Kinad Investments Pty Ltd v Melnikoff; Kinad Investments Pty Ltd v Melnikoff

1. [1]

   Ilya Melnikoff (Ilya) is the principal of the Luxcon group of companies, who carry on a property development business.

2. [2]

   In proceedings 2025/0084002 (Steve and Lilya Proceedings) the plaintiffs (the Byron Lenders) advanced monies to a company controlled by Ilya (Luxcon Byron Pty Ltd) to enable that company to buy property in Johnson Street, Bryon Bay (Byron Bay Property) which it proposed to develop. The advances were made pursuant to a series of facility agreements. The last three of which (dated July 2022, October 2022 and May 2023) were guaranteed by Ilya’s parents, Steve and Lilya Melnikoff, who also granted a mortgage over their residential unit in Point Piper (Point Piper Property).

3. [3]

   By these proceedings the Byron Lenders seek to enforce the guarantee and mortgage against Steve and Lilya. The Point Piper Property has since been sold and the net proceeds are held in a controlled monies account. The Byron Lenders claim entitlement to these proceeds.

4. [4]

   Steve and Lilya defend the claim on the grounds of unconscionability, seeking to extend the decision of the High Court in Garcia v National Australia Bank (1998) 194 CLR 395; [1998] HCA 48 (Garcia) to the relationship between a son and his elderly parents. Central to their unconscionability claim is the contention that at the time that they entered into the first guarantee in July 2022 they understood that the extent of their liability under the guarantee and mortgage was limited to $1.8 million, rather than extending to the full value of the Point Piper Property. The factual case advanced was that this was because Ilya had been led to believe this by Kevin Hamman (Mr Hamman), the representative of the Byron Lenders, and had communicated this to his parents.

5. [5]

   In proceedings 2025/00169446 (the Irina Proceedings), the plaintiffs (the ATO Lenders) advanced monies to another Luxcon company (Luxcon Group Pty Ltd) to assist it in meeting outstanding obligations to the Australian Taxation Office. The facilities were guaranteed by Steve and Lilya, as well as by Ilya’s wife (Irina). The guarantees were secured by mortgages over their respective properties.

6. [6]

   Irina does not dispute her liability under the guarantee she provided (which was capped at $1,915,558 plus interest and enforcement costs). She contends, however, that if Steve and Lilya are successful in their defences, the guarantees and mortgages provided by them should be set aside. In that event, Irina submits that the net proceeds of the sale of the Point Piper Property currently held in a controlled monies account, should be applied in reduction of the ATO facility, thus reducing her liability under her guarantee. She further contends that she is in a position, and indeed has previously offered, to pay the balance then owing under her guarantee.

7. [7]

   The proceedings were heard on 1 to 4 December 2025. Nick Kidd SC and Michael Bennett appeared for the plaintiffs in the two proceedings. Adam Hochcroth SC appeared for Steve, Lilya and Irina.

8. [8]

   For the reasons set out below:

The case propounded by Steve and Lilya

1. [9]

   The effective moving parties were Steve and Lilya on their cross claim.

2. [10]

   At [67]-[73] of their Amended Cross-Claim, Steve and Lilya plead that enforcement of the guarantees which they executed would be unconscionable, relying on the principle articulated in Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3 (Yerkey v Jones) and Garcia.

3. [11]

   As is well known, Garcia concerned a wife providing a guarantee at the request of her husband. The elements that a claimant must establish to make good such a claim are that:

4. [12]

   The only question of notice that arises in such a case is whether the lender knew at the time of taking the guarantee that the surety was then married to the principal debtor.

5. [13]

   At [22] in Garcia, the High Court observed that it may be that the principles applied in Yerkey v Jones will find application to other relationships more common now than was the case in 1939 – to long term and publicly declared relationships short of marriage between members of the same or of opposite sex. Steve and Lilya contend that this is such a case where the Court should extend the principles to the relationship of a son and his elderly parents.

6. [14]

   I consider later in these reasons whether it is open to me to extend the principles to other relationships and, if so, whether it should be so extended in the present case.

7. [15]

   Before doing so, I deal with my reasons for rejecting an application by the Melnikoff parties at the hearing to read further affidavits from Steve and Lilya.

8. [16]

   I then turn to deal with the facts. The critical factual issue in the proceedings was whether Ilya led Steve and Lilya to believe, at the time that they executed the first guarantee in July 2022, that their liability under the guarantee and associated mortgage was capped at $1.8 million. The case advanced by Steve and Lilya was that Ilya did lead them to believe this because he himself was led to believe this by Mr Hamman. It was thus accepted that I had to be satisfied that Mr Hamman led Ilya to believe that the liability of Steve and Lilya would be capped at $1.8 million for the case to succeed.

9. [17]

   A further factual issue was whether Steve and Lilya were volunteers.

Application to read further evidence

1. [18]

   During the course of the hearing (on day 2), the Melnikoff parties sought to read two further affidavits from Steve and Lilya Melnikoff, each made on 30 November 2025. Each was served on the plaintiffs on the evening of 30 November 2025, the day before the hearing commenced.

2. [19]

   The plaintiffs opposed leave being granted to the Melnikoff parties to rely on these two affidavits. Having heard argument, I ruled that the Melnikoff parties not be permitted to read these two affidavits. My reasons for this ruling are as follows.

3. [20]

   Counsel for the Melnikoff parties contended that the evidence related to a pleaded issue but accepted that the evidence was intended to fill an evidentiary gap in their case. It was said, upon receipt of the plaintiffs’ submissions on Thursday 27 November 2025 and its contention that, even if the Melnikoff parties were successful, the appropriate relief would be to enforce the guarantees in the amount of $1.8 million, caused the Melnikoff parties to realise the evidentiary gap.

