Pambris v Makis

[2024] NSWSC 1289

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Pambris v Makis [2024] NSWSC 1289

Hearing dates:

26, 27, 28 September, 17 October 2023, final written submissions received 3 November 2023.

Date of orders:

14 October 2024

Decision date:

14 October 2024

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Findings made that the 2010 mortgage was affected by undue influence and unconscionable conduct of the plaintiff but the 2017 guarantee is binding. Further findings made that the amount outstanding on the 2010 mortgage has not been established and a quantum hearing has been directed. Parties directed to bring in short minutes of order to give effect to these reasons. Costs reserved.

Catchwords:

EQUITY — Unconscionable conduct — Special disability or disadvantage – Undue influence — Actual undue influence — Relevant factors – plaintiff and his wife in a relationship of close trust and friendship with the first defendant and her husband – the first defendant and her husband execute a mortgage in 2010 recording an advance of $1.21 million from the plaintiff to them and securing repayment of the advance over their jointly owned real estate – first defendant’s husband becomes bankrupt – plaintiff sues the first defendant on the mortgage - the first defendant disputes that the advance alleged by the plaintiff was made pursuant to the mortgage and seeks to set the mortgage aside – after her husband’s bankruptcy, the first defendant also executed a guarantee in 2017 of certain alleged obligations of her then husband to the plaintiff arising out of deeds of loan in 2005 and 2009 and the 2010 mortgage – by her cross-claim the first defendant says both the 2010 mortgage and the 2017 guarantee were executed as result of the unconscionable conduct or undue influence of the plaintiff – what advance does the 2010 mortgage secure - whether the first defendant was in a position of special disadvantage in relation to the plaintiff in relation to the execution of the two documents – whether the first defendant was under the actual undue influence of the plaintiff – whether the 2010 mortgage or the 2017 guarantee should be set aside or otherwise modified.

CONSUMER LAW – consumer credit – National Consumer Credit Code (Code) – Jurisdiction – first defendant seeks to set aside 2010 mortgage and 2017 guarantee for noncompliance with the Code – whether the Code applies – whether the relevant credit was provided by the plaintiff is “in the course of a business of providing credit”.

Legislation Cited:

Australian Consumer Law, s 20, 232, 236

Civil Procedure Act 2005, s 26

Contracts Review Act 1980

Family Law Act 1975 (Cth), ss 79, 90C

National Consumer Credit Protection Act 2009 (Cth), ss 180

National Credit Code, ss 5, 76, 77

Cases Cited:

Aboody v Ryan [2012] NSWCA 395

ACCC v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51

Allcard v Skinner (1887) 36 Ch D 145

ASIC v Australian Lending Centre Pty Ltd (No 3) (2012) 213 FCR 380

Avery v Saree Holdings Ltd; Lava Ltd v Avery [2012] NSWSC 463

Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30

Blomley v Ryan (1956) 99 CLR 362

Close Asset Finance Ltd v Derek Allan Taylor [2006] EWCA 788

Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447

Fabre v Arenales (1992) 27 NSWLR 437

Federal Commissioner of Taxation v Whitford's Beach Pty Limited (1982) 150 CLR 355

Johnson v Butress (1936) 56 CLR 113

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Hart v O’Connor [1985] AC 1000

Hewitt v Gardner [2009] NSWSC 1107

Hyde v Sullivan (1956) 56 SR (NSW) 113

Kakavas v Crown Melbourne Limited (2013) 250 CLR 392; [2013] HCA 25

Lauvan Pty Limited & Anor v Bega & Anor [2018] NSWSC 154

Lewes v Morgan (1817) 5 Price 42

Louth v Diprose (1992) 175 CLR 621

Minot v Eaton (1826) 4 LJ OS Ch 134

Nature Resorts Ltd v First Citizen Bank Ltd [2022] 1 WLR 2788, [2022] UKPC 10

Nuhic v Rail & Road Excavations [1972] 1 NSWLR 204

Payne v Parker (1976) 1 NSWLR 191

Royal Bank of Scotland plc v Etridge (No. 2) [2002] 2 AC 773; [2001 UKHL 44

Sims v Lowe 1988 1 NZLR 656

Stubbings v Jams 2 Pty Ltd (2022) 276 CLR 1; [2022] HCA 6

Taylor v Johnson (1983) 151 CLR 422

Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49

Tonto Home Loans Australia Pty Ltd v Tavares (2011) ASC 155-107; [2011] NSWCA 389

Torok v Becker [2020] NSWSC 1570

Turner v Windever [2005] NSWCA 73

Williams v ATM & CPA Projects Pty Limited [2015] NSWSC 703

Texts Cited:

JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, 2014, LexisNexis Butterworths)

ELG Tyler, PW Young and CE Croft, Fisher and Lightwood’s Law of Mortgage, 3rd Australian Edition, LexisNexis – Butterworths, Australia 2014

PW Young, C Croft, ML Smith, On Equity (2009, Thomson Reuters)

Category:

Principal judgment

Parties:

Plaintiff: Sam Thomas Pambris
First Defendant: Andrea Makis
Second Defendant: Perpetual Trustee Company Limited (ACN 000 001 007)

Representation:

Counsel:
Plaintiff: Mr D.C. Price
First Defendant: Mr M.R. Hall SC; Ms M.A. McGrath

Solicitors:
Plaintiff: Harry Danalis, H. Danalis & Co

Second Defendant: Submitting appearance

File Number(s):

2021/278757

Publication restriction:

No

JUDGMENT

1. From 2004 the plaintiff, Mr Sam Pambris and his wife, developed a close and honoured friendship with the first defendant, Ms Andrea Makis, and her then husband, Mr Ioannis Papatheodotou. Ms Makis became the godmother of Mr Pambris’ youngest son, Alexandros, a role which in Greek Orthodox tradition carries the feminine honorific, koumbara.

2. Within that close interfamily relationship, Mr Pambris had financial dealings with Ms Makis and Mr Papatheodotou, which are now disputed. The principal disagreement relates to two instruments Ms Makis executed, a mortgage in 2010 and a guarantee in 2017. Mr Pambris now seeks to enforce both instruments by his Statement of Claim in these proceedings.

3. The terms of the mortgage dated 5 November 2010 (“the 2010 mortgage”) describe an advance of $1,210,000.00 from Mr Pambris as mortgagee to Ms Makis and Mr Papatheodotou as being secured over their residence, a property in Fowler Crescent, Coogee (“the Maroubra property”) of which they were the registered proprietors. The mortgagors Ms Makis and Mr Papatheodotou then jointly owned Maroubra property.

4. Mr Papatheodotou became bankrupt in 2013. Ms Makis later acquired Mr Papatheodotou’s interest in the Maroubra property from his trustee in bankruptcy and she became the sole registered proprietor.

5. The terms of the deed of a guarantee dated 8 December 2017 (“the 2017 guarantee”) between Mr Pambris and Ms Makis, guaranteed the performance by Mr Papatheodotou of certain financial obligations he owed Mr Pambris under a deed of loan dated 23 December 2005 (“the 2005 deed”) and another deed of loan dated 5 December 2009 (“the 2009 deed”). The 2017 guarantee also recorded that each of the 2005 deed and the 2009 deed were secured by the 2010 mortgage.

6. Part of Mr Pambris’ financial logic for the 2017 guarantee appears to have been overcoming the disadvantage of Mr Papatheodotou’s bankruptcy. The 2017 guarantee bolstered Ms Makis’ liability to Mr Pambris for all Mr Papatheodotou’s pre-existing financial obligations to Mr Pambris. The 2017 guarantee was associated with a loan from Mr Pambris to assist Ms Makis to pay out the Commonwealth Bank of Australia (“the CBA”) and take over its mortgage over the Maroubra property. Ms Makis subsequently reimbursed Mr Pambris for most of these payments by refinancing in 2021 with the second defendant, Perpetual Trustee Co Limited (“Perpetual”).

7. Mr Pambris now seeks relief under the 2010 mortgage against Ms Makis and the other mortgagee, Perpetual, by way of judicial sale of the Maroubra property and to have the proceeds of sale applied in discharge of her obligations under the 2010 mortgage, including all amounts due under the 2005 and 2009 deeds. Mr Pambris seeks additional orders following any judicial sale. He seeks orders that Ms Makis personally pay the balance Mr Pambris claims to be due under the 2005 and 2009 deeds. At the date of filing the Statement of Claim, this was said to be $4,525,448.39 plus interest and the separately advanced sum of $37,500.00 plus interest.

8. Ms Makis disputes that she has the alleged obligations under the 2010 mortgage on several grounds. First, she contests Mr Pambris’ contention that the 2010 mortgage secures advances Mr Pambris made to Mr Papatheodotou between 2001 and 2008 which are reflected in the 2005 and 2009 deeds. Ms Makis contends instead that the 2010 mortgage secured quite different liabilities. She says the mortgage secures liabilities arising from a loan from the Laiki Bank of Cyprus in the sum of $1,200,000 to Mr Pambris, herself and another person for a transaction involving a parcel of real estate on Canterbury Road, Canterbury (“Canterbury Road property”). Ms Makis says that all the liabilities in relation to the Canterbury Road property have since been discharged and there is nothing owing to Mr Pambris on the 2010 mortgage.

9. In the alternative, Ms Makis seeks to have the 2010 mortgage and the 2017 guarantee set aside both in equity at general law and under the Competition and Consumer Act 2010 (Cth), Schedule 2 (Australian Consumer Law), s 20, alleging that Mr Pambris’ unconscionable conduct and undue influence occasioned her execution of both documents.

10. She also alleges these instruments can be set aside due to contraventions of the National Consumer Credit Protection Act 2009 (Cth) (“NCCP Act”), grounded in allegations that Mr Pambris allegedly engaged in unfair, dishonest or unconscionable conduct without a licence under NCCP Act, s 29.

11. Her claims to set aside these instruments were initially pleaded in her Defence. The Court has treated the positive allegations in her Defence as a Putative Cross Claim which the plaintiff, has replied to by way of Points of Defence to the Putative Cross Claim. Mr Pambris says the NCCP Act does not apply because he did not provide the relevant credit in question in the course of carrying on the business of providing credit.

12. These proceedings were heard over four days on 26-28 September and 17 October 2023 and were followed by a regime of written closing submissions concluding on 3 November 2023. Mr D.C. Price of counsel instructed by Harry Danalis of H. Danalis & Co appeared for the plaintiff. Mr M.R. Hall SC and Ms M.A. McGrath of counsel appeared for the first defendant, following referral for pro bono assistance pursuant to r 7.36 of the Uniform Civil Procedure Rules 2005 (“UCPR”). The second defendant filed a submitting appearance.

13. The Court records the assistance which it received from the counsel and solicitors on both sides of these proceedings. It also notes that until very shortly before the hearing Ms Makis was proposing to conduct this case herself without legal representation. Using the mechanism under UCPR, r 7.36, the Court sought assistance through the Registrar in Equity from the Bar Association to see if Ms Makis could be legally represented even at the last minute. For some days that request was unsuccessful, and the Court initially decided to adjourn the proceedings with an order for costs against Ms Makis.

