McDonagh v Huxley (No. 4)

1. [1]

   The first plaintiff, Sharon McDonagh, and the second plaintiff, McDonagh Management Pty Limited (“McDonagh Management”), (a superannuation fund set up on Ms McDonagh’s behalf), commenced proceedings in 2014 against 11 named defendants. They claim that the defendants, by a combination of fraudulent representations and dishonest activities, executed a plan in late 2013 to dupe Ms McDonagh (and her company) into making unsecured loans to two insolvent companies, Griffith Estates Pty Ltd (“Griffith”) and Beechworth Land Estates Pty Ltd (“Beechworth”) that deprived her of $600,000.

2. [2]

   It is alleged that these events occurred with manipulative urgency in November 2013, shortly after the defendants became aware that Ms McDonagh had received over $600,000 in settlement money from a personal injury claim.

3. [3]

   Because of the prolix way that the Amended Statement of Claim has been pleaded, it is difficult to succinctly summarise the bases of the plaintiffs’ case. The pleading extends to over 100 paragraphs. Some of the bases are pressed against only some of the defendants. Some of the asserted grounds for relief are tenuous, inadequately or inappropriately pleaded and/or clumsily expressed. Some “counts” were abandoned at the trial, leading to the filing of a Further Amended Statement of Claim which apart from abandoning counts 23 and 24 regarding injunctive relief, remained otherwise the same.

4. [4]

   In the opening by counsel for the plaintiffs at trial, voluble descriptions of conduct were attributed, the activities termed a “scam in which all defendants participated”, setting up a scheme to give the appearance of legitimacy and independent advice, rushing Ms McDonagh into setting up a superannuation fund (McDonagh Management) and making loans to insolvent companies of which the family of the first and second defendants were “beneficial owners”. It was asserted that a package of documents was created that was “full of legalese”, purporting to secure the loans of $600,000, but security was not achieved, and the documents were never registered.

5. [5]

   The scattergun approach to the legal bases for relief, listed as 22 separate “counts”, include conversion, breach of guarantee, unconscionable conduct because Ms McDonagh had a “special disadvantage”, negligent misstatement, deceit, misleading and deceptive conduct and various breaches of the Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law, the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), and the Corporations Act 2001 (Cth).

6. [6]

   There is a claim for exemplary damages made against Gregory (Greg) Huxley, Vanessa Huxley, Rory McDonnell, Ghassan (Gus) Dib and James Edward Spencer (Mr Spencer), although in the closing submissions this claim was confined to Greg Huxley and Rory McDonnell only. There is a single count of admission and guarantee made against Gregory Huxley arising from correspondence in 2014.

7. [7]

   Default judgment for “liquidated damages” was entered against Vanessa Huxley and Rory McDonnell on 19 February 2016 by Registrar Bradford pursuant to a Notice of Motion filed on behalf of the plaintiffs. The Registrar initially entered judgment against each of them in the sum of $1,098,183.60 but in August 2018, he corrected that judgment under the “slip rule” (Uniform Civil Procedure Rules 2005 (NSW), r 37.17) to remove the $250,000 exemplary damages that had been initially included in the default judgment sum.

8. [8]

   Vanessa Huxley has taken no part at all in the proceedings.

9. [9]

   Rory McDonnell did nothing until June 2018 and then made two belated and unsuccessful applications to set aside the default judgment, one filed on 20 June 2018 after the evidence had been heard and submissions had been completed, and then another, in November 2018, three months after rejection of the first application.

10. [10]

    The first application was heard and determined on 20 August 2018; McDonagh v Huxley [2018] NSWSC 1316 (an application for adjournment) and McDonagh v Huxley (No. 2) [2018] NSWSC 1317 (rejection of the application to set aside default judgment). The second was, with the consent of all involved having been filed in the midst of a plethora of other applications, decided on the papers in Chambers: McDonagh v Huxley (No. 3) [2020] NSWSC 1181.

11. [11]

    Mr Spencer, (the sixth defendant), took no active part in the proceedings and as I understand it, was both at the time of trial and now, an undischarged bankrupt. An appearance was initially filed on his behalf by Kent Lawyers. It was formally withdrawn, with leave, on 20 June 2018 just before the closing oral submissions were made. The reasons for that leave being given appear from the record and are further canvassed to the extent necessary in dealing with Mr Spencer’s bankruptcy and the absence of leave to proceed against him under the Bankruptcy Act 1966 (Cth).

12. [12]

    Mr Ball of counsel appeared for Greg Huxley, Vangory Holdings Pty Ltd and Vangory Services Pty Ltd, (the “Huxley parties”) instructed by Lillas & Loel Lawyers during the hearing in March and April 2018. Mr Hii appeared for these parties on 20 June 2018. In December 2018 Mr Katsoulas appeared, instructed by Kekatos Lawyers, and in March 2019, Mr Allen appeared instructed by Kekatos Lawyers. Kekatos Lawyers subsequently filed a Notice of Ceasing to Act on 5 June 2019.

13. [13]

    Mr Lloyd of counsel appeared for Adam Huxley, Dib Lawyers, and Gus Dib (the “Dib Lawyer parties”) throughout the proceedings and interlocutory hearings.

14. [14]

    Mr McNally SC appeared for Jeffrey Dawson and Benitch Investments Pty Ltd (the “Dawson/Benitch parties”) throughout.

15. [15]

    All of the active defendants deny liability to the plaintiffs and vigorously disputed all allegations. At the beginning of the trial, the plaintiffs confirmed they did not press their case against the fifth defendant. Exception was taken to the expansive opening provided by counsel for the plaintiffs, Mr Goodridge, because it was far wider than the pleadings set out in the Amended Statement of Claim. Needless to say, the case will be determined on the pleadings, not the opening submissions. No leave to amend was sought at that stage. The positions of the defendants was set out in their written submissions received by the Court on day three of the trial, 28 March 2018, and as articulated in opening oral submissions that counsel made at the Court’s invitation.

16. [16]

    Various interlocutory applications interrupted and delayed completion of the proceedings. Some of these interlocutory disputes were the subject of ex-tempore judgments, some evaporated soon after they were commenced and others, (notably the October 2018 Notice of Motion filed by the Huxley parties and heard in March 2019), were commenced but then withdrawn after some hours of cross-examination and argument, with costs, and a personal costs orders sought against the solicitors, Kekatos Lawyers, then acting for the Huxley parties. This issue of the personal costs orders was the subject of various countering affidavits, submissions and directions, and was ultimately resolved between the parties in June 2020.

17. [17]

    McDonagh Management was also the subject of reinstatement proceedings in the Equity Division of this Court. This is because of machinations behind the scenes, apparently by Gregory Huxley and some of his associates, found to be suspect by Rees J in: In the Matter of McDonagh Management Pty Limited [2019] NSWSC 1099. In the context of a discussion of the facts of In the Matter of ACN 063 346 708 (formerly known as South Passage Pty Limited) [2018] NSWSC 1709, her Honour described the circumstances here as “…a far more elaborate series of attempts to frustrate the processes of the Court by twice lodging Change of Company Details forms with ASIC without the knowledge or consent of the sole director and shareholder of the company, Ms McDonagh”.

18. [18]

    Those machinations included a solicitor from Kekatos Lawyers attending Long Bay prison in October 2018 to see a Mr Steven Vickers, the second replacement director, secretary and shareholder of McDonagh Management, where he was serving a sentence of three years imprisonment for dealing with property suspected of being proceeds of crime, to have him execute a Deed of Release purporting to release the Huxley and Dawson parties from any liability to McDonagh Management in these Common Law proceedings.

19. [19]

    Unsurprisingly, Rees J found it just to reinstate the company and to make ancillary orders to ensure that Ms McDonagh regained control of her company and so that “…on reinstatement, Mr Vickers and whoever stands behind him cannot easily repeat their mischief under the guise of his position on reinstatement as sole director and shareholder of the company”: [44].

20. [20]

    The asserted roles of each defendant will be explained in the following outline of the plaintiffs’ case, but to briefly introduce them, the first and second defendant, Gregory and Vanessa Huxley were friends of Ms McDonagh.

21. [21]

    The fourth defendant, Rory McDonnell was a person introduced Ms McDonagh by Gregory Huxley to assist her in setting up a superannuation fund and a loan facility that would provide her with competitive interest payments.

22. [22]

    The third defendant, Adam Huxley (referred to in this judgment as “Adam”) is Greg Huxley’s son, a paralegal at Dib Lawyers Pty Ltd.

23. [23]

    The fifth defendant, Dib Lawyers Pty Ltd was incorrectly named as a defendant and by consent, a verdict is to be entered in its favour with no order as to costs.

24. [24]

    The sixth defendant, Mr Spencer is a bankrupt who took no active role in these proceedings and never filed a Defence. He took on the role of guarantor in respect of both the Beechworth and the Griffith loans made by Ms McDonagh and McDonagh Management. He also signed loan documents as the Director/Secretary of Griffith and Beechworth.

25. [25]

    The seventh defendant, Jeffrey Dawson, was a director of Vangory Holdings and Vangory Services at the time of the transaction and a long-time friend of Greg Huxley. He was also the director of Benitch Investments (the tenth defendant).

26. [26]

    The eighth defendant, Vangory Holdings is a company that was set up in August 2006 with Jeffrey Dawson and Vanessa Huxley as directors. Vangory Services was incorporated on 24 November 2013. Mr Dawson was a director of both Vangory Holdings and Vangory Services at the time of the transaction, but was not a shareholder.

27. [27]

    The eleventh defendant, Gus Dib, is a solicitor, the principal of Dib Lawyers and was the employer of Adam. It is accepted that as such he is vicariously liable for any acts or omissions on the part of Adam.

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

1. [28]

   The allegations have been extracted from the Further Amended Statement of Claim filed in Court with leave on 4 April 2018 and Ms McDonagh’s affidavit dated 23 June 2016 that was tendered as her evidence in chief, as well as, to the extent relevant, some of the medical reports tendered in support of the allegations of special disadvantage, and documents tendered in the Court Book said to evidence the transactions in issue [1] .

2. [29]

   Ms McDonagh was born on 9 May 1958 and so was almost 60 years old at the time she gave evidence at trial. She had attended school to year 11, completing her HSC at TAFE. She is the mother of five daughters, who were aged 23 to 45 years old at the time of trial. [2]

3. [30]

   Ms McDonagh says that she “began working in accounts and administration work” in the real estate industry and later worked as a qualified and licensed real estate agent. There is no evidence of the date or nature of her qualifications, nor is there a detailed history of her employment in evidence.

4. [31]

   In October 2010, she “recommenced full-time employment” as a real estate agent in Balmain. [3]

5. [32]

   On 3 June 2011, aged 52, Ms McDonagh was hit by a utility and sustained a number of injuries including a laceration to her forehead, a right periorbital haematoma and a fracture to her nose and right orbit. She was admitted to hospital. There was apparently some concern about the nature and extent of the injuries to her head. She underwent CT scans which showed a subdural haemorrhage that was resolving on repeat CT some days later. Post traumatic amnesia testing was performed at the hospital. Reports tendered concluded that Ms McDonagh performed normally in that testing. She was discharged five days after the accident, (not eight days as she asserts in her affidavit), with follow up plans which included a repeat CT brain scan and neurosurgical review.

6. [33]

   In her affidavit, Ms McDonagh described her injuries as “severe brain and head injuries” and claims that she “underwent extensive medical treatment for my severe brain injury and physical injuries”. It is evident from the medical and hospital records tendered [4] that her subdural haemorrhage did not require operative treatment. She says that after discharge from hospital, she and her youngest daughter stayed at the Huxley’s St Ives home for two to three weeks and that Vanessa Huxley provided her with care.

7. [34]

   Ms McDonagh says she returned to full time employment as a real estate agent on 22 August 2011. She says that she found it difficult to work, and could not cope with the stress of juggling multiple tasks, she had memory and cognition issues, and within three weeks of her return left the job because she was unable to perform the necessary tasks. [5]

8. [35]

   She changed employment and worked from December 2011 to February 2012 at Devine Real Estate, but says she was unable to continue. [6]

9. [36]

   Ms McDonagh reported to various practitioners who assessed her in 2011, 2012 and 2013 that she suffered from anxiety and panic attacks since the accident, as well as headaches, dizziness and memory problems.

10. [37]

    A psychologist, Derya Gucel, provided a report dated 5 April 2012 stating that Ms McDonagh had been referred to her by her GP for treatment for anxiety and depression symptoms that developed after the accident. Ms McDonagh commenced treatment with Ms Gucel in August 2011 and ceased in November 2011 because her symptoms were reportedly “more manageable”. Ms McDonagh reported that she was later unable to continue in her employment and in early 2012 her symptoms deteriorated and she returned for more treatment. The report referred to consultations between August 2011 and 29 March 2012. Ms Gucel concluded that Ms McDonagh would meet the diagnosis for post-traumatic stress disorder and “major depressive disorder single episode” and that she has severe psychological symptoms as a result of the motor vehicle accident and that her difficulties were chronic in nature but she may continue to achieve fluctuating progress in her psychological state.

11. [38]

    Dr Sarah Lucas, a neuropsychologist, carried out cognitive and other neuropsychological testing on 5 June 2012. She concluded that compared with Ms McDonagh’s high-average premorbid intellectual function, she had ongoing problems, including mildly reduced processing speed, moderately reduced free delayed recall of new material but much better recognition, suggesting Ms McDonagh had sound retention over time. She had poor planning and organisation, but sound performance in relation to other executive functions. Dr Lucas concluded that Ms McDonagh had sustained a significant traumatic brain injury, (TBI), as evidenced by her fractured skull and small subdural haematoma, referring to this as a “complicated mild head injury”. Dr Lucas noted that in the 12 months after this injury, Ms McDonagh continued to experience mild to moderate cognitive changes evident on neuropsychological testing and that these were broadly in keeping with the ongoing effects of TBI which has likely caused some mild cognitive changes, but is markedly exacerbated by her anxiety on a day-to-day basis. Dr Lucas concluded that Ms McDonagh should be reassessed to determine her longer term outcome and work capacity and that her memory and day-to-day cognition will improve as her anxiety symptoms improve, but there still may be longer term mild cognitive problems that will need to be assessed.

12. [39]

    Dr Bywater, psychologist, provided a short report dated 13 June 2012. She noted that Ms McDonagh had been referred by her GP for symptoms related to cognitive impairment, anxiety and difficulty coping following a motor vehicle accident approximately one year ago. Dr Bywater referred to Ms McDonagh providing a history suggesting that she had a high level of psychosocial functioning prior to the accident and had returned to full-time employment as a real estate agent following separation from her husband and that she felt happy and settled in her job and was not experiencing any difficulties. Following the accident however she had poor concentration and memory problems, could not do her job and needed to keep a very detailed diary to aid her memory. Ms McDonagh reported cognitive difficulties that were affecting her relationships and that she had problems following conversations and recalling recent events. She also had panic attacks. Dr Bywater concluded based on the interview that Ms McDonagh had experienced a “significant and pervasive change” in the level of her psychosocial functioning since the accident and that what she described indicated that she had experienced significant cognitive impairment consistent with the head injury. Dr Bywater recommended cognitive behavioural therapy to assist with anxiety, and behavioural strategies to help with the psychosocial changes she has experienced since the accident.

13. [40]

    In a follow up report dated 16 October 2012, Dr Bywater said that Ms McDonagh still reported becoming frequently overwhelmed, and feeling anxious when her memory and concentration adversely affected her ability to complete everyday tasks. However, her mood seemed significantly better in session and she was no longer tearful or showing the severity of concentration and memory difficulties that she had presented with initially.

14. [41]

    Dr Alan Lam, a consultant in rehabilitation medicine, reviewed Ms McDonagh on 11 December 2012. He noted that there had been a couple of attendances at Royal Prince Alfred Hospital Emergency Department in June 2011 with panic attacks. He noted Ms McDonagh had difficulty coping with work stress where there was a need to juggle multiple tasks and that she reported cognitive issues such as impaired short term memory and that was why she said she could not continue in that employment. Ms McDonagh also referred to undertaking some study (after her second three month trial as a real estate agent) but found it difficult to concentrate and retain new information. Dr Lam recorded that the major issues and concerns related to cognitive difficulties especially short-term memory, and anxiety and panic attacks. He noted that Ms McDonagh had good attention and concentration span but there was evidence of impaired short-term memory. He considered that Ms McDonagh still suffered from significant cognitive difficulties which may be exacerbated by the emotional impact of the motor vehicle accident, made worse by a loss of self-esteem from not being able to work as she used to as a real estate agent. He thought that there should be ongoing psychological or psychotherapy assistance to address the anxiety and panic attacks or perhaps a psychiatrist to assist and to consider anti-anxiety medication. He also stated that if these things could be adequately addressed, Ms McDonagh should then be able to pursue paid employment in the real estate industry or be retrained to a different location.

15. [42]

    Dr Bowers, a rehabilitation specialist, performed a Motor Accidents Authority General Assessment on 10 April 2013. He carried out a document review, recording the history given to Dr Lucas amongst others, and noted the CT of the brain on 3 June 2011 showed a left subdural haematoma and the CT of her facial bones showed a displaced fracture of the right orbit. He noted various assessments including a report by Dr Pope dated 27 July 2011 which referred to a possible post-accident loss of consciousness but no history of seizures. At that stage Dr Pope reported some short-term memory deficit which was mild and that Ms McDonagh was alert and oriented on examination and her speech was normal. The later CT on 20 July 2011 had shown complete resolution of the subdural haematoma with no mass effect or oedema. Dr Pope at that point (July 2011) thought Ms McDonagh had recovered well from her injuries. Dr Bowers set out a series of determinations under the Motor Accidents Act regarding permanent impairment and to the extent relevant for these proceedings, he thought that the information available indicated that Ms McDonagh’s complaints were “consistent with emotional behavioural disorder on a psychological basis rather than associated effects of any TBI”. He concluded that this was consistent with the neuro-psychometric testing results of Dr Lucas.

16. [43]

    The last relevant medical professional in the reports tendered who made observations of Ms McDonagh’s cognitive abilities was psychiatrist, Dr James Maguire. He assessed Ms McDonagh on 26 April 2013. At that time she complained mainly of “significant memory problems”. Having considered the reports outlining her history and having reviewed her, Dr Maguire concluded:

17. [44]

    In a further report dated 17 June 2013 in response to specific questions, Dr Maguire said this:

18. [45]

    In her affidavit Ms McDonagh stated her perception that as a result of the accident “and the significant brain injury that I sustained, I began to suffer from a number of significant symptoms and disabilities that I had never experienced before in my life”. [7] She goes on to state what she perceives her current problems to be as at June 2016:

19. [46]

    In August 2013 Ms McDonagh settled her case against the driver of the car for $900,000 inclusive of costs. She was represented by a firm of very experienced personal injury solicitors who did not appoint a tutor for the proceedings, nor does it seem that they arranged for Ms McDonagh to have any financial advice on the basis of her asserted cognitive difficulties. After legal expenses Ms McDonagh received a cheque for $679,003.82 [9] by letter of 13 August 2013. [10]

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

1. [47]

   Ms McDonagh had been friends with Greg and Vanessa Huxley for some years. She described in her affidavit being close friends with Vanessa and regularly being invited for dinners and parties and minding their home when the Huxleys were overseas.

2. [48]

   The Further Amended Statement of Claim alleges that Greg and Vanessa Huxley represented themselves to her as people who were “financially knowledgeable” and able to assist her with financial management of her damages, although Ms McDonagh’s affidavit stated that it was Greg Huxley who represented himself as knowledgeable, and that Vanessa, his wife, “agreed” with what he said.

