Ascf Managed Investments Pty Ltd v De Pasquale

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ASCF MANAGED INVESTMENTS PTY LTD v DE PASQUALE & ORS
[2023] SASC 157
Judgment of the Honourable Chief Justice Kourakis
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION - STIFLING OF LITIGATION
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION - PLAINTIFF'S OR APPLICANT'S IMPECUNIOSITY
This is an application by ASCF Managed Investments Pty Ltd (ASCF) and several cross-respondents for security for costs.
These proceedings commenced with an application by ASCF to enforce a mortgage over the Simcock Street residence of the respondents to that application, Antonio and Sally De Pasquale (the De Pasquales), and their companies. The De Pasquales have cross-claimed against ASCF and other financiers, brokers and solicitors, alleging unconscionable conduct, fraud, conspiracy, misrepresentation and negligence.
ASCF submits that the De Pasquales and their companies are impecunious. ASCF further submits that an order for security for costs should be made because the cross-claim extends beyond a defensible action; the trial will likely exceed seven weeks; there are likely to be ongoing disputes about particulars; and discovery will be a substantial exercise.
Held:
1. The applications for security for costs are dismissed.
Corporations Act 2001 (Cth) s 1335; Uniform Civil Rules 2020 (SA) r 115.1, referred to.
Adelaide (SA Pools & Spa) Manufacturing and Installation Pty Ltd v Westcourt General Insurance Brokers Pty Ltd [2016] SASC 60; Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11; Dictating Machine Centre Pty Ltd v Combe (1981) 26 SASR 316; Madgwick v Kelly [2013] FCAFC 61; Mannix Electrical Pty Ltd v Belport Pty Ltd (2019) 134 SASR 438; Merribee Pastoral Industries Pty Ltd & Ors v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502; Pearson v Naydler [1977] 3 All ER 531; Reschke v Trevor Reschke Nominees Pty Ltd; Reschke v Australian Executor Trustees Ltd [2020] SASC 60; Strazdins v ANZ Banking Group Ltd [2017] SASC 3, considered.

ASCF MANAGED INVESTMENTS PTY LTD v DE PASQUALE & ORS
[2023] SASC 157
Civil - Application

KOURAKIS CJ: These proceedings commenced with an application by ASCF Managed Investments Pty Ltd (ASCF) to enforce a mortgage over the Simcock Street residence (Simcock Street) of the respondents to that application, Antonio and Sally De Pasquale. Sally and Antonio (jointly the De Pasquales) have cross‑claimed against ASCF and other financiers, brokers and solicitors, alleging unconscionable conduct, fraud, conspiracy, misrepresentation and negligence. On I June 2023, I dismissed applications brought by a number of the cross-respondents for separate trials of the claims made against them. This is an application by ASCF and several of the cross-respondents for security for costs. The narrative which follows is derived largely from the allegations made in the cross-claim and from some affidavit evidence. I rely on the latter only for the purposes of identifying some facts which one or other of the parties will allege at trial, or in respect of the De Pasquales’ claim that an order for security for costs would stultify their claims.
The De Pasquales
Antonio deposed that he was made redundant from Telstra in 1993. He embarked on some property developments in order to support his family.
Antonio and Sally purchased a vacant block on Mayfair Drive, West Beach (Mayfair Drive) with redundancy and superannuation monies in 1993. DePasquale Enterprises became the registered proprietor of Mayfair Drive. A home was built on Mayfair Drive in 1995 and rented out in 1996. DePasquale Enterprises employed Antonio to supervise the development of Mayfair Drive.
After leaving Telstra, for many years Antonio worked on electrical contracts secured through DePasquale Enterprises. However, in June 2012 after a fall, Sally underwent a hip replacement. Antonio became Sally’s carer and was thereafter unable to continue as an electrical sub-subtractor in someway. I accept that Antonio has no other significant earning capacity. He has not had regular work since 2018.
Antonio’s father passed away in 2012. In 2014, Antonio inherited land in Parafield (the Parafield property) from his father’s estate.
In 2014, Antonio lost an investment of $187,000 which he had made with the notorious fraudster Robert Wayne Collins.
In October 2015, Antonio took out a loan of $430,000 which he secured on the Mayfair property. He used the funds to purchase a property at O’Sullivan Beach (the O’Sullivan Beach property). Depent Pty Ltd (Depent) became the registered proprietor as trustee of the Depent Trust. Antonio renovated the O’Sullivan Beach property and then rented it out.
During 2015 and 2016, Antonio and Sally purchased residential properties in the United States.
In mid-2018, Antonio and Sally controlled six properties in the United States, through their corporate entity Depent USA 2013 LLC. On 8 March 2019, five of those properties were sold in a package deal for a total of $US115,000. The value of the remaining property is a matter of dispute between the parties but appears to be between $30,000 and $80,000.
Sally who was born in 1952 has been partially deaf since childhood. She is wheelchair bound because she suffers from cerebral syringomyelia. Antonio is her carer and engages only in occasional casual work for his corporate entities and sometimes others. Sally is dependent on Antonio for her care and relies on him to conduct their business and financial affairs.
By 2018, Antonio was not earning a steady income. Antonio’s monthly income is the Centrelink carer’s pension at $313.73. Antonio and Sally are not eligible for any other pension because of their assets. The monthly expenses are $3,251.82. Much of which is the cost of housing. The only way left for him to complete his developments on the Parafield property was to obtain construction loans.
Antonio has deposed that he is not in a financial position to meet any order for security for costs; he is not able to raise further funds from family members, and he has outstanding legal bills that have not been paid, including approximately $40,000 in legal fees and $30,000 in unbilled counsel fees.
To the extent that the De Pasquales’ living expenses exceed their income, I am not satisfied that it shows that they have sources of income which would allow them to fund these proceedings. After the hearing of oral argument on these applications, Antonio filed an additional affidavit explaining that he and his wife are supporting themselves by asset sales and by some occasional work which he is still able to do. The cross-respondents did not cross-examine Antonio on his affidavits.
That evidence, together with the very transactions which are the subject of this litigation, allow an inference that Antonio’s business naivety leaves him vulnerable to the influence of the unscrupulous peddlers of schemes which promise large returns.
As at mid-2018, the De Pasquales and their related corporate entities had embarked on property developments on land, inherited from the estate of Antonio’s father or purchased by them. The value of their real property was about $1.9m and their borrowings were in the order of $500,000.
