Stubbings v Jams 2 Pty Ltd & Ors [2021] HCATrans 163 (14 October 2021)

Last Updated: 18 October 2021

[2021] HCATrans 163

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M13 of 2021

B e t w e e n -

JEFFREY WILLIAM STUBBINGS

Appellant

and

JAMS 2 PTY LTD (ACN 600 173 117)

First Respondent

CONTERRA PTY LTD (ACN 078 900 017)

Second Respondent

JANACO PTY LTD (ACN 006 209 105)

Third Respondent

KIEFEL CJ
KEANE J
GORDON J
STEWARD J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA BY VIDEO CONNECTION TO BRISBANE, MELBOURNE AND SYDNEY

ON THURSDAY, 14 OCTOBER 2021, AT 9.51 AM

Copyright in the High Court of Australia

____________________

KIEFEL CJ: In accordance with the remote hearing protocol, I will announce the appearances for the parties.

MR N.C. HUTLEY, SC appears with MR A.M. DINELLI and MR A. CHRISTOPHERSEN for the appellant. (instructed by Garland Hawthorn Brahe Lawyers)

MR B.W. WALKER, SC appears with MS J.D. WATSON for the respondents. (instructed by Christopher William Legal)

KIEFEL CJ: Yes, Mr Hutley.

MR HUTLEY: Thank you, your Honour. Mr Jeruzalski practised at the relevant time as a solicitor arranging loans on behalf of lenders for about 30 years. He generally followed the same system when arranging those loans. He would not arrange loans to individuals. He would never meet a borrower or guarantor, nor would he lend to a person who approached him directly. Your Honours, they are the findings of the trial judge at respectively paragraphs 54, 61 and 62.

He would not do, as he said in evidence, and your Honours will see this at the book of further materials page 61, lines 25 to 26, what he described as “code loans”. That is referring to the national credit code. He also required every loan to be secured by a guarantee in the form of a mortgage over land, and that is trial judge paragraph 57.

Given that he would not meet a borrower or a guarantee, he relied on intermediaries such as Mr Zourkas to bring in business and do all things necessary to enable the loans to be made, as was found by his Honour the trial judge at paragraph 61 and paragraphs 221 to 224.

In this case, Mr Zourkas approached him seeking a loan for $1.192 million and his practice, or system, does not involve the provision of any kind of application form, does not receive any written applications for loans, but might contain details or particulars of the borrower or guarantor’s income, assets or finance or proposed means of repayment. If your Honours go to the further materials at page 71, at lines 8 to 19, he said:

most of the work I do is verbal, oral. We have, um, people ringin’ me every day, and, um, if it sounds okay . . . I’ll ask them to get a valuation. I’ll ask them to, ah, provide us with the funds to get a valuation. All our lending is based on valuations. We don’t . . . look at . . . the applicant, unless there are issues with bankruptcy and . . . other matters we come across . . .

we don’t see the borrowers. We don’t look at the income.

He gave evidence that he does not do a credit check on the borrower and your Honours will find that at page 62 of the materials, lines 26 to 28, and he does not inquire as to the borrower or guarantor’s financial circumstances beyond bankruptcy searches and title searches.

He was asked at trial whether he took any kind of file note of oral contacts with Mr Zourkas or other intermediaries on behalf of the borrowers, and if your Honours would go to page 65 in the materials, lines 6 to 19, your Honours will see he said, in response to his Honour’s question:

If you take no file note how do you know the title particulars?‑‑‑Oh, we take file notes in relation to that. Sure . . .

So you can produce the file notes that were taken of this loan?‑‑‑If we have just an address we can get the title details.

So, he keeps no records of anything other than title details.

In this case, as your Honours appreciate, the nominal borrower was a company named Victorian Boat Clinic Pty Ltd – a shell company that had no assets and had never traded – and that is trial judge, paragraph 16 – and referred to by the Court of Appeal at paragraph 16(1), core appeal book page 139. Mr Stubbings’ only asset was his equity in two nearby homes which were occupied by his family. Your Honours will see that at paragraph 7 in the Court of Appeal reasoning.

Mr Jeruzalski gave evidence that he believed at the time that Mr Stubbings and his family were living in the two houses. Your Honours will see that at the further materials at page 123, lines 17 to 23. Mr Jeruzalski and each of the individual lenders – directors – gave evidence that they made their decision to lend to Mr Stubbings based solely on the valuations of the security properties. Your Honours will see that is trial judge, paragraph 69, core appeal book page 22.

In terms of the valuations relied upon by the lenders, can we take your Honours to the further materials, to exhibit 7, which is at page 4 of the materials. If your Honours go over to page 5, it summarises the features of the property – this was the property at Fingal. Your Honours will see the property is summarised there. Your Honours will note under “Zoning”:

A current planning certificate has not been applied for -

and under a second heading, “Zoning”, the zoning is described as:

Green Wedge Schedule 4-

The valuation does not describe any potential commercial use. The buildings which are on the property, your Honours will see described over at pages 6 and 7, where at the top, there is a description of the dwellings and then the “Building areas” are described at the top of page 7, including a “Carport” and a “Brick Garage” – your Honours see.

Now, returning to the green wedge, Schedule 4, Mr Jeruzalski gave evidence that he knew that the single property was zoned green wedge and that this meant that it could not be used for commercial purposes, and if your Honours go to the materials at page 119, lines 13 to 21, your Honours will see that his Honour asked a question:

I think the question was were you aware –

et cetera, and then it goes on. He asked what it meant. He said:

there is the certain prohibition in relation to running a business there.

But are there – can you get an exemption?‑‑‑Yes, I believe you can. I was told you could.

Mr Jeruzalski had by that time given evidence that the purpose of the loan was to run a boat repair business, and if your Honours go in the materials to page 73, lines 18 to 24 where he gives that evidence:

and we were told that, um, he was setting up business . . .

He had a - he had – he had a business running before but he wanted to buy this property, so that the could further expand the business. The business was boat repair and so on.

He also said, if your Honours go to page 64, lines 19 to 20, that Mr Zourkas had told him that:

It was a business loan. It was, ah, mainly concerned with, ah, boat repairs.

Then at line 28 Mr Jeruzalski said, referring back to the valuation, that in addition to the two homes on the property, the property had:

a large shed. It’s not just a normal gardening shed.

Then he expands on this evidence at line 31 saying the shed was:

Where the boats are kept and repairs are done.

The evidence does not disclose how Mr Jeruzalski says he came by this knowledge. If your Honours go to pages 122 to 123, line 21 over to line 3, he said he had never seen the shed and that he only knew about it from reading the valuation. Then, if one goes back to 65, page 261, your Honours will see:

you were told, that the property would be used for some business purpose?‑‑‑Correct. The documentations is signed as such. Purpose of loan.

Mr Stubbings asked a few questions of Mr Jeruzalski, and if we can go to page 119, lines 4 to 9, putting to him that:

nobody had seen that the property was green wedge residential and not to be used for residential property?‑‑‑I believe you had applications in council and that you were conducting a business there. The accountant gave me that advice and the solicitor gave me that advice.

If we could pause there, Mr Jeruzalski’s oral evidence is referring there to Mr Kiatos, the solicitor, and to Mr Topalides, the accountant. They were the so‑called independent certifiers chosen by Zourkas to advise the borrower.

The evidence is to the effect that Mr Jeruzalski - they gave him advice that Mr Stubbings was conducting a business there at the Fingal property and had applications in council. Mr Jeruzalski gave no further explanation of how he came to that belief. There was no evidence of any direct communication between Jeruzalski and Kiatos or Topalides prior to the advance.

At the time the lenders’ letters of offer were prepared by Mr Jeruzalski and assigned by Mr Stubbings on 22 August, Mr Stubbings had not yet been directed to Mr Kiatos or Mr Topalides for them to have advised Mr Jeruzalski, and that your Honours will see from the trial judge’s reasons at paragraphs 131 and 134.

Mr Jeruzalski’s oral evidence was, at the time he received the certificate of financial advice signed by Topalides, he had had no prior dealings with Topalides. That your Honours will see in the materials at page 103, lines 19 to 22, where he said:

had no prior dealings with . . . None.

The lenders did not produce any written communication between AJ Lawyers and the certifiers before the loans were advanced other than the certificates themselves, which simply said that the purpose of the loan was “to set up and expand the business”. It did not say anything about an existing business or applications in council.

The primary judge’s findings, which were not questioned by the Court of Appeal, were that Mr Jeruzalski deliberately abstained from inquiries about the borrower beyond those limited inquiries Mr Jeruzalski makes, such as checking that the borrower is a registered company. That is the trial judge’s finding at paragraph 312 at core appeal book 85. It would appear that his Honour rejected this evidence, which I have been taking your Honours through.

The valuation on which Mr Jeruzalski relied said that no current planning certificate had been sought. I have taken your Honours to that. That is at the materials at page 5. So again, it was before his Honour peculiarly unclear how Mr Jeruzalski might have arrived at a belief that Mr Stubbings had applications in council, to set his mind at the fact that he knew that the planning restrictions precluded the borrower from operating the business at the property.

His comment that “you were conducting a business there” is irreconcilable with the facts as Mr Jeruzalski knew them, including that the borrower and Mr Stubbings had no income, that the accountant’s certificate referred to setting up a business and that at the time of the letters of offer Mr Stubbings had yet to sign the contract of sale.

Further, Mr Stubbings was not in possession of the property until after the loans were advanced. The contract of sale was for vacant possession following settlement. A copy of that is at the further materials page 14. The condition relating to vacant possession your Honours will find at page 25, and Mr Jeruzalski gave evidence:

The Purchaser agrees for the Vendor to vacate –

et cetera, at about point 3 on the page. Mr Jeruzalski had seen the contract of sale prior to settlement. Your Honours will see that from the Court of Appeal’s reasons, paragraph 131, subparagraph (2), at page 196 of the core appeal book. The evidence is at the further materials page 103, lines 6 to 10.

Mr Jeruzalski arranged the mortgage and loan in the amount of $1,059,000 for 12 months at a head rate of interest of 17 per cent per annum or $15,000 per month on first mortgage, reduced to 10 per cent per annum or $8,825 per month for on time payment – and your Honours can see that from the further materials at page 29, at clause 1(b) which goes from 29 over to 30.

He arranged a second top‑up loan of $133,500 to be made against the same security by another client as part of the package of loans at 25 per cent per annum or $2,871 per month, reducible to 18 per cent or $1,552 per month for on time payment, and your Honours will see that from the trial judge’s reasons at paragraph 301 at core appeal book 82.

The reason for the second loan was that there was not enough equity in the properties collectively for the first mortgagee to maintain their preferred loan to value ratio whilst covering 100 per cent of the purchase plus stamp duty on the new property and obtaining first mortgage security over the existing properties. Your Honours appreciate that the deposit on the purchase price of the Fingal property was $100.