3. [49]

   There is a gap between what is alleged in the Further Amended Statement of Claim, and what Ms McDonagh says in her affidavit:

4. [50]

   The Further Amended Statement of Claim alleged that Greg and Vanessa Huxley introduced her to Rory McDonnell, representing that he was a financial advisor who could be trusted and relied upon. Ms McDonagh’s affidavit however stated that it was only Greg Huxley who introduced her to Rory McDonnell and it was only Greg who made any representation to her about Rory McDonnell:

5. [51]

   Ms McDonagh alleged that Greg and Vanessa Huxley and Rory McDonnell advised her to “trust them” and “allow them” to assist her in setting up a superannuation fund to be established for her benefit and in organising a loan to produce income for her. This is what is asserted about this in her affidavit:

6. [52]

   In this context Ms McDonagh said the following occurred:

7. [53]

   In respect of McDonagh Management, Ms McDonagh said this:

8. [54]

   Ms McDonagh alleges that she “had been made aware by her solicitors” (presumably because she has no recollection of this at all) that on 27, 28 and/or 29 November 2013, she was provided with a number of documents to sign:

9. [55]

   In the Further Amended Statement of Claim it is alleged that Gregory and Vanessa Huxley and/or Rory McDonnell provided a folder of documents that had been prepared by Gus Dib and/or Dib Lawyers titled “McDonagh Management Loan and Banking Portfolio” regarding Griffith. It is alleged that this folder comprised various documents including:

10. [56]

    In the Further Amended Statement of Claim it is alleged that “at about the same time, Greg and Vanessa Huxley and/or Rory McDonnell” provided another folder to Ms McDonagh, also prepared by Gus Dib and/or Dib Lawyers titled “Sharon McDonagh Loan and Banking Portfolio”. This entailed a similar selection of documents except they were regarding Beechworth:

11. [57]

    Ms McDonagh’s affidavit deposed to being shown various documents by her solicitor at the time of preparing and swearing her affidavit in 2016 and that she had no recollection of reading or signing the documents. She claims however to recall seeing the “Mortgage of Lease, Mortgage or Charge” document because she had seen a document of that type during her time as a real estate agent and understood it to be an “official” government type document and she “believed it and the other documents were prepared to secure my money by the solicitor arranged for me by Greg”. [17]

12. [58]

    Ms McDonagh made similar assertions regarding the Caveat dated 29 November 2013:

13. [59]

    Ms McDonagh made this rather extraordinary declaration at par 80 of her affidavit:

14. [60]

    In the Further Amended Statement of Claim it is asserted that the two “Portfolios” contained Dib Lawyers’ office references “GAD:APH:202081” and “GAD:APH:202644” respectively, and that these references were to Gus Dib, the principal of the firm, and Adam, a paralegal at Dib Lawyers and the son of Gregory Huxley.

15. [61]

    In her affidavit, Ms McDonagh says this about Dib Lawyers:

16. [62]

    I interpolate here that there is no evidence at all that Gus Dib had any knowledge of these documents, these files or the papers that were prepared by Adam and provided to Greg Huxley in response to Greg Huxley’s email request on 27 November 2013. Nor is there any evidence that Vanessa Huxley was involved at all in any of these steps.

17. [63]

    It is alleged in the Further Amended Statement of Claim that Ms McDonagh was “advised by Rory McDonnell and Gregory and Vanessa Huxley to execute the various documents”, but there is no evidence of any involvement of Vanessa Huxley in these steps. This allegation seems to be a reconstruction, not a recollection and is not consistent with the narrative in Ms McDonagh’s affidavit.

18. [64]

    At the time of preparing her affidavit in 2016, Ms McDonagh says that she was unaware of all the documents she had been requested to sign in 2013 and says that she was never provided with a complete set of the executed documents.

19. [65]

    It is common ground that the funds were withdrawn from Ms McDonagh’s bank accounts on 29 November 2013.

20. [66]

    Ms McDonagh alleged that she does not personally know whether the funds were dispersed in accordance with the Drawdown Notices she had been given or not.

21. [67]

    From such documents as were made available on discovery, she (and McDonagh Management) allege that the following sums were disbursed:

22. [68]

    It is alleged in the Further Amended Statement of Claim that the funds disbursed in this way caused advantage to flow to each of the defendants:

23. [69]

    It was pleaded in par 35 (y) of the Further Amended Statement of Claim that “further particulars will be provided when the defendants cease withholding the plaintiffs’ documents and/or after discovery”, but no further particulars were ever provided. There was no pleading at all identifying the alleged advantage said to flow to Adam.

24. [70]

    Under the heading “Requests for loan repayments” Ms McDonagh states her understanding of what occurred:

25. [71]

    Ms McDonagh then states:

26. [72]

    Ms McDonagh states that she was told both companies were under administration [23] and that on at least one occasion a “proxy” she had never heard of attended a creditors meeting under a proxy form signed by Rory McDonnell.

27. [73]

    The Further Amended Statement of Claim goes on to delineate what it collectively describes as “The Defendants’ conduct”.

28. [74]

    The first part, pars 36 to 69 inclusive, make factual assertions and conclusions regarding actions the plaintiffs assert were taken by various defendants.

29. [75]

    The second part, pars 70 to 103, sets out the 22 separate “Counts” said to apply to the conduct of the defendants. Some counts apply to one or some of the defendants so it will be necessary to refer to each separately.

30. [76]

    In respect of the Griffith loan, Ms McDonagh and her company allege that on the funds disbursement date, Rory McDonnell was director of Griffith but the next day Mr Spencer was swapped in as director. At all times Griffith was insolvent and this insolvency was known to all of the defendants. The Statement of Position of Mr Spencer provided to the plaintiffs was materially false, misleading and deceptive regarding Mr Spencer’s true financial position which included false account about property he owned in value, his earnings, his occupation and his net wealth. [24]

31. [77]

    Ms McDonagh and her company allege that the documents contained in the McDonagh Management Loan and Banking portfolio were provided by Rory McDonnell, Greg, Vanessa and Adam, Gus Dib, Dib Lawyers, Griffith and Mr Spencer and were materially false, misleading and deceptive and were intended to, and in fact, misled Ms McDonagh and her company.

32. [78]

    These falsities are listed in pars 45 (a) to (o) of the Further Amended Statement of Claim and include that Mr Spencer was a director of Griffith at the funds disbursement date (when in fact Rory McDonnell was), that Rory McDonnell was providing independent advice, that Rory McDonnell would manage the transactions for the plaintiffs’ benefit and hold all the necessary documents for the plaintiffs, that Greg and Vanessa Huxley were providing independent advice in the interests of the first plaintiff, that Griffith was solvent, that Mr Spencer was a creditworthy guarantor, that Mr Spencer’s statement of position was true. Other falsities alleged were that McDonagh Management would hold security by a registered charge over all of Griffith’s interest in the loan security documents, that McDonagh Management would be secured by registered charges over specific registered mortgages and by charges over all security documents collateral to those registered mortgages, that the effect of this would be that the company would be secured by registered charges over the land set out in the specified folio identifiers corresponding to land situated at particular nominated addresses in Griffith. Further, that there would be stamped mortgages available and, that McDonagh Management would be “secured by the “certificate of title for registration of the registered charge” over all that land situated at the addresses listed, as set out in Clause 1 of the Deed of Loan.

33. [79]

    McDonagh Management asserts that no such security was in fact provided.

34. [80]

    In respect of the Beechworth Loan, it is alleged that the documents provided by Rory McDonnell, Greg, Vanessa and Adam, Gus Dib, Dib Lawyers, Griffith Estates and Mr Spencer were materially false and misleading and deceptive and did in fact mislead Ms McDonagh.

35. [81]

    The falsities are listed in pars 46 (a) to (n) of the Further Amended Statement of Claim. Some of those are identical to the falsities alleged regarding Griffith, namely that Rory McDonnell was providing independent advice, that he would manage the transaction “to the plaintiffs’ benefit” and “hold all necessary documents for the benefit of the plaintiffs”, that Mr and Mrs Huxley were providing independent advice in the interests of Ms McDonagh, that Beechworth was solvent, that Mr Spencer was a credit worthy guarantor and that his Statement of Financial Position was true.

36. [82]

    Other falsities pleaded are that Mr Spencer was said to have replaced Rory McDonnell as director of Beechworth on 18 November 2018 when the fact was that he replaced him on 22 November 2013, six days before the funds were taken from Ms McDonagh’s account. Further, that Ms McDonagh would “have security by a charge over all or any of Beechworth’s title and interest in the first registered mortgage over a particular nominated registered dealing and over part of the land known as Red Hill Estate” located at Beechworth, Victoria at the address (and folio Identifier) specified. It was alleged that this would be secured by a caveat over that property and that this interest would be secured by “original signed documents granting an interest over any security”, and that this would be further secured by a certificate of title to allow for registration of the mortgage over the described land. The effect was described as security that would “allow for the first plaintiff as mortgagee to exercise any purported right over the purported security” and was defined in this way in Clause 1 of the Deed of Loan.

37. [83]

    Ms McDonagh asserts that no such security was provided to her.

38. [84]

    It was alleged in pars 47 and 50 of the Further Amended Statement of Claim that before it was legitimate to take any sums from Ms McDonagh or McDonagh Management, the respective Deeds of Loan required certain conditions precedent to be met, but in the case of both loans, those conditions precedent were not met. These included setting up a compliant registered superannuation fund, proper execution of the Deed(s) of Loan by a director of Beechworth and Griffith, delivery of relevant corporate documents and Drawdown Notices signed by an authorised signatory of Griffith (and Beechworth) specifying the purpose of the advance.

39. [85]

    It was alleged that Beechworth had “no title, or no title of value to grant in any security, because it had on 10 October 2013 granted such security to a third person by way of loan agreement and General Security Deed”. At the time Beechworth did that, Rory McDonnell and Mr Spencer were directors of Beechworth.

40. [86]

    In respect of Griffith, it is alleged that it was not disclosed to, or known by Ms McDonagh (and her company), that at the time the money was taken from her, Griffith was the subject of a winding up application, had entered into a Loan Agreement and General Security Deed with a third party, did not provide any valuable security to her company and only purported to give security over two mortgages to which it was not a party and had no interest to grant: (par 60 of the Further Amended Statement of Claim).

41. [87]

    It was asserted that neither Ms McDonagh nor McDonagh Management received any payments in accordance with the documents. Demands for payment were made on 22 August 2014 to Griffith, to Beechworth and to Mr Spencer as guarantor, but no funds were paid.

42. [88]

    It was alleged that at the time of the taking of the funds, all defendants knew that the loan documents issued to Ms McDonagh and her company were materially false and all of the defendants were “knowingly concerned in misleading the plaintiffs”: (pars 67 to 69 of the Further Amended Statement of Claim).

43. [89]

    It was further alleged, as well as pleaded in the alternative, that the failure to provide Ms McDonagh and her company with the whole of the necessary documentation meant that “in law no transaction was agreed to or entered into by either plaintiff”: (pars 58 and 59 of the Further Amended Statement of Claim).

44. [90]

    The first and second Counts claim the “purported loans” to Griffith and Beechworth (in the sums of $400,000 and $200,000 respectively) were in effect, conversions by Rory McDonnell.

45. [91]

    The third Count was said to be a breach of guarantee by Mr Spencer.

46. [92]

    The fourth Count was said to be “unconscionable conduct” on the basis that Ms McDonagh was under a special disadvantage and that all of the defendants took advantage of her special disadvantage and exploited her disadvantage.

47. [93]

    The fifth Count was that the unconscionability on the part of each of the defendants occurred during “engaging in trade or commerce” as defined in the Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law, s 20 (Australian Consumer Law), and caused loss and damage.

48. [94]

    The sixth Count asserts that each of the defendants contravened s 236 of the Australian Consumer Law causing loss and damage.

49. [95]

    The seventh Count asserts that each of the defendants have engaged in conduct that requires they compensate the plaintiffs for the “whole of the loss”, or to “reduce the loss or damage” and that each of them were involved in the “contraventions” of the Australian Consumer Law by Griffith and/or Beechworth, in that they each “aided or abetted or procured the contraventions” because they were “directly or indirectly knowingly concerned in the contraventions”. The particulars of loss and damage are described as “$600,000 plus interest and legal costs as a damage”.

50. [96]

    The eighth Count asserts a breach of s 12CA of the ASIC Act because the defendants “in trade and commerce” engaged in conduct in relation to financial services where such conduct was “unconscionable within the meaning of the unwritten law of Australia”. It is also asserted as “particulars” that Ms McDonagh was under special disadvantage and the defendants took advantage of and exploited that “against good conscience”.

51. [97]

    The ninth Count is alleged to be pursuant to s 12CB of the ASIC Act that the conduct of the defendants was “in trade and commerce” and “in connection with the supply or possible supply of financial circumstances (sic)” to the plaintiffs that was unconscionable. The “special disadvantage” particulars are repeated.

52. [98]

    The tenth Count is expressed to be pressed against all defendants under s 21 of the Competition and Consumer Act and repeats similar allegations as those under s 12CB of the ASIC Act. (This should no doubt be a reference to s 21 of the Australian Consumer Law and is in reference to the “supply of goods and services”). I interpolate here to observe that what “goods and services” are claimed to have been supplied by each active defendant and when has not been particularised and so this allegation is fatally flawed.

53. [99]

    The eleventh Count is made under s 1041H of the Corporations Act and asserts that the defendants “engaged in conduct in relation to a financial product or a financial service that was misleading or likely to mislead or deceive”.

54. [100]

    The twelfth Count comprises an assertion that the defendants arranged for Rory McDonnell, Griffith, Beechworth and Mr Spencer “to deal in financial products” contrary to s 766C of the Corporations Act, but seems to be claiming injunctive relief under s 1324 of the Corporations Act. Mr Goodridge disavowed any injunctive relief was being sought and was to clarify the position with this Count. He did not do so, [25] but in failing to return to it or deal with it in written submissions, I take this allegation to not be pressed.

55. [101]

    The thirteenth Court alleges that the defendants each “aided and abetted, counselled or procured” the contravention of the Corporations Act.

56. [102]

    The fourteenth Count alleges that because of the “conversations and advice by Rory McDonnell” and advice by him set out in an email of 30 June 2013, Greg Huxley, Vanessa Huxley and Rory McDonnell were each in breach of s 911A of the Corporations Act for “carrying on a financial services business” without an Australian Financial Services Licence.

57. [103]

    The fifteenth Count alleges that Greg Huxley, Vanessa Huxley, Rory McDonnell, Adam, Gus Dib, Dib Lawyers, Mr Spencer, Griffith and Beechworth “made statements and disseminated information” that was “false and materially misleading”, to “induce the plaintiffs to apply for, or acquire, a financial product or products” in breach of s 1041E of the Corporations Act.

58. [104]

    The sixteenth Count is headed “s 1041F Corporations Act” and asserts that Greg Huxley, Vanessa Huxley, Rory McDonnell, Adam, Gus Dib, Dib Lawyers, Mr Spencer, Griffith and Beechworth “induced the plaintiffs to purchase or deal in a financial product by making misleading, false and deceptive statements and or the dishonest concealment of facts”.

59. [105]

    The seventeenth Count is headed “s 1041G Corporations Act” and asserts that Gregory Huxley, Vanessa Huxley, Rory McDonnell, Adam Huxley, Gus Dib, Dib Lawyers, Mr Spencer, Griffith and Beechworth “engaged in dishonest conduct in relation to a financial product or service”.

60. [106]

    The eighteenth Count is headed “s 1041I Corporations Act” and asserts that the plaintiffs “suffered damage by conduct of the defendants in respect of conduct in contravention of ss 911A, 777C, 1324, 1041E, 1041F, 1041G and 1041H” of the Act and that “each and every other defendant was a person involved in that contravention” and that the contravention(s) caused the plaintiffs loss. It seems from what Mr Goodridge submitted at the close of the evidence on 6 April 2018, Counts 15 - 18 should be read together as statutory breaches that ground the damages sought under s 1041I. [26]

61. [107]

    The nineteenth Count is headed “Negligent Misstatement” and asserts that Gregory Huxley, Vanessa Huxley, Mr Spencer, Rory McDonnell, Gus Dib and/or Dib Lawyers made misrepresentations to the plaintiffs “without having a reasonable ground for making their representations”. The representations are particularised:

62. [108]

    The twentieth Count is headed “Deceit” and is pressed against Greg Huxley, Vanessa Huxley, Rory McDonnell and Mr Spencer. [28] It states:

63. [109]

    The twenty-first Count comprises a claim for exemplary damages to be paid by Greg Huxley, Vanessa Huxley, Rory McDonnell, Gus Dib and Mr Spencer “because of their conscious and contumelious disregard for the plaintiffs’ rights and to deter them from committing like conduct again”. (This head of damages was confined in final written submissions to apply only to the conduct of Greg Huxley and Rory McDonnell and said to be was limited to $45,000 for each plaintiff).

64. [110]

    The twenty-second Count is headed “Admission and Guarantee by Mr Greg Huxley” and pleads certain facts regarding representations made by Greg Huxley in an email to the plaintiffs in June 2014:

65. [111]

    However, what damage is said to arise specifically from this “admission and guarantee” was not particularised and was never articulated.

66. [112]

    In conclusion, Ms McDonagh and McDonagh Management claim damages in the sum of $600,000, plus interest in the sum of $96,324.50 as at the date of the filing of the Further Amended Statement of Claim, (24 November 2014), accruing at the rate of $343.39 per day, “or such other sum as the court may determine”, as well as “costs as damages”, exemplary damages in the sum of $250,000 payable to each plaintiff, as well as costs on an indemnity basis. (The claim for exemplary damages was modified in closing submissions to be limited to $45,000 for each plaintiff and claim to be payable only by Gregory Huxley and Rory McDonnell).

67. [113]

    It is difficult to know what to make of Ms McDonagh’s oral evidence. She was cross-examined by Mr Ball on behalf of the Huxley parties and then Mr Lloyd on behalf of the Dib parties. I note that the cross-examination on the part of both counsel was at all times conducted with courtesy, fairness, care and patience.

68. [114]

    Ms McDonagh seemed on occasion to have difficulty focusing on the question asked and often gave deflective answers or flippant non-sequiturs. It was hard to assess why this was happening. She appeared distracted and at points seemed to be confused as to what was being asked. At other points she was clear and firm and answered quickly such as when she was asked if she knew at least in broad terms what the nature of a caveat was and she said “Yeah I do” and she was then asked: “You knew that back in November 2013” and she answered: “Before that”. [29]

69. [115]

    The content of the answers bore little resemblance to the clarity of expression contained in her lengthy 2016 affidavit, even bearing in mind her solicitor’s assertion that the preparation of that affidavit [30] was completed over seven to eight conferences.

70. [116]

    There was no up to date cognitive assessment. If there was a concern that Ms McDonagh did not have the capacity to give evidence, I would expect that a firm as experienced as Firths would have appointed a tutor and informed the Court that there was capacity issues. That did not occur, so I must proceed on the basis that she had sufficient cognitive capacity to give instructions and to be cross-examined.

71. [117]

    Ms McDonagh was shown her affidavits and asked whether she remembered taking the oath each time and signing them. She answered:

72. [118]

    Ms McDonagh gave the following evidence regarding her recollection at the time she swore her affidavits:

73. [119]

    She also agreed that each time she swore an affidavit she understood that they were very important documents and that she needed to be truthful. [34]

74. [120]

    This exchange followed, again on the subject of the preparation of her affidavits:

75. [121]

    Further facts were established in cross-examination that had been left unclear in the affidavit. Ms McDonagh confirmed that she had “worked in real estate” for approximately 30 years, but only completed her qualifications to become a registered licensed real estate agent in 2015, i.e. after her accident.

76. [122]

    Regarding McDonagh Management, she understood that she had been a director but that she was not currently a director. (At this time the events the subject of the criticism in judgment of Rees J’s decision referred to in pars 17 to 19 of this judgment had taken effect and Ms McDonagh has been surreptitiously unseated as director without her knowledge).

77. [123]

    In terms of her investment in 2013, she was asked:

78. [124]

    Ms McDonagh was then shown Commonwealth Bank records which indicated certain sums had left an account in the name of “Business Vangory” and which Greg Huxley said were paid to her. The first was for $15,000 with the description “three months interest” as well as another showing $3,000, both on 30 November 2013. There was another of $5,000 on 28 December 2013 and another of $1,000 on 28 December 2013. Ms McDonagh claimed that she did not receive any of that money. She was also asked about payments made by Vangory in February and March 2014 to her landlord TPM Solutions in the sum of $4,775.00 and $2,817.00 but she denied that company was her landlord and stated that she “did not ask for it to come from there”. [37]

79. [125]

    There was also a transfer of $2,000 from an account styled “Business Vangory Holdings” showing as the transferor's receipt “Sharon McDonagh, Bank of Queensland” on 31 March 2014. Again she denied that she had received that payment. She was asked “These documents show that money was paid to you after these investments doesn’t it?” and she replied “Not to me they don’t. I haven’t had any of them”. [38]

80. [126]

    When pressed on whether she was truly suffering from poor memory or was exaggerating her problems, there was an exchange that started and ended with deflection:

81. [127]

    Ms McDonagh was asked about engaging Firths Lawyers for her personal injury case. She deflected questions about her understanding of her case and the role of Firths as her lawyers and deflected questions about her settlement money in a way that appeared again quite contrary to the clarity about these matters in her 2016 affidavit:

82. [128]

    Shortly after this Ms McDonagh became upset and the Court adjourned early, with the cross-examination to resume the next day.

