court in Hurley v McDonald's Australia.[8]

28 In Attorney-General of New South Wales v World Best Holdings Ltd and Others,[9] the New South Wales Court of Appeal made similar statements. Spigelman CJ (Mason P and Tobias JA agreeing) stated that statutory unconscionability, while intended to extend the equitable concept of unconscionability, does not extend the concept so far as to include conduct which is 'merely unfair or unjust'.[10] In his Honour's view, statutory unconscionability 'is a concept which requires a high level of moral obloquy' or which is 'highly unethical'.[11]

29 In Australian Securities and Investments Commission v National Exchange Pty Ltd,[12] the Full Court of the Federal Court again emphasised the need for moral obloquy. The Court held that the conduct at issue involved 'a strong element of moral obloquy', because it was intentionally 'directed at exploiting the targeted recipients'.[13] That case concerned 'predatory conduct designed to take advantage of inexperienced offerees', in the hope that some of them 'would act irrationally from a purely commercial viewpoint'.[14] The targets of the conduct were persons 'perceived to be vulnerable targets and ripe for exploitation, as they would be likely to act inadvertently and sell their shares without obtaining proper advice'.[15]

30 The Court of Appeal in New South Wales has recently affirmed the need for moral obloquy as an essential ingredient of statutory unconscionability. In Tonto Home Loans Australia Pty Ltd v Tavares,[16] Allsop P (with whom Bathurst CJ and Campbell JA agreed) referred with approval to the above-quoted statements by Spigelman CJ in World Best Holdings,[17] although his Honour questioned the need to demonstrate 'a high level' of moral obloquy:

Whether that is too stringent and whether 'significant' or 'real' may be preferable need not be decided. What is required is some degree of moral tainting in the transaction of a kind that permits the opprobrium of unconscionability to characterise the conduct of the party.[18]

31 It follows that the conduct in question must be more than negligent. It will usually involve some deliberate wrongdoing, although there may be cases where recklessness will suffice.[19] For example, cases involving wilful blindness. Ultimately, as the cases demonstrate, each case must depend upon its own circumstances and the Court must make a value judgment as to whether to characterise the conduct with 'the opprobrium of unconscionability'.[20]

32 The concept of statutory unconscionability is embodied in legislation across the states, territories and the Commonwealth. Uniformity of decision-making must be preferred unless I am convinced that the interpretation placed on the legislation in the authorities is plainly wrong.[21] I am not.

33 The Director relied on ACCC v Dukemaster Pty Ltd,[22] where Gordon J reviewed all of the circumstances and concluded that 'Dukemaster's conduct was irreconcilable with what is right or reasonable.'[23] It was contended that such a finding was sufficient for the conclusion that statutory unconscionability had been made out. I reject that submission. Earlier in her reasons, Gordon J correctly summarised the law,[24] by quoting the earlier summary given by Foster J in ACCC v Allphones Retail Pty Ltd (No 2).[25] In that case, Foster J accepted that the concept of statutory unconscionability 'inevitably ... imports a pejorative moral judgment'.[26] Of course, Foster J was bound by Full Court authorities to that effect. As appears above, that approach is also consistent with the decisions of New South Wales Court of Appeal in World Best Holdings and Tonto Home Loans.

34 Some attempt was made by counsel for the Director to contend that the requirement to establish moral obloquy was a view limited to New South Wales judges, including those on the Federal Court, who attach greater significance to the historical difference between common law and equitable principles. I reject that submission.

35 There is another legal issue: whether any unconscionable conduct proven against an Active employee (such as Mr Hansen) should be attributed to Mr Gilfillan, and not just Active as the principal. The issue arises because the Director pleads that Mr Gilfillan is liable for the conduct of Active employees because he supervised the relevant employee, did not take steps which Active ought to have taken in light of the employee's knowledge, or knew or ought to have known of facts known by the employee (or which the employee ought to have known).

36 The decision in Tonto Home Loans is relevant to this issue. In that case, a lender engaged a mortgage originator (Tonto) to find and introduce borrowers. In turn, Tonto used a sub-introducer (Streetwise) to find and introduce borrowers to it. The conduct of Streetwise was undoubtedly unconscionable, including by making fraudulent representations to borrowers that they could meet their obligations to repay the loans. Streetwise was not Tonto's agent. Accordingly, its state of mind and conduct could not be attributed to Tonto, or the lender as Tonto's principal.[27] In these circumstances, Allsop P emphasised the need to focus on the actual states of mind and conduct of the persons who were alleged to have acted unconscionably: the lender and Tonto. Neither Tonto nor the lender was aware of Streetwise's offending conduct until after the loans had been made. Nor was there any direct unconscionable conduct by the lenders or Tonto. In these circumstances, Allsop P held that it was not unconscionable for the lender to maintain and enforce the loan transaction.[28] This was notwithstanding criticisms of the lender's and Tonto's conduct, concerning the failure to adhere to their own lending guidelines and the 'structural creation of risk' by using Streetwise as a sub-introducer.[29]

37 For this case, the decision in Tonto Home Loans means that Mr Gilfillan will only be liable for an Active employee's conduct if he authorised the particular conduct, was directly involved in that conduct, or had actual knowledge of the conduct before it resulted in the future owner signing the program documentation - and failed to take steps to remedy the effects of the conduct.

38 Another legal issue concerns reckless conduct by future owners. For example, the Butchers - who rejected sound advice, including legal advice, that they should not proceed with the program, but elected to ignore the advice and proceed regardless. Or the Stevensons - who did not listen to clear explanations of the program or the program agreements.

39 It was contended on behalf of Mr Gilfillan that the law does not protect a plaintiff who is so reckless with his or her own interests that the offending conduct cannot be regarded as unconscionable, or as the cause of any loss arising from the relevant transaction. The Director disputes this contention. He argues that a plaintiff's recklessness is irrelevant in considering whether statutory unconscionability is demonstrated, and that the principle relied upon by Mr Gilfillan is limited to cases of misleading conduct under statute. I do not accept that submission.

40 In my opinion, a plaintiff's reckless disregard of his or her own interests may, not must, be relevant in determining whether there has been unconscionable conduct in all the circumstances, or whether reliance and causation have been established.

41 Causation is essentially a question of fact to be determined by reference to commonsense and experience.[30] The offending conduct need not be the only cause of a plaintiff's loss or damage - it is sufficient if it plays a part in the loss.[31] There may be cases, however, where a plaintiff's conduct is so reckless or unreasonable that he or she is not entitled to recover damages. This is clearly the case in respect of the statutory causes of action based upon contravention of provisions prohibiting misleading or deceptive conduct.[32] It is also the case when claims of statutory unconscionability are being considered. As the Full Court of the Federal Court stated in ASIC v National Exchange Pty Ltd:[33] 'The law is not, of course, intended to protect the reckless or the unreasonable'.[34]

42 I return to the words of s 8 of the Act. They require the Court to consider 'all the circumstances' in determining whether or not the conduct at issue is unconscionable. I proceed to recount the most relevant facts concerning the Director's general unconscionability case.

43 I commence with a more detailed description of the future owner program.

44 Active located potential future owners by advertising and by word of mouth. Advertisements were placed in suburban newspapers and real estate publications. The advertisements had a general theme - people with sufficient income, but who were unable to obtain a home loan from banks or other lenders, may nevertheless be able to purchase a home. For example:

DOES THIS SOUND LIKE YOU?

First home buyer?

Employed or Self Employed?

Tired of Renting?

Knocked back for finance?

But desperately want to

OWN YOUR OWN HOME?

We can HELP with...

LOW deposit finance

Easy qualifying

Bad credit history - No worries

Want to know more? Ring NOW

[telephone number]

*Conditions apply[35]

45 There was a separate advertising campaign directed at obtaining investors to be matched with future owners.

46 Participation in the future owner program required a minimum income level after tax - initially set at $700 per week and later increased incrementally. With one notable exception, described below in respect of Mr & Mrs Butcher, people expressing an interest in the program were summarily rejected if they could not satisfy the minimum income threshold.

47 The future owner program involved the following essential elements.

48 First, potential future owners who satisfied the minimum income threshold met with a consultant employed by Active. During the course of the initial meeting, the consultant requested or obtained details of their total income and expenses.

49 Second, the income and expenses details were put in a 'budget planner' spreadsheet in a computer program. When this information was provided, the budget planner calculated the potential future owner's net surplus weekly income and, after allowing a 10% buffer for contingencies, calculated a notional sum on which the future owner could afford to pay interest. This sum was referred to as the 'purchase price in five years time', and was the purchase price payable under the vendor terms contract (the 'future owner price'). The investor's costs, including fees payable to Active, were then deducted from the future owner price. The remaining amount was called the 'maximum purchase price today', and was the maximum price which the investor would pay to acquire the home (the 'investor price').

50 Third, the future owners found a home for a price not exceeding the investor price, and then entered into a contract of sale for them 'or nominee' to purchase the home.

51 Fourth, an investor was nominated under the contract of sale, and purchased the home for the investor price.

52 Fifth, the investor and the future owners entered into a vendor terms contract of sale. By that contract, the investor agreed to sell the home to the future owners in five years time for the future owner price.[36] Pending completion of the terms contract, the future owners made weekly payments to the investors. The weekly payments represented 'interest only' on the future owner price, usually at a rate of 2% above the Commonwealth Bank variable home loan rate from time to time.

53 Sixth, Active gave a written guarantee to each investor, that it would meet the obligations of the future owners if they defaulted in making the weekly payments due under the vendor terms contract (the 'Active guarantee'). The guarantee did not extend to other payments due by the future owners to investors, under the 'furniture pack' arrangements discussed below.

54 Seventh, Active would manage the income and expenses of the future owners during the period of the terms contract ('money management'). The money management arrangements required future owners to deposit their income into a 'BTS account' managed by Active, and were intended to serve a number of purposes:

(1) to ensure, so far as possible, that future owners had sufficient funds to pay their financial commitments under the program;

(2) to fund payments to a 'compulsory savings' account - thereby enabling future owners to save a deposit, establish a savings history, and obtain mainstream mortgage finance to acquire the home under the vendor terms contracts; and

(3) to assist future owners in learning and establishing sound household budgeting practices.

55 There was initially an anterior purpose of the money management arrangements. Prior to qualifying for the program, future owners were required to have their income paid into the BTS account managed by Active. This enabled Active to verify the income and expenditure information provided by investors. At some stage after Mr Scully left, this qualifying process ceased. Mr Gilfillan said this was because potential clients were 'very reluctant' to allow their income to be managed before being approved as future owners.

56 The money management agreement contained an early termination fee, to cater for the situation where future owners walked away from their financial obligations under the program documentation. In those circumstances, the early termination fee was designed to allow Active to recoup some of the money which it would have to pay the investor under the Active guarantee.

57 Eighth, future owners would sell their furniture and other household goods to the investor for (usually) $10,000, and then re-purchase the goods under a 'goods hire agreement', often described as the 'furniture pack'. The weekly payments under the goods hire agreement were initially calculated as principal and interest over the period of the terms contracts. Subsequently, weekly payments were interest only, and the principal amount was added to the future owner price under the terms contract. The interest was calculated at 5% above the Commonwealth Bank variable home loan rate; a rate chosen because it was approximately halfway between the rate for secured loans and the rate then payable under credit card arrangements.

58 The main purpose of the furniture pack was to enable future owners to pay a $7,000 fee to Active for its role in matching future owners with investors and preparing the program documentation. The remaining $3,000 had a number of possible purposes including: payment of other high interest debts, such as credit cards; as an initial contribution towards setting up the home; or as a 'kick start' to the compulsory savings account. There were some occasions where approval was given to increase the principal amount, such as where future owners had more than $3,000 in high interest debts.

59 Another significant purpose of the furniture pack was to provide some security to the investor for the $10,000 advance. As Mr Gilfillan colourfully put it, the furniture pack meant that the future owners had 'some skin in the game' - if they didn't meet their obligations to repay the $10,000 and interest, they might lose their furniture.

60 I turn to consider the evidence relevant to the general claims against Mr Gilfillan, who was the only defendant to mount a defence at trial.

(2) General remarks about Mr Gilfillan's evidence

61 Mr Gilfillan gave his evidence in chief by witness statements. His evidence was largely unchallenged in cross-examination. It was not put to him that he knowingly gave any false evidence, and no submission was made to that effect. Nor was it directly put to him that the future owner program was intended to mislead future owners, or to induce them to act in a commercially irrational way by agreeing to financial obligations they had no real prospect of affording. Although, the Director places some reliance on 'admissions' made by Mr Gilfillan in compulsory examinations under the Act, the Director accepts that Mr Gilfillan's evidence in chief should be accepted where there is a conflict between the 'admissions' and Mr Gilfillan's evidence in chief - unless that conflict was put to Mr Gilfillan in cross-examination. I have considered Mr Gilfillan's evidence in light of the Director's concession.

62 There was nothing remarkable about the demeanour of Mr Gilfillan as a witness which causes me to doubt the general veracity of his evidence. Some questions in cross-examination confused him, but when he understood the question he answered directly. His recollection of events, and of his contemporaneous knowledge at the time, was incomplete; as would be expected given the lapse of between eight and 10 years since relevant events.

63 The key aspects of Mr Gilfillan's evidence are summarised below.

(3) Mr Gilfillan's understanding of the target market

64 Mr Gilfillan has an Honours Degree in Housing Studies. He practiced as a licensed real estate agent in Victoria for about 10 years. When he joined Active, his principal role was to manage the investor side of the business, with Mr Scully continuing to manage the future owner side of the business. When he joined the business, he understood that the future owner program (as it was later called) was directed at 'clients who could not get finance'. He understood that he was 'helping them to buy properties by using terms contracts and with funding from private investors.' Mr Scully led him to believe that he had successfully completed about 100 transactions prior to this time. He later learned that this was false.

65 Mr Gilfillan assisted Mr Scully to develop the concept which became known as the future owner program. The term 'future owner' was deliberately chosen by Mr Gilfillan, as he believed it accurately described the nature of the interests held by Active clients until completion of the terms contracts.

