Garlick v Kerbaj & Ors

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

PROPERTY LIST

S ECI 2020 02573

DARRYN GARLICK AS REPRESENTATIVE OF THE ESTATE OF JACK JOHN ERMAN

Plaintiff

DANIEL KERBAJ & ORS

(according to the attached schedule)

Defendant

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JUDGE:	Matthews AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	20 May 2022
DATE OF JUDGMENT:	17 June 2022
CASE MAY BE CITED AS:	Garlick v Kerbaj & Ors
MEDIUM NEUTRAL CITATION:	[2022] VSC 336

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PRACTICE AND PROCEDURE – Application to set aside or vary consent orders so as to require payment of monies into court – Underlying agreement voidable for misrepresentation – Harvey v Phillips (1956) 95 CLR 235 – Civil Procedure Act 2010 (Vic) – Breach of overarching obligations to act honestly, not to engage in conduct which is misleading or deceptive and to have a proper basis for claims made in a civil proceeding – Bolitho v Banksia Securities (No 18) (remitter) [2021] VSC 666.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P Lennon
For the First Defendant	Mr S Clement	EC Legal
For the Third and Fourth Defendant	Mr P Lennon
No appearance by the Second Defendant
The Fifth Defendant was excused from appearing

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Background......................................................................................................................................... 2

Factual background...................................................................................................................... 2
Explanation of what is sought by the Application................................................................... 6
Procedural background in respect of the Application............................................................. 7

Evidence............................................................................................................................................... 8

Relevant content of the First Jane Lennon Affidavit................................................................ 8
Evidence relied upon by Kerbaj.................................................................................................. 9
The First Loan...................................................................................................................... 9
The Second Loan.................................................................................................................. 9
The Third Loan.................................................................................................................. 10
Communications with the borrowers and lenders before the hearing of the Caveat Removal Application............................................................................................................. 10
The Consent Orders and receipt of $310,000................................................................. 11
Ali’s and Horner’s continued representations.............................................................. 11

The Second Jane Lennon Affidavit and the Pat Lennon Affidavit...................................... 12

Kerbaj’s submissions...................................................................................................................... 15

Power to make the orders sought............................................................................................. 15
Setting aside the Consent Orders on the grounds of misrepresentation or fraud............ 16
Reliance on the CPA................................................................................................................... 18
The Agreement provides for repayment................................................................................. 21

Submissions by Garlick, Ali and Horner.................................................................................... 22

Proposition that the Ali & Horner Caveat secures the Second Loan and the Third Loan 23
Proposition that there has been no fraud, misrepresentation or misleading conduct...... 26
No fraud/misrepresentation or misleading conduct as disclosure of the Second and Third Loans would not have made any difference to Kerbaj.................................... 26
As a matter of construction, the First Jane Lennon Affidavit is not misleading or false 27
No fraud/misrepresentation or dishonesty as it was believed that the Second and Third Loans were secured and protected by the Ali & Horner Caveat.................... 28

Tacking......................................................................................................................................... 29
Other............................................................................................................................................. 30

Analysis.............................................................................................................................................. 31

The Settlement Statement, the First Jane Lennon Affidavit, and the Filed Loan Account Statement contain statements or representations which are false................................................ 31
Misrepresentations............................................................................................................ 31
Are the Second and Third Loans secured by Ali & Horner Caveat?......................... 34
Discussion of other matters relied upon by the Respondents to contend that there has been no fraud, misrepresentation or misleading conduct........................................ 36
The relevant persons believed the Second and Third Loans were secured by the Ali & Horner Caveat.................................................................................. 36
Disclosure of the true position would have made no difference to Kerbaj. 36
Any consideration of repayment should await trial....................................... 38

Tacking......................................................................................................................................... 38
Should the Consent Orders be set aside or varied so as to require repayment of the Overpayment?.............................................................................................................................................. 39
Ordering the repayment of the Overpayment on the basis of the terms of the Agreement 41
Who should repay the Overpayment....................................................................................... 41
Breach of overarching obligations in the CPA........................................................................ 42
Erman, Ali and Horner..................................................................................................... 42
Mr Lennon.......................................................................................................................... 45
Ms Lennon.......................................................................................................................... 45
Other matters concerning Mr Lennon and Ms Lennon – referral to the Legal Services Commissioner........................................................................................................ 46

Conclusion......................................................................................................................................... 47

HER HONOUR:

Introduction

This proceeding concerns a dispute over entitlements to approximately $363,000 held by the Senior Master pursuant to orders made on 22 June 2020 (‘Consent Orders’). Those orders were made following an agreement reached between the relevant parties, which I will explain shortly.

This decision concerns an application made by summons dated 17 February 2022 (‘Application’)[1] by Daniel Kerbaj, the first defendant (‘Kerbaj’), that part of the amount paid out pursuant to the agreement and the Consent Orders to Graham George Ali, the third defendant (‘Ali’), and Victoria Louise Horner, the fourth defendant (‘Horner’), be paid into Court pending the resolution of the proceeding. I will explain the specifics of the Application shortly.
[1]By order made on 20 May 2022 by the Honourable Justice McDonald on the Court’s own motion, the Application was referred to me for hearing and determination.

In support of the Application, Kerbaj relies on the following material:

(a) affidavits of James Woods affirmed 16 February 2022 (‘First Woods Affidavit’) and 29 April 2022 (‘Second Woods Affidavit’);

(b) affidavits of Jane Lennon sworn 18 June 2020 (‘First Jane Lennon Affidavit’) and 22 April 2022 (‘Second Jane Lennon Affidavit’);

(c) affidavit of Patrick Lennon sworn 19 May 2022 (‘Pat Lennon Affidavit’);[2]

(d) other documents filed in the proceeding identified and contained in a paginated bundle of documents (‘Application Book’); and

(e) written outlines of his counsel dated 6 May 2022 (‘Written Outline’).

[2]This affidavit was originally sworn 22 April 2022 but for reasons which are immaterial to these reasons was not accepted for filing by the Prothonotary. It was provided to my Associate and to the other parties on that date. Mr Lennon swore a new version of that affidavit which contained the same content on 19 May 2022, which is the affidavit referred to in these reasons as the Pat Lennon Affidavit. Nothing turns on the differences between the two affidavits, which are in respect of form only.

In opposition to the Application, Darryn Garlick (‘Garlick’) as representative of the estate of Jack John Erman (‘Erman’), the plaintiff in this proceeding, Ali and Horner rely on the following material:

(a) the First Jane Lennon Affidavit and the Second Jane Lennon Affidavit;

(b) the Pat Lennon Affidavit; and

(c) Memorandum of Common Provisions AA3553 (‘MCP’), tendered as exhibit A.

Extensive oral submissions were made at the hearing, and reference was made to the Application Book, including the material referred to above.

All of the material relied upon has been taken into account, whether specifically referred to or not.

For the reasons which follow, orders will be made requiring Ali and Horner, and Argyle Lending Pty Ltd (‘Argyle’), to pay the sum of $194,330.36 into Court pending the outcome of the proceeding.

Background
Factual background

By orders made by me on 22 April 2022 and with his consent, Garlick was appointed to represent the estate of Erman in this proceeding, following the sudden death of Erman on 20 March 2022.[3]
[3]Affidavit of Patrick Lennon sworn 21 April 2022, [3].

Until June 2020, Erman owned the property located at Unit 4, 204 The Boulevard, Ivanhoe East, Victoria (‘Property’).

On 6 May 2020, Erman entered into a contract of sale to sell the Property (‘Contract’), with settlement under the Contract due to occur on 22 June 2020. The purchaser under the Contract lodged a purchaser’s caveat on the title to the Property on 8 May 2020.

As at 16 June 2020, in addition to the purchaser’s caveat there were four caveats registered on the title to the Property, as follows:[4]
[4]Application Book, 184-186.

Caveat number

Caveator

Interest claimed

Date caveat registered

Date of claimed interest

AS229383B (‘Cohen Caveat’)

Marzelle Susana Cohen

Freehold estate on grounds of implied, resulting or constructive trust

5 June 2019

AS397786K (‘Ali & Horner Caveat’)

Graeme George Ali & Victoria Louise Horner

Interest as chargee on grounds of agreement with registered proprietor

31 July 2019

27 June 2019

AS973505L (‘Lightspeed Caveat’)

Lightspeed Mortgage Management Pty Ltd

Interest as chargee on grounds of agreement with registered proprietor

10 February 2020

6 December 2019

AT056985Y (‘Kerbaj Caveat’)

Daniel Kerbaj

Interest as chargee on grounds of agreement with registered proprietor

6 March 2020

20 February 2020

There were also four warrants of seizure and sale registered on title, in favour of Credit Corp Services Pty Ltd (‘Credit Corp’) (the ‘Credit Corp Warrants’).

By originating motion filed 16 June 2020 in this proceeding, Erman sought urgent relief pursuant to s 90(3) of the Transfer of Land Act 1958 (Vic) for the removal of the Kerbaj Caveat (‘Caveat Removal Application’). At the hearing of the Caveat Removal Application on 18 June 2020 before the Honourable Justice Incerti, Erman produced a settlement statement prepared by his solicitors, Lennon Lawyers (‘Settlement Statement’), identifying the values of some of the caveators’ interests.[5] This included Ali and Horner, whom the Settlement Statement identified as being owed $350,000. The First Jane Lennon Affidavit was provided to the Court and the parties. In that affidavit, Ms Lennon deposed that she was the director of Argyle and had facilitated a loan between Erman as borrower and Ali and Horner as lenders, that the payout figure for Ali and Horner was nearly $310,000 and that Argyle and Ali and Horner had incurred substantial costs inclusive of costs of Lennon Lawyers which she estimated at $30,000 to $40,000.[6]
[5]Application Book, 12.
[6]First Jane Lennon Affidavit, [1], [3], [8], [9].

After the hearing of the Caveat Removal Application but prior to judgment being delivered in respect of it, Erman, Marzelle Cohen (‘Cohen’), Ali, Horner, Kerbaj and Credit Corp reached a settlement of that application so as to enable settlement of the Contract to occur and for specified funds to be paid into Court, subject to a later determination of each caveator’s alleged interest in the Property. A written agreement to that effect was entered into on 19 June 2020 (‘Agreement’),[7] which led to the Consent Orders being made on 22 June 2020.
[7]Application Book, 15-19.

The recitals to the Agreement state that Cohen, Ali, Horner and Kerbaj all have claims for the payment of money to them from Erman with security being given over the Property for the amount of those claims, Credit Corp has four warrants registered on the title, there is a dispute between the parties as to either or both of the amounts owed to each and the priority of payment of any amounts due between the parties, the Property is subject to the Contract and is due to settle on 22 June 2020, and the Agreement is being entered into so that settlement of the sale of the Property may proceed.