83. [129]

    The next morning Ms McDonagh was asked about her understanding of the role of lawyers in advising her about her settlement. Her answers were difficult to interpret:

84. [130]

    Ms McDonagh was then shown various documents that she signed on 28 or 29 November 2013 and this exchange ensued:

85. [131]

    Ms McDonagh was asked specifically whether she noticed the reference Dib Lawyers and what she recalls was on the documents at the time she signed them:

86. [132]

    Ms McDonagh then asserted that she had “spoken to them but it was quite a while ago”, followed by this exchange:

87. [133]

    This was followed by very confused evidence that seemed to be at odds with her affidavit evidence.

88. [134]

    When shown other documents that she signed in November 2013, this exchange occurred:

89. [135]

    When pressed, the answers became resistant:

90. [136]

    Upon resumption after the morning tea adjournment further propositions were put regarding a lack of interface on Ms McDonagh’s part with Dib Lawyers. Again her answers are difficult to interpret:

91. [137]

    Ms McDonagh did confirm that she knew what a mortgage was, but when she was asked about what she thought about it in November 2013 and its role in the papers that she signed, she gave some non-committal answers, contrary to her affidavit (in which she had said that the mortgage gave her some comfort as it appeared to be a “legal, government type document”):

92. [138]

    She was asked about her understanding of the Caveat relevant to Beechworth:

93. [139]

    Ms McDonagh was pressed again about whether she truthfully held a belief that Dib Lawyers or anyone from that firm were acting for her in the transactions the subject of this case which led to the following rather confusing exchange:

94. [140]

    When pressed further on this subject the following exchange ensued:

95. [141]

    The cross-examination ended here. There was no re-examination.

96. [142]

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

97. [143]

    A Self-Managed Superannuation Fund Trust Deed for the McDonagh Family Superannuation Fund which noted as “Supplied by Alpha Consulting Pty Ltd” with an address at 341 Princes Highway, Carlton NSW was provided. On the inside page there is a heading and copyright notice for a firm called “battalion legal” of 379 Pitt Street, Sydney, as well as a web address of the firm and a phone number. On the last page of the Trust Deed, (page 80), Ms McDonagh’s signature appears witnessed by Rory McDonnell. The signature bar is dated 12 November 2013.

98. [144]

    A Constitution for McDonagh Management also bears the “battalion legal” insignia and is annotated as “Supplied by Alpha Consulting”. Two schedules are appended, one containing the name and address of the “initial directors” referring only to Ms McDonagh, and the second, comprising an unexecuted “Default Loan Agreement”. On the last page of the Constitution there is an execution box stating that Ms McDonagh “consents to becoming a member of the Company” and agreeing to the terms of the Constitution. This too is signed by Ms McDonagh and witnessed by Rory McDonnell, and dated 13 November 2013.

99. [145]

    The Deed of Loan between McDonagh Management and Griffith has on the front page on the bottom left, the firm details of Dib Lawyers and an address: Stromboli House Suite 4 of 434 Chapel Street, Bankstown and phone contact details with a reference: “GAD:202081”. It provides amongst other things that the Lender, McDonagh Management, has agreed to provide a loan facility to the Borrower, Griffith, in the sum of $400,000 with Mr Spencer as “Guarantor”.

100. [146]

     On page 31 of the Deed there is an illegible and unattributed signature for and on behalf of Griffith, certifying that “the conditions precedent set out in Cl 2(1) of the agreement have all been satisfied”. From the following page, it appears that the signature belongs to Mr Spencer who executed it as an authorised officer of Griffith Estates, as well as Guarantor. Ms McDonagh executed the document for McDonagh Management. Rory McDonnell witnessed the signature of Mr Spencer. The signatures are not dated.

101. [147]

     A “General Security Agreement” between Griffith and McDonagh Management has Dib Lawyers’ details on the front page but with an address at 88 Phillip Street, Parramatta and the reference: “APH:202081”. Near the end of this unpaginated document is a Reference Schedule that refers to the “Maximum Priority Amount” as “400,000” and the “Priority Ranking” as “Second ranking charge”. The document is not dated. It is signed by Mr Spencer as “Sole Director/Secretary”. It is also signed by Ms McDonagh.

102. [148]

     A Deed of Guarantee also bears Dib Lawyers’ details on the first page and the Parramatta address and the “APH” reference. It is signed by Mr Spencer and witnessed by Rory McDonnell. It is not dated.

103. [149]

     There is a NSW Real Property Act Form O5ML, “Mortgage of Lease, Mortgage or Charge” that provides in the “Firm Name” box “Dib Lawyers”. On its face it purports to formalise a mortgage of lease, mortgage or charge over certain nominated titles. The Lodgement box is empty. The mortgagor is noted as Griffith and the mortgagee as McDonagh Management. It is executed by Mr Spencer on behalf of Griffith and is signed by Ms McDonagh on behalf of McDonagh Management. It is not dated.

104. [150]

     A “Consent by Borrower/Guarantor to Legal Advice” is signed by Mr Spencer as Director/Secretary of Griffith and Guarantor and is dated 28 November 2013 but the “solicitor” who is said to have advised, is not stated and that part of the form is blank.

105. [151]

     There is an unexecuted Deed of Guarantee with Mr Spencer cited as Guarantor.

106. [152]

     A separate and incomplete “Acknowledgment of Legal Advice by proposed Guarantor” refers to a solicitor “Bill Redmond”, and Mr Spencer as the recipient of advice.

107. [153]

     A Business Purpose Declaration is signed by Mr Spencer on behalf of Griffith and is dated 24 November 2013.

108. [154]

     A Drawdown Notice signed by Mr Spencer “on behalf of Beechworth” and dated 28 November 2013 specifies the various payees for the $400,000 from the loan from McDonagh Management.

109. [155]

     The Beechworth documents followed a similar, although not identical, pattern. There is a Deed of Loan with Dib Lawyers insignia and the Bankstown address and reference GAD:202644. There is a typed date in the header: 28 November 2013. It also has typed in Beechworth as the Borrower having its registered office c/o Dib Lawyers and cites the Bankstown address. Mr Spencer is cited as Guarantor. It is executed on page 32 by Mr Spencer as Sole Director/Secretary and by Ms McDonagh. Both signatures are witnessed by Rory McDonnell. The signatures are not dated.

110. [156]

     There is a General Security Agreement with Dib Lawyers’ insignia but citing the Parramatta address and providing reference: “APH:202644”. The maximum priority amount is referred to on page 47 in the “Reference Schedule” to be $300,000, the agreement date is blank and the interest rate is referred to as “0.5% per calendar month as specified in the loan agreement” and the priority ranking is described as “Second Ranking Charge”.

111. [157]

     There is a caveat under s 89 of the Transfer of Land Act 1958 (Vic) partly completed in hand, apparently in Ms McDonagh’s handwriting, and dated 29 November 2013. The “Estate and Interest Claimed” is typed on the document as “A legal interest as chargee”. The “grounds of claim” are also typed: “Pursuant to Deed of Loan Dated - November 2013 entered into between the ‘caveator as charge’ (sic) and Beechworth Land Estates Pty Ltd (as charger) over all of the chargers’ interest in mortgage numbered AF 168070Y over the land”. The “Land” is described as “Volume 11449 Folio 464, Mortgage numbered AF 168070Y”.

112. [158]

     A Drawdown Notice directed to Ms McDonagh is dated 28 November 2013 and is signed on behalf of Beechworth by Mr Spencer and refers to $200,000 to be made payable to SNZ Holdings Pty Ltd.

113. [159]

     A Statement of Position of Mr Spencer, undated, sets out property worth $3.790 million and debts of $1.935 million and cites his occupation as CEO of “Property Store” and states that his gross income “last year” was $185,000.

114. [160]

     The provenance of the prepared documents was an issue at trial and the evidence about that was patchy to say the least. It appears a number of the documents Ms McDonagh signed particularly regarding the Griffith loan were not prepared by Adam and may have been in a different form to those prepared by him and provided to Greg Huxley by email on the morning of 28 November 2013. The provenance of a number of the Beechworth documents is simply not known. Ms McDonagh does not recollect what she did see, read or sign so it is now impossible to accurately reconstruct what documents she was shown, which ones she read, if any, and what she relied upon or was induced to rely upon in completing the transaction.

115. [161]

     Ms McDonagh’s affidavit evidence suggested that she relied on the caveat form regarding Beechworth and the “Mortgage on Mortgage” form in relation to the Griffith loan as reassurance that the transaction “looked legal”, but her evidence in answer to questions in cross-examination about this was inconsistent with that position. It is evident that to a very large extent the affidavit of Ms McDonagh is reconstruction.

116. [162]

     Some of the documents at least had their origin in the hands of Adam. An email by Greg Huxley to Adam Huxley dated 27 November 2013 was annexed to Greg Huxley’s affidavit:

     1. (1)

        Borrower name: Beechworth Land Estates Pty Limited (see point 11) a) Guarantor: James Edward Spencer b) Signing officer: James Edward Spencer

     2. (2)

        Lender name: McDonagh Management Pty Ltd ACN 166719839 As trustee for The McDonagh Superannuation Fund ABN 63 951 464 696 341 Princes Highway Carlton NSW 2218

     3. (3)

        Loan Amount: $400,000

     4. (4)

        Loan Term: Up to 12 months

     5. (5)

        Partial Discharges: Allowed with interest calculated to the end of the and at a rate of $50,000 per allotment

     6. (6)

        Interest rate and default: Paid monthly 15% p.a. (paid 1.25% per month) with a default rate of 18% p.a (paid 1.5% per month) Continuation Page

     7. (7)

        Accrual rate: Nil

     8. (8)

        Exit fee: paid to Lender at loan repayment time 2% - $8,000

     9. (9)

        Establishment fee: $3,000

     10. (10)

         Interest buffer: at settlement, interest is to be paid in advance for 3 months - $15,000

     11. (11)

         Security: Third party security that is being provided by Griffith Estates Pty Limited (or, if easier make Borrower Griffith Estates Pty Ltd). Eight residential allotments, being:

     12. (12)

         Documents: You (sic) standard package:- 1 Deed of Loan 2 General Security Agreement (charge) second ranking 3 Deed of guarantee 4 Caveats for lots; 5 Transfers by Mortgagee or Annuitant 6 Mortgage on Mortgage 7 Advice certificates 8 Acknowledge of advice certificate Continuation Page 9 Business purpose declaration; and 10 Declaration as solvency

117. [163]

     The reply from Adam forwarded at 9.15am on 28 November 2013 [60] was titled “McDonagh Management Pty Ltd as trustee for The McDonagh Superannuation Fund Advanced to Griffith Estates Pty Ltd” and stated: “Dear Greg, please see all documents attached”. The attachments are listed as:

     1. (1)

        Mortgage of lease mortgage of charge – Form 05ML – LL – NSW – RPA037.PDF

     2. (2)

        LOAN AGREEMENT – mcdonagh management to griffith – 28.11.13.PDF

     3. (3)

        Annexure A – mortgage on mortgage – griffith to mcdonagh -28.11.13PDF

     4. (4)

        Business purpose declaration – griffith – 28.11.13.PDF

     5. (5)

        Deed of guarantee and explanation – spencer – 28.11.13PDF

     6. (6)

        GDA – griffith estates to mcdonagh superfund – 28.11.13.PDF

     7. (7)

        Acknowledgement of legal advice by proposed guarantor-28.11.13.PDF

     8. (8)

        Acknowledgement of legal advice by proposed guarantor-28.11.13.PDF

     9. (9)

        Acknowledgement of legal advice by Griffith Estates_28.11.13.PDF

     10. (10)

         Consent to same solicitor legal advice – 28.11.13.PDF

     11. (11)

         STAT DEC that company is solvent – Griffith.PDF

118. [164]

     Records referred to in the affidavit of Gus Dib suggest that Adam also sent a draft caveat on 29 November 2013 to Greg Huxley at 11.16am [61] under s 89 of the Transfer of Land Act 1958 (Vic) “expressed to protect an interest of Sharon McDonagh” in land at Volume 11449 Folio 464, Mortgage number AF 168070Y pursuant to Deed of Loan “dated – November” between the caveator and Beechworth.

119. [165]

     What documents tendered show after November 2013 is relevant in that some of the correspondence between some of the protagonists and what Greg Huxley said to Firths in some of his emails may shed some light on what had occurred.

120. [166]

     Some of this material was tendered as part of Exhibit A, and some of it was appended to the affidavit of Ms Pinkus, a solicitor from Firths, sworn 24 June 2016. [62]

121. [167]

     There is dispute about whether any interest payments at all were made to Ms McDonagh or to McDonagh Management. Ms McDonagh asserts that no payments were made. I query the reliability of that assertion given the Commonwealth Bank records and Greg Huxley’s evidence about it. The position is complicated by Ms McDonagh’s poor memory about that time period and the obvious gaps in her recollection as set out in her 2016 affidavit:

122. [168]

     The next correspondence relevant to the transactions in evidence seems to be the emails dated 3 February 2014 annexed to Ms Pinkus’s affidavit from Warner Meredith to Greg Huxley, with one in similar terms at the same time addressed to Rory McDonell.

123. [169]

     Mr Meredith’s role in the transaction and its aftermath was never explained. No questions were asked of Greg Huxley about this email. Mr Meredith refers to himself in the signature bar of the email as:

124. [170]

     One Group is the company from which Greg Huxley sent various emails, including emails in November 2013. His role in that company was never explained, and hence the extent to which he “directed” Warner Meredith, in any capacity, remains a mystery.

125. [171]

     Mr Meredith’s email seems to be in response to an email at 11:46am that morning from Rory McDonnell. Mr McDonnell email’s subject line is “Fwd:NEW FAX” and states:

126. [172]

     Mr McDonnell’s signature bar on this email describes himself as “Consultant York Street Capital (Equity) Pty Ltd” and provides an address at Level 15 Goldfields House, 1 Alfred Street, Sydney and a mobile phone number.

127. [173]

     In his 3 February 2014 email to Greg Huxley, copying in Mr McDonell, Mr Meredith says:

128. [174]

     It seems that the matters raised in this email were not responded to given what was stated in Mr Meredith’s email of 3 November 2014 to Greg Huxley. I will return to this email chronologically in this exposition.

129. [175]

     On 19 March 2014 a repayment notice was prepared. It is unclear by whom but it may have been Rory McDonnell - addressed to Beechworth, “By email”, signed by Ms McDonagh requesting a drawdown of $20,000 against Ms McDonagh’s loan principal to be paid to the Bank of Queensland account.

130. [176]

     A caveat was prepared on 2 April 2014 (registered on 22 May 2014) by Vangory Holdings Pty Ltd signed by Vanessa Huxley as sole director and secretary claiming “a legal interest as Chargee over Mortgage AF 168070Y on the basis of a Loan Agreement dated 10 October 2013 between Vangory Holdings Pty Ltd and Beechworth”. [64]

131. [177]

     A document dated 2 May 2014 appears on its face to be an agreement between Ms McDonagh and Rory McDonnell for him to use lots 69 and 78 of Griffith “to arrange funds for me (Ms McDonagh) against each title…” and instructing him to set up a separate fund to ensure that she receives $1,500 per week.

132. [178]

     On 1 August 2014, a letter was emailed by Firths to Greg Huxley at “1group” at 4:47pm. That letter confirmed that Firths acted on behalf of Ms McDonagh and that she had provided them with a copy of Greg Huxley’s letter of 19 June 2014.

133. [179]

     Greg Huxley’s email to Ms McDonagh of 19 June 2014 reads as follows:

134. [180]

     External administrators were appointed to both Beechworth and Griffith on 14 July 2014.

135. [181]

     ASIC records indicate that there was a meeting of creditors of both Griffith and Beechworth on 24 July 2014. The ASIC records show that a person referred to as “John Batiste” is noted to have attended on behalf of creditors York Street Capital, (Rory McDonnell’s company), and McDonagh Management and Ms McDonagh at both the Griffith and Beechworth meetings.

136. [182]

     Subsequent correspondence between Firths and the Administrator (Mr Cussen of Deloitte) indicated that Mr Batiste had represented McDonagh Management pursuant to a proxy form signed by Rory McDonnell, at least in respect of the second meeting of creditors held on 18 August 2014. Whilst the letter from Mr Cussen to Firths (dated 5 November 2014) undertook to seek an explanation from Rory McDonnell as to how that happened given Firths assertion that this was done without Ms McDonagh’s consent or knowledge, there is no material in the tendered documents that reveals the outcome of that enquiry.

137. [183]

     Returning to Firths’ letter of 1 August 2014 to Greg Huxley, Firths requested his help to “try to secure their client’s funds that were lent through her superannuation fund and personally to Griffith and Beechworth”, stating:

138. [184]

     This was followed by a reply email from Greg Huxley at 5:25pm (less than an hour later). The email is reproduced in full:

139. [185]

     On 11 August 2014 Greg Huxley emailed Firths enclosing multiple documents that he said he had “collated”:

140. [186]

     There is a hiatus in the correspondence tendered between 11 August 2014 and 3 November 2014, other than Firths’ letters of demand on 22 August 2014 to Griffith and Beechworth respectively requesting repayment of the loan amounts in full plus interest exit fees and costs because of asserted breach of agreements.

141. [187]

     The Court file indicates that the originating Statement of Claim was filed on 23 October 2014 naming the first to tenth defendants.

142. [188]

     An email from Warner Meredith to Greg Huxley dated Monday 3 November 2014 at 2:12pm refers back to his February 2014 email:

143. [189]

     This is followed by a long list of documents signed by Ms McDonagh in November 2013 as well as Certificates of Title folio identifiers 67/1131234, 70/1121234, 75/1131234 and 76/1131234. Mr Meredith also mentions that, as he had stated in his February 2014 email, he never held 2/1131234 and 3/1131234, and he had recently returned 69/1131234 and 70/81113 1234 to Rory McDonnell at his request.

144. [190]

     He closed the email with this: “I await further instructions regarding the documents and registration”.

145. [191]

     At 2:27pm on 3 November 2014, Greg Huxley sent a response to Warner Meredith. The subject line stated: “Thank you – McDonagh matter” and attached something referred to as “140203115437 – 001 PDF” but what that attachment comprised is not clear. The email stated:

146. [192]

     On 7 November 2014 Greg Huxley emailed Firths stating that “Warner Meredith holds on behalf of Rory McDonnell the security documents. Do you want these collected and delivered to you?”, and noting “Rory McDonnell is away as his mother’s funeral is today. I will take steps to locate a copy of the SMSF and advise you who holds it and who provided the advice etc regarding that and the investment, and then revert to you”.

147. [193]

     An email from Firths on 13 November 2014 to Greg Huxley requested that the documents referred to be provided. About 17 minutes later Greg Huxley responded by email saying “I will take steps to uplift all material that is held by third parties.”

148. [194]

     On 21 November 2014 a Further Amended Statement of Claim was filed adding Gus Dib as the eleventh defendant.

149. [195]

     On 22 November 2014 Greg Huxley sent an email to Firths, headed “Your client McDonagh: Without prejudice and rights reserved”. That email sets out a series of assertions regarding alleged fraud perpetrated by an accountant, Salvatore Arcuri, against Beechworth in the period 22 to 26 November 2013. This email is difficult to follow and is full of assertions and cross-references to documents not attached to the copy of the email that was tendered. The letter purports to enclose police statements and other documents in relation to what Greg Huxley describes as “the fraud” against a Mr Taylor and Beechworth about which he asserts Mr Arcuri has been charged and is “before the court” on 2 December 2014.

150. [196]

     Because none of the supporting material referred to is included it is impossible to assess the relevance of these assertions by Greg Huxley. He says this in relation to Ms McDonagh in numbered paragraph 15:

151. [197]

     Other correspondence tendered reveals some wrestling over who should have possession of the various Certificates of Title relating to Beechworth and Griffith. This dispute seems to have been the subject of orders and directions in proceedings before the Commercial Division in this Court involving the Administrator, ASIC and others.