14. But in the highest traditions of the Bar and the legal profession Mr M.R. Hall SC and Ms M.A. McGrath stepped into the breach and volunteered to represent Ms Makis. This was only days before the trial had been due to commence. They then conducted her case to its best advantage in the circumstances. The Court reversed the order for an adjournment (and an accompanying costs order) and allowed a short delay for Mr M.R. Hall SC and Ms M.A. McGrath to familiarise themselves with the detailed factual environment of the proceedings. Mr D.C. Price of counsel for Mr Pambris and his solicitors dealt flexibly with these rapidly changing circumstances including by providing documents to their opponents which greatly aided the administration of justice.

15. The following is a narrative of the relevant history. This narrative represents the Court’s findings on the matters covered, except to the extent that the context indicates that only the parties’ allegations are being recorded. For reasons of economy this narrative does not always include reference to versions of the facts that have not been accepted.

16. The Court has assessed the credibility of the witnesses to reach the findings in the narrative of findings below. Observations of the credibility of the witnesses are made throughout the narrative. But some preliminary general observations should be made about each of the witnesses.

Observations on the Credibility of the Parties and Witnesses

17. Mr Pambris. The plaintiff was a financially sophisticated witness. He sought to give the impression to the Court of being a family friend whose patience had become exhausted by the lack of cooperation by Mr Papatheodotou and Ms Makis in paying the debts due to him. His evidence was mostly consistent with objective the facts but his financial recordkeeping of his cash dealings with and alleged advances to Mr Papatheodotou were opaque, unsatisfactory, and unreliable.

18. He painted an altruistic picture of himself trying to look after the interests of Mr Papatheodotou and Ms Makis. And he should be credited generally with mostly behaving in an honourable fashion towards Ms Makis and trying to help her. But as will be seen, some of his later conduct towards her in 2017 can also be explained as a mixture of self-interest and altruism. He had little insight into the immense actual influence that he had over Ms Makis after she and Mr Papatheodotou had divorced. His evidence was only accepted in part.

19. Ms Makis. The first defendant, Ms Makis was passionately persuaded of the correctness of her own position in the proceedings. She had strong opinions which she voiced firmly throughout the proceedings. Her evidence was framed around very clear assertions of her own version of events. But her conviction as to the correctness of her own point of view did not always correspond with objective indicators of the likely events. She was often able to explain consistently with her case, the documents that Mr Pambris sought to use against her. Nevertheless, her distaste for Mr Pambris, who she believed had betrayed her trust, was so strong that the Court treated her as a partisan witness whose evidence was treated with caution. Despite the caution the Court here expresses about her evidence, the Court has accepted much of it, in part because of the unusual relationship of trust and submission that she had with Mr Pambris.

20. Mr Papatheodotou. Ms Makis’ former husband was a difficult witness to read. He exhibited a profound and voluble dislike of his former wife, Ms Makis, although called as a witness in her case. Nevertheless, much of his evidence assisted her case. His hostility to and resentment of his former wife added unexpected credibility to his account in her favour. But his financial dealings, with Mr Pambris were obscure. The Court was often cautious about accepting his evidence.

Ms Makis, Mr Papatheodotou and Mr Pambris

The Backgrounds of the Parties

21. Ms Makis and Mr Papatheodotou. Ms Makis was born in Cyprus in 1961. Although she was commonly addressed as “Andrea”, her full Greek name used in some legal documents was “Androulla”. When she moved to Australia in 1976 at the age of 15, she could not read, write, or speak English. But she attained her Higher School Certificate and later studied at the Teachers College. English is now Ms Makis’ second language. At the time of the hearing, she taught Greek at a Sydney primary school.

22. Ms Makis met Mr Papatheodotou in the Greek zone of the Island of Cyprus in 1981 whilst she was on holidays there. He was born in Cyprus in 1959. When they met, he worked for the Greek Cypriot government for the zone. They were engaged in Cyprus in September 1983, moved to Australia in October 1983, and married here in November 1983.

23. Ms Makis and Mr Papatheodotou have two children together, a son born in November 1985 and a daughter born in June 1987. They divorced in June 2012.

24. Both Ms Makis and Mr Papatheodotou worked hard to establish themselves financially after their marriage. Ms Makis simultaneously worked three jobs, namely, as a dressmaker, a beautician, and a casual teacher. Mr Papatheodotou initially worked for Ms Makis’ parents and undertook a Bachelor of Economics and Bachelor of Law degrees at Macquarie University, although he did not finish either. He was later awarded a Diploma of Business Banking and Finance from TAFE NSW. In 1987, Mr Papatheodotou commenced full-time employment at the CBA, whilst he was studying part-time. Until 1993, he was employed by the CBA as a customer service manager.

25. In May 1993, Mr Papatheodotou left the CBA and commenced employment in September 1993 as a banking representative of the Cyprus Popular Bank, which had just opened representative offices in Sydney. The Cyprus Popular Bank had expanded beyond Cyprus in the 1990s and in 2000 changed its name to the Laiki (meaning "popular" in Greek) Bank, by which name it will be referred to in these reasons. In about July 2008, Mr Papatheodotou left the Laiki Bank and took employment with the Bank of Cyprus Australia.

26. Within their marriage, Ms Makis was generally responsible for family arrangements and childcare for their two children. Mr Papatheodotou was generally responsible for managing the family’s finances, including the investment properties that they owned from time to time. Ms Makis and Mr Papatheodotou bought and sold several properties during their marriage. From 1987, they conducted several joint bank accounts. Mr Papatheodotou also conducted property investment bank accounts for the couple in his name.

27. The parties actively contested the extent of Ms Makis’ knowledge of her husband’s property development activity. Ms Makis says, and the Court accepts, that in relation to the couple’s investment properties her role was to identify and approve potential properties for purchase. Mr Papatheodotou was responsible for arranging, preparing, negotiating, and financing investment opportunities. He would explain the nature and terms of investments, and the associated documents to Ms Makis. She was not involved in either arranging finance or managing the couple’s financial contributions to those purchases. She generally left those aspects of the transactions to Mr Papatheodotou. Ms Makis is not financially sophisticated but nevertheless has a practical understanding of basic business concepts.

28. Cross-examination of Ms Makis revealed several purchase and sale transactions of residential property to which she was a party between 1984 and 2013: a property in East Lakes in 1984, a property in Zetland in 1987, a property in Pyrmont in 2001 another property in East Lakes before 2005, a property in Cessnock in 2005, a property in Lakemba in 2006, another property in Lakemba in 2007. These properties were acquired and held between 3 to 8 years each.

29. This was a logical division of expertise. Mr Papatheodotou worked in a bank and was much closer to financial resources than Ms Makis. Mr Papatheodotou explained, he would make recommendations, and “Andrea would follow my mark”. The Court does not accept it was as simple as this. The couple undoubtedly discussed these various investment property purchases and Ms Makis agreed that they should proceed with them.

30. By 2002, Ms Makis and Mr Papatheodotou were able to purchase the Maroubra property for $1.427 million. The purchase was almost entirely funded by a loan from the CBA, secured over the Maroubra property.

31. Mr Pambris. Mr Pambris describes himself as a property developer, investor, and entertainment promoter. In the last of these roles, he brought entertainment acts to Australia from overseas, mainly from Greece to perform at venues throughout Australia.

32. By the mid-1990s, Mr Pambris was using the Laiki Bank. He found Laiki Bank provided convenient banking facilities for transferring money to the entertainment acts he was bringing out to Australia from Greece.

21. Mr Pambris met Mr Papatheodotou in 1993 at a function for the Sydney Olympic Football Club. Mr Papatheodotou was then employed by Laiki Bank and attended the function as its representative. Mr Pambris had a senior management role at the Sydney Olympic Football Club, which occasioned their introduction. Mr Pambris says that he met Mr Papatheodotou in 1996, but it is likely that the meeting was earlier than that and Mr Papatheodotou has a convincing memory of the precise occasion when they first met.

22. Mr Pambris met Ms Makis not long afterwards. She denies this and says she did not meet Mr Pambris until November 2004. But it is more likely that they did meet earlier. Although it is accepted that Ms Makis probably did not see Mr Pambris very often during the 1990s after her husband met Mr Pambris. From about 2000, the two families began to spend more time together and regularly visited one another’s houses and had dinner together. Occasionally, Ms Makis and her husband spent Christmas Day with Mr Pambris and his wife at their home.

23. Koumbaroi. Whatever the timing of the parties’ meeting, by the mid-2000s the families’ relationships became close. In 2008, Ms Makis and Mr Papatheodotou assisted as godparents at the baptism of Mr Pambris’ second son in the Greek Orthodox Church. Mr Pambris says that Mr Papatheodotou asked for him and Ms Makis to have this role. That may well be right, but Mr Pambris accepted them in the role. This meant that Ms Makis and Mr Papatheodotou thereafter referred to and addressed Mr Pambris as “koumbaro”, and Mr Pambris referred to and addressed Ms Makis as “koumbara” and Mr Papatheodotou as “koumbaro”. Those honorific terms roughly translate in English to “godfather” and “godmother” and are used in their email correspondence. However, the relationship between koumbaroi (plural of koumbaro/a) is to be understood as meaning something more than one between godparent and parent. The Court accepts Ms Makis’ description of the concept as, “a special term, which denotes a particularly close, trusting and familial relationship”. And for these two couples that is what it meant. Ms Makis took the role very seriously.

24. Mr Papatheodotou and Ms Makis divorce. Unhappy differences arose between Mr Papatheodotou and Ms Makis by 2009. She complained that he was never home. His testimony vividly expressed his dissatisfaction with aspects of their relationship. They agreed in December 2009 to separate but to keep their separation and subsequent divorce secret for a time. Ms Makis explained that her immediate family knew of the separation. But they decided not to tell other members of the Greek Orthodox community. To maintain their public reputation, they remained living separately but under the one roof but presenting as though they were married until 1 August 2012. On that date, Ms Makis moved out of the Maroubra property and leased the property to personnel from the Canadian consulate in Sydney. She later moved back to her mother’s place, to become her mother’s carer. She was living permanently with her mother at the time of the hearing. These arrangements are discussed in more detail later in these reasons.

Early Financial Transactions between Mr Papatheodotou and Mr Pambris

37. In addition to his other commercial pursuits, from time-to-time Mr Pambris loaned money to investors and friends. The extent of the lending and whether it might amount to carrying on a business of lending was an issue in relation to Ms Makis’ claims for relief under the NCCP Act. Mr Papatheodotou and Mr Pambris gave differing accounts of their financial relationship prior to 2005. It is not necessary to resolve all the differences between their accounts, but an accounting of the factual disputes during this period is required to understand later factual contests.

38. Mr Pambris contends, and the Court accepts, that the first time he loaned money to Mr Papatheodotou was in 2001, when Mr Papatheodotou asked for a loan to help fund renovations to the Maroubra property. Mr Pambris says that he and Mr Papatheodotou from then agreed to keep an informal ledger of the advances and repayments made between them. Their lending activities are said to give rise to the first deed of loan executed between the pair, the 2005 deed, which is discussed later in these reasons.

