Jams 2 Pty Ltd v Stubbings (No 3)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S CI 2016 02053

JAMS 2 PTY LTD	First Plaintiff
CONTERRA PTY LTD	Second Plaintiff
JANACO PTY LTD	Third Plaintiff
v
JEFFREY WILLIAM STUBBINGS	Defendant
TRAYAN TZOUNTZOURKAS	First third party
JORDAN TOPALIDES	Second third party

---

JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	6, 12–13, 17–18, 20, 24–5 September, 2–3 October 2018
DATE OF JUDGMENT:	14 March 2019
CASE MAY BE CITED AS:	Jams 2 Pty Ltd & Ors v Stubbings (No 3)
MEDIUM NEUTRAL CITATION:	[2019] VSC 150	First revision: 22 July 2019

---

EQUITY – Asset-based loan organised and implemented by solicitors – Loan structured by the solicitors to avoid National Credit Code – Loan to a company and guaranteed by a person who is the person receiving and using the money lent – Unconscionable conduct on the part of the lenders – Unconscionable dealing – Mortgages – Special disadvantage – Plaintiff’s knowledge of special disadvantage – Plaintiff’s wilful blindness – Mortgage brokers.

NEGLIGENCE – Claim against accountant – Breach of duty found.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	J D Mattin	Ajzensztat Jeruzalski & Co
For the Defendant	In person
For the First Third Party	In person
For the Second Third	In person

TABLE OF CONTENTS

Introduction.......................................................................................................................... 1
Background facts and parties............................................................................................ 2
Statement of claim............................................................................................................... 5
Defence and counterclaim.................................................................................................. 7
Third party claims............................................................................................................. 11
Structure of loans adopted by AJ Lawyers.................................................................... 12
Mr Stubbings’ personal and financial circumstances................................................... 23
Alleged representations by Mr Zourkas to Mr Stubbings.......................................... 27
Certificate of Independent Legal Advice....................................................................... 44
Certificate of Independent Financial Advice................................................................. 45
Resolution of issues.......................................................................................................... 52
The alleged misleading and deceptive conduct of the plaintiffs............................... 52
National Consumer Credit Code.................................................................................... 54
Unconscionability.............................................................................................................. 59
Catching bargains.............................................................................................................. 62
Was Mr Stubbings under a special disadvantage?...................................................... 67
Knowledge of improvidence of transaction.................................................................. 69
Did AJ Lawyers act unconscionably in procuring the loans to Mr Stubbings?....... 72
The conduct of Mr Zourkas............................................................................................. 73
The system of conduct...................................................................................................... 74
Third party claims............................................................................................................. 79
Claim against Mr Topalides............................................................................................ 85
Orders.................................................................................................................................. 87

HIS HONOUR:

Introduction

In this proceeding, the plaintiffs lent money to Victorian Boat Clinic Pty Ltd (‘VBC’) of which the defendant, Jeffrey William Stubbings (‘Mr Stubbings’), was sole director and shareholder. VBC was a shell company with no assets. The loan was guaranteed by Mr Stubbings, who also gave mortgages in support of the guarantee over two existing properties he owned and over a third property acquired with the loan moneys by Mr Stubbings. VBC defaulted on the loan and the plaintiffs have sought to enforce the guarantee and execute on the mortgages. The two existing properties have been sold by the plaintiffs, and in this proceeding they seek possession, as mortgagees, of the third.

Previously, the plaintiffs had sought summary judgment against Mr Stubbings from an associate judge for possession of the three properties under the three mortgages. The associate judge made orders granting possession on 23 March 2017. The summary judgment was granted essentially on reasons for judgment published previously by the associate judge on 28 November 2016.[1]
[1]Jams 2Pty Ltd v Stubbings [2016] VSC 711.

In her reasons for judgment, her Honour found that Mr Stubbings had no real prospect of success in defending the mortgagees’ claims, but on 5 December 2016 ordered the proceeding to trial under s 64(b) of the Civil Procedure Act2010 (Vic), on the grounds that the dispute was of such a nature that only a full hearing on the merits was appropriate.

As her Honour found that Mr Stubbings obtained a benefit from the transaction with respect to pre-existing obligations, the orders made on 5 December 2016 also required Mr Stubbings to provide security to the satisfaction of the Senior Master in the sum of $240,124.42. Her Honour ordered that in the event this security was not provided by 30 January 2017, the mortgagees were entitled, on notice, to seek summary judgment (again). Mr Stubbings failed to provide the security ordered, and as indicated above, summary judgment for possession was granted. Mr Stubbings appealed from the orders made by the associate justice granting possession and that security be provided. The appeal came on before Justice Elliott.

His Honour found that the associate judge was in error in finding that there was no real prospect of success with respect to Mr Stubbings’ defence.[2] Accordingly, his Honour ordered that the appeal from the orders of the associate judge be allowed and leave to defend be granted. His Honour found that, in circumstances where the mortgagees had already realised amounts from a mortgagee’s sale of one of the properties pursuant to the orders, far in excess of the security previously ordered, there was no need to consider the correctness or otherwise of the order for security. Accordingly his Honour granted leave to defend without any condition with respect to the provision of security.
[2]Stubbings v Jams 2 Pty Ltd [2017] VSC 404.

In the matter before Justice Elliott, Mr Stubbings was represented by counsel. In the matter before me, however, Mr Stubbings was unrepresented by either counsel or solicitors. The plaintiffs were represented by Mr Mattins before me and in the earlier proceedings, instructed by Ajzensztat Jeruzalski & Co.

Mr Stubbings joined as third parties Mr Trayan Tzountzourkas (‘Mr Zourkas’), who played a vital role on behalf of the plaintiffs in organising the loan and who also assisted Mr Stubbings to obtain the loan, and Mr Jordan Topalides (‘Mr Topalides’), an accountant who advised Mr Stubbings on the loan. Mr Zourkas and Mr Topalides were also unrepresented. The appearance of three unrepresented parties presented difficulties in the conduct of the trial. Mr Mattin graciously agreed to assist, where possible, by putting Mr Stubbings’ case to the relevant witnesses and parties, as that task was well beyond Mr Stubbings. Mr Zourkas and Mr Topalides were able to argue their cases satisfactorily without the benefit of counsel.

Background facts and parties

Mr Stubbings owned two houses in Narre Warren, located at 4 Westleigh Crescent, Narre Warren (‘Westleigh Crescent’) and 5 Ashton Rise, Narre Warren (‘Ashton Rise’). They each secured a loan from the Commonwealth Bank of Australia (‘CBA’) to Mr Stubbings. Both of the houses were leased — one of them to his son. Mr Stubbings had been living at other premises at Boneo, where he worked repairing boats. Mr Stubbings had fallen out with the owner of the Boneo property, Mr Paul Drennan, and needed to move. He sought to buy another property in which to live and store some boats he owned, and needed to borrow to do so.

Mr Stubbings found a property of about five acres with two houses on it located at 380 Truemans Road, Fingal, on the Mornington Peninsula (‘Fingal property’). It was for sale for $900,000. He tried to borrow from a bank to purchase the property, but was unsuccessful. Mr Stubbings was then introduced to Mr Zourkas, who calls himself a ‘consultant’.

Mr Zourkas carries on a business, inter alia, of introducing potential borrowers to Ajzensztat Jeruzalski & Co (‘AJ Lawyers’). AJ Lawyers provides a service to various clients to arrange to provide loans by the clients on security to borrowers. Mr Zourkas plays an important and essential role in this business in introducing potential borrowers to AJ Lawyers. In each instance, the loan arranged by AJ Lawyers is made to a company controlled by the person wishing to borrow moneys, to avoid the application of the National Credit Code (the ‘Code’) to the loan. Loans to companies are not governed by the Code. Mr Zourkas was not remunerated by AJ Lawyers for the services he provided to them to assist in making the loan, but was paid by AJ Lawyers a fee deducted from the borrowed money at the expense of the borrower.

The service provided by Mr Zourkas to AJ Lawyers is essential to the way AJ Lawyers conducts its loan business with those introduced by Mr Zourkas, as it avoids AJ Lawyers dealing directly with the borrower and the guarantor, and thus assists in immunising AJ Lawyers from being tainted with any knowledge of the financial and personal circumstances of the guarantor and the borrower. I say tainted, as AJ Lawyers are aware that even though the loans are not governed by the Code, knowledge by them of the guarantor’s financial and personal circumstances may expose the loan to the risk of being set aside as being unconscionable. This would be most unfortunate for their clients.

In the loan the subject of this proceeding, AJ Lawyers arranged for the loan to be made to VBC by the three plaintiffs, Jams 2 Pty Ltd (‘Jam 2’), Conterra Pty Ltd (‘Conterra’) and Janaco Pty Ltd (‘Janaco’), who were clients of the firm.

In these reasons, I may refer to Mr Stubbings as the borrower, because that is what he was in substance. He was the recipient of the moneys and the person to whom the lenders looked for repayment. By adopting that description, I am not ignoring the actual structure of the loan but merely seeking to identify the substance of the transaction.

Mr Stubbings was told by Mr Zourkas he needed to take out a first and second mortgage over the three properties to enable him to pay out his existing loan to the CBA, pay commissions to Mr Zourkas and AJ Lawyers, meet other expenses, and to finance the purchase of the Fingal property.

According to Mr Stubbings, he and Mr Zourkas worked out a plan to ensure Mr Stubbings could meet his commitments under the proposed loan. Under the plan, Mr Stubbings would use some of the borrowed moneys to renovate the two existing residences he owned and pay the interest on the loan while he conducted the renovations. He would then sell the renovated houses and refinance the borrowings through a bank after two or three months. Mr Stubbings would then be left with the Fingal property and a serviceable debt.

In reality there were no circumstances in which the plan could work. VBC had no assets at all. It was a mere shell. Under the loans arranged with AJ Lawyers, VBC was contractually prevented from repaying the loans for a period of six months. Further, after commissions and expenses, paying off the CBA and financing the purchase of the Fingal property, only about $6,000 was left. This was insufficient to do renovations or pay interest as had been planned.

Interest was payable monthly. The loan set aside the first month’s interest. Mr Stubbings says that he managed to pay the second month’s interest, but he has not been able to pay any further interest. Mr Stubbings, as the guarantor, was bound to lose his existing properties and the new Fingal property from the moment the loan was made, as Mr Zourkas would have well known and which AJ Lawyers should have known, but for their deliberate policy of avoiding any knowledge of the financial and personal circumstances of the borrower or guarantor, save for their knowledge of the security offered. Any person with a modicum of intelligence, who was apprised of the actual nature of the loan and Mr Stubbings’ circumstances, would not have proceeded with the loan. It was bound to end with serious losses and damage to Mr Stubbings.

In May 2016, AJ Lawyers started proceedings to obtain possession of all three properties to sell and recover the debts owed by Mr Stubbings under the first mortgage. Mr Stubbings’ position under the second mortgage was not canvassed at the trial. There was no point in suing VBC as it was a mere shell.

The plaintiffs sold the two Narre Warren properties as mortgagees and in these proceedings they seek possession of the Fingal property as mortgagees. The plaintiffs also seek judgment for the outstanding debt on the first mortgage, interest, and costs.

Statement of claim

The following allegations are pleaded by the plaintiffs in their statement of claim.

By a registered first mortgage dated 30 September 2015 between Mr Stubbings and the plaintiffs (the ‘mortgage’), Mr Stubbings mortgaged all his interest in the Westleigh Crescent, Ashton Rise, and Fingal properties to the plaintiffs to secure the repayment of the principal sum of $1,059,000 advanced by the plaintiffs to Mr Stubbings. The mortgage provided for interest on that principal sum at the higher rate of 17 per cent per annum and the lower rate of 10 per cent per annum.

Pursuant to the terms of the mortgage, Mr Stubbings covenanted to repay the plaintiffs the principal sum together with interest on 30 September 2016. Mr Stubbings further covenanted that, so long as the principal sum remained unpaid, he would pay the plaintiffs interest by way of monthly instalments in advance in the sum of $8,825.00 at the lower rate and $15,002.50 at the higher rate, commencing on 30 September 2015.

Mr Stubbings paid to the plaintiffs the interest instalments due on 30 October 2015 and 30 November 2015. However, Mr Stubbings failed to pay the whole of the instalments of interest due on 30 December 2015, 30 January 2016, 29 February 2016, 30 March 2016 and 30 April 2016, and the same are now in arrears and are required to be paid at the higher rate under the mortgage.

By a written Notice to Pay dated 25 March 2016, the plaintiffs demanded payment of the principal sum and interest from Mr Stubbings. Mr Stubbings has failed or refused to pay the moneys so demanded. The amount remaining due under the mortgage is the principal of $1,059,000, together with interest and legal costs on default, totalling $1,149,944.56.