Under the package of loans interest would accrue at $17,783 and some cents per months, or $10,377 and some cents if up‑to‑date payment was made, and the trial judge dealt with that at paragraph 302 at core appeal book 82.

The two existing homes had previously been mortgaged to the Commonwealth Bank at bank rates with repayments totalling about $1,000 per month, and that is paragraph 105 in the trial judge’s reasons, and it is also at paragraph 7 in the Court of Appeal’s reasons at core appeal book 135 to 136. The effect of this financing was that Mr Stubbings’ loans - bank rates were now financed at the rates of 17 and 25 per cent with facility for reduction for timely payment.

Mr Stubbings had no regular income. He was unemployed at the time and earned money by doing ad hoc handyman work, like mowing lawns and fixing taps. Your Honours will see that in the trial judge’s reasons at paragraph 270 and the Court of Appeal it is 8. Mr Jeruzalski gave evidence that he knew, at the time, that Stubbings had no income, and when pressed for clarification he expanded by saying:

Most probably I was aware of that . . . Yeah.

If your Honours would go to that - it is set out in the trial judge’s reasons at 92, but your Honours can see it also in the further materials, page 73, lines 4 to 31. He assumed generally that borrowers approaching him for loans do not have an income to service the loan. That your Honours will see at 74 of the materials, lines 2 to 7, where he says:

I’m not looking for income figures. And a borrower goes away to seek independent accounting advice and legal advice as to whether he can perform and – and honour the obligations under the mortgage. If he had an income sufficient to service a loan of that amount, he would’ve gone to a bank.

He also said in evidence, and if your Honours would go to 68 in the book, at lines 23 to 28, that he had been told by Zourkas that Stubbings intended to sell the other two properties and refinance the loan with a bank. Then over the page at page 69, lines 1 to 2, he said:

I was aware this was part of the whole transaction.

Then your Honours will see from line 4 on, his Honour asks some questions:

Mr Zourkas told you that Mr Stubbings proposed to sell the two . . .

‑ ‑ ‑Narre Warren properties -

and Mr Jeruzalski confirms “Correct”, and says the plan was to refinance within the first six months of the loan. But when asked at trial whether Mr Stubbings could refinance a loan from a bank without evidence of income, Mr Jeruzalski said there was no possibility Stubbings could get any kind of bank loan without an income. Your Honours will see that, if your Honours go to the further materials at pages 74 to 75, on the transcript at – from 275, line 8 over to 276, line 3. Your Honours will see first now:

Now, whilst you’re on that point of a bank. If Mr Stubbings and/or the Victorian Boat Clinic had no income or limited income, from your experience, would any of the first-tier banks have lent money to him?‑‑‑No, none.

And in fact in view of what you now know, in terms of what Mr Stubbings alleges, would have he been able to have got a loan at one of the first‑tier banks, say six months after the taking out of this loan?‑‑‑He would’ve been – he was going to sell off his other two properties. If he had one property, he - he was going to refinance that.

...

That would also involves, would it not, the provision of financial records as to the viability of repaying the loan?‑‑‑Correct.

And what’s your experience on his allegation that he had no financial records or tax returns?‑‑‑He would get nowhere. He wouldn’t be successful in a loan.

If your Honours then go over to 79, at lines 10 to 14, Mr Jeruzalski says that on the information he had then, he knew that Mr Stubbings had no prospect of refinancing the loan. Your Honours will see that where he says:

Well, on the information I had then and the information I have now, I can’t see how they would have done it.

He also said in his evidence that it would be impossible for Mr Stubbings to sell the properties in less than five to six months. If your Honours would go over to pages 69 to 70, from line 25 on 69 to line 4 on 70. We interpolate here that the consequence of this is that, without an income or an articulated business plan that involved immediate income from some source – other than the unlawful use of the green wedge property – to the best of the material before Mr Jeruzalski, the borrower would in all likelihood almost immediately default, and interest would begin accruing – between 17 and 25 per cent under the loans secured against Mr Stubbings’ home – which is in fact exactly what occurred.

GORDON J: Mr Hutley, can I just ask one question about that evidence about the loan agreement and this sale of the properties? I had understood that it was for a term loan of minimum of six months and maximum of 12.

MR HUTLEY: Yes, your Honour.

GORDON J: So that the evidence that is given at 68 to 69 in the applicant’s book of further materials does not fit with that, because they could not have sold – i.e. they could have sold but could not have refinanced within the first six months.

MR HUTLEY: Precisely, your Honour. But the important point is, the witness said, you could not – I was about to come that – you could not refinance for six months – you could not possibly sell, according to Mr Jeruzalski’s belief, under five to six months. Therefore, one had to – even to go through the first stage of the plan – survive and be able to meet the large interest payments for that six months.

GLEESON J: Mr Hutley, just on your observation that the borrower would almost immediately default, in terms of the system is it fair to say that the lender is entirely dependent upon the independent certificates for any perception as to the likelihood or otherwise of default?

MR HUTLEY: The lender would have that to be the argument about the system, but in fact one averts one’s eyes in not confronting the reality when – as Mr Jeruzalski says, he knew that this lender had no income. Your Honour’s observation is, of course, apposite – the system was designed to effect such an argument, but the truth of the reality, Mr Jeruzalski – the facts, I will come to them – the judge said he was a highly experienced lawyer of 30 years borrowing. He knew, and he actually found, that the man had no income.

GLEESON J: But the system was that he never knew that any borrower had any income. Is that right?

MR HUTLEY: Quite, and, your Honour, one of the problems with the system is, if you affect not to know that, when as in reality, having regard to the nature of the people you are dealing with, the overwhelming likelihood is that they do not, then if you want to rely on a certificate case, you have to have, firstly, in our respectful submission - it cannot overcome the problems, certainly these certificates cannot overcome the problems and the mere fact that one chooses not to inquire after people’s capacity to meet a loan does not put you in a morality‑free zone of averting your eyes from the reality.

GORDON J: Mr Hutley, I had understood your argument in relation to that was that basically Mr Jeruzalski’s evidence was that he knew that the loans were unbankable, that is, unbankable from what we might call the normal bank ‑ ‑ ‑

MR HUTLEY: Yes, your Honour.

GORDON J: ‑ ‑ ‑ and that there were insufficient prospects ever of Stubbings servicing the debt as to interest, because they were interest only, or principal in that first six months.

MR HUTLEY: Quite, but – obviously inelegantly, I was seeking to put that answer to your Honour Justice Gleeson’s questions by that. To say that in effect my only knowledge comes from a certificate is the aim of Mr Jeruzalski’s being able to say, “I rely on the system”, but it is frankly self‑defeating because he is an experienced lawyer, he is an experienced property person. He will get information in finding out about a property, such as the matters I have taken you to, and why it is an unconscionable system, which we will come to, is it is designed to be able to produce a situation where one can affect, that is pretend, and allow one to avert one’s eyes from the obvious.

GLEESON J: What I am trying to understand is the consequences of the system for the probability of default. The certificate does not say that the borrower thinks that it is not going to default. So, is it fair to say that the system operates on the basis that, for all Mr Jeruzalski knows, the borrower will immediately default?

MR HUTLEY: Yes, because they are totally uninterested in the capacity to meet the obligation and, therefore, except to the extent that they get meaningful information from the certificate – the accountant’s certificate, of course, and I will come to that, was a certificate which was calculatedly only directed to the position of the borrowing company which, because of his practice of, in effect, not making borrowings to individuals, was apt to be a shell which had no business, had no assets. The only asset was the $100 probably and that was probably borrowed, technically, to put a deposit on the purchase price.

GLEESON J: Was there any evidence about the circumstances of the incorporation of the company? Was it incorporated for the purposes of the loan?

MR HUTLEY: No, it had been incorporated some little time before, your Honour. I will get the record and give your Honour the precise thing about it. But it had never traded. It was just a shell. In fact, a company search was undertaken by Mr Jeruzalski.

To return to the terms of the loan, there was a minimum term, as your Honour Justice Gordon observed, of six months and if the loan was repaid after six months but before 12 months, an early payment penalty of one month’s interest would be due. Your Honours can see that from paragraph 16(3) in the Court of Appeal’s reasons at core appeal book 139. That option of course was only available if the borrower was not in default.

As part of the system of lending, Mr Jeruzalski had designed pro forma certificates of advice addressed to his clients’ lenders. Mr Jeruzalski’s evidence was that he used the same pro forma documents in all of his loans, and your Honours will see that from the further materials at page 44, lines 3 to 6. It is referred to in the trial judge’s reasons at paragraphs 55 to 67, his Honour discusses that. In arranging the loans, he passed the loan documents to Mr Zourkas to be completed. After hearing Mr Zourkas’ evidence, the primary judge explained – and this is at trial judge 271 at core appeal book 68 to 69:

Mr Zourkas was not an honest man, but a man prepared to prey upon the weak and vulnerable like Mr Stubbings.

Mr Jeruzalski and Mr Zourkas had known each other for 25 years and had arranged 30 to 40 loans together over the preceding three or four years - if your Honours go to the trial judge’s reasons at paragraph 156. Can your Honours go there for a moment. It is at core appeal book 43. The reason I take you there is that the next paragraph is a paragraph which the judge refers to as:

A minor, but not insignificant, matter arose –

It is of the evident closeness of Mr Zourkas to the business of Mr Jeruzalski and when we will come to it we say that, as this Court has said in various cases, in cases of this variety impressions of the trial judge about matters involving unconscionability and the like are particularly acute because equity and the statute, as the court has held, deals with all the circumstances, and the circumstances and the relationships can often be subtle and hard to define except through the impression which trial judges sitting over extended trials form about the true realities of connection. We say that that is a good example of the trial judge utilising his peculiar insights into the business relationship which existed between Mr Jeruzalski’s firm and Mr Zourkas. It was obviously quite intimate.

Now, Mr Zourkas arranged for Mr Stubbings to meet a solicitor, Mr Kiatos, and an accountant, Mr Topalides, to complete the certificates. Mr Zourkas returned the completed certificates to Mr Jeruzalski, and, your Honours, that is at trial judgment paragraph 84 and in the Court of Appeal 23 to 26. The completed certificate of accounting advice was extracted in full at paragraph 31 of the appeal reasons, pages 144 to 145, but the actual form, your Honours, is included in the further materials at page 28.

The pro forma certificate of accounting advice is confined to advice to the borrower in relation to the loan debenture to be executed by it. Not only does it not refer to any advice having been given to Mr Stubbings as personal guarantor or to the existence of the mortgage security, the certificate is expressed to be given entirely independently of any other borrower or guarantor.