66 Mr Gilfillan and Mr Scully targeted people who needed assistance to buy a home because they had, for varying reasons, bad credit histories. The potential clients included people who had been bankrupt or did not have sufficient money for a deposit. Mr Gilfillan believed that the future owner program was 'a very good idea'. He described the target market in the following terms:

Peter Scully and I discussed that there were a lot of people who had good incomes or cash flow but poor credit history. These were the people Peter and I were interested in. Income thresholds were applied as part of the [future owner program] before people could become members ... As a result, I do not consider them disadvantaged in any way if they were accepted to join the [future owner program]. I thought [Active] was really doing something to assist people who the banks were not helping to get their own home loans. That was part of my motivation. Of course, I acknowledge that Peter Scully and I sought to operate the [future owner program] as a commercial venture. By late 2003 or early 2004, I became aware that other mortgage providers had moved into the same market. Examples of such mortgage providers are Liberty Finance, Blue Stone and GE Finance.

67 This evidence was not challenged, and I accept it. I find that Mr Gilfillan had an honest belief that the future owner program could assist those in the target class to purchase a home on terms.

68 Two expert witnesses called on behalf of the Director, Professor Milind Sathye and Mr Joe Dicks, accepted that persons in the target class were not necessarily financially vulnerable or disadvantaged; and that such a categorisation depended upon the circumstances of each case.[37]

69 Mr Gilfillan described the systems by which Active explained the substance, effect and costs of the arrangements under the future owner program to potential clients. These systems are set out below.

70 Active employed consultants to explain the future owner program to potential participants. Consultants were required to demonstrate the essential elements of the program by reference to slides contained in a Powerpoint presentation. The Powerpoint presentation was updated at various times. Typically, the consultant would present the program in the course of a meeting lasting approximately two hours, during which slides would be shown to potential future owners on the consultant's laptop computer.

71 Although the form of the presentations changed over time, the trial proceeded on the basis that there were two main presentations used: one from about mid-2002 (the '2002 slides') and the other from about March 2003 (the '2003 slides'). The 2003 slides were also printed and given to future owners in the form of an information booklet. The booklet included additional information about the program.

72 The 2002 slides used simple language, pictures and diagrams to summarise the essential components of the future owner program. Future owners were informed that:

(1) the program 'Matches people who want to buy a home but cannot get a loan (you) with investors';

(2) the program was designed to help people who had 'no deposit', 'poor financials' and were 'credit impaired/bankrupt';

(3) (by diagrams) the money management arrangements would assist future owners to avoid unaffordable discretionary expenditure and, as a result, assist them to save money in the compulsory savings account;

(4) (by diagrams) the future owners would select a home; the home would be purchased by an investor; and, under the money management arrangements, payments to the investor would be made by Active from the future owners' income;

(5) the purchase price in five years time (future owner price) would include the investor's costs. This was explained by an example calculation, in which the investor paid $180,000 for the house and costs of $25,518, resulting in a 'price in 5 years time' of $205,518. This example informed the future owners that they would be paying the investor's costs;

(6) assuming the home in the example increased in value by 7% per annum, its 'value in 5 years time' would be $252,500 (compared with a purchase price under the terms contract of $205,518). On this basis, an example calculation was given of a refinance scenario in five years time. The example set out how the compulsory savings target, when combined with the estimated 'equity' in the home and the purchase price, would give the future owner a deposit of approximately 26% of the future price - making 're-financing through high street banks straightforward without the need for mortgage insurance';

(7) the weekly payments to be made by future owners included 'home loan payments' (interest on the future owner price), 'furniture payments' (principal and interest) and 'compulsory savings'. The home loan and furniture payments were 'referenced to the standard CBA variable interest rate';[38]

(8) the services provided by Active carried substantial fees. The fees were summarised in clear terms, which any reasonable person could understand. There was a money management fee of $15 per week prior to purchase of the home; a $895 'set-up fee' for the monitoring aspects of the program; a 'commitment fee' of $2,000 payable before purchase of the home; a 'documentation fee' of $7,000 (which was explained by consultants as coming from the 'furniture pack' arrangements); and an increased monitoring fee of $32 per week after purchase of the home;

(f) 'growth in equity over and above purchase price belongs to you';

(h) 'emotional security of owning your own home'.[39]

73 Taking the evidence as a whole, I am satisfied that the 2002 slides used by consultants to explain the future owner program were an accurate summary of the essential elements of the program.

74 Mr Gilfillan gave evidence of changes which he introduced to Active's systems, mainly for the purpose of increasing clarity and transparency. The 2003 slides and the information booklet provided greater clarity in respect of some elements of the future owner program; which had not been expressly stated in the 2002 slides, but had been explained by consultants orally.

75 There were also some changes made to the program structure and to the assumptions which were presented to potential participants. Two important changes should be noted. First, the assumed capital growth in the value of the home, in the five year period prior to completion of the terms contracts, was reduced from 7% per annum to 5% per annum. Second, the manner of calculating the purchase price under the terms contracts, and the amount of the payments due under the goods hire agreements, were altered. In the program described in the 2002 slides, the weekly furniture payments were calculated on a principal and interest basis over five years. In the program described in the 2003 slides and the information booklet, the weekly furniture payments were interest only, and the $10,000 paid by the investor to the future owners was added to the purchase price under the terms contract.

76 To assist consultants presenting the future owner program by reference to the 2003 slides, detailed notes were provided to consultants in respect of each of the slides; and further details were also included in the information booklet. The following aspects of the 2003 slides, the information booklet and the notes for consultants should be noted:

(1) A simplified example of the calculation of the future owner price under the terms contracts was given. The inclusion of the principal amount of the 'furniture pack' is clear:

(2) Although capital growth of five per cent has been assumed in the refinancing example given, a table of home values based on no capital growth, and capital growth of between 1% and 7%, was provided for comparison.

(3) The calculation of the weekly payments to the investor was explained. Future owners were informed that, pending completion of the terms contract, they would be required to pay interest to the investor on the future purchase price at the Commonwealth Bank standard variable rate plus a margin of 2%.

(4) The fees charged by Active were itemised. Consultants were instructed to inform future owners of the total of all costs and to be 'clear and upfront about charges'.

(5) The booklet gave details of the 'furniture pack' arrangement:

Furniture Pack: An arrangement whereby the investor will purchase your furniture from you. You then rent the furniture back for a weekly payment for a 5-year period. At the end of that period, ownership of the furniture reverts to the Future Owner.

(6) The booklet disclosed some information about the break-up of the investor's purchase costs, which were included in the future owner price under the vendor terms contracts:

[Active] charges fees to the investor. 10% of the Purchase Price in 5 Years Time minus an estimate of purchase costs for the documentation provided and for the property purchase administration. This works out at around 5% of the Purchase Price in 5 Years Time including GST.

(7) The booklet included a detailed summary of the terms and conditions of the program agreements to be signed by future owners.

77 A later version of the information booklet was prepared in January 2004. It is unnecessary to refer to the differences between the 2003 information booklet and the 2004 information booklet.

78 Mr Gilfillan also established a system under which the program agreements were explained in detail before they were signed. He instructed staff that the program agreements should be explained carefully and using a suitable amount of time. This evidence was supported by Mr Kiernan and Ms Tong (referred to below). They described it as a time consuming process, taking approximately two hours. The 'Property Settlement Manual' prepared by Active in March 2003 notes that between two and three hours was to be allowed for meeting the future owners and signing the program agreements, during which a full explanation would be given of the agreements. In addition to this, drafts of the program agreements were usually provided to future owners prior to them being required to sign them.

79 There was evidence of some occasions where the program documentation was signed after the future owners moved into their home. Mr Gilfillan said this was not in accordance with usual practice.

80 From early to mid-2003, Mr Gilfillan established a process under which potential clients were encouraged to obtain legal advice and, if they chose not to do so, to sign a declaration to that effect. Another required declaration stated that future owners understood the terms of the future owner program. Although designed to protect Active against claims by disappointed future owners, the declarations were expressed in clear terms and could be understood by any person of average intelligence.

81 Mr Gilfillan gave evidence about obtaining legal advice for Active, to ensure it was complying with its obligations. A solicitor initially informed Mr Gilfillan that the vendor terms contracts did not have to comply with the Uniform Consumer Credit Code. He accepted that advice. Subsequently, when Mr Kiernan was employed in February 2003, Mr Gilfillan asked him for his view about the need for terms contracts to comply with the Credit Code. He confirmed the earlier advice.

82 At some stage later in 2003, Mr Gilfillan was informed that the Department of Consumer Affairs in Victoria had prepared a 'Vendor Terms Contract Alert'. The alert warned of the increased costs of purchasing property under vendor terms contracts, when compared with ordinary mortgage finance, and advised purchasers to seek independent legal advice before entering into a vendor terms contract. From about this time, Mr Gilfillan ensured that the alert was provided to potential future owners.

83 The alert said that terms contracts 'ought to' comply with the Credit Code. This caused Mr Gilfillan to seek further legal advice, from another solicitor. He was advised that the terms contracts 'probably fell within' the Credit Code. He accepted that advice and arranged for a pre-contractual statement to be given to potential future owners, to ensure that the terms contracts complied with the Credit Code.

84 These and other improvements to the future owner program, and the system by which it was explained and implemented, are in my opinion inconsistent with Mr Gilfillan acting immorally.

(6) Active's management structure and supervision of employees

85 Mr Gilfillan gave evidence about the management structure of the Active business and the roles played by its various employees. As appears above, his principal role within the business before Mr Scully left was to source, liaise with and manage the investor side of the business. He conducted presentations to investors only and had no direct involvement with future owners. He was, however, involved in changes to the slides, and in other management issues affecting both investors and future owners.

86 The business grew quickly after Mr Gilfillan joined it. The business was moved to larger premises and further staff were employed. Mr Scully employed a number of consultants, some of whom were future owners themselves, and trained them.

87 Mr Hansen commenced working as a consultant in about October 2002. He had not been a future owner. He was trained by Mr Scully, and gradually took over Mr Scully's role in training and supervising new consultants. When Mr Scully left in mid-2003, Mr Gilfillan became more involved in the Active business as a whole. He did not, however, expand his role to include direct dealings with potential future owners. From this time, Mr Hansen assumed control of that aspect of the Active business. Mr Gilfillan said that he trusted Mr Hansen's integrity and expertise, particularly after he decided to stay after Mr Scully left the business. As appears below, Mr Hansen dealt directly with Mr and Mrs Butcher.

88 Stephanie Tong was employed in August 2002 as an administrative assistant and receptionist. She also liaised with future owners and investors, and their solicitors.

89 Eoin Taylor was employed as a consultant in early 2003. He was trained by Mr Hansen. He had some financial training or skills, as he had previously worked for a property investment business and as a mortgage broker. As appears below, Mr Taylor dealt directly with Mr and Mrs Stevenson.

90 Bruno Kiernan was employed in about February 2003. He is a qualified lawyer and had just completed an MBA at Melbourne University. He was employed full-time as a 'legal co-ordinator'. He relieved Mr Gilfillan of some of his administration load, particularly the on-going review of contracts and other program documentation. He also dealt with the Stevensons.

91 Mr Gilfillan gave evidence about Active employees adopting a flexible approach when future owners experienced financial difficulties. He said that the BTS Manager, Carol Duncan, assisted future owners in their budgeting and taught them methods to avoid peaks and troughs in their financial commitments, such as weekly payment plans for utilities. Further, Active waived its management fees when future owners were in real difficulty. He describes Ms Duncan as 'very empathetic towards people who were in financial difficulty' and referred to some testimonials to support that.

92 Mr Gilfillan gave evidence about supervision of employees, especially consultants. He referred to minutes of a consultants' meeting on 24 March 2003. He said that meetings of that kind were held 'fairly regularly' to update consultants on practices and procedures. The minutes of the meeting record, for example, that consultants were instructed in the following terms:

Therefore there are legal reasons why all documentation and presentations to be presented to clients must be exactly what has been prepared by Head Office. No other documentation or explanations of the [future owner] program are to be presented other than what Head Office specifies and the changes that occur from time to time.

93 Mr Gilfillan said that he believed consultants complied with directions of this kind. Taking his evidence as a whole, he said or implied that consultants were required to present the program to potential clients in strict accordance with the slides and information booklets. An attempt was made by the director to rely upon an admission by Mr Gilfillan during his compulsory examination, to the effect that the systems were not always followed by consultants. This was not put to Mr Gilfillan in cross-examination, and it would be unfair to make a finding against him on that basis.

94 Mr Gilfillan gave evidence concerning representations in the slides about the benefits of the future owner program. He said he believed the stated benefits - 'you move into your own home today' and 'emotional security of owning your own home' - were reasonably based; because he intentionally called the program the 'future owner program', and because the slides clearly explained that participants in the program would not own their own home until they completed the vendor terms contracts.

95 As to the statement 'less financial stress/less arguments', Mr Gilfillan said that he believed this statement was true. He relied in particular upon the fact that the program gave future owners an opportunity which was otherwise not available to them, because of their bad credit rating, to both purchase a home and receive assistance in managing their financial affairs through the money management arrangements. This would likely reduce financial stress and arguments, as the testimonials which he tendered in evidence record.

(8) Active's systems to establish affordability

96 Mr Gilfillan gave evidence concerning the affordability of the future owner program by participants. He explained how potential clients would be rejected summarily if they did not satisfy the minimum income threshold. He described the process by which Active endeavoured to ensure that future owners could meet their obligations under the program documentation. In summary:

(1) Active had a system of obtaining detailed information from potential future owners about their current income and expenses. An expert called by the Director, Joe Dicks, accepted that the details sought were comprehensive and no significant items of income or expenses were excluded.

(2) The income and expenditure information was then used to populate cells in the budget planner spreadsheet to determine the future owners' net surplus income. Mr Dicks said the spreadsheet was 'clearly well designed' in this respect, capturing all relevant information.

(3) The net surplus income was reduced by a 'safety buffer' of 10% for contingencies or vicissitudes.

(4) Based on the reduced net surplus income, the budget planner calculated the 'maximum purchase price in five years' to be paid under a vendor terms contract, or the 'future owner price'.

(5) By another linked spreadsheet, referred to in evidence and submissions by various names, including the 'investor spreadsheet', the investor's costs were calculated and deducted from the future owner price, resulting in the 'maximum purchase price today', or 'investor price'. In practice, the difference between the investor price and the future owner price was about 10%.

(6) Once these calculations had been made, the future owner negotiated the purchase of a home for a price equal to or less than the investor price, signed a contract containing a nominee clause to purchase that home, nominated the investor to purchase the home, and then entered into the vendor terms contract to purchase the home in five years' time for the future price. If the price actually paid by the investor was less than the 'maximum purchase price today', as calculated by the budget planner, the investor and future owner prices were reduced accordingly. This often occurred.

(7) The compulsory savings account and likely capital growth rates also assisted to make the program affordable, by ensuring, or at least increasing the prospect, that future owners would be able to obtain mortgage finance when the terms contracts were due for completion.