Mr Stubbings has failed and/or refused to give up possession of the Westleigh Crescent, Ashton Rise and Fingal properties, despite requests from the plaintiffs to do so. Accordingly, the plaintiffs are entitled to possession of the land pursuant to Transfer of Land Act 1958 (Vic) ss 78(1) and 81(1).

The plaintiffs claim possession of Westleigh Crescent, Ashton Rise and the Fingal Property, together with payment in the sum of $1,149,944.56, plus further interest and costs.

The mortgage that Mr Stubbings signed is in the form of a pro forma mortgage. Under notes to the mortgage, it is stated that: ‘This mortgage also operates as a loan agreement. The relevant Interest, Instalment, Advance, and Due Date panel must be completed.’[3] These parts of the document were duly completed.
[3]CB 415.

The annexure page contained further covenants. Covenant 1 provided that:

The Mortgagors covenant and agree to observe and comply at all times with the terms and conditions of or contained in the Mortgagee’s letter of offer/loan agreement AND IN THE EVENT of any inconsistency between any term contained in the letter of offer/loan agreement and any term contained in the Memorandum of Common Provisions No AA1955 then the terms of the letter of offer/loan agreement shall prevail.

Further, provision was made for the mortgagor to repay the whole of the advance at any time upon giving one month’s notice.

The mortgage noted that the mortgagees — ie the plaintiffs — held the advance as tenants in common: Conterra held $370,000; Janaco held $300,000; and Jams 2 held $389,000.

Clause 1.2 of the Memorandum of Common Provisions provided that the ‘Mortgagor promises to pay all the Secured Money to the Mortgagee to the extent it has not already been paid on the Due Date.’ Under clause 4.2 of the memorandum, there are provisions that apply when any person is named as guarantor in the Titles Office Form. There then follow clauses proscribing the obligations of the guarantor to make payment and the like. Under the mortgage executed by Mr Stubbings, he was not identified as a guarantor on the Titles Office Form. There is no reference on the mortgage to the loan between the plaintiffs and VBC.

On 21 September 2016, Lansdowne AsJ granted leave to the plaintiffs to amend the statement of claim which alleged that the moneys were advanced by the plaintiffs to Mr Stubbings, to allege that the moneys were advanced to VBC.

Defence and counterclaim

Mr Stubbings raises various defences to the plaintiffs’ claim.[4] Mr Stubbings at this stage had the assistance of solicitors or counsel.
[4]CB 31–44.

Mr Stubbings admits signing the mortgage in favour of the plaintiffs, together with two loan agreements dated 30 September 2015, and further admits the terms of the mortgage as pleaded in the plaintiffs’ statement of claim.

Mr Stubbings also admits that the sum of $1,059,000 (‘the loan’) was advanced by the plaintiffs. However, Mr Stubbings alleges that the sum was advanced to him for personal use and was not advanced to or for the benefit of VBC. Mr Stubbings says that the loan was in the name of VBC at the direction of the plaintiffs, but VBC was an inactive corporate entity that had not traded at any point since its incorporation.

Mr Stubbings denies that the mortgage and loan agreements are enforceable on the following bases:

(a) the plaintiffs engaged in misleading and deceptive conduct pursuant to s 18 of the Australian Consumer Law (‘ACL’) and pursuant to s 12DC of the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’);

(b) the National Credit Code, as schedule 1 to the National Consumer Credit Protection Act 2009 (‘Code’), applies to the mortgage and loan agreements, and the plaintiffs failed to comply with the provisions of the Code.

Mr Stubbings alleges in his defence that at the time of making the loan and entering into the mortgage and loan agreements:

(a) he did not have any income;

(b) he had no other property or assets other than the three properties;

(c) he had only $100 deposit to contribute to the purchase of the Fingal property; and

(d) VBC had not traded and had been inactive since its incorporation.

Mr Stubbings alleges that before he entered into the mortgage and loan agreements, the plaintiffs represented and warranted to Mr Stubbings that:

(a) the plaintiffs were willing and able to advance a loan sufficient to purchase the Fingal property, together with an additional sum of $53,000, for Mr Stubbings to:

(i) pay the first two monthly interest repayments due and payable pursuant to the loan; and

(ii) perform renovations on the Westleigh Crescent and Ashton Rise properties;

(b) as soon as the funds were advanced as a result of the loan, the plaintiffs would assist Mr Stubbings to make an application to Westpac to refinance the loan at a standard interest rate;

(c) the interest repayments made by Mr Stubbings for the loan would demonstrate serviceability to Westpac, and Westpac would then refinance the loan;

(d) while the interest rate of 10 per cent for the loan was high, the refinance via Westpac would occur within about two months, and the interest rate payable as a result of the refinance would be the standard interest rate; and

(e) it was ordinary procedure for the plaintiffs to process loans in the name of a company rather than an individual, regardless of the purpose (of the loan).

Mr Stubbings says the representations were oral and were made by Mr Zourkas on behalf of the plaintiffs during a series of telephone conversations and meetings between Mr Stubbings and Mr Zourkas between July and September 2015.

Mr Stubbings pleads that the plaintiffs knew or ought to have known that Mr Stubbings would rely on the representations, which he did, to enter into the mortgage and loan agreements.

Mr Stubbings alleges that the plaintiffs did not provide the amount of $53,000 to him at settlement of the loan; only $6,959.90 in additional funds were provided to him. Mr Stubbings claims that it is not ordinary industry procedure to apply for finance in the name of a non-trading company.

Mr Stubbings alleges that by virtue of this conduct the plaintiffs have engaged in misleading and deceptive conduct pursuant to s 18 of the ACL and s 12DC of the ASIC Act.

Mr Stubbings also alleges that the plaintiffs have engaged in conduct that in all the circumstances is unconscionable pursuant to section 21 of the ACL, section 12CB of the ASIC Act, and unconscionable at law.

In support of his allegation that both the mortgage and loan agreements are contracts to which the Code applies, Mr Stubbings pleads that he is a natural person and a mortgagor to the loan which was a credit advanced by the plaintiffs. He says that the credit advance was provided wholly for personal or domestic purposes and that a charge by way of interest payments was to be paid for the provision of credit. He says that the plaintiffs provided the credit in the course of carrying on a business of providing credit.

Mr Stubbings alleges that, by virtue of s 13(3) of the Code, the plaintiffs:

(a) knew or ought to have known that the loans were for a purpose under the Code;

(b) would have known that Mr Stubbings was borrowing and using the money for the dominant purpose of settlement of the purchase of the Fingal property, a property he intended to occupy as his residential home; and

(c) knew or ought to have known that the funds were to be used to purchase, renovate or improve residential property for residential and investment purposes.

Mr Stubbings alleges that the plaintiffs were obliged to comply with the provisions of the Code and that, in breach of the Code, the plaintiffs failed to:

(a) comply with the required pre-disclosure obligations pursuant to s 16 of the Code;

(b) ensure the Mortgage and the loan agreements complied with the provisions of s 17 of the Code;

(c) ensure that they were licensed credit providers pursuant to the National Consumer Credit Protection Act 2009 (Cth), as at the time of entering into the loan agreements the plaintiffs did not hold an Australian Credit Licence;

(d) issue to Mr Stubbings the prescribed notice of default pursuant to s 88 of the Code before they issued these proceedings;

(e) ensure that the interest rate and loan fees complied with the provisions of the Code; and

(f) make the required assessments whether the mortgage and loan agreements were suitable for Mr Stubbings pursuant to ss 116, 119, and 131 of the Code.

Third party claims

Mr Stubbings also joined three third parties: Mr Zourkas, Mr Topalides, and Mr Con Kiatos (‘Mr Kiatos’). Mr Topalides purportedly gave Mr Stubbings financial advice on the loan. Mr Kiatos purportedly gave Mr Stubbings legal advice on the loan. Mr Kiatos has settled the claim against him by Mr Stubbings.

The claim against Mr Zourkas is that he engaged in misleading and deceptive conduct pursuant to s 18 of the ACL by:

(a) wrongfully making an Application for Finance in the name of a corporate entity when knowing that the loan was for a personal purpose; and

(b) making false representations for the purpose of inducing Mr Stubbings into entering into the loan agreement.

One of the claims against Mr Topalides is that he also engaged in misleading and deceptive conduct contrary to s 18 of the ACL. Further, he faces claims of negligence and breaches of his duty of care to Mr Stubbings on the grounds that he:

(a) failed to provide financial advice to Mr Stubbings when engaged to do so;

(b) signed a Certificate of Independent Financial Advice, notwithstanding that he gave no such advice; and

(c) failed to make the necessary inquiries to ensure Mr Stubbings was capable of maintaining the loan.

Further, or in the alternative, Mr Stubbings makes either or both of the following allegations against Mr Topalides:

(a) he was negligent in his failure to provide financial advice to Mr Stubbings when engaged to do so;

(b) he breached his duty of care to Mr Stubbings, by failing to provide financial advice to Mr Stubbings when engaged to do so.

Further, Mr Stubbings alleges that Mr Zourkas and Mr Topalides have been unjustly enriched because of their actions. The alleged unjust enrichment is cash that they allegedly received from Mr Stubbings, and funds they received directly from AJ Lawyers after settlement of the loan.

Structure of loans adopted by AJ Lawyers

Mr Myer Jeruzalski (‘Mr Jeruzalski’) is a member of the firm of solicitors, AJ Lawyers, that acted for the plaintiffs in making the loan and acts for the plaintiffs in this proceeding. According to the letterhead, he and Mr Michael Ajzensztat are the sole partners. As well as being a witness, Mr Jeruzalski was instructing Mr Mattin, counsel for the plaintiffs, at the Bar table.

AJ Lawyers acts for clients who wish to lend money.[5] Mr Jeruzalski has about 10 to 15 clients who wish to lend money, and use the services of AJ Lawyers to do so.
[5]Transcript of Proceedings (13 September 2018) 206.2.

In his oral evidence, Mr Jeruzalski confirmed that his primary practice involves the lending of money and that he has been so involved for approximately 30 years.[6] Mr Jeruzalski also confirmed that he was now required, by the provisions of the Legal Profession Act 2004 (Vic), to be registered with ASIC to be involved in financial lending.
[6]Transcript of Proceedings (17 September 2018) 257.

The procedure that Mr Jeruzalski generally follows in making a secured loan, and which he adopted in essence in the case of Mr Stubbings, is set out below.

Mr Jeruzalski is approached by other solicitors, accountants, or brokers seeking a loan for a client, for example, by Mr Zourkas, who has introduced many borrowers to him in the past. Mr Zourkas fulfils two roles. First, he assists the client to apply for the loan from Mr Jeruzalski as discussed below. Secondly, he assists Mr Jeruzalski in arranging for the loan documentation to be executed by the client and in obtaining certificates of independent advice from a solicitor and accountant. Mr Zourkas describes himself as a consultant. He could best be described as a facilitator or intermediary. His role is essential to Mr Jeruzalski making loans to borrowers introduced by Mr Zourkas.

Mr Jeruzalski will only make loans on behalf of clients to companies. He will not make loans to individuals, as they might be governed by the Code. Mr Jeruzalski will not make loans governed by the Code. The loans must be secured by a mortgage given by an individual who also must guarantee the loan. Mr Jeruzalski gives no weight to the ability of the borrower or guarantor to repay the loan, other than from the mortgaged security. In order for him to entertain making an offer of a loan, he first obtains details of the land offered as security. It is usual for the valuation to be provided by the intermediary seeking the loan on behalf of a borrower. Apart from checking to see that the directors or guarantors are not bankrupt, Mr Jeruzalski does not seek or want any further information about the guarantor or his or her personal or financial circumstances.

Mr Jeruzalski does not want to know whether the guarantor is employed, unemployed, educated, not educated, burdened with debt or any other matter bearing on his circumstances or ability to pay the loan. I understood from his evidence that he would prefer not to know these things in case his knowledge would in some way undermine his clients’ ability to recover their loans.

If Mr Jeruzalski is of the view that the security is satisfactory, he will approach one or more of his clients to ascertain whether or not they are interested in making the loan. Mr Jeruzalski will provide the valuations to the prospective lenders.

Mr Jeruzalski does not offer any advice to his clients. He says they are experienced business people who make their own decision whether to lend or not. In the case of first mortgage secured loans, he will not lend more than two-thirds of the valuation of the land offered as security.

Mr Jeruzalski will not entertain an application for a secured loan by the prospective individual borrower. Mr Jeruzalski will only entertain making a loan if approached by an intermediary such as Mr Zourkas. Mr Jeruzalski does not make any inquiries into the ability of the borrower or guarantor to meet the interest payments or to repay the loan. Mr Jeruzalski relies solely on the security to ensure that his clients are paid interest and repaid the principal.