The Agreement sets out certain payments which were to be made from the proceeds of sale at settlement, amongst which was a sum of $310,000 to be paid to Ali and Horner (described jointly as the second caveator), with the balance after other payments specified in the Agreement to be paid into Court.[8] Lightspeed Mortgage Management Pty Ltd (‘Lightspeed’) was to be paid out and the Lightspeed Caveat removed. The Agreement went on to state that the amount payable to Ali and Horner “is an estimated amount due and not in full and final settlement of the claim by Ali and Horner”.[9]
[8]Agreement, clause 2.2.1 (Application Book, 17).
[9]Agreement, clause 2.2.2 (Application Book, 17).

Clause 2.2.3 of the Agreement provides as follows:

The rights of all parties to question or seek recovery of the amounts paid from the proceeds of sale at the settlement and claim all or part of the balance held in the Supreme Court Fund are reserved and interests of the parties in the balance held in the Supreme Court Fund shall be the same as prior to the settlement of the Property.

The parties agreed to provide withdrawals of the caveats (being the four caveats set out in the table at paragraph 11 above) or discharge or memorandum of satisfaction of the Credit Corp Warrants so as to provide clear title to the purchaser of the Property.[10]
[10]Agreement, clause 2.2.4 (Application Book, 18).

The Agreement contains provisions for the parties to seek to resolve their disputes as to the amounts due and the priority of payments, and for proceedings to commence or continue if they remained unresolved.[11]
[11]Agreement, clause 2.3 (Application Book, 18).

The Consent Orders relevantly provided for the payments which had been agreed to in the Agreement, including the payment of $310,000 to Ali and Horner, with the balance after the specified payments to be paid into Court to the Senior Master (‘Fund’), to be held until further order or as otherwise agreed between Erman, Kerbaj, Cohen, Ali, Horner and Credit Corp.

A certificate issued by Funds in Court dated 23 June 2020 records that on that date, the amount of $363,742.73 was paid into Court.[12] This, along with any interest accrued, is what I have referred to as the Fund.
[12]Application Book, 206.

Kerbaj claims that approximately $260,000 is owed to him pursuant to a loan agreement between he and Erman, that this is the claim that he makes on the Fund, and that Erman did not agree that Kerbaj had a secured interest. Kerbaj, Cohen and Credit Corp did not receive any payment from the settlement of the Property: pursuant to the Agreement, their claims were to be dealt with as claims on the Fund. As I understand it, the Fund is insufficient to pay out the claims made on it by Kerbaj, Cohen and Credit Corp. Therefore, disputes as to entitlements to the Fund (or part of it) and as to priority as they concerned Kerbaj, Cohen and Credit Corp were live at the time of the Agreement being entered into and remain live issues in the proceeding.

Explanation of what is sought by the Application

Kerbaj’s summons dated 17 February 2022 is addressed to Ali and Horner, Jane Lennon and Argyle, and seeks the following orders:

(a) within 14 days of orders being made, Ali and Horner repay to the Fund the amount of $194,330.36;

(b) alternatively, within 14 days of orders being made, Argyle repay to the Fund the amount of $194,330.36;

(c) within 14 days of orders being made, Jane Lennon file and serve an affidavit, which must set out the proper basis for the matters deposed to by her in paragraphs 3, 7, 8, 9 and 10 of the First Jane Lennon Affidavit, and explain the reasons for the payments made by Argyle on 23 June 2020 following receipt of $310,000 from the “Fund pursuant to [the Consent Orders]”;[13] and

(d) Ali and Horner pay the costs of the Application.

[13]I note here that this description is not accurate: the $310,000 was not paid to Argyle by the Fund, the Court or the Senior Master. I will deal with this later.

In the Written Outline, counsel for Kerbaj stated that the affidavit referred to in paragraph 3 of the summons, being the affidavit described in paragraph 23(c) above, was no longer pressed given the affidavits which had been served on 22 April 2022, including the Second Jane Lennon Affidavit.

Kerbaj seeks the repayment orders against Ali and Horner, alternatively Argyle, as he says that the information provided to him and to the Court during the Caveat Removal Application prior to the Agreement being entered into and the Consent Orders being made as to the amount owing to Ali and Horner was false. In essence, Kerbaj says that it had been represented to him that Ali and Horner were owed $350,000, but that evidence has since emerged that two of the advances allegedly comprising that amount were made by other lenders pursuant to separate loan agreements. I will explain this in more detail later, but it is necessary to provide that short summary here so as to set the scene for the background information which follows.

Procedural background in respect of the Application

Following the Agreement being entered into and the Consent Orders being made, Erman, Kerbaj, Cohen, Ali, Horner and Credit Corp were unable to reach agreement as to the claims made on the Fund by Kerbaj, Cohen, Ali, Horner and Credit Corp. Thus the proceedings continued, with Erman as plaintiff and Kerbaj as first defendant, and Cohen being joined as second defendant, Ali being joined as third defendant, Horner being joined as fourth defendant, and Credit Corp being joined as fifth defendant.

The proceeding is listed for trial commencing 2 August 2022.

The proceeding has been beset by numerous interlocutory applications, which have relevantly included objections to subpoenas issued by Kerbaj and orders being made to compel production of documents.

The hearing of the Application itself had to be adjourned, due mainly to late production of documents and failure to provide affidavits within time. I summarise this briefly below:

(a) at the first return of the Application on 1 March 2022, I listed the Application for hearing on 22 April 2022 and made directions for the filing of affidavits by any person wishing to be heard in opposition to it by 8 April 2022 and for written submissions by 14 April 2022. No affidavits in opposition were filed within time;

(b) on 10 March 2022, I made orders that Kerbaj file any further affidavits relied upon by 28 March 2022; and

(c) on 13 April 2022, I made orders retaining the listing of 22 April but for directions only, with the hearing of the Application fixed for 20 May 2022, and made orders extending the date for affidavits in opposition to the Application to 21 April, affidavits in reply to 29 April, and written outlines to 7 May.

Evidence
Relevant content of the First Jane Lennon Affidavit

In the First Jane Lennon Affidavit, Ms Lennon relevantly deposes as follows:

3.I facilitated a loan between Graeme Ali and Victoria Horner (the lenders) and the Plaintiff [ie Erman] for $102,500 on or about 27 June 2019. … [the Loan and Charge Agreement and signed Epitome dated 14 June 2019 is exhibited to the First Jane Lennon Affidavit]
4.I was advised by the Plaintiff and verily believe that the loan funds would be used to undertake renovations to [the Property].
5.The loan is secured by caveat AS397786K registered on the property on 31 July 2019.
6.In accordance with paragraph 1 of the Loan and Charge Agreement, the loan provides for further advances.
7.I believe the original estimate for the renovations work was ‘light on’ and, at the Plaintiff’s request, I agreed to facilitating further loan advances to enable the Plaintiff to finish the renovations as follows:
a. $106,500 on or about 28 August 2019; and
b. $52,500 on or about 20 November 2019.
[the Epitome for the $106,500 advance is exhibited to the First Jane Lennon Affidavit]
8.No interest payments have been made for some time and, accordingly, default interest and default costs have been in place for some time. Accordingly, the payout figure at the scheduled settlement date is nearly $310,000.
9.Due to the default in meeting interest payments together with ongoing issues and delays relating to the sale of the property, Argyle Lending and the lenders have incurred substantial costs inclusive of costs of Lennon Lawyers which I conservatively estimate at $30,000 to $40,000.

Evidence relied upon by Kerbaj

From affidavits filed in the proceeding and documents obtained on subpoena or via notices to produce or orders for production, the following chronology is relied upon by Kerbaj. It is convenient to set it out here as contained in the Written Outline, with the source documents footnoted. While this chronology contains elements of submission, which elements are obvious, I set it out in this way so as to avoid repetition.

The First Loan

On or around 18 June 2019, Ali and Horner (as lenders) agreed to lend to Erman and Cohen (as borrowers) the sum of $102,500 (‘First Loan’).

The First Jane Lennon Affidavit exhibited a signed deed of loan and charge in the names of those parties recording that advance.[14] That advance is not the subject of any challenge by Kerbaj.
[14]Exhibit JL-1 to the First Jane Lennon Affidavit (Application Book, 103-110).

The Second Loan

On or around 27 August 2019, AJTB Holdings Pty Ltd (‘AJTB’) (as lender) agreed to lend to Erman and Cohen (as borrowers) the sum of $106,500 (‘Second Loan’).

As to that loan, Ms Lennon exhibited to her First Jane Lennon Affidavit an epitome of loan whereby the identity of the lender is “Argyle Lending Pty Ltd / TBA”[15] (‘Second Loan Epitome’). Kerbaj says that the obvious implication of paragraph 7 of the First Jane Lennon Affidavit and the exhibited Second Loan Epitome is that the Second Loan was advanced by Ali and Horner.
[15]Exhibit JL-2 to the First Jane Lennon Affidavit (Application Book, 111-112).

However, some time later Arthur McPhan (a director of AJTB) produced under subpoena a deed of loan and charge showing that AJTB made the Second Loan, not Ali and Horner.[16] Argyle has also since produced that document pursuant to orders made on 13 April 2022 by this Court. Further, emails in August and September 2019 between Ms Lennon (on behalf of Argyle) and Mr McPhan record the organising and setup of the Second Loan.[17] These documents were produced by Mr McPhan, not Argyle (until documents were produced by Argyle after the 13 April 2022 orders). Mr McPhan has also produced company bank statements showing the advances for the Second Loan, which fact is no longer in dispute.
[16]Application Book, 191-195.
[17]Application Book, 190, 196.

The Third Loan

On or around 20 November 2019, Grand Bollox Pty Ltd (‘Grand Bollox’) (as lender) agreed to lend to Erman and Cohen (as borrowers) the sum of $52,500 (‘Third Loan’).

The First Jane Lennon Affidavit provided no supporting documents for the third advance, only Ms Lennon’s sworn evidence asserting that matter.

However, Grand Bollox has now produced on subpoena a deed of loan and charge showing that Grand Bollox made the Third Loan, not Ali and Horner.¹⁰ Argyle produced that document pursuant to the orders made on 13 April 2022 by this Court (which Kerbaj says should have been produced pursuant to the 4 November 2020 subpoena addressed to Argyle, but, for reasons not explained, was not).

Communications with the borrowers and lenders before the hearing of the Caveat Removal Application

Emails have also been produced on subpoena showing communications between Ms Lennon (on behalf of Argyle) and the borrowers and lenders, respectively, that Kerbaj says are positively inconsistent with the First Jane Lennon Affidavit.

By letter to Erman and Cohen on 22 January 2020, Ms Lennon stated:

We confirm that the amount owing pursuant to your loan from Ali Horner [sic] as of today is $107,976.80.[18]

[18]Application Book, 54.

By email on 13 May 2020, Ms Lennon told Mr McPhan that “The matter is due to settle on 22 June 2020. You will get your principle [sic] and interest then!!!”.[19]
[19]Application Book, 203.

By email on 16 June 2020, Ms Lennon told Mr McPhan, Mr Settle (of Grand Bollox) and Ali:

Hi guys,
These loans are being paid out on Monday. Your interest has been calculated at penalty interest rates which have been compounding since inception.[20]
[20]Application Book, 204.