97 Taking the last point first, the amount in the compulsory savings account was intended to assist in providing a cash deposit. If capital growth led to the home being valued at more than the future owner price, Mr Gilfillan said that the program design allowed the resulting 'equity' to act like a deposit and make obtaining finance easier. That evidence is logical and I accept it. The process by which capital growth above the future owner price could assist in this way was explained in the 2002 and 2003 slides.

98 Mr Gilfillan gave evidence about the predicted rates of capital growth in the slides. Although the director did not contend in final submissions that these predictions lacked reasonable grounds, or were otherwise misleading, it is nevertheless instructive to consider Mr Gilfillan's evidence about the issue; because it bolsters the conclusion that, by emphasising the reasonable likelihood of capital growth as a selling tool for the future owner program, he was acting reasonably and not immorally.

99 Mr Gilfillan recalls discussions with Mr Scully concerning the 7% capital growth prediction in the 2002 slides. Mr Scully was more optimistic than Mr Gilfillan that this rate of growth, which had been achieved in the past, would continue for the whole of the period of the vendor terms contracts. Notwithstanding Mr Scully's view, Mr Gilfillan believed it was prudent to reduce the predicted capital growth from 7% to 5% in the 2003 slides.

100 Mr Gilfillan nevertheless supported the reasonableness of the capital growth assumptions in both the 2002 and 2003 slides. He referred to contemporaneous articles in the real estate and investment media. For example, information published in the Domain Property Review magazine published in The Age newspaper which was found on Active files. It records, among other things, capital price increases of 15.6% in the year 2002/3 for houses in the Meredith area, where the Butchers' home under the program is located; and increases of 12.7% for the Lara area, where the Stevensons' home under the program is located. This kind of information was discussed between Mr Scully and Mr Gilfillan, and gave Mr Gilfillan confidence that the represented capital increases were achievable.

101 Mr Gilfillan also relies upon conversations with future owners, to the effect that their homes had increased in value by more than the predicted rate.

102 Finally, he relies upon statistics as to what in fact occurred. The Department of Sustainability and Environment published a Guide to Property Values recording growth in the median house prices in Victoria between 1996 and 2007. Taking Meredith as an example, the median price increased by an average of 6% per year over this period. The median price in Lara increased by 9.7% per year over this period.

103 In all the circumstances, I am satisfied that there were reasonable grounds for the capital growth predictions which were made, and that Mr Gilfillan's approach to the representations made by Active in that regard was a reasonable one.

104 The spreadsheets evolved over time. Mr Gilfillan said that he continued to develop and improve them with the assistance of others, including John Hart. Mr Hart was engaged to carry out detailed work from about February 2003. He gave evidence, on behalf of the Director, that he assisted with the formulae underlying five cells in the budget planner spreadsheet; including by correcting the formula to calculate the future owner's net surplus income, and work concerning the formula to take account of different rates of stamp duty. The engagement of Mr Hart supports a finding that Mr Gilfillan did not act with reckless indifference in relation to affordability issues but, to the contrary, was endeavouring to improve Active's systems in that respect.

105 At about the time Mr Gilfillan was dealing with Mr Hart, he also reviewed and started using software called the 'GE Calculator', designed to calculate the maximum amount of loan principal which a person could service. He understood that this program was used by GE Finance to assess applicants for mortgage insurance. The calculator included assumed expenses based on the category of the applicant; for example, single, married with one child, married with two children and so on. Mr Gilfillan decided to adopt the GE Calculator as a check on the information provided by potential future owners as to their expenses, and also to check the future owner price. From late 2004, towards the end of Active's business operations, the GE Calculator replaced the budget planner and investor spreadsheets in determining the investor price and future owner price.

106 The Director called expert evidence from Mr Dicks, for the purpose of demonstrating that the budget planner spreadsheet was inadequate in some respects.

107 Mr Dicks' evidence was given in relation to the spreadsheet used in the case of the Butchers. That spreadsheet was manipulated by Mr Hansen to produce a false result, thereby enabling the Butchers to participate in the future owner program when they clearly did not qualify for participation. There is no evidence that this problem was encountered in other circumstances. Mr Gilfillan acknowledged that he did not implement a change control system for the budget planner or investor spreadsheets, and that consultants 'who knew what they were doing' could change parameters to manipulate the result.

108 As appears below, Mr Gilfillan was not aware that the Butchers had been accepted for participation in the future owner program by Mr Hansen, notwithstanding that they did not qualify, until after they had signed the program documentation and defaulted in their obligations. This issue is considered below in relation to the Director's claims made on behalf of the Butchers against Mr Hansen and Mr Gilfillan.

109 Mr Dicks' criticisms of the budget planner spreadsheet, while made with reference to the budget planner completed for the Butchers in April 2004, were more general in nature. Putting aside Mr Hansen's manipulation of the spreadsheet, there are some aspects of the formulae embedded in that version of the spreadsheet which occupied much evidence.

110 The budget planner spreadsheet for the Butchers calculated a negative target for their compulsory savings account. Mr Dicks' investigations revealed that this anomaly resulted from the formula underlying cell J137 in the spreadsheet, which was intended to calculate 6% of the future owner price as a compulsory savings target. But the formula calculates, instead, 6% of a lesser figure; that resulting from the calculation in cell J145.

111 Neither Mr Dicks nor Mr Gilfillan could explain a reason for the anomaly. The issue was not raised for Mr Gilfillan's consideration until the trial; some nine years after Mr Hart assisted Active to refine aspects of the spreadsheets, and eight years after the spreadsheet for the Butchers was completed. Until the trial, Mr Gilfillan believed the formula for cell J137 always calculated a percentage of the future owner price.

112 Mr Gilfillan said the formula was so complex that he could not have written it, and he believes that Mr Hart must have done so. He speculated that the formula 'had something to do with a net present value calculation'.

113 In all the circumstances, Mr Gilfillan said he believed the formula was 'not an accidental formula', and there may have been a good reason for it. Given the complexity of the formula and the passage of time, however, he could not recall the reason.

114 It was not put that the formula was deliberately inserted in the spreadsheets to produce aberrant results. Taking the evidence as a whole, and my impressions of Mr Gilfillan as an honest witness, I make no such finding. It is in my opinion likely that the anomaly arose from unintentional error or reason which cannot be remembered. This aspect of the case does not establish immoral conduct by Mr Gilfillan.

115 There is another issue about cell J137. The budget planner spreadsheet contains links to explanations or notes for some of the cells; usually prepared by Mr Gilfillan. The explanation for cell J137 states that the cell is intended to calculate 12.5% of the future owner price, not 6%. So, putting to one side that the formula for cell J137 calculates a percentage of a lesser amount, there is inconsistency between the formula and the explanation. Mr Gilfillan explained the inconsistency as resulting from a change to the formula - to calculate 6% instead of 12.5% - and an unintended failure to change the explanation. He explained that the money management arrangements were designed to pay a fixed weekly amount from the BTS account into the compulsory savings account. The weekly amount was originally calculated to result in savings equalling 10% of the future owner price and estimated stamp duty. The percentage was later increased to 12.5% of the future owner price without stamp duty, with the extra 2.5% going towards estimated stamp duty. Later again, the figure was reduced to 6% of the future owner price and actual stamp duty, on the basis that the remaining amount required for a 10% deposit on completion of the terms contracts would be met by the 'equity' of the future owners arising from capital growth, as discussed above.

116 I accept Mr Gilfillan's explanation. It was not put that it was false, and no reference was made to it in final submissions as a particular of unconscionability. Given the complexity of the formula in cell J137, I infer that whoever changed the formula, from 12.5% to 6% unintentionally neglected to change the explanation. This may evidence another inadequacy in Active's change control systems for the spreadsheets, but it does not involve any immorality.

117 Mr Gilfillan gave evidence about his contemporaneous subjective beliefs concerning the affordability of the future owner program. Based on the structure of the program as described above, he was confident that future owners would be able to meet their obligations in the absence of significant changes to their financial position. For example, he considered the risk that future owners may lose their job. He viewed that risk as one facing any borrower under a standard mortgage loan arrangement with a bank.

118 Mr Gilfillan also gave evidence about his knowledge of the performance history of future owners:

There were about 135 Future Owners in total during the period of the [future owner program]. To the best of my recollection, during the [program], less than 10 Future Owners abandoned their home and left the [program]. The terms contracts entered into required settlement within five or seven years. The [program] closed before this period was reached. Two Future Owners brought forward the completion date under the terms contract and purchased the houses. I do not know what happened in relation to the terms contracts after the [program] had closed down. However, my wife was an investor and her Future Owner purchased the property under the terms contract after the [program] had closed down. During the period of the [program], there were many satisfied Future Owners.

119 In support of this evidence, Mr Gilfillan tendered seven testimonials given by satisfied future owners. Those testimonials include praise for the way in which Active staff assisted future owners in times of financial difficulty, such as periods of unemployment or birth of a first child. The genuineness of these testimonials was not challenged. They stand in stark contrast to the evidence given by Mr and Mrs Butcher concerning their experiences under the future owner program.

120 Mr Gilfillan's evidence about his knowledge of performance under the future owner program, quoted above, relates only to future owners who abandoned the program. He did not say that there were no other defaults which required Active to honour its guarantees to investors from time to time. He acknowledged that the Active business failed because of claims on the Active guarantees.

121 Mr Gilfillan was cross-examined to the effect that the claims by investors under the Active guarantees were greater than he acknowledged, and this should have been obvious to him from a time well before Active ceased writing any new business. The evident purpose of the cross-examination was to support a submission that a stage was reached when the level of defaults by future owners should have caused Mr Gilfillan to realise that Active's systems for assessing the ability of future owners to afford the program were seriously flawed - and that Mr Gilfillan ought therefore to have caused Active to cease writing new business from that time; at least pending the design and implementation of improved systems to assess affordability.

122 This cross-examination was based on two documents: (1) a draft profit and loss statement for Active Property Solutions, purporting to be for the full year to 30 June 2005 (the 'APS statement'); and (2) a draft profit and loss statement for Active Group for part of that year - the period 1 July 2004 to 31 January 2005 (the 'Active Group statement'). Although purporting to deal with different corporate entities, it is apparent that the two profit and loss statements are intended to deal with the one business. For example, the 2005 gross profit is the same in each document. There is also a high degree of correlation between the 2005 expenses. The Director does not contend to the contrary. The evidence establishes that Active Group conducted the future owner program from March 2004; and that Active Property Solutions ceased trading from that time.

123 There is one material difference between the two statements. The Active Group statement gives a figure of about $25,000 for payments under the Active guarantee in the part year to 31 January 2005, while the APS statement refers to an expense of about $200,000 for guarantee payments in the full 2005 year. The APS statement refers also to about $190,000 for guarantee payments in the 2004 year.

124 Mr Gilfillan was cross-examined about this issue. He confirmed that Active Property Solutions did not trade after Active Group was incorporated, and therefore only one set of accounts was necessary for the Active business in 2005 - in respect of Active Group. He did not accept the reliability of the figures contained in the APS statement. Both in cross-examination and re-examination, he referred to professional incompetence by the accountants for Active, and referred to legal proceedings brought against the accountants and settled for $30,000.

125 I find that the APS statement is unreliable. In addition to the above, Mr Gilfillan gave unchallenged evidence that the Active offices were 'raided' by the Director in December 2004. In his words, the raid 'killed the business', and little business was written after this time. Mr Hansen left Active, but three employees continued until Active was placed in liquidation in about April 2005. This evidence was not challenged. The income and expenses of the Active business must therefore have continued from 31 January 2005 until liquidation in March or April; and those increases should have been reflected in the profit and loss statement to 30 June 2005, in particular for wages and rent. They are not included in the purportedly complete APS statement, which largely replicates the expenses in the statement to 31 January 2005. Further, if this was an important issue to the Director, I would have expected that evidence as to the timing and extent of claims on the Active guarantees would have been obtained from the liquidator of Active Group, who had a statutory duty to prepare accurate accounts.

126 Apart from some general evidence from Mr Gilfillan that future owners who defaulted did so for a variety of reasons, the only evidence before the Court concerned the Butchers and the Stevensons. The Butchers could not afford their program commitments, and are a special case; the Stevensons could afford their commitments, but chose not to honour them.

127 The evidence on this issue is both incomplete and unreliable. On balance, I accept Mr Gilfillan's evidence about his beliefs concerning performance under the future owner program.

128 As to the Director's contentions that a stage must have been reached when the defaults by future owners should have caused Mr Gilfillan to stop Active writing any new business, at least pending design and implementation of revised systems to assess the ability of future owners to afford the program, the evidence does not enable any finding as to whether or when such a stage was reached.

129 Mr Gilfillan summarised his subjective view of the future owner program and his participation in it, in the following terms:

Looking back, I acknowledge that, during the period of the [future owner program], things could have been done better. I acknowledge that this included the processes adopted by the [future owner program]. This occurred particularly during the period when Peter Scully was at [Active Property Solutions]. However, as I have set out in this statement, I tried, to the best of my ability to address the concerns and issues which arose in the operation of the [future owner program] and to comply with the obligations which I believed were imposed by law. I do not believe I acted unconscionably in relation to the [future owner program]. I did not set out to mislead or to make representations in relation to the [future owner program].

130 Taking the evidence as a whole, for the reasons given above and based on my general assessment of Mr Gilfillan, I accept this as a genuine statement of Mr Gilfillan's state of mind at relevant times and today.

Was the general design and implementation of the future owner program unconscionable?

131 Counsel for the Director submitted that it was unconscionable for Mr Gilfillan and Mr Scully, through Active, to promote and offer the future owner program to the class of consumers to whom it was directed. This submission was based upon a number of overlapping contentions, which I will describe as:

132 Counsel for the Director acknowledged that the conduct relevant to any one of these points, taken alone, did not constitute unconscionable conduct. Counsel contended that, taking the evidence as a whole in respect of all of these points, the Court should conclude that the conduct of Active, Mr Scully and Mr Gilfillan amounted to unconscionable conduct as described above.

133 The target market point is the central plank in the Director's general unconscionability case. The Director contends that the future owner program should never have been marketed, because a significant proportion of the class of persons to whom the program was directed were unlikely to have the capacity to make the various payments due under the program agreements. So participants would lose the opportunity to become owners of the homes they had selected, in circumstances where the payments they had made were in excess of market rental.