39. Mr Pambris claims he made other advances prior to the execution of the 2010 mortgage additional to those described later in these reasons between Mr Pambris and Mr Papatheodotou, these are as follows:

1. In 2002, Sam Pambris Super Fund Pty Ltd loaned $80,000 to I & K Pty Ltd, company in which Mr Papatheodotou was a shareholder and of which Mr Kyriacou was a director,

2. In 2004, Byrozan Pty Ltd, a company of which Mr Pambris was a director, loaned about $20,000 to a friend in the import-export business who was trading through the company, Miloway Pty Ltd; and

3. In about April 2007, Byrozan Pty Ltd loaned money to a private company by the name of Brendanna Pty Ltd.

40. After November 2011, Mr Pambris also loaned the following amounts to a friend of his, Ms Emilie Kalidis: $107,000 in May 2015, $60,000 in September 2015 through his super fund, Sam Pambris Super Fund Pty Ltd, and $171,487 in November 2016, also through Sam Pambris Super Fund Pty Ltd.

41. In cross-examination, Mr Pambris was also questioned about a caveat he had lodged over a property acquired by the Bankstown Community College. Mr Pambris explained that he was a director of the college and that the college required funds so it could own the whole of the property on which it was situated as it presently only owned half. To effect the purchase of the other half, he loaned the college approximately $600,000. Mr Pambris conceded that this transaction did not fall within one of the business activities he described himself as being involved in, as property developer, investor, or entertainment promotor.

42. Mr Pambris agreed that it was necessary from time to time, during the conduct his business as a property developer, to advance or receive credit from other participants in the development schemes in which he was involved. But this activity was ad hoc and contingent upon his financial needs and those of his development partners.

43. Mr Pambris also loaned money to a partnership between Ms Makis and Mr Kyriacos Kyriacou, an acquaintance of Ms Makis and Mr Papatheodotou. In 1995 or 1996, Ms Makis formed an investment partnership with a Mr Kyriacou (the “AM/KK partnership”). Mr Kyriacou managed the financial aspects of the Kyriacos partnership. Ms Makis could best be described as a “silent partner” in this partnership, with her name and her role as a partner being used by Mr Papatheodotou for his own business purposes. Ms Makis displayed little firsthand knowledge of the business affairs of the AM/KK partnership.

44. In July 2007, Mr Pambris loaned $60,000 to the Kyriacos Partnership through his corporate vehicle, Pambris Bros Pty Ltd and in turn to PK Tiger Investments Pty Ltd, which was associated with Mr Papatheodotou.

The 2001 Loan and Advances up to 2004

45. Mr Pambris says that in 2001, Mr Papatheodotou approached him for a loan, because he and Ms Makis wanted to renovate the Maroubra property before moving in. According to Mr Pambris, he agreed to “see what funds I have available and give you what I can afford”. He says that Mr Papatheodotou said that the money would not all be needed at once “but we will need it gradually”. But his evidence is exceptionally vague about how this money was advanced and what was advanced. He merely says “a few days after this conversation, I gave to [Mr Papatheodotou] an amount of money” and he says, Mr Papatheodotou provided him with a ledger to record future amounts advanced. If there is a complete and comprehensive ledger of all these advances it is not available in evidence.

46. Mr Papatheodotou gives a different account of their mutual financial dealings in this period. He says that from 2001, Mr Pambris occasionally requested Mr Papatheodotou to safekeep cash on his behalf in Mr Papatheodotou’s office at the Laiki Bank and to transfer money to various parties, including overseas bank accounts. Mr Papatheodotou says that sometimes he returned the cash to Mr Pambris. But Mr Papatheodotou that says that more often he would make payments to third parties – people in Australia and overseas agents – for Mr Pambris’ business and personal dealings. He surmised that Mr Pambris was asking him to keep cash and make cash payments in this way, so Mr Pambris could avoid tax. The Court did not have to determine whether that opinion was correct.

47. Mr Papatheodotou says that the cash amounts that he was asked to keep ranged from $15,000 – $30,000. Mr Papatheodotou says that by the end of 2005 the total amount he was keeping in his office was approximately $500,000. Mr Papatheodotou gave a convincing account of how he kept this cash in his office. Whether the sums were as high as this at this time is unclear, but Mr Papatheodotou was probably making very substantial cash payments for Mr Pambris from cash funds held on Mr Pambris’ behalf.

48. Mr Papatheodotou says that the ledger that Mr Pambris says relates to the 2001 loan in fact referred to a record of the cash given to Mr Papatheodotou for safekeeping. Mr Papatheodotou described the recordkeeping as follows. Mr Pambris would give him $100,000 in cash. Mr Papatheodotou would keep a record of what he had paid from the cash until that account ran down to zero. Then Mr Papatheodotou would show Mr Pambris all the receipts that evidenced the cash payments that Mr Papatheodotou had made on behalf of Mr Pambris. Then they would agree what had been paid and would destroy the receipts.

49. Mr Pambris denies requesting that Mr Papatheodotou kept a ledger held on his behalf. But he conceded that he did, from time to time, give money to Mr Papatheodotou for safekeeping for periods of one to two weeks. But he asserts that the amounts he gave to Mr Papatheodotou ranged between $5,000 and $9,000. The Court does not accept that the cash amounts kept were this modest, but their size is nevertheless uncertain.

50. Mr Pambris counters Mr Papatheodotou’s allegations that he was holding an amount of $500,000 for Mr Pambris, by saying that the amount of $500,000 in fact represented the sum owed to him by Mr Papatheodotou. He says this amount of $500,000 is made up of $200,000 he had paid on behalf of Mr Papatheodotou and another $300,000 that he had advanced to Mr Papatheodotou over time together with interest.

51. Mr Pambris gives an account of a conversation with Mr Papatheodotou in mid-2004 that led to Mr Pambris making a loan of $200,000 in response to a request by Mr Papatheodotou. Mr Pambris recalls the conversation as follows:

Mr Papatheodotou:   How much money can you spare?

Mr Pambris:      I can lend you $200,000.00.

Mr Papatheodotou:   The $200,000 has to be deposited into an account in your name with Laiki Bank in Cyprus and I will obtain the codes necessary for me to access the account.

52. In his final affidavit, Mr Pambris seeks to identify uses some written evidence to support his lending Mr Papatheodotou a sum of $200,000 in July 2004 consequent upon this conversation. He adduces evidence of certificates of fixed deposit at Laiki Bank in that sum and a facsimile from Mr Papatheodotou dated 15 July 2004 with instructions to open a bank account. But this material does not prove that Mr Pambris made an advance of this sum to Mr Papatheodotou.

53. The Court has little confidence in Mr Papatheodotou’s evidence of large amounts of cash being held by him. But the Court also has little confidence in the evidence of Mr Pambris that he made the advances he alleges. His evidence is not supported by the kind of objective contemporaneous evidence of bank transfers, bank statements and other banking or business records that the Court would expect him to have available, had he made the advances he alleges.

54. Evidence showing cash flows from Mr Pambris to Mr Papatheodotou is what might be expected as a starting point. The unsatisfactory state of the evidence perhaps flows from the large number of informal cash transactions in which both parties engaged without a comprehensive set of objective accounts.

55. As these reasons explain later, if Mr Pambris wishes to establish what, if anything, is outstanding on the 2005 of the 2009 deeds in a later quantum hearing much better evidence than this will be required. The present analysis of these advances should be taken not as a final determination of what is due but merely as an identification of the wholly unsatisfactory nature of the present evidence and the fact that the Court accepts that there were significant cash transactions in both directions between Mr Pambris and Mr Papatheodotou.

The Maroubra Property and the CBA Loan – 2002

56. Ms Makis and Mr Papatheodotou purchased the Maroubra property in 2002 for $1,427,000, funded by a loan of $1,500,000 from the CBA. They undertook renovation works at the Maroubra property, including the installation of a new bathroom and kitchen, new kitchen appliances, landscaping, and painting of the house. There is confusion as to when these renovation works occurred. Ms Makis says that the works had not been completed by the time they moved into the property. But Mr Papatheodotou says the works were performed after they moved in. The timing is not decisive.

57. On this issue both Ms Makis and Mr Papatheodotou were confronted in cross-examination with an affidavit of Ms Makis dated 9 March 2018 filed in family law proceedings she commenced in the Federal Circuit Court (which became Exhibit D in these proceedings), in which Ms Makis affirmed that these renovations occurred prior to moving into the Maroubra property. Ms Makis stated in Exhibit D that she was aware of loans that Mr Pambris said he had made to her and Mr Papatheodotou over the years “which had not been repaid” and that interest had accrued. She also affirmed in that affidavit that “this included loans of about $200,000 to renovate the Maroubra property, loans to assist us finance the purchase of real estate and loans to buy two new cars for us”.

58. In contrast, Ms Makis says in her evidence in these proceedings that the money used for the renovations came from the proceeds of four properties she had sold (two in Rosebery, one in Zetland and one in Narrabeen) for a sum of about $1,500,000 towards the end of 1999 or 2000. She says that in 2010 she had no idea that Mr Papatheodotou was also borrowing money from Mr Pambris in this earlier time period. She says that she did not find this out until during the family law proceedings.

59. Both Mr Papatheodotou and Ms Makis now deny that the money for the renovation works came from loans from Mr Pambris. Ms Makis says that she only told the solicitor who prepared Exhibit D, Ms Staka, what Mr Pambris had told her to say.

60. Her explanation while unusual is surprisingly plausible. Mr Papatheodotou did handle the finances within their marriage. It is reasonable to assume that she had little idea where the money came from to fund the renovations that Mr Papatheodotou was paying for. But the Court asked her questions about the inconsistency between the current evidence that the money for the renovations had come from the sale of investment properties and Exhibit D which produced the following exchange:

The Court:   “…I thought you said in general terms that the money for the renovations had come from that [the sale of investment properties], right? So even if Mr Pambris said to you, "No, the money from the renovations came from money that I" - Mr Pambris - "gave [Mr Papatheodotou]," you would have known that was wrong, wouldn’t you? Because you did know that the money came from the property development, or the property sale proceeds.”

Ms Makis:   “Yes, because that was my understanding till then. But then because of all the other issues I had with my ex, and Mr Pambris said to me, "koumbara, I gave that money when you were doing the renovations," I - I - I get - I had more trust on my koumbaro then my ex, and that's what I believed.”

The Court:   “… even if Mr Pambris said to you that, "I gave the money to [Ioannis]," so that he and you could spend it on the renovations, if he had said that to you, you would have known that was wrong, wouldn’t you? Because you knew the money for the renovations came directly from the proceeds of sale of these other properties.”

Ms Makis:   “Until then, your Honour, that's what I believed. What - that's - that was my understanding. But during that time I was so stressed, I was so confused, everybody telling me different things, so I wouldn't listen to anybody else. I was following my koumbaro's instructions and guidance to help me save my house.”