152. [198]

     On 28 November 2014 Firths wrote to Greg Huxley stating that “following on from discussions this morning” a timeframe in respect of the provision of the “two outstanding CTs” is required to be given by him, stating that:

153. [199]

     What this correspondence shows is that as late as November 2014, Firths were proceeding on the basis, it seems, that their clients’ security may still be proved, perfected and/or registered or was at least in the running with other creditors in circumstances where the companies to which Ms McDonagh had loaned money seemed to be mired in confusion.

154. [200]

     The plaintiffs tendered Deloitte reports to creditors dated August 2014 in relation to Beechworth and Griffith and sought to rely on that as evidence of insolvency of each of the companies as at November 2013, asking the Court, without evidence, to draw inferences or make assumptions about Beechworth and Griffith’s respective solvencies in November 2013 and what the defendants knew about that. As canvassed later in this judgment, that was a risky and problematic approach to take.

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

1. [201]

   The evidence in chief of Greg Huxley comprised his affidavit evidence sworn 4 October 2016. He described himself as director of both the ninth and tenth defendants, Vangory Services and Vangory Holdings, but only since April 2015. At the time material to the transaction in issue, his ex-wife Vanessa and the seventh defendant Jeffrey Dawson were the directors.

2. [202]

   He described the background to the Beechworth and Griffith projects as something he became aware of as an investment opportunity in October 2012. He says that he learned that Suncorp was the mortgagee of a number of properties in Victoria and was looking to sell its debt and security interests and that there was a similar opportunity in relation to some properties in Griffith to which receivers had been appointed and that he saw significant profit potential in these projects.

3. [203]

   He deposed to holding a belief that if these assets could be purchased at an acceptably low price, “we, that is my family, could sell the properties one by one or in small blocks to individuals; superannuation funds or investment clubs such as Home Corp and Members Alliance”. He says that he discussed these potential opportunities with his wife Vanessa and Jeff Dawson and investigated these as business opportunities and discussed them with Mr Spencer whom he described as “a real estate marketing agent” whom he had known for approximately six years.

4. [204]

   He described the arrangements as follows:

5. [205]

   He set out his dealings with Ms McDonagh in details as follows:

6. [206]

   Greg Huxley then outlined what he said was conduct by Mr Arcuri, Mr Photios and Mr Spencer which he described as fraud. It is somewhat unclear in this account exactly how it caused the cashflow issues at Griffith and Beechworth is not fully explained. He said that this activity was a prompt for Vangory Holdings and Vangory Services as secured creditors to appoint voluntary administrators to Beechworth and Griffith in July 2014. I observe that the Deloitte S439A reports for both Griffith and Beechworth dated August 2014 confirmed that the corporate records showed shareholder and directorship disputes at Beechworth and offered the opinion that these matters probably had the effect of disrupting the sales campaign and caused cashflow problems at both Beechworth and Griffith.

7. [207]

   There were legal proceedings in the Supreme Court which according to Greg Huxley were “commenced by Photios, Spencer and others”. He says that the proceedings were discontinued in February 2015 by “them”, and by other plaintiffs in May 2015. It is unclear if the proceedings relate to both Griffith and Beechworth.

8. [208]

   He stated that in June 2016, the voluntary administrators of Griffith were appointed liquidators of that company and that he understood that after the remuneration of the voluntary administrators/liquidators were paid, there would be no return to creditors and that at that stage his “own family had lost in excess of $3 million in relation to Beechworth and Griffith”.

9. [209]

   He deposed to Beechworth remaining in administration at the time he swore his affidavit, and that the current position was that the administrators have sold the large subdivided Beechworth lot and some other lots and that 22 lots remained unsold and that he could not say whether there will be any return to creditors of Beechworth after the secured creditor, BAD Nominees, is paid out and the administrators fees are paid.

10. [210]

    He specifically disputed a number of things said by Ms McDonagh in her June 2016 affidavit. He said that based on what his wife told him, he understood that Ms McDonagh had an accident but he was not told what injury she suffered “or what disability she continued to be under”. He says that he knew that she had received a compensation settlement but had not been told any details about the settlement but assumed it was due to her accident.

11. [211]

    He said he had met her on three or four occasions and on those occasions she did not display any sign of disability. He said that at least once she told him that she felt tired and had headaches as a result of her accident. In terms of work she told him that she had gone back into business with her former husband in the real estate agency but he had “ripped her off” but he did not hear the details. She did not seem to be suffering from any mental disability and the conversations he had with her were “quite normal”. He stated:

12. [212]

    I interpolate here that taken at face value, there seems to be a slight tension between this description and what he said in his 5:25pm email to Firths on 1 August 2014:

13. [213]

    He recollected only two occasions he went away with his wife since their honeymoon in 2002, and he thinks only once did Ms McDonagh stay in their house and look after their children.

14. [214]

    He deposed to not being aware of the exact settlement amount, but knew there was at least $600,000 in the days before her superannuation fund was set up. He denied that he kept his bankruptcy secret from Ms McDonagh. He says that he never spoke to Ms McDonagh about what investment return she might receive on the amount of $600,000, or that he would arrange to invest it, or that she should not put it in the bank.

15. [215]

    He denied that he gave her any recommendation about Rory McDonnell’s abilities but admits that he put her in touch with Rory McDonnell. He recalled having coffee with her and Rory McDonnell at a coffee shop in Concord having been invited there by Rory McDonnell. He says this occasion was just after Ms McDonagh told him about depositing the money with the Bank of Queensland and it was clear to him that she and Rory McDonnell had discussed matters and he described the occasion as “purely social, essentially Rory McDonnell thanking me for introducing Ms McDonagh to him”. (I interpolate that this seems to be at odds with par 36 of his affidavit where he said he had obtained Certificates of Title from the “the outgoing lenders” to the “properties that were to be provided as security” and took them to the meeting).

16. [216]

    He denied that he ever explained anything about the investment to Ms McDonagh and denied that he ever told Rory McDonnell that he had given any explanation to Ms McDonagh and denied that he ever said he was going to arrange a lawyer for her or that he had any discussion with Ms McDonagh or Rory McDonnell about arranging a lawyer for her.

17. [217]

    He said that in respect of the documents, apart from receiving the drafts from Adam and passing them on to Rory McDonnell and possibly Ms McDonagh, he had no involvement in negotiating them or drafting them. He says that he first saw the documents relating to the superannuation fund and McDonagh Management after the proceedings were commenced, and that he saw some of the executed loan documents relating to Beechworth and Griffith “in mid 2014 after the issues in relation to governance of Beechworth and Griffith arose”.

18. [218]

    He said that Dib Lawyers drafted the transactional documents, but they were acting for the borrowers from Ms McDonagh, not for Ms McDonagh.

19. [219]

    He says that Ms McDonagh called him “after the time that Photios and Spencer had taken control of Beechworth and Griffith” to complain about payments of interest not being made and he says that he explained what Photios and Spencer had done and said that he would do his best to try and help her out.

20. [220]

    His recollection was that at the time of the transactions in November 2013, he suggested that she seek advice and that Ms McDonagh had told him that she had a daughter who was a lawyer. He denied ever saying that Dib Lawyers were acting for her, or were there to “protect her”, because he was aware that Dib Lawyers acted for the borrowers. He was aware that Dib Lawyers would have been in a conflict if they also acted for Ms McDonagh.

21. [221]

    He denied ever making any statement to Ms McDonagh about what returns she would receive.

22. [222]

    He says that after he investigated the position in mid 2014, he became aware that Ms McDonagh had been paid 90 days interest in advance on the loans and that all payments had been made up to April 2014. (I note that this does seem to be borne out by the Commonwealth Bank records [66] as the plaintiffs were due $6,000 per month and this seems to have been paid to her or paid on her behalf, up to a little over $32,000 by April 2014).

23. [223]

    Mr Huxley says that in January 2014, he met Ms McDonagh and her daughter on holidays at Hamilton Island and that they socialised and had dinner together and that in a general discussion she thanked him for the introduction to Rory McDonnell and said that she had received her interest and that that had paid for the holiday.

24. [224]

    He denied that he told Ms McDonagh that Beechworth and Griffith had gone into administration because by July 2014, they were not speaking to each other.

25. [225]

    Despite the assertions in the affidavit that he had in effect no role in the transactions, the emails appended to it, on one analysis, suggest an active role was performed by Greg Huxley in at the very least facilitating the loans by Ms McDonagh to Beechworth and Griffith. This role appears to be more than just “friend and messenger” as his counsel suggests was the case. [67]

26. [226]

    There are two emails from Greg Huxley that centre on general financial matters and the Self Managed Super Fund. The first is dated 11 November 2013:

27. [227]

    The second is dated 12 November 2013 and stated:

28. [228]

    Third, there is a short email dated 14 November 2013 from Greg Huxley to McDonagh at 8:06am:

29. [229]

    Fourth, there is an email from Rory McDonnell to Sharon McDonagh cc’ing Greg Huxley dated 18 November 2013 at 7:36pm:

30. [230]

    Fifth, there is a reply from Greg Huxley 10 minutes later:

31. [231]

    Greg Huxley says on 27 November 2013 or possibly a day before that, Rory McDonnell contacted him stating that Ms McDonagh had agreed to lend money to Beechworth secured over Griffith and that he would have Dib Lawyers prepare the documents. He did that and forwarded them to Rory McDonnell when received on 28 November 2013.

32. [232]

    Sixth, there is this curious exchange between Rory McDonnell and Greg Huxley at 7:05am on 29 November 2013 which Greg Huxley fails to refer to at all in his affidavit:

33. [233]

    Seventh, although not attached to his affidavit there is the undated “Checklist” tendered in the plaintiffs’ case that seems to give directions about payment on settlement. Greg Huxley said in cross-examination that he prepared it. [68] The checklist seems to evidence a detailed level of knowledge and some direct involvement in the transaction as well as plans for exchange of cheques and documents and who will retain them, but nothing about registration of documents:

34. [234]

    ANZ Bank records show a telegraphic transfer receipt dated 29 November 2013 at 14:19pm from “Sharon McDonagh to SNZ Holdings Pty Ltd” in the sum of $200,000 titled “Griffith Settlement”. [70] The timing of payments to identified recipients from the $400,000 loan to Griffith are set out in Bank of Queensland records [71] and appear to be timed at between 3:31pm to 3:56pm on 29 November 2013 and are each titled “Griffith settl SMD”.

35. [235]

    There is no other correspondence in evidence between Greg Huxley and Rory McDonnell until the February 2014 exchange referred to in par 173 of this judgment, where Warner Meredith emails Greg Huxley and Rory McDonnell in response to documents provided to him “on Saturday” by Rory, in which he outlines problems he sees with those documents.

36. [236]

    Short oral evidence was led from Greg Huxley with leave, about his understanding of the value of the sale of various allotments in the Griffith and Beechworth holdings. This evidence consisted of a broad outline of the proposed approach to selling the allotments owned by Griffith and Beechworth and therefore, potentially, the expectations surrounding the wealth and solvency of those companies as at November 2013.

37. [237]

    Mr Huxley said that the plan in relation to Beechworth was a three stage development with a mortgage over all the stages to arrange funding to enable the complete development of stage 2. He had a firm recollection that Beechworth had acquired the mortgage on 2 February 2012. [72] He explained that in addition to the 13 lots that comprised stage 1, there was an additional 26 lots in stage 2. He said that the stage 1 sales were between $117,000 and about $125,000 and took place between June 2012 up to December 2013 or January 2014 and that the lots in stage 2 were sold for at least $120,000 per lot, and those sales took place between July 2013 and December 2013. Stage 3, however, with the completed houses on the allotments, was not sold whilst he was involved with Beechworth and instead was sold subsequently by the Receivers, “in globo”.

38. [238]

    His understanding of this situation was based on him seeing copies of sale contracts at certain times in his role as director of the Vangory companies. In that role he had to consent to settlements engaged in by the liquidators and consent to the partial repayments these companies received as mortgagee.

39. [239]

    In respect of Griffith, Mr Huxley explained that Griffith acquired the first mortgage security interest with the secured property comprising 59 completed residential lots. He said that he believed that Griffith acquired the first mortgage interest over those lots in August 2012. [73]

40. [240]

    The project had initially comprised over 80 lots and approximately 30 of them were sold by a company known as Valencia Grove Estates for amounts exceeding $120,000 per allotment. Mr Huxley explained that he knew that, because first, he was told in response to direct enquiry to the CEO of Equititrust Ltd, second, he was told that by a third party he made contact with, Joe Presier, who was the former managing director of Valencia Grove who marketed the properties, and third, by online enquiry through real estate.com.

41. [241]

    The information he obtained suggested that these sales had taken place “in the period 2008 to about 2010, and then the subdivision lay dormant under the control of the Equititrust for close enough to two years”. [74]

42. [242]

    He explained that Mr Spencer had negotiated an arrangement with Homecorp, a Queensland entity, for the house and land packages to be sold to investors and that he had also negotiated with a builder called Hadar Homes to build houses on the land packages. He understood that Mr Spencer himself acquired six allotments.

43. [243]

    Mr Huxley’s understanding of the value of the sale prices was limited to awareness of one of them being settled at either $90,000 or $95,000, but that the others went down a different path because Mr Spencer was placed under the control of the Trustee in Bankruptcy and the mortgagee, for whatever reason, would not settle the other sales contracts in relation to the other five allotments.

44. [244]

    Mr Huxley’s recollection was that the lot that settled was settled between August and October 2014.

45. [245]

    Mr McNally SC briefly cross-examined on behalf of the Dawson parties. Mr Huxley agreed that Ms McDonagh “seemed quite confused during her evidence” and agreed with the proposition that she “appeared to be unable to give a responsive answer to many many questions”. He agreed that he spoke to her reasonably regularly in November 2013 and said that she appeared to be a “completely different person” then, to her appearance in the witness box:

46. [246]

    Mr McNally then asked some clarifying questions about the sale of the Beechworth lots. Mr Huxley said that it was his recollection that all bar two lots in stage 1 were sold - that would be 11 lots - and that they had settled. He based that on a recollection that one lot had a partially completed house on it which was subsequently in the hands of the receivers, and that there were a handful, maybe 34 lots, in stage 2 because that subdivision had just been completed under Mr Spencer’s control. Mr Huxley concluded that it might be 15 or 16 blocks in total being a small number in stage 2 and just about all of stage 1 had been sold during the period 2012 to December 2013.

47. [247]

    He further explained that stage 1 progressed basically in accordance with the marketing plan that Mr Spencer had prepared, but that stage 2 had started slower because there was a delay in completing the subdivision. Once that had completed, sales progressed in accordance with his understanding of the plan. The subdivision was not completed until July 2013. He explained that subdivision works differently in Victoria to New South Wales because bonding has to be put in place of “a couple of hundred thousand dollars” before they will release the titles.

48. [248]

    In further explanation to why the sales ceased due to other events, he explained that was because Beechworth was “illegally hijacked” by Salvatore Arcuri and James Photios and the ASIC portal for the company was illegally accessed by Mr Arcuri who perpetrated a misappropriation of funds against Beechworth and that there were legal proceedings before Rothman J about that. [76]

49. [249]

    Mr Lloyd then cross-examined in respect of the Dib parties in an effort to clarify the position regarding the documents sent by Adam to Mr Huxley in response to his 28 November 2013 email request. Mr Huxley was shown the bundle of documents [77] which comprised the email from Mr Huxley to Adam and Adam’s response the following morning which appended the documents listed in par 163 of this judgment, stated in the attachments parts of the email as “PDFs”.

50. [250]

    He was asked:

51. [251]

    It is evident that Exhibit GDI, the bundle of documents sent by Adam on 28 November 2013, does not include any documents in regard to Beechworth.

52. [252]

    Mr Goodridge then cross-examined over a number of days. Unfortunately the level of generality of many of the questions posed introduced confusion rather than clarification. What follows is what seems to me to be the relevant cross-examination and relevant responses by Mr Huxley that are germane to the issues I need to determine.

53. [253]

    It was put to Mr Huxley that he was a Chartered Accountant. He said that was not correct but stated that he completed the examination course with the Institute of Chartered Accountants in 1973 and had worked in the capacity of an accountant for his family companies.

54. [254]

    From 1973 to 1981 Mr Huxley was Finance Director of Huxley Homes, a shareholder in the company and financial controller for the business with an accounting staff of 10 to 12 people. [79]

55. [255]

    From 1981 to 1988 he maintained a business that was involved in construction with an employed accountant. He owned a stockbroking firm for a period, not working as an accountant but would occasionally oversee and look at figures and analyse them but had accountants working for him up to about 2012.

56. [256]

    Mr Huxley said that after 2012 he only did accounting in relation to his own family companies but some of that accounting was also done by practising accountants. He described the family companies as “primarily Vangory Holdings and Vangory Services”.

57. [257]

    Mr Huxley agreed that there were other “family companies” or at least companies in which his family had an interest. One of those was First Adventure Ltd for which he did no accounting work and did not regard that as a family company. There were a number of subsidiaries through First Adventure.

58. [258]

    The Vangory companies had an interest in an AFS held entity called One Group Capital and a beneficial interest in a company called Rockliff Ltd, a financial services company operating out of Hong Kong. It also had 50% shareholding in a company called Gladstone Mortgagee which had acquired a mortgage over a property interest in Gladstone.

59. [259]

    Mr Goodridge put to Mr Huxley that Vangory Holdings and Vangory Services were companies where the benefit “flowed through to the family through trust arrangements” to which Mr Huxley replied “No, that’s not correct”. When the question was re-put after a discussion as to the parameters of the pleadings and to what extent, if at all, the pleadings allowed the proposition to be put, this series of questions and answers followed:

60. [260]

    Mr Huxley explained that Vangory Services provided the funds to Griffith to purchase the mortgage interest from Equititrust which at that stage held a first and second mortgage interest over the Griffith properties.

61. [261]

    He acknowledged that on 24 November 2013, Vangory Services entered into a formal loan agreement with Griffith which was associated with a General Security deed, although he could not remember the amount of the security, but thought $1.192 million “sounded about right”.

62. [262]

    He clarified the position [81] that Vangory Services “had started to advance funds to Griffith Estates and by 24 November 2013 it had aggregated to $1.192 million” and so at that stage the Deed was entered into.

63. [263]

    Mr Goodridge then proceeded to examine Mr Huxley in respect of a Deloitte report which set out its understandings of the financial circumstances in respect of Griffith in August 2014. This report included the assertions of a number of unsecured creditors, including the Chief Commissioner of State Revenue and an entity called PSA Pty Ltd, both of whom had lodged caveats in respect of money they assert that they were owed.

64. [264]

    Questions were asked about other people and corporations appearing in the Deloitte report, including a Mr Batiste and Mr Bounader. He noted that Mr Batiste and Mr Bounader, appeared, according to the creditors report, not to have provided any documents in support of their claim. Mr Boundader was a sales manager and Mr Huxley said that he assumed the claim was for expenses and/or commissions, but he was unable to say whether the sales related to the claim took place before 29 November 2013 or not.

65. [265]

    There was further examination about other unsecured debts asserted to be owed to Dib Law. He was asked why Dib Law would be owed $165,000, and he responded that as the Deloitte report points out, there was no documentation to support that claim and he did not know what basis there would be for any such claim.

66. [266]

    He specifically did not agree that all those monies referred to in the Deloitte report were owing as at 29 November 2013.

67. [267]

    In respect of money said to be owed to Batmore Securities, he said that was a company associated with John Batiste and his recollection was that that company was a secured creditor.

68. [268]

    He was unable to say whether or why money was owed to York Street Capital, (Rory McDonnell’s company) or Hadar Homes.

69. [269]

    He was asked about an assertion in the Deloitte report that Gus Dib was owed $4 million. He said that he simply could not explain that, and in the absence of a proof of debt and any supporting documents, Mr Dib also appeared not to be able to explain it. Mr Huxley said that he was not aware of any such debt.

70. [270]

    Mr Huxley agreed that shortly after incorporation, Griffith borrowed $1.77 million and acquired as an asset 59 lots at Griffith and the plan “and process” was to recoup the $1.77 million as the lots were sold and if all the lots were sold as planned, Griffith would have made a profit. By November 2013 some blocks of land had been sold and there were 46 blocks left.