134 In support of this contention, the Director points to an agreed fact: that the program was designed for people who could not satisfy traditional credit risk analysis criteria employed by mainstream banks and financial institutions, and thus obtain a home loan. Based upon this underlying premise of the program, the Director contended that marketing 'the great Australian dream' of home ownership was wholly inappropriate - because potential participants were presented with the 'illusion that the great Australian dream is for them achievable'.

135 In this context, the Director relies on the evidence of Professor Sathye, a banking and finance expert, who has worked as an academic in banking and finance in Australian universities and is currently the head of the Accounting Banking and Finance Discipline at the University of Canberra. Professor Sathye gave evidence that the class of persons targeted by Active could not satisfy traditional credit risk analysis criteria as they were in a very high risk category. Professor Sathye was also critical of the limited credit risk analysis by Active to assess the future owner price. In his opinion, the 'budget planner' spreadsheet was only a basic mechanism for assessing affordability, and contained an insufficient buffer against future contingencies such as increasing interest rates or, more importantly, vicissitudes of life such as loss of employment. While recognising that the program was not directed towards persons who could obtain finance from mainstream banks and financial institutions, Professor Sathye's report nevertheless focussed upon the requirements necessary to satisfy the credit risk analysis criteria of such institutions, in particular Authorised Deposit Taking Institutions such as banks ('ADTIs').

136 I was not assisted by Professor Sathye's evidence. He reviewed the personal circumstances of only two of the 135 future owners who participated in the future owner program. He concluded that the Stevensons could afford the program, but the Butchers could not. That was obvious and not in contest.

137 Professor Sathye said also that Active's systems for assessing affordability were less stringent than the credit risk analysis usually undertaken by banks and other ADTIs. In cross-examination, Professor Sathye acknowledged that second-tier lenders (non-ADTIs) apply a less rigorous form of credit risk analysis than ADTIs - they accept higher risk for higher interest - and that banks and other ADTIs also do this on occasions. Professor Sathye's evidence on this issue was inconsistent. He initially said that ADTIs and non-ADTIs applied the same rigorous credit risk analysis. That was an unsustainable position.

138 Further, Professor Sathye did not appreciate, or was not fully instructed, about all of Active's systems. For example, he did not know that Active had a system in place to exclude persons who did not satisfy a minimum income threshold from participating in the future owner program.

139 I also have a concern about Professor Sathye's impartiality. His evidence appeared designed to focus only on the detriments of the future owner program. In cross-examination, however, he acknowledged that the future owner program gave participants the benefit of an opportunity to buy their own home; albeit at a higher overall price than if they qualified for a bank loan. He accepted that the extra costs were a 'minus' and the opportunity to buy the home and lock-in a future price was a 'plus'.

140 Although mainly directed at the key home buyer program, the Director contends that the essential elements of the future owner program were 'transactions with complex, collateral and inter-related contracts, which consumers are unlikely to be familiar with'.[40]

141 The affordability point builds upon the target market point. A number of criticisms were directed at the use of the budget planner to assess the maximum price which potential participants could pay for a home. The Director contended that this method of assessing affordability had many flaws, in particular because:

(1) the budget planner is a mere 'snapshot' of the financial position of the future owner. It took no account of the historical income, expenditure and credit worthiness of future owners; nor did it consider the maintainability of the levels of income and expenditure represented by future owners;

(2) the budget planner did not allow enough buffers to accommodate the vicissitudes of life. If something went wrong, such as loss of employment, the limited buffers in place were insufficient to enable future owners to keep up with the payments they had agreed to make under the program agreements. In summary, there was insufficient margin for error built into the budget planner spreadsheet;

(3) the budget planner computer model was based on an Excel spreadsheet. The spreadsheet was not locked, leaving open the possibility of manipulation in an individual case. This occurred on one occasion, when Mr Hansen apparently manipulated the spreadsheet so as to enable the Butchers to purchase a home for a price above the maximum price which the budget planner, if not manipulated, would have permitted.

142 Allied to the affordability point, the Director contends that the program agreements imposed significant financial commitments on the future owners. Put simply, it was submitted that participation in the program was an expensive way of buying a home, even assuming all things went well: (a) the upfront and commitment fees totalled $3,000; (b) the $7,000 documentation fee formed part of the advance made by the investor under the furniture pack arrangements, and had to be repaid with interest; (c) the future owner price included all of the investor's costs, including fees paid to Active; (d) the future owner paid interest on the investor's costs, as part of the 'weekly house payments'; (e) the future owner paid the weekly management fee; and (f) financial penalties arose from non-compliance with the program agreements.

143 Under the money management arrangements, control of the future owner's income was given to Active, which used the income to pay program commitments first, including the compulsory savings amount, and other recurring expenditure such as utilities. The balance, agreed upon in advance, was paid into a current account under the control of the future owners, and used for day-to-day living expenses such as food, petrol, clothing and other discretionary expenditure. The Director contends that these arrangements did not include a sufficient margin for contingencies outside the expenses estimated by the future owners in their instructions to Active for the completion of the budget planner. As to those instructions, the Director contends that people who were desperate to own their own home would likely underestimate their expenditure, and this should have been obvious to Mr Scully and Mr Gilfillan.

144 Although put forward as a separate point, the control point is essentially a further particular of the affordability point.

145 The Director contends that, by the design of the program, Active placed itself in a position of conflict of interest between its duties to investors and to future owners. In the statement of claim against Mr Gilfillan, the Director alleged that the conflict of interest arose from the fact that Active acted for two classes of clients, the future owners who wanted to purchase their own home and the investors who wanted to invest in property and receive an income. At trial, consistent with Professor Sathye's expert report, the Director added a particular of conflict of interest. He contended that the Active guarantee, combined with the money management arrangements, placed Active in a position of conflict of interest because, in determining the priority of payments to be made from the BTS account, it would always be in the interests of Active to pay amounts due to the investor for weekly payments in priority to any pressing need which the future owners may have; for example, for sickness leading to a temporary reduction in the income of a self-employed future owner, or sickness leading to the need for medication which had not previously been required. In summary, the Director contends that the guarantee provided an incentive to Active to prefer the interests of the investor (and thus protect it against claims under the guarantee) above the legitimate needs of future owners.

146 There are two aspects to the next point. The Director contends that Active did not employ suitably qualified or experienced people to implement the program, in particular in assessing whether applicants could afford the future owner price; and did not establish adequate systems to train and supervise staff in the marketing and implementation of the future owner program.

147 Putting all of these factors together, the Director makes an overarching point. The Director contends that Active exploited the desire of a marginalised class of consumers to participate in the 'great Australian dream of home ownership' - by offering them 'something which shouldn't have been offered', because they had no realistic chance of complying with their obligations under the program agreements. In substance, the Director contends that, in the absence of carefully designed protections equivalent to those offered by the rigours of traditional credit risk analysis applied by banks and major lending institutions, the opportunity of purchasing a home should never have been offered to the target class.

148 I reject the Director's general unconscionability case. After considering all the circumstances, I am not persuaded that the conduct of Mr Gilfillan or Mr Scully, by merely promoting and offering the future owner program to the target class of consumers, should be characterised by the pejorative term unconscionable. Although there are some elements of the program which could have been designed and implemented better, no significant moral obloquy has been demonstrated. It follows that Active did not engage in unconscionable conduct either.

149 My reasons for reaching these conclusions are as follows.

150 First, I am not satisfied that the target consumers were, as a group, necessarily vulnerable or financially disadvantaged. They were intended to comprise people with sufficient income to repay a loan, but who were unable to obtain finance for varying reasons.

151 Second, the evidence does not establish that either Mr Scully or Mr Gilfillan intended that potential clients would make commercially irrational decisions because of their desire to own their own homes. Although Active's principal source of income was from up-front fees, the Active guarantee meant that it was in its interests to take reasonable steps to ensure future owners could afford the program. This is not a case like National Exchange, where the offeror intended that some offerees would act in a commercially irrational manner. Indeed, that was the whole point of the offers being made in that case.

152 Third, the minimum income threshold and budget planner processes were established and implemented in a bona fide endeavour to exclude persons who could not afford the program from participating in it. These processes were not perfect, and were less prudent than the rigours of credit risk analysis performed by banks, but no immoral conduct was involved. The existence of the Active guarantee gave Active a strong incentive to make reasonable endeavours to exclude those who could not afford the program from participating in it. The fact that hindsight may show the endeavours were insufficient in some cases establishes negligence at best; as much in respect of Active's own interests as those of the future owners.

153 Fourth, the budget planner program included a 10% buffer for contingencies. The fact that it proved insufficient to protect some future owners from major contingencies does not demonstrate immoral conduct. Major vicissitudes of life, such as loss of employment or illness, are part of the risk undertaken by all home owners with significant mortgage debts - especially those who provided no or little deposit. Banks regularly call-up mortgages when homeowners default under their loans.

154 The evidence established that there were defaults by some future owners, leading to claims on the Active guarantee which were sufficiently large to eventually make Active insolvent. Mr Gilfillan said that the defaults arose from a range of changed circumstances after the program was entered into, and mostly related to future owners who dealt directly with Mr Scully. In respect of the Stevensons, the evidence establishes that they had sufficient financial capacity to complete the program, but chose to move out of the home chosen by them and to repudiate their obligations to Active and the investor. The evidence did not disclose whether other future owners could afford to pay their program commitments, but elected not to do so for whatever reason.

155 On this issue, the Court would have been assisted by evidence from the liquidator of Active Group as to the timing and extent of claims under the Active guarantees; by statistical evidence of performance under the future owner program; by evidence as to why other future owners defaulted; and by comparative evidence, of performance under loans of similar amounts at similar times by borrowers from banks and mainstream financial institutions - especially borrowers who contributed low deposits.

156 Fifth, while participation in the future owner program was expensive, an adequate system for explaining the costs was established and implemented.

157 Sixth, although elements of the program were complex and unusual, an adequate system for explaining the substance and effect of the program agreements was established and implemented.

158 Seventh, although there was an apparent conflict between Active's desire to ensure payment of the future owners' obligations to the investor, and so limit its exposure under the Active guarantees, this was also in the future owners' interests; so they could get the benefit of home ownership by completing the terms contract. In the absence of the money management arrangements, the choice of making discretionary expenditure, or deferring the payment of essential bills on time, would be left to the future owners. Decisions about these day-to-day priorities in allocating a tight family budget arise for homeowners under traditional mortgage arrangements with banks. Further, the future owner program built in some flexibility, by allowing access to the compulsory savings account in such circumstances, and the evidence shows some flexibility was adopted in practice; for example, assistance given to the Butchers as described below and statements in testimonials from satisfied future owners. Further, on the available evidence, Active consultants were told to inform future owners that their budget would be tight and would require discipline.

159 Eighth, the future owners all understood and consented to the money management arrangements. Although this limited their personal choice as to how tight family budgets should be prioritised in difficult times, future owners knowingly accepted that the money management arrangements could assist them to learn to live on less and learn better money management practices.

160 Ninth, although I accept that consultants employed by Active were from varying backgrounds, and most were not trained or experienced in credit risk analysis, the income threshold and budget planner processes were designed to remove their discretion to accept future owners into the program who could not afford it. Further, there is evidence of supervision and training to ensure these processes were applied consistently; and Mr Gilfillan regarded Mr Hansen as competent and experienced in performing his role, and trusted him.

161 Tenth, there was a reasonable basis for Active to market the program by reference to the likelihood of capital growth which would, in combination with any compulsory savings, provide future owners with the deposit (or 'equity') to obtain mainstream finance to complete the vendor terms contracts in five years' time.

162 Eleventh, the Director's case does not give adequate recognition to the main benefit provided by the future owner program: people who had sufficient income, but who could not obtain finance, were given the opportunity to buy a home in the future at a price fixed 'today' - the future owner price. It was reasonable to predict that the future owner price would be less than the value of the home at acquisition; thus giving future owners the chance to acquire some 'equity' in the home over the period of the program. Further, the program offered future owners the opportunity to learn how to better manage their household budgets.

163 Twelfth, the Director contends that there are some aspects of the program which, although not adversely affecting future owners or making the program design unconscionable from their point of view, should nevertheless be the subject of comment by the Court. I have in any event considered these matters in determining that the general unconscionability case should fail. I will mention them briefly:

(1) Mr Gilfillan acknowledged that future owners who did not have goods to the value of $10,000 were, nevertheless, required to complete a schedule stating that the listed goods had values totalling that amount. The schedule was annexed to the goods hire agreement. The Butchers are an example of this requirement. The evidence does not disclose the extent of this practice. The requirement may have misled the relevant investor, but there is no evidence it did. No investor gave evidence. On the available evidence, I infer that the investors are likely to have known that the values in the schedules would be unreliable; and that the values were of little consequence to investors. From their point of view, the benefits of the goods hire agreements lay in the higher interest rate on the associated advances, and the depreciation of the goods for tax purposes. The prime security on which they relied is likely to have been their ownership of the home, and not the value of second-hand goods if repossessed following default. There is no evidence of any investor repossessing any goods after default. Taking the evidence as a whole on this issue, it discloses only that one or more investors could have been misled, not that they were.

(2) The Director also noted that over-valuing goods under the goods hire agreements could lead to the investor claiming inflated depreciation benefits in their tax returns. The extent of any unwarranted tax benefits is unknown, and the future owners were unaffected.

(3) Reference was also made to the back-dating of documents authorizing future owners to purchase their homes as agents for investors. Again, the Butchers are an example of this practice. It was obviously engaged in for the purpose of avoiding double stamp duty. In circumstances where future owners signed contracts of sale with the intention that an investor would be nominated in their place, the back-dating of the authorities may be thought to be within the spirit, if not the letter, of the relevant revenue legislation. Apart from mentioning this issue, it was not pursued in submissions.

(4) The conduct of Mr Hansen in connection with the First Home Owner's Grant was also criticised. Although not evidence against Mr Gilfillan, an instruction from Mr Hansen to Ms Duncan was referred to in evidence, to the effect that unmarried partners, such as the Butchers, could obtain the grant; even if one of them had previously owned a home. Mr Gilfillan said that he did not give such an instruction to Mr Hansen or other staff, and he did not know of the instruction. As appears below, Mr Hansen gave wrong advice to the Butchers, that they qualified for the grant, notwithstanding that Mr Butcher had previously owned a home. Whether Mr Hansen knew that his advice to the Butchers was wrong, or was negligent in giving it, does not need to be resolved. For reasons appearing below, his conduct was otherwise unconscionable towards the Butchers.