Mr Jeruzalski does not meet the prospective borrower or guarantor, or have any contact with the borrower or guarantor save through correspondence. Mr Jeruzalski obtains all the details he needs of the borrower and guarantor from the intermediary acting for or advising the borrower and guarantor.

If Mr Jeruzalski’s clients wish to make the loan, then Mr Jeruzalski will make a formal written offer to the borrower and to the mortgagor guarantor. The borrower and the guarantor are asked to sign the letter of offer if they wish to proceed with the loan and return it to AJ Lawyers.

Mr Jeruzalski then prepares the loan and security documents and forwards them through the intermediary in an envelope to the borrower and the guarantor. The documents include a loan agreement, guarantee, mortgage, and the like.

Any information Mr Jeruzalski wishes to convey to the borrower is conveyed by the intermediary either by the intermediary passing on a written document from AL Lawyers or orally informing the borrower.

Mr Jeruzalski does not seek to obtain from the intermediary details of what if any representations have been made by the intermediary to the borrower, despite the large financial rewards reaped by the intermediary if they succeed in securing a loan through LJ Lawyers, and the temptation that must provide for the intermediary to secure the loan.

Importantly, the package of documents sent to the borrower and mortgagor guarantor contains draft certificates of independent advice that have to be signed and returned with the executed loan and security documents. One is a draft certificate to be signed by a solicitor, the other by an accountant.

In the case of the loan to Mr Stubbings, Mr Jeruzalski was approached by Mr Zourkas. According to Mr Jeruzalski, Mr Zourkas spoke with him about whether or not he was able to source funds for Mr Stubbings.[7] Mr Jeruzalski said that before agreeing to source the funds from his clients, he obtained a valuation for each of the three properties: the Fingal property, the Westleigh Crescent property, and the Ashton Rise property.[8]
[7]Transcript of Proceedings (13 September 2018) 206.25.
[8]Transcript of Proceedings (13 September 2018) 206.27–207.21.

Mr Mark Mote (a director of Jams 2), Mr Jacques Cooper (a director of Janaco) and Ms Anne Rudowski (a director of Conterra) gave evidence that they each:

(a) do not know the borrowers and did not meet them;[9]

(b) made their decision to lend based on the valuations of Mr Stubbings’ properties alone;[10] and

(c) had never met Mr Zourkas or Mr Topalides.

[9]Transcript of Proceedings (12 September 2018) 84.

[10]Transcript of Proceedings (12 September 2018) 89.

Mr Jeruzalski gave evidence that he ultimately received instructions from the plaintiffs to proceed with the loan for $1,059,000.[11] He agreed that the instructions were to proceed on the basis of ‘various loan documents’ to be signed by Mr Stubbings.[12] Mr Jeruzalski identified the following relevant documents:
[11]Transcript of Proceedings (13 September 2018) 208.4.
[12]Transcript of Proceedings (13 September 2018) 208.5.

(a) An indenture note dated 30 September 2015 between VBC as borrower and Mr Stubbings as the guarantor.[13]
[13]Ex P 14, CB 387–99.

(b) An acknowledgement from the borrower, which was signed and executed by VBC, and dated 19 September 2015.[14]
[14]Ex P 15, CB 401.

(c) A Certificate of Independent Legal Advice headed ‘Acknowledgment by Guarantor’. This document is dated 19 September 2015, signed by Mr Stubbings and witnessed by Mr Kiatos.[15]
[15]Ex P 16, CB 402–3.

(d) A resolution of the director of VBC dated 19 September 2015 and signed by Mr Stubbings.[16]
[16]Ex P 17, CB 404.

(e) A certificate of execution by company dated 19 September 2015 and signed by Mr Kiatos, with an attached document to satisfy the statutory requirements as to identity.[17]
[17]Ex P 18, CB 405–6.

(f) A deed made 30 September 2015, and signed, sealed and delivered by Mr Stubbings.[18]
[18]Ex P 19, CB 407–9.

(g) A statutory declaration made by Mr Stubbings on 30 September 2015, and witnessed before Mr Kiatos.[19]

(h) A Certificate of Independent Financial Advice produced by Mr Topalides to Mr Stubbings.[20]

(i) An acknowledgment by Mr Stubbings that he had received the memorandum of common provisions.[21]

[19]Ex P 20, CB 410–11.

[20]Ex P 21, CB 412.

[21]Ex P 22, CB 413.

In the case of Mr Stubbings, the offer was subject to the loan not being for personal, domestic, or household purpose, or otherwise under the Code. This condition is insisted on to remove any risk that the loan might be caught by the Code.

Mr Jeruzalski gave evidence that those documents are ‘pro forma’ and that he prepares and advances all his loans in that manner.[22]
[22]Transcript of Proceedings (13 September 2018) 206.6.

Mr Jeruzalski said that, before the mortgage was settled, Mr Stubbings signed a disbursement authority dated 19 September 2015, with an attached invoice.[23] Mr Jeruzalski said that on 19 September 2015 Mr Stubbings signed a second disbursement authority, ‘which relates to an amount of $12,292.50’[24] that was payable to AJ Lawyers. This fee appears to have been a commission payable to AJ Lawyers. Mr Jeruzalski also said that on 22 August 2015 Mr Stubbings ‘signed a mandate on behalf of The Victorian Boat Clinic agreeing to pay a consultant’s fee of $27,000.00.’[25] Mr Jeruzalski said that the mandate was a commitment between the broker and an applicant for finance.[26]
[23]Plaintiffs, ‘Outline of Evidence of Myer Jeruzalski’, signed 13 September 2018, [5]; exhibit P 32, CB 437.
[24]Plaintiffs, ‘Outline of Evidence of Myer Jeruzalski’, signed 13 September 2018, [7]; exhibit P 33, CB 450.
[25]Plaintiffs, ‘Outline of Evidence of Myer Jeruzalski’, signed 13 September 2018, [6]; exhibit P 34, CB 439.
[26]Transcript of Proceedings (13 September 2018) 206.

Mr Jeruzalski said that he doubted Mr Zourkas came into his office to discuss the loans with him. Mr Jeruzalski was asked, referring to the mandate given to Mr Zourkas by Mr Stubbings, ‘Does that authorise a consultancy fee to Mr Zourkas?’ Mr Jeruzalski replied, ‘Correct’.[27]
[27]Transcript of Proceedings (17 September 2018) 262.

As I discuss later, this evidence is significant, as Mr Jeruzalski understood that Mr Zourkas was not being paid as a broker but as a consultant. The mandate itself makes it clear that the $27,000 fee was described as a ‘consultancy fee’ and that it was payable to ‘the Consultant referred to below.’ The mandate provided:[28]

If the loan does not proceed, once the letter of offer has been signed by the borrower, the borrower will be liable for the consultancy fee as set out above and by signing this Agreement with the due payment of such consultancy fee and acknowledges that this charge creates an estate or interest in the said real estate entitling the consultant to lodge a Caveat on the title to the said real estate to secure such payment.

[28]Exhibit P 34, CB 439–40.

At the foot of the document appears Mr Zourkas’ name as ‘Consultant’s Name’ and the ‘Consultant’s Signature’ with Mr Zourkas’ signature.

As previously mentioned, the lenders required certificates of advice be provided by a solicitor and by an accountant. The relevant certificate to be signed by a solicitor in this case is headed ‘Certificate of Independent Legal Advice.’[29] It is addressed to the three plaintiffs. The borrower and guarantor are identified. Under the heading ‘Acknowledgement by Guarantor’ is a list of questions which are to be answered by the guarantor writing his reply in the right hand column.
[29]Exhibit P 16, CB 402–3.

The questions asked of Mr Stubbings were as follows:

1Have you received copies of the documents described under the heading ‘Security Documents’ below?
2Have you been given an opportunity to read those Security Documents?
3Have the Security Documents been fully explained to you by your solicitor?
4Do you understand the effects of the Security Documents and the consequences to you if the Borrower defaults on its obligations to the Lender?
5In particular, do you understand that if the Borrower fails to pay all of the moneys due to the Borrower to the Lender then the Lender will be entitled to call on you as Guarantor to recover the moneys due to it?
6Was this Acknowledgement read and signed by you BEFORE you signed the Security Documents?

The Security Documents are defined as the Loan Agreement & Debenture Charge.

Beside each of these questions is the written answer yes. The answers were written in by Mr Kiatos, a solicitor from whom Mr Stubbings sought advice, and not by Mr Stubbings.

The form continues:

I confirm the accuracy of the answers to the above questions and acknowledge that the Lender will be relying on these answers in respect of giving the loan to THE VICTORIAN BOAT CLINIC PTY LTD.

The form was signed by Mr Stubbings and witnessed by Mr Kiatos.

Below the signatures is a ‘Certificate by Independent Solicitor’ as follows:

Before the Security Documents were executed by the Guarantor/s I explained the contents, nature and effect of them to the Guarantor/s. In particular, I explained and advised on the consequences of default under the relevant Security Documents, including the Lender/Mortgagee’s right to sell the property constituting the security. The Guarantors appeared to be aware of and to understand the terms, nature and effect of the Security Documents and their obligations under them. I have made a diary note of the advice and explanation give to the Guarantor/s.

I discuss below the evidence of Mr Kiatos and Mr Stubbings about the circumstances in which the certificates were signed. It suffices to say at this stage that the loan documentation is also to be signed in the presence of the solicitor and witnessed by the solicitor. The packages of signed documents are then returned by the intermediary to Mr Jeruzalski. In this case, the documents were returned by Mr Zourkas, the ‘consultant’.

In this case, the Certificate of Independent Financial Advice was signed by Mr Topalides, an accountant. Under the certificate, Mr Topalides certified as follows:

1        I have been instructed by THE VICTORIAN BOAT CLINIC PTY LTD ACN 601 712 172 to explain the financial risks being assumed:-
(a)       by executing the security documents in respect of the financial accommodation to be provided by the Lender which security documents are referred to in Item 1 of the Schedule below (‘the Security’);
(b)       by the application of the said financial accommodation for the purposes referred to in Item 2 of the Schedule below.

2        Before the Security was executed by the Borrower, I explained the financial risk being assumed by executing the Security and by the application of the aforesaid financial accommodation in the manner stated in Item 2 of the Schedule.
3        To the best of my knowledge and belief and in my opinion the Borrower appears to understand the nature and extent of the financial risk which the Security places and the nature and extent of the financial risk which will be assumed by the application of the aforesaid financial accommodation in the manner stated in Item of the Schedule.
4        I have been engaged by the Borrower in advising and have given this Certificate entirely independently of any other Borrower or Guarantor.
5        The Loan herein is required for business purposes.

The certificate was given by Mr Topalides in circumstances I will discuss below.

The certificate made provision for the insertion of the purpose of the borrowings. Mr Topalides inserted the words ‘Set up & Expand the business’.[30]
[30]Exhibit P 21, CB 412.

Mr Jeruzalski was asked in relation to Mr Stubbings’ loan what Mr Zourkas told him about the purpose of the loan. Mr Jeruzalski said that he was told it was a business loan and it was mainly concerned with boat repairs.[31]
[31]Transcript of Proceedings (17 September 2018) 260.

The evidence disclosed that all these communications to and from Mr Stubbings to AJ Lawyers were conveyed through Mr Zourkas, and at no stage was there any direct communication to or from Mr Stubbings with AJ Lawyers.

Despite his evidence that he was told the loan was a business loan for boat repairs, Mr Jeruzalski also gave evidence that he was aware that Mr Stubbings proposed to sell the two Narre Warren properties and then refinance the loan over the Fingal property within the six-month period.[32] Mr Jeruzalski was asked whether that was the reason for the six-month right to redeem. Mr Jeruzalski was asked in his experience how long it would take for those two properties to be sold. He said that they could be sold within three months and then settle two months later.
[32] Transcript of Proceedings (17 September 2018) 264.

It was put to Mr Jeruzalski that it had been suggested by Mr Stubbings that the representation was made that the loans would be refinanced or that the properties would be sold within two months. Mr Jeruzalski’s response was that this was impossible.[33]
[33]Transcript of Proceedings (17 September 2018) 264.

Mr Jeruzalski was then asked whether he knew that Mr Stubbings had no income when he made the loans to him. I will set out the evidence in full.