71. [271]

    It was put to Mr Huxley bluntly that Griffith was “hopelessly insolvent” as at 29 November 2013. That proposition was put, it seems, based on the claims asserted in the Deloitte August 2014 report. Mr Huxley responded that that was “absolutely incorrect”. Mr Goodridge also put that what the Deloitte report showed is that “Griffith had gone dramatically backwards since originally owing $1.77 million in that it now owed between $3 and $7 million” which Mr Huxley rejected, describing the proposition as “wildly inaccurate”.

72. [272]

    Mr Huxley denied that creditors were “pressing for unpaid bills” and that as at November 2013 he was “juggling funds to creditors to try and find money to pay bills”. He also flatly denied the proposition put to him that at that time he was “financially desperate”. [82]

73. [273]

    Turning to Beechworth, Mr Huxley agreed that the company was incorporated in 2012 and that 95 of the 100 shares were owned by Rockliff on trust for Vangory Holdings. He did not agree that Rockliff’s 95% shareholding in Beechworth was “in trust for Vangory Holdings, which in turn held though shares in trust for the Huxley family”.

74. [274]

    There were some questions regarding his dealings with his son Adam. Mr Huxley said that he had been estranged from him for three years and that he had last spoken to him in August 2014 and his relationship with Adam in November 2013 was “professional only”.

75. [275]

    He said that any trust related to Rockliff was in the form of a discretionary trust, the beneficiaries of whom would be the youngest four of his seven children.

76. [276]

    Mr Huxley was then taken to the August 2014 Deloitte report for Beechworth. He denied that there was a valid claim by First Debenture for a principal loan of $3.282 million in place in November 2013. He disputed Mr Goodridge’s proposition that the entire realisable value of the assets of Beechworth as of November 2013 was only $2.2 million and the company had an excess of liabilities over assets, even before considering the interests of unsecured creditors or caveat holders’ interests.

77. [277]

    Mr Huxley pointed out that there was a number of problems with the assumptions Mr Goodridge had made, including that Mr Dean was not owed $1.4 million in November 2013 because by 29 November 2013 he had been repaid over $1 million of that debt.

78. [278]

    He agreed that based on what was said in the Deloitte report, by August 2014 Beechworth’s secured interest holders “appeared” to be owed $4.360 million, but he would not agree that secured interest holders as of November 2013 were in fact owed approximately $4 million, although he conceded that was what the Deloitte report “tended to show”.

79. [279]

    The Deloitte report also referred to unsecured creditors, Mr Batiste and Mr Bounard, and CMEA Pty Ltd, a superannuation fund he understood was set up by a Mr Taylor and his wife.

80. [280]

    Mr Huxley did not agree that “mere days” before Ms McDonagh’s transaction, Mr Taylor, through CMEA, provided a sum of money to Beechworth stating that he became aware on 1 December 2012 (no doubt this should be a reference to 2013) that Mr Arcuri had “misappropriated Mr Taylor’s money and it was never received by Beechworth”.

81. [281]

    He did not agree that “EDM Group” were owed $3,000 as at 29 November 2013. He described the $165,000 to Dib Law referred to in the Deloitte report as a “copycat figure of the Griffith amount” and repeated that he had “no idea what that was about”, although he agreed that Dib Law did legal work for both Beechworth and Griffith separately. He was unable to say whether some work was done before 29 November 2013 or not and he did not know the amount of work done.

82. [282]

    In terms of an amount of $121,000 stated as owed to Hadar Homes, Mr Huxley said that he thought that was part of an arrangement by Mr Spencer with Hadar Homes to build an exhibition home on one of the lots that was substantially completed around this time, but he was not able to say whether it was owing before 29 November 2013 or not.

83. [283]

    There were other unsecured amounts referred to in the Deloitte report and Mr Huxley was unable to say whether they were correct, or when they were incurred.

84. [284]

    He had “no idea” as to the origin of Mr Dib’s claim noted on the back page of the Deloitte report for $4 million, and responded again that he thought that “Mr Dib doesn’t know”, given that there was no proof of debt provided, stating that there was no $4 million owed by Beechworth to Mr Dib that he was aware of.

85. [285]

    Mr Goodridge suggested to Mr Huxley [83] that the realisable assets of Beechworth were only $2.2 million but there was an excess of liabilities over assets, to which Mr Huxley responded that the $2.2 million figure was not correct, and that he would not agree that Beechworth was “hopelessly insolvent”, and he would not agree that they were being “pressed by creditors”, describing that assertion as “absolutely incorrect”.

86. [286]

    Mr Huxley was examined regarding the loan between Griffith and Benitch which had a very high interest rate and was taken out in 2013. He was asked why he had not produced a copy of the loan documents about that loan. He replied that he must not have had a copy of it, and if he had ever had a copy he would have provided it to Deloitte in July 2014. (This loan document was later called for and was tendered in re-examination. It is evident also that this loan was paid out in November and was one of the disbursements at settlement of Ms McDonagh’s loan to Griffith).

87. [287]

    Mr Huxley was then asked about his relationship with Ms McDonagh and it was put to him that he knew since mid-2011 that she had suffered from “some level of mental impairment”, a proposition that he denied.

88. [288]

    He denied recalling that she “struggled to recall details of events” when he talked to her between mid-2011 and November 2013, or that, “she, when speaking, clearly would get stuck in her thoughts and go blank.” It was put to him that Ms McDonagh “regularly had mental blocks” to which he replied: “I don’t know how I’d know that, but no” and that he did not know that she had difficulty with memory, organisation, word finding, thinking or thinking speeds.

89. [289]

    He explained that his involvement with financial matters and helping first occurred in 2011 when he was asked to help her with problems paying school fees and liaising with solicitors when she was facing bankruptcy and that he helped her with doing a Part 10 Scheme and offered to speak to others to help her. Then, in 2013, he was asked by his wife to help Ms McDonagh in respect of money she wanted to put into a superannuation scheme with her being under the impression that she would be penalised if she did not invest by a certain date. He said that he did not know at that time that she had received money, as it turns out, 90 days before that time, but he knew that she had an amount that she said she needed to get into a superannuation fund.

90. [290]

    He denied ever suggesting to her that the money should be put in a superannuation fund or that he is the one who told her the money needed to be invested “urgently”. He denied that he is the one who said if she did not put money into a super fund by 13 November 2013 that there would be tax problems.

91. [291]

    He was asked questions about her presentation in court, but contrary to the clarity with which propositions were put to him by Mr McNally SC when he examined on this issue, the propositions were put in a way that made it difficult for them to be accepted:

92. [292]

    Mr Huxley was next cross-examined about his email of 11 November 2013 set out in par 226 of this judgment and he explained that she was “embarrassed”, as he saw it, because she had left things so late, noting specifically that she can “put the brakes on and ask questions”. He said that he in no way thought that Rory McDonnell “had to set up the bank account because she did not have capacity to set up her own bank account”. His understanding was that Ms McDonagh was working part-time with real estate agents and that she was keen for a superannuation fund to be set up and that she would set up a bank account at the same time with a view to getting the best interest rate on her money.

93. [293]

    In short, Mr Huxley denied that he had anything to do with the setting up of the super fund other than referring her to Rory McDonnell to help her get his done. He had never dealt with Mr Trovas, the accountant who set up the fund, and that he understood the CPA regulations required a statement of advice to be given on the establishment of a self-managed super fund but that he does not know what Mr Trovas did in that regard.

94. [294]

    He said that he had a belief that between 27 and 29 November 2013 Ms McDonagh attended on her daughter Kate and received independent legal advice consistently with what he recommended her to do - that is, to get legal advice.

95. [295]

    Mr Huxley was asked questions about his 13 November 2013 memo in which he “encouraged” Ms McDonagh to ensure that her Self-Managed Super Fund was set up so she could roll the capital into the account by 13 November 2013, and he said that was because of what she had told him about the importance of that date. He said that at that point she had not been to the accountant and she was discussing investing money in a “whole raft of things” and he was reminding her that the important thing was to meet the deadline of 13 August 2013 and to get to the accountant and get the super fund set up and that second, she ought to buy herself a unit of her own, and that no matter what she did with her superannuation, she should hold back an amount to pay a deposit on a property. Mr Huxley emphasised that he had said that from the start because he believed that her income from her super fund could service a loan for a property. [85]

96. [296]

    Mr Huxley also pointed out that he had advised her to go to the Real Estate Institute and reactivate her license.

97. [297]

    Mr Huxley was concerned about the high rent Ms McDonagh was paying [86] and therefore told her it would be better if she purchased her own property.

98. [298]

    He explained that what he said in the 11 November 2013 email about being “confident that Mr McDonnell could get her a deal” meant that if she made an election to buy a unit, Rory McDonnell will get the best low doc loan deal that was available.

99. [299]

    He denied that there was any “hiding” of involvement in Griffith and Beechworth on the part of he and Rory McDonnell and denied that in saying in this email:

100. [300]

     He denied that this memo was “setting up things” so that the money could be directed into Beechworth and/or Griffith and/or to the defendants. He denied that the only reason he was giving her advice was so that he could access her money for Beechworth and Griffith stating:

101. [301]

     Mr Huxley said that by June 2014 Ms McDonagh had been advanced $40,000 including money from himself because at that stage he was concerned that the company had been “hijacked” and he had by that time engaged Kent Attorneys to assist in relation to that and to make complaints to police and ASIC. He also said that by April 2014, he was himself considering requesting the appointment of external administrators.

102. [302]

     He said that there was a four-year court case over issues between Vangory Holdings, Vangory Services and Rockliff.

103. [303]

     In respect of his June 2014 email set out in par 179 of this judgment he was asked:

104. [304]

     He was further examined about the June 2014 letter where the subject of the first mortgage on Beechworth was introduced:

105. [305]

     He was then examined about the extent to which this letter indicated that he had in fact disclosed to Ms McDonagh his connection with Beechworth:

106. [306]

     Mr Huxley was further examined about the part of the 25 June 2014 letter where he suggested a letter of demand should be sent to Griffith and/or Beechworth in early 2014:

107. [307]

     There was questioning on whether the assertion that Ms McDonagh held “first mortgage security” was truthfully made or not:

108. [308]

     Mr Huxley denied that he introduced Rory McDonnell as a financial advisor but said he “didn’t recall his exact words”, although “they may have been the words he used”. He knew that Mr McDonnell had a Bachelor of Agricultural Science and he understood that Rory McDonnell did not hold an Australian Financial Services licence.

109. [309]

     Mr Huxley asserted that he had no part in advising Ms McDonagh to lend money to Griffith or Beechworth and, as stated in his affidavit, Rory McDonnell rang him on 27 November to say that Ms McDonagh had agreed to lend money to Beechworth secured over Griffith:

110. [310]

     He rejected the proposition that there was a “scheme” being implemented to obtain Ms McDonagh’s money and that Rory’s role was to act as the independent financial advisor and that Mr Spencer’s role was to act as wealthy guarantor. It was put to him that the three of them had “discussed in detail each of the roles that they would play”. He rejected that completely.

111. [311]

     In terms of the assertion in Rory McDonnell’s email that Peter Mitchell will need to change the directorship from him to Mr Spencer, Mr Huxley said that he believed Mr Spencer may have contacted Mr Mitchell:

112. [312]

     Mr Huxley was taken through the checklist document which he agreed he prepared which included an instruction that the borrower should pay $3,000 to Ms McDonagh and $15,000 to her superannuation fund. I interpolate here that the inference seemed to be, that the fact that the interest in advance was deducted from the settlement sum suggested some kind of inability to pay the money from another place. I would not draw any such inference.

113. [313]

     Mr Huxley did not dispute that the brochures regarding the projects may well have been the “promotional material” referred to in the checklist documents provided, and his recollection is that he obtained that material from Mr Spencer to give to Ms McDonagh.

114. [314]

     It was put to him [95] that that material was put into the binder as part of the plan to encourage Ms McDonagh into the transactions, to which Mr Huxley replied that he understood that she had already decided to proceed when she asked for that material.

115. [315]

     It was put to him that Beechworth and Griffith were “incapable of making payments from the beginning”. He rejected that proposition.

116. [316]

     It was asserted that the amount of $154,000 to Vangory Holdings meant that there would be a benefit accruing to him but he rejected that, and rejected an assertion that “his family” would benefit from that. It was also put to him that Rory McDonnell’s true role was as “introducer” and as such he would be entitled to a brokerage fee and so it was a “pretend role”, to pretend to be the financial advisor to Ms McDonagh. That assertion too was rejected.

117. [317]

     It was suggested that although the directors of Vangory Holdings and Vangory Services at the relevant time were Vanessa Huxley and Mr Dawson, those directors acted at his direction. This too was rejected.

118. [318]

     I interpolate here that any suggestion that those companies were a puppet for Mr Huxley is not a proposition that should have been put to Mr Huxley given that no such allegation had been pleaded.

119. [319]

     Mr Huxley explained why a caveat was lodged in respect of Beechworth by Vangory Holdings in May 2014 as follows:

120. [320]

     In terms of his involvement around 28, 29 or 30 of November 2013 speaking to Mr Dib or Adam, Mr Huxley said that he did not speak to Mr Dib at all and “at best had one conversation with Adam, a brief one after I sent the detailed memorandum”.

121. [321]

     Questions were asked about the caveat prepared for lodgement over Beechworth and much was made of an assertion that Adam and Gus Dib “denied” creating the document in their Defence.

122. [322]

     This is not in fact an accurate reflection of the Defences which simply put in issue by denying the rolled up allegation that the caveat was created by Adam or Gus Dib and that folders of documents were presented by them to the plaintiffs. In respect of Gus Dib, the plaintiffs have not shown that he created it Adam may have created it, and it certainly appears he attached a “draft” caveat to his email of 11:16am on 28 November 2013 by Adam to Greg Huxley. The email and attachment is not in evidence so it is unclear precisely how the “draft” appeared at the time. The final version of the caveat has additional handwriting on it, (apparently belonging to Ms McDonagh).

123. [323]

     Mr Huxley was asked whether he “really believed” as at 19 June 2014 that Ms McDonagh had a first mortgage security over the Griffith properties and he responded that he did believe that. He rejected the proposition that just because the Office of State Revenue had filed a caveat, that this meant that Ms McDonagh “did not have any security” over those properties.

124. [324]

     In respect of Beechworth it was put by Mr Goodridge that Beechworth was “not even the registered proprietor or the mortgagee of the land in Victoria”, to which Mr Huxley responded that he believed that that title was available, and that he had been provided with a schedule of titles that were available by Mr Spencer, and was informed that the title deeds were held and that is what he in fact delivered to Rory McDonnell.

125. [325]

     It was again put to him that Griffith and Beechworth were insolvent in November 2013 and he again rejected that proposition.

126. [326]

     In re-examination, Mr Huxley explained why he rejected the proposition that Beechworth was “hopelessly insolvent” by 28 November 2013:

127. [327]

     Mr Huxley also explained why it was incorrect to say that Griffith was insolvent on 28 November 2013:

Submissions, evaluation of evidence and factual findings

1. [328]

   The written submissions relied upon by the plaintiffs suffer from the same problems as their pleadings. They are prolix, repetitive, unfocused and full of generalities. It is not feasible or useful for me to address every argument and inaccuracy contained within them. There are inaccuracies of law and inaccuracies of fact. There are submissions not based on the evidence and not based on counts or facts that have been pleaded. I will extract the relevant arguments as I understand them and deal with them as succinctly as possible.

2. [329]

   Second, I will outline the submissions of the active defendants under the headings the Dawson parties, the Dib parties, and the Huxley parties.

3. [330]

   Third, I will set out my factual findings based upon the evidence that I have accepted.

4. [331]

   Fourth and finally, I will deal individually with the 22 counts pleaded and decide whether and in what respects any of them have been made out and the reasons for my conclusions.

5. [332]

   It is the plaintiffs’ position that they were deceived by a single scheme. Each defendant performed a role in the scheme. The transactions were unconscionable when considered on their own, independently of any question of personal disadvantage on the part of Ms McDonagh.

6. [333]

   Greg Huxley, Gus Dib and Adam prepared the documents that purported to provide security that was not in fact provided by the documents. Those three men also “proffered” the documents. Every defendant was party to the preparing and proffering of the documents and thus was accessory to their preparation and proffering.

7. [334]

   This comprised misleading and deceptive conduct by Greg Huxley, Adam and Gus Dib. Every defendant was an accessory to that activity.

8. [335]

   Every defendant knew that the arrangements were unconscionable because of Ms McDonagh’s special disadvantage and so were all knowingly accessories to the unconscionable conduct of Greg Huxley, Rory McDonnell and Mr Spencer.

9. [336]

   Separately, Greg Huxley and Mr Spencer are liable to the plaintiffs for deceit and exemplary damages.

10. [337]

    The special disadvantage was said to arise based on, in particular the June 2012 report of a neuropsychologist, Sarah Lucas, to the effect that Ms McDonagh had memory problems, organisation problems, word finding difficulties, thinking speed problems, headaches, anxiety, panic attacks, loss of confidence and emotionality.

11. [338]

    There seems to be an assumption that all of those problems were continuing to operate upon Ms McDonagh in November 2013, although why the Court should reach that conclusion has not been stated. How these difficulties were said to be known by or manifest to the (lay) defendants was not stated. The basis upon which that combination of problems was said to satisfy the legal definitions and/or discussion in the authorities that deal with “special disadvantage” has not been stated.

12. [339]

    A general submission was made that the unconscionability upon which the plaintiffs rely falls into the category of conduct frowned upon by the Full Court of the Federal Court in Paciocco v ANZ (2015) 236 FCR 199; 321 ALR 584; [2015] FCAFC 50 at [296] per Allsop J in that it was a “scheme” comprising commercial dishonesty, trickery and sharp practice and that Greg Huxley “callously influenced” his friend to enter into the “scheme”:

13. [340]

    In respect of Beechworth, it was argued that because the mortgage interest formerly held by Beechworth had been discharged on 12 November 2013 and the property sold to BLE Properties with a mortgage to Fundco, Beechworth had no interest in the property and so no caveatable interest and nothing over which security could be given.

14. [341]

    Second, it was argued that the Deed of Loan to Vangory Holdings on 10 October 2013 was an “egregious transaction” although why it is described as egregious is not adequately explained. Complaint was made that the loan was registered on the PPSR in January 2014 and so although unsecured in November 2013, ended up prevailing over Ms McDonagh’s interests.

15. [342]

    It was submitted in relation to Mr Spencer that the breach of guarantee was made out by virtue of the application of r 14.26 UCPR and that this meant all allegations against Mr Spencer had been admitted, including an admission that his Statement of Financial Position was false and misleading.

16. [343]

    I interpolate here that the claim for breach of guarantee was in effect withdrawn by the concession made by Mr Goodridge on 20 June 2018 that the plaintiffs could not pursue any claim for breach of guarantee against Mr Spencer because they did not have leave under the Bankruptcy Act to pursue such a claim. [100] I also interpolate that the effect of r 14.26 UCPR, which is simply a rule dealing with traversal in pleadings, in no way removes from the plaintiffs the responsibility to prove allegations they make in their pleadings to the requisite standard, by evidence led or tendered in the proceedings, in respect of the unconscionable conduct and other conduct alleged on the part of Mr Spencer and indeed, any of the defendants.

17. [344]

    The plaintiffs submit, based, it seems, upon the subsequent bankrupting of Mr Spencer in April 2015, that the Court should infer that as at November 2013, he was in a financial position that does not reflect the matters set out in his Statement of Assets and Liabilities. That is not an inference I am prepared to draw.

18. [345]

    The plaintiffs also submit that because the conditions precedent to the loans were not satisfied by Beechworth and Griffith, this too somehow provides a basis for liability or a finding of unconscionability on the part of all the defendants. I hasten to add that despite the repeated mention of conduct by Beechworth and Griffith as problematic, obviously Beechworth and Griffith are not parties to the proceedings. Equally obviously, a breach of contract case against Beechworth and Griffith would have substantial merit however that is not the case brought in these proceedings.

19. [346]

    The plaintiffs then make the bald assertion that whoever drafted the loan and related documents for Beechworth is the “mind behind the fraud” and that Vangory Holdings and Vangory Services were “part of” the scheme and had a role, although their role is not specified with any clarity at any point in the submissions.

20. [347]

    In respect of Griffith, it was submitted that the plaintiffs did not receive a registered charge over all the proposed lots in the estate. It is asserted, (incorrectly) that because there was a caveat held by the Commissioner for State Revenue regarding unpaid stamp duty, this would have prevented registration of McDonagh Management’s mortgage on mortgage. However, the simple fact that there is a caveat of that nature does not mean that the dealing in question could not have been registered. The fact is, however, that it was not registered.