164 For substantially the same reasons, the general unconscionability claim against Mr Scully has not been established. The changes made by Mr Gilfillan after Mr Scully left improved the future owner program, but did not alter its essential elements or intent.

165 As the general unconscionability case fails, the specific unconscionability claims concerning the Butchers and the Stevensons need to be resolved by reference to their particular facts and circumstances.

Did Mr Gilfillan engage in unconscionable conduct towards the Stevensons?

166 The specific claim made on behalf of the Stevensons is in large part based upon the Director's general unconscionability case. For the reasons given above, that case fails. The Director contends, however, that the specific circumstances of the Stevensons' participation in the future owner program amount to unconscionable conduct by Active and Mr Gilfillan.

167 The Director's principal allegations are that Active:

(1) misled the Stevensons into believing they would own a home upon signing the program agreements;

(2) did not adequately explain the future owner program, or its costs, to the Stevensons;

(3) knew the Stevensons were desperate to purchase their own home and that, having moved into the home prior to them signing the program agreements, had formed an emotional attachment to it;

(4) did not explain the program agreements to the Stevensons, or give them an adequate opportunity to read the agreements or get advice before requiring them to sign the agreements; and

(5) as a result, exploited the vulnerable position of the Stevensons.

168 Mr Gilfillan denies the allegations. He contends that:

(2) he did not know of the conduct by Active employees on which the Director's allegations are based;

(3) Mrs Stevenson's evidence is unreliable and should be rejected;

(4) Mrs Stevenson chose not to focus on Active's explanations about the details of the program, its costs or the program agreements because of her excitement at the prospect of owning a home;

(5) Mrs Stevenson chose not to read documents she signed, notwithstanding that she could have understood them, or read them and chose to ignore the detail because of her excitement; and

(6) the Stevensons changed their minds about proceeding with the program, and repudiated contracts they could well afford to complete.

169 I proceed to consider the relevant evidence. Before doing so, I note that only Mrs Stevenson swore an affidavit and gave evidence. Mr Stevenson is seriously ill and unable to give evidence. I am not, however, satisfied that he was unable to provide instructions and swear an affidavit at the time Mrs Stevenson swore her affidavit in March 2008. Mrs Stevenson acknowledged that both she and her husband met with the Director's officers, gave instructions about relevant events, and that the Director's officers would then 'write it all up'. The failure of Mr Stevenson to swear an affidavit was raised with Mrs Stevenson in evidence, but no satisfactory explanation was given.

170 Given Mr Stevenson's serious illness, I do not infer that his evidence would not have assisted the case made on the Stevensons' behalf. The fact remains, however, that his failure to swear an affidavit deprives the Court of relevant evidence, as Mrs Stevenson acknowledges that Mr Stevenson had conversations with Active representatives when she was not present. Those conversations included discussion between Mr Stevenson and the Active consultant with whom the Stevensons dealt, Mr Taylor, about the furniture pack. Mrs Stevenson had no recollection of these discussions or the amount involved, notwithstanding her evidence that she and her husband 'discussed everything'. The Court is left to draw inferences from the available evidence.

171 Mr and Mrs Stevenson's involvement in the future owner program commenced in March 2003, when they read an advertisement placed by Active in the Geelong Advertiser newspaper - in the following terms:

WHY ARE YOU PAYING RENT?

$750pw net combined or single income gets you

your own home at competitive rates

172 Mrs Stevenson contacted Active and arranged a meeting with Mr Taylor on about 9 April 2003. The meeting took about 2½ hours. Although Mr Taylor's mobile phone rang often, he did not take the calls; but gave the Stevensons his full attention.

173 From the start of the meeting, Mr and Mrs Stevenson said they were desperate to buy a home, and were willing to reduce discretionary expenditure to achieve that aim. For example, when asked if they ever drank wine or had video nights, Mrs Stevenson responded: 'Yes, who doesn't like a bottle of wine? And who doesn't like a video now and then? But we are willing to stop these things, in fact, we're willing to give up all that if it means having our own house.'

174 Mrs Stevenson's recollection of the details of Mr Taylor's explanations of the program was vague and incomplete; because of the passage of time and because she was overwhelmed by excitement at the prospect of purchasing a home. She said in her affidavit:

[Mr Taylor] went on to talk about how Active worked out who could buy a house at whichever price. There were many different types of graphs in the presentation and from there he talked about clientele and investment. I was so very excited by the idea of getting our own home that that was all I really heard.

175 Mr Taylor explained the future owner program by reference to slides on his laptop computer. In Mrs Stevenson's words: 'He talked to us as the presentation of slides went on and he explained how the system worked.' In her affidavit, Mrs Stevenson proceeded to recount her recollection of what Mr Taylor said with reference to the slides. Mrs Stevenson gave detailed evidence of purported recollection, in direct speech, of what was said on certain issues. Her affidavit was sworn nearly five years after the meeting. It is unlikely that she then had such a detailed recollection and, in addition, the affidavit bears the hallmarks of reconstruction and word-smithing. Even if that is not so, the affidavit is in any event consistent with Mrs Stevenson being told that an investor would purchase the home they selected under the program, and they would then buy the home from the investor after five years.

176 Mrs Stevenson recalled Mr Taylor saying that, although she and her husband could 'choose the house', an investor would purchase the house for them; and they could live in the house 'just like' it was their own home. Later in her affidavit, Mrs Stevenson described a statement she made to Mr Taylor to the same effect; that she understood they would not own the home until they paid the investor for it but, in the meantime, they could 'talk about it like it's our home.'

177 To the extent that Mrs Stevenson's affidavit conveys the impression that Mr Taylor's statements induced her to believe that she and her husband would own the home upon signing the program agreements, I reject it. It is highly unlikely that Mr Taylor, while speaking to the slides which accurately describe the program, would make statements to that effect. If Mrs Stevenson misunderstood the structure of the program, it was because she let the excitement of the occasion overwhelm her and she did not focus on what Mr Taylor was saying during the course of his lengthy presentation.

178 On the basis of this finding alone, I am not persuaded that Active misled the Stevensons into believing that, upon signing the program agreements, they would become owners of the home they selected under the program. This conclusion is bolstered by my impression of Mrs Stevenson as a reasonably intelligent woman - at the time of the relevant events she had experience as an assistant manager of a Sussan retail shop, and was then working part-time as a 'front corporate secretary' - and by further findings below, particularly as to documents signed by Mrs Stevenson.

179 I return to the initial meeting with Mr Taylor. During the meeting, Mr and Mrs Stevenson disclosed:

(1) joint weekly income of $1,100 to $1,600 after tax;

(2) the break-up of their income: $800 to $1,000 per week for Mr Stevenson, and $300 to $500 per week for Mrs Stevenson;[41]

(3) weekly living expenses of about $710 (including rent);

(4) debts, including a car loan, of about $11,000; and

(5) that their inability to obtain finance was because of Mr Stevenson's previous bankruptcy.

180 Based on their represented income and expenses, Professor Sathye said that the Stevensons could afford the financial commitments which they later agreed to under the program agreements. The case proceeded on that basis.

181 Based on the represented income and expenses, Mr Taylor informed the Stevensons that they could afford a house for between $300,000 and $400,000 and, because of their surplus income, they could immediately start looking for a home. In response, Mr Stevenson said he did not 'want to go that high', because 'if something happens, we can't afford it', and said he would be 'happy with about $280 or $290 thousand'. It appears that this target price was then used for the purpose of calculations made by Mr Taylor as to the amount of Mr Stevenson's income which would be available for day-to-day living expenses and discretionary expenditure.

182 I do not intend to review Mrs Stevenson's evidence concerning other aspects of Mr Taylor's presentation. Mrs Stevenson acknowledges that he gave a presentation by reference to the information contained in the slides, and I do not accept that he made any statement which was directly contradictory to that information.

183 Mr and Mrs Stevenson found a suitable home, in Lara, in early May 2003. After speaking with Mr Taylor about negotiation of the purchase price, they signed a contract note to purchase the Lara home for $277,500. That contract note did not include the words 'or nominee', and Mr Taylor arranged for a substitute contract note to be signed which contained those words; for the obvious purpose of enabling the investor to be nominated as the purchaser. To this end, the Stevensons signed a nomination form and related statutory declaration for revenue purposes. The documents explained clearly that the investor was to purchase the home at this time, and not the Stevensons. Mrs Stevenson said that she could have understood the documents at the time she signed them if she read them, but could not recall whether or not she read them.

184 After the initial meeting, Mr and Mrs Stevenson signed the necessary forms for the money management arrangements to commence under their BTS account. Mr Stevenson worked overtime to save the upfront establishment fee of $895, and it was paid into that account. From 15 May 2003, Mr Stevenson's income was paid into the BTS account. Mrs Stevenson's income of between $300 and $500 per week was never paid into the BTS account.

185 Pending settlement of the home purchase by the investor, the Stevensons experienced financial difficulties. Mrs Stevenson swore that the living expenses amount allowed from the BTS account was insufficient for their basic needs. In these circumstances, Mrs Stevenson contacted Carol Duncan, the BTS manager employed by Active, and arranged for an extra $50 per week for living expenses from Mr Stevenson's income. This evidence is difficult to reconcile with Professor Sathye's evidence that the Stevensons could afford to participate in the program. It may be that the financial difficulties at this time were the result of reasons including an unexpected drop in Mrs Stevenson's income, payments for rent, payments for Mr Stevenson's car loan and other debts, weekly payments of $250 for Active's $2,000 up-front fee or other reasons. The question was not explored in the evidence and no final submissions were addressed to it.

186 Mr Taylor informed the Stevensons of the settlement date for the Lara home, and they terminated their lease. They arranged to move on the nominated day. There was a problem with settling the purchase on that day, and the Stevenson family were greatly inconvenienced. Mrs Stevenson became disillusioned with Mr Taylor and Active. When they finally gained possession of the home, Mrs Stevenson had mixed feelings. Although she was excited to be in the home, she 'felt very drained about the whole experience', and 'very shaken by the events of the moving day'.

187 At the time they moved in, Mr and Mrs Stevenson had not signed the program agreements or a list of their goods for the purpose of the goods hire agreement.

188 Mrs Stevenson gave scant details about finalisation of the goods hire agreement. She recalled preparing a list of goods with her husband and that he provided the list to Active. She gave no further detail of the goods hire arrangements, which were dealt with by her husband. The furniture schedule lists goods valued at $30,000. This substantially exceeds the default amount of $10,000. The investor advanced $29,000 to purchase the goods under the goods hire agreement. There is no direct evidence as to why such a large amount was involved. The $29,000 was paid into the Stevensons' BTS account on 30 July 2003. The $7,000 documentation fee was transferred to Active on 6 August 2003.

189 I infer that the excess amount of $22,000 was intended to repay or reduce pre-existing debts disclosed by the Stevensons, including Mrs Stevenson's car loan. Although Mrs Stevenson said her husband rejected Mr Taylor's suggestion that the car loan be repaid from the proceeds of an increased furniture pack payment, it is likely that Mr Stevenson changed his mind in later discussions with Mr Taylor. The pre-existing debts are likely to have been at high interest rates, and consolidation of the debts at the furniture pack rate made good commercial sense for both the Stevensons and the investor. It was not put to Mr Gilfillan that this was the case, or that he approved the increase to the furniture pack payment. Even if he did, that conduct would not have been unconscionable in the inferred circumstances.

190 About 10 days after they moved into the home, the Stevensons were asked to attend Active's offices to sign the program agreements. Mrs Stevenson recounted the events which followed in her affidavit, to the following effect:

(1) When they arrived at Active's offices, they met Bruno Kiernan, who introduced himself as 'Active's solicitor'.

(2) Mr Kiernan arranged the program agreements in three piles on a table, and said there was one copy for them, one for the investor and one for Active.

(3) Mr Kiernan 'did not explain in any detail' what was in the agreements, and gave them no opportunity to read what they were asked to sign. To the contrary, Mr Kiernan said words to the effect that they would not understand the agreements, they could look at them if they wanted to but 'they are in solicitor-talk', and he just wanted them to initial the bottom of each page and sign in full where he directed.

(4) At one stage during the rushed signing, Mr Kiernan said words to the effect 'there is nothing in these contracts that you don't know about'.

Bruno Kiernan was very quick and rushed Mark and I through as we initialled the pages. I was never given any real opportunity to read through the contracts or ask questions and I didn't feel like I could ask any questions about them because I felt intimidated by him. Also, I was desperate to hold onto our house, and we had already gone through such a big upheaval to get into the place.

191 If the events recounted by Mrs Stevenson are true, and the program agreements and costs had not previously been explained to her and her husband, Active's conduct may have been unconscionable. For the reasons appearing below, however, I do not accept Mrs Stevenson's evidence.

192 First, for the reasons already given, I am satisfied that Mr Taylor explained the essential elements of the future owner program at the initial meeting, by reference to the slides. As I have said, the slides are consistent with the program agreements, and include an accurate statement of the fees charged by Active.

193 Second, after the Lara home had been identified, the Stevensons met with Mr Taylor and signed a 'Property Particulars Page' disclosing the set-up fee of $895 and the commitment fee of $2,000, payable by eight instalments of $250.

194 Third, the evidence of Mr Kiernan is inconsistent with Mrs Stevenson's account. Mr Kiernan is a member of the Victorian Bar. He also has an MBA from Melbourne University. Prior to becoming a barrister, he was a partner in a law firm from 1985. He was employed by Active in early 2003 as its legal co-ordinator, for about seven or eight months only. After leaving Active, Mr Kiernan returned to practice as a solicitor, before joining the Bar in 2007.

195 When Mrs Stevenson alleged to the Director that Mr Kiernan had acted in the manner described in her affidavit, the Director did not ask Mr Kiernan, a legal practitioner, to provide his side of the story. At that time, he may have had a better recollection of his meeting with the Stevensons. Mr Kiernan was first asked to turn his mind to the issues concerning the Stevensons this year, nine years after the relevant events. Unsurprisingly, he has no detailed recollection of dealing with the Stevensons, although he does recall meeting them because of Mr Stevenson's occupation.

196 Mr Kiernan gave evidence of his general practice when future owners signed program agreements in his presence. Mr Kiernan's evidence was given by witness statement admitted by agreement. He was not cross-examined. Mr Kiernan gave evidence to the following effect:

(1) It was not his role to give legal advice to future owners or investors.

(2) One of his functions involved explaining the program agreements to future owners and investors. He performed this function on many occasions.