4. [21]

   The plaintiffs contended that the evidence did not relate to any pleaded issue and in any event, that they would suffer prejudice if the affidavits were allowed to be read as they had not investigated the issues to which the evidence related.

5. [22]

   The two affidavits are in similar terms and deal further with the discussions which they contend they had with Ilya at or about the time of the three further advances which they guaranteed. The focus of the affidavits concerns what each understood in relation to the risks associated with construction finance being obtained in circumstances where each understood that the loans which they guaranteed would be paid out once construction finance had been obtained. The effect of the evidence is relevantly set out in [10] and [11] of Steve’s affidavit:

6. [23]

   The contention arising from the evidence is that Steve and Lilya did not understand the risks attached to construction finance being obtained which was necessary for the loans which they had guaranteed to be repaid.

7. [24]

   Dealing first with the pleading, I do not accept that the issue to which the evidence relates – namely the risk attached to the construction finance being raised and thus the guaranteed loans being repaid – is pleaded.

8. [25]

   A representative example of the current cross claim pleadings is [39]-[41] and [63]-[65] as follows:

9. [26]

   Nowhere is it pleaded that Steve and Lilya held the understanding now asserted at [11] of their affidavits. Had such a contention been advanced, it ought have been expressly pleaded.

10. [27]

    In any event, there was no evidence sought to be led, prior to the two recent affidavits, in relation to the nature of the risk which Steve and Lilya understood in relation to construction finance being obtained. Senior counsel for the plaintiffs contended that the plaintiffs had not investigated the issue of risk in relation to construction finance being obtained, or Steve and Lilya’s understanding on the point. It was contended by senior counsel for the plaintiffs that what Ilya said may well have been true at the time that he said it and as such Steve and Lilya were not misled. I was reminded that the question arose at three points in time – July 2022, October 2022 and May 2023.

11. [28]

    Senior counsel further contended that it would not be possible for such investigations to be carried out within the time allocated for the hearing.

12. [29]

    Senior counsel for the Melnikoff parties contended that there was affidavit evidence from Ilya in relation to construction finance, and also that it was obvious that there was risk attached to construction finance being obtained. He contended that the plaintiffs could have investigated the question of risk if they wished although he made it clear that he did not challenge what senior counsel for the plaintiffs had stated to the effect that the plaintiffs had not investigated the issue of risk.

13. [30]

    In circumstances where no evidence had previously been sought to be adduced, let alone where the issue was not pleaded, it cannot fairly be contended that the plaintiffs should have undertaken investigations so as to be in a position to deal with the new affidavits.

14. [31]

    I accept the contentions advanced by senior counsel for the plaintiffs that the issue has not been investigated. To permit the two affidavits to be read would cause prejudice to the plaintiffs.

15. [32]

    I do not accept that any conduct on behalf of the plaintiffs could be said to explain why the evidence was not sought to be adduced at an earlier stage. Senior counsel for the Melnikoff parties accepted that the evidence could have been filed at the same time as the earlier affidavits put on. Whilst receipt of the plaintiffs’ written submissions on the Thursday before the hearing commenced may have alerted the Melnikoff parties to appreciate the gap in their evidence, this does not adequately explain the failure to put the evidence on earlier.

16. [33]

    For completeness, there was no suggestion made, or application advanced, that the hearing be adjourned to enable the plaintiffs to investigate the issue and respond. This would likely have necessitated a lengthy adjournment.

17. [34]

    In all of the circumstances, it was not in the interests of justice to permit the Melnikoff parties to rely on the two new affidavits.

Overview of the witnesses called to give evidence and their credibility

1. [35]

   Only one of the plaintiffs’ witnesses was cross-examined – Mr Hamman, a director of Capital One Funds Management Pty Ltd (Capital One), which brokers and manages finance facilities provided by private lenders for property developments within Australia. On behalf of Capital One, Mr Hamman arranged the facilities in question in these two proceedings.

2. [36]

   Mr Hamman was cross-examined for several hours. It was contended that I should not accept aspects of Mr Hamman’s evidence and in particular where it conflicts with Ilya’s evidence as to the conversations they had.

3. [37]

   Mr Hamman was a cautious witness. At times his answers displayed a lack of recollection of historical events; however, he is not to be criticised for this.

4. [38]

   One troubling aspect of Mr Hamman’s evidence was his reluctance to admit the obvious benefit to a lender of a proposed guarantor certifying that the guarantor had received independent advice. I do not, however, regard these answers as significant in the overall fact finding process. Mr Hamman ultimately accepted that an independent advice declaration would be of benefit to the lender.

5. [39]

   I formed the view that Mr Hamman was doing his best to assist the Court, although in a cautious and considered manner. Like all witnesses, I consider Mr Hamman’s evidence against the contemporaneous objective material. This material provides a reliable base against which to test the oral evidence.

6. [40]

   On the critical issue of whether Mr Hamman told Ilya that Steve and Lilya’s guarantee and mortgage would be limited to the amount of $1.8 million, I prefer Mr Hamman’s evidence to that of Ilya. Mr Hamman’s denial is consistent with the contemporaneous documentation. Ilya’s version finds little to no support in the objective material.

7. [41]

   Each of Ilya, Steve and Lilya was extensively cross-examined. As I understood the closing submissions for the plaintiff, it is contended that I should simply not accept their evidence on the key issues because that evidence was inconsistent with the contemporaneous objective material. It was not suggested that any of them was giving deliberately untruthful evidence. As will be apparent below, I do not accept the key aspects of Ilya, Steve and Lilya’s evidence. It finds no support in the objective material and on some aspects is quite inconsistent with that material.