21. [348]

    Voluble submissions were made in relation to the loan from Griffith to Benitch, describing it as “audacious”, presumably because of the interest rate, and querying why it did not turn up in the Administrators’ S439A Report in August 2014. I interpolate here to observe that it is obvious that the loan was paid out before, or in preparation for, the McDonagh Management loan to be able to take that security. There is nothing surprising about that, given that the Benitch loan was at a high rate of interest and it makes commercial sense for Griffith to pay out that loan.

22. [349]

    The submissions in respect of purported insolvency of Beechworth and Griffith work backwards from the s439A reports prepared by Deloitte in July 2014. As previously stated, this is a problematic approach, as the reports deal only with interests claimed, not interests proven, and deal with the position eight months after the plaintiffs’ transactions and make no conclusions at all about when and in relation to what transactions or events there was any insolvent trading by either company.

23. [350]

    It is asserted that the persons involved in the unconscionability regarding the Griffith loans include the person who drafted the documents, Vangory services, Vangory Holdings, Mr Spencer, Rory McDonnell and Greg Huxley.

24. [351]

    It is asserted that the 29 November 2013 email of Rory McDonnell comprises contemporaneous evidence that he, Greg Huxley and Mr Spencer all knew that Ms McDonagh did not understand the transactions, that each of them knew that the security being offered was an issue and that Mr Spencer was not the current director of Beechworth, all of which means that the email comprises evidence that they all knew she was being misled, that they planned to continue to mislead her and that they were all “role-playing”.

25. [352]

    Broad assertions that both Beechworth and Griffith as companies engaged in fraud and unconscionable conduct are also made, but given that Beechworth and Griffith are not parties to the proceedings these submissions are misplaced. In the written submissions there is mention of ss 181(1)(a) and (b) and 182(1)(a) of the Corporations Act and s 22 (1) of the Australian Consumer Law, causes of actions that are not pleaded and which cannot be pleaded by virtue of mentioning them in written submissions after the evidence is closed, and so they will be put to one side.

26. [353]

    Turning to the individual liability of parties, it was asserted that the effect of Mr Huxley’s position and evidence regarding him was that he was a person who had a mortgage over his home in relation to money provided by Gus Dib, that he was a trustee for trusts for the benefit of his family held by Vangory Holdings and Vangory Services, that he was deliberately evasive regarding that position and evasive generally, that he was close enough in his relationship with the trustees in Vangory Holdings and Vangory Services to tell them what to do and that he persuaded Ms McDonagh to make the loans.

27. [354]

    It was further asserted that the evidence established ownership of 95% of Beechworth and Griffith was “held by his family” and that he was the initiator and central organiser of the impugned transactions. It was submitted that because he prepared the checklist for settlement, that meant he was the initiator and central organiser. His email of June 2014 was trying to mislead Ms McDonagh from concluding that he had that role. The Court should reject all of his evidence unless it is supported by other evidence.

28. [355]

    In respect of Gus Dib and Adam, it was submitted that they aided and abetted the Beechworth transaction because they represented that security was available over certain land in Victoria when it was not. They aided and abetted Greg Huxley, Mr Spencer and Rory McDonnell, although precisely how is not specified, other than reference to the preparation of the documents in respect of Griffith and the single draft caveat in respect of Beechworth.

29. [356]

    It is asserted that they drew unconscionable and misleading transactional documents. Much was made regarding an assertion that they both denied in their Defences creating Beechworth documents including the Caveat, and that this was somehow reflected a guilty mind and was in effect perjury given the Defences were verified. It was further asserted that the Court should infer that they did prepare the loan documents and other material for the Beechworth loan and that such documents should be considered to be “missing communications”, deliberately not disclosed by Gus Dib and Adam. I interpolate here that the pleading in pars 26 and 27 of the Further Amended Statement of Claim created the problem by pleading a “rolled up” series of facts the denial of which was unsurprising.

30. [357]

    There were further allegations regarding the Legal Profession Uniform Law (NSW) and asserted breaches in respect of it because of the inadequacy of instructions and potential conflict of interests in preparing the documents, given that they were instructed by Greg Huxley who was not a director of Beechworth or Griffith. (Again, matters not pleaded and/or irrelevant).

31. [358]

    It was submitted that Adam must have been somebody who had intricate knowledge of the transactions and plans to dupe Ms McDonagh because there was a change in the transactional documents between the email of Greg Huxley of 27 November and the documents sent by him on 28 November, and the Court should conclude that he was a “guiding mind” and “one of the ultimate decision makers”.

32. [359]

    It was asserted that in his evidence, Greg Huxley shifted blame to Adam regarding what Mr Goodridge termed the “misleading caveat” regarding Beechworth.

33. [360]

    It was submitted that because Adam and Gus Dib did not give evidence, the Court should draw certain negative inferences regarding their motivation and nefarious intent in creating documents that would provide a false sense of comfort to Ms McDonagh and that they therefore aided and abetted the unconscionability of others.

34. [361]

    In support of these submissions it was suggested that Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 should be utilised to draw certain inferences regarding the missing documents, and that the Court should draw an inference that communications and loan documents not produced in respect of Beechworth were deliberately not produced because they would not have advanced the case made by the Dib parties.

35. [362]

    Given that affidavits were prepared by Gus Dib and Adam, the fact that they were not called meant that they were “not prepared to subject themselves to cross examination” or alternatively, that they “could not give any evidence to advance the defence case against them.” I interpolate here to observe that neither of these inferences have a basis in Jones v Dunkel and are not inferences I propose to draw.

36. [363]

    The same submission was made regarding the Dawson parties, and that the absence of financial records produced and tendered by Benitch meant that the Court should conclude that the loan to Benitch was not legitimate. Again this is not an inference available to draw and appears again to be based on a mistaken understanding of the law in relation to onus of proof and the drawing of inferences.

37. [364]

    In respect of Vangory Holdings and Vangory Services, it is asserted again, somewhat volubly, that they “took benefits for the Huxley family”. It was said that those companies were “central parties to creating the illusion of security” and “falsely uttered” in respect of the previous loan said to have been advanced. Complaint is made that there was “no evidence of the bona fides of that loan” and that those companies took an unregistered security position over both Griffith and Beechworth, and that the Court should infer that Greg Huxley, (who was not a director, nor was there any pleading that he was a shadow or puppet director), and the directors, Mr Dawson and Vanessa Huxley, knew that these were “false utterances” and also knew that McDonagh Management’s ranking in terms of other claims, was worthless. I note that these submissions are baseless hindsight complaints and are inconsistent with the plaintiffs’ own pleading that the loan was in fact made by Vangory Services (see par 56 of the Further Amended Statement of Claim).

38. [365]

    In respect of the Dawson parties, it was submitted that because of the simple fact that there was a repayment to Benitch mentioned in correspondence between Rory McDonnell, Mr Huxley and Mr Spencer in November 2013, the Court should infer that Mr Dawson knew that the transaction was an unconscionable one. The plaintiffs queried whether there was any entitlement to repayment of the sum to Benitch, implying that the loan document was not legitimate, although citing no evidence in support of that serious assertion. That assertion is also contrary to the pleading in par 60 of the Further Amended Statement of Claim, and perhaps more fundamentally, flies in the face of the subsequent oral concession made by Mr Goodridge that he: “cannot find any evidence of them being direct principals in their own right”. [101]

39. [366]

    It was submitted that somehow Benitch had an evidentiary obligation to produce other documents such as bank records to prove that the loan was legitimate and absent that material, the Court should assume that Dawson and Benitch were part of aiding and abetting and were knowingly involved in the unconscionable transaction. For reasons I will come to, if not already obvious, I will not be drawing any such inference. There is also no pleading that would allow me to base accessorial liability on knowledge of particular elements of a principal’s conduct.

40. [367]

    The bases for the submissions against the Dawson Parties become more desperate, ultimately summarised in the plaintiffs’ written submissions to be that Mr Dawson was a long-time friend of Greg Huxley, a director of Vangory Holdings and Vangory Services, that he received a “significant payment” from the McDonagh superannuation fund and that it was “unexplained” why Mr Dawson did not give evidence and that Jones v Dunkel meant that the Court should assume Mr Dawson’s failure to give evidence is a “sufficient bases for drawing any and all inferences in favour of the plaintiff”. I note that these arguments simply have to be stated to see how meritless they are.

41. [368]

    The plaintiffs’ reply submissions were basically a repetition of the primary submissions, other than asserting that Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [123] – [124] per McHugh J provides authority for the submission that a solicitor can engage in misleading and deceptive conduct without intention, and that conduct for which a solicitor will be liable can include misrepresentation to other parties, even where there was not a mental element but where the conduct “conveyed or communicated a message or information which, objectively considered, had the tendency to mislead”. It was argued that the documents prepared by Adam and Gus Dib fell into this category.

42. [369]

    Mr McNally SC submitted that in considering the principles in respect of unconscionable conduct and in examining the particular facts and scrutinising the exact relations established between the parties, there is nothing at all that indicates that the Dawson parties had any knowledge of the first plaintiff or of any disability she suffered or even knew that she was the source of the funds for the repayment of Benitch’s loan.

43. [370]

    There is no evidence therefore of any taking of surreptitious advantage of the weakness or necessity of Ms McDonagh, no victimisation or exploitation, and no proof of a predatory state of mind. This means that all the unconscionability assertions must be dismissed.

44. [371]

    In respect of asserted knowledge of misleading and deceptive conduct by others, and thus accessorial liability, there is no pleading that Mr Dawson had actual knowledge of any of the elements of the contravention. Actual knowledge of the essential elements of the contravention must be alleged and proved: Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65 at [666] - [670].

45. [372]

    The arguments in respect of the drawing of the inferences negative to Benitch and Mr Dawson are simply wrong and misplaced. The drawing of inferences cannot fill gaps in the evidence or convert conjecture and suspicion into inference.

46. [373]

    Mr Lloyd submitted that the causes of action pleaded in the Further Amended Statement of Claim overlap and raise issues of substantial complexity. The plaintiffs’ approach, to group them together and gloss over the necessary elements of pleading and particularisation without providing the necessary precision and identifying the relevant evidence, is not a proper approach. In taking that approach, the plaintiffs have failed to address fundamental elements of the many causes of action pleaded.

47. [374]

    The fourth to tenth counts comprise common law and statutory unconscionability. There are fundamental problems with those given there is no evidence that Adam or Gus Dib knew of any special disadvantage suffered by the plaintiffs. Indeed there is no evidence that they had ever met Ms McDonagh.

48. [375]

    The tenth and eleventh counts require a supply of goods or services or supply of financial services and the involvement of the Dib parties cannot come within those statutory provisions and therefore those counts fail. It is disputed that the aiding and abetting count can be made out - the thirteenth count. The fifteenth and sixteenth counts again require conduct with respect to financial products or financial services. Gus Dib and Adam provided legal services only and to their clients, the borrowers, not to the plaintiffs.

49. [376]

    Dishonest conduct, the seventeenth count, cannot be made out and there are problems with the nineteenth count, negligent misstatement because of inadequate pleading and particularisation and lack of evidence.

50. [377]

    Significantly, the inferences that the plaintiffs ask the Court to draw to the effect that Gus Dib and or Adam were the “guiding mind” or “ultimate decision-maker” behind the transactions are simply not available. The permissible drawing of inferences and the principles in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 apply, given the seriousness of the allegations of dishonesty and unconscionability (per Dixon J at pp 361 to 362):

51. [378]

    Similar to the submissions made by Mr McNally on behalf of the Dawson parties, the nature of the inferences the plaintiffs ask the Court to draw are inappropriate and not available. Even if all the inferences sought were drawn, the cases are not made out.

52. [379]

    The counts based on misrepresentation and negligent misstatement are without merit because Gus Dib and Adam did not make a single representation or statement to the plaintiffs.

53. [380]

    The elements for a claim in negligent misstatement have not been adequately pleaded and are not supported by evidence.

54. [381]

    The accessorial liability asserted is inadequately pleaded. The details of the contraventions of Griffith and/or Beechworth and/or others in which Adam and Gus Dib were said to be knowingly concerned or to have aided or abetted or procured, has not been anywhere articulated. There is no evidence that either of them had any knowledge of any such contravention.

55. [382]

    The evidence tendered does not support a finding of special disadvantage. There is no evidence that the transactions were improvident at the time they were entered into, as opposed to in hindsight. There is no evidence of a predatory state of mind on the part of Adam and/or Gus Dib. There is no evidence that either transaction provided any advantage to Adam or Gus Dib, nor is there a pleading as to what that asserted advantage would be.

56. [383]

    All of the causes of action levelled against Adam and Gus Dib should fail.

57. [384]

    Mr Ball, counsel for Greg Huxley and the Vangory companies, raised concerns both in his written submissions provided to the Court on 28 March 2018, and in oral submissions made on that day, that the cases the plaintiffs sought to make against his clients had not been properly pleaded and that the approach taken by Mr Goodridge in the opening went significantly outside the case that had been pleaded.

58. [385]

    I note that this was not the first time these issues had been raised with the plaintiffs’ legal representatives. Detailed requests for particulars forwarded in January 2015 courteously and appropriately pointed out the problems with, and inadequacies of, many aspects of the pleadings, in particular drawing attention to the fact that key elements of alleged counts had not been pleaded. Attention was drawn to the requirements of r 15.4 UCPR multiple times. The request from Kent Attorneys dated 19 January 2015 was made at that time on behalf of Greg and Vanessa Huxley, Mr Spencer, Mr Dawson, the Vangory companies and Benitch. [102] Kent Attorneys made it clear that they would consent to an amended statement of claim being filed that attended to the many identified issues. The invitation to replead was rejected in the tersely worded, elliptical response, (which the Court record suggests was only provided after an application was made to dismiss proceedings due to a failure to initially respond. Adams J ordered that the particulars had to be answered).

59. [386]

    The deceit claim, which is a representation claim, has not been properly pleaded. There are no particulars stated of the circumstances in which the representations were made, no reference to the documents or conversation(s) said to comprise the representations, and no specification of how that material is alleged to constitute the misrepresentation.

60. [387]

    In respect of the admission and guarantee case, there are no particulars of the causative element of this allegation and thus it is unable to be understood.

61. [388]

    The dishonest concealment allegation, (s 1041F of the Corporations Act), fails to address the two requirements imposed by subs (1)(a) first, that such misleading or deceptive statements are only actionable if they are made when the person making them knows or is reckless as to whether the statement is misleading false or deceptive, and second, the materiality of those asserted concealed facts. Neither aspects have been pleaded.

62. [389]

    The dishonest conduct allegation, apparently based on s 1041G of the Corporations Act is only relevant if the person in question was carrying on a financial services “business”. There are no facts or circumstances alleged that indicate Mr Huxley was carrying on such a business.

63. [390]

    The claim for exemplary damages also is not properly pleaded and so must fail as must the unconscionable conduct claim because neither identify the impugned conduct with any degree of specificity beyond stating that it is “for reasons of the facts and circumstances set out above” and then references pars 1 to 69 of the Further Amended Statement of Claim.

64. [391]

    Nor is there any attempt to particularise the specific requirements of the statutory prohibition against unconscionable conduct, such as whether the conduct was “in trade or commerce”, whether the conduct was “in relation to financial services” or whether it was “conduct in connection with the supply or possible supply of financial services”. These matters must be pleaded.

65. [392]

    The count based on s 1041H of the Corporations Act fails to plead or particularise the state of mind required by subs (1)(c) of that provision. There needs to be a pleading as to whether and when the person made the statement or disseminated the information, that the person either does not care whether it is false, or knows, or ought reasonably have known that it was false in a material particular, or that it is materially misleading, but none of those necessary elements have been pleaded in the Further Amended Statement of Claim.

66. [393]

    The pleading of damage asserted to have occurred to the plaintiffs because of conduct of the defendants that was in contravention of ss 911A, 777C, 1324, 1041E, 1041F, 1041G and/or 1041H against the Vangory Companies is also problematic because there are no particulars anywhere in the Further Amended Statement of Claim as to how the Vangory companies were “a person” involved in the asserted contraventions, and so the basis upon which those companies are liable under s 1041I cannot be discerned.

67. [394]

    The aid and abet, counsel or procure contraventions assertions must fail because of the problems with the pleadings already identified, with the difficulty accentuated by the fact that the subject of the allegation is simply the asserted contravention(s) of the Corporations Act, but the contravention(s) asserted is/are not particularised, nor is a relationship between each defendant and that contravention.

68. [395]

    The negligent misstatement allegation is asserted in par 96 of the Further Amended Statement of Claim to be on the basis that Greg Huxley made misrepresentations to the plaintiffs without having a reasonable ground for making those representations and the “particulars” are stated as a series of propositions, but nowhere in the pleading is the existence of the necessary duty of care pleaded or particularised, nor is the basis upon which that duty, if one existed, was breached on or before 29 November 2013.

69. [396]

    In respect of the allegation under s 1041H of the Corporations Act, the conduct alleged to contravene it is not pleaded or specified and the general reference to the “facts and circumstances particularised in pars 1 to 69 of the Further Amended Statement of Claim” is not sufficient.

70. [397]

    Greg Huxley had no particular role in the setting up of the McDonagh Management superannuation fund other than connecting her to Rory McDonnell and then being kept generally informed about its progress. He acted as her friend and messenger assisting her in understanding the loan transactions. Significantly, Rory McDonnell assisted her with the loans transactions, and she and McDonagh Management received a return on their investments which only collapsed due to the intervening actions of third parties.

71. [398]

    The evidence does not support findings of any fraudulent or dishonest state of mind or scheme by Greg Huxley or the Vangory companies. There is no evidence of representations that were misleading or deceptive or intended to mislead or deceive.

72. [399]

    There is no evidence that there was any financial benefit to Greg Huxley or the Vangory companies; just a series of unproven assumptions. There is no pleading in the Further Amended Statement of Claim which identified a particular advantage or benefit to Greg Huxley.

73. [400]

    The test for establishing unconscionable conduct has not been met based on what the full bench of the High Court explained in Kakavas by reference to each of Mason J and Dean J’s judgments in Amadio [103] that:

74. [401]

    The special disability must be sufficiently known or evident to the party against whom relief is claimed on the grounds of unconscionability. [104]

75. [402]

    It is not sufficient for the plaintiffs to seek to invoke the principle against unconscionable conduct merely to allege that they suffered from some form of “mental disorder” at the time of entry into the transactions complained of. There must be nexus between the illness and the plaintiff’s ability to protect their own interests: Brereton J in Tillett v Varnell Holdings Pty Ltd & Ors [2009] NSWSC 1040 at [54].

76. [403]

    There was no separate evidence of financial illiteracy or inability to decide best interests beyond Ms McDonagh’s own self reporting and self-diagnosis. There is no evidence that her alleged mental disorder related to or had any bearing on the impugned transactions. The evidence shows that she appreciated the nature and effect of the transactions into which she was entering.

77. [404]

    The highest the medical records regarding special disadvantage rose was that Ms McDonagh had anxiety with occasional symptoms affecting her memory and her memory was up-and-down but her mental skills, other than memory, were reported as “sound”, “average”, “high” or even “very superior”. She was also described as “hypervigilant”. These descriptions are not consistent with a person suffering special disadvantage affecting their ability to decide their best interests. The medical records suggest that to the extent Ms McDonagh may have displayed symptoms noticeable to others, they were occasional, transient and apparently improving over time. Mr Huxley’s evidence was clear that he was unaware that she suffered from disabilities of the kind she alleges.

78. [405]

    It was emphasised that parts of Ms McDonagh’s affidavit indicated an understanding of the nature and practical effect of the loans that she entered into. [105] That is consistent with her deciding “something was wrong” [106] because none of the investment returns had been provided to her as promised, although that statement was untrue because she did in fact receive a substantial sum of money between November 2013 and June 2014.

79. [406]

    The fact that the affidavit took nine to ten conferences over nine to ten days to complete does not detract from the fact that it appears from that affidavit material that Ms McDonagh understood the transactions at the time. It was also submitted that it was telling that the solicitors formed the view that she was able to consider advice and give instructions to settle a personal injury claim, and there was no tutor appointed in those proceedings and so she did not present to her very experienced lawyers as a person under legal incapacity. This tells against any submission that Greg Huxley should have been able to conclude that she was under some kind of special disadvantage at the time of the transactions.