The Consent Orders and receipt of $310,000

Pursuant to the Consent Orders, $310,000 from settlement of the Property was to be paid to Ali and Horner. It was paid to Argyle (who, Kerbaj points out, is not the solicitors for those parties).[21]
[21]Application Book, 71 (being an Argyle bank statement), 73 (being the PEXA statement).

Of the $310,000 received from settlement, a NAB Connect Domestic Payment report evidences that on 23 June 2020, $301,007.53 of that amount was then distributed by Argyle to the following persons (‘NAB Payment Report’):[22]
[22]Application Book, 74.

(a) “Lennon P”: $3,001.57, $2,748 and $991.75 (total: $6,741.32).

(b) “Ali and Horner”: $115,669.64.

(c) “Tombla Investments Pty Ltd ATF McPhan Super Fund”: $120,668.43.[23]

(d) “Grand Bollox Pty Ltd”: $57,928.14.

[23]This payment is now understood to have been made to AJTB, as Tombla Investments Pty Ltd, a company of which Mr McPhan had been director, was deregistered at the time. That does not now appear to be disputed.

Indeed, Argyle’s own internal records referred to the loans separately: “Ermani”, “Ermani 2” and “Ermani 3”.[24] Bank statements produced on subpoena by Mr McPhan and Grand Bollox confirm their receipt of the payments above, respectively.[25]
[24]See, for example, Application Book, 74. ‘Ermani’ is evidently another form of the name of the now deceased Plaintiff, Mr Erman.
[25]Application Book, 47, 205.

Ali’s and Horner’s continued representations

In this proceeding, Kerbaj contends that Ali and Horner continue to seek more funds on the basis that their loan debt is in the amount of $350,000. As I apprehend it, Ali and Horner seek payment from the Fund not for their principal and interest under the loan (as that has already been paid) but for the costs incurred in enforcing the loan which are said to be secured by the Ali & Horner Caveat and which were not recovered at settlement of the Property.[26]
[26]Transcript, 61.3-6.

Pursuant to the orders of Keith JR made on 13 July 2021, Ali and Horner were ordered to file a statement of account of their loan claim which they did on 19 July 2021 (‘Filed Loan Account Statement’).[27] That lists the borrowers’ name (i.e. Erman and Cohen) and an account number, but does not identify the lender/s or the interest rate/s. It itemises various loan drawdowns and interest, stating each time whether it is Loan 1, Loan 2 or Loan 3, and shows a running balance. It also shows cash advances and costs. The balance at the end of the statement is $302,634.16.
[27]Application Book, 64-67.

Pursuant to the orders made on 13 April 2022, Argyle recently produced a loan account statement (‘Argyle Statement’)[28] which appears to be substantially similar to the Filed Loan Account Statement, listing the same sorts of debits and credits on account of three loans, but also lists the interest rates and how each interest payment has been calculated.
[28]Application Book, 63.

The Second Jane Lennon Affidavit and the Pat Lennon Affidavit

In the Second Jane Lennon Affidavit, Ms Lennon deposes that after arranging the loan between Erman and Cohen as borrowers and Ali and Horner as lenders, she registered the Ali & Horner Caveat over the Property to secure the unregistered mortgage executed by Erman in favour of Ali and Horner. She says that she did not consider it necessary to register the mortgage given “Pat’s [i.e. Mr Lennon’s] relationship” with Erman and Cohen.[29]
[29]Second Jane Lennon Affidavit, [4].

In the Second Jane Lennon Affidavit, after explaining that she was approached to raise more finance so that Erman and Cohen could finish the renovation works on the Property and achieve a satisfactory sale,[30] Ms Lennon relevantly deposes as follows:

6.I ascertained from [Erman] and [Cohen] (“Borrowers”) that further funds of $50,000 were required and I contacted Arthur McPhan (“Arthur”) to discuss the prospect of him providing further net funds of $50,000 to the Borrowers.
7.Arthur was agreeable and confirmed that he had sufficient funds in his superannuation account to finance the further drawdowns to a total value of $50,000. I arranged for a suite of documents to be signed but did not lodge a caveat as I considered that the further advance by McPhan could and would be secured by the Ali & Horner caveat. [Erman] and [Cohen] agreed for the further advance to be secured via the Ali & Horner caveat to avoid having to lodge a separate caveat on the tile [sic] and on the basis that Argyle would control repayment to Ali & Horner via the settlement and discharge of the Ali & Horner caveat.
8.Further funds were sought by [Erman] and [Cohen] relatively shortly thereafter for the same purpose of completing the renovation works for the proposed sale and I was able to source extra funds from Robin Settle on behalf of his superannuation company.
9.I prepared further loan documentation in order to differentiate between the various Lenders. As the extra funds were provided on the same basis as the first tranche of loan funds and were expected to be repaid shortly upon sale of the home, I believed that the security was adequate and, once again, did not arrange for an additional caveat to be lodged. Additional mortgages had been signed and were available if necessary to lodge against the property. All monies were to be secured by the caveat previously lodged. [Erman] and [Cohen] once again agreed to the further advance as being secured by the Ali & Horner caveat.
10.Argyle has been operating for some 12 years. I do not advertise and all of the growth has been organic and is generated by contacts that Pat and myself have established over many years. The lenders have a high level of trust and confidence in me (and Pat) and rely virtually exclusively on my expertise and track record with respect to advancing monies on their behalf.

[30]Second Jane Lennon Affidavit, [5].

Kerbaj submits that the Pat Lennon Affidavit confirms that Mr Lennon was aware of the true identity of the lenders for the Second Loan and the Third Loan. Mr Lennon states:

I advised them [the borrowers] that Argyle would facilitate further advances and that such advances would be served [sic] in effect by the Ali & Horner caveat and that Argyle would not put additional caveats on the property as it would increase costs and was not necessary given Argyle’s relationship with the lenders.[31]

[31]Pat Lennon Affidavit, [31]. At the hearing, when counsel for Kerbaj referred to this paragraph, Mr Lennon properly interjected to clarify that “served” was meant to be “secured”.

Indeed, documents recently produced by Argyle show that Mr Lennon was the one to approach Mr Settle to broker the Third Loan.[32]
[32]Application Book, 75.

The Pat Lennon Affidavit also refers to various dealings that Erman had with Kerbaj as well as dealings/correspondence between Mr Lennon and James Woods of EC Legal (Kerbaj’s solicitors) and between Ms Lennon at Argyle and Emma Harliwich at Lennon Lawyers and Kyle Ogden of EC Legal. Mr Lennon refers to the First Jane Lennon Affidavit where she exhibits an email exchange with Mr Ogden where the amount to discharge the Ali & Horner Caveat as at 3 February 2020 was said to be $274,575.58.[33] Mr Lennon says that Erman told him on 12 May 2020 that Kerbaj was aware that the amount to “pay out Argyle” would be around $300,000.[34]
[33]Pat Lennon Affidavit, [23].
[34]Pat Lennon Affidavit, [9]; First Jane Lennon Affidavit, [10]; Exhibit JL-3 to the First Jane Lennon Affidavit (Application Book, 114).

Mr Lennon deposes that on the afternoon of 18 June 2020,[35] Mr Woods contacted him to seek, inter alia, confirmation of the amounts that had been advanced to Erman “on account of Ali and Horner” and Lennon Lawyers provided information to him.[36] Mr Lennon goes on to state:

The documents provided to Woods at the time as well as the documents annexed to the [First Jane Lennon Affidavit] and communications on 30 January 2020 with EC Legal were all provided to Woods prior to the final agreement being executed. A further ‘without prejudice’ communication was received by Woods at 6:21pm on 18 June 2020 acknowledging receiving attached information from our office supporting the claim of Ali and Horner and acknowledging that although he could not understand the calculation of interest, he had added up the payments that came to approximately $245,000 and factoring in charges for brokerage, loans, establishment fees etc and the 20% interest, he agreed that the amount of $300,000 was within the range that could be justified.[37]

[35]Which I note is the date of the hearing of the Caveat Removal Application.

[36]Pat Lennon Affidavit, [24].

[37]Pat Lennon Affidavit, [25].

Mr Lennon deposes that it was on that basis that the Agreement was entered into and the Consent Orders made.[38]
[38]Pat Lennon Affidavit, [26].

In the Pat Lennon Affidavit, Mr Lennon refers to the affidavit sworn 17 June 2020 by Kerbaj in opposition to the Caveat Removal Application, which he describes as follows:

[Kerbaj] deposes to having assisted [Erman] in obtaining finance from Lightspeed in late 2019 which assistance continued into early 2020. [Kerbaj] acknowledges that there were some discrepancies in the amounts allegedly owing to Ali and Horner and that the first loan pay-out that [Erman] had in fact requested was $107,967.80 on 22 January but increased to $280,000 within a few weeks later which was not explained.[39]
[39]Pat Lennon Affidavit, [27].

Kerbaj’s submissions
Power to make the orders sought

Kerbaj submits that the Court has the power to make the orders sought in the Application pursuant to:

(a) the Court’s power and inherent jurisdiction to set aside orders and/or settlement agreements procured by misrepresentation or fraud; and/or

(b) the Civil Procedure Act 2010 (Vic) (‘CPA’); and/or

(c) the terms of the Agreement.

In the Written Outline, Kerbaj acknowledges that the allegations he makes are exceptionally serious and says that they are not made lightly. They are therefore made by precise reference to the documents and affidavits which support those allegations and submissions. During the hearing, counsel for Kerbaj took the Court through all of the documents and affidavits relied upon in some considerable detail.

Kerbaj submits that the starting point is that the documentary record proves, without any doubt, that there was a misrepresentation as to the value of the claim by Ali and Horner. By reason of the documents produced on subpoena, it is said that there is now overwhelming evidence that there is no proper basis for those parties to make claims in this proceeding for the $310,000 paid to them pursuant to the Agreement and Consent Orders, and that the statements were misleading and/or fraudulent.

Kerbaj submits that as a solicitor in the employ of the same firm acting for Erman, Ali and Horner, that is, Lennon Lawyers, Ms Lennon’s conduct is sheeted home to those parties.[40] Likewise, it is submitted that Mr Lennon now concedes that he was also aware of the true situation and did not prevent those misleading statements, which benefitted not only his clients in this proceeding, but also those clients of Argyle who did not have secured interests.
[40]Application Book, 207, 208.

Kerbaj also submits that it is pertinent that a result of the conduct was that, of the $310,000 paid to Ali and Horner pursuant to the Consent Orders, $6,741.32 was paid to Mr Lennon and an undistributed amount of $8,992.47 was seemingly retained by Argyle.[41] That is, those persons appear to have profited directly from the conduct in question.
[41]Application Book, 74.

Setting aside the Consent Orders on the grounds of misrepresentation or fraud

Kerbaj made the following submissions as to the Court’s power to set aside the Consent Orders on the grounds of misrepresentation or fraud.

A consent order or settlement agreement may be set aside on any ground which could invalidate the agreement,[42] including misrepresentation or fraud.
[42]Newcrest Mining Ltd v Thornton (2012) 248 CLR 555, 564 [17].