Approach to fact finding

1. [42]

   Key to the defences raised by Steve and Lilya was a contention that, at the time they executed the first guarantee and mortgage in July 2022, they understood their liability to be capped at $1.8 million. At a factual level, the case propounded was that Mr Hamman conveyed this understanding to Ilya in the course of their discussions and that Ilya in turn communicated it to Steve and Lilya. The foundation of the defence is thus an alleged oral representation to that effect.

2. [43]

   The approach to fact finding in such a case is well understood. I summarised the approach in Van Rensburg v Adilinis [2024] NSWSC 1146 at [8]-[11]:

The facts

1. [44]

   Lilya was born in Perm, Russia in late 1954. She is married to Steve. In 1990, they immigrated to Australia from Azerbaijan at which time Ilya was 14 years old.

2. [45]

   Lilya’s first language is Russian. She says she speaks and writes English at a conversational level and can understand simple documents written in English.

3. [46]

   Between 1991 and 2013, Lilya worked for Meriton, selling residential units off the plan. Since 2013, she has worked in the Luxcon business in a sales role. A Capability Statement for Luxcon dated January 2023 described Lilya as a Senior Sales Executive in the following terms:

4. [47]

   Lilya’s current LinkedIn profile was in evidence. It states:

5. [48]

   Steve was born in mid-1951. He says his first language is Russian and he speaks and writes fluently in Russian.

6. [49]

   He says he is not fluent in English and has only a basic understanding of spoken and written English.

7. [50]

   From 1993/1994 to 2008, he ran his own business as a painting contractor. From 2008 to 2012/2013, he ran his own business manufacturing and installing plastic window frames. He admitted in cross-examination that in those two jobs he communicated with customers and suppliers in English, and issued invoices and the like in English.

8. [51]

   Steve gave evidence through an interpreter.

9. [52]

   A number of admissions were made by Steve and Lilya on the pleadings which are relevant, including:

10. [53]

    Ilya founded the Luxcon Group in 2003. His parents provided him with some working seed capital and also contributed to the deposit payable to acquire a development site in Kurraba Road, Neutral Bay. On incorporation, Steve and Lilya were appointed directors of Luxcon Group alongside Ilya and were each issued one share each in the company. Steve and Lilya resigned as directors and transferred their shares in Luxcon Group to Ilya in 2008 at his request.

11. [54]

    For each development carried out by the Luxcon Group, an SPV company would be incorporated to purchase the relevant land. Luxcon Group would enter into an agreement with the SPV to provide development management services in return for management fees. Each SPV (or perhaps its owner) would act as trustee of a discretionary trust with a broad range of discretionary objects, including Steve, Lilya, Ilya and Irina.

12. [55]

    The SPV would obtain funding, including through Capital One for the purchase of the land and subsequent development.

13. [56]

    Capital One has acted as the manager of several loan facilities advanced to Luxcon entities since 2008.

14. [57]

    In late 2021, Ilya identified the Byron Bay Property as a potential development site. Multiplicity Bryon Bay held an interest in the Byron Bay Property through a Deed of Call and Put Option. Luxcon Byron Bay was incorporated in December 2021 as the SPV to acquire the property. Ilya is its sole director and Luxcon Holdings Pty Ltd its sole shareholder.

15. [58]

    According to a structure diagram received into evidence, Luxcon Holdings Pty Ltd is wholly owned by the Miji Family Trust, the trustee of which is Miji Investments Pty Ltd. Ilya is its director, secretary and sole shareholder. The trust deed for the Miji Family Trust discloses a broad range of discretionary objects including Ilya, Irina, Steve and Lilya.

16. [59]

    On 5 April 2022, Luxcon Byron Bay entered into a Unit and Share Sale Agreement with Multiplicity pursuant to which it agreed to buy all of the shares in Multiplicity and the units that Multiplicity held in an underlying trust for $18,500,100 (USSA). An Implementation Deed was entered into on the same day. Earlier, on 2 February 2022, Multiplicity exercised its Put and Call Option and a contract for the sale of the Byron Bay Property was entered into on that date for $24,500,000. A deposit of $2,980,000 was paid leaving a balance owing of $21,520,000.

17. [60]

    Prior to entering into the USSA, Luxcon Group entered into a facility with Capital One, with a facility limit of $5,490,000, and a term of seven months. The facility was guaranteed by Ilya and several companies associated with him, concerning ongoing Luxcon projects in Melbourne and Bellevue Hill.

18. [61]

    It was anticipated at this stage that the primary funding to enable Luxcon Byron Bay to complete on the purchase of the Byron Property would be provided by a company known as Qualitas. However, it withdrew funding in early July 2022, about three weeks prior to the then settlement date. MaxCap Investment Management Pty Ltd (MaxCap) then stepped in. On 7 July 2022, Luxcon Byron Bay entered into two facility agreements with MaxCap for funding totalling $40 million.

19. [62]

    On 1 June 2022, Luxcon Byron Bay, Capital One and the plaintiffs entered into a Deed of Variation of the Byron facility. The new facility limit was $7,383,044.04, with a facility termination date of 30 September 2022.

20. [63]

    The conversation which Ilya alleges he had with Mr Hamman, which forms the foundation of Steve and Lilya’s defence is said to have occurred in July 2022. Before setting out the account given by Ilya and then Steve and Lilya, I set out the other evidence – principally correspondence – as to what occurred from July 2022 onwards in relation to the facility with Capital One. As will become apparent later in these reasons, the account given by each of Ilya, Steve and Lilya is inconsistent with the objective material.