The Court:   But why would you follow--

Ms Makis:    “I - I did think about that. I thought, "We sold three properties, and we had all that money. Did he go and borrow money from a - from my koumbaro?” And I believed it.”

61. The upshot of this is that Ms Makis is saying that because of her lack of trust in Mr Papatheodotou during the divorce she listened to Mr Pambris’ explanation that he had lent the money for the renovations, and she relayed in her affidavit what she had been told. In truth, she says she did not really know. The Court accepts that this is what happened. She now believes that the money for the renovations came from the sale of investment properties. But, she is in no better position now than she was at the time of swearing Exhibit D to assert that. However, Exhibit D is considerably weakened as an admission: it did not come from actual knowledge that the renovations were funded from loans from Mr Pambris.

The 2005 Deed

62. By November 2005, Mr Pambris says that the amount owed to him by Mr Papatheodotou had grown to about $500,000 (inclusive of interest) and he requested Mr Papatheodotou either pay him back or sign “an official document” to record the loan. Mr Pambris says that Mr Papatheodotou agreed to sign, “anything you want me to”.

63. The 2005 Deed was prepared in late 2005 by a solicitor, Mr Jim Kartsounis of J Kartsounis & Co, while Mr Pambris and Mr Papatheodotou were at his office. Mr Kartsounis took instructions from Mr Pambris only. Mr Kartsounis swore an affidavit in these proceedings. He was not cross-examined. His evidence is accepted, as far as it goes. Mr Kartsounis recalls Mr Pambris stating in his office, in the presence of Mr Papatheodotou: “I have made certain loans to [Mr Papatheodotou] totalling $500,000.00 and we want to record the terms of those loans.” Mr Kartsounis informed Mr Papatheodotou that he would need to obtain his own legal advice on the document. The document was prepared that day and reviewed with Mr Pambris to ensure that it reflected his instructions, in the presence of Mr Papatheodotou. Mr Pambris then executed the document, which Mr Kartsounis witnessed. Mr Kartsounis told Mr Papatheodotou that he was not prepared to witness Mr Papatheodotou’s signature on the document, even if Mr Papatheodotou did not wish to seek independent legal advice. Mr Papatheodotou left Mr Kartsounis’ office with the document.

64. According to Mr Pambris, Mr Papatheodotou signed the 2005 Deed the next day at the Laiki Bank in the presence of an employee of Laiki Bank. This is probable. Mr Papatheodotou says he did not read the document before signing it.

65. According to Mr Kartsounis the 2005 Deed, executed by Mr Papatheodotou, was returned to Mr Kartsounis’ office by Mr Pambris sometime later. Mr Kartsounis dated the deed 23 December 2005.

66. The material parts of the 2005 Deed are the following:

THIS DEED dated 23rd December 2005

PARTIES:   SAM THOMAS PAMBRIS of [address] Dulwich Hill NSW 2203, Promoter (Lender)

JOHN PAPATHEODOTOU of [address] Marrickville NSW 2204 Bank Manger (Borrower)

INTRODUCTION

The Borrower has requested the Lender to lend the Borrower the sum of $500,000.00 which the Lender has agreed to do upon having the repayment of the sum secured in the following manner.

IT IS AGREED that in consideration of the premises and of the sum of $500,000.00 now lent to the Borrower by the Lender being various advances (the receipt whereof is acknowledged):

1. The Borrower covenants with the Lender that he will repay to the Lender so much of the sum of $500,000.00 as shall remain outstanding within three (3) months of the Borrower receiving a demand by notice in writing for repayment of the said sum from the Lender.

2. In case the Borrower defaults in the making of payment pursuant to clause 1 or upon the occurrence of any of the following events:

(a) if the Borrower shall be adjudicated bankrupt;

(b) if any distress or execution shall be levied against the property or any part of the property of the Borrower and shall remain unsatisfied for at least 14 days

then and in such case the Lender shall be entitled at his option to make demand by notice in writing to the Borrower for the immediate payment of the principal sum or so much thereof as shall then remain outstanding and upon the service of any such notice the principal sum shall become immediately due and payable by the Borrower to the Lender along with interest in the sum of $13,750.00 for each month in which the principal sum, or any part thereof remains outstanding and continuing until the whole of the principal sum and interest accrued has been paid in full.

…

67. The 2005 deed looks like an uncommercial document. As Mr Papatheodotou points out, it does not contain any interest provision other than clause 2 which seems only to require the payment of interest (at what looks like a rate of 30%) after notice is given for repayment. It is unclear on the evidence in this case whether Mr Pambris ever served any notices under this provision. And, the Court’s attention has not been drawn to any. Clause 3 allows the borrower to repay the balance of the loan “before the date stipulated for repayment” although no such date seems to be clearly stipulated in the agreement. By Clause 4 the borrower “agrees to charge any real property or other asset he may now owns or may own in the future with the performance of this deed and consents to the lender lodging a caveat on any real property of which he is abridged right” to secure performance of the obligations under this deed. No caveat was then lodged on the Maroubra property, which was then jointly owned by Mr Papatheodotou and Ms Makis, nor were any further documents then requested of Mr Papatheodotou “to perfect the security offered to the Lender in Clause 4”, as was permitted by Clause 5.

68. Ms Makis says she was not aware of the purpose or existence of the 2005 deed until her family law proceedings. This is accepted. Mr Papatheodotou did not share all his financial dealings with her. Ms Makis says she never discussed this document with Mr Papatheodotou before he signed it. Ms Makis denied in cross-examination that she had become aware of the 2005 deed shortly after it was signed and the Court accepts, she was unaware of it prior to November 2010.

69. Ms Makis’ Exhibit D is generally consistent with her current evidence in this respect. It affirms that she was aware that Mr Papatheodotou and Mr Pambris had entered the 2005 deed “sometime after the event” and that she knew “Sam had loaned us some money,”” but qualified this, stating “I was not directly involved in their [Mr Pambris’ and Mr Papatheodotou’s] dealings”. In cross-examination, Ms Makis consistently maintained that she was not aware of the 2005 deed until during the family law proceedings and that she was unaware when she signed the 2010 mortgage.

70. The Court accepts this evidence, partly because it reflects their marital habit of Mr Papatheodotou controlling their finances and informing his wife of financial matters on a “need to know” basis. It is unlikely that Mr Papatheodotou reached the view that she needed to know about this document, not least because he regarded the 2005 deed as a meaningless legal formality.

The 2008 Document – March 2008

71. Mr Pambris says that he and Mr Papatheodotou met on 1 March 2008 to discuss and agree on the amount that was then owing between them. He contends that on that date Mr Papatheodotou agreed that he owed Mr Pambris $1,210,000 as recorded in a photocopy document in evidence, apparently dated 1 March 2008 (“the March 2008 document”). The March 2008 document consist of two parts: (a) an upper part showing calculations in typescript, and (b) a lower part with other calculations in handwriting and apparently signed by Mr Pambris and Mr Papatheodotou at the foot of the document. The parties advanced strongly contrasting and disputed evidence about the creation of the March 2008 document. What results is a most confusing and unreliable picture, occasioned by the informality of their arrangements.

72. Mr Papatheodotou concedes that he prepared the typescript upper part of the March 2000 document recording the transactions between the pair in the period from August to December 2007, which related to money owed to Mr Pambris and which calculated interest. The amount that the typescript part of the document concludes on 31 December 2007 at $919,607.56. Mr Papatheodotou insisted there was a separate document, which also recorded money owed by Mr Pambris to Mr Papatheodotou. He did not produce that separate document.

73. Beneath the typed part of the 2008 document – the table recording transactions and interest payments – is a lower handwritten part of the document. Mr Pambris says he wrote this. He appears to have made handwritten additional calculations and recorded some form of agreement, which appears to bear the signatures of himself and Mr Papatheodotou at the foot of the March 2008 document.

74. The handwriting at the foot of the 2008 document is as follows. It should be noted that there are errors in this handwritten text, for example in relation to the date of the 2005 deed. And some information has been lost in the scanning of the document to produce the version which is now in evidence.

“Int to 15.2.08       - 34,012

E 10,000 Dep Grk A   - 16,668

E 1,500      - 2,500

Byrozan      - 3,500 11,344    $930,952

BALANCE. 29.2.08 one million dollars $1,000,000

9.2.08. PLUS BALANCE DERIVED FROM OTHER ACCOUNTS $210,000

TOTAL OWING TO SAM. PAMBRIS $1,210,000 one million two hundred & ten thousand dol [scil – dollars]

I IOANNIS PAPTHEODOTOU ACKNWOLEDGE THIS DEBT TO SAM. PAM [scil – Pambris] WHICH INCOPERATES THE DEBT OF $500,000 ON DEED LOAN 23rd October 200 [5]

[I Papatheodotou]   1ST MARCH 2008    [S Pambris]

75. Ms Makis’ case contested the March 2008 document as a complete and reliable record of the financial dealings between the parties. The Court has little confidence in this document. The Court does not accept that the parties who both agree they dealt in cash with one another at times, created a single document that accurately recorded what was propounded as some kind of account stated between them. And the Court accepts Mr Papatheodotou’s evidence that there were other cash dealings between them that are not recorded in this document. It is an incomplete and unreliable picture of the state of accounts between them.

76. Moreover, the 2008 document makes little mathematical sense and is based on obscure sources. As indicated above, the typescript ends with an amount due in December 2007 of $919,607.56. It purports to calculate the interest of 15 February 2008 of $34,012 and then deduct $11,344 in unspecified outgoings to produce a total amount due of $930,952. Then it asserts a balance due as at 29 February 2008, two months later of exactly $1 million. How the figure of $1 million is reached is a mystery. If interest were accruing under the 2005 deed, it only allows interest to accrue at the rate of $13,750 per month which would not reach a figure of $1 million within two months. From where the “balance derived from other accounts” of $210,000 comes is equally a mystery.

77. Mr Price contended in submissions that Mr Papatheodotou had accepted in cross-examination that the figure of $1,210,000 represented the total sum that he owed Mr Pambris as at 1 March 2008 and that he later tried to change his admission. But properly analysed Mr Papatheodotou’s answers in cross-examination do not make any such admission. When first confronted with the March 2008 document Mr Papatheodotou said (a) “I don’t think… I ever signed that document”, (b) “it looks like my signature but I never signed such a document”, (c) with reference to the typewritten upper portion of the document that he “probably” created it, (d) he was insistent that “there is a separate document for the amounts that Mr Pambris owed to me as well” and that he did not “believe the figures [in the March 2008 document] are correct”, and (e) he said the suggestion that he agreed on 1 March 2008 that he owed Mr Pambris $1,2100.000 was “false”, and finally (f) in answer to the suggestion that he signed the March 2008 document “to indicate that he agreed with it”, he agreed that “I signed the document but it was supposed to be changed” (emphasis added).

78. Mr Papatheodotou went on to explain in evidence what he meant when he said that “the document” was “supposed to be changed”. It became clear in his explanations that he was not talking about signing the March 2008 document at all but about a mortgage which “was to guarantee the long document that I signed – the handwritten document that I signed in 2009 with Mr Pambris that was for the – that was guaranteeing the Laiki Bank loan for $1.2 million”.