The loans of Antonio and Sally and their corporate entities comprised:
·$430,000 lent by the Commonwealth Bank of Australia (the CBA) secured over a property on Mayfair Drive, West Beach (the CBA loan);
·a $40,000 loan secured over Simcock Street;
·credit card debt.
Sally and Antonio are the principals of the third cross-claimant, DePasquale Enterprises (Aust) Pty Ltd (DePasquale Enterprises), and the fourth cross‑claimant, Depent Pty Ltd (Depent).
Depent is the trustee of the Depent Trust of which Antonio is the primary beneficiary. The secondary beneficiaries are members of his extended family. Antonio and Sally are the appointors. The trust is discretionary and in the absence of a distribution, its assets are held on trust for Antonio.
I find on the information before me that DePasquale Enterprises and Depent are no more than corporate vehicles of convenience for Antonio and Sally. Any distribution of the proceeds of any judgment will depend on the exercise of the discretion by Depent which is controlled by Antonio. The history of the acquisitions, and of the placing of property in the corporate entities, in the case of Depent as trustee, appears to be typical of arrangements calculated to protect assets and spread income and the consequential tax liability.
The Cross-Claims
The fifth cross-respondent, First Mortgage Capital Limited (FMCL), specialises in high interest asset lending. Asset lending is the business of making loans secured by the high value assets of the borrower, having little regard to the ability of the borrower to make repayments on the loan as they fall due. Potential borrowers were often referred to FMCL by the eleventh cross-respondent Alexander Belor (Belor) who was a director of the ninth cross-respondent, the finance broker Pacific Capital Financial Services Pty Ltd (Pacific). Belor had arranged finance from time to time for the second and third cross-respondents (Leffler and Gray, respectively) and their related corporate entity, Thinking of Marketing Proprietary Limited (TOM) and Goodlife, One World Proprietary Limited (GLOW) respectively.
The cross-claim alleges that Leffler and Gray operated a scheme by which they introduced third parties to Pacific to obtain loans that would benefit GLOW or TOM, in which third parties would provide their assets as security. The loans provided to GLOW and TOM were at high interest rates. GLOW and TOM benefited from the advances but defaulted on making the repayments. The third parties were generally referred by Pacific to Conatur Legal Pty Ltd (Conatur Legal) to receive advice on their legal liability as guarantors and it was their interest to provide the security.
Conatur Legal is an incorporated legal practice with an office in Edwardstown. Its director and principal solicitor was, at relevant times, Pasha Mehr. Conatur Legal employed the solicitor Yousif Matti (Matti). Conatur Legal was regularly retained by Leffler and Gray to provide legal services in respect of their financial transactions.
In 2018 Antonio had commenced, but did not have sufficient funds, to complete townhouse developments on the Parafield property and the O’Sullivan Beach property. Antonio was under pressure to comply with the commencement and completion conditions of the development approval granted over those properties.
In the same year, Antonio was introduced to Leffler through another man, Thompson, who purported to be Leffler’s agent. Leffler was a director and shareholder of GLOW and TOM. GLOW was placed in liquidation on 12 October 2021 but came out of liquidation in April 2022. Gray was the partner, or close friend, of Leffler. She was also a director and shareholder of GLOW and a shareholder of TOM.
FMCL commonly engaged Summer Lawyers Pty Ltd (Summer Lawyers) to act for it in relation to documenting loans and security and in the enforcement of that security in the event of default. Summer Lawyers specialised in acting for second tier lenders in the granting of secured loans and the recovery of those loans. Summer was also regularly engaged by ASCF.
Thompson represented to Antonio that Leffler had contacts through which he could procure finance for Antonio to complete his developments, and a builder who could construct them. Thompson also told Antonio that Leffler hoped to purchase certain units in Payneham (the Payneham units) but that Leffler needed more equity to secure finance for his purchase. Thompson assured Antonio that if he were to offer his properties as security for the loan, the Payneham units would be on-sold within 60 days to a Chinese buyer at a considerable profit. Thompson proposed that in return Leffler would arrange finance for the De Pasquale property developments. Thompson told Antonio that he would negotiate the terms of a Memorandum of Understanding (MOU) to record that arrangement.
In early June 2018, Antonio met Leffler at the latter’s home in North Adelaide. Leffler told Antonio that he was a pastor who was involved in philanthropic work for the disadvantaged and Aboriginal communities. Leffler confirmed Thompson’s representation that he needed to secure finance to purchase the Payneham units in order to on-sell them within 60 days at a profit. Leffler had no reasonable basis for the representation that the units would be on-sold within 60 days. His claim to be a pastor and a philanthropist were made only to seduce Antonio into trusting him. Leffler’s real intention was to use the loan funds for his own purposes, leaving Antonio’s assets at risk on an enforcement of the security.
On 19 June 2018, an MOU was executed by Leffler on behalf of TOM and GLOW, on the one hand, and by Antonio and Depent on the other. Antonio agreed to provide the Parafield and O’Sullivan Beach properties as security for the loan which either TOM or GLOW required to purchase the Payneham units. In return, GLOW and TOM agreed to secure a construction loan in the sum of $600,000 at an interest rate of 9 per cent per annum interest so that the De Pasquales and Depent could proceed with the developments of the Parafield and O’Sullivan Beach properties. The MOU provided that an advance of $50,000 would be made to the De Pasquales as a no-interest loan within 14 days, and the construction loan was to be available within 60 days, of executing the MOU. A further sum of $10,000, which was to be repaid from the construction loan, would be advanced to enable the De Pasquales to pay professional fees. GLOW agreed to assist the De Pasquales to secure the construction loan by providing second mortgages over the Payneham units.
The commitments made by Leffler, GLOW and TOM in the MOU were empty promises calculated to induce Antonio to provide the Parafield and O’Sullivan Beach properties as securities to the benefit of Leffler, Gray and GLOW. They knew that there was no prospect that they could secure a construction loan for the De Pasquales and Depent. A second mortgage over the Payneham units could not help the De Pasquales secure a construction loan because GLOW was seeking a loan of $1,437,937 to purchase the units, which was only several hundred thousand dollars less than their value.
Moreover, any security other than the Payneham units would necessarily be removed on their sale even if a financier was prepared to lend on that security.
Leffler, Gray and their companies (Leffler interests) did not have any capacity to make the advances promised. In August 2017, TOM had obtained a loan from ASCF in the amount of $635,000 which was guaranteed by Gray and Leffler at an interest rate of 3 per cent per month. The loan documentation was prepared by the eighth cross‑respondent Summer Lawyers. That loan had not been repaid at the time of the MOU. As at mid-2018, GLOW had outstanding loans from QBE which had also been guaranteed by Gray and Leffler. Loans made to GLOW and TOM by another financier, PMA Holdings, which Gray had guaranteed were in default. GLOW had also taken a loan from yet another financier which had not been repaid in mid-2018.