(3) It was his practice to take about two hours to explain the nature of the agreements to future owners before they signed, including an explanation as to the obligations imposed on them under the agreements. He continued:

In fact, it was my practice to go over every page to explain the obligations being imposed ... under these agreements. This included the contract price, instalment payments and fees which were often set out in the schedules to these agreements. While this process usually took about 2 hours, sometimes it took up to 3 hours. I always gave future owners the opportunity to ask any questions they may have.

(4) His only recollection of meeting the Stevensons is a general one, that Mr Stevenson worked as a mechanic at Avalon Airport and there was discussion about the nature of his work. Although he could not otherwise recall the meeting, he denies the account given by Mrs Stevenson in her affidavit:

on no occasion was there ever a 5 or 10 minute meeting with a future owner in order to explain the agreements. As I have said, it was my practice when attending such meetings with future owners to explain in detail the nature of each of the agreements which they had to sign and [this] usually took about 2 hours. I did not have a meeting with a future owner in which I failed to explain in detail the nature of each of the agreements which they had to sign. I was always very keen to ensure that the future owners understood the nature of the obligations they were entering into. I always gave future owners the opportunity to ask any questions they may have.[42]

(5) He recalls an issue arose about the Stevensons. To his knowledge, this was the first time that future owners had 'walked out' of a home. He was shown a letter from their solicitor, alleging that they had no opportunity to read the program agreements until receiving them about a week after they had been signed. The letter alleged that the Stevensons had been 'duped' into entering into the program as a result of unconscionable conduct by the investor and Active, and stated that the Stevensons would immediately cease making any payments under the program agreements.

(7) He recalls 'being astonished at the allegations' when he read the letter, and then believing the assertion that the Stevensons had not read the agreements to be untrue. He wrote Active's response to the letter, refuting the allegations 'absolutely', noting that no prior complaint had been made by the Stevensons, noting also that no attempt was made in the letter to substantiate any of the allegations, and offering for him and Mr Gilfillan to meet with the Stevensons and their solicitor to discuss their grievances and see if a solution could be found. The solicitor replied brusquely, refusing the request for a meeting and stating that the keys to the Lara home were available for collection from his office.

197 Fourth, Mrs Stevenson's version of events did not withstand cross-examination:

(1) Her recollection was vague. She could not recall what Mr Kiernan said.

(2) She could not honestly remember how long the meeting took, because she was so excited about the house:

(a) It was such a long time ago. All I can remember is walking into a room and there were all these houses and numbers up on the wall, waiting there for quite a period of time and then going into a small room and talking about how exciting it was to get the house and pergola and it was such a long time ago, honestly I cannot remember how long it took.

(b) When Mr Kiernan's evidence about his usual practice was put to her, she responded: 'I can't remember how long a period it was.' Later, Mrs Stevenson repeated that she could not recall how long the meeting with Mr Kiernan took, but said she recalled 'that it was quite quick, it wasn't a long period of time'.

(c) She acknowledged that she could be mistaken about the length of the meeting with Mr Kiernan, because of her excitement about the home they had recently moved into: 'I possibly could be mistaken for the time, without a doubt.'

(3) Mr Kiernan's evidence, that there was never a five or 10 minute meeting with future owners to explain the program agreements, was put to Mrs Stevenson. She did not deny that he may have described the agreements in detail, and said she could not recall the conversation other than 'it went that fast' and 'we were talking about the house and the pergola'.

(4) Mrs Stevenson was taken through the agreements which she signed on that day with Mr Kiernan. She acknowledged that she could have understood the key terms of the agreements, and the amounts payable under them, if she had read the agreements at the time or listened to an explanation about them.

198 Fifth, there was no affidavit from Mr Stevenson to support her version of events.

199 Sixth, Mr Gilfillan and Ms Tong gave evidence supporting Mr Kiernan's evidence about his usual practice. Mr Gilfillan said that he instituted a process under which future owners were to have the program documents carefully explained to them before they signed, and Ms Tong recalled the meetings usually took between one and two hours.

200 Taking the evidence as a whole, I reject Mrs Stevenson's account, in her affidavit, of the meeting with Mr Kiernan. There was no challenge to Mr Kiernan's evidence: of his general practice; that 'on no occasion was there ever a 5 or 10 minute meeting with a future owner in order to explain the agreements'; or of his astonishment at the letter from the Stevensons' solicitors. His evidence as to his usual practice is supported by Mr Gilfillan and Ms Tong. On the other hand, although Mrs Stevenson endeavoured to maintain that the meeting with Mr Kiernan was 'quite quick', her evidence as a whole is affected by her obvious lack of interest in the detail of the future owner program. Her lack of interest was caused by her intense excitement at the opportunity to move into a home, so she could 'talk about it like it's our home' to friends. This was reckless conduct on her part.

201 The evidence does not justify any finding that Mr Gilfillan acted unconscionably towards the Stevensons. The claim made on their behalf fails.

Did Mr Gilfillan or Mr Hansen engage in unconscionable conduct towards the Butchers?

202 Mr and Mrs Butcher first contacted Active in about mid-2003. They met with Mr Taylor, who presented the program to them by reference to the slides. They told him about their income and expenses. By reference to the budget planner spreadsheet, Mr Taylor said they could buy a home under the future owner program for about $150,000, but only if one of them gained employment. At this time, their only source of income was government benefits - Mr Butcher's disability pension and Mrs Butcher's carer's allowance. They continued renting.

203 In early 2004, the Butchers came to believe there was a prospect that Mr Butcher's parents would give them financial assistance to buy a home. Encouraged by this, they found a home in Meredith for $169,000. But Mr Butcher's parents refused to give them any financial help to buy the home. They decided to approach Active again, as Mr Butcher had gained a part-time job. Mr Taylor had left Active, so they dealt with Mr Hansen. They gave him updated details of their income and expenditure. Although they did not meet the minimum income threshold for participation in the future owner program, and could not afford both program commitments for a house of that value and their living expenses, Mr Hansen nevertheless allowed them to participate in the program. He manipulated the budget planner spreadsheet for this purpose.

204 Soon after the Butchers moved into the home, they experienced difficulty in living off their surplus income after payment of program commitments. Their situation worsened in September 2004, when Mr Butcher was injured and lost his part-time job. By Christmas 2004, they had no money for living expenses. They somehow struggled on until late March 2005, when they abandoned the program.

205 The Director's principal case is that Mr Hansen acted unconscionably in allowing the Butchers to participate in the program when he knew, or ought to have known, that they could not afford to meet their program obligations. Against Mr Gilfillan, the Director contends that he knew, or ought to have known, that the Butchers could not afford to participate in the program. The Director also alleges that Mr Gilfillan learned of Mr and Mrs Butcher's financial difficulties in or about January 2005, and acted unconscionably by failing to ensure that they had a reasonable amount of money for living expenses.

206 Claims against Spendworks Pty Ltd (the ninth defendant) were pleaded, but no submissions were advanced to support the allegations. I am in any event not satisfied that the allegations were sustainable.

207 Mr Gilfillan denies the allegations. He contends that:

(1) he had no dealings with the Butchers and no knowledge of the Director's allegations against Mr Hansen;

(2) although the Butchers did not have sufficient income to afford participation in the program, Mr Butcher told Mr Hansen that, as part of a property settlement, he was soon to receive about $90,000 to $100,000 from the sale of his previous matrimonial home. Mr Hansen was entitled to accept the truth of Mr Butcher's statement and, on that basis, conclude that the Butchers could afford to participate in the program;

(3) the Butchers obtained independent legal and financial advice that they should not proceed with the program, but ignored that advice and decided to proceed in spite of it. By ignoring the advice they received, the Butchers acted recklessly.

208 I proceed to consider the relevant evidence in more detail.

209 Mr Butcher fractured his skull in a car accident in 1978. He was in a coma for two months. After intensive rehabilitation, he learned to walk and talk again. He speaks slowly and has some memory difficulties. He has difficulty reading, because he cannot concentrate for long periods, but understands the gist of documents when they are read to him. Because of his concentration problems, he cannot work full-time. He has had a series of part-time jobs.

210 Mr Butcher was previously married. He and his ex-wife owned a house. When they separated, his ex-wife remained in the house with their four children, including triplets.

211 Until 1999 when she met Mr Butcher, Mrs Butcher worked in a variety of roles at a motor trim upholstery company in Geelong. Her duties included stock control, bookkeeping, computer work and sales.

212 Mr and Mrs Butcher commenced living as a de facto couple in 2000. Later, Mrs Butcher became Mr Butcher's full-time carer. She obtained an aged care qualification from the Gordon Institute in Geelong in 2003.

213 The Butchers did not have enough income to save a deposit. Further, because Mr Butcher's ex-wife had difficulty making the payments due under the mortgage of the previous matrimonial home, Mr Butcher had a bad credit rating. The Butchers believed they had little prospect of obtaining a home loan. In that context, they spoke with Mr Taylor, as recounted above.

214 In August 2003, Mr Butcher obtained permanent part-time work.

215 By this time, the Butchers had struck a friendship with a real estate agent with whom they dealt concerning rental properties, Seka Powell. Ms Powell was very kind to them and they trusted her.

216 I pick up the story from Ms Powell's affidavit. She was not cross-examined. Her affidavit includes her perceptions about Mr Butcher; including her assessment that he was a 'stubbornly optimistic person' whose desire to buy the home approached an obsession. Taking the evidence as a whole, and my own perceptions of Mr Butcher, I agree with Ms Powell's assessment.

217 At some stage prior to late 2003, Mr Butcher told Ms Powell that he owned a house with his ex-wife and that, when his divorce settlement was finalised, he wanted to use the equity in that house to buy his own home.

218 From late 2003, Mr Butcher went often to Ms Powell's real estate offices. He discussed with her, and other staff members, the possibility of purchasing a home. Ms Powell was concerned at this, because she believed the Butchers could not afford to buy a home. She discussed this with Mr Butcher, but he did not seem to understand. As a result, Ms Powell arranged for the Butchers to consult with a finance broker, to see if they could qualify for a home loan. The broker told them that they could not afford a home loan. Notwithstanding this, Mr Butcher continued to look at houses listed for sale by Ms Powell's real estate agency.

219 In January 2004, Mr Butcher intensified his search for his own home. He told Ms Powell that his parents might lend him money for a deposit.

220 In March 2004, Ms Powell listed the Meredith home for sale. In mid-April 2004, Mr Butcher told Ms Powell that he and Mrs Butcher had 'fallen in love' with the home. Ms Powell then accompanied the Butchers, and Mr Butcher's parents, when they inspected the home. His parents liked the home and discussed ways it could be purchased. A few days later, however, Mr Butcher told Ms Powell that his parents would not assist him financially. He was very disappointed.

221 I return to the story as recounted by Mr and Mrs Butcher. Following the disappointment when his parent refused to assist, Mr Butcher telephoned Active and spoke with Mr Hansen. He told Mr Hansen about the previous discussion with Mr Taylor and, in an endeavour to persuade Mr Hansen to assist them to purchase the Meredith home, told Mr Hansen that:

(1) he now had a permanent part-time job, cleaning toilets one day a week, and would try and get some more work;

(2) Mrs Butcher might also get some work as an aged carer;

(3) although they did not have a deposit, his previous matrimonial home was going to be sold as part of a divorce settlement 'once the triplets turn 18', and he would get about half of the house value (the 'anticipated sale proceeds') which he estimated at between $90,000 to $100,000.

222 Mr Hansen said that Active could probably help; he would find their file and call back. When he called back, he told Mr Butcher that Active could help the Butchers buy the Meredith home, but they would first need to complete 'some paperwork' (a reference to the budget planner details of their current income and expenses) and provide proof of their income. The budget planner paperwork was sent to the Butchers on 26 April 2004. They completed the details the next day, 27 April 2004. A statement from Mr Butcher's employer said that he was earning $137 per week in his part-time job.

223 After Mr and Mrs Butcher had given evidence and been cross-examined on this issue, the Director tendered an Active file note, made by Ms Duncan, of a conversation she had with Mr Butcher on the morning of 27 April 2004. The file note states:

Activity: Outgoing Call Contact: Rod Butcher

...

Reference: buying a house

...

Waiting on Budget planner, wage slips and confirmation of a negotiation of a settlement of which he should get $50K from. Mike will then let him buy a house straight away.

Will send out [BTS account] forms also.[43]

224 This file note would have been the subject of cross-examination if it had been available. It is consistent with the case put to Mr Butcher in cross-examination, to the effect that he told Mr Hansen that his share of the anticipated sale proceeds would soon be available to him; and that he intended Mr Hansen would include those proceeds in his calculations to determine whether the Butchers could afford to buy the Meredith home. Further, there would likely have been evidence and cross-examination about any confirmation he gave to Mr Hansen of a negotiated settlement of his property dispute. No application was made to recall the Butchers for further cross-examination.

225 Although it is clear from the file note that the likelihood of Mr Butcher receiving the anticipated sale proceeds influenced Mr Hansen's decision to allow the Butchers to proceed, there is no evidence about any confirmation given by Mr Butcher to Mr Hansen of a settlement reached with his ex-wife.

226 Based on whatever information provided, Mr Hansen telephoned Mr Butcher and said that he and his wife had qualified to participate in the future owner program for the Meredith home; that he would contact Ms Powell to 'get the paperwork sorted out with her'; and that Mr Butcher would need to arrange for his and his wife's income to be paid into a BTS account. A few days later, Mr Hansen told Mr Butcher his part-time income did not need to be paid into the BTS account; it could be used for living expenses.

227 There were separate discussions about the possibility of the Butchers obtaining the First Home Owner's Grant. Although Mr Butcher had previously owned a house, Mrs Butcher (then Ms Olech) had not. Mr Butcher asked Mr Hansen for advice as to whether they could nevertheless obtain a grant. Mr Hansen considered the issue, and later told Mr Butcher that they could obtain the grant if the house purchase was put in Mrs Butcher's name. That statement was clearly wrong as, although not yet married, Mr and Mrs Butcher were living in a de facto relationship. Mrs Butcher recalls her husband telling her that Mr Hansen said they could use the money from the grant 'to do whatever we want'.

228 Mr Hansen did not require the Butchers to pay the up-front fee (then $1,000) or the $2,000 commitment fee from their own resources. Instead, the fees were to be taken from the furniture pack advance by the investor. They were later taken from that advance and the First Home Owner's Grant.

229 I return to the story as recounted by Ms Powell. Mr Butcher told her of his dealings with Mr Hansen. Ms Powell was immediately sceptical. She told Mr Butcher that she could not see how they could afford the program. Mr Butcher was resistant to her advice. He said that, based on what Mr Hansen had told him, he believed they could afford to buy the home.