The certificate did not require the accountant to sight any financial documents. The completed certificate contains no information at all regarding the business, the borrower’s financial position, the substance of the advice given or the purpose of the borrowing except the handwritten words “Set up & Expand the business”.

Now, I will come back to deal later with the total – in one sense, the design of the certificate, we would put, was calculated to – as the judge found – ensure that the loan went through because it is going to exactly what should not be of commercial significance. It was obvious that if this loan, on any view, had to be supported by Mr Stubbings in his personal capacity and as guarantor because there was no business over the – when it commenced, and so this was calculated, with respect, to divert attention from the truly critical matter if one was going to, as it were, have any, as it were, honest belief that there had been proper advice, but we will return to it.

Now, the first month’s interest was set aside from the advance and Mr Stubbings paid the second month’s interest in part from the advance and in part from selling personal possessions. That is in the trial judge’s reasons at 145, core appeal book 41. That was before he defaulted and that is referred to in both paragraph 17 in the trial judge’s reasons, in the Court of Appeal paragraph 45.

Interest began to accrue upon default of the loans at $17,783.25 per month. The trial judge found that the loans were doomed to fail. That is at paragraph 16 of his Honour’s reasons, at paragraph 11 of the book. As he said:

In reality there were no circumstances in which the plan could work.

At paragraph 17 of his Honour’s reasons, if your Honours go shortly to that, it says:

Mr Stubbings, as the guarantor, was bound to lose his existing properties and the new Fingal property from the moment the loan was made -

The primary judge made uncontroverted findings about Mr Stubbings’ personal and financial circumstances. He could not understand the loan agreement or its financial consequences. That is at paragraph 266 and at page 74 of the book. He was uneducated. That is at paragraph 97 of his Honour’s reasons, and his behaviour and demeanour was childlike. That was the judge’s reasons at paragraphs 266 and 269. At paragraph 270 of the core appeal book, if your Honours would go to it momentarily, his Honour observed:

It was readily apparent from the way Mr Stubbings spoke in the witness box and conducted himself in court that he was precisely the sort of person who needed protection and was vulnerable to being exploited.

At paragraph 57 in his Honour’s reasons at trial, he found that Mr Jeruzalski avoids the application of the national credit code by lending only to companies and at 57 to 58 he found the Mr Jeruzalski did not want to receive any information about the guarantor’s personal and financial circumstances or capacity to service the loan. At paragraph 58, if your Honours would go there for a moment, he observed that he understood from Jeruzalski’s evidence that:

he would prefer not to know these things in case his knowledge would in some way undermine his clients’ ability to recover their loans.

Moreover, his Honour found that Mr Jeruzalski used Mr Zourkas – and your Honours will this at paragraph 285 in the reasons at page 79 of the core appeal book:

as a shield to protect them from any knowledge of Mr Stubbings’ special disadvantage.

His Honour made many critical observations of Mr Zourkas’ evidence and your Honours can see this, for example, at paragraph 179. Mr Zourkas had said that:

Mr Stubbings had told him he was making between $5,000 and $6,000 per week; however, Mr Zourkas agreed to meet Mr Stubbings in Elsternwick to save him petrol, as Mr Stubbings did not have any money.

Mr Zourkas charged $27,000 for his part in arranging the loans, paid by Stubbings from the advance. Your Honours will see that at paragraph 290. Mr Jeruzalski charged Mr Stubbings procuration fees, legal fees, costs and disbursements of $19,269 and some cents on the first mortgage, and $12,292 and some cents on the second mortgage, totalling – as your Honours can see from the Court of Appeal reasons – $31,561.94 – that is paragraph 18 – all paid by Mr Stubbings. As you can see from the trust account statement – if your Honours would go to pages 26 to 27 of the materials, your Honours can see what is charged.

Now, that tax invoice – your Honours will see is dated 17 September 2015 – that is two weeks before the loan advance, including fees for Mr Jeruzalski applying for and perusing:

all relevant rate, planning, and statutory certificates -

Your Honours can see that at about point 5. If that was the case, Mr Jeruzalski had known there was no planning permit application under way, and he had known that Mr Stubbings owed $7,450 debt for unpaid rates on the Narre Warren properties – prior to making the loans – which makes it odd that the Court of Appeal in their footnote – if your Honours go to paragraph 131 in their Honours’ reasons, at page 197, their Honours seem to have treated that debt as something that was not in Mr Jeruzalski’s knowledge until settlement, on a basis which is, with respect to them, unidentified.

GORDON J: I am sorry, Mr Hutley, I did not understand that point. Could you make that point again, please?

MR HUTLEY: If your Honour goes to footnote 197:

In fact, only $16,360 was available, and that decreased to about $7,000 once it was realised that Stubbings had a substantial debt for unpaid rates . . . These amounts‑

et cetera. So, it suggests that, once it was realised, the certificate showed that all relevant searches had been made. Mr Jeruzalski’s evidence was that most of his loans were:

around the million-dollar mark.

Your Honours will find that in the materials, page 71, at lines 29 to 30. If Mr Jeruzalski had charged a similar amount for each of the 30 to 40 loans he had arranged with Mr Zourkas – it was 35 loans – Mr Jeruzalski would have earned by that stage about $1.1 million from Mr Zourkas’ business. The primary judge undoubtedly had those figures in mind when his Honour found that:

Mr Zourkas was a significant source of income for –

Mr Jeruzalski – that is at paragraph 294 in his Honour’s reasons.

KIEFEL CJ: Mr Hutley, are you putting your case on the basis of an historical system of conduct on the part of Mr Jeruzalski, or are you focusing on his knowledge of the possibility in relation to Mr Stubbings of default and the likelihood that he would lose his properties because you seem to be ranging over the ‑ ‑ ‑

MR HUTLEY: I accept your Honour’s observation. Your Honour sees that we have three grounds of appeal. His Honour the trial judge made a series of what we say were credit‑based findings about the state of knowledge of Mr Jeruzalski quoad Mr Stubbings. The central ones were, we say, wrongly overturned by the Court of Appeal. If we are correct in that, one has, in effect, a classic case, we would say, of unconscionable conduct, that is, in effect, wilful blindness to an obvious vulnerability to take advantage of someone for their own profit, for their own benefit. We will say that.

But were, for example, the Court not to overturn some of those – reverse some of those findings by the Court of Appeal, we would still argue that this was a system, which itself was a system apt to entrap the vulnerable and as a system case under the Act would justify a setting aside, because the system was calculated in the sense of set‑up such that it was wholly vulnerable to and incentivised people of the variety of Mr Zourkas to prey upon my client – people of the variety of my client.

So, your Honour, when I am ranging - I am taking your Honours through all of the facts early, but then I will come to the three grounds and that is why, your Honours, we say, in answer - we rely on both ways of putting it. But, if your Honours uphold our first challenge to their Honours’ interference with his Honours findings of fact, one does not have to move to the second – the second becomes evidentiary together with the first. That is how we put it.

Now, could I turn – his Honour drew together the significance of these matters in the key exposition of the lender’s conduct between paragraphs 308 and 316, and it is important to read those, as it were, as his Honour giving expression to his findings about the system and Mr Jeruzalski’s place in it, and have to be read as a whole.

Can we start – and I will come back to various aspects of them, but I wish to stress the findings which we say would be demeanour and credit influenced in these findings. His Honour says at 308 says:

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

So, in effect, it starts with him saying Mr Jeruzalski was conscious that Mr Stubbings was entering into a transaction which was dangerous for him, not just risky. Risky might be said of every commercial loan, many commercial loans. But his Honour goes further - “dangerous” - and that is a finding of a consciousness on behalf of Mr Jeruzalski about my client being in danger, and that would have been based upon his assessment of Mr Jeruzalski, as he said, because of his experience and, as the court has said, these sorts of assessments do not necessarily wholly depend upon what is expressed by the judge.

They also involve assessments of the witness before them. In this regard – and we will come to them - his Honour’s finding of smugness on the part of Mr Jeruzalski is again reflective of the fact that it would have informed his consideration - he was dealing with somebody who was very astute, knew what he was doing, could see the real world and could see that what was happening here was dangerous to Mr Stubbings. His Honour then observes:

In those circumstances, the standards of ethical conduct would impose upon Mr Jeruzalski a moral duty to satisfy himself that Mr Stubbings was not unreasonably exposing himself to the significant financial risks accompanying the loans.

That is in effect what he says – common decency would expect it. He points out, of course, that:

This moral duty is compounded by Mr Jeruzalski’s being a practising solicitor and as such an officer of the Supreme Court of Victoria.

Mr Jeruzalski, a man who knows he is exposing an individual to danger, his Honour considers common decency requires of him what is in 309, and we would respectfully say that is right. One then moves on:

In my opinion, Mr Jeruzalski’s moral and ethical obligations were also enlivened because he suspected that Mr Stubbings would not have the income to service the loans.

That is a finding of fact which we say on the materials we have taken you to are well open to it and that is – and I will come to an important part of the Court of Appeal’s reasons in due course – not that - he would not have the income to service the loan in the 11th month, in the 10th month, in the ninth month, period.

His Honour is finding that as a fact on the basis of his assessment of the astuteness of Mr Jeruzalski and all the other materials which we say would have included the materials which I have taken your Honours through such as the position with respect to the proposed business, the state of the Fingal property and the like – not necessarily expressed, as the courts have said – but these are, in effect, evaluative, credit‑based evaluations of Mr Jeruzalski. So, he actually suspected.

As discussed above, Mr Jeruzalski said that if Mr Stubbings had had a sufficient income to service the loans, then he would not have needed to borrow from AJ Lawyers. Under the system of conduct that AJ Lawyers adopted, Mr Jeruzalski deliberately chose not to obtain information of Mr Stubbings’ ability to service the loans. Mr Jeruzalski did not wish to see Mr Stubbings. Mr Zourkas told Mr Stubbings that he could not go to AJ Lawyers’ offices. Mr Zourkas went to the offices of AJ Lawyers to obtain the relevant unsigned loan documents . . . Mr Stubbings was instructed to –

stay outside. So, the system demands that Mr Jeruzalski must never even see the potential recipient. Then in 311:

Mr Jeruzalski knew that Mr Stubbings had no solicitor acting for him (save for a conveyancing firm acting in the purchase . . . Mr Jeruzalski knew that Mr Zourkas had introduced Mr Stubbings to AJ Lawyers, and that Mr Zourkas was received a fee of $27,000. Mr Jeruzalski knew that Mr Zourkas had a significant financial incentive in Mr Stubbings’ decision to proceed with the loan and guarantee. Mr Jeruzalski did not satisfy himself as to whether or not Mr Zourkas had misled or deceived Mr Stubbings, or had knowledge that would indicate Mr Stubbings’ mistaken understanding . . .

and this is important:

Mr Jeruzalski deliberately chose not to interview Mr Stubbings to put to rest any doubts he may have had that Mr Stubbings misunderstood the loans, expected to receive more than he did, or misunderstood his rights under the loans.