As of mid-2018 Gray and Leffler, either or alone or together, had borrowed money from ANZ, RCP and FMCL. GLOW had outstanding loans from HomeSec and FMCL. TOM had outstanding loans from Move Homes Pty Ltd.
GLOW, Gray, Leffler and TOM were also indebted to MT Properties, a corporate entity controlled by Michael Tsinglios, the Adelaide and Bendigo Bank, National Australia Bank, the Australian Taxation Office and the financier, Frank Borg (Borg), amongst others. GLOW and TOM were insolvent. Not surprisingly, therefore it is alleged that Leffler and Gray knew that neither they, nor their cooperate alter egos, could refinance or obtain further funds unless additional security was offered by an independent third party.
Whilst still attempting to induce Antonio to provide the Parafield and O’Sullivan Beach properties as security, Leffler informed Belor that Sally and Antonio may offer those properties as security for a new GLOW loan. In an email dated 18 June 2018, Leffler confirmed with Belor that he was seeking a loan in the sum of $1,437,937 for GLOW, and that the O’Sullivan Beach property and Parafield property would be offered as security. He told Belor that GLOW had arranged sales of the completed houses on those properties. Leffler knew that representation to be untrue.
On 20 June 2018, Belor sent Antonio an application which he had prepared for a loan from FMCL. The application:
·stated that GLOW would inform FMCL of its requirements for the loan and that Antonio was doing no more than providing the collateral security;
·stated that the applicants’ solicitors were Conatur Legal;
·did not include any information about the income of the De Pasquales;
·identified the Parafield Gardens and O’Sullivan Beach properties as security; and
·advised FMCL, that the costs of the application would be paid by GLOW.
On 4 July 2018, FMCL offered GLOW a loan of $1,379,544 with Leffler, Gray and Antonio as guarantors and with mortgage security over the Payneham units and the O’Sullivan Beach and Parafield properties. On 4 July 2018, a revised offer was made and signed by Antonio. It contained handwritten notes probably made by Leffler’s agent Thompson. It listed Antonio as the second borrower after GLOW. The interest was set at two different rates, a lower rate of 18 per cent and a higher rate of 36 per cent. The same security was offered. Conatur Legal were nominated as the applicants’ solicitor.
Leffler, Gray and GLOW instructed Conatur Legal to act for them in respect of the loan from FMCL and to advise Antonio and Depent on the implications of guaranteeing the loan. Gray and Leffler asked Antonio to attend at the office of Conatur Legal with the MOU. Thompson also sent an email to Antonio advising him to go to Conatur Legal.
Antonio attended on Conatur Legal on 11 July 2018 and executed mortgages over the O’Sullivan Beach and Parafield Gardens properties and signed a Guarantors Advice Declaration. The solicitor, Matti, signed the ‘Guarantors Advice Declaration’ certifying that he had advised Antonio as to the nature and effect of the guarantee and its terms and legal effects. Matti certified that Antonio had read and understood the guarantee and the financial risk to him. Conatur Legal charged about $1,300 for that advice. The cross-claim alleges that Matti gave no advice about the financial risks but instead urged Antonio to sign the documentation quickly so that the settlement would not be delayed. The cross‑claim contends that Conatur Legal should have advised Antonio that the proposed loan was imprudent.
On 9 July 2018, a Deed of Agreement (the Deed) was signed by the Leffler interests on the one hand and Antonio and Depent on the other. It recorded that Leffler interests had purchased the two Payneham units at a purchase price of $695,000 each and that they had arranged to on-sell the townhouses within 60 days. It recorded that Depent and Antonio would provide security for the loans up to 75 per cent of the value of the Parafield and O’Sullivan Beach properties. The Leffler interests agreed to discharge the mortgage on the Parafield Gardens and O’Sullivan Beach properties on the settlement on their resale of the Payneham units. The Leffler interests guaranteed the financial obligations under the loan and accepted responsibility for the legal costs. The Leffler interests agreed to grant Antonio and Depent’s security over the Payneham units for the liability they had assumed as guarantors of the loan from FMCL. The Leffler interests promised that within 14 days of the settlement on the Payneham units Antonio would receive $50,000 as a no-interest loan and $10,000 for professional fees. The Leffler interests also agreed to lend Antonio $600,000 at a maximum interest of 9 per cent per annum to allow Antonio and Depent to develop the Parafield and O’Sullivan Beach properties.

On 10 July 2018, FMCL made separate loan offers to Antonio and GLOW. The purpose of the loans remained to purchase the Payneham units. A loan was made to Antonio for $367,402 with a lower rate of interest at 18 per cent and a higher rate at 36 per cent. The security required included mortgages over the O’Sullivan Beach and Parafield properties. The balance of the original amount of $1,437,937 was provided to GLOW by a separate loan. The guarantors were Gray, Leffler and Antonio.
In respect of the loan to Antonio, Conatur Legal instructed FMCL to pay the amount of $334,497 to GLOW and the balance to Summer Lawyers and Pacific for processing fees and pre-paid interest. FMCL made the advance in accordance with those directions on or about 23 July 2019. Antonio did not receive any of the advance.
An inference arises that the revision by FMCL from an offer of a single loan of $1,379,544.00 to two separate offers was motivated by an awareness of the high risk inherent in the low equity in the Payneham units, and the manifest imprudence of the De Pasquales volunteering their assets as security for the loan when, on the face of the single loan, there was no benefit to them.
The Payneham units were not on-sold within 60 days. Neither Antonio nor Depent were granted any security over the Payneham units. Ultimately FMCL exercised its power of sale of the Payneham units in September or October 2019. Neither Leffler nor his corporate entities made any payment on the loan. Neither Antonio nor Depent received any advance from Leffler or his companies. Leffler never procured a loan for Antonio and Depent to develop the Parafield and O’Sullivan Beach properties.