The High Court in Harvey v Phillips[43] approved what Lindley LJ had said in Huddersfield Banking Co Ltd v Henry Lister & Son Ltd:[44]

... nor have I the slightest doubt that a consent order can be impeached, not only on the ground of fraud but upon any grounds which invalidate the agreement it expresses in a more formal way than usual ... To my mind the only question is whether the agreement on which the consent order was based can be invalidated or not. Of course if that agreement cannot be invalidated the consent order is good.

[43](1956) 95 CLR 235, 244.

[44][1895] 2 Ch 273, 280.

The causal connection of the misrepresentation or fraud is only that the conduct “plays some part even if only a minor part in contributing to the formation of the contract”. It is a “low threshold”.[45] There is no obligation on the representee to make enquiries to verify the truth of a representation made to it – it need only show that it was deceived.[46]
[45]Taheri v Vitek (2014) 87 NSWLR 403, 419 [73], [74].
[46]Toubia v Schwenke (2002) 54 NSWLR 46, 51 [22] and 55 [38].

Kerbaj submits that there can be no real dispute that he and the other parties to the Agreement relied upon the Settlement Statement and the First Jane Lennon Affidavit in agreeing to the Agreement and Consent Orders. Mr Woods gives that evidence in his affidavits filed in support of this application.[47]
[47]First Woods Affidavit, [8].

In fact, submits Kerbaj, rather than being owed $350,000 under their loan to Erman and Cohen, Ali and Horner were, in fact, owed $115,669.64 at most (being the amount paid to them by Argyle on 23 June 2020).[48] That marries up to the loan balance of $107,976.80 as at 22 January 2020, which Ms Lennon advised Erman and Cohen about five months prior.[49]
[48]Application Book, 74, being the amount that they were actually paid.
[49]Application Book, 54.

Kerbaj submits that the parties would not have agreed to payment from a finite pool of secured funds in an amount greater than the amount owed to Ali and Horner. In this respect, it is submitted, they have received an advantage that they are not entitled to. Likewise, it is said that it appears from the NAB Payment Report that Argyle, Lennon Lawyers, AJTB and Grand Bollox may have also profited improperly.

Kerbaj says that the simple remedy is to order that the overpayment be repaid. That has been calculated in the summons by accepting on face value that the true debt was $115,669.64 (being the amount paid to Ali and Horner by Argyle on 23 June 2020), and not the $310,000 which was paid to them (or paid to their lawyers / Argyle on their behalf). The overpayment is the difference in those amounts, being $194,330.36 (‘Overpayment’).

Reliance on the CPA

Ms Lennon is a legal practitioner.[50] The records maintained by the Victorian Legal Services Board and Commissioner show that she practises at “Patrick Lennon”,[51] being the same entity recorded for Mr Lennon, the solicitor in this proceeding for Erman (and now Garlick), Ali and Horner. Mr Lennon also represented Mr McPhan in relation to the objections to the subpoena issued to him.
[50]In the Second Jane Lennon Affidavit, Ms Lennon describes her occupation as “Australian Legal Practitioner” and sole director of Argyle.
[51]LSBC extracts at Application Book 207, 208.

Section 10 of the CPA provides that the overarching obligations apply to, inter alia, any legal practitioner or other representative acting for or on behalf of a party, any law practice acting for or on behalf of a party, and any person who provides financial assistance or other assistance to any party insofar as that person exercises any direct control, indirect control or any influence over the conduct of the civil proceeding.

The overarching obligations relied upon by Kerbaj in this case include:

(a) Section 17 of the CPA provides for an overarching obligation to act honestly at all times in relation to a civil proceeding. Dishonesty encompasses recklessness, which is a statement made not caring whether it be true or false; without an honest belief as to its truth; or an indifference to, or disregard of, whether a statement be true or false. If knowledge of matters is to be inferred from the surrounding circumstances, it must be the most probable inference available (i.e., it does not need to be the only rational inference available).[52]

(b) Section 18 of the CPA provides for an overarching obligation to have a proper basis for any claim made in a civil proceeding. It applies equally to interlocutory relief and hearings.[53]

(c) Section 21 of the CPA provides for an overarching obligation to not mislead or deceive. That obligation includes the need to act and speak up if others are contravening the overarching obligations in the CPA.[54]

[52]As to the meaning of “honesty” in this context, see Bolitho v Banksia Securities Ltd (No 18) (remitter) [2021] VSC 666 (‘Bolitho’), [1325]-[1330].

[53]As to the meaning of “proper basis” in this context, see Bolitho, [1343]-[1345].

[54]As to the meaning of “mislead and deceive” in this context, see Bolitho, [1331]-[1337].

Section 29 of the CPA empowers the Court to make any order it considers appropriate in the interests of justice, if it is satisfied, on the balance of probabilities, a person has contravened any overarching obligation.

Kerbaj submits that each of Ms Lennon and Mr Lennon are privy to correspondence indisputably acknowledging that there are separate lenders. Their latest affidavits each concede their knowledge of those facts. What is more, there were signed loan agreements recording the parties’ names. Kerbaj submits that the First Jane Lennon Affidavit then improperly ‘rolls up’ the three loans as if they were all advanced by Ali and Horner, thereby concealing the fact that the Second and Third Loans were unsecured. Kerbaj contends that the conduct is in breach of the CPA.

Kerbaj submits that Ms Lennon’s knowledge of the true position is known (or to be inferred from):

(a) Argyle’s direct involvement as broker of each of the three loans (which were recorded in written agreements recording the identity of each lender), in respect of which Ms Lennon was personally involved;

(b) Ms Lennon’s emails, referred to above, to the effect that Ali’s and Horner’s debt was approximately $108,000 in January 2020 and that the other lenders would each be repaid soon; and

(c) that the Second Loan Epitome, exhibited as “JL-2” to the First Jane Lennon Affidavit, recording the identity of the lender as “Argyle Lending / TBA” in fact concluded in a deed of loan and agreement from AJTB, not Ali or Horner.[55] Paragraph 7 of the First Jane Lennon Affidavit is said to be misleading as to the description and articulation of that epitome of loan. There was a written agreement recording the true lender to be AJTB. Ms Lennon had, only two days prior to making the First Jane Lennon Affidavit, written to the controller of that entity promising repayment of that loan. She also produced, pursuant to the 13 April 2022 orders, copies of the loan deeds for the Second and Third Loans, being documents that should have been produced pursuant to the 4 November 2020 subpoena issued to Argyle.

[55]Application Book, 111-112.

Kerbaj submits that in all of the circumstances, the First Jane Lennon Affidavit was not honest or, alternatively, it was made recklessly without the necessary level of care and attention to its truthfulness.

Further and alternatively again, in arranging for the affidavit to be sworn and relying upon it, Kerbaj submits that the conduct of those parties represented by Lennon Lawyers contravenes sections 17, 18 and 21 of the CPA.

Kerbaj submits that Ali and Horner have continued those false claims in the proceeding after the hearing of the Caveat Removal Application, including by the Filed Loan Account Statement which blatantly includes loans advanced by other parties, and that this constitutes a contravention of the CPA by them and their solicitors. Kerbaj submits that it appears that the Filed Loan Account Statement was created by modifying an existing loan statement to delete references which would reveal (or tend to reveal) the true situation of the three separate loans. There is no explanation for how that document came into being, given that the Second and Third Loans were never actually advanced by Ali and Horner.

Kerbaj submits that once the Court is satisfied that there has been a contravention of the overarching obligations, then the Court has the power to make any order it considers appropriate in the interests of justice. An order for repayment of the overpaid funds is said to be the appropriate order for the following reasons:

(a) First, Kerbaj, Cohen and Credit Corp each make claims against those funds which ought to be held in Court, as proceeds of a Property they allege to have held security in. In circumstances whereby Erman was forced to sell his property, has various claims made against him and has since passed away, there is reason to doubt that recovery by way of debt proceedings will be satisfactory. Those parties desire and are entitled to recourse to their alleged security interests.

(b) Second, repayment of the Overpayment preserves the rights for all parties to contest those funds as secured funds, consistent with the parties’ written agreement (set out in more detail below), including Ali and Horner if they assert some entitlement for the reasons set out in the Second Jane Lennon Affidavit.

(c) Third, there is no evidence that such an order would cause any prejudice to Ali and Horner or to Argyle.

(d) Fourth, subject to compliance with rule 9.09 of the Supreme Court (General Civil Procedure) Rules 2015, the same solicitors act for Erman (and now Garlick), Ali, Horner and, at least, Mr McPhan. It is difficult to envision how these matters can or will be untangled in those circumstances where a conflict is so manifest. Repayment of the Overpayment resolves part of that concern.

(e) Fifth, as set out above, after repayment of $194,330.36, there would be a substantial amount of funds in Court which ought to enable productive settlement discussions which may have previously been rendered futile by the deficiency of funds in Court.

The Agreement provides for repayment

The Agreement provided for payment of $310,000 to Ali and Horner out of the proceeds of sale. However, clauses 2.2.2 and 2.2.3 of the Agreement provide that payment was not an admission of such entitlement and that the payments were able to be recovered at a later time.

Kerbaj submits that notwithstanding significant resistance to their production resulting in multiple hearings and adverse costs orders in his favour, the documents produced on subpoena by various persons and produced under compulsion by Argyle now reveal that Ali and Horner were overpaid by least $194,330.36. Kerbaj says that those funds should be paid into Court as soon as possible for the reasons set out above.

Submissions by Garlick, Ali and Horner

At the hearing, Mr Lennon stated that he appeared on behalf of Garlick, Ali and Horner. In response to a question from me, Mr Lennon confirmed that he did not appear for Argyle or for Ms Lennon.[56]
[56]Transcript, 12.11-16, 12.21-25.

Accordingly, I have treated the submissions made by Mr Lennon as having been made on behalf of Garlick, Ali and Horner (for convenience, I will refer to these three parties collectively as the ‘Respondents’, being the persons seeking to respond to the Application). No written outline of submissions was filed, despite the orders I had made requiring the same, however Mr Lennon made extensive oral submissions at the hearing.

At the hearing, the Respondents did not dispute that AJTP and Grand Bollox had made the Second and Third Loans respectively and that they were paid what was owing to them, from the $310,000 received at settlement of the Property.[57]
[57]Transcript, 46.27–47.5, 47.29–48.1.

The Respondents conceded that the Court has the power to make the orders sought in the Application.[58] However, and as best as I can discern, the Respondents submit that the Application ought be rejected as:
[58]Transcript, 66.3.

(a) the Ali & Horner Caveat secures the Second Loan and the Third Loan;

(b) there has been no fraud or misrepresentation or misleading conduct, including on the basis that if there was an overpayment to Ali and Horner, it makes no difference to the outcome so far as Kerbaj’s position is concerned;

(c) the exception to the rule against tacking is not available to Kerbaj; and

(d) there are no other reasons to grant the Application.

I shall deal with each of these submissions in turn.