21. [64]

    On 6 July 2022, Mr Hamman sent an email to Kirill Smutov (Mr Smutov) who was an accountant working for Luxcon asking Mr Smutov to establish “exactly the amount that is going to be required” from Capital One on settlement. At this time, settlement was to take place later in July 2022. Ilya responded:

22. [65]

    Later that day, Mr Smutov sent a further email:

23. [66]

    At or about this time, there were negotiations between Luxcon and the vendor of the Byron Property about extending the settlement date. On 19 July 2022, Luxcon’s solicitor sent Ilya an email summarising the various options:

24. [67]

    On 20 July 2022, Ilya forwarded the above email to Mr Hamman under cover of the below:

25. [68]

    On 25 July 2022, Mr Hamman emailed Ilya asking him to provide a final figure which was required to finalise the loan documentation. Mr Smutov then emailed Ilya stating that, “these are the amounts we need to advise to Capital One”:

26. [69]

    This was the first time a revised requirement of $3.1 million is mentioned.

27. [70]

    On 26 July 2022, Ilya emailed Mr Hamman as follows:

28. [71]

    Ilya agreed in cross examination that at this time he was effectively seeking a total of about $3.4 million in funding.

29. [72]

    On 27 July 2022, Capital One’s lawyer, Alex Roth (Mr Roth) emailed Ilya in the following terms (emphasis added):

30. [73]

    About 30 minutes after Mr Roth’s email, Ilya responded:

31. [74]

    At 10.05 am Mr Hamman emailed Ilya and Mr Roth:

32. [75]

    Ilya agreed in cross examination that it was only after receiving the revised funding table on the morning of 27 July 2022 that he spoke to his parents to tell them about the proposed facility. He agreed that he told them what he had been told in the email exchange about Capital One’s requirement for security to be taken over the Point Piper Property. He also admitted at one stage that he told his parents that the guarantee was to be limited to their interest in the Point Piper Property, although at other times he maintained that he told then that the guarantee was capped at $1.8 million.

33. [76]

    At the same time, Mr Roth emailed Ilya telling him that if his parents were coming into the city, it would be better if they had Mr Smutov witness “to avoid any conflict issues I may have”. He said that he had just spoken to Mr Smutov and told him that he could get “the paper docs across to him before Midday, marked up as to where to sign. I can email the docs for you to sign separately and scan back.”

34. [77]

    At 11.54 am on 27 July 2022, Mr Roth emailed Mr Smutov, copy to Ilya:

35. [78]

    A facility agreement was executed on 27 July 2022.

36. [79]

    The Schedule 2 Funding Table was as follows:

37. [80]

    The new Facility Limit is stated to be $10,162,110.66 with a Facility Termination Date of 31 January 2023.

38. [81]

    Guarantor is defined as:

39. [82]

    Clause 3.1 sets out the Conditions Precedent by reference to “all of the documents and information specified in Part A of Schedule 1”. Clause 11 of Part A of Schedule 1 stated:

40. [83]

    Clause 3.4 provided that any of the conditions precedent could be covered by the financier. This obviously occurred in relation to clause 11 and the involvement of Steve and Lilya because no such certificates were provided. Instead each of Steve and Lilya gave a No Advice Certificate in the following terms:

41. [84]

    Each of Steve and Lilya signed their respective certificates immediately below the above text, including the facility limit in bold. (It is to be observed that the document is quite inconsistent with the alleged understanding.)

42. [85]

    Further facility agreements were entered into in October 2022 and May 2023. Each was guaranteed by Steve and Lilya, secured by a mortgage over the Point Piper Property. The terms of the documents were relevantly identical to the July 2022 documents. There is no suggestion Steve and Lilya saw or received the documentation in relation to these subsequent facilities. Rather, they were told by Ilya that the finance required extension and authorised him to affix their electronic signatures to the documents. This occurred, including affixing their electronic signature to “No Advice Certificates”.

43. [86]

    The October 2022 agreement increased the facility to $12,908,813.69. It was in about October 2022 that the Contract for sale completed.

44. [87]

    The May 2023 facility agreement increased the facility to $13,979,001.92.

45. [88]

    Ultimately, Luxcon was unable to procure construction finance.

46. [89]

    The first ATO Facility was entered into on 15 October 2019 to help Luxcon Group comply with its tax obligations. The Facility Limit was $2,363,200. The Guarantors are each of Ilya, Steve, Lilya and Irina. The conditions precedent also included an independent advice certificate in relation to the guarantors. Certificates of Independent Advice were provided for each of Steve and Lilya.

47. [90]

    The guarantees provided by Steve and Lilya were secured by a mortgage over the Point Piper Property.

48. [91]

    The second ATO facility was entered into on 24 December 2020. The facility limit was $2,537,917 for a term of seven months. The guarantors and security were the same as for the earlier facility. Again, independent advice declarations were provided for each of Steve and Lilya.

49. [92]

    The third ATO facility was entered into on 6 October 2021. The new facility limit was $3,205,562 with a term expiring on 15 July 2023. The guarantors and security remained the same and independent advice certificates were provided for Steve and Lilya.

50. [93]

    The fourth ATO facility was entered into on 19 December 2023. The facility limit was $3,831,116 with a term of six months. Guarantors and security remained the same. Independent advice certificates were provided for Steve and Lilya.

51. [94]

    It is not in dispute that Irina’s liability under her guarantees and associated mortgage is capped at $1,915,558.