80. [407]

    Greg Huxley was not a director of the Vangory companies at the time of the transactions and he was not cross-examined about any basis upon which Mr Dawson or Vanessa Huxley could have been aware or were aware that Ms McDonagh suffered any special disadvantage. There is no knowledge of any special disadvantage that could be levelled at the Vangory companies.

81. [408]

    In terms of the unconscionability allegations, consistently with s 140(2) of the Evidence Act 1995 (NSW), the Court should not lightly make a finding on the balance of probabilities that a party in civil litigation has been guilty of such conduct: Neat Holdings Pty v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66 at p 450 per Mason CJ, Brennan, Deane, and Gordon JJ; Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34. The plaintiffs’ evidence does not support such findings.

82. [409]

    The unconscionable conduct under the general law is a freestanding claim. Equity’s jurisdiction to provide relief on the grounds of unconscionable conduct or dealing is limited to the setting aside of the impugned transaction, refusal of its specific performance or Lord Cairns Act damages as an alternative to that relief. There is no freestanding claim to damages as there is under statutory enactments. Since Greg Huxley and the Vangory Companies were not parties to any of the transactions sought to be impugned, the relief available in Equity, including Lord Cairns Act damages, is not available against them.

83. [410]

    The allegations of unconscionable conduct “in trade or commerce” all fail because they are premised on the defendants having engaged in conduct that was “in trade or commerce”, but it has not been pleaded as to how the conduct amounts to “conduct in trade or commerce”. The facts suggest that Greg Huxley’s conduct was consistent with a friend, holding the hand of a friend having refused to himself invest or look after her money for her, encouraging her to “put the brakes on and ask questions” and seek independent legal advice and facilitating and assisting her by referring her to someone to assist her with the unfamiliar exercise of registering the Self-Managed Superannuation Fund and investing her money.

84. [411]

    In respect of the allegations that require “financial services” or “goods or services” to be “supplied” or “possibly supplied” within the meanings of ss 12CA and 12CB of the ASIC Act and s 21 of the Australian Consumer Law, (erroneously referred to as s 21 of the Competition and Consumer Act 2010 (Cth), in the Further Amended Statement of Claim), there has been no pleading as to what those “services” or “goods or services” were, and thus those allegations must fail.

85. [412]

    The misleading or deceptive conduct allegations must fail due to inadequate pleading addressing the elements of ss 1041H, 1041E and 1041F of the Corporations Act.

86. [413]

    The deceit and dishonesty pleadings must fail due to the inadequate pleading. Also there has been a failure to demonstrate on the evidence to a reasonably satisfactory level, first, proof of knowledge of or intention to conceal or defraud the nature of the investments in the Griffith and Beechworth projects in circumstances where Greg Huxley cautioned the plaintiff to seek independent legal advice and acted merely as a conduit between her and Rory McDonnell, and second, the alleged insolvency of Beechworth and Griffith at the time Ms McDonagh executed the loan documents.

87. [414]

    In summary, these claims hinge on a wide range of inferences, none of which are available on the facts which have been admitted or proved.

88. [415]

    The negligent misstatement claim has not been made out on the facts and in any event was not properly pleaded because the relevant duty of care that allegedly arose as a result of the relationship between the plaintiffs and Greg Huxley and the Vangory companies was not pleaded or particularised.

89. [416]

    The accessorial liability claims fail because for liability to be established, it must be established on the evidence that first, the principal contravention was committed, second, that the defendants knew the essential circumstances establishing that principal contravention and third, that the defendants intentionally assisted or encouraged the primary contravener to commit that contravention. Fatal to this allegation is the fact that such primary liability has not been properly particularised or identified to enable inferences to be drawn that Greg Huxley or the Vangory companies aided and abetted, counselled or procured the contravention by Mr Spencer and Rory McDonnell of breaches of the Corporations Act or the Australian Consumer Law.

90. [417]

    In the absence of impugned conduct which has been clearly pleaded and proved, no evidence has been adduced demonstrating the defendants’ knowledge of those contraventions. Particularly fatal is the absence of evidence of the defendants’ knowledge of one, Mr Spencer’s solvency, two, the plaintiffs asserted special disadvantage and three, the alleged falsities in Rory McDonnell’s representations.

91. [418]

    In terms of any suggestion of inducement, there is no evidence at all that Mr Huxley or the Vangory companies induced Rory McDonnell or anyone else to contravene the Corporations Act or the Australian Consumer Law.

92. [419]

    There is no evidence of Mr Huxley or the Vangory companies being knowingly concerned in the contravention(s). This requires knowledge of the essential matters which make up the contravention(s) and in the case of liability for misleading and deceptive conduct, this requires that that person must know that the relevant conduct had occurred and at least, the facts that make up the conduct that is misleading or likely to mislead or deceive. The plaintiffs have not demonstrated that the defendants were knowingly concerned in the contravention(s) because there has been a failure to plead with sufficient specificity or to prove to a reasonably satisfactory standard that the defendants had knowledge of Ms McDonagh’s alleged disadvantage and the representations made by Rory McDonnell.

93. [420]

    There was never any particularisation of what “financial services” as defined in s 766A of the Corporations Act had been provided to the plaintiffs by the defendants. All the evidence demonstrates is that Greg Huxley assisted Ms McDonagh to complete a complicated financial transaction by connecting her with Rory McDonnell and clarifying communications between them. There was nothing in the evidence that suggested he was dealing with a “financial product”. He did not provide advice to Ms McDonagh on the nature of her investments and instead urged her to seek independent advice. If there was any advice or dealing with a “financial product”, it was by Rory McDonnell. Accordingly, the plaintiffs’ case with respect to breaches of the “financial services” provisions of the Corporations Act should all fail.

94. [421]

    The twenty-second count entitled “admission and guarantee” is difficult to understand. It appears the subject of that count is Greg Huxley’s email dated 19 June 2014 which was doing nothing more than expressing remorse for Ms McDonagh’s plight. First, the basis upon which it is said it was intended to deceive and mislead the plaintiffs has never been pleaded and the fraudulent intention ascribed to it remains unclear and not made out on the evidence. Second, there is no clarity as to what steps in the way of legal redress the plaintiffs could have had but for the email and third, there is no pleading or evidence as to how that email caused damage. Instead it appears that email was actually used to instruct solicitors to pursue claims on the plaintiffs’ behalf.

95. [422]

    In terms of causation, the plaintiffs need to establish that the financial investments were not viable or not adequately secured at the time they were entered into on 29 November 2013. The plaintiffs’ case in essence seems to be that first, some or all of the defendants engaged in unconscionable conduct, second, that that conduct caused the plaintiffs to make the financial investments and third, that those financial investments turned out to be worthless.

96. [423]

    The cause of loss is said to be the failure to properly secure the loans by perfected securities over assets owned by Beechworth and Griffith, but these claims should be rejected for three key reasons. First, it overlooks the plaintiffs’ solicitors’ own culpability for failing to take those steps to perfect the plaintiffs’ security despite being provided with the relevant documents to do so, second, the argument as to non-viability of the investments at the time rests solely on the alleged insolvency of the relevant companies as at 29 November 2013 which has not been made good, and third, the plaintiffs received interest payments under the loan terms until the companies passed into voluntary administration.

97. [424]

    There are problems with the relief claimed which was said to be based on the loss valued as the “loss of the bargain” in investing in the Beechworth and Griffith projects. This is not correct. Claims for damages for unconscionable conduct both under general law and statute for misleading and deceptive conduct, are not claims where damages are normally assessed as the loss of the bargain. Such claims can be made in contract, but that is not the case put here. Rather the damages need to be calculated on the basis of tort, that is to put the plaintiff in the position she would have been in but for the breach. It follows that the plaintiffs are not entitled to claim interest at the rates expected to be received under the loan agreements, only to interest under the UCPR.

98. [425]

    Ms McDonagh was injured when she was hit by a utility on 5 June 2011. The injuries she sustained included a brain injury that was assessed by various medical practitioners during 2011, 2012 and early in 2013.

99. [426]

    She had experienced personal injury solicitors acting for her who secured a settlement of $900,000 inclusive of costs and pay backs, and she received $679,003 on 13 August 2013.

100. [427]

     She did not have a tutor appointed in those proceedings, nor was there a basis in the evidence tendered in these proceedings to indicate that she had a brain injury that led to a requirement for her to have a tutor or a funds manager appointed.

101. [428]

     The expert assessments suggest that as at early 2013, Ms McDonagh had fluctuating problems with memory, thinking speed and anxiety.

102. [429]

     Ms McDonagh’s memory and anxiety problems do not in my view mean that in November 2013 she was not able to understand financial transactions or to manage or further her own financial interests.

103. [430]

     There is no evidence that proves that Ms McDonagh would have demonstrated outward signs of difficulty with, or inability to understand and participate in transactions such as setting up a superannuation fund company and undertaking loan transactions.

104. [431]

     She had been friends with Vanessa and Greg Huxley for some years and at some point, discussed with Greg Huxley investing the money she had obtained from her settlement. I do not accept that Vanessa Huxley was anything other than a passive observer to these matters.

105. [432]

     I do not accept that Ms McDonagh told any of the defendants on, or prior to, 29 November 2013 that she had any cognition problems, other than that she may have told Greg Huxley, and possibly also Vanessa Huxley, that she had some memory problems. I accept that she would, on occasion, have appeared to those who knew her well, to be stressed and anxious.

106. [433]

     Ms McDonagh’s problems with recollection asserted in her affidavit mean that there are significant reliability issues over that material and her oral evidence. The affidavit evidence comprises almost entirely of reconstruction and not recollection. Her oral evidence was difficult to follow.

107. [434]

     I am unable to reach any conclusion as to who first suggested that some of the money should be put into a self-managed superannuation fund. I do conclude that Rory McDonnell assisted with that at the request of Greg Huxley (on behalf of Ms McDonagh) and that Mr Trovas, an accountant, was instrumental in setting up that fund.

108. [435]

     I conclude that Greg Huxley introduced Ms McDonagh to Rory McDonnell as “the financial adviser that I was telling you about”, but that he made no particular representation about Mr McDonnell’s competence or independence. I accept that Greg Huxley told Ms McDonagh “we’ve got our own money” tied up in Griffith and Beechworth, and that was true.

109. [436]

     There were a number of meetings between Ms McDonagh and Rory McDonnell at which Greg Huxley was not present. He was present at one meeting which comprised, I accept, of him delivering various certificates of title he understood were required for registration of securities and the proposed settlement in relation to Beechworth and Griffith.

110. [437]

     I accept that the investments in Beechworth and Griffith were explained to Ms McDonagh by Rory McDonnell and that based on the contents of pars 55 to 58 of her affidavit, she understood the nature of the mortgage transactions and that she could expect to receive monthly interest payments of $6,000 from the loans together.

111. [438]

     On 28 November 2013, Adam sent an email to Greg Huxley in response to a request made by Greg Huxley by email the day before, annexing the documents set out in par 163 of this judgment.

112. [439]

     Those documents did not include the statement of financial circumstances of Mr Spencer or any documents regarding the Beechworth loan.

113. [440]

     The documents were sent in draft form.

114. [441]

     There is no evidence that Adam or Gus Dib prepared any document in relation to the loan by Ms McDonagh to Beechworth, other than the evidence that a draft caveat was sent by Adam by email to Greg Huxley later on the morning of 28 November 2013.

115. [442]

     There is no evidence as to what was typed or written on the draft caveat at the time it was forwarded by Adam to Greg Huxley. The only version of the caveat in evidence is the completed version, which includes Ms McDonagh’s handwriting.

116. [443]

     Either on 28 or 29 November 2013, Ms McDonagh signed various documents involving a loan by McDonagh Management to Griffith and a loan by herself to Beechworth.

117. [444]

     By the time she prepared and executed her affidavit in June 2016, Ms McDonagh had no recollection of what documents she saw or signed to facilitate the loan agreements. There is no evidence that she read any of the documents. She said that she had no recollection of reading the documents and her account that she recalled being told words to the effect of “sign here” over and over by Rory McDonnell, suggests that she did not read the documents before she signed them.

118. [445]

     I can make no conclusion therefore as to what documents Ms McDonagh saw other than ones that bear her signature, and no conclusion as to which of the documents, if any, or what parts of them she relied upon in being satisfied that she should enter into the loans.

119. [446]

     Early on the morning of 29 November 2013, Rory McDonnell sent an email to Greg Huxley raising issues with the security and suggesting that arrangements would have to be made to effect interest payments going forward. I do not interpret that email as evidence that Rory McDonnell or Greg Huxley or anyone else knew or suspected that Ms McDonagh did not understand the transactions.

120. [447]

     On 29 November 2013 sums were conveyed from bank accounts of Ms McDonough and McDonagh Management reflecting the advances of $200,000 and $400,000 made.

121. [448]

     The security documents with respect to the transactions were not registered.

122. [449]

     Ms McDonagh was paid three months interest in advance on 30 November 2013, and other payments were made to her, or on her behalf, in the following months as set out in pars [124] - [125] of this judgment, totalling $33,592. I find that Ms McDonagh had forgotten about these payments.

123. [450]

     The principal sums advanced by McDonagh Management and Ms McDonagh have not been repaid, despite requests for the agreements to be honoured, made in writing by Firths, on 22 August 2014.

124. [451]

     There was no communication orally or in writing between Ms McDonagh or McDonagh Management and Adam and/or Gus Dib.

125. [452]

     There is no evidence that Gus Dib took any steps in relation to the transactions, or that he ever met Ms McDonagh or had any knowledge about any special disadvantage that she asserted or that she suffered.

126. [453]

     There is no evidence that Adam ever met Ms McDonagh or had any knowledge about any special disadvantage that she asserted or that she suffered.

127. [454]

     There is no evidence that Mr Dawson ever met Ms McDonagh or had any knowledge about any special disadvantage that she asserted or that she suffered.

128. [455]

     Ms McDonagh acknowledged that she had never met Mr Spencer. There is no evidence that he had any knowledge about any special disadvantage she asserted or that she suffered.

129. [456]

     Adam and/or Gus Dib were not informed by the plaintiffs, the borrowers, or anyone else, that the transactions settled or had proceeded to completion. They were not given copies of any of the loan documents in completed form with respect to either transaction.

130. [457]

     Neither Adam nor Gus Dib were advised of the date the transactions were settled and were not asked to attend settlement and did not attend any settlement.

131. [458]

     Neither Adam nor Gus Dib were paid any part of the loans advanced by the plaintiffs, and were not advised by any person that the plaintiffs were not represented by a lawyer or that the plaintiffs had not received legal advice about the transactions.

132. [459]

     There is no suggestion that there was a request made by any person to Adam or Gus Dib at any time before July 2014 to release any certificates of title they held with respect to these transactions.

133. [460]

     I do not accept that Ms McDonagh thought that Dib Lawyers were her lawyers. She had no contact with any person from Dib Lawyers, she had no correspondence sent to her by Dib Lawyers, she had no conversation herself with anyone at Dib Lawyers, she was never sent a bill or retainer letter by Dib Lawyers and, most significantly, she did not complain to Dib Lawyers when the transactions did not result in the payments she said that she expected to receive. I consider her assertions that she thought Dib Lawyers were her lawyers for the transactions to be a reconstruction after the event.

134. [461]

     I do not accept that Ms McDonagh was unable to understand the basic nature of the transactions in which she engaged in November 2013. She was, in my view, able to understand that she was investing her money in companies for a time where she would be expecting to receive mortgage payments of a total of $6,000 per month and she wanted those repayments to assist in financing her life expenses.

135. [462]

     I accept Mr Huxley’s evidence regarding her thanking him for helping her arrange the facilities that provided her with the payments of interest in advance and I accept that she told him at Hamilton Island in early 2014 that she was grateful for the referral to Mr McDonnell because it had assisted in financing her holiday to Hamilton Island with her daughter.

136. [463]

     I accept that in about March 2014, an expected interest repayment did not arrive and there was some contact between Ms McDonagh and Rory McDonnell, probably in March 2014, although what that contact entailed is unclear.

137. [464]

     In May 2014 there was contact between Ms McDonagh and Rory McDonnell, but the nature and content of that contact is not established on the evidence.

138. [465]

     I am unable to conclude what effect the email from Greg Huxley to Ms McDonagh on 19 June 2014 had on Ms McDonagh at the time and whether she took, or failed to take, any steps in relation to her position with Beechworth and or Griffith in response to the matters set out in that email.

139. [466]

     At some time between May 2014 and 1 August 2014, Ms McDonagh retained Firths to assist her in relation to the transactions with Griffith and Beechworth.

140. [467]

     At some time around or after 29 November 2013, certain persons engaged in conduct that interfered with the directorship of both Griffith and Beechworth and did things that affected the solvency of Griffith and Beechworth and the property holdings of Beechworth. Who did precisely what and when has not been established on the evidence.

141. [468]

     The plaintiffs have not established on the evidence tendered that either Griffith or Beechworth were insolvent as at 29 November 2013. The highest the evidence comes to in that respect, is that by August 2014, the companies were probably insolvent, based on the various claims asserted to the Administrators set out in the s 439A Corporations Act reports of Deloitte. Those reports indicate that on unidentified dates before August 2014, there may have been insolvent trading carried out, but the transactions that fall into that category, and when they occurred, have not been specified or identified.

142. [469]

     There is no meaningful evidence as to Griffith’s or Beechworth’s financial position as at 29 November 2013. Absent that evidence, solvency or insolvency as at that date is not established.

143. [470]

     The plaintiffs have not established that the statement of financial position of Mr Spencer was untrue, nor have they established that it was read by Ms McDonagh or relied upon by her as an inducement to engage in the loans to Griffith and Beechworth.

144. [471]

     Based on the affidavit of Mr Orlizki sworn 10 May 2018, Mr Spencer received a notice of sequestration on 28 April 2015 and as at 10 May 2018, he remained an undischarged bankrupt. It is common ground that no leave was sought under s 58 of the Bankruptcy Act to proceed against him, although the plaintiffs’ solicitors were informed by email dated 25 June 2015 that Mr Spencer had become bankrupt after the proceedings were commenced, and in order for the plaintiffs to take any fresh step in the proceedings, leave of the Court was required pursuant to s 58(3)(b) of the Bankruptcy Act.

Legal Principles: Unconscionability

1. [472]

   Unconscionable conduct was most recently dealt with in the High Court in Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49. At [37]-[38] Kiefel CJ, Bell, Gageler, Keane and Edelman JJ said [footnotes omitted]:

2. [473]

   Gordon J said at [114] [footnotes omitted]:

3. [474]

   It follows that in order for the defendants to be found to have engaged in unconscionable conduct, it is necessary for the plaintiffs to prove that those defendants both knew of Ms McDonagh’s special disadvantage and took advantage of it: Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25. Actual knowledge or wilful blindness is required. Constructive notice is not sufficient: Kakavas at [150]­[162].

4. [475]

   Mr Goodridge's opening clarified the position in that what is alleged against the defendants is actual knowledge: see plaintiffs' written opening at [92]-[101].

5. [476]

   In Wu v Ling [2016] NSWCA 322, Leeming JA made the following observations in relation to the intervention of equity and special disadvantage:

6. [477]

   At [107] Bergin CJ in Eq, with whom Payne JA agreed, cited with approval Turner v Windever [2005] NSWCA 73, where Giles JA (with whom Santow JA (writing separately and agreeing with the outcome) and Bryson JA agreed)) said at [72]:

7. [478]

   At [110] Bergin CJ in Eq said:

8. [479]

   Tonto Home Loans Australia Pty Ltd v Tavares; Firstmac Ltd v Di Benedetto; Firstmac Ltd v O'Donnell [2011] NSWCA 389 was a case concerning unconscionable conduct under the ASIC Act in relation to a financier (Tonto) engaging in asset lending where its mortgage originator's sub introducers (Streetwise) engaged in unconscionable conduct in relation to the borrowers. The borrowers claimed that Tonto had engaged in unconscionable conduct under the ASIC Act by seeking to recover the loans in those circumstances. At [292] Allsop P (Bathurst CJ and Campbell JA agreeing) said:

9. [480]

   The above observations can be distilled into the proposition that for one party to have engaged in unconscionable conduct in respect of a party with a special disadvantage, there needs to be a precise examination of the particular facts and a scrutiny of the exact relations established between the parties and then what must be established is that there needs to be:

10. [481]

    In summary, it is not possible to act “against conscience” if the conscience has no knowledge of the special disadvantage of the other party.