230 Ms Powell telephoned Mr Hansen. She told him, in blunt terms, that she believed the Butchers could not afford to proceed. She said also that Mr Butcher would not understand the vendor terms contract and, therefore, required independent legal advice. Mr Hansen responded that Mr Butcher was an adult, seemed to understand what he had been told, that Mr Butcher had been told he should get legal advice, and that he was sending out contracts to Mr Butcher so he could 'have them looked at'. Ms Powell was not convinced. She maintained that the Butchers could not afford to proceed. Mr Hansen responded that 'everything will be OK', their pensions will support the loan, and Active would not 'leave them in the lurch', and that Active was 'just here to give people a chance to own their own home'. The conversation concluded with Mr Hansen telling Ms Powell he would fax her a copy of the vendor terms contract.

231 In later conversations with Mr Hansen, Ms Powell continued to press her view that the Butchers could not afford to proceed. Mr Hansen disagreed, and told her not to worry, as 'we'll take care of them'.

232 Ms Powell told Mr Butcher that he needed independent legal advice. She arranged for a solicitor to look at the program agreements - the vendor terms contract, goods hire agreement and money management agreement - and for Mr Butcher to attend her offices and receive telephone advice from the solicitor. The solicitor advised Mr Butcher against proceeding. After Mr Butcher received this advice, Ms Powell told him that he should not proceed:

If you do this, you'll be eating rice. You cannot afford it. You'll lose everything and you will not have any money to live on. You've just heard a legal person telling you not to do it; you cannot go ahead with it. I can't stop you from doing it but you have to see that you can't afford it.

No. Mike Hansen has said we can do it. He said that Active Property Solutions will look after us. Michelle and I really love the house and we want our own home. I'll get more hours in my part-time job and Michelle will pick up a job. We'll be fine.

...

Active will look after us, Mike's done the sums and he says it's ok. They'll take our pensions and will pay our bills and will give us money to live on. It'll be fine.

234 Ms Powell described Mr Butcher's demeanour during this conversation as 'absolutely obsessed about buying the house', to the extent that he was prepared to ignore independent advice and 'keep focussing on and saying what Mike Hansen told him, that he could afford to buy the house.' Ms Powell concluded the meeting with a series of warnings to Mr Butcher against proceeding with the future owner program:

I cannot stop you buying the house Rodney, but you'll be living on $20 a week. I won't be a party to this after you sign the Contract of Sale, I don't want any more to do with it. It's not just me telling you this Rodney, it's a solicitor as well.

...

If you default on the payments, Rodney, you could lose the house and all the money you have paid as well!!

235 Mr Butcher was unmoved, replying: 'It'll be fine. We're going to do it whether or not you like it.'

236 Ms Powell made another endeavour to persuade Mr Hansen that he should not allow the Butchers to proceed. She told him, in strong terms, that they did not have 'enough money to pay for the house as well as to live'. Mr Hansen replied that he was 'absolutely confident they can do it. '

237 Mr and Mrs Butcher received further legal advice towards the end of May 2004, after Mr Butcher had signed the contract of sale for him 'or nominee' to purchase the Meredith home, but before the other program agreements had been signed. They took the draft program agreements to the solicitor helping Mr Butcher to negotiate a property settlement with his ex-wife. The solicitor said she had not seen contracts of that kind before, was no expert in the area, but nevertheless advised them against proceeding. She said that she could get someone else in her office to look at the agreements if they wanted her to. They decided against seeking any further legal advice. Mrs Butcher said in her affidavit:

... I had many reasons why I thought we'd just go ahead.

...

I was sick of hearing how well Rodney's brothers and sister were doing and that they all owned at least one house each.

I really wanted to be able to show that we could stand on our own two feet and could afford to get a loan like everyone else and we could afford to buy our own home just like everyone else. I was sick of feeling like we couldn't do normal things like own our own home. I knew that it was going to be a long time before Rodney's bad credit rating stopped and we didn't have a deposit to make it easier to get a loan.

I believed that Active ... was the only way we could get a loan and buy the house without a deposit and with a bad credit rating so I thought this was our only opportunity to get our own home.

Rodney and I discussed seeing another solicitor for advice about the Active contracts. I believed that it would cost us a lot of money.

...

I believed that Mike Hansen had gone through all of our finances and he had been really very positive that we could afford it. ... I believed him.

For all these reasons, Rodney and I decided that we really wanted it; that we would go ahead and did not need any legal advice.

238 In summary, although Mrs Butcher was worried about the risks and did not really understand the program agreements, she decided to trust Mr Hansen - because she and her husband 'really wanted the [home] ... and Active was [their] only chance of getting it.'

240 Having exhausted her efforts to persuade the Butchers that they should not proceed, or to persuade Mr Hansen that he should not allow them to proceed, Ms Powell arranged for the contract of sale to be prepared, with the purchaser stated as Mr Butcher or nominee. Mr Butcher signed the contract in her presence on 4 May 2004. The fact that Mrs Butcher (then Ms Olech) was not the named purchaser indicates that the discussions about the First Home Owner's Grant had not then occurred, as Mr Hansen's advice was to put the contracts in Mrs Butcher's name so the grant could be obtained. As events transpired, Mrs Butcher was the purchaser under the vendor terms contract from the investor.

241 The Butchers moved into the Meredith home on about 9 July 2004. After they had moved in, they completed a schedule for the goods hire agreement. They understood that they would get a loan of $10,000 from the investor, and the goods would form security for that loan. When they completed their list of goods, however, the Butchers realised that they did not have goods to the value of $10,000. Mr Butcher telephoned Mr Hansen, who said they should 'make up the amount of the furniture as close to $10,000' as they could. They then 'guessed the price' of their goods, as if new, and then added a margin over that price. The list they prepared came to a value of $12,900. The list was re-written within Active, and the total reduced to $10,000.

242 Later that month, Mr Hansen visited the Butchers at the Meredith home and had them sign the program agreements. He did not explain the agreements during this process, and the Butchers did not read them. He said only that they were the same as the drafts which had been provided before.

243 After the program agreements had been signed, Mr Hansen referred to the future receipt by Mr Butcher of his share of the anticipated sale proceeds. In that context, he mentioned the possibility of the Butchers becoming investors under the future owner program. Mr Butcher was not interested in that, as he wanted to use his share to pay for the Meredith home.

244 Mr and Mrs Butcher dealt with Ms Duncan in connection with their BTS account. Things went awry soon after the $12,000 First Home Owner's Grant was received and banked into their BTS account. Ms Duncan advised Mrs Butcher to pay-off a loan from Harvey Norman with high interest charges. Mrs Butcher did not like this suggestion, and told Ms Duncan that she wanted to buy a better car, because one of their cars was 'on its last legs'. Ms Duncan advised against this, and told Mrs Butcher that she and her husband should use the grant to pay off their existing debts. They purchased a replacement car for $7,000, and also paid the Harvey Norman debt of about $3,000. The remaining $2,000 was applied to the balance of Active's fees, and for living expenses.

245 Prior to establishment of the BTS account, Ms Duncan had told the Butchers that they would receive $273 per fortnight ($137.50 per week) from the BTS account towards their living expenses. In addition, Mr Hansen had told them they could keep Mr Butcher's part-time income, also of about $137 per week, for living expenses. The $273 fortnightly payment was not sustainable from the government benefits paid to the Butchers. Those benefits were about equal to, or at times less than, their commitments under the program agreements. The last fortnightly payment was made on 8 September 2004, about a week before Mr Butcher was injured at work and lost his part-time job. This left them with virtually nothing to live on. Mr Butcher received some WorkCover payments until December 2004, and the Butchers received $45 per week government rent assistance from January 2005.

246 The fortnightly payments from the BTS account could have continued for about 25 weeks if the Butchers had not purchased a replacement car. The purchase was improvident, and shows that they had no insight into the commitments they had undertaken under the program agreements. The Butchers did not, however, know that Mr Butcher was about to be injured and lose his part-time income.

247 The Butchers gave evidence about their dealings with Mr Hansen and Ms Duncan from the time the fortnightly payments from the BTS account ceased. Mr Hansen and Ms Duncan insisted that the Butchers' government benefits be used to pay their commitments under the program agreements. On the other hand, they endeavoured to assist the Butchers in a number of ways. They waived Active's weekly money management fee; assisted the Butchers to apply for government rent assistance; and assisted them to negotiate a reduction in Mr Butcher's instalment obligations to pay his family law solicitors' fees.

248 By the end of March 2005, the Butchers had had enough. They finally accepted that they could not afford to purchase the Meredith home under the future owner program. They closed their BTS account and moved out of the home on 3 April 2005. They took their furniture with them.

249 They have not been sued by the investor for any amount owing under the program agreements. The limitation period has expired. Nor have they repaid the $12,000 First Home Owner's Grant which they received, but were not entitled to. No submissions were made as to whether that amount must be repaid, or whether it is also the subject of a limitation period.

250 The tale of the Butchers' participation in the future owner program is a sorry one. In all the circumstances, I conclude that Mr Hansen's conduct was unconscionable. My principal reasons follow.

251 First, it should have been obvious to Mr Hansen, from Mr Butcher's slow speech and comprehension, that Mr Butcher had difficulty understanding the future owner program and its costs. Further, Ms Powell, a person who obviously knew Mr Butcher well and whose client's interests were to secure a sale of the Meredith home, told Mr Hansen that Mr Butcher would not be able to understand the program agreements, and would require independent legal advice.

252 Second, the Butchers could not afford to participate in the future owner program in respect of the Meredith home, and Mr Hansen knew this. They did not meet the minimum income requirement for participation, and Mr Hansen manipulated the budget planner spreadsheet to produce false results.

253 Third, I do not accept the submission, made on behalf of Mr Gilfillan, that Mr Hansen was entitled to believe that the Butchers could afford the program because Mr Butcher told him about the anticipated sale proceeds. Although I accept that Mr Butcher told Mr Hansen about the anticipated sale proceeds, for the purpose of persuading him that he and Mrs Butcher could afford to buy the Meredith home, there is no evidence that Mr Butcher told Mr Hansen that he had concluded a property settlement with his ex-wife. Ms Duncan's file note shows that Mr Hansen was alert to the fact that no property settlement had then been concluded, and wanted confirmation of the settlement before allowing the Butchers to proceed.

254 For the following reasons, I find Mr Butcher did not give Mr Hansen the confirmation he requested:

(1) Mr Butcher could not have given the confirmation honestly, because there was no concluded property settlement until 17 May 2004, about two weeks after Mr Butcher had signed the contract of sale. I am not prepared to find that Mr Butcher lied to Mr Hansen, by falsely confirming that he had reached a property settlement. No submission was made to that effect, and no basis for such a finding can arise in the absence of Mr Butcher being recalled for cross-examination.

(2) Mr Hansen spoke with Ms Powell on a number of occasions. She told him in clear terms that the Butchers could not afford to buy the Meredith home under the future owner program. In his responses, Mr Hansen did not refer to Mr Butcher's entitlement to the anticipated sale proceeds as a justification for his assessment that the Butchers could afford to proceed. Had that been the case, it would have been natural for Mr Hansen to have mentioned this in response to her repeated attempts to persuade him that the Butchers could not afford to proceed.

(3) In his examination by the Director, Mr Hansen said that he decided to allow the Butchers to proceed because Mr Butcher told him that his income would increase, without affecting his disability pension, and because of the anticipated sale proceeds: 'he was going to get this lump sum of money so we didn't have any grave [concerns].' In these circumstances, Mr Hansen said he 'left the decision up to' Mr and Mrs Butcher. This is inconsistent with him receiving and relying on the requested confirmation.

255 It follows that Mr Butcher's statements to Mr Hansen, to the effect that he would receive the anticipated sale proceeds when his triplet children turned 18, must have occurred after the property settlement was reached at the Family Court on 17 May 2004. By that time, Mr Hansen had already given approval for the Butchers to participate in the program, and Mr Butcher was committed to purchase the Meredith home. So the confirmation came too late. In any event, the triplets were not due to turn 18 until August 2006, more than two years away. In the meantime, there was no realistic prospect of the Butchers affording their financial obligations under the program agreements. The future receipt of the anticipated sale proceeds did not, therefore, provide Mr Hansen with a reasonable basis to believe that the Butchers could afford to participate in the program.

256 Fourth, it follows that Mr Hansen knew that the Butchers could not afford to proceed with the program, thus necessitating his manipulation of the budget planner spreadsheet; knew that they had received advice not to proceed, but had chosen to ignore that advice and intended to proceed; and, accordingly, knew that they were acting recklessly, or else was wilfully blind to that obvious fact.

257 In all the circumstances, I conclude that Mr Hansen acted unconscionably in allowing the Butchers to participate in the future owner program. I infer that his intention was to exploit their vulnerable position, so as to obtain fees of about $19,000 for Active. Although I accept Mr Gilfillan's evidence that, by this time, Mr Hansen was being paid a weekly salary, without commission, Mr Hansen's continuing salary depended upon Active remaining in business.

258 Mr Hansen cannot escape personal liability because he acted as an employee of Active Group, in its trade or commerce and not his own.[44]

259 Active Group is in liquidation and was not joined as a defendant.

260 I turn to consider the claim against Mr Gilfillan. The principal allegation is that he knew, or ought to have known, that the Butchers had been accepted into the program in circumstances where they could not afford their program obligations. Mr Gilfillan gave evidence that he had no knowledge of, or involvement in, Mr Hansen's decision to allow the Butchers to participate in the program. He did not supervise Mr Hansen's day-to-day activities, as Mr Hansen was primarily responsible for making decisions to accept or reject applicants wishing to join the program. He acknowledged that Mr Hansen was wrong to allow the Butchers to participate, as their net income was well below the minimum income threshold, the budget planner spreadsheet appears to have been manipulated, and it was not the practice of Active to allow applicants whose primary source of income was from government benefits to participate in the program. He said that the decision to approve the Butchers for participation in the program was not in accordance with Active's practices, and was made without his knowledge, consent or approval. This evidence was not challenged in cross-examination. I find that Mr Gilfillan did not know of the circumstances leading up to the Butchers becoming future owners.

261 The Director's claim that Mr Gilfillan acted unconscionably because he ought to have known about the circumstances in which the Butchers were accepted into the program must fail. The above analysis of the relevant aspects of the decision of the New South Wales Court of Appeal in Tonto Home Loans should be applied. Mr Gilfillan did not authorise Mr Hansen to act towards the Butchers in the way he did, was not involved in the decision to allow the Butchers to participate in the program, and did not know of the circumstances leading to their participation. A case of wilful blindness cannot be sustained against him.