The evidence of Mr Hamman, Ilya, Steve and Lilya

1. [95]

   Having set out the relevant objective material, I turn now to consider the evidence given by each of Mr Hamman, Ilya, Steve and Lilya as to the circumstances in which the July 2022 facility agreement – the first containing the guarantee and mortgage from Steve and Lilya – was entered into.

2. [96]

   Mr Hamman’s affidavit evidence may relevantly be summarised as follows:

3. [97]

   Two relevant concessions were made by Mr Hamman in cross-examination:

4. [98]

   Mr Hamman maintained that he did not say that the guarantee or mortgage was limited in amount.

5. [99]

   Ilya’s affidavit evidence can be relevantly summarised as follows:

6. [100]

   Ilya’s principal affidavit appears to have been made without regard to the contemporaneous documents. The contemporaneous material which I have set out above, establishes that Ilya was in Melbourne on 21 July 2022 and as such could not have been with his parents when they executed the documents. Ilya admitted as much in cross-examination. His affidavit is therefore incorrect on a significant point.

7. [101]

   Ilya also agreed in cross-examination that after his 20 July email to Mr Hamman where he asked Mr Hamman to make available $5.35 million, there was no mention of Capital One providing an additional $1.5 million. There was also no mention in that conversation of Steve and Lilya’s guarantee being limited to an amount of $1.5 million, or indeed any amount of money. It was not until 26 July 2022 that the funding required was reduced to $3,112,172.

8. [102]

   By 27 July 2022, Ilya understood that what was being proposed was additional cash advances of about $3.68 million. He must also have understood that this involved an additional $2 million of cash being made available over and above the existing $1.6 million that he understood was available under the existing facility.

9. [103]

   It was after he received the funding table on the morning of 27 July 2022 that he spoke to Steve and Lilya and told them about the proposed facility. He told them what he had been told in the email exchange about Capital One’s requirement for security to be taken over the Point Piper Property and that their guarantee would be limited to their interest in the Point Piper Property. He subsequently gave other answers inconsistent with this last answer.

10. [104]

    In her affidavit, Lilya said that “around July 2022”, Ilya asked her and Steve to assist him by procuring a personal guarantee for a loan that he was taking out to purchase the Byron Bay property. She could not recall whether it was face to face or over the phone.

11. [105]

    In that conversation, Ilya told her that:

12. [106]

    In terms of signing the July 2022 documents, Lilya said she remembered signing a bundle of documents in July 2022 but did not remember where she was. She did not read any of the documents but just signed where indicated. She did not see Steve read any of the documents.

13. [107]

    She had a recollection of the Authority or Undertaking or the mortgage or the No Advice Certificate and does not remember signing them. She does not remember who witnessed her signature.

14. [108]

    In cross-examination, Lilya had no memory whatsoever of her conversations with Ilya in which he requested her on four occasions to guarantee the ATO facility.

15. [109]

    Lilya accepted that her memory of the conversations that she says took place with Ilya back in July 2022 is not a very clear memory. She also admitted to having two to three discussions with Steve in relation to the circumstances in which they gave the guarantees. There was no explanation of what was discussed on these occasions.

16. [110]

    Steve’s affidavit evidence was relevantly that in July 2022, Ilya came to the Point Piper Property with a small bundle of paperwork and asked him and Lilya to provide personal guarantees secured by the Point Piper Property for a loan for the Byron Bay development. He did not say who the lender was and does not recall the exact date but recalls it was soon after Ilya had purchased the property. Lilya had told him a few days earlier he would need to be a guarantor.

17. [111]

    His affidavit continued as follows:

18. [112]

    He has no recollection of signing the documents.

19. [113]

    In cross-examination, Steve denied that he signed the documents at Luxon’s offices and maintained the version from his affidavit: that they were signed at the Point Piper Property in the presence of Ilya.

20. [114]

    Steve also claimed in cross-examination that he had no recollection of signing any other guarantees, including the four in relation to the ATO facility. He had not explanation for this lack of recollection, despite having a recollection in relation to Bryon Bay.

21. [115]

    Contrary to Lilya’s evidence, Steve denied in cross-examination that he had had any recent discussions with Ilya about the circumstances in which the guarantees were executed.

Conclusion on the conversations between Mr Hamman and Ilya

1. [116]

   Senior counsel for the Melnikoffs accepted that a finding that Steve and Lilya understood that their guarantees and mortgage to be limited to $1.8 million depended upon, the Court accepting Ilya’s evidence as to what he says that Mr Hamman told him, as set out at [77] of Ilya’s 31 July 2025 affidavit.

2. [117]

   For the reasons set out below, I do not accept Ilya’s version of that conversation. I am not satisfied that Mr Hamman said anything to Ilya that would lead him to believe that the guarantees and mortgage given by Steve and Lilya would be limited to $1.8 million. Rather I find that Ilya was informed that their liability would be limited to their interest in the Point Piper Property.

3. [118]

   Ilya’s affidavit evidence was obviously prepared without regard to the contemporaneous objective material and is quite inconsistent with that material. This obviously undermines the reliability of his asserted recollection set out in the affidavit.

4. [119]

   A key difference between the affidavit evidence and the contemporaneous documents is that Ilya was not present when his parents signed the documents, contrary to his affidavit. He was, as he admitted in cross-examination, in Melbourne at the time.

5. [120]

   There is no mention at all in any of the contemporaneous documents of a loan of $1.5 million. The fact that Mr Hamman agreed that it was possible that Ilya mentioned such a figure in a discussion does not cause me to accept Ilya’s evidence in this regard.

6. [121]

   Further, there was no real solid foundation to Ilya’s attempts now to justify the $1.5 million and $1.8 million figures.