Antonio and Depent plead that Pacific breached both a contractual and tortious duty of care it owed them in arranging the FMCL loan. The tortious duty is founded on the foreseeability that Antonio and Depent would suffer loss and damage. The contractual duty is implied from Antonio’s and Depent’s contractual engagement of Pacific as their agent to arrange the FMCL loan. Antonio and Depent claim that Pacific ought not have accepted the engagement as agent because of its conflict of interest in acting for the Leffler parties. They claim that Pacific was aware of the substantial indebtedness of the Leffler interests and should have warned Antonio and Depent against taking the FMCL loan. They also allege that:
·Pacific ought to have made enquiries of the capacity of GLOW, Gray and Leffler on the one hand and Antonio and Depent on the other to service the loan;
·Pacific had past dealings with Gray and Leffler and knew that they often borrowed money on security provided by unrelated third parties;
·Pacific knew or ought to have known that Leffler and Gray were heavily geared and that the interest rate charged by FMCL was disproportionately high; and
Antonio and Depent claim against FMCL that it engaged in unconscionable conduct in procuring their guarantee because FMCL:
·knew that they would not benefit from the transaction;
·knew that Conatur Legal were also acting for GLOW, Leffler and Gray when they advised Antonio on the guarantees;
·did not have any information about serviceability from Antonio and had no reason to believe that GLOW could service the loan because it was aware that GLOW had existing borrowing;
·charged a disproportionately high interest rate; and
·ought to have advised Antonio and Depent that it was unlikely that any loan would be made to them after settlement on the resale of the Payneham units to allow the development of the Parafield and O’Sullivan Beach properties.
The De Pasquales and Depent allege that FMCL must have known that the loan was a high risk one because of the very little equity it left in the Payneham units, and because FMCL made no enquiry about the ability of GLOW or the guarantors to service the loan. It is also alleged that FMCL failed to ensure that Antonio and Depent obtained advice which was independent of the legal advisors of GLOW, Leffler and Gray.
Not surprisingly it is pleaded that if they had been properly advised Antonio and Depent would not have entered into the transaction with FMCL and would not have mortgaged the Parafield and O’Sullivan Beach properties. It is further alleged that the improvident transaction with FMCL was a substantial cause of their subsequent decisions to lend money from Borg and ASCF.
In October 2018, Leffler again met with Antonio and told him that TOM was expecting to soon procure a loan of $1.4 million. The representation was false. Leffler informed Antonio that the ‘financier required’ further security. He asked Antonio to mortgage his Simcock Street residence for that purpose. Leffler promised Antonio and Sally that there was no risk to them because they would receive in return security over Leffler’s property. That too was false. He promised that in return Antonio would have access to a line of credit secured by Leffler’s property portfolio and by properties owned by one Helen Gerard in Echunga in this State and potentially in Tasmania. That too was false. He promised that TOM would guarantee all loan repayments which Antonio might become liable to meet.
As we have seen, the truth was that Gray, Leffler, TOM and GLOW were deeply indebted and required the funds to pay their own debts.
In reliance on those representations, Antonio and Sally signed a document entitled ‘Promissory Note’ which was provided to them by Leffler through his agent Thompson. The document is a nonsense.
On 12 October 2018, Leffler sent Antonio an email into which had been copied an offer from the financier, Mr Borg (Borg). Borg is in the business of lending at high interest rates and specialises in asset lending where loans are advanced on the basis of the value of the asset securing the loan without regard to the borrower’s capacity to make repayments on the loan when they fall due.
Leffler and Gray contacted Conatur Legal to inform them that the De Pasquale’s had agreed to mortgage their Simock Street residence to secure a loan from Borg. Conatur Legal did not advise the De Pasquales that it was imprudent to provide their Simcock Street residence as security.
Antonio was told by Thompson that the advance from Borg was to fund a development he had undertaken in Mango Hill, Queensland. He told Antonio that he hoped to pay out the FMCL loan with the profit from that development (Check).
On 12 October 2018, Antonio and Sally drove to Borg’s business premises. Sally stayed in the car and Antonio entered the office alone. When Antonio told Borg that Sally had stayed in the car because there was no wheelchair access, Borg made arrangements for Sally to access a downstairs office and saw them both in that office. Antonio had understood that Gray and Leffler would be present and that the loan was to be provided to Gray, Leffler, TOM and GLOW with Antonio and Sally acting as guarantors. However, neither Gray nor Leffler were at Borg’s office. Borg asked Antonio to whom he should make out the cheque. Antonio replied that he would need to ask Leffler but neither Leffler nor Gray could be contacted by phone. Antonio did speak with Thompson who informed Antonio that an amount of $142,000 should be made payable to Michael Tsinglios. Sally and Antonio executed a loan agreement, a borrowers/mortgagors acknowledgement and authority, and a mortgage over their Simcock Street residence. The loan agreement showed that the borrowers were Depent, DePasquale Enterprises, Antonio and Sally for a principal sum of $145,650.00. The interest rate was 60 per cent per annum and was to be repaid within 60 days. They also signed a declaration of capacity to repay which indicated that the repayment would be made by refinancing. They waived their right to independent legal advice even though the terms of the documentation included a warranty that they had received independent legal and financial advice. The disbursement authority provided for payments as follows:
·$1,650 to Ruby Loans for brokerage.
·$1,500 to Borg for assessment fee.
·$500 to Borg for an establishment fee.
·$142,000 to MT Property Group (Tsinglios).
It is pleaded that the De Pasquales entered into the loan and mortgage transaction because they were misled by false representations made as part of a civil conspiracy between Gray and Leffler and because of their unconscionable conduct.
Unconscionable conduct is also alleged against Borg in that he knew that the loan was for the exclusive benefit of Gray, Leffler, TOM and GLOW in order to discharge their indebtedness to Tsinglios and that he knew that Sally was dependent on Antonio for advice. The De Pasquales allege that the nomination of Depent and DePasquales Enterprises as borrowers was a sham calculated to avoid the consequences of the Consumer Credit Code. It is alleged that Borg knew that no funds would go to Sally, Antonio or Depent. It is also alleged that Borg:
·did not inquire as to the capacity of Sally and Antonio to make payments from income;
·did not make any such enquiry of Leffler, Gray and their corporate entity; and
·charged a disproportionately high interest rate.
On 23 October 2018, FMCL sent an overdue reminder to Gray, Leffler and Depent.
On the same day Gray sent an email to Antonio asking him to sign another loan application which listed the Simcock Street residence as security. Antonio responded that the Simcock Street residence was overvalued and informed Gray that Sally did not want to be a guarantor. On 25 October, Gray sent Antonio an email with details of the loan which was proposed to be made to Antonio and Leffler with guarantees from Antonio and Sally as well as Leffler and Gray. It was proposed to apply the proceeds of the loan as follows:
·to repay Borg in the sum of $142,000;
·to pay $230,000 on a development property described as Mango Hill;
·pay Pippingarra the sum of $50,000;
·make a credit card payment of ‘$30,000’; and
·pay FMCL in the sum of $40,000.