Now, that is a finding of fact against the context of the finding which I took your Honours to at 309 that he knew it was dangerous. So, in effect, I know it is ‑ Mr Jeruzalski knows it is dangerous, I am not going – I deliberately intend to not take any step to deal with any concerns about the danger.

KIEFEL CJ: Mr Hutley, are the essential facts that give rise to the possibility that Mr Stubbings was a person in a situation of special disadvantage were that he, to the knowledge of Mr Jeruzalski, Mr Stubbings probably had no income and was bound to default?

MR HUTLEY: Yes.

KIEFEL CJ: Are they the essential facts?

MR HUTLEY: He probably had no income and there did not appear, on the face of it, any immediate route to income, and that is associated with the property and the state of the property, et cetera.

KIEFEL CJ: I am just trying to work out how all of this discussion about the system works in relation to the possibility of awareness of their situation being – in terms of Amadio - being the same as actual knowledge. Does the system which has been in place for a long time in relation to these loans simply – is it relevant to confirm why Mr Jeruzalski decided not to ask any questions, as distinct from the facts which are relevant to the possibility of the situation of Mr Stubbings personally being in a situation of special disadvantage.

MR HUTLEY: Yes, Chief Justice. Added to that has to be – and I am going through each of these carefully because each is important. The structure of relationships in this system of bringing intermediaries through, having intermediaries such as Mr Zourkas, whose only chance of payment is if the loan goes through, and as the judge finds they are introducing so‑called independent advisers whose only chance of payment is if the loan goes through, the system in effect incentivised other necessary, as it were, participants, in the achievement of the loans to depart from a position of independence and that was part of ‑ ‑ ‑

KIEFEL CJ: Mr Hutley, this is where I am a little confused because the case that you seem to be mounting seems to be close to a case of fraud, rather than recklessness or wilful ignorance.

MR HUTLEY: Well, recklessness in the sense of averting your eyes from the obvious is, as this Court has said in Banditt v The Queen, fraud, that is, knowing, having starkly before you all the integers but averting your eyes. That is the importance of his Honour’s finding about the smugness of Mr Jeruzalski. His, as it were, belief in the rock‑solid nature of his system allowed him to divert his eyes from the obvious.

His Honour says all these things are there, he has these suspicions, but his belief in his system is what he calls – in effect, Mr Jeruzalski, his Honour found, thought that his system had defeated unconscionable conduct. That is really what the wilful blindness is. In effect, all these matters are before him and all these matters are known to him, but his smug belief in his system says, “I do not have to care about that”. That is why his Honour did not find an actual fraud in the sense of “I know this man is being put upon”.

GORDON J: Is the other way of putting it, Mr Hutley, that Mr Jeruzalski’s business model was created in order to immunise their clients from a claim for unconscionable conduct?

MR HUTLEY: Quite.

GORDON J: As I understand your argument, consistent with the finding by the trial judge, Mr Jeruzalski was very smug about that because he thought that he had the best business model to achieve that, and you say the essential elements of that business model include, as an essential part of it, averting the eyes, wilful blindness, because that is critical in order for their business model to succeed.

MR HUTLEY: Quite, because the business model is: I must know nothing. That is why his Honour did not find that Mr Jeruzalski necessarily put all this together in saying “Hah”, but Mr Jeruzalski was blinded by his system – and his Honour when we come to 316 – shut his eyes to ensure that the loans would go through and that he would earn his fees. So, in effect, he found that his whole system was designed to enrich, inter alia, himself, and his system – his smug satisfaction with the system believed it immunised him against unconscionable conduct and he was, in effect, blinded – there was a conscious – because his system educated him. It may have been because he believed his system allowed him to do it, to turn his eyes from the obvious.

I am sorry, that is a long answer to your Honour the Chief Justice’s question, but this case ‑ as many wilful blindness cases ‑ goes very close to actual fraud, it is a form of actual fraud, and that is how we put it. Can I go on, if I could – I have taken your Honours to 311. If your Honours then go to 312:

Mr Jeruzalski knowingly and deliberately failed to make the inquiries because he was concerned that, or suspected that, the answers he may have received would have given him information that could form the basis for setting the loans aside on the grounds of unconscionability –

That is also factual finding and credit based and well within his Honour’s ability to evaluate that in the circumstances of this case. It is consistent with how we put the case, and that is wilful blindness.

Now, there is little doubt that the inconsistency in Mr Jeruzalski’s explanations, to which we have referred, contributed to the primary judge’s critical view of Mr Jeruzalski’s evidence. It was indeed in the next paragraph, at paragraph 313, that his Honour went on to identify the “apparent smugness” in Mr Jeruzalski which belied his attempt to immunise him and his clients from the consequences of the business model.

It was a necessary part of his business model to avert your eyes and that is the gravamen of the wilful blindness case conclusion that his Honour – and, we s rightly came to in paragraphs 315 and 316, and they are findings about the credibility of the individual. They are assessments of the credit worthiness of Mr Jeruzalski.

Can I now turn to the Court of Appeal. The Court of Appeal does not directly controvert any of the primary findings of fact. The finding of special disadvantage is touched on at paragraph 123 of their Honours’ reasons, at core appeal book 192. But beyond that they remain untouched, and I do not understand there to be any issue in this appeal that Mr Stubbings was at a special disadvantage in giving the mortgages.

The Court of Appeal found that the system of lending as described by the primary judge constituted – and your Honour’s will see this in paragraph 126:

‘pure’ or ‘mere’ asset-based lending . . . is not, by itself, unconscionable.

The Court of Appeal did not refer to the primary judge’s findings as to the history of dealing between Mr Jeruzalski and Mr Zourkas, although the court referred to the primary judge’s findings as to Mr Zourkas and his “honest” character at paragraph 59 of their Honours’ reasons, in the context of Mr Zourkas’ credit.

The court rejected the primary judge’s finding that Mr Jeruzalski’s conduct was unconscionable and referred to Mr Jeruzalski’s knowledge as being the “real question”. That is at paragraph 127, at core appeal book 194, and found, in effect, that the certificates of advice allowed Mr Jeruzalski not to be fixed with the relevant knowledge.

Now, can we go to that issue first. The Court of Appeal rejected the primary judge’s finding that Mr Jeruzalski deliberately shut his eyes to matters he knew and suspected. If your Honours go to paragraph 130 of the Court of Appeal’s judgement, where they say:

we are not satisfied that Jeruzalski knew of matters which should have put him on inquiry.

The court’s characterisation of Mr Jeruzalski’s knowledge which they then say, “at its highest”, in paragraph 131, immediately above the numbered subparagraphs, where the Court of Appeal says, and your Honours see:

At the time Jeruzalski approved the loans on 19 September 2015, the matters known to Jeruzalski concerning the ability of Stubbings and the company to service the loans for between six and 12 months pending refinance following a sale . . . were - putting the case at its highest for Stubbings – as follows -

But firstly, and we have set out a number of items in paragraph 21 of our written submissions, which we say are not dealt with by the Court of Appeal, putting the case at its highest. But one of the most glaring is the primary judge’s finding at trial judge 308, that:

Mr Jeruzalski knew that the loans were a risky and dangerous undertaking for Mr Stubbings –

which was addressed in passing by the Court of Appeal at paragraph 72(3), which your Honours will find at page 163, line 50 of the book. That itself is a watering down of the actual finding of fact by his Honour. Now, so we say her Honour has erred in setting out the matter at its highest.

In addition to the matters admitted, the Court of Appeal also appears to have taken a different view of the significance of some of the six items. Can your Honours go to paragraph 131(1) of the Court of Appeal which is on page 196 and your Honours will see:

Jeruzalski assumed – had ‘no income’, in the sense that –

The Court of Appeal, with respect, without any explanation inserted a qualification to Jeruzalski’s evidence that he assumes Stubbings had no income. The Court of Appeal softens his evidence by adding the qualification “no income, in the sense that”. Mr Jeruzalski was an experienced solicitor, experienced in lending, and he was giving evidence in‑chief on behalf of his client as to his own knowledge. He was not under any pressure by way of cross‑examination. There was no suggestion that he was not given a fair chance.

In fact, if you to the further materials at page 73 and look at lines 13 to 16, his Honour gave him a chance to clarify and expand on his answers. The primary judge’s findings on that evidence was that Mr Jeruzalski suspected that Stubbings would not have the income to service the loan, which I took your Honours to at trial judgment 310, and without qualification. The Court of Appeal inserted that qualification without any reference dealing with his Honour’s finding or why it was incorrect. Now, there is a significant difference ‑ ‑ ‑

KIEFEL CJ: Mr Hutley, this might be a convenient time for the Court to take its morning adjournment.

MR HUTLEY: Thank you, your Honour.

AT 11.06 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.25 AM:

KIEFEL CJ: Yes, Mr Hutley.

MR HUTLEY: Your Honours, I have said what I wanted to say about 131(1). We say their Honours erred even in the limited encapsulation putting the case as the highest there, beyond the matters which they have left out – which I have referred to in our written submissions at paragraph 21. So, there is a further error ‑ ‑ ‑

GLEESON J: Mr Hutley, there is one aspect about Mr Jeruzalski’s knowledge which is not in your written submissions at 21, but I have wondered about it – which is that the financial certificate states that the purpose of the loan is to set up and expand the business. But, having regard to what Mr Jeruzalski knew about how the funds were going to be disbursed, is it not fair to say that he knew that the certificate was false in that respect?

MR HUTLEY: All he could know was that it was to set up – your Honour, to set up the business was to set up the business on the Fingal property – if one accepted it that far. You had to buy the property – so, on one view, one could say – I would imagine – to the other side, it was money to set up the business – that is to buy the property.

I will accept your Honour’s observation certainly with respect to “expand” an improbable.....even to set up. Your Honour’s point, with respect, is well made. But I have taken your Honour through – and I will come to what his Honour found about all this – his Honour found in effect that Mr Jeruzalski obtained no information beyond - about the business or what was proposed at all. So, his evidence about what he knew and believed in effect was essentially rejected.

The Court of Appeal – and I am just coming to it now – at paragraph 131(5) – if your Honours would go to that shortly – that is at page 197 of the core appeal book. Your Honours have to see this also together with footnote 198. The primary judge did not accept that Mr Jeruzalski had made any inquiries at all about the proposed purpose of the loan and that is apparent from paragraphs 311 and 312 of the trial judge’s reasons – which I took your Honours to – 310 and 311, I am sorry. The primary judge’s reasons record that:

Mr Jeruzalski said that he was told it was a business loan and it was mainly concerned with boat repairs.