7. [122]

   Even on Ilya’s version of the conversation, there was no mention of $1.8 million which became a central part of the alleged understanding.

8. [123]

   The contemporaneous documentation is clear that the guarantee and mortgage to be given by Lilya and Stevee would be limited to their interest in the Point Piper Property. Alex Roth made this point directly to Ilya in his 26 July 2022 email. It is clear that Ilya read this email as he responded to it shortly thereafter. Ilya admitted in cross-examination that it was after the Alex Roth email that he spoke to his parents about giving the guarantee.

9. [124]

   He indicated that he could arrange for them to attend Luxcon’s offices to execute the documents.

10. [125]

    There is no rational basis to conclude that Mr Hamman would have caused Mr Roth to confirm with Ilya that the guarantee and mortgage to be provided by Steve and Lilya would be limited to their interest in the Point Piper Property, while at the same time conveying to Ilya in a conversation that their liability was limited to $1.5 million or $1.8 million.

11. [126]

    Indeed, it is far from clear that there was any conversation between Mr Hamman and Ilya around the time of Mr Roth’s email. Ilya was vague in his affidavit as to when the conversation with Mr Hamman took place, referring only to “July 2022”. Whilst it is clear that there was a conversation between Mr Hamman and Ilya after the 20 July 2022 email, Ilya admitted that there was no discussion at this time of $1.5 million or the guarantee and mortgage to be given by Steve and Lilya being limited to $1.5 million or $1.8 million. It was not until about 26 July 2022 (very shortly prior to the documents being expected) that the required funding dropped. Even then, Ilya understood the additional amount required to be around $2 million.

12. [127]

    I therefore reject the contention that Ilya was ever led to believe that Steve and Lilya’s guarantee and mortgage would be limited to $1.8 million. That conclusion renders it unnecessary to consider Steve and Lilya’s evidence, the only admitted basis for their understanding having been rejected.

13. [128]

    As set out below, these conclusions are fatal to the unconscionability cases propounded by Steve and Lilya.

Determination of the unconscionability case and extension of NAB v Garcia to the present case

1. [129]

   In closing address, senior counsel for Steve and Lilya identified the following relevant key facts in dispute (in the below order):

2. [130]

   Senior counsel for Steve and Lilya accepted that the necessary conclusion for the case to succeed was (b) in the above list with the chain of fact finding to reach (b) being (c), (d), (a) then (b). The starting point was thus whether Mr Hamman and Lilya discussed liability under the guarantee being limited to $1.5 million plus interest estimated at $1.8 million in total.

3. [131]

   For the reasons set out above I am not so satisfied that there was any discussion to the effect that liability under the guarantee would be limited to $1.5 million plus interest estimated at $1.8 million in total.

4. [132]

   The claim propounded by Steve and Lilya thus cannot succeed.

5. [133]

   I nevertheless turn to the remaining issues arising on the unconscionability claims.

6. [134]

   The first issue is whether the principles observed in Garcia, which concerned a claim in a husband/wife relationship, should be extended to the relationship in the present case between a son and elderly parents.

7. [135]

   Garcia considered the earlier decision of the High Court in Yerkey v Jones.

8. [136]

   In Yerkey v Jones, Dixon J dealt with two different situations, the first where there had been actual undue influence by a husband over a wife, and the second where there had been a failure adequately and accurately to explain the transaction of surety which the husband wished the wife to undertake on his behalf. Of the latter, Dixon J said (at 685-6):

9. [137]

   In Garcia, Gaudron, McHugh, Gummow and Hayne JJ said of Yerkey v Jones at [31]-[33] (emphasis added):

10. [138]

    Since Garcia, a number of decisions have considered the extent to which it should be confined to the situation considered in the case – a guarantee given by a wife at the request of her husband– and whether the presumption should be extended to situations other than a guarantee and relationships other than a wife and husband. It is to be remembered that the High Court expressly left open the latter extension at [22] of the reasons.

11. [139]

    I set out below a number of the key decisions.

12. [140]

    State Bank of New South Wales v Layoun (2001) NSW Conv R 55-984; [2001] NSWSC 113 (Layoun), concerned a mortgage granted by the elderly parents and siblings of the principal of a company as security for a loan to the company. The defendants put in issue the execution of the mortgage and asserted that they are entitled to relief on the basis that they did not execute the mortgage, or in the alternative, that the mortgage transaction is “unconscionable” and “unjust” as at the time it was entered into.

13. [141]

    At [70]-[75] Levine J stated:

14. [142]

    Counsel for the Melnikoff parties contended that Layoun is an authority extending Garcia to a relationship of son/elderly parents.

15. [143]

    The next decision is of the Victorian Court of Appeal in Kranz v National Australia Bank (2003) 8 VR 310; [2003] VSCA 92 (Kranz), handed down on 25 July 2003. The leading judgment was given by Charles JA with whom Winneke P and Eames JA agreed. Charles JA stated at [23]-[28]:

16. [144]

    At [31] Charles JA stated:

17. [145]

    Watt v State Bank of New South Wales [2003] ACTCA 7 was handed down on 13 March 2003 – shortly before Kranz. Higgins CJ and Crispin P stated at [19]-[24]:

18. [146]

    The third member of the Court, Madgwick J stated at [37]:

19. [147]

    It was accepted that this was an authority against the extension of Garcia.

20. [148]

    Elkofairi v Permanent Trustee Co Ltd (2003) Aust Contract Reports 90-157; [2002] NSWCA 413 (Elkofairi) concerned a mortgage given by a relatively elderly couple in relation to a refinance. The appellant wife did not know or understand the nature and effect of what she was signing and she had no idea what happened to the net proceeds received on the refinance and did not receive the benefit of any of that money.