The total loan was for $542,000.
Gray’s email referred to some other transactions which need not be detailed here. The document described the complex transactions proposed as an ‘exit strategy’ and suggested that the loan would extricate Antonio and Sally from their guarantee obligations. Gray urged Antonio and Sally to sign the loan application quickly so that it could be submitted before 26 October. Antonio complained by return email that Gray had not clarified the financial situation and that the Simcock Street residence was his last asset for which he had worked hard over 45 years. Antonio explained that he was not in the arrangement to get rich, but just wanted a basic living with his wife, who has a health condition, for their twilight years. He complained that he had only participated in the Borg loan arrangement on the basis that he would be repaid promptly. He said that he needed greater assurance on how Gray and Leffler proposed to resolve the matter.
Leffler continued to pursue Antonio to provide security over his Simcock Street residence. On 26 October 2018, he sent an email to Antonio in which he represented that:
·he would pay Antonio $500,000 within a month;
·he would make all interest payments on the loans secured on Antonio’s properties;
·a line of credit construction loan would be made available to Antonio instantly so that he could proceed with developments on the Parafield Gardens and O’Sullivan Beach properties;
·he would have a line of credit to refinance the high interest loans; and
·he personally guaranteed the loans and fees advanced to GLOW.
Those statements were false and unfounded.
On 27 October 2018, Antonio replied by email saying that he was more confused than ever and that he would seek professional advice.
By email sent on 28 October 2018, Leffler complained strongly that Antonio was contemplating delaying or breaking their agreement. He emphasised that it was urgent to secure a loan for $1.3 million dollars which would be available on Friday. He stressed that they had to meet tonight or their plans would fail. He warned of huge risks and high penalties and interest if the refinancing was not arranged. The email culminated with the following peculiarly expressed complaint:
If you cannot action logic or allow us to fulfil our objectives because your views or judgement on a situation which no one took the time to give a few mind’s eye perspective which polarity is the corresponding principle used to imagine decisions on judging.
It is not fair as we have an agreement and because others who feel that they are within their own self-serving interests in mind.
The agreement which we sign is in breach which means we are not being treated fairly.
So tonight either phone meeting or face-to-face tonight before 9:30pm no room for declining without knowing we have pretty much we will go into default.
On the same day, Gray sent Antonio an email stating that she and Leffler would like to visit Antonio that night to resolve all issues which were ‘now urgent’. Leffler followed with an email in which he warned ‘we need to act tonight or we are in serious trouble’.
On 29 October 2018, Antonio sent an email to Leffler and Gray stating that he was available to attend the meeting, but that he was opposed to ‘cross collateralisation’ as part of any exit path. He stated that he did not want to ‘tie individuals and their families into projects that they do not necessarily be part of’. Leffler replied with an email, again, making promises that the arrangement would benefit Antonio financially. The representations made in the emails by Gray and Leffler were misleading and deceptive in that they had no intention to make payments to Antonio and there was no reasonable basis for them representing that they would.
On 30 October 2018, Summer Lawyers acting for FMCL sent a Notice of Default to GLOW, Depent, Leffler, Gray and Antonio demanding payment of $20,504.31.
On 31 October 2018, Borg attended on Sally and Antonio at their home. He presented a Deed of Variation which increased the amount he would lend from $145,650 to $348,850 (the Borg loan) and recorded that the amount outstanding as at the date of variation was $353,399.07. Sally did not read the documents but signed them anyway at Borg’s request. The additional loan from Borg was paid out as follows:
·$100,000 was paid to TOM;
·$10,000 was for interest on the FMCL loan; and
·$90,000 for a development project undertaken by Leffler and Gray in Queensland known as Mango Hill.
Antonio and Sally plead unconscionable conduct against Borg in entering into that transaction.
On 7 November 2018, ASCF offered to provide a loan to Depent and DePasquale Enterprises to be guaranteed by Sally and Antonio on the following terms:
·Facility limit $630,000;
·Term of loan three months;
·Interest rate of 3 per cent, per month;
·Security of Simcock Street residence;
·Interest pre-paid for two months;
·Interest payments thereafter monthly in advance;
·The amount available to be disbursed after deduction of fees and pre‑paid interest was $570,220.
ASCF did not make any enquiry of Antonio, Sally, DePasquale Enterprises or Depent as to their capacity to repay the loan before making that offer.
How and why the offer came to be made is not clear, but it was probably as a result of an application made by Platinum Mortgage Management Pty Ltd (Platinum). Platinum was at relevant times a finance broker and its principal was Robert Kirk (Kirk). Kirk had in the past secured finance for GLOW, TOM, Leffler and Gray.
The Letter of Offer was signed by Sally and Antonio as principals of Depent and DePasquale Enterprises. After the Letter of Offer had been signed Gray sent an email to Antonio asking him to sign an application form prepared by Kirk for that loan. The application form stated that the purpose of the loan was to consolidate first tier and expensive short term second tier funding of $401,441, and nominated Conatur Legal as the solicitors providing advice on the loan. The Application Form recorded that Antonio had debts of $788,687 with monthly payments of $23,285. It recorded that Sally had a debt of $30,000. The application form did not disclose any capacity to service the loan from income but did state that Sally was not employed.
On 19 November 2019, Summer Lawyers forwarded to Conatur Legal a bundle of documents relating to the ASCF loan for execution. The De Pasquales plead that ASCF therefore knew, or reasonably ought to have known through Summer Lawyers, of the existing default on the FMCL loans and that they bore a high rate of interest. They would also have known that:
·Sally was dependent on Antonio;
·Sally received no benefit from the transaction;
·none of Depent, Sally or Antonio had any means to service the loan; and
·the De Pasquales were providing security for Leffler, Gray and their corporate entities.
Summer Lawyers informed Conatur Legal when it sent the documents that ASCF required that each debtor have independent advice, and that in the event that a guarantor or mortgagor had obtained no benefit from the transaction, legal advice must be provided by solicitors independent of any debtor and that the advice not be given in the presence of those debtors. Conatur Legal advised Sally and Antonio on the loan transaction in each other’s presence. At the time Conatur Legal was acting for Leffler, Gray, TOM and GLOW, who were heavily indebted to Conatur Legal for fees.
The De Pasquales allege that ASCF sought a Guarantors Advice Declaration to shield it from any allegation of unconscionable conduct.