That is judgment 88. The primary judge was implicitly critical of the evidence in that respect. Your Honours will see that at judgment 90 in the trial judge’s reasons, which your Honours will find at page 28 of the core book.

We say that paragraphs 310 to 312 were a comprehensive rejection of the witness’ evidence that he relied upon some information suggesting there was any credible business plan for the property whether relating to the boats or not. Your Honours will see, if your Honours go back to paragraph 131(5) of the Court of Appeal’s judgment in the footnote, their Honours say in the footnote:

Jeruzalski’s evidence about the green wedge was not referred to –

et cetera. Now, the appellant’s written submissions before the Court of Appeal, which we have reproduced at the materials at page 133, explicitly raise the fact at paragraph 23 that:

Truemans Road is zoned green wedge and prohibitions apply to running a business –

and cited the lines of transcript which we have already taken your Honours to, which are at the further materials at page 129 in which Mr Jeruzalski accepted that knew that the property was zoned green wedge and that prevented the operation of a property. With respect to the Court of Appeal, putting the case at the highest as they did, that footnote is, with respect, wrong.

The next clear error, we submit, in the reasoning of the Full Court relates to Mr Jeruzalski’s knowledge and a determinative one in the court.....reasoning is that the Court of Appeal said that Mr Jeruzalski should not be fixed with knowledge because the loan approvals were conditional on:

Stubbings obtaining independent legal and accounting advice –

This is at 132:

Jeruzalski was entitled to rely on the certificates – both as evidence that Stubbings had consulted a solicitor and an accountant for advice –

That is significant because the court below placed determinative weight on the accountant’s certificate. Your Honours will see that at paragraph 133 where they say, “especially the accountant’s certificate” and appear to have assumed that Mr Jeruzalski had seen evidence that Mr Stubbings had received accounting advice in relation to his financial exposure under the mortgage security.

But there is in fact no evidence of Mr Jeruzalski having received any certificate of accounting advice given to Mr Stubbings qua guarantor. If your Honours go to paragraph 31 of the Court of Appeal’s reasoning at core appeal book 144, they correctly note that the accountant’s certificate was in fact:

addressed to the lenders concerning the loan to the company on the security of a debenture charge –

In circumstances where the borrower was a two‑dollar company with no known assets, had put nothing down by way of deposit, it was the mortgage security given by the guarantor that was, on any view, the sole sting in this transaction. Mr Jeruzalski thought so because he gave oral evidence that he regarded security provided by Mr Stubbings as the deposit for the loan.

If your Honours go to the materials book at page 76, at lines 8 to 10, moreover, the certificate on its face made clear that the advice was for the borrower independent of the guarantor, and your Honours see that when you look at the certificate, which I took your Honours to, which your Honours know is at page 28 of the further materials.

GORDON J: Mr Hutley, I do not seek to shorten this analysis, but is it not the position then – and I think the Chief Justice put to you – you have a term loan which is interest only for a period of a minimum of six to a maximum of 12, in circumstances where the borrower is an inactive shelf company of $2 with no assets, where the guarantor is not only not provided but there is no evidence to suggest he was provided with any advice about the financial risks attached to the transaction and how that it was inevitable it would be financially disastrous for him? I am sorry to be difficult, but is it any more than that, your case?

MR HUTLEY: Your Honour, that is certainly enough, but as they say in the ads, “but there is more” because the system, we say, was ‑ ‑ ‑

GORDON J: That is a separate question. This is what the Chief Justice was putting to you. If you are looking at unconscionable inequity, one understands that one could add in in circumstances where Mr Stubbings had no income, he was unemployed, he paid $100 for the deposit on the Fingal property and one could add in those additional factors.

MR HUTLEY: My learned friend will no doubt rely also on the legal advice and in fact their submissions in effect had pivoted from the Court of Appeal’s position to relying on the legal advice. Then it becomes important also ‑ ‑ ‑

GORDON J: But then you need to look at what that legal advice did.

MR HUTLEY: Quite.

GORDON J: And when you put that, it says that he:

appeared to be aware of and to understand the terms, nature and effect of the Security Documents ‑ ‑ ‑

MR HUTLEY: Quite.

GORDON J: There is still no financial advice about the transaction, is there?

MR HUTLEY: Exactly, but also it is in the context where his Honour also made findings that - if your Honours would go to those findings back at 310 and following of the trial judge’s reasons, particularly at 314, which I was about to come to:

must have suspected that Mr Stubbings would be guided by Mr Zourkas as to which solicitor and accountant to approach. I see this conduct as part of the system of conduct adopted . . . to immunise the firm . . . As far as Mr Jeruzalski was concerned, the accountant . . . would only be paid if the loans went ahead. There was no incentive for them to withhold the certificates. If they withheld the certificates, then they would receive nothing for their services.

His Honour observes that to characterise that in the real world as obtaining independent advice was “perhaps a bridge too far”. So, I do not limit it only to the things that your Honour and the Chief Justice have observed upon because there are other aspects of this in point of fact, not just systemic, which was apt to make them be unconscionable.

Now, of course, your Honour’s observation with respect to the certificate from the accountant we adopt. It is also in the context of the finding that the loans were risky and dangerous for Stubbings, and your Honours, I will not go back over that. That is what led his Honour, after dealing with 314 and 315, to come to 316 of his Honour’s reasons ‑ going back to the conduct, including the certificates – I see this conduct referring to the certificate procedure as part of the system adopted to immunise the firm from knowledge that might threaten the enforceability:

Mr Jeruzalski shut his eyes to ensure that the loans would go through and that he would earn his fees.

Again, an evaluative judgment made by his Honour with the benefit of seeing Mr Jeruzalski.

Now, the trial judge of course observed ‑ I will just give your Honours a note – that any person who had got “a modicum” of competent advice about the financial implications of what was taking place would run a mile, and that is at trial judge 266.

GLEESON J: Mr Hutley, is it part of the system, on your case, that the lender did not seek any certificate of financial advice from a guarantor?

MR HUTLEY: This was said to be the system that they had applied in every loan. The evidence was – and his Honour’s finding was – that what occurred here was the way that the loans proceeded.

GLEESON J: So, I take that as a yes?

MR HUTLEY: Yes, yes. I am sorry, your Honour, I thought I started with the word “yes”. I do apologise. Yes. I can give your Honours a reference in a moment where his Honour finds that.

GORDON J: Can I just clarify that answer, in the sense that I had understood the system case was that the system was set up, i.e. in the business model, in order to ensure whether it is averting eyes or whether it is any other descriptor. The system was one where, in a sense, he ensured that at no point did he ever consider the financial implications for the guarantor.

MR HUTLEY: Yes, that was the system.

GORDON J: The certificates and the form and content of them were part of that system.

MR HUTLEY: Yes. I will just get one of my juniors to text me where those findings are, your Honour. I just cannot remember them as I sit here.

Now, moving on, having accepted the certificate as the Court of Appeal did that they were proper, they then said that it would weigh the matters it said were known to Mr Jeruzalski against his reliance on the pro forma certificates, and your Honours can see that at paragraph 132 of their Honours’ reasons at pages 197 to 198 in the book.

For the reasons we have given, the certificates firstly do not address, as it were, the right matter, but in any event they would not operate to negate matters otherwise known to the lender. As this Court held in Thorne v Kennedy [2017] HCA 49; 263 CLR 85, the relevant statement is in the judgment of the plurality at 65, and in the concurring judgment of Justice Edelman at 123, a stronger party who knows, for example, that a surety is under duress or being misled or is otherwise incapable of making worthwhile decisions cannot rely upon the presentation of the certificate to ignore what he or she already knows. A party who suspects that a person may not be receiving fully independent advice, or has reason to suspect they might, cannot, in effect, sit back and rely on a certificate. We have said what we have said.

The Court of Appeal framed the question as to whether Mr Jeruzalski was on inquiry - that is at paragraphs 129, 130 and 133 of their Honours’ reasons. We submit the court shifted the focus from Mr Jeruzalski’s actual knowledge towards some form of inchoate test based upon the obligations of inquiry, with the result that it was diverted from his Honour’s findings about what was known by Mr Jeruzalski.

Now, can I go to the second issue. We submit that the court wrongly substituted the primary judge’s findings. In our outline at paragraph 9, and we have referred in our submissions to the state of mind findings that were reversed on appeal, one being the finding of Mr Jeruzalski’s wilful blindness, the other being the finding that he must have suspected that Mr Stubbings was not receiving truly independent advice. Can we now deal with that second finding which is extracted from the primary reasons at paragraph 133 of the appellate reasons, and your Honours see that at core appeal book page 198:

Mr Jeruzalski must have suspected -

The crux of the primary judge’s findings that the Court of Appeal set aside was the words:

Mr Jeruzalski must have suspected . . . As far as Mr Jeruzalski was concerned -

Those findings by his Honour about Mr Jeruzalski’s subjective knowledge and state of mind were affected – and must have been affected – by his Honour’s advantage in observing Mr Jeruzalski’s oral evidence – and informed by the primary judge’s recorded and unrecorded impressions. Therefore, those findings were findings which brought with them a need for appellate restraint. They were not open to be revisited, we submit, unless they met the standard of being glaringly impossible – improbable – or contrary to compelling inference.

The primary judge’s assessment of the lender’s conduct did not take place at some abstract remove – it was drawn from an extensive witness evidence at trial from Mr Jeruzalski, who the judge, of course, had the observation to observe, and other uncontroverted evidence.

The primary judge recorded his impression of the witness in this context. If your Honours go to the primary judge’s judgment, paragraph 58 at core appeal book page 20, and also at paragraph 313 at core appeal book page 85, his findings included findings that he knew that the loans were dangerous, that he was wilfully blind and that he suspected that he might not be receiving truly independent advice were inevitably affected by his recorded and unrecorded impressions of Mr Jeruzalski in combination with findings regarding Mr Jeruzalski’s dealings – for example, extensive dealings, over many years with Mr Zourkas.

Now, in Thorne v Kennedy, if I can take your Honours shortly to it, it is in Part C, tab 10, pages 761 to 762, paragraphs 42 to 43, the Court quotes a line of authority to the effect that a trial judge who sees the witnesses has “immeasurable” advantages in reaching findings as to unconscionable conduct.

If your Honours then go on to paragraph 62, speaking specifically of undue influence, we would say that that precept is equally applicable to findings of unconscionable conduct because it involves an assessment of all the materials in the context of assessing the witnesses accused of the unconscionable conduct and an evaluation of their evidence and their, in effect, character. It is also not necessary, as is made clear, that every single factor that contributes to the totality of the primary judge’s assessment be mathematically calculated.