21. [149]

    Beazley JA stated at [43]-[49]:

22. [150]

    Santow JA stated at [92]:

23. [151]

    At [96] Santow JA stated that it was not for an intermediate appellate court to extend the doctrine of Yerkey v Jones to cases outside the conventional guarantees by a wholly volunteer wife.

24. [152]

    The third member of the Court, Campbell JA, agreed with the judgment of Beazley JA and with the observations of Santow JA.

25. [153]

    In ANZ Banking Group v Alirezai [2004] Q ConvR 54-601; [2004] QCA 6, McMurdo P stated at [39]:

26. [154]

    At [115], Wilson J stated that the diversity of relationships encompassed by the Garcia principle is ultimately a question for determination in an appropriate case by the High Court.

27. [155]

    In Australian Regional Credit Pty Ltd v Mula [2009] NSWSC 325, McCallum J stated at [134]-[139] under the heading “Does the principle in Yerkey v Jones apply to relationships other than that of husband and wife?”:

28. [156]

    McCallum J felt similarly constrained as to whether Garcia should be extended to outside the particular situation of a surety and to a forgery – see [148] and [150].

29. [157]

    In Narain v Euroasia (Pacific) Pty Ltd (2009) 26 VR 387; [2009] VSCA 290 (Narain), the Court of Appeal of Victoria held at [43]-[45]:

30. [158]

    Somewhat curiously, Nettle JA made no reference to Kranz in this context. Nettle JA did refer to Kranz later in his reasons in a different context.

31. [159]

    In Perpetual Trustee Victoria v Yap [2010] NSWSC 761, James J at [189], having considered what was said in Elkofairi, said it would not be appropriate for a single judge to consider whether Garcia should be extended.

32. [160]

    In Agripay Pty Ltd v Byrne [2011] 2 Qd R 501; [2011] QCA 85, McMurdo P at [4] stated:

33. [161]

    More recently, in Capital One Securities Pty Ltd v Soda Kids Holdings Pty Ltd [2014] VSC 168, Ginnane J, referring to Elkofairi and Narain, stated that the principle in Garcia only applies to instruments of suretyship, which operate to a wife’s or husband’s advantage or which confer a voluntary benefit on them.

34. [162]

    What emerges from the above discussion is that there are several cases where Courts have held that the principles in Garcia should extend to relationships of trust and confidence beyond husband and wife and cases where Courts have stated that this development is for the High Court. Relatedly, there are a number of cases where Courts have held that it is a matter for the High Court to determine whether the principles extend beyond transactions of suretyship – Elkofairi being chief among them.

35. [163]

    Although expressed in the context of whether the principles from Garcia apply beyond suretyship, I regard what was said by the Court of Appeal in Elkofairi as equally extending to the question of whether those principles should extend beyond the relationships of husband and wife.

36. [164]

    Whilst, in my view, there is much to be said for the view that the principles in Garcia should extend beyond the relationship of husband and wife (or long-term intimate relationships) in light of Elkofairi I do not regard this step as being open to me.

37. [165]

    In any event, there is also a lack of utility in the present case in circumstances where I am not satisfied that the elements are made out.

Are Steve and Lilya volunteers?

1. [166]

   There was a dispute as to whether Steve and Lilya were volunteers.

2. [167]

   The plaintiff contended that Steve and Lilya had not established that they were volunteers. It was contended that they were objects of a trust which ultimately owned the Property, in circumstances where the practice of the Luxcon companies has apparently been to make profit distributions to Steve and Lilya under such trusts.

3. [168]

   It was also submitted that Ilya controls the company that is the trustee of the discretionary trust and he did not give any evidence that if the Bryon Bay project was profitable, that Lilya and Steve would not receive any profit distributions.

4. [169]

   Second, it was contended by the plaintiffs that the Luxcon Group was the sole source of income for Steve and Lilya over the period 2017 to 2024 and had the Byron Bay project achieved construction funding, Lilya expected to continue receiving the payments from Luxcon, as she had done up to about late 2024.

5. [170]

   Third, it was contended that insofar as the October 2022 and May 2023 guarantees were concerned, each refinanced an earlier facility which Steve and Lilya had guaranteed and thereby discharged their liability under that guarantee.

6. [171]

   In response, Steve and Lilya contended:

7. [172]

   In Garcia it was held at [43] that the wife was a volunteer because she in fact obtained no real benefit from her entering into the transaction. It has been held that an incidental benefit accruing generally to the family unit is insufficient to constitute a “real benefit” so as to render the transaction non voluntary: see State Bank of NSW v Chia (2000) 50 NSWLR 587 at [169(2)] (Chia).

8. [173]

   I deal with each of these contentions.

9. [174]

   As to the first, the prospect of a distribution from either the trust owning the Property, or another discretionary trust associated with another Luxcon project is, in my view, too remote and indirect. The position is somewhat analogous to a wife being a shareholder of a company through which her husband conducted his business and in which she has no real involvement. In such a case, a guarantee given by the wife over the company’s debts will be voluntary: Chia at [169(2)] and the cases there referred to.

10. [175]

    I do not regard the accountant’s signed letter dated 10 October 2019 as commanding the opposite conclusion. The letter was addressed to Capital One and stated, relevantly:

11. [176]

    The letter is not from Steve or Lilya. The property trust No 6 is not the trust relevant to the Byron Bay project.