79. The document that was “supposed to be changed” that Mr Papatheodotou was talking about in his answers was the mortgage he signed in 2009 which, when it was presented to him, showed a debt due of $1.21 million. He said this figure was wrong because he said the Laiki Bank loan had been paid down by then to $1.108 million and therefore needed to be adjusted. But Mr Papatheodotou contends that he was presented with a loan agreement in 2009 which was signed after it was agreed. He stated, “we signed the – another page that is saying that that document is not a legal document”.

80. When the evidence reverted to the 2008 document and Mr Papatheodotou was given a warning by the Court to listen to questions from counsel carefully, he said that he never signed the March 2008 document, but said “definitely I have not signed the document with the handwriting on it”. The Court accepts that evidence.

81. A remarkable feature of the 2008 document is that in a handwritten scrawl it attempts to summarise complex financial calculations which one would ordinarily expect to find easily demonstrable from accounting software or other well-kept accounting records showing the transactions to calculate what was due. But that has not been included in the evidence to give the Court confidence in the provenance or accuracy of these documents and calculations. If an original of the 2008 document exists it was not made available to the Court.

The Canterbury Road Property and the Laiki Bank Loan – 2007 to 2009

82. A central contest about the 2010 mortgage is whether it secures obligations of Ms Makis in relation to a commercial property in Canterbury Road Sydney (“the Canterbury Road property”), or whether it secures obligations of Mr Papatheodotou in relation to the 2005 deed, the 2008 document and another deed between Mr Pambris and Mr Papatheodotou (discussed below) made in December 2009. Quite apart from his dealings with Mr Papatheodotou, Mr Pambris had complicated financial dealings with Ms Makis and Mr Kyriacou, in relation to the Canterbury Road property.

83. Mr Pambris and his brother, Mr Steven Pambris were both 50% shareholders in a private corporate investment vehicle, Pambris Bros Pty Ltd. Pambris Bros Pty Ltd was the registered proprietor of the Canterbury Road property. Pambris Bros Pty Ltd leased the Canterbury Road property out to commercial tenants, including family relations. Mr Pambris, Mr Pambris’ son and Mr Papatheodotou occupied offices for a time in the building on the Canterbury Road property.

84. During 2007, Mr Pambris expressed an interest in selling his investment in the Canterbury Road property. By December 2007, Mr Pambris changed his mind and decided he wanted to buy out his brother’s share in the property. Mr Pambris shared this idea with Mr Papatheodotou. Mr Pambris also said to Mr Papatheodotou that he would be interested in purchasing the property adjoining the Canterbury Road property if it came up for sale, because together the two properties appeared to be an attractive joint development site.

85. Mr Pambris had applied to Laiki Bank for a loan to buy out his brother’s interest and Laiki Bank valued the property for lending purposes at $1,775,000. Mr Pambris says that he offered his brother’s half interest in the Canterbury Road property for sale to Mr Papatheodotou at a slight discount for $850,000 (the valuation implied that a half interest should be valued at $887,500). Mr Papatheodotou agrees that the discussion took place, but he says that the agreed valuation for the Canterbury Road property was $1.5 million and the half share was to be purchased for $750,000. The Court prefers Mr Pambris’ version that the agreed consideration for the sale of a half share was $850,000. This figure better accords with later calculations.

86. The discussions between Mr Papatheodotou and Mr Pambris evolved into a proposal that Ms Makis and Mr Kyriacou would purchase the 50% interest in the Canterbury Road property that was for sale through a partnership that they would form, “the AM/KK Partnership”. Should the transaction proceed the arrangement discussed was (a) Mr Pambris would hold a 50% interest in the Canterbury Road property and the AM/KK Partnership would hold the other 50% (called for convenience in these reasons “Canterbury Road Partnership”), (b) Pambris Bros Pty Ltd would transfer the Canterbury Road property to Mr Pambris, (c) together Mr Pambris, Ms Makis and Mr Kyriacou would borrow from the Laiki Bank by mortgage secured over the Canterbury Road property and would apply for a loan of $1.2 million to raise additional funds of $350,000 beyond the $850,000 purchase price for the half share, (d) the proceeds of the loan would be and distributed as to $850,000 to Mr Pambris and the balance of $350,000 to the AM/KK partnership, with a view to the AM/KK partnership purchasing a property, or properties, adjacent to the Canterbury Road property for development with the Canterbury Road property and (e) Mr Pambris would be equally responsible with the AM/KK partnership to repay the $350,000 because it was to be applied to partnership purposes but the AM/KK partnership would be responsible to repay the $850,000, which would be used to pay out Mr Pambris and his brother. Ms Makis was not present at these initial discussions even though they related to a partnership in which she would hold a 25% interest and her husband would hold no interest. Mr Papatheodotou later explained the discussions to Ms Makis.

87. Ms Makis says that she was told by Mr Paptheodotou the reason for this structure was that there was tension between Mr Pambris and Mr Kyriacou and that Mr Pambris’s preference was that he retain the sole title to the Canterbury property in his own name and that any adjacent properties that were purchase would be in the name of the members of the AM/KK partnership, Ms Makis and Mr Kyriacou. This was said by Mr Pambris to make it easier to split the Canterbury Road partnership in the event the acquisition and development of the adjacent property did not proceed. In the end, no adjacent property was ever purchased.

88. The discussions between Mr Papatheodotou and Mr Pambris about the terms of the Canterbury Road partnership contemplated that 50% of the rents received from the Canterbury Road property would belong to the AM/KK partnership, which would also be liable to contribute 50% to meeting the expenses of the Canterbury Road property. It was further contemplated that Mr Pambris would collect rent and pay the expenses in the first instance, and the AM/KK Partnership would receive a statement and 50% of the net profit. The evidence discloses that very few statements were ever received.

89. Facilitated by Mr Papatheodotou, a loan agreement was executed on 7 February 2008 between Laiki Bank as lender and Mr Pambris, Ms Makis and Mr Kyriacou as joint borrowers for the bank to advance $1,200,000 to be repaid over 15 years at a fixed interest rate of 8.20% for ten years, reverting to 9.97% but variable for the remainder of the loan. (“the Laiki Bank loan”). The securities for the loan were the Canterbury Road property, and guarantees from Pambris Bros Pty Ltd and Byrozan Pty Ltd. The purpose of the loan was not described as having anything to do with the Canterbury Road partnership but to repay existing loan accounts held by Mr Pambris with Laiki Bank. As will be seen that is what happened. This was Mr Pambris’ first business dealing with Ms Makis’ rather than with Mr Papatheodotou.

90. The Laiki Bank loan settled on 15 February 2008. A few days prior to settlement, Mr Papatheodotou told Ms Makis that Mr Pambris had agreed that after receiving a sum sufficient to cover payment for his brother’s half share in the Canterbury Road property the balance would be given to the AM/KK partnership, which would result in the AM/KK partnership being as between the partners, liable for the total amount of the loan.

91. Mr Pambris initially received the whole of the amount drawn down, being $1,190,738.34, some of which was applied in discharge of Mr Pambris’ various loan obligations to Laiki Bank and the residue credited to a savings account in his name. The difference of $9,261.66 between $1.2 million and the $1,190,738.34 advanced is accounted for by valuation fees, tax, legal fees, and other bank fees. By this time, the Canterbury Road property was registered solely in Mr Pambris’ name.

92. Ultimately, some of the funds from the Laiki Bank loan were placed in Mr Pambris’ savings account and were then applied at the direction of the AM/KK partnership to pay off debts of that partnership. On 20 February 2008, Mr Pambris transferred $330,000 to a Mr Andreou Kyros and $50,000 to Mr George Chrysostomou. These funds transfers are evidenced by bank receipts which contradict Ms Makis’ different recollection that the sum transferred to Mr Kyros were $300,000 but the receipt give the appearance that it was for $330,000. Mr Hall accepted in closing submissions the strong inference that the total amount paid on account of the AM/KK partnership was $380,000. These payments support Mr Pambris’ evidence that the amount to be paid to the AM/KK partnership was $350,000, plus an additional discretionary $30,000.

93. From the time of the draw down of the loan in February 2008, Mr Pambris considered himself a half-owner of the Canterbury property, because he had received an amount of $850,000 for the AM/KK partnership’s half interest in the property. A half interest in the Canterbury Road property was never registered in the name of Ms Makis and Mr Kyriacou. Mr Pambris seemed to have remarkably little impetus to make this transfer. He says he had a transfer “signed and witnessed” and that he was merely waiting for instructions from “Mr Papatheodotou, Mr Kyriacou and Ms Makis”. Notwithstanding that he was a partner in the Canterbury Road partnership with Mr Kyriacou and Ms Makis he was still using Mr Papatheodotou as a conduit for communications with Ms Makis.

94. This means of communication was still evident in December 2009. By then the global financial crisis was well underway and it was clear that the AM/KK partnership was unlikely to purchase any property adjacent to the Canterbury Road property. Mr Papatheodotou says, and the Court accepts, that Mr Pambris expressed concern to him that the Laiki Bank loan (at $1.2 million) was higher than the AM/KK partnership’s equity in the Canterbury Property (of $850,000). Mr Pambris told Mr Papatheodotou that he had prepared a document he wanted Mr Papatheodotou to sign. Mr Pambris denies this conversation occurred. But later events show that it was likely.

82. Subsequently, Mr Papatheodotou informed Ms Makis that Mr Pambris would be drafting a document for Mr Papatheodotou to sign to ensure that the Laiki Bank loan would be repaid. The document would include terms under which Mr Pambris would transfer 50% of the property to the AM/KK partnership, because the partnership had never signed a contract for sale. Ms Makis said she was content for Mr Papatheodotou to do this on her behalf.

83. On 5 December 2009, Mr Pambris prepared the foreshadowed handwritten agreement which he and Mr Papatheodotou signed. Mr Pambris says that he signed the agreement to document the arrangement made with Mr Papatheodotou. The written agreement (“the loan responsibility and sale agreement”) was as follows (the errors are in the original and some information is lost in the scanning of document):

“DATED. 5th DECEMBER. 2009.

This agreement is a further documented arrangement between SAM PAMBRIS of [address] and MR John PAPATHEODOTOU of [address of the Maroubra property] who has the representation of ANDREA MAKIS of [address of the Maroubra property] AND KYRIACOS KYRIACOU of [address]. In relation to the [a]rrangement regarding the loan to Laiki Bank’s loan of one million two hundred dollars drawn down February 2008.

It is agreed that the total amount this Loan $1,200,000 is the responsibility of ANDREA MAKIS, KYRIACOS KYRIACOU and JOHN PAPATHEODOTOU including the total [of] the repayment of this Loan.

SAM PAMBRIS will transfer 50% fifty percent property known as [XX] Canterbury Road Canterbury upon the instructions and the [re]solution of the Loan of $1,200,000 (one million [tw]o hundred dollars).