On 20 November 2018, Summer Lawyers acting for FMCL sent a notice to Depent requesting that the occupiers vacate the O’Sullivan Beach property in order to allow FMCL to exercise its power of sale over it. At that time Summer Lawyers was acting for ASCF in preparing the loan documentation.
On 28 November 2018, Antonio forwarded the notice from Summer Lawyers to Conatur Legal and sought advice as to what he should do. He did not receive a response.
On 20 November 2018, Gray wrote to Antonio informing him that she and Leffler would pay the Conatur Legal bill. She informed him that he and Sally should attend Conatur Legal with photographic ID. She informed them that she would forward Borg’s discharge to Conatur Legal. The Borg payout figure at that time was $371,441.57.
On 20 November 2018, the following documents were executed by Sally and Antonio before Matti and Conatur Legal:
·A mortgage to ASCF of the Simcock property;
·A resolution of DePasquale Enterprises;
·A resolution of Depent;
·A Debtors Advice Declaration stating that each of Sally and Antonio understood the mortgage and had obtained independent legal advice;
·A Guarantor’s Advice Declaration stating that Antonio and Sally had understood the terms of the guarantee and its financial impact;
·A statement declaring that Sally was in gainful employment when it was well known to Matti that she was not. It was also stated that Antonio was in gainful employment which he was not;
·Powers of Attorney;
·Privacy Act Declarations.
On that occasion, Matti executed a certificate certifying that he had provided advice to each of Antonio and Sally about the legal effect of the guarantee and that they had understood the financial risks of signing the guarantee. However, he had not given any such advice. Antonio pointed out to Matti that the documents did not show the Leffler’s corporate entity was the borrower. He told Matti that he and Sally could not afford to repay the loan. Matti responded with words to the effect that he had to sign the documents urgently as otherwise the finance would expire. Sally said ‘I hope I am doing the right thing’. Matti assured her that she was.

The mortgage provided a lower rate of interest of 1.5 per cent, per month and a higher rate of 3 per cent. It provided for pre-paid interest of two months in the sum of $15,570 to be deducted from the principal. It provided a loan management fee of 0.2 per cent to be paid monthly. It was executed by a solicitor from the firm Summer Lawyers on behalf of ASCF on 7 December 2018. It is pleaded that in all of those circumstances ASCF knew or ought to have known of Sally’s disability. ASCF should also have known that the Borg loan was to at least partly repay an existing high rate of interest and that the Borg loan had not been for the benefit of Antonio and Sally, but to pay liabilities of Gray and Leffler and their corporate entities. ASCF should also have known that there was no evidence of any capacity to repay. They should also have known that Conatur Legal acted for Leffler and Gray.
The De Pasquales’ claim against Conatur Legal is for breach of its duty to them as a solicitor in failing to warn them against the transaction.
On 29 November 2018, Antonio sent an email to Summer Lawyers requesting particulars of the amount of indebtedness. Summer Lawyers responded claiming that the arrears on the GLOW loan with FMCL were $39,074.62.
As of 7 December 2018, Hopeland Homes a corporate entity controlled by Michael Tsinglios placed a caveat on the Simcock Street home residence. Antonio and Sally did not know that the caveat had been placed on their home and did not understand what possible foundation there was for it.
On 10 December 2018, communications between Gray and Leffler which were also sent to Kirk, advised that the loan would be disbursed as follows:
·Borg $377,500;
·Conatur Legal $15,000 for an account outstanding for work done at the request of Leffler and Gray;
·$26,818 to Michael Tsinglios to lift the Hopeland Homes caveat;
·$20,505 interest on another loan.
The email also referred to a need to have Antonio agree to the payment of the fee to Tsinglios and requested that a solicitor at Conatur Legal arrange that. As of 11 December 2011, Conatur Legal claimed to be owed legal costs in the amount of $9,561.90 by the Leffler interests, including $122.10 in respect of the guarantee advice to the De Pasquales, $244.20 for an attendance on Antonio and Sally and the man, Thompson. The balance was for fees charged in respect of communications between Conatur Legal, the Leffler interests, Borg and Summer Lawyers.
In a number of emails between 11 and 13 December, Leffler gave directions that the balance of any ASCF funds not paid to meet the obligations specified by him, should be paid to FMCL in the sum of $25,000, and Conatur Legal in the sum of $8,000. He allowed for an amount of $5,000 to be paid to the De Pasquales, but that any remainder be paid to GLOW directly.
The actual disbursement of the ASCF loan was as follows:
·$2,450 to Summer Lawyers;
·$12,550 to ASCF for establishment fee;
·$15,750 in pre-paid interest;
·Brokerage $11,550;
·Westpac/St George $31,670.33 (that was the existing loan on Simcock Street which meant that the 5.2 per annum interest payable to St George was replaced with interest of 3 per cent, per month).
·$378,996.42 to Borg;
·$24,835.95 to Tsinglios to remove the Hopeland Homes caveat;
·$1,980 to Asset Conveyancing;
·$9,561.91 to Conatur Legal;
·$33,903.39 to Antonio.
The De Pasquales plead a breach of duty of care against ASCF arising from its knowledge of the circumstances which rendered it imprudent for the De Pasquales and their corporate entities to enter into the ASCF. They also plead that ASCF acted unconscionably by reason of its knowledge of the preceding circumstances.
On 23 May 2019, Summer Lawyers served Antonio and Sally with a Notice of Default on the ASCF loan and in July 2019 instituted proceedings.
From October 2018 to March 2019, Antonio made substantial payments of interest to FMCL. Between February and March 2019, he made payments of interest to ASCF. FMCL sold the properties at O’Sullivan Beach and Parafield, it is alleged to have been undervalue. Parafield was sold in December 2019 and O’Sullivan Beach in June 2020.
Security for Costs – The Discretion
UCR 115.1 provides:
115.1—Security for costs
(1)The Court may order that an applicant in an action provide security for costs if—
(a)     the applicant is bringing the claim or application for someone else’s benefit;
(b)     the applicant is ordinarily resident outside Australia;
(c)     there are reasonable grounds to suspect that the action has been brought for an ulterior purpose;
(d)     the order is authorised by statute; or
(e)     the order is necessary in the interests of justice.
Note—
Section 1335 of the Corporations Act 2001 (Cth), section 19 of the Service and Execution of Process Act 1992 (Cth) and section 15 of the Trans-Tasman Proceedings Act 2010 (Cth) empower the Court to order security for costs in defined circumstances.
(2)The Court may order a stay of the action until security is given.
(3)The Court may vary or revoke an order for security for costs and may order further security.
(4)If security is not given, the Court may dismiss the action.