The reasons in the Court of Appeal do not acknowledge that the mere principle of appellate restraint might be enlivened here by the fact that the relevant findings were likely to have been informed in the way we indicate. The error of the Court of Appeal, we say, derives from the Court of Appeal’s approach - paragraph 127 in their reasons, and that is core appeal book 194. The Court of Appeal quotes paragraph 55 of the reasons of Lee v Lee and says this:

There is a distinction with respect to appellate review findings of inferences where: ‘in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established –

et cetera. But, with respect to the Court of Appeal, if one goes to paragraph 55 of Lee v Lee which your Honours will find in Part C of the joint bundle of authorities, pages 680 to 681, this Court said that:

Appellate restraint . . . includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts.

If one goes to the analysis of the Court of Appeal at paragraphs 133 to 134 at core appeal book 198 you will see the statement:

In reaching that conclusion, we have been mindful that the judge inferred . . .

In our view, those inferential findings, and the ‘bridge too far’ comment are not supported by the evidence. No basis for the inferred suspicion is given. No basis is given for the inference that the suspected conduct was ‘part of the system’.

The Court of Appeal has used the word “inference” four times in overturning the primary judge’s findings, but it did not anywhere there refer to the language of compelling contrary inference or glaring improbability. Nor did it refer to the fact that the overturned findings were ones that involved impressions which would necessarily have been formed by the judge about the witness’ demeanour in giving evidence.

It appears that the Court of Appeal was mistaken – has mistaken the relevant distinction being a distinction between primary findings on the one hand and inferences, whereas with no allowance for the true distinction between factual findings that are not likely to have been affected by the primary judge’s impressions and credibility and reliability of witnesses as a result of seeing and hearing them give evidence.

Now, a primary judge’s finding about a witness’ knowledge or state of mind will almost, by definition, where the witness has not given direct evidence of it involve a combination of the impressions of the witness’ evidence and inferences from facts. We refer your Honours to the finding of the trial judge at 58 at core appeal book 20:

I understood from [Mr Jeruzalski’s] evidence that he would prefer –

and then the trial judge’s finding at 313, which I have taken you to:

My finding is not lessened by Mr Jeruzalski’s apparent smugness when he gave evidence –

It is clear that his Honour’s assessment of Mr Jeruzalski in all his findings was intimately tied up with the impression Mr Jeruzalski conveyed whilst giving evidence. We say that therefore the Court of Appeal failed, erred, in its approach to the assessment of the relevant findings.

But turning to our outline 13, if I might, even if the findings overturned by the Court of Appeal were not findings requiring appellate restraint, the primary judge’s findings were not only glaring ‑ not glaringly improbable and contrary to compelling inferences, they were wholly consistent with the evidence.

The primary judge was quite right to suspect that Mr Jeruzalski was - at least suspected that there was a risk of absence of receiving independent advice. Apart from the fact that by the design of the certificates there was no independent financial advice to Stubbings qua guarantor, the primary judge’s finding is sustained by the fact that Kiatos and Topalides were paid directly by AJ Lawyers from the loan proceeds for their advice, and that is the trial judge’s judgment at paragraphs 183 and 210 to 2011.

Topalides gave oral evidence that “he forwarded an invoice” for accounting advice directly to AJ Lawyers because “otherwise he would not have been paid” – trial judge 211 judgment. When Topalides’ knowledge of that fact is taken in connection with Zourkas’ evidence that he and Jeruzalski had successfully arranged 30 to 40 loans together in recent years, together with Mr Jeruzalski’s evidence that he used the same system and pro forma documents, the only available inference – and I can now answer your Honour Justice Gleeson’s question about using the documents. You will find it at trial judge judgment paragraph 55 and also in the evidence in the further materials at page 44, lines 3 to 6.

We submit the only available inference is that Zourkas had told Kiatos and Topalides that they would be paid from the loan advances, just like Mr Zourkas and Mr Jeruzalski, that they would be paid from the loan proceeds and this was how Mr Zourkas usually arranged the loans.

Mr Kiatos gave evidence that he had previously dealt with Mr Jeruzalski on a handful of occasions and his Honour refers to that at first instance at paragraph 182 of his reasons, core appeal book 51, and although that is inconsistent with Mr Jeruzalski’s oral evidence that he had dealt with Mr Kiatos once – your Honours will see that from the materials at page 83, lines 19 to 24 – there was no evidence to suggest that the arrangements were any different this time.

Taken together, the compelling inferences drawn by the primary judge that Jeruzalski rightly was concerned that Stubbings might not be receiving proper independent advice, whether by reason of Jeruzalski’s familiarity with Zourkas’ character and dealings, combined with the fact that Zourkas had a large incentive to ensure the certificates were provided or the natural inference from the fact that the certificate providers had to look to success of the loan to be paid.

Contrary to what the Court of Appeal said at paragraph 134 at core appeal book 198, Mr Jeruzalski had every reason to turn his mind to whether Zourkas had some influence in arranging for the execution of those certificates when Zourkas returned with the certificates from Kiatos and Topalides. We say, even if the findings are not ones which demand appellate restraint, the finding of the trial judge was clearly correct.

Can I deal with the lenders’ system of conduct as unconscionable in the circumstances, which is ground 1 of the appeal, which I have left to last and which may have been the reason I may have confused your Honour the Chief Justice and for which I apologise.

We deal with this at 12 of our outline. The Court of Appeal accepted the primary judge’s finding that the lenders’ system was deliberately designed to seek – to enable lenders to affect an absence of knowledge of the personal or financial circumstances of borrowers or guarantors – paragraph 126 of the core appeal book at ‑ ‑ ‑

GORDON J: Can I ask you about that paragraph, Mr Hutley, because I do not quite understand it. Is it to be read as if the Court of Appeal described asset-based lending as including wilful blindness?

MR HUTLEY: That, your Honour, goes to what we are just about to say about asset‑based lending.

GORDON J: Then I will be quiet.

MR HUTLEY: It takes as its point of departure that there is some known and acknowledged system called asset‑based lending. We say that predicate is false and in fact it is contrary to the very evidence of Mr Jeruzalski, which we will come to in a little while.

Now, can I go back to – we say the design of the system was intended to create a structure which would immunise lenders from claims by borrowers or guarantees to set aside the loans as unconscionable in circumstances where loans of these - million‑dollar range loans which were being given to borrowers and guarantors who did not in fact have incomes to service the loan and moreover where Mr Jeruzalski knew that the loans were risky and dangerous for guarantors like Stubbings, who had no income.

That is the trial judge’s judgment at 308 to 310. That is the reason for the structuring of the pro forma certificates. The fact that the system was deliberately designed to avoid statutory and equitable protections for unconscionable conduct leads directly to the inference that those who structure it well knew the risk that a person at a special disadvantage might become ensnared within the system.

Now, this was not a situation of mere heedlessness of a possibility of special disadvantages as the Court found in Kakavas v Crown Melbourne Ltd [2013] HCA 25; 250 CLR 392. This circumstance meets the description at paragraph 156 of Kakavas, and that is in the joint bundle of authorities at page 658. Can I just go to it very shortly, your Honours - at paragraph 156 at 658, it is page 438 in the Commonwealth Law Reports. Adopting what was said by Sir Anthony Mason in Amadio, that where it must have been obvious that the transaction :

was an improvident one . . . it was “inconceivable” that the possibility did not occur to him . . . entry into the transaction was due to their misplaced reliance -

That is what the judge in effect found here, at trial judge 308 to 314. Wilful ignorance in such a situation is not different from actual knowledge. But rather than put in place checks or protections to ensure that vulnerable guarantors were not being exploited when guaranteeing risky loans, the lenders consciously took steps to ensure that their system allowed them to avert their eyes from circumstances with a view, and this was the smug pride of Mr Jeruzalski, that he had beaten the system. That, we say, means that the system was designed with a view to taking advantage of the disadvantaged.

That takes us back to the smugness finding and we say his Honour’s finding in that regard is correct. We say to design this system using the knowledge and experience of a practising solicitor to avoid equitable and statutory protections of the vulnerable, such as Mr Stubbings being trapped in hopeless debt, demonstrates a conscious taken advantage. That aspect of the system was addressed by the primary judge in terms of wilful blindness, we have adopted in our case, and it also speaks to the system.

The respondent’s and the Court of Appeal’s reliance on the phrase “asset lending” masks the true relevance of the circumstances bearing upon the proper inquiry whether the transaction and system was unconscionable. Asset lending is not a homogenous category. The words “asset‑based lending” themselves import only that the lender’s criterion for deciding whether or not to lend is the existence of a level of security which it has chosen as being adequate.

At the Court of Appeal’s judgment paragraph 126 in the core appeal book 193 to 194, the Court of Appeal said that Mr Jeruzalski’s system was orthodox and that, in effect, Mr Jeruzalski’s system was not an unconscionable system because it had amounted to “‘mere’ asset‑based lending” and mere asset‑based lending is not unconscionable.

Our first point is no one defined what a system of asset‑based lending necessarily involves. All that one knows is that the underwriting decision or lending decision is based upon an assessment of the value of assets, but presumably in many such systems an asset‑based lender may wish to assess whether there is a realistic possibility of the loan being paid on time because he, she or it may not want to work on the assumption that they are, in all likelihood, going to have to enforce the loan.

In effect, such as the evidence was – and can I now take you to Mr Jeruzalski’s evidence at the materials page 75. Mr Jeruzalski gave evidence from page 74 onwards looking at various ways different banking institutions or lending institutions might approach a loan. If your Honours go to lines 1 to 13 at the top of page 75, he listed each of the various tiers of mortgage lenders in Victoria and, after listing the banks and second‑tier lenders and co‑ops and societies, he said:

You then go to people that, ah, asset lenders. They would have to show how they can repay the amount borrowed.

But Mr Jeruzalski’s system does not involve that – it is the very antithesis of that system. So, in effect, to the extent that our learned friends say that our case is some threat to asset‑based lending, it is wholly wrong. Lenders can use whatever criterion they like. They can do it on character; they can do it on income; they can do it on assets; they can do it literally on the basis of the colour of a person’s hair. But if they choose a lending criteria, the law does not say that it gets them a free pass from equities – and for that matter, the statutes – concerned about unconscionable conduct.

That is why this case is not.....lending. It was a diversion by the Court of Appeal. It is about a system and it is about the behaviour essentially of Mr Jeruzalski in relation to this lending system which he had developed, and its interrelationship with my client.

Your Honours do not have to pass any view about asset‑based lending and, in fact, the cases which in effect have spent time in saying whether asset-based lending is or is not unconscionable, in our respectful submission, have to a great extent been a diversion, because it assumes there is a defined category – how every person who has such lending criteria approaches its decision as to whether to lend or not. It is in that that the inquiry as to appropriate conduct takes place. It is in that to which we direct our attention.