As of the end of June 2009 It is agreed [an]d accepted that an amount of $38,187 [th]irty eight thousand one hundred & eighty seven dollars) [ha]s been received by the said ANDREA MAKIS, KYRIACOS [KY]RIACOU and JOHN PAPATHEODOTOU.

Dated 5th December 2009.”

Ms Makis agreed that she had been shown the loan responsibility and sale agreement in late 2009, after it was signed. But Mr Papatheodotou did not discuss its contents or show her the document before he signed it.

97. The amount of $38,187 referred to in the last paragraph of the loan responsibility and sale agreement was calculated in a second supplementary handwritten calculation document, which seems to have been created at the same time and was entitled “RENTALS FROM: 15.02.08 – 30.06.08”. The purpose of this “rentals” document appears to have been to calculate the share of rent due to the AM/KK partnership from rent-paying commercial tenants (excluding members of Mr Pambris’ family) net of land tax and other lease expenses for the period 15 February 2008 to 30 June 2008.

98. Mr Pambris agreed this amount had never been paid but was to be considered as a “set off”, to be taken as notionally received. It was a calculation of what he would owe on a periodical basis for rents received from the commercial tenants of the Canterbury Road property. Mr Pambris never paid any rents to the AM/KK Partnership for his own family businesses. It is unclear whether this amount of $38,187, or any other rental received, was applied in reduction of the Laiki Bank loan.

99. By the first week of December 2009, the overall position was the following. Mr Pambris held a half share of the Canterbury Road property in his own name on trust for the members of the AM/KK partnership. And he was a co-obligor jointly and severally liable with Ms Makis and Mr Kyriacou to repay Laiki Bank $1.2 million in respect of that advance which by then had been applied entirely for the benefit of the AM/KK partnership.

100. Mr Pambris was concerned about his immediate financial exposure. If Ms Makis and Mr Kyriacou defaulted to Laiki Bank, Mr Pambris’ half share of the property might be called upon to meet the joint liabilities to Laiki Bank to an extent of approximately $350,000 ($1.2 million less $850,000 and possibly more depending upon (a) the state of the property market given the global financial crisis and (b) default interest and recovery expenses collectable by Laiki Bank. The loan responsibility and sale agreement of 5 December 2009 helped to cure this problem in part by Mr Papatheodotou acknowledging that he was a person responsible to repay the loan to Laiki Bank. It is reasonably clear that Mr Pambris did not receive legal advice before handwriting this document. To be effective, it probably needed to be expressed as a guarantee and to be supported by consideration. But Mr Pambris showed a habit for using his own informally constructed documents.

The 2009 Deed

101. Mr Pambris says that by December 2009 the interest and principal owed to him by Mr Papatheodotou under the 2005 deed totalled $1,160,000.00 and that Mr Papatheodotou had made no repayments in reduction of that outstanding amount. Mr Pambris says that to address this he and Mr Papatheodotou had a conversation to the following effect in early December 2009:

Mr Pambris:   “Ioannis, I think it’s only fair since no repayments have been made to date and with all the other transactions that have transpired between us which you have all the details for, that an amount should be added to the sum of $1,160,000.00 in lieu of compounding interest.”

Mr Papatheodotou:   “Do you think $50,000.00 is a fair figure”

Mr Pambris:      “I agree.”

102. This conversation is the most explicit origin of the calculation of the amount claimed to be due to Mr Pambris of $1,210,000. Mr Papatheodotou denies this conversation occurred. He says he did not agree to add any amount of default interest to an amount said to be owed to Mr Pambris. Apart from the Court’s preference for Mr Papatheodotou’s evidence on this subject, this conversation looks staged, convenient, and improbable. The Court does not accept that it occurred for several reasons.

103. First, Mr Papatheodotou, the banker, did not strike the Court as the kind of person who would just agree to figures for principal and default interest without verifying how much was due under the 2005 deed. Mr Papatheodotou can be expected to have been familiar with the principal amount reflected in the 2005 deed. But Mr Pambris has him agreeing in the conversation to an amount for default interest on top of a larger principal.

104. Secondly, the calculation of the $1,160,000.00 has not been explained and is obscure but may be the following. If one takes the whole 48 months that had elapsed since the execution of 2005 deed in December 2005 and December 2009 and accrues interest at the rate of $13,750 a month for the whole of that period one reaches a total of $660,000. If that is added to the $500,000 of principal identified in the 2005 deed, one reaches a total of exactly $1,160,000.

105. If that is indeed the basis of the calculation, the 2005 deed does not authorise it. Upon the proper construction of Clauses 1 and 2 of the 2005 deed, the $500,000 would only be “outstanding” after a written demand. And the meaning in Clause 2 of “defaults in the making of payment pursuant to Clause 1”, should properly be construed as, defaulting on the payment of monies that are outstanding. But no monies are “outstanding” if no notice has been served. The Court cannot infer on the available evidence that written notice of demand was ever served on Mr Papatheodotou before December 2009. So, it is doubtful that any interest was accruing on the $500,000. This undermines confidence in a figure which is said to be the foundation of this conversation.

106. Thirdly, the figure of $1,160,000 as at December 2009 is anomalous and inconsistent with other documents that Mr Pambris propounds to advance his case. An example is the 2008 document. Apparently created on 1 March 2008, the March 2008 document reaches the same total figure owing to Mr Pambris of $1,210,000 at a date 18 months earlier than December 2009. If interest is accruing or other advances are being made, it is odd that the same amount would be due on such different dates. Not only that, but as will be seen, most surprisingly the same amount is said also to be the amount due in November 2010. Mr Papatheodotou recognised this inconsistency in cross-examination: when it was put to him that he had agreed in March 2008 that he owed Mr Pambris $1,210,000, he confronted Mr Price with the telling answer, “so the loan was the same amount as in 2010? That’s what you’re suggesting?”

107. All this could possibly make sense if no interest were included in the $1,210,000, which was just accumulated advances of principal. But that is not how Mr Pambris puts his case. The calculation of the $1,210,000 in his alleged conversation in December 2009 explicitly includes an amount of interest in that figure. And the figure on which interest is calculated appears nowhere in the 2008 document.

108. Fourthly, once again Mr Pambris’ recordkeeping and accounting is so deficient that the Court has little confidence in its accuracy. In an age where proprietary accounting software had long been available to the community, an apparently sophisticated investor such as Mr Pambris, using handwritten and inconsistent back-of-the-envelope calculations of this kind undermines respect for the quality of his work and the reliability of his evidence. Should he have to prove amounts due under these documents this evidence is not sufficient.

109. Mr Pambris says that following on the conversation he alleges he had with Mr Papatheodotou, he prepared a form of deed which he and Mr Papatheodotou executed in December 2009. The terms of the 2009 deed are the following (showing the errors in the original):

THIS DEED dated

PARTIES:   SAM THOMAS PAMBRIS       (Lender)

JOHN PAPATHEODOTOU       (Borrower)

INTRODUCTION

The Borrower has requested the Lender to lend the Borrower the sum of $1,210,000.00 which The Lender has agreed to do upon having the repayment of the sum secured in the following manner.

IT IS AGREED that in consideration of the premises and of the sum of $1,210,000.00 now lent to the Borrower by the Lender being various advances (the receipt whereof is acknowledged):

1. The Borrower covenants with the Lender that he will repay to the Lender so much of the sum of $1,210,000.00 as shall remain outstanding within three (3) months of the Borrower receiving a demand by notice of writing for repayment of the said sum from the Lender.

2. In case the Borrower defaults in the making of payment pursuant to clause 1 or upon the occurrence of any of the following events:

(a) if the Borrower shall be adjudicated bankrupt:

(b) if any distress or execution shall be levied against the property or any part of the property of the Borrower and shall remain unsatisfied for at least 14 days

then and in such case the Lender shall be entitled to at his option to make demand by notice in writing to the Borrower for the immediate payment of the principal sum or so much thereof as shall then remain outstanding and upon the service and any such notice the principal sum shall become immediately due and payable by the Borrower to the Lender along with interest in the sum of $30,250.00 for each month in which the principal sum, or any part thereof remains outstanding and continuing until the whole of the principal sum and interest accrued has been paid in full.

…

110. The 2009 deed bears the signatures of Mr Pambris and Mr Papatheodotou, apparently witnessed by Mr Steven Pambris, the brother of Mr Pambris. There are seven numbered clauses to the deed, but the version of the 2009 deed in evidence also bears a handwritten number “8.” below the final clause 7 and above the execution clauses but without any text. The terms of the 2009 deed are otherwise identical to the 2005 deed except for the principal figure in clause 1 and the monthly interest figure in clause 2.

111. Mr Pambris does not say that he engaged lawyers to settle the 2009 deed. It is regrettable that he did not. Had he done so there would have been professional legal input that ordinarily would have identified with precision what was the principal sum of $1,210,000 that was said to be due from Mr Papatheodotou to Mr Pambris.

112. The evidence on Ms Makis’ side about the execution of this document is also unsatisfactory and difficult to follow. Mr Hall SC for no doubt good forensic reasons decided not to read part of Mr Papatheodotou’s affidavit that explained the execution of this document. Mr Papatheodotou nevertheless gave his own somewhat disjointed version of its execution during cross-examination.

113. Mr Papatheodotou insisted that he did not sign the 2009 deed until about 8 December 2010. He also says that there was a further version of this document, signed by both Mr Papatheodotou and Mr Pambris, with the completed “Clause 8”, which stated that the document was not to be used for legal proceedings, because the figure in the 2009 deed was incorrect. That other document is not in evidence. But the version that is in evidence does suggest that somebody contemplated the addition of another term to the 2009 deed, a Clause 8. In the Court’s view, it is more probable that Mr Papatheodotou did sign the 2009 deed around December 2000. But the Court also accepts there was another version with a Clause 8 in it which negated its force as binding legal document. Mr Pambris could avoided all of this uncertainty if he had engaged lawyers to draft this documents and have it executed.

114. Ms Makis says she was not aware of the 2009 deed until she was involved in her family law proceedings in 2016-17. As with the 2005 deed, she says that she never discussed documents with Mr Papatheodotou before he signed them. Ms Makis denied in cross-examination that she was aware of the 2009 deed prior to November 2010. The Court accepts this part of her evidence as correct.

115. But there is potentially countervailing evidence. Ms Makis’ own affidavit (Exhibit D) was strongly deployed against her in cross-examination to suggest that she was aware of the 2009 deed when Mr Pambris says it was executed in December 2009. But Exhibit D does not say that she was aware of it at the time; it only acknowledges that she was aware of the 2009 deed “after the event”, that is after its execution. She also acknowledges in Exhibit D that her ex-husband “had agreed that the total sum owing to Pambris was $1,210,000 and interest of $30,250 per month”.

116. Exhibit D does not damage Ms Makis’ case or her credibility, because of the way that Mr Pambris gave her the information contained within it. The Court accepts her evidence in these proceedings that during the family law proceedings in 2018, Mr Pambris was the primary source of her information about his dealings with her ex-husband..