Counsel:Now, in relation to the allegations that Mr Stubbings has made just this morning, were you aware that he did not have, as he alleged, any income?
Mr Jeruzalski:    Was I aware? I don’t seek income particulars.
Judge:Pardon?
Mr Jeruzalski:    I’m aware now.
Judge:No, at the time you advanced the moneys, were you aware?
Mr Jeruzalski:    Most — most probably.
Judge:—that he alleges that he had no income?
Mr Jeruzalski:    Most probably.
Judge:Were you aware of that?
Judge:Pardon?
Mr Jeruzalski:    Most probably I was aware of that.
Judge:You were?
Mr Jeruzalski:    Yeah.
Judge:That he had no income?
Mr Jeruzalski:    Well, I’m lending on the assets.
Judge:You may want to get the witness to expand.
Counsel:Would you please expand on that?
Mr Jeruzalski:    I have here three valuations on the three properties and we were told that, um, he was setting up a business.
Judge:He was setting up a business?
Mr Jeruzalski:    That’s right. He had a — he had — he had a business running before but he wanted to buy this property, so that he could further expand the business. The business was boat repair and so on. Most of the people who come and see — seek funds —
Judge:But the question was, as I understand it, were you aware that he had income or had asserted to the broker or someone else that he had no income? Were you aware of that at the time?
Mr Jeruzalski:    I just can’t remember.
Judge:You can’t remember?
Mr Jeruzalski:    Mmm. I said most probably I would've been aware he had no income. If he — sorry.
Counsel:Is that upon the basis of that it was an asset loan or something that may have been told to you?
Mr Jeruzalski:    Correct. I’m not looking for income figures. And a borrower goes away to seek independent accounting advice and legal advice as to whether he can perform and — and honour the obligations under the mortgage. If he had an income sufficient to service a loan of that amount, he would’ve gone to a bank.

Mr Jeruzalski said that if Mr Stubbings or VBC had no income, then, from his experience, a first-tier bank would not have lent money to him.[34] Mr Jeruzalski said that his firm would not assist somebody like Mr Stubbings to obtain a bank loan.
[34]Transcript of Proceedings (17 September 2018) 275.

Mr Jeruzalski was referred to Mr Stubbings’ allegation that he had no financial records or tax returns. Mr Jeruzalski said that without that information he (Mr Stubbings) could not get a loan from either a first- or second-tier lender such as a co-op, or societies, as they require income figures and taxation returns.[35]
[35]Transcript of Proceedings (17 September 2018) 276.

Mr Jeruzalski agreed that the plaintiffs had no evidence and did not request any evidence regarding Mr Stubbings’ ability to repay or the capacity of VBC to repay the loan.[36] Despite this, Mr Jeruzalski denied it was the intention of the plaintiffs that any amount owing to the plaintiffs would be recovered on the basis of enforcing and selling the properties.
[36]Transcript of Proceedings (17 September 2018) 295.

Mr Jeruzalski was aware that Mr Stubbings only placed a $100 deposit on the contract dated 30 June 2015. He became aware of that when he saw the contract (for the purchase of the Fingal property).[37]
[37]Transcript of Proceedings (17 September 2018) 277.

Mr Stubbings’ personal and financial circumstances

Mr Stubbings reached fourth form in his schooling, before leaving school at approximately 16 years old. Mr Stubbings studied modified mathematics, a third form subject. Mr Stubbings repeated modified mathematics in fourth form, but once again failed. Mr Stubbings also failed English in fourth form, and barely passed social studies.[38] When Mr Stubbings left school at 16 years old, he did a motor mechanic trade course and then worked for Preston Motors.[39] In his own words, ‘my trades were excellent but academically I wasn’t doing any good.’[40]
[38]Transcript of Proceedings (20 September 2018) 472.28–9.
[39]Transcript of Proceedings (20 September 2018) 472–3.
[40]Transcript of Proceedings (20 September 2018) 472.1–6.

In early September 2015, Mr Stubbings was working for Victorian Outboard Wreckers at Browns Road, Boneo (‘Browns Road’) as an employee of Paul Drennan (‘Mr Drennan’). Mr Stubbings resided at Browns Road and the rent was deducted from his wage. In addition, Mr Stubbings would receive a percentage of commission for any parts of existing boat motors he sold.[41]
[41]Transcript of Proceedings (20 September 2018) 460.

On or about 30 September 2015, Mr Stubbings ceased employment with Mr Drennan, following a falling out.[42] Mr Stubbings was also told to leave the Browns Road property.[43]
[42]Transcript of Proceedings (20 September 2018) 460.
[43]Transcript of Proceedings (20 September 2018) 470–1.

One of Mr Stubbings’ two sons was living in the property at Westleigh Crescent, which was starting to be renovated.[44] Mr Stubbings’ partner, Ms Wendy Santo (‘Ms Santo’), was also not employed and received approximately $400 per week in a disability pension. Ms Santo had her own home but stayed with Mr Stubbings occasionally.[45]
[44]Transcript of Proceedings (20 September 2018) 470.
[45]Transcript of Proceedings (20 September 2018) 470.20–7.

Mr Stubbings’ financial position was bleak. He had no savings, and his son gave him an old car to use. Mr Stubbings was not receiving any Centrelink payments. Mr Stubbings had old boats, some with damage, but they did not have motors. They were given to him by people who did not want them.[46]
[46]Transcript of Proceedings (20 September 2018) 471.

Mr Stubbings also had some debts. He owed approximately two years’ arrears of rates to Casey Council, which he was paying off.[47]
[47]Transcript of Proceedings (20 September 2018) 471.

Mr Stubbings admitted that he could not budget, and that he did not understand a balance sheet. Mr Stubbings cannot work out an interest rate, for example, at 18 per cent.[48] He said that he could calculate a rate of 10 per cent, but then said that 10 per cent of 130,000 was 1,300.[49]
[48]Transcript of Proceedings (20 September 2018) 472.
[49]Transcript of Proceedings (20 September 2018) 472.

By his own admission, Mr Stubbings is not very good at paperwork.[50] Mr Stubbings is unsure of the last time he filed a tax return,[51] and is unsure if he has an ABN or is registered for GST.[52]
[50]Transcript of Proceedings (24 September 2018) 611.11.
[51]Transcript of Proceedings (24 September 2018) 608.
[52]Transcript of Proceedings (24 September 2018) 609.

Mr Stubbings’ properties at Westleigh Crescent and Ashton Rise were his only assets. There were two mortgages outstanding for these properties, totalling $240,000. One mortgage repayment was approximately $100 per week and the other was $160 or $180 per week.[53] The outstanding mortgages were quite low because he had only paid $100,000 for the Ashton Rise property and $160,000 for the Westleigh Crescent property.[54]
[53]Transcript of Proceedings (20 September 2018) 473.
[54]Transcript of Proceedings (20 September 2018) 473.

Mr Stubbings explained that when he needed to leave the Browns Road property, he did not want to live at one of his Narre Warren properties, because he preferred living on the Mornington Peninsula. Mr Stubbings thought that by having only small mortgages on the Narre Warren properties he could borrow a little more to get a small house on the Mornington Peninsula.[55]
[55]Transcript of Proceedings (20 September 2018) 474.

At the time, Mr Stubbings was doing handyman work and was not contemplating boating repairs. Mr Stubbings said that there were many boat repairers on the Mornington Peninsula, so it was ‘just not something that you’d go into. There’s so many.’[56] Mr Stubbings said that he never had any intention of carrying out a wrecking business from the Fingal property. The boats he has on his property, he explained, are not for business purposes, they have just been collected over time and are mostly parts or shells of boats.[57]
[56]Transcript of Proceedings (20 September 2018) 477.2–3.
[57]Transcript of Proceedings (20 September 2018) 550.1-121.

Mr Stubbings was introduced to a Mr Theo Kassinidis (‘Mr Kassinidis’) by a friend of a friend who knew Mr Stubbings had to leave Browns Road. Mr Kassinidis was not called to give evidence by either party. Mr Stubbings said that Mr Kassinidis met with him at the Browns Road property and prepared an application to ANZ on behalf of Mr Stubbings, so that Mr Stubbings could get an idea of what he could buy. After a couple of days, Mr Kassinidis got back to Mr Stubbings, advising that the application had been declined because Mr Stubbings had no financial records, such as tax returns or statements.[58] It is unclear in what capacity Mr Kassinidis did this; as an intermediary, broker or consultant.
[58]Transcript of Proceedings (20 September 2018) 461.23–31.

According to Mr Stubbings, Mr Kassinidis then told him, ‘Look, I’ll put you on to someone else and they will be able to help you out.’ Mr Kassinidis told Mr Stubbings to expect a call from a ‘Johnny Tee’.[59] ‘Johnny Tee’ was in fact Mr Zourkas — in his evidence Mr Zourkas confirmed that he did in fact call Mr Stubbings. The evidence was unclear as to the relationship between Mr Zourkas and Mr Kassinidis. Interestingly, Mr Topalides calls himself ‘John’, and his email address is [email protected]. In these reasons, I will only refer to ‘Mr Zourkas’, notwithstanding that Mr Stubbings knew Mr Zourkas as ‘Johnny Tee’.
[59]Transcript of Proceedings (20 September 2018) 476.1–5.

Alleged representations by Mr Zourkas to Mr Stubbings

It will be recalled that Mr Stubbings alleges he was induced to enter the mortgage and loan agreements on the basis of representations made by Mr Zourkas. Accordingly, I propose to set out in some detail the conflicting evidence given by Mr Stubbings and Mr Zourkas in respect of these alleged representations.

I will start with the evidence of Mr Stubbings.

Mr Stubbings received a telephone call from Mr Zourkas as foreshadowed by Mr Kassinidis. Mr Zourkas made some general inquiries, telling Mr Stubbings he would be able to secure a loan for Mr Stubbings to purchase a property.[60]
[60]Transcript of Proceedings (20 September 2018) 461.30–31.

Six meetings between Mr Zourkas and Mr Stubbings were to follow this initial telephone call.

The first meeting was held at a taxi cafe on Stuart Street. Mr Stubbings said that he wanted to buy a little house, but Mr Zourkas said that there would not be a problem going bigger and getting something with land.[61] In this conversation, boat repairs were not contemplated; it was only for the purposes of a residence.[62] This is important evidence as it suggests that the objective of the loan was for a residence and not business purposes. Mr Stubbings’ son was allegedly with him at the time of this meeting with Mr Zourkas. Mr Stubbings, however, did not call his son to give evidence, explaining that his son had just started a new job and taking a day off might put his job in jeopardy.
[61]Transcript of Proceedings (20 September 2018) 476.19–22.
[62]Transcript of Proceedings (20 September 2018) 476.23–8.

At the time of this first meeting, Mr Zourkas knew about Mr Stubbings’ two Narre Warren properties, as he had a notepad and was making inquiries as to what Mr Stubbings owned, what value they had, and what amounts were owing on them. Mr Stubbings believed he had equity of about $400,000.[63]
[63]Transcript of Proceedings (20 September 2018) 478.1–7.

After the first meeting, Mr Zourkas said he would be in contact and organised a second meeting at Balaclava. In the meantime, Mr Stubbings went looking for properties.[64]
[64]Transcript of Proceedings (20 September 2018) 478.

Mr Stubbings found the Fingal property, which was listed for $900,000. Mr Stubbings offered the vendor $850,000 and eventually it was reduced to $815,000, following an agreement on rubbish to be left at the Fingal property by the vendor.[65] While Mr Stubbings was in negotiations with the vendor, he did not know how much the repayments of a loan of $815,000 would be.[66]
[65]Transcript of Proceedings (20 September 2018) 478.
[66]Transcript of Proceedings (20 September 2018) 478.30.

At the second meeting in Balaclava, Mr Stubbings told Mr Zourkas that he had found a property that looked good. Mr Zourkas asked Mr Stubbings a little about it and then told him to get a section 32 vendor statement. Mr Stubbings did not tell Mr Zourkas the price of the Fingal property at that stage.[67]
[67]Transcript of Proceedings (20 September 2018) 480.1-2.

The sale price on the vendor statement was $900,000. Mr Stubbings put down a $100 deposit.[68]
[68]Transcript of Proceedings (20 September 2018) 480.2-18.

A third meeting was held between Mr Stubbings and Mr Zourkas in Elsternwick.[69] At this meeting, Mr Stubbings showed Mr Zourkas the price of the Fingal property and he said ‘Yeah, that’s not a problem.’[70]
[69]Transcript of Proceedings (20 September 2018) 480.20-22.
[70]Transcript of Proceedings (20 September 2018) 480.27.

Mr Stubbings said that he and Mr Zourkas discussed how much Mr Stubbings would need to repay. Mr Zourkas had a notepad and did some workings, stating ‘We’ll get a bit of surplus because that’ll pay – your three months’ repayment’[71] (meaning three months of interest payments). Mr Zourkas suggested the loan would be around $1,059,000, which apparently was to include $240,000 to pay out the two CBA loans, $900,000 purchase price of the Fingal property and the three months’ interest repayments (I note that the amount needed just to pay out the CBA loans, together with the Fingal purchase price already exceeded $1,059,000). Mr Zourkas did some calculations and told Mr Stubbings it would cost him $8,000 per month.[72]
[71]Transcript of Proceedings (20 September 2018) 481.2-3.
[72]Transcript of Proceedings (20 September 2018) 481.8-19.