Proposition that the Ali & Horner Caveat secures the Second Loan and the Third Loan

In the affidavits relied upon and the submissions, the Respondents at times contended that the Ali & Horner Caveat “secured” the three loans (ie the First, Second and Third Loans). At times, Kerbaj’s submissions also referred to a caveat as security.

During the course of the hearing, both parties acknowledged that a caveat is not security per se, it is a notice of a claimed interest, which interest may be secured by some other means such as a charge or a mortgage. The notice, ie. the caveat, generally prohibits other dealings being recorded on the title. However, where I refer to the Ali & Horner Caveat functioning as a security of the lenders’ interests under the Second and Third Caveats, I do so because this was the manner in which the argument was put by the parties.

The Respondents submitted that Erman and Cohen had agreed with Ali and Horner, “brokered by Argyle”, that further caveats would not be lodged for the Second and Third Loans. It was said that this was because when Erman and Cohen went to discharge their obligations to the lenders, Argyle, “who was acting for” all three sets of lenders, would not discharge or allow the caveat to be removed when there was monies owed for the Second and Third Loans.[59]
[59]Transcript, 48.18-31.

The Respondents rely on the following aspects of the loan agreements and the MCP:

(a) the loan agreements in respect of the First, Second and Third Loans are in relevantly identical terms. Clause 1 of the agreement for the Second Loan states that the amount being lent is $106,500 and that this, together with interest and any other monies payable to the lender by the Borrowers is referred to as the “Secured Monies”. Clause 8 of the loan agreement contains a charging clause, whereby the Borrowers “hereby charge as security for the Secured Monies” the Property (inter alia), and where the Borrowers agree to execute a mortgage in registrable form immediately upon being requested to do so by the lender. The Borrowers also agree to the lender “lodging a caveat over any property in which they have an interest to better secure the Loan”;[60]
[60]Application Book, 192-195.

(b) clause 8.1 of the MCP defines an event of default under the mortgage,;

(c) clause 8.2 of the MCP sets out what happens if the mortgagor defaults, which includes requiring payment of the Secured Money and/or taking possession of the land;

(d) clause 11 of the MCP contains various definitions used in the MCP. These include:

(i) “Advance” means the amount so specified in the ‘Advance’ item in the Titles Office form;

(ii) “Costs and Expenses”, including legal costs, costs incurred in connection with the completion, maintenance, repair or preservation of the land or any part of it;

(iii) “Secured Money” means (inter alia) the Advance, interest, amounts owing or which may become owing to the mortgagee under any agreement between the mortgagor and mortgagee, and “all money that any agreement says is Secured Money or which an agreement says is secured by this Mortgage”; and

(iv) Money is part of the Secured Money whether it is, inter alia, “advanced by the Mortgagee alone or with anyone else”.

Relying on these provisions, the Respondents submitted that “the first loan agreement and mortgage absolutely entitles the second and third lenders to receive the protection and benefit of the advances”.[61] In particular, it is submitted that:

(a) as the agreements for the Second Loan and the Third Loan defined the amounts lent as Secured Money, that brought those loans within the definition of Secured Money in the MCP; and

(b) monies lent by AJTP and Grand Bollox were included within Secured Money because they were advanced by the Mortgagee (ie. Ali and Horner) with AJTP and Grand Bollox.

[61]Transcript, 69.3-9.

According to the Respondents, this meant that the Second Loan and the Third Loan were covered, protected or secured by the Ali & Horner Caveat.

Later in submissions, after questions from me, Mr Lennon retreated somewhat from this position and said that the Ali & Horner Caveat gave notice of monies being owed on the basis that Argyle was to ensure that the second and third lenders, if there was an issue about the payment, would be notified, who would then, in turn, exercise their rights. It was conceded that this was “as high as it can be put”.[62]
[62]Transcript, 83.4-8.

Still later, Mr Lennon appeared to change position again, saying that Secured Money means the Advances, “whether or not they were from the first lender, Ali and Horner, or otherwise, because … the first lender could have borrowed the moneys or had the second and third lenders provide the moneys to them to on-lend”. It was said that it would have the same effect in terms of the amount owed, whether it was on the First Loan or on all three loans. [63]
[63]Transcript, 84.18-26.

Proposition that there has been no fraud, misrepresentation or misleading conduct

The Respondents submit that the starting point is that there was no fraud, misrepresentation or misleading conduct, and that even if there has, it would have made no difference to Kerbaj.

In addition to the submission described in paragraphs 88 to 95 above, this proposition appeared to be based on three matters, each of which is discussed below.

No fraud/misrepresentation or misleading conduct as disclosure of the Second and Third Loans would not have made any difference to Kerbaj

Mr Lennon stated that Kerbaj’s hypothesis was that the Respondents or Argyle had sought to conceal the Second and Third Loans because the security position in respect of those loans was imperilled as AJTP and Grand Bollox had not lodged caveats.

The Respondents rely on the Second Jane Lennon Affidavit, where she deposes that each lender had a full suite of documents, including mortgages; she believed the security was adequate; and all monies were to be secured by the Ali & Horner Caveat.[64] The Respondents submit that AJTP and Grand Bollox could have insisted on their entitlements being paid out at settlement.
[64]Second Jane Lennon Affidavit, [9]; see paragraph 51 above.

The Respondents submit that the best Kerbaj can argue is to say that he was not aware of the Second Loan and the Third Loan and if he had been aware he would not have lent Erman the money.

Mr Lennon then took me through evidence which he says demonstrates that Kerbaj knew he was ‘last in line’, and how much was owing. He relied, for example, on the matters referred to in paragraph 54 above, along with the affidavit affirmed by Kerbaj on 17 June 2020 in opposition to the Caveat Removal Application, where at paragraph 12 Kerbaj referred to the amount owing to Ali and Horner increasing from approximately $107,000 to approximately $280,000 by February 2020.

It was not entirely clear how this was put, but as I apprehend it, the submission was that even if the Second and Third Loans had been disclosed, because they were (a) secured by charges and by unregistered mortgages entered into before the agreement relied on by Kerbaj for the interest claimed in his caveat and (b) Kerbaj knew that the secured amount was at least approximately $274,575 as at 3 February 2020, those were equitable interests which had priority over Kerbaj’s interest.

In this way, the Respondents submit that the alleged Overpayment makes no difference to the outcome for Kerbaj since Ali & Horner, AJTP and Grand Bollox were all entitled to be paid before him. On this argument, and while it was not put this way in submissions, the Agreement has merely produced the result which would have obtained had the Second and Third Loans been disclosed.

The Respondents rely on this submission to contend that there was no fraud, misrepresentation or misleading conduct. They say that any misrepresentation, if there was one, did not bring about a payment that would not otherwise have been made.

In addition, the Respondents submitted that AJTP and Grand Bollox had advanced monies to Erman and Cohen to finish off the works on the Property so that it could be sold, and that they would have an interest pursuant to a constructive, resulting or implied trust which also had priority over Kerbaj’s interest.[65] I will interpose here to comment that I do not see how this submission could have seriously been put: the evidence before the Court was that AJTP and Grand Bollox had advanced monies pursuant to the Second and Third Loans, which contained charging clauses, and loans do not give rise to an interest via a trust in the manner submitted.
[65]Transcript, 57.16-23.

As a matter of construction, the First Jane Lennon Affidavit is not misleading or false

The Respondents contend that the First Jane Lennon Affidavit was not misleading or false, relying on the following:

(a) it was said that paragraph 7 of the First Jane Lennon Affidavit was put in the way that it was because sometimes the first lender is not able to make further advances and so someone else is approached to make subsequent advances;

(b) it is clear from paragraph 9 of the First Jane Lennon Affidavit that the amount said to be owing was stated as an estimate, not an exact amount;[66] and

(c) documents such as the email from Cohen to Ms Lennon dated 26 November 2019 which was described in submissions by Mr Lennon as concerning a further drawdown under the facility, which I infer was produced by Argyle on subpoena and obtained on 22 April 2022 by Mr Woods,[67] are said to be inconsistent with concealment or mala fides. Rather, submitted Mr Lennon, it supported that Ms Lennon had been honest in the First Jane Lennon Affidavit by referring to the further advances.[68]

[66]Transcript, 61.3.

[67]I infer this from the Second Wood Affidavit, [19]–[21].

[68]Transcript, 60.11 – 62.19.

It was submitted that there was nothing in the First Jane Lennon affidavit that showed that it was dishonest, false or misleading, although it was accepted that Ms Lennon had not disclosed that there were different lenders. It was said that this does not matter, as it would not have made any difference insofar as the amounts to be paid are concerned.

No fraud/misrepresentation or dishonesty as it was believed that the Second and Third Loans were secured and protected by the Ali & Horner Caveat

In addition, the Respondents contend that there has not been fraud, misrepresentation or misleading conduct as it was believed that the Second Loan and the Third Loan were secured and were protected by the Ali & Horner Caveat. This is said to be evident from the First Jane Lennon Affidavit.

The Respondents submitted that for the Court to find that there had been dishonesty, it would have to be satisfied that Ms Lennon knew that what she said in the First Jane Lennon Affidavit was dishonest. It is said that the evidence here falls short of that.

It was also submitted that the Court cannot find that there had been conduct which was misleading or deceptive, as conduct is only deceitful if the person knows that it is false.

Further, it was said that the Court could not find that a fraud had been committed, as the seriousness of that allegation raises the standard of proof in the manner of Briginshaw v Briginshaw.[69] The Respondents did not elaborate on which element of an allegation of fraud would not be made out, though it can be assumed that the Respondents relied on their submissions as to knowledge of dishonesty in this regard.
[69](1938) 60 CLR 336.

These submissions were relied upon in respect of both the application to set aside the Consent Orders on the grounds of misrepresentation or fraud and on alleged breaches of the overarching obligations in ss 17, 18 and 21 of the CPA.

While acknowledging Kerbaj’s criticism that the First Jane Lennon Affidavit improperly rolls up the three Loans as a fair criticism, the Respondents submit that this does not justify a finding of the type made in Bolitho.

Tacking

The Respondents relied on s 94 of the Property Law Act 1958 (Vic) (‘PLA’). That section is entitled “Tacking and further advances” and provides as follows:

(1) After the commencement of this Act, a prior mortgagee shall have a right to make further advances to rank in priority to subsequent mortgages (whether legal or equitable)—
(a) if an arrangement has been made to that effect with the subsequent mortgagees; or
(b) if he had no notice of such subsequent mortgages at the time when the further advance was made by him; or
(c) whether or not he had such notice as aforesaid, where the mortgage imposes an obligation on him to make such further advances.

This subsection shall apply whether or not the prior mortgage was made expressly for securing further advances.
(2) In relation to the making of further advances after the commencement of this Act a mortgagee shall not be deemed to have notice of a mortgage merely by reason that it was registered under Part I of this Act or any corresponding previous enactment, if it was not so registered at the time when the original mortgage was created or when the last search (if any) by or on behalf of the mortgagee was made, whichever last happened.
This subsection shall apply only where the prior mortgage was made expressly for securing a current account or other further advances.
(3) The right to tack, save in regard to the making of further advances as aforesaid, is hereby declared to have been abolished by the Property Law Act 1928, section 94(3):
Provided that nothing in this Part shall affect any priority acquired before the commencement of that Act by tacking, or in respect of further advances made without notice of a subsequent incumbrance or by arrangements with the subsequent incumbrancer.
(4) This section shall apply to mortgages of land made before or after the commencement of this Act.