117. In Exhibit D at [43], without referring to exactly when she found out about her husband’s borrowings from Mr Pambris, Ms Makis explained her understanding of the principal sum of $1,210,000 in the following way:

“While I did not fully understand how the amount owing to Sam was calculated by Sam and Ioannis I knew of loans Sam had made to us over the years which had not been repaid and that interest had accrued. This included loans of about $200,000 to renovate the Maroubra home, loans to assist us finance the purchase or [sic] real-estate and a loans [sic] to buy two new cars for us. I trusted Sam as he is family.

118. The qualifications Ms Makis makes in Exhibit D at [43] are important. She did not fully understand how amounts said to be due to Mr Pambris had been calculated between Mr Papatheodotou and Mr Pambris and she does not commit to when “[she] knew of loans Sam had made to us over the years”. The only loan she expressly identifies is that of $200,000 for renovations, which the Court infers Mr Pambris had told her about. The funding of the renovations to the Maroubra property were of particular interest to her.

119. Ms Makis also denied that Mr Pambris loaned her and Mr Papatheodotou money in 2008 to assist in purchasing real estate and insisted that Mr Pambris “had made me say that during Family Court, because I had no idea”. Whilst the Court does not accept that Mr Pambris compelled her to say those things, it accepts that he was her source of information for Exhibit D.

120. Ms Makis’ reliance upon Mr Pambris as an information source for Exhibit D is an important indicator of the degree of influence that he still had over her in March 2018. Mr Pambris’ ascendancy over her developed after she separated from Mr Papatheodotou in January 2010. From that point on, she relied upon Mr Pambris in her litigious and other struggles against Mr Papatheodotou.

Separation and Property Settlement – January 2010

121. As earlier indicated, Ms Makis and Mr Papatheodotou unofficially separated in January 2010 – an event of critical importance for assessing the personal dynamic among these parties. The timing of their separation is indisputable. On 18 January 2010, they executed a financial agreement under the Family Law Act 1975, s 90C (“the s 90C agreement”) in final settlement of their respective property claims against one another upon their separation.

122. Under the s 90C agreement, Mr Papatheodotou agreed to transfer all his interest in the Maroubra property to Ms Makis and he gave her an indemnity against claims made against him over the property. He signed a transfer, but it was not registered in the short term. She wanted to keep their home for understandable reasons: she had lived there for eight years, she had been closely involved in its renovation and it had also been the home of their two children (who were then aged 23 and 25). They otherwise split their assets, mainly on the basis that each took away their movable property. Despite the terms of the s 90C agreement, the legal title to the Maroubra property remained in joint names for some years.

123. Several features about the separation should be observed. Ms Makis complained that Mr Papatheodotou had been absent from their home without explanation for lengthy periods during their marriage. It is probable that there was much tension between the pair in 2009 long before their formal separation. And the separation was very bitter, proved by the continuing mutual resentment between Mr Papatheodotou and Ms Makis which still crackled across the courtroom in 2023, 13 years later.

124. The probable conduct of Mr Papatheodotou and Ms Makis in 2009 and 2010 in relation to Mr Pambris needs to be realistically assessed against this contemporary background of mutual hostility and the terms of the s 90C agreement in which Ms Makis gained the Maroubra property as part of their property settlement. It is highly unlikely in this context that the Ms Makis that the Court saw in the witness box would readily assume any liabilities which Mr Papatheodotou had incurred without her knowledge, especially when she then felt that he had badly wronged her.

A Relationship of Actual Undue Influence by 2010

125. Ms Makis signed the 2010 mortgage on 5 November 2010. Mr Papatheodotou also signed it. Much about the execution of this instrument is contentious. But a critical background feature is the unusually dependent relationship between Ms Makis and Mr Pambris at the time of its execution. A dominant factor in Ms Makis’ decision to execute the 2010 mortgage was her trusting relationship with Mr Pambris. By 2010, she was emotionally disconnected from and distrustful of Mr Papatheodotou and ignorant of much of his financial dealings. She feared an uncertain financial future and needed to trust someone.

126. So, she looked to her koumbaro, Mr Pambris for support and protection. Mr Pambris fulfilled this role and frequently reinforced on his side of their relationship that he would always be there to look after her best interests. Addressing her in Greek he often said to her words to the effect, “I will always protect you”, the equivalent Greek words being “Θα σε προτατέψω”. She continued to believe firmly that Mr Pambris would “always protect” her until the contest leading to these proceedings emerged. Her belief in his protective mantle over her made her ready and willing to accept his guidance from 2010 about what was in her best financial interests and the financial transactions she should undertake.

360. With the state of knowledge of Ms Makis special disadvantage referred to in the previous paragraph Mr Pambris took advantage of the situation by proceeding to request that Ms Makis execute the 2010 mortgage.

361. Hewitt ingredients (a), (b) and (c) are established. And the improvidence of the transaction is clear. It is not established that Ms Makis benefited from the loan dealings between Mr Papatheodotou and Mr Pambris. There is insufficient certainty about those dealing on the evidence relied upon by Mr Pambris to establish such benefit. In those circumstances Ms Makis was assuming a liability which up until that time was not hers but only her husband’s. She had only 11 months before divided all his property and his liabilities from hers and she had no legal reason to take any of them on. And this liability she was taking on was of a magnitude unknown to her was being secured over her interests in the Maroubra property which she had just freed from her husband’s other liabilities.

362. Equity presumes, and the Court infers, that the improvident transaction was a consequence of Ms Makis’ position of special disadvantage, and that Mr Pambris unconscientiously took advantage of the opportunity presented by her disadvantage.

363. Issue (b) can now also be dealt with briefly. The narrative of findings shows that Mr Pambris was in a relationship of actual undue influence over Ms Makis at the time she signed the 2010 mortgage in November 2010. He was in such a position of ascendancy over her that she would do whatever he recommended. She turned to Mr Pambris and became dependent upon him after the breakup of her marriage. If she had any other sources of support, they are not obvious, and she did not use them. She turned to Mr Pambris first as she believed he would protect her and look after her financial and personal interests. Mr Pambris had a well-established relationship of actual undue influence and ascendancy over her at this time.

364. When in addition to what Mr Papatheodotou had said to her that the 2010 mortgage related to the Laiki Bank loan, Mr Pambris suggested she attend at the office of Mr Danalis to sign papers so he could be “protected for the loan with Laiki”, she attended and signed without hesitation because of his actual undue influence over her. Moreover, what Mr Pambris was asking of her was consistent with what Mr Papatheodotou had been saying to her.

365. Within this relationship of actual undue influence Ms Makis conferred a substantial benefit on Mr Pambris through an improvident transaction (for the reasons explained above) which is not readily explicable except by the subjugation of her will to his wishes.

366. Mr Pambris seeks to answer this case by submitting that Ms Makis had legal advice available to her in relation to both the 2010 mortgage and the 2017 guarantee. He submits this fact has two principal consequences for the validity of both instruments.

367. The first consequence is that that legal advice addresses any concern that the borrower/mortgagor could not understand the nature and effect of the transaction. Mr Pambris submits that as Ms Makis had access to independent legal advice, she did not suffer from a disabling condition that seriously affected her ability to make a judgment as to what was in her best interests: Berbatis at [15] and Aboody v Ryan [2012] NSWCA 395 at [74] per Allsop P (Bathurst CJ and Campbell JA agreeing) (“Aboody”). The second implication of the availability of independent legal advice to Ms Makis is that the knowledge of that circumstance meant that Mr Pambris did not unconscientiously exploit any special disadvantage suffered by Ms Makis in the circumstances of these transactions, because he was entitled to expect that Ms Makis had been legally advised.

368. Mr Pambris further submits in relation to the 2010 mortgage that it is not important whether Ms Makis signed the mortgage before or after meeting with Mr Vlahakis. He submits that even if the Court accepts that the 2010 mortgage was signed by Ms Makis before the meeting with Mr Vlahakis, the mortgage document was at the meeting with Mr Vlahakis and it could therefore have been kept, destroyed, or not returned to Mr Pambris’ solicitor. In short it is submitted that Ms Makis had control over whether it was sent back to Mr Pambris’ solicitors and became binding.

369. There are several answers to these arguments. The Court has found that Ms Makis was affected by the undue influence exerted by Mr Pambris in 2010. This undue influence was not overcome by whatever legal assistance she obtained from Mr Vlahakis. Authority is clear that receipt of legal advice is only one factor to be considered in determining whether a transaction was affected by a person either by reason of a relationship of actual undue influence or whilst they are disabled by some special disadvantage. And depending on the circumstances the existence of legal advice may not be a complete answer to a claim to set aside an instrument executed in such disabling circumstances even though it will usually be “a most important factor”: Johnson v Butress (1936) 56 CLR 113 at 120 per Latham CJ and Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 is not an automatic answer to such a claim.

370. The significance of independent legal advice to the stronger party in a relationship of undue influence or where there is a special disability on the part of a weaker party were discussed by Allsop P in Aboody a case in which the plaintiff, Mr Ryan, had made an improvident gift to Mr and Mrs Aboody after receiving some legal advice from a solicitor, Mr Dakin. Allsop P made observations in Aboody at [65] – [69] that are of relevant to this case, as follows:

“[65] It can be seen from the expression of the general principle by Deane J in Amadio and by Lord Selborne in Earl of Aylesford that once the disability or weakness is sufficiently evident such that it is prima facie unfair to procure, accept or retain the benefit from the weaker party's assent to the transaction in the circumstances in which it was procured, accepted or retained, the onus is upon the stronger party to show the transaction to be fair, just and reasonable. The focus is upon the conduct of the stronger party in the assessment of unconscionability in the procurement, acceptance or retention of the benefit. Equity's fixing upon the conscience of the stronger party is not strictly limited by the need to find moral obloquy or reprehensible conduct, either generally, or at any particular point of time, although it is often present. At the heart of the doctrine is the taking or retaining of the benefit in a transaction in which advantage was taken of weakness or disability in a manner that in all the circumstances is unjust or unfair: Johnson v Smith [2010] NSWCA 306 at [5].

[66] The obtaining by the weaker party of the advice of a solicitor may be relevant to the application of the general principle from at least two perspectives. The appreciation of its occurrence, and perhaps (as here) the place in its arrangement, by the stronger party might be seen as part of the circumstances in which he or she procures or accepts the benefit. It is an element of the stronger party's conduct to be assessed. From that perspective, the precise quality of what was done by the legal adviser may be seen not to be as relevant as what an honest and reasonable person in the position of the stronger party would have understood its effect to be on the justice and fairness of the transaction.

[67] The second perspective is that if the circumstances, including the known special disadvantage, the nature of the transaction and the existence of advice, remain sufficient to make it prima facie unfair or unconscionable to procure, accept or retain the benefit, the independence and adequacy of the advice will be relevant, but as part of the discharge by the stronger party of his or her onus of proving the transaction to be fair, just and reasonable.