Mr Stubbings said that Mr Zourkas never asked him whether he could cover the $8,000 per month. ‘No, he never asked that at all.’[73] ‘He also didn’t tell me that there was also going to be a second mortgage that come later.’[74]
[73]Transcript of Proceedings (20 September 2018) 481.26-27.
[74]Transcript of Proceedings (20 September 2018) 481.20.23.

Mr Stubbings understood that the loan was on the basis that it would all be borrowed and Mr Stubbings would not have to find any money. He alleges Mr Zourkas said: ‘Your stamp duty will be covered. All your fees are covered. Everything will be covered.’[75]
[75]Transcript of Proceedings (20 September 2018) 481.30-31.

Mr Stubbings said it was at this third meeting with Mr Zourkas where Mr Zourkas explained how the Fingal property purchase would be financed.[76] Mr Stubbings was to get the loan through Mr Zourkas for two or three months. Three months of paying $8,000 would apparently show a bank that Mr Stubbings was able to refinance. Mr Zourkas would then organise a loan with Westpac Bank ‘because he knew one of the managers’.[77] The surplus funds included in the loan would allow Mr Stubbings to pay the first three months’ interest then switch to a bank rate.[78]
[76]Transcript of Proceedings (20 September 2018) 485.4-6.
[77]Transcript of Proceedings (20 September 2018) 482.11-13.
[78]Transcript of Proceedings (20 September 2018) 482.

Mr Stubbings believed that, after selling the Narre Warren properties, he would only have a minimal mortgage of $300,000 and would be in a position to service the loan with his handyman business.[79]
[79]Transcript of Proceedings (20 September 2018) 482.

Mr Stubbings signed the section 32 vendor statement, following which he held the Fingal property conditionally to give him time to obtain finance. If he could not obtain finance, he would only forfeit $100.[80]
[80]Transcript of Proceedings (20 September 2018) 484-485.3.

After the third meeting, the real estate agent informed Mr Stubbings that there were difficulties with the lawyer listed on the contract of sale, and that the vendor was almost at the stage of pulling out. Mr Stubbings notified Mr Zourkas of this development, and they arranged to meet at a café in Rosebud.[81] This would be the fourth meeting.[82]
[81]Transcript of Proceedings (20 September 2018) 485.14-28.
[82]Transcript of Proceedings (20 September 2018) 487.2-4.

Mr Zourkas suggested that they go see the vendor. Mr Zourkas explained to the vendor that there had been a couple of complications but the money was fine and ‘We’ll make the contract unconditional.’[83] The vendor was satisfied with this arrangement.[84]
[83]Transcript of Proceedings (20 September 2018) 485-486.8.
[84]Transcript of Proceedings (20 September 2018) 486.9-10.

A new section 32 vendor statement was issued which stated that the contract was unconditional. The price was $815,000 at that stage.[85]
[85]Transcript of Proceedings (20 September 2018) 486.

Although at the time of signing the contract of sale Mr Stubbings had little or no income,[86] Mr Stubbings signed the contract as he was told that he would not have a problem in obtaining finance.[87] Mr Stubbing said that Mr Zourkas told him to sign the contract.[88]
[86]Transcript of Proceedings (20 September 2018) 536.21.
[87]Transcript of Proceedings (20 September 2018) 537.1-7.
[88]Transcript of Proceedings (20 September 2018) 537.27.

A fifth meeting took place between Mr Zourkas and Mr Stubbings in either Balaclava or Elsternwick on or around 21 August 2015.[89] Mr Stubbings had been asked by Mr Zourkas to bring $1,000 in cash to the meeting. At the meeting, Mr Stubbings gave Mr Zourkas the cash, and Mr Zourkas gave Mr Stubbings some documents to sign. Mr Stubbings signed three forms that day, two of which he believes were letters of offer for each of the two mortgages, and the third form was a mandate.[90]
[89]Transcript of Proceedings (20 September 2018) 487.
[90]Transcript of Proceedings (20 September 2018) 491.2-3.

Mr Zourkas gave Mr Stubbings the mandate and told him to fill it all out.[91] Mr Stubbings says that, despite not understanding the document at the time, he signed it.[92] He did not date it. Mr Stubbings now understands that the document is reference to paying a consultancy fee.[93] Mr Stubbings confirmed in his evidence that it was his handwriting on the document, except the reference to $27,000. Mr Stubbings believes this figure was written in at some stage afterwards.[94] This belief is supported by the fact that the mandate is dated 22 August 2015, being the day after Mr Stubbings’ meeting with Mr Zourkas.
[91]Transcript of Proceedings (20 September 2018) 488.
[92]Transcript of Proceedings (20 September 2018) 489.8-17.
[93]Transcript of Proceedings (20 September 2018) 489.16-19.
[94]Transcript of Proceedings (20 September 2018) 489.4-7.

The next contact Mr Stubbings had with Mr Zourkas was a phone call arranging a meeting at a little café near the offices of AJ Lawyers.[95]
[95]Transcript of Proceedings (20 September 2018) 492.7-19.

At this sixth meeting on 19 September 2015, Mr Stubbings collected two envelopes from Mr Zourkas. One envelope said ‘accountant’ and the other said ‘solicitor’. Mr Zourkas gave Mr Stubbings two telephone numbers (one on a business card, being Mr Kiatos’).[96] Mr Stubbings says he was told to go and see Mr Topalides and Mr Kiatos: ‘Take these documents, get them signed, and bring them back.’[97] Mr Stubbings said that on the following Monday he returned the documents to Mr Zourkas, who took them back to AJ Lawyers’ office.[98] Mr Stubbings said that the documents were sealed when he got them and sealed when they went back.[99]
[96]Transcript of Proceedings (20 September 2018) 494.1-4; CB 260.
[97]Transcript of Proceedings (24 September 2018) 598.27-28.
[98]Transcript of Proceedings (24 September 2018) 598.
[99]Transcript of Proceedings (24 September 2018) 600.11-12.

At this meeting, Mr Zourkas allegedly told Mr Stubbings that ‘it was all done’ and now Mr Stubbings owned the Fingal property.[100]
[100]Transcript of Proceedings (20 September 2018) 507.7-15.

According to Mr Stubbings, at no stage did Mr Zourkas ever ask him about tax returns or other financial documentation.[101] Mr Stubbings said that he did not tell Mr Zourkas about his outstanding rates because he did not ask.[102]
[101]Transcript of Proceedings (20 September 2018) 545.
[102]Transcript of Proceedings (20 September 2018) 556.12-21.

Mr Stubbings alleges that he was told by Mr Zourkas that he would have $53,000 plus ‘a bit for a holiday’ after settlement of the Fingal property.[103]
[103]Transcript of Proceedings (24 September 2018) 671, 672.9-11.

Mr Stubbings’ evidence as to his understanding of the arrangement was as follows: $30,000 would be needed to cover the first three months’ interest repayments; and $20,000 would be available for renovations.[104] Mr Stubbings was going to renovate his two Narre Warren properties, sell them, and apply the proceeds in reduction of the Fingal property loan.[105] If he could sell the Narre Warren properties for approximately $700,000 to $800,000, he would be able to reduce his debt to approximately $400,000.[106] Mr Zourkas was then going to organise for Mr Stubbings to refinance with a bank at a lower interest rate.[107]
[104]Transcript of Proceedings (20 September 2018) 508.
[105]Transcript of Proceedings (20 September 2018) 553.7-16.
[106]Transcript of Proceedings (24 September 2018) 573.1-9.
[107]Transcript of Proceedings (20 September 2018) 507.26-30.

Mr Stubbings said that he never had any intention of carrying out a wrecking business from the Fingal property. The boats he has on the Fingal property, he explained, are not for business purposes, but are just from his collection over time. These are mostly parts or shells of boats.[108] Mr Stubbings said that he intended on making the mortgage repayments by doing handyman work with the business name AAA Handyman.
[108]Transcript of Proceedings (20 September 2018) 550.1-121.

It was put to Mr Stubbings that the numbers on the loan did not add up and there could not possibly be $53,000 left over to pay three months’ interest and a little bit for a holiday.[109] Mr Stubbings said he was not initially informed of the disbursement figures, saying all he had was the two letters of offer. He also agreed that when he signed the mandate, it did not have the $27,000 figure written on it.
[109]Transcript of Proceedings (24 September 2018) 572.11-19.

Mr Stubbings said that he did not know about the other fees and disbursements until after the loan was made when he received a pack of letters which showed AJ Lawyers were charging $19,000 and $12,000.[110] Mr Stubbings was apparently also unaware of moneys from settlement being paid to the agent for the vendors, to utility companies and to clear outstanding rates. Mr Stubbings had an obvious lack of understanding of the detail of the loan and the disbursements.[111]
[110]Transcript of Proceedings (24 September 2018) 574.
[111]Transcript of Proceedings (24 September 2018) 574-575.

Mr Stubbings moved into the Fingal property, around 28 or 29 September 2015, and received mail, around 30 September 2015, which included the mortgage documents and a breakdown of the figures.[112]
[112]Transcript of Proceedings (20 September 2018) 508.

Mr Stubbings telephoned AJ Lawyers asking why so much was taken out (referring to the consultancy fees of $19,000 and $12,000). He was told that is the way the loan operates.[113]
[113]Transcript of Proceedings (20 September 2018) 510.19-29.

Mr Stubbings said that after receiving only approximately $6,900 from settlement, rather than the expected $53,000, he also called Mr Zourkas to query him about the amount of money left over. Mr Zourkas’ explanation was allegedly that moneys had to be taken out to pay council rates.[114]
[114]Transcript of Proceedings (20 September 2018) 512.

Mr Stubbings covered the first interest payment by selling valuables he owned. He applied the $6,900 from settlement toward the second interest payment, and was able to make up the difference.[115] Mr Stubbings was obviously confused on this issue, as the first interest payment was meant to be set aside under the loan agreement. His confusion was entirely consistent with his lack of understanding of the details of the loan and his ability to finance it.
[115]Transcript of Proceedings (20 September 2018) 512.10-31.

Mr Stubbings started to renovate Westleigh Crescent, because a real estate agent he contacted suggested he finish the renovations before selling the house.[116] The agent then notified Mr Stubbings that AJ Lawyers were blocking the sale pursuant to a mortgage.[117] Mr Stubbings did not understand this, as he assumed that he was the proprietor of the Westleigh Crescent property and could sell it.[118] This again demonstrates Mr Stubbings non-comprehension of the loan agreements he had entered into.
[116]Transcript of Proceedings (20 September 2018) 515.1-8.
[117]Transcript of Proceedings (20 September 2018) 515.9-30.
[118]Transcript of Proceedings (20 September 2018) 516.1.

Mr Stubbings signed consent documents with an agent to allow Ashton Rise to be sold. However, it was also blocked from being sold by AJ Lawyers. At this stage, Mr Stubbings started to panic and did not know what to do.[119]
[119]Transcript of Proceedings (20 September 2018) 516.

Mr Stubbings contacted AJ Lawyers in an attempt to arrange a negotiation. This did not eventuate. According to Mr Stubbings, neither the plaintiffs nor AJ Lawyers ever contacted him in relation to the problem. He said that they only sent a notice to pay.[120]
[120]Transcript of Proceedings (20 September 2018) 517.10-17.

Eventually both Narre Warren properties were sold, as the lenders obtained summary judgment against Mr Stubbings from Associate Justice Lansdowne.[121]
[121]Transcript of Proceedings (20 September 2018) 520-521.1.

Mr Stubbings claims that, despite requests, he never received notification of what he actually owed to the plaintiffs.[122] Mr Stubbings said that he is still unsure of how much he actually owes them.[123] Mr Stubbings said that he only received the summons to attend court.[124]
[122]Transcript of Proceedings (20 September 2018) 522-523.2.
[123]Transcript of Proceedings (20 September 2018) 523.7.
[124]Transcript of Proceedings (20 September 2018) 523.18.

At the time of giving evidence, Mr Stubbings said that he could not say how much he currently earned per week.[125] He said that he had not lodged any tax returns since being at the Fingal property, because he does not make a lot of money.[126]
[125]Transcript of Proceedings (24 September 2018) 659.20.
[126]Transcript of Proceedings (24 September 2018) 659.23-24.