(5)If the action has been stayed under subrule (2) for 6 months without security having been given, the action is automatically dismissed for want of prosecution.
(6)If the action is dismissed under subrule (4) or (5), the Court may, for special reasons, reinstate the action.
In Reschke v Trevor Reschke Nominees Pty Ltd; Reschke v Australian Executor Trustees Ltd (Reschke),[1] Blue J held that subparagraphs (1) to (d) of UCR 115.1 applied a two-stage test. The first stage requires the defendant to establish the precondition of impecuniosity. Once established, a discretionary power is enlivened to make an order for security, if it is proper to do so in all of the relevant circumstances of the case. Blue J explained that, by contrast, subparagraph (e) imposes a single test.
[1] [2020] SASC 60 at [43].
Blue J referred to the well-established principle that an order for security for costs will not generally be ordered against a natural plaintiff if to do so would stultify the action.[2] In that respect, Blue J cited the statement of Megarry V-C in Pearson v Naydler:[3]
The basic rule that a natural person who sues will not be ordered to give security for costs however poor he is, is ancient and well-established. As Bowen LJ said in Cowell v Taylor, both at law and in equity ‘the general rule is that poverty is no bar to a litigant’. The power to require security for costs ought not to be used so as to bar even the poorest man from the courts.
[2] At [44].
[3] [1977] 3 All ER 531.
In the case of a natural person, stultification of the action therefore generally precludes an order for security, but proof of stultification, that is, that an order for security for costs will ‘bar’ the action, lies on the plaintiff.
UCR 115.1(1)(d) and s 1335 of the Corporations Act 2001 (Cth) (the Act) apply to DePasquale Enterprises and Depent. Pursuant to s 1335, ASCF bears an onus to prove there is reason to believe that the De Pasquale companies will be unable to pay ASCF’s costs if it is unsuccessful. Once that threshold is crossed, the Court’s discretion is enlivened.[4]
[4] Mannix Electrical Pty Ltd v Belport Pty Ltd (2019) 134 SASR 438 at [11]-[12], per Doyle J.
In the case of a corporation, therefore, stultification is an important factor against ordering security but it is not decisive. The policy rationale for the distinction between corporations and natural persons is to ensure the corporate veil does not shield shareholders from the risks of litigation, whilst allowing them to benefit should the action be successful. In the case of a corporation, the ultimate question was articulated by Hodgson JA in Dae Boong International Co Pty Ltd v Gray as follows:[5]
Ultimately it seems to me the question to be determined by the court is whether it is fair that the person being sued by the company should be in the position of having to incur substantial costs, in this case perhaps tens of thousands of dollars of costs, and being at risk of liability for the company’s costs, and yet have no real chance of recovering costs even if the action is unsuccessful …
[5] [2009] NSWCA 11 at [27].
Section 1335 of the Corporations Act 2001 (Cth) requires there to be credible testimony that there is a reason to believe that a corporate plaintiff cannot meet an adverse costs order. If that is established, then the Court considers the exercise of its discretion to order security for costs.[6]
[6] Mannix Electrical Pty Ltd v Belport Pty Ltd (2019) 134 SASR 438 at [11]-[12].
In respect of an application for security pursuant to r 115.1(1)(e), Blue J made the following observations:
·Before the court determines that it is appropriate to make an order under rule 115.1(1)(e), it must take into account all the relevant circumstances; and
·If, upon doing so, the Court concludes that an order for security is necessary in the interests of justice, there is no room for the exercise of a residual discretion not to make an order.[7]
·Although security of costs would not ordinarily be ordered against a natural person if it would stultify the proceedings.[8] In Merribee Pastoral Industries Pty Ltd & Ors v Australia and New Zealand Banking Group Ltd (Merribee), Kirby J said:[9]
… the inability of a party to meet the costs of an unsuccessful proceeding is not irrelevant to the exercise of the jurisdiction. Litigation is inevitably expensive and burdensome. To add to the burdens of a party successful in the outcome, those of paying its costs with little or no prospect of recovery under an order for costs may, in particular circumstances, be a reason for offering a measure of protection to that party by way of security for costs.
[Footnotes omitted.]
·If the applicant’s claim is not bona fide or the prospect of the applicant’s claim succeeding is remote, this will reduce or eliminate the potential prejudice suffered by the applicant to be weighed in the scales.[10] As was stated by Kirby J in Merribee:[11]
… if a proceeding appeared hopeless and such as was bound to fail, the lack of apparent merit in a party’s case might be a reason for ordering it to provide security for the costs to which, it appears, it is needlessly putting its opponent.
[7] Strazdins v ANZ Banking Group Ltd [2017] SASC 3, cited with approval in Reschke v Trevor Reschke Nominees Pty Ltd; Reschke v Australian Executor Trustees Ltd [2020] SASC 60 at [43].
[8] Reschke v Trevor Reschke Nominees Pty Ltd; Reschke v Australian Executor Trustees Ltd [2020] SASC 60 at [45].
[9] (1998) 193 CLR 502 at [26].
[10] Reschke v Trevor Reschke Nominees Pty Ltd; Reschke v Australian Executor Trustees Ltd [2020] SASC 60 at [42].
[11] Merribee Pastoral Industries Pty Ltd & Ors v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502 at [26].
There is no predisposition in favour of, or against, requiring security. The Court must balance the potential hardship or injustice a respondent may suffer if there is no security for its costs against the hardship or injustice the applicant may suffer if required to give security.[12]
[12] Adelaide (SA Pools & Spa) Manufacturing and Installation Pty Ltd v Westcourt General Insurance Brokers Pty Ltd [2016] SASC 60 at [12], per Doyle J.
In Dictating Machine Centre Pty Ltd v Combe,[13] Mitchell J identified seven potential factors that are often considered, namely:
1.the true role of the applicant;
2.the existence of any special relationship between the applicant and the respondent;
3.the time at which the application for security for costs is made;
4.whether the applicant’s claim is bona fide;
5.the prospect of the applicant’s claim succeeding;
6.the oppressive use of the application for security; and
7.the applicant’s want of means induced by the respondent.
[13] (1981) 26 SASR 316.
Consideration
ASCF submits that it is plain that the De Pasquales, Depent and DePasquale Enterprises are impecunious. So much can be accepted. ASCF submits that on a proper balancing of their respective competing interests an order for security for costs should be made because:
·the cross-claim extends beyond a defensive action;
·the claims made against multiple cross respondents are complex and the trial is likely to exceed seven weeks;
·there are likely to be ongoing disputes about particulars before the pleadings have closed;
·discovery will be a substantial exercise (that submission is made as to the company).