Thus, we say - we have dealt with intermediate appellate court cases at paragraphs 46 to 47 of our submissions and the way the Court of Appeal’s judgment errs in its treatment and, with respect, seeks to elevate what is in those cases a fact‑based assessment into some principle about asset‑based lending. Therefore, we say, the system was unconscionable regardless of the circumstances of individual guarantors, because the system was operated consistently by the lenders and their agent and was deliberately designed – or calculated – to enable lenders to, in effect, affect wilful blindness to the circumstances of individual guarantors. I think now – and that, we say, is exactly the sort of thing that section 12CB(4)(b) of the Act is directed to.

Then, your Honours, I think we have said all we need about paragraph 18 of our outline. Your Honours, in our respectful submission, unless we can be of further assistance, those are our submissions.

KIEFEL CJ: Yes, thank you, Mr Hutley. Yes, Mr Walker.

MR WALKER: May it please the Court. Your Honours, at the outset it will have been obvious from your Honours’ study of the trial reasons and the Court of Appeal reasons the questions of so‑called asset lending or asset‑based loans were in fact very prominent in the presentation of the case against us, and it is not as if that has been abandoned in the written argument or, for that matter, the address in this Court against us.

But a stricture expressed by our learned friend is one that we accept, with respect, and that is that one must avoid the artificiality of what turns out to be circular reasoning by constructing some taxonomy of the business models of lawful lending and then categorising some as more or less amenable to characterisation of their operation as unconscionable, as it were, starting with a presumptive badge of lawfulness and withdrawing it or, as we would submit can be seen from the argument against us, saying of those things which can be sensibly, not in a formal sense, but sensibly by way of description of commercial conduct nowadays, be labelled asset lending, saying that that is, for the reasons our friends have developed, presumptively unconscionable. I will come back later to exploring this notion of what it might mean to say it is presumptively unconscionable.

But for present purposes and in opening our answer to the appeal, it is important to note that there has not been in terms an argument put to your Honours that by definition as a legal category anything that shares features which generalised fall to be labelled as asset lending, must be either presumptively or conclusively unconscientious in the statutory term sense, or perhaps even in the sense of the unwritten law. We will come back to that with respect to special disadvantage.

Your Honours, it has to be said that factually the findings about our conduct, in many ways findings against our clients, that the word “system” is appropriately attached. My learned friend repeatedly talks about deliberate design - most design is deliberate – and it is true that your Honours not merely ought to infer but should proceed on unchallenged facts that there was a course of conduct intended to be, as it were, uniform by these prospective lenders through their solicitor’s finance firm’s efforts to be conducted in a particular way regardless – and I stress and embrace the word – regardless of individuating circumstances of certain kinds of would‑be borrowers.

Now, one of the aspects of this system about which you have heard, is that loans would not be made to entities that would render the loans reviewable under the code, and no criticism, social or legal, could be made of a commercial decision to that effect, any more than any number of prudential or even idiosyncratic choices by repeat lenders, concerning the kind of businesses or persons to whom they are prepared to lend, that could be criticised either socially, that is morally, or legally.

So, in this case, a real inquiry about the nature of the argument against us, is the extent to which either under the rubric of wilful blindness or under the more direct manner of characterising the argument in statutory terms as falling short of an applicable norm, to what extent a so‑called deliberate failure – a choice might be a kinder word – not to seek detailed financial and prudential background of would‑be borrowers and their guarantors, places a prospective lender engaging in such conduct, either conclusively or presumptively, in the position of acting unconscientiously.

Now, that requires, necessarily, returning to what is the cardinal feature of however many variants of commercial behaviour are lumped together under the handy, if problematic, expression “asset lending”. The cardinal feature is that the red or green light loaned as a head or not, will largely, if not wholly depend upon the sufficiency or adequacy by way of a prediction of future markets for the land offered as security, holds out sufficient assurance that in the event of default in the executory obligations to be undertaken by a borrower and the guarantor, the market will be such as to enable the advanced funds and other entitlements of the lenders to be recovered upon a mortgagee sale.

Of course, there are other ways of skinning that cat, apart from actually going through the mortgagee’s sale and refinancing is a common one. In the circumstances of this case, and cases like this case, that need not be taken as being a primary resort. But what matters about asset lending is that it has at its heart that it is a decision to lend that largely driven by the assurance given that in the event of default – and I stress in the event of default – there will be a sufficient prospect achieved by ratios such as two‑thirds, for example, and by some kind of experience and hope for real‑estate markets, that there will be full recovery.

We submit that a fundamental question concerning the moral or ethically informed standards which provide the relevant norms, both the general law and under the statute, that means that there is a fundamentally important question as to whether relying for your commercial decision‑making as a would‑be lender only, or virtually only, on the prospect you see of being paid out in full if there is a default in the executory obligations such as instalments of principle or timely payments of interest and the like, is to be regarded now, based on the kind of information and consideration this Court, as a Court can give, has fallen short of those norms.

For the reasons that we will try to develop, in our submission, the Court of Appeal was correct to understand that on the state of the law they understood bound them, one could not say, as if it were a legal proposition, that is regardless of the circumstances of the particular cases, that asset lending was a prime candidate for unconscientious conduct, either in the sense that it has been conclusively or presumptively falling foul of those enforceable norms.

Now, the Court, of course, is not in a position either to conduct a survey or to make policy decisions about the ease with which money should circulate, including by lending. In our submission, that is why in the paradigm of judicial supervision of such matters, it has developed from equities concerned with the very detailed and specific facts – and human relations of particular cases – rather than laying down, at it were, legislatively, one size fits all.

But now that there is a statute that has occupied the field and has overtly said that it is not to be interpreted as bound by the limits that the individual case‑driven equitable jurisprudence has produced, we can say that there still remains, because of the epithet “unconscionable” or “unconscientious”, the need to identify what it is about the features of the dealing in question which render it unconscientious.

Some things can be put to one side in this case, we submit, contrary perhaps to some matters that may have started from the undergrowth in this argument – this is not a case where the lenders – our clients, through their agent, Mr Jeruzalski – can be said to be privy to fraud – to be conspiring to deceive. The trial judge has rejected matters which might have conduced to that kind of flavour but, of course, the case is not conducted in that way and you will not see that in the Court of Appeal either.

Equally, there are not any findings by which it could be said, for example, that the negligent financial accountant certifier, Mr Topalides, was a person either whose putative lack of independence – to which I will come back – or adjudicated negligence – to which I will also come back ‑ was known at any level in the spectrum between full actual to marginal constructive knowledge by our clients, through their agent.

Now, it is for those reasons, in our submission, that the questions to our learned friend about system are really important because we do not understand the case was run below at trial or argued below on a first appeal on the basis that there could be success for Mr Stubbings by identifying systemic breach of norms regardless, that is, without needing to call in aid the position of Mr Stubbings himself. We have heard nothing to suggest that such a bold endeavour is in train today.

If that is true, of course, the question arises: why is the Court of Appeal to be held wrong in taking the position they did concerning the status of asset lending as itself not a demonstration of or a positive indication of a breach of what I will call the statutory norms. In short, surely their Honours were faithfully applying the law as adumbrated in this Court, namely, that it will depend upon a precise set of findings and evaluation based on those findings of individual cases, that is, the human relations constituting the dealings between the people, one or more of whom is alleged to have acted in breach of those norms.

Or to put it another way, otherwise, of course, the Court would be in grave danger of doing the job of legislators, those to whom legislative rule making is delegated, and those who make evaluative judgment in the course of administering regulatory systems, and that, with respect, is not this Court’s proper function.

It is for those reasons, in our submission, that the way in which the Court of Appeal dealt with the matter in their paragraph 126, starting at the appeal book 193, ought to be regarded as a sound foundation from which one then proceeds to consider the alleged errors in their outcome and reasoning.

Their Honours naturally and, with respect, appropriately refer to AJ Lawyers’ system of lending. We accept it is a system. If I have to, I would accept the word “deliberate”. It is a design. There is, if my friend wishes, calculation in the sense of consideration of consequences. That is true with respect of every business model about which the elementary precaution is taken of inquiring as to whether it is lawful and, if it is lawful, what are some of the consequences that may follow in law, depending upon contingencies in its operation. There cannot be, surely, any criticism except the most perverse of that being a design or deliberate or calculated approach by people entering into a market.

Their Honours say at 126 of the trial judge’s description and characterisation of the system that it was seen by his Honour as involving a deliberate intention. With respect, the word “deliberate” really does not add anything ‑of course there is an intention:

to neither seek nor receive information as to the personal and financial circumstances of the borrowers -

Pausing there, that represents a choice made by these lenders through their managing agent, if I can call him that, a choice made not to do what most of us know, and the.....reports would reveal, does occur, particularly in so‑called first‑year lending, namely, the due diligence of a proposed lender to find out not only about capacity to pay in full and on time but the adequacy of hypothecated security in case that assessment proves inaccurate and of course other matters which have to do nowadays even with such things as social licence, that is what you intend to use the money for.

So due diligence covers a wide range which obviously has to be tailored to the legitimate concerns of the person who makes a choice as to how much due diligence. I suppose underlying the argument about the breach of norms which is marshalled against us in this Court, lies the possibility of some general question to the effect: does it breach the norm for a lender, who is taking security considered by the lender to be adequate to cover the event of default, not to find out more about the chances of default by inquiring in particular as to cashflow, not just income – there may be money from other sources which is not income – cashflow for the borrower and/or somebody standing in the position of surety over the period, or periods, which is reasonable to take into account.

In our submission, the Court ought to hold back decisively from making any such generalised conclusion as part of the judge‑made law concerning the norms that are now to be enforced in this case at least by reference to the statute, informed as it is of course by the general law. That is because the very broad variety of intensity with which there can be due diligence inquiries made suggests that were the Court to venture into any such generalised proposition at all, it would find itself in the impossibly invidious position of making decisions as to where lines ought to be drawn as to good due diligence, bad due diligence, scrupulous due diligence or what might be called insouciant due diligence, if that is not a contradiction in terms.

STEWARD J: Mr Walker, is that the correct question to ask, or is rather the question to ask, is it acting in accordance with normative standards to enter an agreement whereby interest is payable in circumstances where the lender believes, assumes, suspects that the borrower has no income to meet the interest payments and that as a result the line is, to use the words of the trial judge, risky and/or dangerous for the borrower? Is that not ‑ ‑ ‑

MR WALKER: I think the short answer is yes, to your Honour’s question, and that straddles most of what I wish to proffer as a response to our friend’s system arguments and, of course, where we submit the case calls to be decided, namely, consideration of this case on its facts. I would understand, with respect, that Justice Steward’s question, though expressed in generalised terms, is intended to capture matters of fact that are relevant to the actual human beings involved in this case.