Mr Stubbings agreed that after three months he would have been unable to pay $10,000 per month.[127] Mr Stubbings denied being told that he would need to make payments for at least six months before being able to transfer the loan to a top-tier bank.[128]
[127]Transcript of Proceedings (24 September 2018) 663.15-16.
[128]Transcript of Proceedings (24 September 2018) 664.13-16.

I turn now to the evidence of Mr Zourkas.

Mr Zourkas gave his occupation as ‘finance consultant.’[129] Mr Zourkas knew Mr Kassinidis as Mr Kassinidis had referred four or five clients to Mr Zourkas to see if Mr Zourkas could arrange finance for them.
[129]Transcript of Proceedings (18 September 2018) 365.

Mr Zourkas said that he had been a ‘broker’ for 35 years. Mr Zourkas had known Mr Jeruzalski for 25 years but had only dealt with him for three or four years.[130] Mr Zourkas said that over the past three or four years he had referred 30 to 40 clients to Mr Jeruzalski for loans that went through and were settled. Mr Zourkas said that he had also referred another 30 or 40 people to Mr Jeruzalski for a loan, whom Mr Jeruzalski had rejected.[131]
[130]Transcript of Proceedings (18 September 2018) 366.
[131]Transcript of Proceedings (18 September 2018) 366.

A minor, but not insignificant, matter arose when Mr Zourkas was given the opportunity to cross-examine Ms Rochelle Robinson, personal assistant to Mr Jeruzalski. He said, ‘no questions for Rochelle.’ Then, in a friendly and knowing tone, Mr Zourkas said, ‘Thank you, Rochelle.’ This incident suggested that Rochelle, the personal assistant of Mr Jeruzalski, was apparently well known to Mr Zourkas.[132]
[132]Transcript of Proceedings (12 September 2018) 119.

Mr Zourkas knew Mr Topalides, but Mr Zourkas had not referred any clients to Mr Topalides until the referral of Mr Stubbings. Mr Zourkas had referred a couple of clients to Mr Kiatos and sees Mr Kiatos once every six or 12 months.

Mr Zourkas confirmed he was contacted by Mr Kassinidis on behalf of Mr Stubbings. Mr Zourkas was told that Mr Kassinidis had a client that wanted to buy a property. Mr Zourkas understood that Mr Stubbings referred to him as ‘Johnny Tee’, as Mr Kassinidis did not want his clients to know Mr Zourkas’ real name, so that they could not go behind Mr Kassinidis’ back.[133]
[133]Transcript of Proceedings (18 September 2018) 368.

Mr Zourkas said that he spoke to Mr Stubbings on the telephone. Mr Stubbings told him he had two houses. He was living in one and his son in the other. Mr Zourkas said that he would get valuations of those properties and if those stacked up then he could borrow money on those two properties to purchase the one he was currently living in and working from. Mr Zourkas said that Mr Stubbings told him he wanted to purchase the property for his boat business — boats and jet skis. Mr Zourkas said that Mr Stubbings told him that he was operating a business, but not where it was operating from. Mr Zourkas said that he did not really care.

Mr Zourkas was taken to the mandate dated 22 August 2015, pursuant to which Mr Stubbings agreed to pay Mr Zourkas the consultancy fee of $27,000.[134] Mr Zourkas said that the figure of $27,000 was not in his handwriting but that of Mr Stubbings.
[134]Exhibit P 34, CB 439.

Mr Zourkas said that he only dealt with Myer (Mr Jeruzalski) and Rochelle (Mr Jeruzalski’s assistant), not the lenders. Mr Zourkas was asked:[135]

How did you arrive at the consultancy fee of $27,000?
Mr Zourkas: Well, first of all, he said, ‘If you can push it quick I’ll give you whatever you want’, so I asked for 20, but then Theo Kassinidis — then Theo Kassinidis wanted 7,000, so then I charged him 27. If I had to drop all my other work to run around for a client, I would charge him extra.

[135]Transcript of Proceedings (18 September 2018) 370.

Mr Zourkas said that Mr Stubbings told him what he was earning:[136]

Counsel:Now, in terms of what was required to enable the purchase to go through, did Mr Stubbings tell you what he was earning?
Mr Zourkas: Yes, he did. I asked him the question.
Counsel:And what did he say?
Mr Zourkas: And he said, ‘Five to six thousand dollars a week. That’s why I want to purchase the new property, so I can put more boats and jet skis and make a fortune.’ That’s what I was told.

[136]Transcript of Proceedings (18 September 2018) 370–1.

On these figures, Mr Stubbings would be earning over $250,000 per year. For reasons discussed below, I do not accept this evidence of Mr Zourkas. In fact, Mr Zourkas believed that Mr Stubbings had “no money.”

Mr Zourkas was asked about whether Mr Stubbings owed rates and consultancy fees:[137]
[137]Transcript of Proceedings (18 September 2018) 371.

Counsel:Now, did he tell you that there were outstanding rates on the loan?
Mr Zourkas:   No, I asked him the question, ‘Are your rates up to date?’ ‘Yes, they are’, and they weren’t.
Counsel:Did he tell you that there were outstanding moneys to the South East Water?
Mr Zourkas:   No, nothing at all. I asked him the questions. He said, ‘No, we didn’t owe any money.’
….
Counsel:Now, in relation to the consultancy fees to Ajzensztat and Jeruzalski and the disbursements that — that wouldn't have been a matter that you discussed with him? — The — the disbursement — Fees —?
Mr Zourkas:   No, no, I – look, I did say to the man, ‘You should end up with twenty to thirty thousand dollars in your hand,’ right? But I said, ‘Are your rates paid up to date and your water?’ He said, ‘Yes, they are.’ At the end of the day, they weren’t, so then Rochelle had to pay the overdue rates, and that’s how we ended up with virtually zero.

Mr Zourkas denied ever telling Mr Stubbings that he would be left with $53,000.[138] Mr Zourkas was asked whether he had ever arranged or sought to procure loans in relation to asset lending without income. Mr Zourkas said, ‘Never.’
[138]Transcript of Proceedings (18 September 2018) 372.

Mr Zourkas denied that Mr Stubbings told him that he wanted to borrow enough to pay the first two months’ interest, or that he wanted to perform renovations on the Narre Warren properties.

Mr Zourkas was asked about helping Mr Stubbings to obtain a loan from Westpac:[139]
[139]Transcript of Proceedings (18 September 2018) 375.2–12, 375.15–376.2.

Counsel:He alleges that prior to his signing the mortgage and loan agreements — that the plaintiff, via you — if I can clarify that — represented it and warranted to him that as soon as the funds were advanced as a result of the loan the plaintiffs would assist the defendant to make an application to Westpac to refinance the loan at a standard interest rate. Did you tell them that?
Mr Zourkas:   After — with the settlement, you’re saying?
Counsel:No, before the settlement?
Mr Zourkas:   No. No, I did mention it, yes. But I told them after six months, and his payments had to be paid on time.
….
Counsel:He says as soon as the funds were advanced as a result of the loan the plaintiffs, via you, would assist him to make an application to Westpac; did you say that?
Mr Zourkas:   No.
Counsel:What did you say to him about a Westpac loan?
Mr Zourkas:   It wasn’t Westpac. It was ANZ and the Commonwealth Bank.
Counsel:Commonwealth Bank?
Mr Zourkas:   Correct.
Counsel:What would you say to them about the loan?
Mr Zourkas:   I would say exactly what I said. I said to him if — the loan has to run for six months. Your loan repay —
Counsel:Slow down. Just slow down, please?
Mr Zourkas:   Sorry.
Counsel:Slow down?
Mr Zourkas:   Okay.
Counsel: Keep going?
Mr Zourkas:   Your loan repayments have to be paid on time. And then after six months I’ve got a friend of mine who’s a broker who deals with the ANZ and Commonwealth. He’s going to give me two years financials. I asked him a question: ‘Have you got a clean CRA?’ He said, ‘Yes, I have.’ Then I was going to put it onto my —
Counsel:Colleague?
Mr Zourkas:   So-called friend, yeah.

Mr Zourkas said that Mr Stubbings did not at any stage tell him that he did not have financial records or tax returns. Mr Zourkas said that it was none of his business to ask him.[140]
[140]Transcript of Proceedings (18 September 2018) 376.11–377.30.

Counsel:Now, he then says that you said that the interest repayments made by him for the loan would demonstrate the serviceability of Westpac — in Westpac, but then refinance the loan. Did you say that?
Mr Zourkas:   No.
Counsel:In fact, do you, as a broker, involve yourself in making loan applications with Westpac?
Mr Zourkas:   I never deal with banks.
Counsel:Never?
Mr Zourkas:   Never have. Never have.

57Counsel for the respondent submitted that the respondent did not need to be concerned with the fact that the borrowers, or the appellant at least, had no income. It was sufficient for its purposes that the loan was amply secured. That was a position, according to the respondent, which the respondent was entitled to take. I do not agree. In fact, it demonstrates the unconscientious nature of the transaction and the advantage the respondent took of the appellant’s disadvantageous position. On its own submission, the respondent was only concerned with its ability to recoup any amount outstanding on the loan in circumstances where it must be taken to have known, because on the only information the respondent had, the appellant had no income, that the appellant, who was exposed to liability for the whole of the loan, had no ability to make even the first payment. The unconscientious nature of the transaction was that she was thereby at risk of losing her only asset. That risk was both immediate and real.
58It is no answer that the respondent was content with the transaction because the loan was well secured…
59In my opinion, therefore, it was unconscientious for the respondent to lend a large sum of money to a person with no income with full knowledge that if the repayments under the loan were not met, it could sell that person’s only asset.

Did AJ Lawyers act unconscionably in procuring the loans to Mr Stubbings?

There are several factors that are relevant in considering whether or not AJ Lawyers, and thus the plaintiffs, acted unconscionably in obtaining the mortgage and guarantee from Mr Stubbings.

First are the deliberate steps taken by AJ Lawyers to ensure that they did not ascertain any information about Mr Stubbings’ financial circumstances and his ability to service the loan, particularly in circumstances where they believed that there was a real risk that he may not have had a sufficient income to service the loan.

Second is the knowledge of AJ Lawyers that the loan they were making on behalf of the lenders could cause severe damage to the guarantor if the guarantor was not able to service the loan. In other words, AJ Lawyers knew that the loan could be a dangerous product in the wrong hands and wreak significant damage on the guarantor.

Third is the reliance AJ Lawyers placed on Mr Zourkas to obtain and procure the custom of Mr Stubbings and, consequently, the deliberate steps taken by AJ Lawyers to ensure that they were not informed of the representations and inducements made by Mr Zourkas, or his knowledge of Mr Stubbings’ mistaken beliefs, in entering into loan transaction.

Fourth are the steps taken by AJ Lawyers to immunise themselves from the taint of any knowledge that might expose them to a claim that they had acted unconscionably in making the loan requested by Mr Stubbings. This included ensuring they did not meet Mr Stubbings or obtain any information about Mr Stubbings, and using Mr Zourkas as a shield to protect them from any knowledge of Mr Stubbings’ special disadvantage.

Fifth are the false representations made by Mr Zourkas to Mr Stubbings, or at least his knowledge of Mr Stubbings’ misunderstandings about the loan as discussed above, and his conduct generally to procure Mr Stubbings’ custom for AJ Lawyers.

Sixth is the failure by AJ Lawyers to avail themselves of the contractual right the plaintiffs had to obtain information from the borrower.[206]
[206]Exhibit P38 (r).

Seventh is the system of conduct used by AJ Lawyers to procure and make the loan sought by Mr Stubbings.

The conduct of Mr Zourkas

I have no doubt that Mr Zourkas acted unconscionably in procuring Mr Stubbings to borrow through AJ Lawyers. In his evidence, Mr Zourkas showed that he was smart, quick, and cunning. I am satisfied that he knew that Mr Stubbings was easily manipulated, vulnerable, and lacking in financial nous. He took advantage of these characteristics to encourage Mr Stubbings to keep his existing two houses and buy the Fingal property. I have given my findings above as to Mr Zourkas’ knowledge of Mr Stubbings’ false beliefs that led him to enter into the guarantee. In addition, Mr Zourkas knew that Mr Stubbings had unsuccessfully sought to borrow from a bank to buy the Fingal property. He knew that Mr Stubbings was unemployed and earning little if any income. Mr Zourkas knew that Mr Stubbings was unable to service the loan.

Mr Zourkas charged an obscene fee for his services. Mr Zourkas’ fee was $27,000, although $7,000 of that was to go to Mr Kassinidis as a spotter’s fee. I am satisfied that Mr Zourkas inserted his fee in the mandate after Mr Stubbings signed it.