The Respondents submitted that the arrangement for the First Loan showed that there could be further advances made under it. The Respondents’ submissions based on tacking were barely comprehensible. As best as I can ascertain, it was submitted that the only way Kerbaj could rely on the rule against tacking as set out in s 94(3) of the PLA was if there was evidence that the further advances were made with knowledge of Kerbaj’s advances.[70]
[70]Transcript, 70.22 – 71.10.

Other

The Respondents accept that the Agreement contains a reservation of rights clause in respect of the payment of $310,000 to Ali and Horner, but say that this is an issue which can be agitated at trial.

Of Kerbaj’s submission described at paragraph 80(e) above, the Respondents submit that the repayment sought by Kerbaj will not enable a settlement, as such a course at this stage would make the situation worse rather than resolving it. This is said to be due, in part, to the possibility that AJTP and/or Grand Bollox may seek to become part of the proceeding if repayment is ordered. As it is, say the Respondents, it is a small pool of money and the parties have not been able to reach agreement.

The Respondents submit that Argyle has not profited from the manner in which the $310,000 was distributed, as it was entitled under the terms of the Loans to be paid a commission based on a percentage for facilitating the Loans.[71]
[71]Transcript, 62.30 – 63.15.

Analysis
The Settlement Statement, the First Jane Lennon Affidavit, and the Filed Loan Account Statement contain statements or representations which are false
Misrepresentations

In my view, it is patently clear that the Settlement Statement, the First Jane Lennon Affidavit and the Filed Loan Account Statement are false and misleading. They contain misrepresentations as to the true facts.

By the Settlement Statement, representations were made by Erman that Ali and Horner were owed $350,000. It is very clear now, as a result of the documents which have been painstakingly dragged out of Argyle, Mr McPhan and Grand Bollox, that Ali and Horner were not owed $350,000 but $102,500 plus interest and costs. Grand Bollox did not resist its subpoena and produced documents in a timely fashion, however Argyle was very slow to produce documents, and both Argyle and Mr McPhan, along with Erman, Ali and Horner, all objected to the subpoenas and notices to produce.

Accordingly, the representation in the Settlement Statement that Ali and Horner was owed $350,000 was false. It was therefore a misrepresentation as to the true facts.

There is still no acknowledgment by Erman (now Garlick), Ali and Horner that the representation was false. Indeed, it was submitted on their behalf that it was not false. At the most, it was conceded that there were three separate loans with three separate sets of lenders, but the Respondents maintained that this was immaterial as the amount owing pursuant to all three loans was around $350,000 when costs were included. In my view, such a position ignores the true facts and the reality that the representation in the Settlement Statement is a misrepresentation.

A similar misrepresentation was made in the First Jane Lennon Affidavit. At no stage in that affidavit is it mentioned that there were three separate sets of lenders. Instead, there is what I consider to be a carefully crafted and worded explanation designed to convey that there were three advances under the same loan facility (not three separate loans). Paragraph 5 of the affidavit refers to “the loan”, already described as the loan from Ali and Horner to Erman and Cohen, being secured by the Ali & Horner Caveat. It does not refer to “loans”. Paragraph 6 of the affidavit then states that the loan agreement provides for further advances. Paragraph 7 of the affidavit then refers to Ms Lennon facilitating two further advances. Paragraph 8 then states that the payout figure at settlement is nearly $310,000. Read together, these paragraphs represent that three advances of $102,500, $106,500 and $52,500 were made pursuant to the Ali and Horner Loan, that loan was secured by the Ali & Horner Caveat, and the payout figure to Ali and Horner was $310,000.

This content of the First Jane Lennon Affidavit constitutes a misrepresentation because it represents that in order for settlement of the Property to proceed, Ali and Horner were owed and had to be paid $310,000 plus costs so as to discharge their caveat. That is not the true case: Ali and Horner were owed $102,500 plus interest and costs. At settlement, they received $115,669.64.

It is telling that the First Jane Lennon Affidavit exhibits the Second Loan Epitome, presenting it as evidence of the second advance described in that affidavit. There has been no explanation as to why that document was referred to and exhibited, when the loan documents for the Second and Third Loans had been entered into several months earlier and were presumably available to Ms Lennon, Erman and Mr Lennon. It is very clear that Ms Lennon was aware of the true situation, as her email to the three lenders saying that they would all get paid was sent only two days prior to making the First Jane Lennon Affidavit.[72] In my view, the Second Loan Epitome was exhibited to bolster the representation that all of the advances were owed to Ali and Horner and secured by the Ali & Horner Caveat. Referring to and exhibiting the loan agreements for the Second and Third Loans would have revealed the true position. I conclude that they were not referred to or exhibited for that very reason. Taken as a whole, and with the benefit of the evidence that has now come to light, the First Jane Lennon Affidavit is false and misleading, and deliberately so. Through it, deliberate misrepresentations as to the true facts have been made.
[72]See paragraph 43 above.

Ms Lennon’s explanations as provided in the Second Jane Lennon Affidavit do not alter this view and do not assist her position or that of the Respondents. I simply do not see how it can seriously be contended that the Ali & Horner Caveat secures the Second and Third Loans and, for reasons which I will set out later, it does not matter that Erman and Cohen agreed to that. Ms Lennon used her position as a director of Argyle to include amounts owing under the Second and Third Loans when providing a payout figure for the Ali & Horner Caveat.

I do not accept the Respondents’ submissions, described in paragraphs 106 and 107 above, that the First Jane Lennon was not false or misleading. The explanation for paragraph 7 of the affidavit is unconvincing. Reliance on the amount of $350,000 as an estimate, as expressed in paragraphs 8 and 9 of the affidavit, is disingenuous. The estimate is as to costs of around $30,000 to $40,000. It does not provide a plausible basis for the difference between what was actually owing to Ali and Horner (ie. approximately $115,000, possibly plus costs) and $350,000. Subsequent documents such as that described in paragraph 106(c) above simply do not assist the Respondents. They are not documents that were known by or disclosed to Kerbaj prior to the Agreement, so they cannot factor into what was known to him at the relevant time.

The Filed Loan Account Statement also misrepresented the true situation. True it is that it refers to three loans, but it does not state that there were three different sets of lenders of which Ali and Horner were only one. It clearly conveys that all of the loans and credits/debits in that statement were in respect of Ali’s and Horner’s loan. It, and the other documents filed on their behalf, continued, repeated and perpetuated the misrepresentations made during the Caveat Removal Application.

In the same way, the Settlement Statement, First Jane Lennon Affidavit and Filed Loan Account Statement are misleading. I will turn to the question of fraud later in these reasons.

Are the Second and Third Loans secured by Ali & Horner Caveat?

As set out above, phrasing the question in this way is shorthand for the question as to whether the Second and Third Loans are secured by the interest claimed in the Ali & Horner Caveat, it being recognised that a caveat itself is not security but notice of a secured interest.

The Respondents’ submission that the Second and Third Loans are secured by the Ali & Horner Caveat are patently and self-evidently nonsense. The submission ignores such fundamental concepts as privity of contract, such that it is fanciful to contend that a mortgage given to one lender by the borrower can secure separate loans given by other lenders to that same borrower, without more. The interest claimed by Ali and Horner in their caveat is as charge under an agreement dated 27 June 2019. The creative and tortured exposition given by Mr Lennon as to how terms of the loan agreement for the First Loan and the MCP meant that other loans, particularly the Second and Third Loans, were Advances and therefore Secured Money secured by Ali and Horner’s mortgage simply cannot be accepted. The submission that the Second and Third Loans were included within Secured Money because they were money advanced by the mortgagee (ie. Ali and Horner) alone or with someone else is preposterous on the facts before the Court. That could only be the case if Ali and Horner had jointly advanced money with AJTP or Grand Bollox, which they did not. Similarly, it cannot be accepted that the Second and Third Loans were secured by the Ali & Horner Caveat.

To the extent that the Respondents’ submission in this respect proceeded on the basis that the Second and Third Loan advances were Secured Money under the First Loan terms and MCP, because the terms and MCP of the Second and Third Loans also described those advances as Secured Money, it cannot be accepted. As a matter of construction, the use of the same defined term in a series of separate contracts does not incorporate those contracts, and there is nothing at all in the terms of the contracts other than their use of common defined terms to suggest that advances under the Second and Third Loans were to be treated as Advances or Secured Money for the purposes of the terms and MCP of the First Loan.

The only way in which the Respondents’ submissions could possibly make sense is if one regards Argyle as the lender, procuring particular advances from Ali and Horner, AJTP and Grand Bollox, and as the holder of the security (ie. the equitable charge under a loan agreement and as mortgagee under a mortgage). But that is not the situation here.

Instead, we have Argyle facilitating the three loans and then relying on the caveat in respect of the First Loan, being the Ali & Horner Caveat, to ensure that it is in a practical position to have AJTP and Grand Bollox paid out when it comes time for the Ali & Horner Caveat to be discharged. That simply does not amount to the Second and Third Loans being secured by the Ali & Horner Caveat.

For completeness, I note that I do not accept Kerbaj’s submission that the Second and Third Loans were unsecured. True it is that they were not secured by the Ali & Horner Caveat and that AJTP and Grand Bollox had not lodged caveats of their own. However, and putting aside Kerbaj’s subsequent clarification at the hearing that a caveat constitutes notice of a claimed interest, the loan agreements for the Second and Third Loans did contain charging clauses and therefore AJTP and Grand Bollox had, if all relevant elements can be established, equitable charges over the Property as security for their loans. Nonetheless, that does not support the Respondents’ submission that the Second and Third Loans were secured by the Ali & Horner Caveat.

Discussion of other matters relied upon by the Respondents to contend that there has been no fraud, misrepresentation or misleading conduct
The relevant persons believed the Second and Third Loans were secured by the Ali & Horner Caveat

I do not accept the Respondents’ submission that there has been no misrepresentation or misleading conduct because it was believed that the Second and Third Loans were secured by the Ali & Horner Caveat.

First, as will be addressed shortly, the representor’s knowledge that a representation is false is not required for it to be misleading.

Second, I do not accept that Ms Lennon or Mr Lennon truly believed that the Second and Third Loans were secured by the Ali & Horner Caveat. They knew that Ali and Horner were not owed $350,000 but rather a much lower amount and that AJTP and Grand Bollox were owed the rest. They knew that there were separate loan agreements in respect of each of the three loans and that caveats had not been lodged on behalf of AJTP and Grand Bollox in connection with the Second and Third Loans. That the presence of the Ali & Horner Caveat gave Argyle a practical means of preventing dealings being registered on the title to the Property without the consent of Ali and Horner, and that “Pat’s relationship” with Erman meant that Erman and Argyle would see that AJTP and Grand Bollox were paid, do not mean that the Ali & Horner Caveat secured the Second and Third Loans. Further, I do not see how Ms Lennon or Mr Lennon could reasonably have believed such a proposition. For the reasons set out in the previous section, that is implausible.