ASCF submits that it has not been shown that they are the cause of the De Pasquales’ impecuniosity. That, too, can be accepted. It was the earlier transactions with FMCL and Borg which have left them impecunious.
ASCF complains that the De Pasquales could have brought the cross-claim against the broker’s solicitors, FMCL and Borg earlier. However, ASCF issued a Notice of Default against the De Pasquales in 2019, and then brought proceedings for an order for possession. That order was granted by a Master of this Court on 19 December 2019. The De Pasquales appealed to a single Judge of this Court who, on 2 March 2021, made orders allowing the appeal and transferring the application to the ordinary civil list to continue on the pleadings. A defence was filed by the De Pasquales on 16 August 2022, and a counterclaim and third-party claim was filed on 17 August 2022. A revision of the statement of cross-claim was filed on 22 August 2022, bringing the claims against the other respondents. The cross-respondents entered appearances between 22 August 2022 and 9 September 2022.
I accept that if the litigation had been conducted as expeditiously as it could be, a sight which is rarely seen, the De Pasquales ought to have brought proceedings against the other respondents earlier. However, naturally enough, their first priority was to save their Simcock Street home. After they had secured their home, pending litigation in the ordinary civil list, they acted reasonably promptly in bringing their cross action.
In any event, it is most unlikely that the actions against the other cross‑respondents would have progressed very far even if initiated earlier. Given the commonality of the factual context of all of their cross-claims, the actions against the cross-respondents are likely to have been consolidated with the actions against ASCF for reasons similar to those I gave for dismissing of the application for separate trials.
The De Pasquales might also be criticised for not bringing the proceedings against FMCL, Borg, the brokers, and the solicitors in respect of the transactions soon after entering into them, but it is in the very nature of a fraud like that they allege against the Leffler parties, including as it does poor, advice from the brokers and solicitors engaged by the Leffler interests, that the De Pasquales hoped against hope that the ASCF loan might extricate them from those difficulties. A court will hesitate before making an order which may well stultify complex actions alleging a series of common law or equitable frauds.
It is for the applicant to establish that the proceedings would be stultified by security for costs. I have no difficulty in finding that that is so. The De Pasquales and their corporate entities have no visible means of income.
Moreover, because Antonio in his own capacity, and as principal of the corporate entities, conducted the transactions, there are very few, if any, factual or legal issues which are peculiar to Antonio and which would not affect the corporate entities. In those circumstances, there is very little unfairness in allowing the actions by the corporate entities to proceed without requiring them to provide security for their costs. Antonio and Sally have brought actions personally, as well as through Depent and Depasquale Enterprises. It is difficult to see how the corporate entities could be successful if Sally and Antonio fail, in which case Sally and Antonio will be liable for the costs of the cross-claim personally. If the corporate entities do succeed but Antonio and Sally fail, their share equity in the successful corporations will be available to any successful cross-respondent.
ASCF contends that a significant factor in the decision to order security for costs is that the cross claimants do not have a pleaded case to explain how they can ‘defeat’ the ASCF loan and mortgage. By that, I take them to mean that even if the loan and mortgage were unconscionable transactions, in the ordinary course equity would allow recovery at the very least of the principal advanced and would maintain the security on Simcock Street for that purpose. However, in this case much will depend on the degree of ASCF’s knowledge of the series of preceding transactions.
An inference can be drawn from the circumstances referred to in [71] to [78] that ASCF knew of the factors which rendered the transactions it entered into with the De Pasquales unconscionable and therefore liable to be set aside.
ASCF contends that the De Pasquales’ case is nonetheless inherently weak because the ASCF loan was at a lower rate of interest and required lower repayments than the loans it replaced. However, it is sufficient, to disclose at least an arguable case, that by entering into the ASCF loan the De Pasquales increased their overall indebtedness and put at risk any remaining prospects of retaining their Simcock Street residence.
The Leffler parties, too, say that the question is one of judicial balancing.[14] The prejudice on which they rely is the complexity of the case including the lengthy pleading, the length of the expected trial (more than seven weeks), and substantial discovery. The Leffler parties submit that the cross claimants have not adequately demonstrated a link between their impecuniosity and the actions of the respondent. They anchor their submission on the pleading that Antonio was vulnerable to making imprudent financial decisions. Antonio’s vulnerability does not preclude a finding that the conduct of the Leffler parties caused his impecuniosity. On the contrary, the vulnerability explains why the fraud the Leffler parties are alleged to have perpetrated was effective. Nor does the De Pasquales desire to undertake the developments preclude a finding that the conduct of the Leffler/Gray parties was a substantial cause of their loss. The Leffler parties, on the pleading in the cross-claim, opportunistically played on that very desire.
[14] Madgwick v Kelly [2013] FCAFC 61, (2013) 212 FCR 1 at [70], per Allsop CJ and Middleton J.
FMCL points to several circumstances which warrant an order for security for costs. First, FMCL contends that the pleading that FMCL knew there was no benefit to the De Pasquales is inadequate. They submit that:
·the arrangement between the De Pasquales and Depent, on the one hand, and the Leffler interests, shows that there was a real benefit to the De Pasquales and Depent in guaranteeing the loan which was disbursed to the Leffler interests; and
·it is pleaded that Belor knew that the loan was not for the De Pasquales benefit, there is no pleading that his knowledge was conveyed to FMCL.
On the face of the documentation, the borrowers were not shown to be the De Pasquales or Depent. Belor was the agent of FMCL. FMCL was arguably on notice from the splitting of the single loan into two loans, the total of which was the purchase price of the Payneham units, that the advance was not for Antonio’s benefit.
FMCL complains that there is no foundation for the unconscionability claim. It also contends that there is no foundation for the alleged duty to make further enquiries, nor to require that the De Pasquales receive separate legal advice. It submits that it could not have known what, if any, arrangements had been made within Conatur Legal in respect of such matters. The allegations made against FMCL have an evidential foundation capable of proving the elements of unconscionability referred to in [45] above. FMCL also complains that it is not pleaded how the absence of information about income and serviceability gave rise to knowledge or a realisation that recovery would depend on realisation of the security. Those submissions are unrealistic given that the repayment of the loan depended entirely on the Leffler interests quickly on-selling the Payneham units. If they were not sold, the security offered by the De Pasquales and Depent would almost certainly be lost.
Conclusion

I dismiss the applications for security for costs.

[2023] SASC 157

1 November 2023