12. [177]

    There was no evidence that Steve earned wages, commissions and the like. While it seems clear that Lilya was paid to work at Luxcon in selling off the plan, and it is likely that this would have continued had construction finance been achieved, there is authority that this is not sufficient to make a transaction not voluntary: Layoun at [44]; Hume Plasterboard Pty Ltd v Brilliant Interiors Pty Ltd [2019] NSWSC 679 at [169].

13. [178]

    As for the third contention, if Lilya was a volunteer in relation to the first guarantee, and thus on the hypothesis that first guarantee is unenforceable, the later guarantees cannot be characterised as discharging any existing liability.

14. [179]

    For these reasons, I am satisfied that each of Steve and Lilya were volunteers.

Alternative case – relief limited to $1.8 million

1. [180]

   The plaintiffs contended that if, contrary to the conclusions I have reached above, Steve and Lilya’s claims succeed, then the appropriate relief is for the guarantees to be enforced up to the sum of $1.8 million. This outcome was said to result from the need for equity to fashion the proper relief.

2. [181]

   The plaintiff relied on the following passages from Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 at 113-116; [1995] HCA 14, where the following passages appear:

3. [182]

   It was contended that to enforce the guarantees up to $1.8 million would be to do no more than hold Steve and Lilya to what they were prepared to undertake independently of any misrepresentation.

4. [183]

   Steve and Lilya’s response was to contend that the plaintiffs’ should not be permitted to run this point as it had not been pleaded. Through their senior counsel Steve and Lilya contended that they were taken by surprise and are not in a position to deal with the point.

5. [184]

   Considerable argument was advanced by both sides on this point at the hearing.

6. [185]

   On the weekend prior to the commencement of the hearing the plaintiffs foreshadowed amending their pleadings to expressly raise this point by way of a response to the relief claimed in the cross-claim. Steve and Lilya foreshadowed that they would oppose the amendment and an affidavit was prepared by Steve and Lilya’s solicitor in opposition to the amendment application.

7. [186]

   At the commencement of the hearing, senior counsel for the plaintiffs stated that the plaintiffs no longer proposed to amend, not because they were dropping the point, but because they contended that it was not necessary for them to plead the point, it being open to them to run the point by reason of their denial of the relief claimed by Steve and Lilya. The response of Steve and Lilya was to maintain that it was not open for the point to be run.

8. [187]

   At the close of their case, Steve and Lilya sought to read the affidavit from their solicitor which had been made in response to the foreshadowed amendment application at the start of the hearing. I ultimately determined not to receive the affidavit into evidence on the basis that it was not relevant. This is in circumstances where senior counsel for the plaintiffs conceded that the solicitor for the defendants did not perceive the matter to be an issue in the proceedings prior to the receipt of the plaintiffs’ opening submissions on the Thursday before the hearing commenced and also conceded that if the Court concluded that the matter should have been pleaded, the plaintiffs would not contend that they should be permitted to run the point now. This removed the need for Steve and Lilya to prove – which the affidavit from their solicitor sought to do – that had they been aware of the issue they would have carried out work to deal with the issue.

9. [188]

   The competing positions thus reduced to whether the point was required to be pleaded.

10. [189]

    The plaintiffs contended that no issue of pleading arose, submitting that the point concerned only the manner in which equity should mould relief to achieve practical justice for both parties. On that basis, it was said that such contentions would not be “a matter that may take the opposite party by surprise”, but merely reflected the inherent nature of a claim for equitable relief, which must be granted, if at all, in accordance with equitable principles. It was further said that the Court’s exercise of its discretionary power could not be constrained by a failure to plead matters which arise from the evidence which are relevant to the exercise of discretion.

11. [190]

    Steve and Lilya placed reliance on the remarks made by the High Court in Vadasz that the issue of the enforceability of the guarantee being confined to past indebtedness, where the appellant had been prepared to give a guarantee for future indebtedness, was an issue that should have been pleaded in reply: see Vadasz at p 108.

12. [191]

    Whilst I accept, as a matter of principle, that equity moulds relief in this area to do practical justice, this does not obviate the need for a party, under the ordinary rules of pleading, to identify the matters which it relies on in support of the relief it contends should be granted. This includes identifying any basis upon which relief, if liability is established should be granted in a form different from that sought by the opposing party.

13. [192]

    I therefore do not accept that it is open to the plaintiffs to run the point, in the absence of an appropriate pleading.

14. [193]

    One further issue was raised in this context. Steve and Lilya contended that if the plaintiffs are able to run this point, it should nevertheless be rejected on the basis that no valid demand had been made on either of them to pay $1.8 million. It was contended that the demand for the greater sum, which was made, could not operate as a demand for a lesser sum.

15. [194]

    I do not accept this contention. Any outcome of limiting enforcement of the guarantee to $1.8 million would arise from equity moulding relief to do practical justice between the parties, on the hypothesis that Steve and Lilya were prepared to guarantee that amount. In those circumstances, there is no basis to require a fresh demand from the plaintiffs for $1.8 million in order to enliven any obligation to pay.

Conclusion and orders

1. [195]

   It follows that the claims made by Steve and Lilya must fail.

2. [196]

   I will direct the parties to seek to agree orders in both proceedings to give effect to these reasons, including costs, failing which I will determine any remaining issues on the papers.

3. [197]

   The orders of the court in both proceedings are:

   1. (1)

      The parties are to confer to seek to agree on orders in accordance with these reasons and provide any agreed orders to my Associate by no later than 1 May 2026.

   2. (2)

      In the event that agreement cannot be reached, the parties are to each provide to my Associate, by no later than 1 May 2026, the orders for which they contend together with submissions in support of those orders of no more than five pages, upon which I will determine the remaining issues on the papers.