Third, there is no evidence before me to establish that Erman, Ali & Horner believed that the Ali & Horner Caveat secured the Second and Third Loans.

Disclosure of the true position would have made no difference to Kerbaj

I also do not accept the Respondents’ submission that there has been no misrepresentation or misleading conduct because even if the true position had been disclosed that would have made no difference to Kerbaj.

Even if one accepts that the Second and Third Loans were secured via equitable charges and that those charges were entered into prior to the interest relied on by Kerbaj for the interest claimed in the Kerbaj Caveat, and that the payout figure for the First, Second and Third Loans was approximately $310,000, that does not lead to a conclusion that disclosure of the Second and Third Loans and of the amount actually owing under the First Loan would have made no difference to Kerbaj.

Much emphasis was placed by the Respondents on Kerbaj’s alleged knowledge that Erman owed approximately $310,000 and that this liability was incurred prior to Erman’s alleged liability to Kerbaj. However, the submission that the outcome brought about by the Agreement makes no difference to Kerbaj conflates what might occur on a final determination of interest in the Fund with the entry into the Agreement. The Respondents were constantly positing the wrong question: it is not whether the misrepresentation makes a difference to the ultimate outcome at trial, if all possible interests in the Fund were to be assessed, but whether Kerbaj entered into the Agreement induced by the representation that Ali & Horner were owed $350,000. In other words, the question is whether Kerbaj was induced to remove his caveat and to agree to Ali & Horner being paid $310,000 from the settlement proceeds because it had been represented to him that Ali and Horner were owed $350,000 and that amount was secured by the interest claimed in the Ali & Horner Caveat.

As set out above, Mr Woods gives evidence that Kerbaj would not have agreed to Ali and Horner being paid $310,000 if he had known the true position. I acknowledge that Kerbaj has not given evidence in this regard, however there was no real challenge to Mr Woods’ evidence by the Respondent. Their contention was that disclosure would have made no difference to the outcome for Kerbaj, which is a different proposition. Even so, I accept Mr Woods’ evidence in this regard. It is plain from the terms of the Agreement that Kerbaj had accepted what he had been told in terms of the amount owing to Ali and Horner, and that he agreed to them being paid from the settlement proceeds. He also agreed to Lightspeed being paid from the settlement proceeds. It is clear that he was agreeing to the interests of chargees whose interests had been created and caveated prior to his being paid, and for the balance of the proceeds to be preserved pending determination of the various other rights and interests to them. He did not agree to Cohen or Credit Corp being paid, and hence they were able to pursue their interests if they chose to. There is no evidence to suggest that he would have agreed to remove the Kerbaj Caveat if other persons, i.e. AJTP and Grand Bollox, whose interests were not the subject of any caveats were to be paid in priority to himself; or indeed that he would have agreed to their priority of payment in circumstances where their interests had not been the subject of a caveat. Moreover it is likely that he would not have agreed, in circumstances where that agreement would have diminished the total funds available to himself and the other claimants in the proceeding.

Any consideration of repayment should await trial

I am satisfied that any order to repay the Overpayment need not await the trial. Plainly, payments have been made by Argyle which were not authorised by the Agreement or the Consent Orders. Repaying the Overpayment will restore that amount to the Fund, and the parties’ entitlements to it can be agitated at trial.

Tacking

The concept of tacking was not explained to me by Mr Lennon when making submissions about s 94 of the PLA.

As I understand it, tacking refers to the ability of a lender to secure further advances under existing security which rank in priority to any amounts subsequently lent by, and secured in favour of, another lender. In other words, the first lender tacks the further advances onto its security in priority to the second lender.

As I stated in paragraph 115, I found Mr Lennon’s submissions in relation to tacking and its application to this case to be incomprehensible. The best I can discern is that it was argued that Kerbaj could not rely on the rule against tacking (which, I should add, does not reflect Kerbaj’s position) as there was no evidence that the further advances were made with knowledge of Kerbaj’s advances. However, this argument only makes sense if the Second and Third Loans were further advances made pursuant to the First Loan, which they were not since the lenders were not the same, and if they were further advances then they were made after Kerbaj’s loan, which they were not.[73]
[73]In this regard, I rely on the dates of the agreements listed in each of the Ali & Horner Caveat and the Kerbaj Caveat, and the dates of the Second and Third Loans.

There was nothing in Kerbaj’s submissions that mentioned or seemed to rely on tacking or the rule against tacking to improve his priority vis-à-vis the other lenders.

Accordingly, the Respondents’ submissions in this regard are irrelevant to the matters which I must decide. I need say no more about them.

Should the Consent Orders be set aside or varied so as to require repayment of the Overpayment?

The misleading nature of the Filed Loan Account Statement does not provide a basis for setting aside or varying the Consent Orders, since it was clearly not a factor leading to the Agreement being made which resulted in the Consent Orders being made.

However, the misrepresentations made by the Settlement Statement and the First Jane Lennon Affidavit do provide such a basis.

It is trite to say it, but a misrepresentation is a false statement of a material fact made by one person (the representor) to another (the representee) in order to induce that other party to enter into the contract and which has this effect. If those elements are made out, then the contract is voidable.

Here, representations were made to Kerbaj by Erman through his lawyers, Lennon Lawyers, and Ms Lennon, through the Settlement Statement and the First Jane Lennon Affidavit, that Ali and Horner were owed $350,000 and that amount was secured by the interest claimed in the Ali & Horner Caveat. That representation was false. It is unmistakably clear that the representation was made in order to induce Kerbaj into entering into the Agreement pursuant to which, inter alia, he would agree to remove his caveat and for $310,000 of the settlement proceeds to be paid to Ali and Horner. He was so induced.[74] Accordingly, there were representations made to him which were false and which provide a basis for avoiding the Agreement due to misrepresentation. I have already explained why I have rejected the Respondents’ submissions that the representations were not false or misleading.
[74]First Woods Affidavit, [8].

I accept that the misrepresentations induced Kerbaj into entering into the Agreement and agreeing to the Consent Orders. This is so for two reasons. First, Mr Woods gives that evidence. Second, it is simply implausible to suggest that Kerbaj would have agreed to Ali and Horner being paid more than double what they were owed had he known the true position or that he would have agreed to remove his caveat had he known that. I accept Kerbaj’s submission that he suffered prejudice in that he allowed the sale of the Property to go ahead based on the information he had been given (i.e. the misrepresentations) at a time when he opposed the sale as he alleged that it was being sold at an undervalue. I also agree with the submission by Kerbaj’s counsel that:

It cannot be an acceptable submission that it was easier to provide the [First Jane Lennon Affidavit] and mislead the parties, rather than tell us all the truth and then to later on say, ‘Well, it would have all worked out the same in the end’.[75]

[75]Transcript, 88.20-24.

The Agreement led to the Consent Orders being made. The Agreement being voidable for misrepresentation leads to the Court having power to set aside or vary the Consent Orders. In this instance, an order that the Overpayment be paid into Court pending the outcome of the proceeding is effectively a variation of the Consent Orders.

Having found that the Consent Orders can be set aside or varied due to the Agreement being voidable on the grounds of misrepresentation, it is unnecessary for me to consider whether the Agreement is also voidable on the grounds of fraud. I decline to make findings in that regard, as it was not something that was particularly well developed in the submissions. In the circumstances, I do not need to.

For completeness, I will note that I have not given any weight to Kerbaj’s submission that ordering repayment of the Overpayment will facilitate settlement discussions in respect of the proceeding. Nor have I given any weight to the Respondents’ submissions to the contrary. Such contentions are purely speculative and therefore I have disregarded them.

Ordering the repayment of the Overpayment on the basis of the terms of the Agreement

I am satisfied that clause 2.2.3 of the Agreement provides a basis for the Court to order that the Overpayment be repaid and that such orders should be made, for the same reasons as set out above regarding the Consent Orders.

Who should repay the Overpayment

Kerbaj seeks orders that Ali and Horner, or alternatively Argyle, pay the Overpayment into Court.

In my view, the fairest outcome here is that Ali and Horner, and Argyle, be ordered to pay the Overpayment into Court.

While it is true that Ali and Horner themselves did not ultimately receive the full $310,000 pursuant to the Consent Orders and the Agreement, it is reasonable to infer that they had instructed or authorised Lennon Lawyers and/or Argyle to make the payments which were made. They were parties to the Agreement and the facts are that the Agreement and the Consent Orders provided for a payment to them in an amount to which they were not entitled.

It is also appropriate that Argyle be ordered to pay the Overpayment into Court. Argyle received the $310,000 following settlement and disbursed it other than in accordance with the terms of the Agreement and the Consent Orders. It is simply incongruous to think that Argyle was not aware of those terms. It ought not have disbursed the money in the manner that it did. Argyle was on notice of the Application: the summons was addressed to it, amongst others (including its director, Ms Lennon). That summons clearly sought an order that Argyle pay the Overpayment. Pursuant to the orders which I made on 1 March 2022, Argyle had the opportunity to file affidavits and submissions in opposition to the Application. It did not do so. Even if the Second Jane Lennon Affidavit could be regarded as having been filed on behalf of Argyle, which I doubt given that it records on the front page that it was filed on behalf of Ms Lennon, it does not in terms provide any evidence as to why Argyle should not be ordered to pay the Overpayment. No written submissions were filed by or on behalf of Argyle, and no appearance was made at the hearing on or on behalf of Argyle. Therefore, Argyle has had the opportunity to be heard and it has chosen not to be. To the extent that it impliedly relies on the submissions and evidence of the Respondents, that evidence and submissions have not persuaded me that Argyle should not have to make the payment. Indeed, none of the Respondents’ submissions specifically addressed this issue: they simply went to why no repayment should be ordered at all.

Any unfairness or prejudice to Ali and Horner, if there is any, is mitigated by the fact that I will make orders that they and Argyle are to repay the Overpayment. It is then a matter for them to sort out with Argyle. The fact is that the Fund is deficient in the amount of approximately $194,000 as a result of the combined conduct of Argyle, Ali and Horner. In the interests of justice in respect of all claims on the Fund, the amount should be repaid. Whether any others, including Lennon Lawyers and Mr Lennon, should be ordered to repay the Overpayment is a different question and was not sought by the Application.

Breach of overarching obligations in the CPA
Erman, Ali and Horner

In paragraph 72 above, the categories of persons bound by the overarching obligations in the CPA are set out.

Having regard to that, there is no doubt that at the time of the Caveat Removal Application, Erman, Mr Lennon, and Lennon Lawyers, along with Kerbaj and his lawyers, were bound by the overarching obligations, as they were the parties to the proceeding and their lawyers. Ali and Horner were not parties to the proceeding at that stage but became so later, and were thereupon bound by the overarching obligations.