Nevertheless, as stated above, I am not satisfied that Mr Zourkas was the agent of AJ Lawyers. Mr Zourkas carried out certain functions as the ‘consultant’ to Mr Stubbings that assisted AJ Lawyers. For example, Mr Zourkas picked up documents and had Mr Stubbings sign them. These actions also assisted Mr Stubbings. AJ Lawyers had no control over Mr Zourkas or the way he conducted his business. Mr Zourkas was not able to make any agreements on behalf of AJ Lawyers, or do any actions on their behalf. I consider the relationship was one of principal-to-principal.

On the other hand, Mr Zourkas carried out a central part of AJ Lawyers’ system of conduct in procuring loans on behalf of clients and immunising AJ Lawyers’ from information about borrowers (such as Mr Stubbings) that may have threatened the enforceability of the loan

The system of conduct

AJ Lawyers adopted a system of conduct in making asset-based loans that sought to immunise them and their clients from the risk that their loans may be characterised as unconscionable at law or by statute.[207] The system of conduct was applied in obtaining the guarantee from Mr Stubbings.
[207]The term ‘system of conduct’ is used in s 12CB(4) of the ASIC Act when dealing with ‘unconscionable conduct.’

The system of conduct involved using the services of Mr Zourkas to procure customers in need of a loan. As mentioned above, Mr Zourkas gave evidence that over the last three or four years he had referred 30 to 40 clients who successfully obtained loans through AJ Lawyers and 30 to 40 that had been rejected by AJ Lawyers. Plainly, Mr Zourkas was a significant source of income for AJ Lawyers and vice versa.

The system of conduct assisted AJ Lawyers to make loans on behalf of clients that brought in healthy commissions and fees. The system of conduct enabled Mr Zourkas to earn an income from procuring borrowers and being paid his fee directly from AJ Lawyers out of the borrowed moneys.

The system of conduct using Mr Zourkas enabled AJ Lawyers to avoid being tainted with knowledge of the borrower’s financial circumstances. The system of conduct ensured that Mr Zourkas was not the agent of AJ Lawyers. Accordingly, under the system of conduct that AJ Lawyers adopted, AJ Lawyers sought to avoid being imputed with knowledge of the representations and inducements made by Mr Zourkas to procure the borrower. AJ Lawyers were not imputed with knowledge of what Mr Zourkas knew about the borrower’s financial and personal circumstances. Mr Zourkas ensured that the borrower did not meet anyone from AJ Lawyers and thus circumvent the wall of secrecy that AJ Lawyers maintained as to the borrower’s financial and personal circumstances.

I am satisfied that under this system of conduct, AJ Lawyers did not ask Mr Zourkas any questions that may have elicited information about the financial or personal circumstances of the guarantor that AJ Lawyers wished to avoid knowing.

If Mr Zourkas was aware of circumstances that would have led a court to find he acted unconscionably if he had been the lender, then the system of conduct that AJ Lawyers adopted ensured that they were immunised against being imputed with Mr Zourkas’ knowledge.

AJ Lawyers were fully aware that the asset-based loan was a dangerous product in the hands of the wrong person. The system of conduct was designed to ensure that they would not know that the loan was being made to the wrong person.

In this case, the proposed guarantee to be given by Mr Stubbings was risky and dangerous. In default of payment, interest would accrue at 17 per cent per annum on the first mortgage and 25 per cent per annum on the second mortgage. The secured properties would be sold and the damage to Mr Stubbings’ accumulated savings would be severe. As explained below, the damage to Mr Stubbings’ savings would probably exceed $100,000.

The second mortgage for $133,500 was for one year only at 18 per cent per annum.[208] The default rate was 25 per cent per annum. There was a procuration fee of 5 per cent — that is, $6,675.
[208]Exhibit P 39.

Interest payments per month were $8,825 pursuant to the first mortgage and $1,552.50 pursuant to the second mortgage. The total interest payments were $10,377.50 per month.

Mr Stubbings had managed to acquire significant equity in his two Narre Warren properties. This equity was likely the only equity he would take with him into retirement. The proposed first and second mortgages put that equity at risk. Mr Stubbings faced the risk of the cost of forced sales, interest accumulating at a high rate and the consequential impact on his accumulated savings in the form of his equity in his two existing homes that a default would incur.

Mr Jeruzalski knew that the Ashton Rise property was valued at $395,000,[209] and the Westleigh Crescent property was valued at $375,000.[210] They totalled $770,000. The two mortgages to the CBA stood at $240,124.42,[211] which meant that Mr Stubbings had equity of approximately $530,000.
[209]CB 473–80.
[210]CB 466–72.
[211]Exhibit P 43.

If one assumes that his equity in the two Narre Warren properties stood at approximately $530,000, then it is clear that the failure of the loans offered by AJ Lawyers could have reduced that sum significantly. Mr Stubbings would lose sums equivalent to the non-legal fees charged by Mr Zourkas and AJ Lawyers, being $27,000 to Mr Zourkas and procuration fees payable to AJ Lawyers of $10,950 on the first mortgage and $6,675 on the second mortgage. The total in non-legal fees is thus $44,625. Legal costs and other costs incurred by Mr Stubbings in the event of the loans’ failures were likely to be well over $100,000. This amount constituted about 20 per cent of Mr Stubbings’ equity in the two properties he owned.

The first loan was only for three years. The second loan was for one year. If Mr Stubbings were unable to roll over the loan, then the secured properties would all have to be sold. Interest pursuant to the first mortgage in default would accrue for about three months while Mr Stubbings’ properties were sold. Interest at 17 per cent would be approximately $50,000. Interest pursuant to the second mortgage for three months at 25 per cent would be approximately $8,000. Thus the total is approximately $58,000.

Without taking into account legal fees, a failure by Mr Stubbings to meet his commitments under the loans would likely cost him in excess of $100,000, being interest and wasted procurement fees alone.

I have little doubt that Mr Jeruzalski knew that the loans were a risky and dangerous undertaking for Mr Stubbings. Mr Jeruzalski has experience as a solicitor practising in the area of making loans on behalf of clients. He would have known that if Mr Stubbings defaulted in payment, then the cost and hardship that the loan agreements would impose on Mr Stubbings would be substantial. Mr Jeruzalski was thus aware that the loans were a risky and dangerous undertaking for Mr Stubbings.

In those circumstances, the standards of ethical conduct would impose on Mr Jeruzalski a moral duty to satisfy himself that Mr Stubbings was not unreasonably exposing himself to the significant financial risks accompanying the loans. This moral duty is compounded by Mr Jeruzalski’s being a practising solicitor and as such an officer of the Supreme Court of Victoria.

In my opinion, Mr Jeruzalski’s moral and ethical obligations were also enlivened because he suspected that Mr Stubbings would not have the income to service the loans. As discussed above, Mr Jeruzalski said that if Mr Stubbings had had a sufficient income to service the loans, then he would have not needed to borrow from AJ Lawyers. Under the system of conduct that AJ Lawyers adopted, Mr Jeruzalski deliberately chose not to obtain information on Mr Stubbings’ ability to service the loans. Mr Jeruzalski did not wish to see Mr Stubbings. Mr Zourkas told Mr Stubbings that he could not go to AJ Lawyers’ offices. Mr Zourkas went to the offices of AJ Lawyers to obtain the relevant unsigned loan documents and to obtain the two envelopes to take to the solicitor and the accountant. Mr Stubbings was instructed to wait in the car outside AJ Lawyers’ offices.

Mr Jeruzalski knew that Mr Stubbings had no solicitor acting for him (save for a conveyancing firm acting in the purchase of the Fingal property). Mr Jeruzalski knew that Mr Zourkas had introduced Mr Stubbings to AJ Lawyers, and that Mr Zourkas was receiving a fee of $27,000. Mr Jeruzalski knew that Mr Zourkas had a significant financial incentive in Mr Stubbings’ decision to proceed with the loan and guarantee. Mr Jeruzalski did not satisfy himself as to whether or not Mr Zourkas had misled or deceived Mr Stubbings, or had knowledge that would indicate Mr Stubbings’ mistaken understanding of the loan and guarantee. Mr Jeruzalski deliberately chose not to interview Mr Stubbings to put to rest any doubts he may have had that Mr Stubbings misunderstood the loans, expected to receive more than he did, or misunderstood his rights under the loans.

I am satisfied that under the system of conduct that AJ Lawyers adopted, Mr Jeruzalski knowingly and deliberately failed to make any inquiries about Mr Stubbings and whether Mr Zourkas had misled him about Mr Stubbings’ ability to service the loans, about Mr Stubbings’ understanding of the loans, or about Mr Stubbings’ financial nous and vulnerability. Mr Jeruzalski knowingly and deliberately failed to make the inquiries because he was concerned that, or suspected that, the answers he may have received would have given him information that could form the basis for setting the loans aside on the grounds of unconscionability, and thus preventing his making the loans on behalf of the lenders.

In my opinion, the system of conduct that AJ Lawyers adopted in the circumstances demonstrated a high level of moral obloquy. My finding is not lessened by Mr Jeruzalski’s apparent smugness when he gave evidence that, in his eyes, AJ Lawyers’ business model immunised them and their clients from the breach of equity to protect the likes of Mr Stubbings. Regrettably for AJ Lawyers and the plaintiffs, I do not agree.

Mr Jeruzalski ensured that Mr Stubbings received legal advice and accounting advice by requiring certificates from a solicitor and an accountant. Mr Jeruzalski must have suspected that Mr Stubbings would be guided by Mr Zourkas as to which solicitor and accountant to approach. I see this conduct as part of the system of conduct adopted by AJ Lawyers to immunise the firm from knowledge that might threaten the enforceability of the loan. As far as Mr Jeruzalski was concerned, the accountant and the solicitor would only be paid if the loans went ahead. There was no incentive for them to withhold the certificates. If they withheld the certificates, then they would receive nothing for their services. To characterise them as independent is perhaps a bridge too far.

In my opinion, the actions of AJ Lawyers in adopting and applying the system of conduct to Mr Stubbings constitute wilful blindness on their part as to Mr Stubbings’ financial and personal circumstances.

In my opinion, Mr Jeruzalski’s behaviour constituted unconscionable conduct. Mr Jeruzalski knowingly and deliberately shut his eyes to Mr Stubbings’ circumstances. Mr Jeruzalski shut his eyes to ensure that the loans would go through and that he would earn his fees. Asset-based lending coupled with the system of conduct adopted by AJ Lawyers, leads me to conclude that they AJ Lawyers must be treated as knowing of Mr Stubbings’ personal and financial circumstances.

I uphold Mr Stubbings’ defence that the loan, first mortgage and guarantee were procured by unconscionable conduct. Accordingly, I propose to order that the loan, guarantee, and mortgage be set aside, on condition that Mr Stubbings is not unjustly enriched.

Third party claims

Mr Stubbings also makes third-party claims against Mr Zourkas and Mr Topalides.

The claim against Mr Zourkas is that he engaged in misleading and deceptive conduct pursuant to s 18 of the ACL by:

(a) wrongfully making an Application for Finance in the name of a corporate entity when knowing that the loan was for a personal purpose; and

(b) making false representations for the purpose of inducing Mr Stubbings into entering into the loan agreement.

As a preliminary matter it should be noted that since 11 March 2002, misleading or deceptive conduct by persons in relation to the provision of ‘financial services’ in trade and commerce has been prohibited by s 12DA(1) of the ASIC Act, rather than s 18 of the ACL.[212] Mr Stubbings has not pleaded that Mr Zourkas engaged in misleading or deceptive conduct in contravention of the ASIC Act.
[212]Colin Lockhart, The Law of Misleading or Deceptive Conduct (LexisNexis Butterworths, 5^th ed, 2019) 9 [1.6].

A person provides a ‘financial service’ if they, among other things, ‘provide financial product advice’,[213] ‘deal in a financial product’,[214] or ‘provide a service that is otherwise supplied in relation to a financial product’.[215] Financial products include credit facilities.[216]
[213]Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’) s 12BAB(1)(a), which is a ‘recommendation or statement of opinion, or report….that…is intended to influence a person in making a decision in relation to a particular financial product’ or ‘could be reasonable regarded as having that influence’.
[214]ASIC Act s 12BAB(1)(b), which included ‘issuing a financial product’ or ‘arranging for a person to apply for or acquire a financial product’.
[215]ASIC Act s 12BAB(1)(g).
[216]ASIC Act s 12BAA(7)(k).

The authorities indicate that the phrase ‘in relation to’ is broadly construed, extending to conduct that induces a person to acquire a financial product from a third party.[217]
[217]ACCC v Original Mama’s Pizza & Ribs Pty Ltd [2008] FCA 370 [120] (Madgwick J) (‘Mama’s’). See also ASIC v Accounts Control Management Services Pty Ltd [2012] FCA 1164 [334] (Perram J).