[68] Looking at the circumstances here, the Aboodys knew, on the findings, not only of Mr Ryan's age, ill health, financial position, and dependence on Mrs Aboody, but also of the irrational obsession which was operating upon him to make a gift which would leave him financially exposed to their charity or the support of the state. By taking the property in those circumstances, they were sufficiently aware of the operation of the special disability and to take the improvident gift was to take advantage of the known weakness. The obtaining of a solicitor to advise him, at least without that adviser knowing of the irrational fear, would not remove the appreciation of the likely continued operation of the irrational fear. Thus, it was for them to demonstrate that the transaction was fair, just and reasonable. Proof of independent and adequate legal advice was part of their onus.

[69] From this perspective, the effect of Mr Dakin's advice can be assessed without too much complication. Mr Dakin obtained what he understood to be the reasons for the transaction. No mention was made by Mr Ryan of the fear of the Labor government. No enquiry was made about Mr Ryan's financial position and the risk that the disposal of his capital asset posed to him. Mr Dakin satisfied himself that Mr Ryan knew what he was doing and wanted to go ahead. There was no discussion or advice about mechanisms that might bind Mr and Mrs Aboody to deal with the capital asset for his benefit or to retransfer it. If such steps had been taken, the fairness and reasonableness of the transaction and its attendant transaction costs could have been evident and advised upon. The advice of Mr Dakin did not transform the transaction into one that was fair, just and reasonable.”

377. As in Aboody, here, Mr Pambris had good reason to believe in November 2010 that Ms Makis was under his actual undue influence and that she was likely to believe that the 2010 mortgage he was asking her to execute related to the Laiki Bank loan and not to the 2005 or the 2009 deeds because, that is what he had represented to her. He knew that whatever legal advice she received that she remained under his actual undue influence and that she must have believed the 2010 mortgage related to the Laiki Bank loan. And he did not receive a certificate of independent legal advice from Mr Vlahakis himself: the 2010 statutory declaration is not such a certificate.

378. Leaving aside the adequacy of the legal advice she received in November 2010, and whether she received advice before or after executing the 2010 mortgage documents, the effect upon her of the relationship of actual undue influence was not displaced by the legal advice. Nor did the legal advice clear Mr Pambris’ conscience because he continued to have reason to believe based on what he knew that she executed the 2010 mortgage based on a belief that she was securing the Laiki Bank loan. It would now be unconscientious for him to contend otherwise, or that she was somehow mistaken.

The 2017 Guarantee

379. The undue influence case and the unconscionable conduct case that Ms Makis advance have not been successful with respect to the 2017 guarantee. It can be accepted that in December 2017 Ms Makis was still under a relationship of undue influence with Mr Pambris.

380. But two matters distinguish the circumstances of execution of the 2017 guarantee from the 2010 mortgage. The first is the nature of the transaction Mr Pambris was entering; and the second is the intervention of Mr Donato as the legal advisor acting on behalf of Ms Makis. These factors are decisive in answering a case that the 2017 guarantee should be set aside.

381. As to the nature of the transaction: the 2017 guarantee was part of a larger transaction which was not improvident from the perspective of Ms Makis. This factor alone would defeat both the unconscionable conduct and undue influence cases. The 2017 guarantee was part of the terms upon which Mr Pambris was prepared to assist in refinancing the CBA mortgage to prevent the CBA from exercising its power of sale over the Maroubra property. It was a cost of obtaining a tangible benefit of retaining the Maroubra property, that Ms Makis wanted to achieve in the short term. And she obtained that benefit through Mr Pambris’ honourable intervention on her behalf following her execution of the 2017 guarantee.

382. As to the intervention of Mr Donato, the narrative of findings shows that he was independently retained by Ms Makis and always acted at arm’s length from Mr Danalis leading up to the 2017 guarantee and the CBA refinance. The form of the 2017 guarantee as drafted by Mr Donato shows express reference to the obligations of the 2005 and 2009 deeds and the 2010 mortgage. The Court infers that the legal connection that was being established by the 2017 guarantee – which did not clearly exist before December 2017 – connecting liability under the 2005 and 2009 deeds with the 2010 mortgage must have been explained by Mr Donato to Ms Makis. Such uncertainty and ambiguity as had previously existed about the scope of the 2010 mortgage was cleared up by Mr Donato, who must have explained to Ms Makis the wider scope now being stipulated for the 2010 mortgage by Mr Pambris. She did not seek an explanation about that change from anyone else. Moreover, Mr Danalis and Mr Pambris were entitled to assume that what the 2010 mortgage now secured had been explained to Ms Makis by Mr Donato, and as a result Mr Pambris’ conscience was clear of taking advantage of any special disadvantage of Ms Makis.

383. One query remains about the 2017 guarantee. It is strange that Mr Donato did not seek an up-to-date account of what was then said to be owing on the 2005 and 2009 deeds. It is probable that Ms Makis did not realise how large the liability was said to be owing on those deeds. If she did it would be expected that she would have queried it through Mr Donato at the time. And she kept up payments on the CBA mortgage, the refinanced mortgage with Mr Pambris, and the further refinance with Perpetual on the basis that she would be able to manage the liability associated with the second mortgage at a later time.

384. But that is an insufficient basis to infer that Mr Pambris took unconscientious advantage of Ms Makis, or that she executed the 2017 guarantee under his undue influence. Yet the lack of such an up-to-date account does tend to explain that Ms Makis thought that after she had refinanced the CBA mortgage with Mr Pambris’ assistance, she nevertheless had real prospects of being able to keep the Maroubra property, because her financial obligations under the 2005 and 2009 deeds would be manageable. The amount claimed in these proceedings came as something of a shock to her. What amount, if anything, is recoverable is yet to be resolved.

Consequential Issues

385. It follows from the narrative of findings that the Court has little confidence in the plaintiff’s presently adduced evidence which seeks to establish what is now said to be due on the 2010 mortgage and now the 2017 guarantee. The Court has concluded that the 2010 mortgage is now binding upon Ms Makis by reason of her execution of the 2017 guarantee. But given the narrative of findings it is difficult to determine what is due to Mr Pambris on these instruments. This means that the Court will need to hold a supplementary hearing in relation to the quantum that is said to be outstanding on the loan secured by these securities. Several issues may arise at such a quantum hearing now that the Court has found the 2017 guarantee binding.

386. There is acceptable proof from the 2018 consent orders that Mr Pambris advanced $37,500 on behalf of Ms Makis to assist in resolution of the family law proceedings and that she owes this sum at least to Mr Pambris. But it is not clear that this sum is secured by the 2010 mortgage, which by reason of the 2017 guarantee is expressly linked to the liability under the 2005 and 2009 deeds and the 2010 mortgage does not contain an “all moneys” clause.

387. There may also be questions about the proper construction and operation of the 2017 guarantee, for example what the words “including the money which the borrower is liable to you under the agreements” mean in respect of a guarantee signed after Mr Papatheodotou’s bankruptcy.

388. The narrative of findings raises sufficient uncertainty about what is due on these securities to enliven the Court’s jurisdiction to order an account as between mortgagor mortgagee to ascertain how much is due. That jurisdiction is sufficiently ample to accommodate resolution of the present issues of quantum.

389. Ordinarily the payment of the advance secured under a mortgage need not be proved unless the fact is put in issue on the pleadings, because the security itself is usually sufficient evidence of such payment: Minot v Eaton (1826) 4 LJ OS Ch 134, and ELG Tyler, PW Young and CE Croft, Fisher and Lightwood’s Law of Mortgage, 3rd Australian Edition, LexisNexis – Butterworths, Australia 2014.

390. Ms Makis’ defence admits that Mr Pambris served a demand on 11 June 2021 but denies liability in respect of “all amounts demanded in the 11 June 2021 letter”. This is sufficient to put in issue the quantum of Mr Pambris’ claim on the mortgage. The only admission made is that no payment has been made since 11 June 2021. If no money has in fact been advanced, the mortgage is worthless: Fisher & Lightwood [16.39].

391. Mr Pambris therefore still bears the onus of establishing what is due under the mortgage. And this is more so in this case, where upon closer scrutiny of the 2010 mortgage, neither page 1 nor Annexure A does not contain an acknowledgement of receipt of the principal sum: see Sims v Lowe 1988 1 NZLR 656, at 663 and Fisher & Lightwood [16.39]. Moreover, the Court has found that active undue influence was in play against Ms Makis at the time the 2010 mortgage was executed, and Ms Makis believed it related to a different loan transaction. Even though the security was validated in 2017, albeit without any enquiry as to the quantum of the loan then due upon it, such circumstances call for very close scrutiny of the quantum now alleged to be due: Lewes v Morgan (1817) 5 Price 42, at 143; 146 ER 530 at 563 and Fisher & Lightwood [16.39].

392. Modern authority in relation to mortgagee/mortgagor accounts makes clear that a mortgagor is entitled challenge the mortgagee as to the amount secured under the mortgage provided the mortgagor can show that there is a serious question to be tried as to whether the sum stated in the acknowledgement of receipt to have been advanced was in fact advanced: Close Asset Finance Ltd v Derek Allan Taylor [2006] EWCA 788 and Fisher & Lightwood [39.11]. There is a serious question to be tried on the question of quantum here.

393. The Court’s narrative of findings foreshadows that at least the following questions will probably arise in a quantum hearing:

1. What advances were made under the 2005 and the 2009 deeds?

2. What repayments were made against those advances in cash or otherwise?

3. Is there any objective evidence in the form of banking records to verify that any amount was advanced to Mr Papatheodotou?

4. What cash did Mr Papatheodotou hold and pay out on behalf Mr Pambris in cash and is that to be set off against any advances made to him?

5. When was any demand first made for the repayment of principal in accordance with Annexure A?

6. What interest is due upon the correct amount of principal?

394. The Court will appoint a directions hearing to prepare for the proposed quantum hearing in these proceedings at a date that is suitable to the parties. At that hearing the parties will be expected to propose a timetable for further evidence and submissions in relation to the quantum issues.

395. At that hearing the Court will also ask the parties to consider whether this remaining aspect of the proceedings could profit from being referred to a Court annexed mediation pursuant to Civil Procedure Act 2005 s 26, to see if it can be resolved by agreement to save the parties the expenditure of further legal costs.

394. The Court will not deal with the question of the costs of these proceedings until it decides how much, if anything, is due by Mr Pambris to Ms Makis on the 2010 mortgage and the 2017 guarantee at the conclusion of the quantum hearing.

Conclusions and Orders

397. For these reasons Court makes the following orders and directions:

1. Order that by 28 October 2024 the parties shall bring in short minutes of order to give effect to these reasons; and

2. List the proceedings for directions in relation to a quantum hearing and otherwise in relation to matters arising out of these reasons for decision, on 5 November 2024 9:30 AM or such other date as arranged with the Associate to the trial judge.

**********

Amendments

15 October 2024 - Coversheet-decision: First line- capital "F" for "findings"; third line add "of" "the plaintiff", delete "was" before "binding" and replace with "is"; sixth line, add "the 2010" before "mortgage".

15 October 2024 - [28] third line ", and" deleted before "."

15 October 2024 - [33] second line, "e" deleted.

15 October 2024 - [34] third line, "Ms" deleted at start of sentence.

15 October 2024 - [34] third line, "Ms" deleted at start of sentence.

Decision last updated: 15 October 2024