In respect of s 21 of the CPA, a person to whom the overarching obligations apply must not engage in conduct that is misleading or deceptive or is likely to mislead or deceive. In respect of s 18 of the CPA, a person to whom the overarching obligations apply must not make any claim in a civil proceeding that does not, on the factual and legal material available to the person at the time of making the claim, have a proper basis.

For the reasons set out above, I am satisfied that at the very least, Erman and later Ali and Horner breached their overarching obligations to not mislead or deceive and to have a proper basis for any claim made in a civil proceeding. Erman, Ali and Horner all knew that Ali and Horner were not owed $350,000, $310,000 or anything like it. Erman ran the Caveat Removal Application on the basis that they were, without having a proper basis to do so. Ali and Horner filed and served the Filed Loan Account Statement which recorded approximately $302,000 as being owed pursuant to their loan, again without having a proper basis to do so, and continued their claims in this proceeding on that same basis. I do not accept the Respondents’ submission that for the overarching obligation to not mislead or deceive to be breached, knowledge that the conduct is misleading or deceptive is required: Rather, “the issue is whether, tested objectively, the conduct induces or is capable of inducing error”.[76] I am satisfied that this has been established.
[76]Bolitho, [1333].

It follows that I am satisfied, on the balance of probabilities, that Erman, Ali and Horner have breached ss 18 and 21 of the CPA.

Section 17 of the CPA provides that a person to whom the overarching obligations apply must act honestly at all times in relation to a civil proceeding.

In Bolitho, John Dixon J set out the following in respect of dishonesty:[77]

Dishonesty is an ordinary concept, not a term of art. What must be established is that the person subjectively intended to do the acts which are said to be objectively dishonest by the ordinary standards of reasonable and honest people. It is an enquiry into the mental state of the person whose conduct is in issue.
In most cases, the question is whether some positive act was dishonest; an inquiry about whether that act was done with knowledge or belief of some specific thing, or with some specific intent. If the question is whether a failure to act was dishonest, it is usually answered by considering whether that failure was motivated by a desire to conceal the truth, or to obtain an advantage to which the person concerned knew they were not entitled.
A conclusion that something is said dishonestly cannot be reached if the person whose conduct is in issue believes in the truth of the statement. There is little, if any, difference between failing to act honestly and engaging in conduct that knowingly misleads or deceives. A person is deceitful if they know or believe that what they say is false. However, it is not necessary that the person making the false statement understood it to be dishonest by that standard. In McCarthy v St Paul International Insurance Co, Kiefel J said:
[I]t is incongruous to ask whether a person accused of dishonesty appreciated that to be the case. Ordinary honest persons determine whether a person’s act is dishonest by reference to that person’s knowledge or belief as to some fact relevant to the act in question, or the intention with which it was done. They do not enquire whether the accused must have realised the act was dishonest. The ordinary person would consider it to be dishonest to assert as true something which is known to be false.

[77]Bolitho, [1226]-[1328] (citations omitted).

Here, at the very least, the statements and representations that Ali and Horner were owed $350,000 were false and it was known by Erman, Ali and Horner that that was the case. That is sufficient, in my view, to fall within actual dishonesty for the purposes of s 17 of the CPA as set out in the preceding paragraph. Even if I was not satisfied as to that, I am satisfied that it is dishonest as it is reckless in the manner referred to in Bolitho,[78] as submitted by Kerbaj and summarised in paragraph 73(a) above.
[78]Bolitho, [1329].

Even if I accepted that they believed the whole amount was secured by the Ali & Horner Caveat, which I do not, that would not affect my conclusion that the statement that Ali and Horner were owed $350,000 was dishonest.

It follows that I am satisfied that Erman, Ali and Horner have breached s 17 of the CPA.

Accordingly, I am satisfied that if need be, I can make orders that Ali and Horner repay the Overpayment pursuant to s 29 of the CPA. As already noted, s 29 of the CPA provides the Court with the power to make any order it considers appropriate in the interests of justice. In this case, the interests of justice are served by requiring Ali and Horner to repay the Overpayment, including for the reasons set out in paragraph 161 above.

Mr Lennon

I consider that there is a sufficient basis for me to be concerned that Mr Lennon may also have breached the overarching obligations in the CPA. He was responsible for the conduct of the Caveat Removal Application for Erman, in particular in providing the Settlement Statement and placing the First Jane Lennon Affidavit before the Court, and he was also responsible for the conduct of the claims made by Ali and Horner in the proceeding. Mr Lennon used his position as Erman’s lawyer to ensure that Argyle’s lenders got paid when two of them had not lodged caveats.

Accordingly, I intend to make directions for Mr Lennon to ‘show cause’ as to whether he has breached those overarching obligations and whether the Court ought make orders pursuant to s 29 of the CPA against him personally (‘Pat Lennon Alleged CPA Breaches’).

Ms Lennon

Kerbaj submits that Ms Lennon was also bound by the overarching obligations, as a legal practitioner. In his submissions for the Respondents, Mr Lennon recited the content of paragraph 72 above and then said “[s]o, obviously, Ms Lennon would be covered by that, because it’s very broad.”[79]
[79]Transcript, 68.12-17.

I am not convinced that this is correct. I accept that Ms Lennon is a legal practitioner and a lawyer at Lennon Lawyers, but I was not taken to any evidence demonstrating that she was acting in that capacity when providing the First Jane Lennon Affidavit in respect of the Caveat Removal Application. She does not mention being a legal practitioner in that affidavit, which was prepared by Lennon Lawyers and filed on behalf of Erman. She does mention being a legal practitioner in the Second Jane Lennon Affidavit, which affidavit is stated to have been filed on her own behalf.

I do not think that Ms Lennon comes within s 10 of the CPA as a consequence of providing “financial assistance” to Erman, as that is not the type of financial assistance referred to in that section. It is tolerably clear, based on the ordinary meaning of the words, that that aspect of s 10 is concerned with someone who is providing financial assistance to a party in the conduct of the proceeding. Facilitating loans to Erman and Cohen for the purpose of renovating the Property does not fall within that.

I also note that s 10(2) of the CPA expressly states that apart from expert witnesses, the overarching obligations do not apply to witnesses in a civil proceeding. It seems to me that Ms Lennon’s role in respect of the Caveat Removal Application was as a witness only.

Accordingly, I am not prepared to make any findings as to breaches of the overarching obligations by Ms Lennon in the circumstances of this proceeding.

Other matters concerning Mr Lennon and Ms Lennon – referral to the Legal Services Commissioner

I am concerned that the allegations and findings in respect of the Application raise matters to do with the conduct of Mr Lennon and Ms Lennon, being lawyers, and their fitness to engage in legal practice. By way of example, the Legal Profession Uniform Law[80] defines professional misconduct in s 297(1)(b) as including “conduct of a lawyer whether occurring in connection with the practice of law or occurring otherwise, that would, if established, justify a finding that the lawyer is not a fit and proper person to engage in legal practice”.
[80]The Legal Profession Uniform Law is schedule 1 to the Legal Profession Uniform Law Application Act 2014 (Vic).

I intend to refer a copy of this ruling and any necessary papers filed in the proceeding to the Legal Services Commissioner (‘Commissioner’), in respect of both Patrick Lennon and Jane Lennon. Notwithstanding my view that Ms Lennon was not bound by the overarching obligations under the CPA in respect of this proceeding, her conduct in this proceeding, particularly the First Jane Lennon Affidavit and its deliberately misleading content, raises sufficient concern regarding her fitness and propriety such that it should be referred to the Commissioner for consideration and, if deemed appropriate by the Commissioner, investigation. Mr Lennon’s conduct raises similar concerns and he should also be referred to the Commissioner.

Conclusion

For the reasons set out above, I have found that the Agreement can be avoided for misrepresentation and that this provides a basis for varying the Consent Orders by making orders that the Overpayment be repaid by Ali and Horner and Argyle. I have also found that Erman, Ali and Horner have breached their overarching obligations under ss 17, 18 and 19 of the CPA and that the Court can make orders under s 29 of the CPA for Ali and Horner to repay the Overpayment. Alternatively, the terms of the Agreement itself provides a basis for such orders.

Accordingly, orders will be made that Ali, Horner and Argyle pay the Overpayment into Court within 14 days of the making of that order.

For the reasons set out in paragraphs 175 and 176 above, I will make directions in respect of the Pat Lennon Alleged CPA Breaches, as follows:

(a) by 29 July 2022, Mr Lennon is to file and serve any affidavits setting out any further evidence he relies upon in respect of the Pat Lennon Alleged CPA Breaches;

(b) by 12 August 2022, any person wishing to file and serve any affidavits in response are to do so;

(c) by 26 August 2022, Mr Lennon is to file and serve any affidavits in reply;

(d) by 2 September 2022, Mr Lennon and any person wishing to be heard are to file and serve written outlines of submissions; and

(e) the proceeding will be listed before me on a date to be fixed so as to deal with the Pat Lennon Alleged CPA Breaches.

For the avoidance of doubt, the affidavits already filed in this proceeding may be relied upon and the additional affidavits referred to in the preceding paragraph are for additional evidence. In other words, if something is already in evidence from an existing affidavit, it need not be included in the affidavits to be filed in accordance with the directions I have referred to.

The parties are to confer regarding a form of orders to give effect to this Ruling and as to costs.

By 4:00pm on 23 June 2022, the parties are to provide to my Chambers:

(a) proposed consent orders if agreement as to the form of orders and costs has been reached; and

(b) their preferred orders and short written submissions of no more than three pages if consent as to the form of orders and costs has not been reached.

I will then make orders on the papers on or after 4:00pm on 23 June 2022 to give effect to this Ruling.

SCHEDULE OF PARTIES

S ECI 2020 02573
BETWEEN:
DARRYN GARLICK (AS REPRESENTATIVE OF THE ESTATE OF JACK JOHN ERMAN)	First Plaintiff
~~JACK JOHN ERMAN~~	~~Second Plaintiff~~
- v -
DANIEL KERBAJ	First Defendant
~~REGISTRAR OF TITLES~~	~~Second Defendant~~
MARZELLE COHEN	Third Defendant
GRAEME GEORGE ALI	Fourth Defendant
VICTORIA LOUISE HORNER	Fifth Defendant
CREDIT CORP SERVICES PTY LTD (ACN 082 928 872)	Sixth Defendant

Caveat number	Caveator	Interest claimed	Date caveat registered	Date of claimed interest
AS229383B (‘Cohen Caveat’)	Marzelle Susana Cohen	Freehold estate on grounds of implied, resulting or constructive trust	5 June 2019
AS397786K (‘Ali & Horner Caveat’)	Graeme George Ali & Victoria Louise Horner	Interest as chargee on grounds of agreement with registered proprietor	31 July 2019	27 June 2019
AS973505L (‘Lightspeed Caveat’)	Lightspeed Mortgage Management Pty Ltd	Interest as chargee on grounds of agreement with registered proprietor	10 February 2020	6 December 2019
AT056985Y (‘Kerbaj Caveat’)	Daniel Kerbaj	Interest as chargee on grounds of agreement with registered proprietor	6 March 2020	20 February 2020

[2022] VSC 336

17 June 2022