262 There is a secondary claim against Mr Gilfillan. The Director contends that Mr Gilfillan knew about the Butchers' financial difficulties by at least 20 January 2005, when he spoke with the relevant investor. It was submitted that Mr Gilfillan acted unconscionably by failing to inform himself about the Butchers' situation at that time, and thereafter signing correspondence informing the Butchers of an increase in their weekly home payment to the investor because of an interest rate rise. That conduct does not involve any moral obloquy. By this time, the Butchers had been future owners for about six months and were subject to contractual obligations under the program agreements. They repudiated those obligations within a few months, and have not been called upon to honour them.

Summary of findings about the future owner program

263 For the above reasons, I conclude that the general unconscionability claim against Mr Gilfillan and Mr Scully fails; the claim made on behalf of the Stevensons fails; and the claim made on behalf of the Butchers fails against Mr Gilfillan, but has been established against Mr Hansen. I will hear from the parties as to the amount of any compensation to be awarded to the Butchers, as to other orders to be made, and as to costs.

Summary of Director's claims concerning the key home buyer program

264 In common with the claims concerning the future owner program, the Director raises general and specific unconscionability cases about the key home buyer program. The general case is to the same effect, that it was unconscionable for Key Result to offer the key home buyer program to any consumers in the target class. If that is right, Mr Scully would be liable as the designer of the program and of the system by which it was implemented. The specific claims relate to two complainant couples - Mr and Mrs Opalic and Mr and Mrs McDowell.

265 The Director also makes claims based on misleading or deceptive conduct in connection with the key home buyer program.

266 Mr Scully did not appear at trial to defend himself.

267 For the reasons appearing below, I am satisfied that the Director's general unconscionability case should succeed, as should the specific claims made on behalf of the Opalics and the McDowells. The misleading and deceptive conduct claims have also been established.

268 Before considering these claims, it is necessary to mention that Mr Scully is an undischarged bankrupt. But this does not prevent the Director from proceeding against him. This is because this proceeding is not one 'in respect of a provable debt', as the compensation claims are in the nature of unliquidated damages and arise otherwise than by reason of a contract, promise or breach of trust.[45] In Coventry & Ors v Charter Pacific Corporation Ltd & Anor,[46] the High Court held that a statutory claim for unliquidated damages for misleading or deceptive conduct which induces a claimant to make a contract with a third party is not a debt provable in bankruptcy. It is a demand in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust. However, a claim for unliquidated damages for misleading or deceptive conduct by the bankrupt, which induces a claimant to make a contract with the bankrupt, would be a debt provable in bankruptcy.[47] By parity of reasoning, a claim for unliquidated damages for engaging in statutory unconscionable conduct, causing the claimant to make a contract with a third party, is also not a debt provable in bankruptcy.

Was the general design and implementation of the key home buyer program unconscionable?

269 As I said in the introduction to these reasons, the essential point of difference between the key home buyer program and the future owner program is the method by which home buyers would ultimately acquire title to the home. Under the key home buyer program, it was intended that home buyers would acquire title to the home by exercising an option to purchase it at the end of a five year period. In the meantime, home buyers paid above-market rent.

270 The lease and option arrangements gave home buyers only an indirect right to buy the home, as they had no direct contractual relationship with the investor. The arrangements were as follows:

(1) The investor purchased the home selected by the home buyers.

(2) The investor leased the home to Key Result for five years, at a rental calculated in the same way as the weekly payments under the future owner program (the 'head lease').

(3) Key Result sub-leased the home to the home buyers, at the same rental (the 'sub-lease').

(4) The investor granted Key Result an option to purchase the home at the end of the five year period, at a price calculated in the same way as the future owner price (the 'option price').

(5) Key Result granted the home buyers an option to purchase the home at the end of the five year period for the option price (the 'home buyer option').

I will refer to these option and lease arrangements as 'back-to-back' arrangements.

271 The back-to-back arrangements were not explained to home buyers. For the reasons given below, the failure to explain the back-to-back arrangements constituted both misleading or deceptive conduct and, in the context of other conduct concerning the program, unconscionable conduct. I proceed to consider the relevant circumstances which have led me to these conclusions.

272 Key Result's advertising represented that home buyers under its program would 'Stop Paying Rent!' Potential home buyers under the program were told: 'You can have the SECURITY OF BEING IN YOUR OWN HOME WITHIN 3 MONTHS'. Given the existence of the back-to-back arrangements, this advertising was misleading and deceptive. It may be that, if the back-to-back arrangements were carefully explained when potential home buyers contacted Key Result, that the effect of these misrepresentations could have been undone. But there is no evidence of that.

273 Mr Scully arranged for consultants to explain the key home buyer program by reference to slides adapted from those used by Active to explain the differently structured future owner program. The adaptions made no reference to the back-to-back arrangements. Indeed, they did not refer to any lease or option arrangements. To the contrary, the Key Result slides represented that home buyers would not be paying rent but, instead, would be making weekly 'house payments' to replace the rent they were currently paying for existing accommodation. Considered alone, the Key Result slides were misleading and deceptive.

274 If the presentations to the Opalics and the McDowells are a reliable guide, Key Result consultants were instructed to explain to potential home buyers that they would lease the home for five years and then exercise an option to purchase it from the investor at a 'locked in' price. As I have said, however, there is no evidence of any explanation being given of the back-to-back arrangements. From the explanations given, potential home buyers were told only that they would be leasing the home pending exercise of their option to purchase it from the investor at the end of the five year period.

275 The concept of a lease and option to purchase is not complex, and easy enough to explain. If that were the only difference between the future owner program and the key home buyer program, and it was properly explained, promotion of the key home buyer program may not have been unconscionable in all the circumstances. But the back-to-back lease and option arrangements stand in a different light. The rights of home buyers depended upon Key Result paying all rent due under the head lease from the investor, exercising its option to purchase the home from the investor, entering into a contract of sale for it or its nominee to purchase the home from the investor, and nominating the home buyers as substitute purchasers under that contract. Home buyers were therefore subjected to the hazard that, even if they paid all of their rent under the sub-lease to Key Result, Key Result may not pass those payments on to the investor under the head lease; or Key Result may neglect to exercise its option to purchase within the specified time. In these circumstances, Key Result would lose the right to exercise its option to buy the home, and the home buyer would have no direct right to purchase the home from the investor at the option price.

276 Further, the back-to-back arrangements had the possible effect that Key Result may be entitled to exploit its own option to purchase the home. For example, if the home buyer defaulted under the sub-lease after making above-market rental payments for a number of years, Key Result could purchase the home for the option price and reap the benefit of increased equity above that price.

277 The head lease from the investor to Key Result is in fairly standard form and not complex. The sub-lease by Key Result to the home buyers is in similar form. Although not complex, it makes no reference to the fact it is a sub-lease.

278 On the other hand, the options to purchase are complex documents which are heavily weighted in favour of Key Result and the investors. For example:

(1) The home owner's option was only exercisable between the time that Key Result became 'the registered owner' of the home and the 'exercise date', five years after the option was granted.[48] But it was never intended that Key Result would become the registered owner if all went according to plan. Instead, the home buyers would exercise their option by proffering a signed contract of sale, providing for them to purchase the home from the investor at the option price as nominee of Key Result.[49]

(2) The home buyers consented to Key Result mortgaging the home for an amount up to the option price, or selling the home subject to the option.[50] Key Result gave similar rights to the investor. These consents gave rise to significant risks for home buyers if something went wrong, and either the investor was unable to make good title to Key Result or Key Result was unable to make good title to the home buyer.

(3) If something did go wrong, the home buyers would be left with a personal right against Key Result, which may be worthless.[51]

(4) If the home buyers were forced to vacate the home because they could not afford to pay their rent and option fees, any 'equity' they had obtained in the home would be lost;[52] notwithstanding that they could have paid above-market rent for years.

279 In his examination before the Director, Mr Scully put forward three reasons for the back-to-back arrangements:

(1) He wanted a direct relationship between Key Result and the investor, because Key Result would be guaranteeing the rental due by the home buyers to the investor.[53] By making Key Result the primary lessee and option-holder, the investor had no direct relationship with the home buyers (except for the goods hire agreement). Mr Scully regarded this as 'cleaner and easier' for the investor.

(2) He wanted home buyers to have their First Home Owner's Grant 'in reserve', to help them pay stamp duty when they exercised their option. This reason ignores the benefit to home buyers of having the grant immediately, rather than waiting five years for it. The immediate receipt of the grant could have many benefits, including paying or reducing high interest bearing debt, acquiring necessities for the home, or paying the amount into their (interest bearing) compulsory savings account under the money management arrangements; where it would be available as a buffer for contingencies which may arise. Further, the continued availability of the grant was not guaranteed. Delaying its receipt may have meant that the home buyers missed out altogether, or received a lesser amount, depending upon the existence or terms of any government grants program when the option was exercised.

(3) At the time he formulated the back-to-back arrangements, there had been some bad publicity in the Gippsland and Doveton areas, where the key home buyer program was marketed, regarding people using terms contracts for the purpose of obtaining the First Home Owner's Grant and then defaulting under the contract. That may possibly be a sound reason for using a lease and option structure between the investor and home buyers, but in no way justifies the back-to-back arrangements.

280 None of Mr Scully's reasons protected or benefitted the home buyers. In any event, there is no evidence that Mr Scully arranged for the back-to-back arrangements, or the complex option terms, to be explained to home buyers. Given the unusual and complex nature of these arrangements and terms, fairness required that Mr Scully establish and implement a system to provide potential home buyers with a full and fair explanation of the terms and possible ramifications of the back-to-back arrangements. Failure to arrange for such an explanation was irreconcilable with what is right or reasonable. I infer that Mr Scully made a considered decision to leave the back-to-back arrangements unexplained; so as to not to highlight the risks for home buyers, and the potential benefits for Key Result. That was immoral conduct, which deserves the opprobrium of a finding of unconscionability.

281 The conduct of Mr Scully, and thus Key Result, was also misleading and deceptive. Any general statements by consultants to home buyers, to the effect that they would lease the home from the investor and then purchase it under an option to purchase, were insufficient to correct the false description of the key home buyer program in the slides. To correct the misrepresentations in the slides, it would have been necessary to provide a full and fair explanation of the back-to-back arrangements.

Was Mr Scully's conduct unconscionable or misleading towards the Opalics?

282 The Court's general findings of unconscionable, misleading and deceptive conduct mean that the specific claims made on behalf of the Opalics should succeed. Although a case may have been made that their decisions to participate in the key home buyer program were made recklessly, because they failed to read documents they signed and ignored known risks, the failure to explain the specific risks and ramifications of the back-to-back arrangements means that their decisions were made in the absence of material information they were entitled to receive. Taking the evidence as a whole, I infer that they would not have participated in the program if the back-to-back arrangements had been fully and fairly explained to them in language they could understand.

Was Mr Scully's conduct unconscionable or misleading towards the McDowells?

283 For the same reasons, the claims made on behalf of the McDowells should succeed.

Summary of findings about the key home buyer program

284 For the above reasons, the Director has established grounds for relief against Mr Scully. He acted unconscionably in the general design and implementation of the key home buyer program; and specifically in respect of the Opalics and the McDowells. I will hear from the Director as to the orders to be made.

AUSTRALIAN PROPERTY AND FINANCIAL COACHING PTY LTD ACN 097 549 687

[1] Now called Terms Contract Solutions Pty Ltd. The seventh defendant, Australian Property and Financial Coaching Pty Ltd, was used by Mr Scully to promote an earlier version of the program. It is unnecessary to refer to it again.

[2] Mr Butcher and Ms Olech were de facto partners at relevant times. They have since married.

[3] For example, s 51AC Trade Practices Act 1974; s 12CB Australian Securities and Investments Commission Act 2001 (Cth); s 43 Fair Trading Act 1987 (NSW).

[4] For example, s 51AA Trade Practices Act 1974.

[5] Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132, [30] (Full Court).

[6] [1996] FCA 1483; (1996) 66 FCR 246, 283-4, 298.

[8] [1999] FCA 1728; (2000) ATPR 41-741, [22].

[9] [2005] NSWCA 261; (2005) 63 NSWLR 557.

[12] [2005] FCAFC 226; (2005) 148 FCR 132.

[16] [2011] NSWCA 389.

[19] ACCC v 4WD Systems Pty Ltd [2003] FCA 850; (2003) 59 IPR 435, [185]; ACCC v Allphones Retail Pty Ltd (No 2) [2009] FCA 17; (2009) 253 ALR 324, [113]; ACCC v Dukemaster Pty Ltd [2009] FCA 682, [17]; ACCC v Seal-a-Fridge Pty Ltd [2010] FCA 525; (2010) 268 ALR 321, [16].

[20] Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, [293].

[21] Australian Securities Commission v Marlborough Gold Mines Limited [1993] HCA 15; (1993) 177 CLR 485.

[22] [2009] FCA 682.

[25] [2009] FCA 17.

[27] Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, [287], [288], [291].

[30] March v Stramare (E&MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506; Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514.

[31] Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494.

[32] Munchies Management Pty Ltd v Belperio [1988] FCA 413; (1988) 58 FCR 274, [286]-[287] (Full Court); Sykes v Reserve Bank of Australia (1998) 88 FCR 511, 517.

[33] [2005] FCAFC 226; (2005) 148 FCR 132.

[35] Advertisement placed in Hume Moreland Leader, 25 February 2003.

[36] In April 2004, the five year period of the future owner program was extended to seven years. No changes were made to the budget planner spreadsheet to reflect this change. The Director did not contend that the change prejudiced the future owners in some unfair way to the benefit of Active. Nor, in my opinion, was there any such prejudice.

[37] The apparently contrary view expressed in para 4.3 of Professor Sathye's report was not his view, but a record of his instructions from the Director.

[38] In some cases, such as the Stevensons, there was no margin over the CBA rate.

[39] Emphasis added; underlining in original.

[40] Plaintiff's formulation of the unconscionability principles for this case - para 1(d).

[41] The bank statements for their BTS account, under the money management arrangements, disclose that Mr Stevenson's income may have been understated in the meeting. The statements disclose weekly income of between $957 and $1,683.

[44] Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553.

[45] Bankruptcy Act 1966 (Cth), s 82(2).

[46] [2005] HCA 67; (2005) 227 CLR 234.

[53] The head lease removed the need for a guarantee, as Key Result was principally liable under the head lease.