Drawing of Inferences: Jones v Dunkel

1. [482]

   It has been said that no case is more often cited, and more often misunderstood, than Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8.

2. [483]

   In the joint judgment of Gleeson CJ and McHugh J in Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121, their Honours said at [51] [footnotes omitted]:

3. [484]

   As to the nature of the inference that may properly be drawn if the principles of Jones v Dunkel are enlivened, the Court of Appeal in Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; (2011) 83 ACSR 620 stated (at [634]) that:

4. [485]

   This statement was applied by Ward J in In the Matter of Idylic Solutions Pty Ltd - Australian Securities and Investments Commission v Hobbs [2012] NSWSC 1276 at [1545]. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference: Adler and Anor v Australian Securities and Investments Commissions; Williams v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1.

5. [486]

   The approach to inferences argued for by the plaintiffs in relation to the absence from the witness box of Mr Dawson, Mr Dib and Adam is simply wrong. There is no inference available from the evidence tendered or called to support a conclusion that Mr Dawson did or knew anything that required explanation or that Adam (or Mr Dib) acted as anything other than lawyers who performed a limited role preparing transactional documents for Griffith and a security document (draft caveat) for Beechworth. Those circumstances do not require response by the calling of evidence from those parties, and I decline to draw the inferences argued for by the plaintiffs in respect of the Dawson and Dib parties.

Analyses of Counts Pleaded in the Further Amended Statement of Claim

1. [487]

   Given the judgment entered against Rory McDonnell in February 2016, I was informed by Mr Goodridge that he did not require any consideration or findings to be made in respect of counts one and two, the conversion counts. No evidence was led in respect of them and no submissions directed to them. These counts are dismissed.

2. [488]

   In respect of the third count, comprising breach of guarantees by Mr Spencer, this count was abandoned [107] on the basis that it was acknowledged by Mr Goodridge that he could not press this count because no leave had been sought under s 58 of the Bankruptcy Act and in those circumstances, the plaintiffs could not take that step in these proceedings without leave. Leave was not obtained. This count is dismissed.

3. [489]

   This count was pleaded as a freestanding claim under general law (Equity). This count must fail against each defendant. First, I have concluded that the difficulties that Ms McDonagh may have still been having with her memory and anxiety do not comprise a disabling condition or circumstance that seriously affected her ability to make a rational judgement as to her own best interests.

4. [490]

   Second, there is no proof that the special disability asserted was sufficiently known or evident to any of the defendants, other than possibly Greg Huxley and Vanessa Huxley. Gus Dib, Adam, Mr Dawson and Mr Spencer had never even met her. There is nothing in the evidence that suggests that Rory McDonnell had any basis to know or understand that Ms McDonagh had memory and/or anxiety issues that might have still, intermittently perhaps, been affecting her in November 2013.

5. [491]

   Third, there is no evidence that any of the defendants had a predatory state of mind.

6. [492]

   Finally, and fatally, there is no remedy available to the plaintiffs based on unconscionable dealing against a person who is not a party to the transaction. I accept the submissions made on behalf of Mr Ball and Mr Lloyd in that regard. This count is misconceived and in any event is not supported by the necessary level of evidence to demonstrate special disadvantage.

7. [493]

   Count 5 relies upon s 20 of the Australian Consumer Law which provides:

8. [494]

   Count 6 relies upon s 236 of the Australian Consumer Law which provides:

9. [495]

   Count 7 appears to be an aid and abet allegation levelled against all defendants that they knew and participated in the statutory contraventions of the others.

10. [496]

    Counts 8 and 9 rely upon ss 12CA 12CB of the ASIC Act which provide:

11. [497]

    Count 10 relies upon s 21 of the Australian Consumer Law which provides:

12. [498]

    It is self-evident that a number of these statutory unconscionability conduct claims are premised upon the defendants having engaged in conduct that was “in trade or commerce”. The pleadings do not even attempt to address that prerequisite.

13. [499]

    Nor is it evident from the pleadings, or, for that matter, the evidence called what “financial services”, or “goods or services” the plaintiffs are asserting the active defendants were supplying that would correspond to the requirements of ss 12CA and 12CB of the ASIC Act and s 21 of the Australian Consumer Law.

14. [500]

    Even taking into account the statutory principles that suggest perhaps a wider range of behaviours that it is alleged may, broadly considered, correspond to a finding of unconscionability, it is still essential that the conduct said to have been undertaken by each defendant is specifically identified rather than referred to by a scattergun list of unattributed acts.

15. [501]

    For count 7 to succeed there needed to be clear identification and particularisation of the principal conduct that comprised the statutory contravention(s). This has not been done and there is no evidence that allows the task of ascertaining “accessorial” liability to be done. The bald assertion that “everybody knew”, is inadequate and in any event, is not made out on the evidence.

16. [502]

    In respect of the Dawson parties, the unconscionability claims all fail for the same reasons the claim in general law fails. There was no contact and no knowledge of the alleged special disadvantage. Additionally there was no pleading or evidence that anything done by the Dawson parties corresponded with any of the prohibitions provided for in the statutory framework.

17. [503]

    In respect of the Dib parties, any claim under the ASIC Act and the Australian Consumer Law must fail because Adam and Gus Dib supplied no “goods” or “services” to Ms McDonagh or McDonagh Management.

18. [504]

    I accept that Greg Huxley requested Adam to prepare certain documents and that Greg Huxley then emailed them to Mr McDonnell. Even on Ms McDonagh’s account, Greg Huxley was not present during the explanation of those documents or their signing by her. There is nothing in Mr Huxley’s conduct established on the evidence that demonstrated that he was providing “financial services” or “goods or services” within the meaning of the legislation. There is also no evidence that either Vangory Services or Vangory Holdings did anything at all in that regard.

19. [505]

    In relation to Mr Spencer, who did not appear and was not represented at the hearing, there is insufficient particularity in the Further Amended Statement of Claim as to what it is alleged he did, and insufficient evidence as to what he in fact did in respect of the transactions, (other than as guarantor and signing the documents as director of Beechworth and Griffith), that would allow a conclusion to be reached that he engaged in conduct corresponding to the statutory descriptions and definitions. The claims against him as guarantor have been abandoned, and relief is not sought against Griffith or Beechworth directly, no doubt because of their financial difficulties spoken about in the August 2014 Deloitte S439A Reports.

20. [506]

    Count 11 is based on s 1041H of the Corporations Act:

21. [507]

    This count proscribes misleading and deceptive conduct in relation to a “financial product” or a “financial service”.

22. [508]

    Neither the pleadings, nor the plaintiffs’ written submissions, grapple with whether the conduct of any of the defendants was in relation to a “financial product” or a “financial service”. How the conduct complained of was in relation to “financial product” or a “financial service” is simply glossed over.

23. [509]

    The definition of a “financial product” is in Subdiv B of Div 3 of Pt 7.1 of Ch 7 of the Corporations Act, commencing at s 763A. The transactions involving the Plaintiffs are excluded from the definition of a “financial product”:

24. [510]

    The definition of a “financial service” is set out in Div 4 of Pt 7.1 of Ch 7 of the Corporations Act. Section 766A(1) provides the starting point, with reference to other provisions of the Corporations Act and regulations, as follows:

    1. (1)

       For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:

25. [511]

    Sub-section (2)(b) provides that the regulations may set out the circumstances in which persons are taken to provide, or are taken not to provide, a financial service.

26. [512]

    The alleged conduct of the defendants did not constitute the provision of a financial service within the terms of s 766A of the Corporations Act for the following reasons:

27. [513]

    The claim in respect of contravention of s 1041H of the Corporations Act is thus also fundamentally misconceived.

28. [514]

    Count 13 is based on allegations of “aid and abet, counsel or procure” under the Corporations Act but is fatally flawed for a number of reasons.

29. [515]

    It is expressed to be under s 1324 of the Corporations Act and pleads that, “by reason of the facts and circumstances set out in pars 1 to 69”, the defendants, and each of them aided, abetted, counselled or procured the contravention of the Corporations Act. This is not an adequate identification of the principal conduct.

30. [516]

    It is in any event unnecessary to delve into the detail and merits of what contravention(s) of the Corporations Act there were, or by whom, or what they did to aid, abet, counsel or procure the contravention, because this claim fails at the threshold level.

31. [517]

    In the plaintiffs’ written submissions (par 324), reference is made to the thirteenth count as being a “jurisdictional power to award damages where there has been conduct or contravention”.

32. [518]

    Section 1324(1) of the Corporations Act gives power to the Court to grant an injunction against a person who has engaged, is engaging, or proposed to engage in a contravention of the Act or being involved in a contravention of the Act by another person.

33. [519]

    Section 1324(10) gives the Court discretion to order the person who is, or would otherwise be, the subject of the injunction, to pay damages to any other person.

34. [520]

    Damages under s 1324(10) of the Corporations Act can only be awarded in proceedings where an injunction is actually sought: Polon v Dorian [2014] NSWSC 571 at [787] - [800].

35. [521]

    By reason of the filing of the Further Amended Statement of Claim, the plaintiffs no longer seek an injunction against anyone. It follows that the Court cannot award damages under s 1324(10) of the Corporations Act. This count also fails.

36. [522]

    Count 14 asserted that Greg Huxley, Vanessa Huxley and Rory McDonnell breached s 911A of the Corporations Act for “carrying on a financial services business without an Australian Financial Services licence”. Section 911A provides that a person who carries on a financial services business in this jurisdiction, must hold an Australian financial services licence covering the provision of the financial services. It then goes on to provide a long list of exemptions.

37. [523]

    There is no basis upon which to conclude Vanessa Huxley or Greg Huxley were carrying on such a business, although Rory McDonnell may well have been. However, he is not an active defendant, judgment having been entered against him in 2016, and I have not been asked to make any findings about him. In any event, the pleading does not sufficiently identify the basis upon which I would reach this conclusion.

38. [524]

    Count 15 asserted that there were false and misleading statements by Greg Huxley, Rory McDonnell, Vanessa Huxley, Adam, Mr Spencer and Gus Dib in breach of s 1041E of the Corporations Act:

39. [525]

    Again, this count requires activity in relation to “financial products”. This count fails for the same reason as count eleven.

40. [526]

    Count 16 asserts that there was inducement, on the part of Greg Huxley, Vanessa Huxley, Rory McDonnell, Mr Spencer, Adam and Gus Dub in breach of s 1041F, to deal with financial products:

41. [527]

    This count too fails on the same basis as count eleven.

42. [528]

    Count 17 is based on s 1041G:

43. [529]

    The only defendant who could be said to be “carrying on a financial service business” is Rory McDonnell and he is not an active defendant. In any event, the pleadings do not address the necessary components with sufficient particularity to allow a conclusion to be reached that he was dealing with a “financial product” or “financial service” as defined.

44. [530]

    Count 18, although pleaded as a “count”, is simply a damages provision:

45. [531]

    Section 1041I of the Corporations Act refers only to contraventions of ss 1041E, 1041F, 1041G and 1041H. To the extent that Further Amended Statement of Claim (par 94) refers to contraventions of ss 911A, 777C [sic: 766C] and 1324, the claim for damages under s 1041I in respect of those contraventions is fundamentally misconceived.

46. [532]

    Under ss 1041E, 1041F and 1041G, the relevant conduct proscribed concerns “financial products” and “financial services”. The claims based upon contraventions of these provisions are fundamentally misconceived for the same reason as the claim under s1041H, the eleventh count.

47. [533]

    Count 19 alleges that there was negligent misstatement on the part of Greg Huxley, Vanessa Huxley, Rory McDonnell, Mr Spencer and Gus Dib and Adam. This count also is inadequately pleaded in respects fatal to its success. Negligent misstatement is a tort that requires a pleading of the relationship between the plaintiffs and the alleged tortfeasor(s) and which specifies the consequent duty of care owed. No attempt has been made to formulate any such pleading.

48. [534]

    To establish damages for negligent misstatement, four conditions have to be met. First, that a fiduciary relationship of trust and confidence arises or exists between the parties, second, that the party preparing the advice or information has voluntarily assumed the risk, third, that there has been reliance on the advice or information by the other party and fourth, that such reliance was reasonable in the circumstances: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; [1963] 3 WLR 101; [1963] 2 All ER 575. In this case, none of those four conditions have been satisfied in respect of any of the active defendants identified as liable to the plaintiffs under this count.

49. [535]

    As I have already concluded, there was no contact either in writing or in person or on the telephone between Adam and Gus Dib and the plaintiffs.

50. [536]

    A “scattergun” approach has again been used for this allegation, listing a series of asserted misrepresentations, most of which have not been made out on the evidence. It has also not been demonstrated that those specific representations were in fact made, or if they were, by whom and when. A pleading of this nature, in addition to needing to specify the relationship between the plaintiffs and the party said to have engaged in the conduct, requires particularisation as to when and by what means the asserted representations were made. That has not been done and in my view that is fatal to the count alleged.

51. [537]

    Additionally, as submitted by Mr Lloyd on behalf of the Dib parties, any papers prepared by Dib Lawyers in the form of transactional documents were prepared for the borrower pursuant to a circumscribed retainer with that borrower.

52. [538]

    With respect to any asserted misrepresentation based on the forwarding of the draft caveat by Adam to Greg Huxley on 28 November 2013 regarding Beechworth, and it being read as a possible representation that Beechworth owned certain lots set out on the final form of the caveat that is in evidence, I make two observations. First, there is no satisfactory evidence as to what the draft caveat comprised when it was emailed by Adam to Greg Huxley. Second, and fatally, this is not one of the particulars of misrepresentation set out in par 96 of the Further Amended Statement of Claim and so must be disregarded.

53. [539]

    Further, there is no evidence that Adam or Gus Dib voluntarily assumed any risk associated with giving any advice to Ms McDonagh or McDonagh Management. They did not give any advice, much less assume the risk of doing so.

54. [540]

    As I have already concluded, Ms McDonagh did not believe that Dib Lawyers or anyone at that firm were acting for her. There was no evidence in her lengthy affidavit [108] that deposed to reliance or any belief held by her based on anything done or said by Adam or Gus Dib other than a vague reference to being “comforted” by documents that “looked like legal documents”. There was nothing asserted by Mr Dib or Adam to Ms McDonagh that suggested to her that they were carrying out steps to protect her interests. Any impression she may have had to that effect – although I have found she in truth had no such impression – would have been as a result of things she was told by others.

55. [541]

    As submitted by Mr Lloyd, there are further problems with recognition of any duty owed of this nature by Adam and/or Gus Dib to the plaintiffs and that is foreseeability of economic loss as a necessary condition for the existence of a duty of care. I accept that Adam and Gus Dib exercised no control at all over Ms McDonagh’s ability to obtain legal advice about the transactions and there is no evidence at all to suggest that Adam or Gus Dib were ever aware that McDonagh Management or Ms McDonagh were not advised by a lawyer about the transactions.

56. [542]

    The sending of transactional documents in draft to a client by a solicitor does not involve the solicitor who has prepared the documents in making any representation to the other party in the transaction. This has been demonstrated by a number of decisions including Argy v Blunts (1990) 94 ALR 719; [1990] FCA 57.

57. [543]

    The reliance by Mr Goodridge on Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 is irrelevant and misplaced given the circumstances always require specific analysis of the relationships between the relevant parties to the asserted misrepresentation before any conclusion can be reached as to liability for any such misrepresentation.

58. [544]

    An additional problem with the pleading in respect of all the defendants against whom it is levelled, is that it contains nothing more than a list of assertions headed “particulars of misrepresentation” without any explanation as to how those matters support a claim. The claim fails.

59. [545]

    Count 20 alleges the tort of deceit against Greg Huxley, Vanessa Huxley, Rory McDonnell and Mr Spencer.

60. [546]

    This allegation is in effect an allegation of fraud, and as I have already observed, allegations of this type attract a serious onus of pleading, particularisation and proof. The Briginshaw standard of proof applies and I have exercised the necessary care before drawing the adverse inferences contended for by the plaintiffs.

61. [547]

    Again, the plaintiffs have sought to accomplish particularisation of this count by a scattergun series of propositions thrown down under a heading. Again, I have concluded that this is an inadequate and unsatisfactory approach to a pleading of this nature, where multiple persons are said to have engaged in the conduct and the times at which these incidents of deceit were engaged in by each of them has not been identified, other than to say it was before or at the time that the loan documents were signed.

62. [548]

    I am not satisfied that the plaintiffs have demonstrated to the required standard of proof that there was any knowledge of, or intention to, conceal or defraud the plaintiffs regarding the nature of the investment in the Beechworth and Griffith projects in the ways listed, on the part of Greg Huxley or Vanessa Huxley or Rory McDonnell or Mr Spencer. Further and significantly, the alleged insolvency of Beechworth and Griffith at the time Ms McDonagh executed the loan documents has not been demonstrated.

63. [549]

    This count fails.

64. [550]

    Count 21 comprises a claim for exemplary damages, now confined to Greg Huxley and Rory McDonnell. The pleading is inadequate, simply referencing “the facts set out in pars 1 - 70” of the lengthy Further Amended Statement of Claim as providing a basis, baldly asserting “conscious and contumelious disregard for the plaintiffs’ rights” and “to deter them from committing like conduct again”. This count is dismissed due to both inadequate particularisation of the basis of the claim and the absence of evidence that would justify any such evaluation of the conduct of either Rory McDonnell or Greg Huxley.

65. [551]

    Count 22 comprises a vague pleading of admission and guarantee against Greg Huxley arising out of his 19 June 2014 email to Ms McDonagh.

66. [552]

    It is claimed that the representations were “intended to mislead and deceive” the plaintiffs and caused them “not to seek legal redress against the defendants and the assets of Griffith and Beechworth at an earlier time”.

67. [553]

    I accept Mr Ball’s submission on behalf of Mr Huxley that the pleading is in effect one of fraud and so attracts a high standard of pleading, particularisation and persuasion on the evidence.

68. [554]

    In my view, there is no evidence to suggest that the email is anything but an apology. The fraudulent intent ascribed is unclear and not made out on the evidence.

69. [555]

    The steps alleged to have been available to avoid or lessen damage, (as at 19 June 2014), are not disclosed, nor is it at all clear how the email “caused” any damage. Ms McDonagh’s affidavit although it refers to having seen the letter, says nothing at all about its effect on her conduct or instructions to Firths. It seems the letter actually was utilised by Firths, the solicitors retained by the plaintiffs, as a basis for a request to Mr Huxley on 1 August 2014 assist them and the plaintiffs to the extent he was able. This count also fails as it is not supported by evidence and goes nowhere in terms of causation of any identified loss.

Default Judgment enter in 2016 against the second and fourth defendants

1. [556]

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

Orders

1. [557]

   It follows that all of the causes of action claimed fail and are thus dismissed, and I make orders as follows:

   1. (1)

      By consent, verdict and judgment for the fifth defendant as against the plaintiffs.

   2. (2)

      Verdict and judgment for the first defendant as against the plaintiffs.

   3. (3)

      Verdict and judgment for the third defendant as against the plaintiffs.

   4. (4)

      Verdict and judgment for the sixth defendant as against the plaintiffs.

   5. (5)

      Verdict and judgment for the seventh defendant as against the plaintiffs.

   6. (6)

      Verdict and judgment for the eighth defendant as against the plaintiffs.

   7. (7)

      Verdict and judgment for the ninth defendant as against the plaintiffs.

   8. (8)

      Verdict and judgment for the tenth defendant as against the plaintiffs.

   9. (9)

      Verdict and judgment for the eleventh defendant as against the plaintiffs.

   10. (10)

       The parties are to file and serve any affidavit evidence and outline of written submissions in support of any costs order it, he or she seeks, on or before 27 August 2021, with a copy to be provided by email to my Associate.

   11. (11)

       Any affidavit in reply or submissions in reply are to be filed and served on or before 13 September 2021, with a copy to be provided by email to my Associate.

   12. (12)

       If the plaintiffs wish to be heard in relation to any application they wish to make regarding the default judgments entered against the second and fourth defendants, they should provide notice in writing of any such application by email to my Associate, with a copy to be served upon the defendants and in particular, the second and fourth defendants at their last known street and email address, on or before 27 August 2021.

   13. (13)

       The proceedings are listed for further directions before me at 9:00am on 16 September 2021.