Consideration of Mr Stubbings’ third-party claim against Mr Zourkas is complicated by the existence of authority to the effect that if the impugned conduct can fairly be characterised as being both in relation to financial services and otherwise, then the fact that it is so capable of the first characterisation is enough to produce the result that s 52 of the TPA (being the precursor to s 18 of the ACL) does not apply to the conduct.[218] Accordingly, if I conclude that Mr Zourkas’ conduct was in relation to financial services, then it is conduct to which the ACL has no application.[219]
[218] Mama’s [2008] FCA 370 [107] (Madgwick J); Cleary v Australian Co-operative Foods
(No.2) (1999) 32 ACSR 701.
[219]Competition and Consumer Act 2010 (Cth) s 131(A)(1).

In ACCC v Original Mama’s Pizza & Ribs Pty Ltd[220] (‘Mama’s’), Madgwick J helpfully set out the relevant provisions of the ASIC Act to determine whether a party who arranged for a person to acquire a financial product from a third party falls within s 12DA of the ASIC Act. I extract his judgment in part below:
[220][2008] FCA 370.

[89]…Section 12BAB (contained in Div 2 of Pt 2) of the ASIC Act sets out a lengthy definition of the term “financial service”. Relevantly, that section provides:
(1)For the purposes of this Division, subject to para (2)(b), a person provides a financial service if they [sic]:
(a)provide financial product advice (see subs (5)); or
(b)deal in a financial product (see subs (7)); or

…
(g)provide a service that is otherwise supplied in relation to a financial product; or
(h)engage in conduct of a kind prescribed in regulations made for the purposes of this paragraph.

[90] Section 12BAB(2) provides:
The regulations may set out:
(a)the circumstances in which persons facilitating the provision of a financial service (for example, by publishing information) are taken also to provide that service; or
(b)the circumstances in which persons are taken to provide, or are taken not to provide, a financial service.

[91]Thus the meaning of “financial service” depends upon the definition of “financial product”.
[92]It appears to be the case, as the applicants submit, that the leasing agreements with the third-party financiers are “financial products”. By s 5 of the ASIC Act, “financial product” has the meaning, in Div 2 of Pt 2, assigned to it in s 12BAA of the ASIC Act. In turn, s 12BAA sets out a complex definition of “financial product”. Section 12BAA(7) sets out a series of products which are taken to be “financial products” for the purposes of Div 2 of Pt 2 of the ASIC Act, and relevantly provides:
(7)Subject to subs (8) [which sets out a series of products that are not financial products; subs (8) is not relevant in the circumstances of this case], the following are financial products for the purposes of this Division:
…
(k)a credit facility (within the meaning of the regulations);
(m)anything declared by the regulations to be a financial product for the purposes of this subsection.

[93]The Australian Securities and Investments Commission Regulations 2001 (Cth) (ASIC Regulations) make further provision regarding what constitutes a “credit facility” for the purposes of s 12BAA(7)(k) of the ASIC Act. In this regard, reg 2B(1) of the ASIC Regulation relevantly provides:
(1)For para 12BAA(7)(k) of the Act, each of the following is a credit facility:
(a) the provision of credit:
(i)for any period; and
(ii)with or without prior agreement between the credit provider and the debtor; and
(iii)whether or not both credit and debit facilities are available;

[94]Regulation 2B(3)(b)(iv) of the ASIC Regulations provides that “credit” means a contract, arrangement or understanding for the hire, lease or rental of goods and services (subject to certain presently irrelevant exceptions). It follows that a goods rental agreement is a “credit facility” within the meaning of s 12BAA(7)(k) and thus a “financial product”.
[95]In addition, reg 2B(1)(h) of the ASIC Regulations provides that a guarantee of obligations under a credit contract is a “credit facility” for the purposes of s 12BAA(7)(k) of the ASIC Act. It follows that wherever a proprietor has executed a guarantee in favour of a financier to secure rental payments (as happened in the cases of the Jefferys and Mr Nader), that is a further reason for characterising the agreement with the financier as a “financial product.”
[96]Section 12BAB(1) of the ASIC Act (quoted in [89] above) includes in the various classes of persons who interact with a “financial product” and may be taken to provide a “financial service”, a person who “deals” with a “financial product”. The meaning of “dealing” is explained in s 12BAB(7) which provides:
For the purposes of this section, the following conduct constitutes dealing in a financial product:
(a) applying for or acquiring a financial product;
(b) issuing a financial product;
(c)in relation to securities or managed investment interests—underwriting the securities or interests;

(d) varying a financial product;
(e) disposing of a financial product.
[97]The applicants concede that the respondents did not engage in the kinds of conduct described in s 12BAB(7), taking the view that, in particular, they did not apply for or acquire the rental agreements. Rather, the proprietors applied for, and acquired those agreements. In the submission of the applicants, the fact that the respondents facilitated the making of those applications does not affect this conclusion. Further, it is the financiers who issued the rental agreements, not the respondents. This approach seems to me to be correct.
[98]However, s 12BAB(8) further extends the notion of “dealing” and provides:
Arranging for a person to engage in conduct referred to in subsection (7) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice.

[99]It appears correct to say that the respondents “arranged” for the proprietors to apply for and “acquire” the rental agreements, and so, pursuant to s 12BAB(8), the respondents would be taken to have dealt in “financial products”. This has the result that the respondents were providing “financial services”.

I interpolate to add that regulation 2B(1) of the ASIC Regulations also provides that the provision of a mortgage that secures obligations under a credit contract,[221] a guarantee relating to such a mortgage,[222] or a guarantee of obligations under a credit agreement[223] are each ‘credit facilities’.
[221]Australian Securities and Investment Commissions Regulations 2001 (Cth) reg 2B(1)(f).
[222]Ibid reg 2B(1)(g).
[223]Ibid reg 2B(1)(h).

At paragraph [120], Madgwick J concludes:

All that need be decided in this case is whether the conduct in respect of which complaint is made was engaged in relation to financial services. In this case, there is, in my opinion, a clear and material connection between the impugned conduct and the provision of the financial services. This is because it is alleged that the respondents’ misrepresentations induced the shop owners to enter into long term equipment leases (which are “financial products”). More specifically, each of the impugned representations related to the financial product (the lease) because they were misrepresentations about the legal and financial effect of the lease, including the circumstances in which the lease could be brought to an end. The impugned representations did not in any way relate to the attributes or performance of the pizza oven system as such (although the proprietors were none too happy about such aspects). Further, it was integral to Mama’s system of marketing as explained at [4] to [16] above that the “purchasers” of the pizza ovens should finance their acquisition by leases from third parties. That remains so, even if there were a couple of cases where Mr Hilder was able to sell the ovens for cash.

In this case, in my opinion, there is a clear and material connection between Mr Zourkas’ impugned conduct and the provision of financial services. This is because it is alleged that Mr Zourkas’ representations induced Mr Stubbings to enter into the loan, mortgage and guarantee (which are ‘financial products’ pursuant to the ASIC Regulations). More specifically, each of the impugned representations related to the financial products because they were misrepresentations about the practical, legal and financial effects of the loan and mortgage, including the circumstances in which they could be brought to an end (by way of refinance). As in Mama’s, it was integral to the lenders’ system of conduct that the borrowers should be assisted in applying for and obtaining the loan through a third party consultant. I therefore consider that Mr Zourkas’ conduct was in relation to financial services.

The result of this conclusion is that s 18 of the ACL, as pleaded by Mr Stubbings, has no application to Mr Zourkas’ conduct, either in respect of the application in the name of VBC or the representations. However, Mr Stubbings failed to plead a contravention of the ASIC Act by Mr Zourkas and I heard no argument in this respect. Accordingly, I do not consider it appropriate for me to make any findings in respect of any potential contravention of the ASIC Act by Mr Zourkas.

Claim against Mr Topalides

One of the claims against Mr Topalides is that he has engaged in misleading and deceptive conduct contrary to s 18 of the ACL. He also faces claims of negligence and breach of duty of care to Mr Stubbings on the grounds that he:

(a) failed to provide financial advice to Mr Stubbings when engaged to do so;

(b) signed a Certificate of Independent Financial Advice notwithstanding that he gave no such advice; and

(c) failed to make the necessary inquiries to ensure Mr Stubbings was capable of maintaining the loan.

Further, or in the alternative, Mr Stubbings makes either or both of the following allegations against Mr Topalides:

(a) he was negligent in his failure to provide financial advice to Mr Stubbings when engaged to do so;

(b) he breached his duty of care to Mr Stubbings by failing to provide financial advice to Mr Stubbings when engaged to do so.

Mr Stubbings has not properly identified what conduct or representations by Mr Topalides are alleged to fall foul of the ACL.

Mr Topalides was engaged by Mr Stubbings to provide him with independent financial advice in respect of the ‘nature and extent of the financial risk’ of the proposed transaction, and certification of said advice. In my view, it would have been evident to Mr Topalides that his certification was important, and was foreseeably a prerequisite of the lenders prior to settlement of the loan.
I consider it uncontroversial that in those circumstances, Mr Topalides owed Mr Stubbings a duty to exercise reasonable care and skill in assessing and explaining the financial risk to Mr Stubbings under the proposed transaction, and a duty not to sign the Certificate of Independent Financial Advice (on which the lenders would foreseeably rely to proceed with the loan) unless and until he had assessed and explained the financial risk to Mr Stubbings.
The evidence discloses that Mr Topalides himself did not understand the transaction into which Mr Stubbings was proposing to enter. He did not understand that the CBA loans were being paid off. He did not find out the extent of Mr Stubbings’ existing liabilities. Given my earlier assessment of the reliability of Mr Topalides’ recollection, I am doubtful that Mr Stubbings ever stated that he was earning $16,000 per month. It may well have been the case that Mr Topalides advised Mr Stubbings how much he would need to service the loan each month, but he did not make proper inquiries as to how Mr Stubbings would earn $16,000 per month, or $200,000 per year.
Mr Topalides conceded that he did not ask to see any documentation to satisfy himself of Mr Stubbings’ ability to service the loan. I am satisfied that Mr Topalides would have known that a person borrowing through solicitors on an asset-based loan is the type of person who could not raise the money at a bank or even a second-tier lender. Instead of declining to sign the certificate until he had seen such supporting documentation, Mr Topalides blamed Mr Stubbings for entering into a transaction not knowing his financial affairs and ‘being prepared to lie’.[224]
[224]Transcript of Proceedings (20 September 2018) 444.4.
The evidence discloses that Mr Topalides was not in a position to properly certify that Mr Stubbings understood the financial risk as Mr Topalides himself was not able, on the information he had, to properly assess and explain the financial risk to Mr Stubbings. Mr Topalides certified that ‘to the best of [his] knowledge and belief and in [his] opinion, [Mr Stubbings] appears to understand the nature and extent of the financial risk…’. As indicated above, however, Mr Topalides said that Mr Stubbings was not in a mind to take advice. Mr Topalides said that Mr Stubbings was in a hurry, disinterested and only interested in getting Mr Topalides to sign the certificate. In those circumstances, detailed by Mr Topalides himself, I cannot accept that Mr Topalides in fact believed that Mr Stubbings understood the nature and extent of the financial risk of the proposed transaction. Mr Topalides was not in a position to certify Mr Stubbings understood the nature and extent of the financial risk he was undertaking. If he had exercised reasonable care, he would not have done so.

I find that Mr Topalides breached his duty of care to Mr Stubbings.

It is clear from the evidence that the plaintiffs required a Certificate of Independent Financial Advice be provided together with the loan documentation. Although no evidence was led directly on this point, in light of the steps taken by AJ Lawyers to protect themselves and their clients from claims of the very kind now raised, I am satisfied that had no certificate been provided by Mr Topalides, the plaintiffs would not have proceeded with the loan to Mr Stubbings.

I conclude that Mr Topalides’ breach caused Mr Stubbings the loss he has suffered by entering into the loan from the plaintiffs and securing it over his three properties.

Proposed Orders

Mr Stubbings has succeeded in his defence as against the plaintiffs and in his third-party claim against Mr Topalides.

However, the following matters prevent me from making final orders:-

(a) the existence of the second mortgage which was not canvassed during this trial;

(b) the failure of Mr Stubbings to fully particularise the damages sought against Mr Topalides; and

(c) further to (b) above, an inability to make an order for damages against Mr Topalides until the framing of the order setting aside the first mortgage has been reached.

Accordingly, I shall hear submissions from the parties on the appropriate orders to be made in the circumstances.

Final Orders

After hearing submissions from the parties on the appropriate orders to be made in the circumstances, my further reasons, including final orders, were published in Jams 2 Pty Ltd & Ors v Stubbings (No 4) [2019] VSC 482.

[2019] VSC 150

14 March 2019