So that is why my answer is yes. It does not mean that these systemic questions, however, are irrelevant because it will not, in our submission, qualify as a breach of a norm to decide not to be concerned with the question as to how somebody is going to find the money to repay. Can I develop that first ‑ ‑ ‑

KEANE J: Mr Walker, before you develop that point can I just be clear with you – you do accept that there is a radical difference, for these purposes, between a lender who says “Well, in my business I take a mortgage from you on the footing that I regard it as my only reliable security for repayment of my loan, whether there is going to be refinancing or whether there is going to be a mortgage sale”, on the one hand, and.....a lender who says “I am taking a mortgage of your asset on the footing that I am content to take your equity in interest payments, default being inevitable”.

MR WALKER: Your Honour, the use of the word “equity” in that ‑ ‑ ‑

KEANE J: Well, in this case for example, Mr Stubbings’ equity in the two properties, the interest rates that were being charged meant that in default there would be a lot of interest payable, the sale of the pieces of land would mean that the principle would be returned and, to the extent that Mr Stubbings had any equity in his assets, that would go in the interest payments of by way of default interest.

MR WALKER: The equity would need to be drawn on, that is, the proceeds of the mortgagee’s sales would need to be expended in order to meet all of the legal entitlements of our client. Yes.

KEANE J: If that is the basis on which the lending occurs, adding the other features of Mr Stubbings’ situation, is there not an exploitation here of a vulnerable person?

MR WALKER: No, but I accept that the circumstances that your Honour has put to me, plus other matters, we submit not present in this case, could produce, either by Blomley v Ryan, or by less dramatic circumstances, the intervention of equity as a matter of general law.....by reference to the statutory norms, yes. In other words, if I were to say I do not come here to praise as a piece of sensible decision‑making by Mr Stubbings to venture on this six or 12‑month real estate play your Honours will appreciate that the word “improvident” hovers pretty close at the back of it.

In other words, there is risk involved that he will not be able to get all the ducks in a row to achieve what he wanted to achieve for his purposes, his self‑interest, namely to move, in effect, his real estate stakes from the two properties you did not want to live in at Narre Warren to the seaside.

The fact that, as I will come to later, there may be some obscurity as between him and the proposed lenders as to whether the Mornington property should be seen as the acquisition of a base for business activities of the kind that might generate income is a distraction and is not, either at the trial level or in the Court of Appeal, a critical feature of this case. But I will come back briefly to the matter later on.

GORDON J: Can I raise one third category just so that when you address it, I would be very grateful, Mr Walker. Is there also a distinction to be drawn where the lender’s business is “I will take a mortgage over the asset on the footing that I intend” – just looking at paragraph 126:

to neither seek nor receive information as to the personal and financial circumstances of the borrowers –

“so as to protect myself from any claimed or unconscionable conduct”?

MR WALKER: Yes, I do know I have to deal with that, your Honours, which is why I started with 126. The answer is yes, but I am going to have to take longer than that to attempt to persuade your Honours that that is correct.

The first step I was in the course of taking is to say that it cannot be that a systemic feature ‑ however deliberate, however calculated ‑ cannot be that a systemic feature to be content to lend only on the basis – that is, virtually confined to the question: will I be able to get my money back if there is default in the borrower’s obligations.....obligations.

In our submission, unless the Court were to construe the statute, or to find within the general law, the proposition that so‑called responsible lending and some specified description of an intensity of due diligence is required in order for lending transactions to be effective, that is, in the sense that they will not be undone or gravely altered by judicial decision then, in our submission, that part of the argument against us should fall away.

We would urge your Honours, as you would appreciate, that the Court should not set itself up as in some generalised way - I am not talking about the facts of this case to which I have to come, that is the focus of the matter. This Court should certainly not, as it were, promulgate a requirement that in order to have the benefits of the obligations owed to a lender a person must extract and consider – and presumably make some kind of prudential as opposed to risk‑taking decision – about the capacity and, thus, prospects of a borrower to repay and meet other obligations such as interest and fees in full and on time.

GORDON J: Is there a distinction to be drawn between your contention that there cannot be a minimum of due diligence as distinct from a proposition that you cannot adopt a system which avoids addressing the question at all?

MR WALKER: No, there is not, because, in our submission, the self‑interested concern is satisfying yourself that the margin between valuation and prospective default obligations, that is in a financial sense, satisfaction as to that – which is, of course, self‑interested – is, in our submission, in the eyes of the law, both under the statute and generally, in no way objectionable by somebody who seeks to make money – and it is a capital.....to make money out of lending.

The alternative is, of course – if that is not correct of course, the Court would be saying that there is to be found by the judges in the general expressions of the statute – or by the judges generally – there is to be found an obligation not to make secured loans without the investigation – and presumably a measure of altruism involved in the consideration of whether that which is supplied upon due diligence justifies taking the risk in advancing the funds because your Honours need hardly be reminded that people who borrow mostly do so because they do not have commensurate funds available from their own resources..... So, there is always a risk. But there will be, in the normal vicissitudes of life and commerce, reasons why promises to repay may not be complied with in full and on time.

In our submission, there is simply nothing to justify the Court taking such a radical step, not least, if I may venture on a matter of policy, not least because the Court, with great respect, is not the best organ – or even an organ at all placed to shape the variety of offerings in the market for finance. That is for a combination of entrepreneurs and government – and customers, of course - markets, in short, as regulated.

It is for those reasons, in our submission, that the first step – and it is by no means a complete part of the journey – is to say, one would not identify a designed, deliberate lack of interest, perhaps correctly called disinterest, in matters of income, CV, family support, health, customer base, a business case accepted by a bank as being necessary, and your Honours appreciate that as all the judges below understood, this kind of lending is, at least in general terms, characterised as being that part of the market for people who cannot obtain lower interest rates from other lenders such as the banks.

In our submission, it would be, for obvious reasons, a crying shame if there were driven from the field by generalised findings concerning inquiries about capacity to repay from so‑called income lenders who are prepared to take a risk for people who want funds. Your Honours will understand the colloquial expression “bridging” in many ways describes aspects of what you will have read concerning Mr Stubbings’ ambitions. Is that a convenient time, your Honours?

KIEFEL CJ: Yes, it is. Thank you, Mr Walker.

AT 12.47 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

KIEFEL CJ: Yes, Mr Walker.

MR WALKER: May it please your Honours. There are a number of matters concerning the facts of the operation of this system in the case involving Mr Stubbings that have been raised by my learned friend and in response to matters your Honours have raised with my learned friend. I intend to deal with them as briefly as I may right now because they inform the way in which we will then proceed through the balance of the propositions in our outline.

First, may I remind your Honours of what our learned friend took you to at 75 in the appellant’s further materials in the transcript of Mr Jeruzalski’s examination, that is, in‑chief. It is transcript 276, I think, but it is lines 11 to 13 in particular. There is a sequence of a description in general terms of his experience, that is, Mr Jeruzalski’s experience in relation to or relevant to Mr Stubbings’ allegation that he had no financial records or tax returns, and your Honours are familiar with what follows.

I wanted to draw attention particularly to the matter at the end of that answer after you drop down the tiers, so to speak, of possible lenders. You then go to people that are asset lenders. They would have to show how they can repay the amount borrowed – the change in prepositions I think does not – in pronouns, I should say, does not disguise the fact that they are talking about what borrowers would need to do, would‑be borrowers.

But I think the suggestion was made at this part of our learned friend’s address that asset lenders are people who would require a demonstration of capacity to repay. Of course, that is completely at odds with what is said by way of criticism, both of the business model and of the conduct in this case. So, it may be that this part of an answer that is not particularly straightforward in the way in which it was given, but this we can say.

On our search, there is no argument or finding at first instance or in the Court of Appeal that relied upon that statement they would have to show how they can repay the amount borrowed as applying to expected dealings with asset lenders such as our clients in this case. There is a reference to this part of the transcript but not for any purpose that picks up on those matters. So, you will not find that, on our search, in the judgment at first instance, in the Court of Appeal or in the arguments.

We still understand that what we are to answer is a case that has as part of the gravamen of the complaint about our conduct, being that in fact we did not require the borrower to show that he could repay the amount borrowed, presumably meaning in full and on time and in accordance with any necessary instalments, et cetera, et cetera. That is the first point.

The next one concerns a matter particularly germane to a concern my friend was invited to address in relation to the forms of the certificates, and may I just make it clear that obviously because we support the reasoning of the Court of Appeal, there is no notice of contention, we are bound to and will attempt to persuade your Honours that the decisive role given to the certificates was correctly appreciated by their Honours.

So, against that background can I tackle the question concerning the form of the certificates, particularly the one from the accountant and particularly given it is being addressed to the position of the borrower, that is, the company. In order, as it were, to get the worst over first, can I remind your Honours the form which can conveniently be seen at page 144, 145, reproduced by their Honours below at their paragraph 31, includes at about line 15 on page 145 the pro forma statement by the adviser:

I have been engaged by the Borrower in advising and have given this Certificate entirely independently of any other Borrower or Guarantor.

This is not the occasion, if there would ever be an occasion, to practise pedantry with respect to whether the word “other” somehow qualifies guarantor as well so that the guarantor of this borrower somehow is within the magic circle. On any view of it this is, to put it mildly, inelegant and not a promising start for an argument that this was advice that could be and should be understood as substantively addressed to Mr Stubbings. But, as.....there is more. The “more” is first of all the consideration of the nature of the company and secondly the way in which the matter was plainly run below, including by Mr Stubbings.

First of all, your Honours know that the Victorian Boat Clinic Pty Ltd is a one‑man company, one shareholder, one director. So, when it instructs somebody to explain risks, we are talking about him being a natural person, and that of course is Mr Stubbings. But when one goes back to the way in which his Honour at first instance understood and approached the matter, it is even plainer, and explicitly so. So, in one of the findings my learned friend understandably levelled against us in his address, at page 85 of the book in first instance paragraph 314, your Honours will see in that very paragraph it commences with:

Mr Jeruzalski ensured that Mr Stubbings received legal advice and accounting advice by requiring certificates from a solicitor and an accountant.

Perhaps understandably in the way matters fell out factually and the way in which the grievance was presented by Mr Stubbings at first instance, no distinction between the one man and the company in which he was the one man was observed for the purposes of giving advice. Now, of course there is a difference between what I will call the threatened loss that might be suffered by a penniless corporation and the threatened loss that might be suffered by a person with, as Justice Keane put it to me before the break, subsisting equity in some properties, particularly with the magic propensity of interest to swell. We accept and understand, with respect, the force of that distinction.

GORDON J: Can I ask one question about the certificate you took us to, which is the independent financial advice.

MR WALKER: Yes, your Honour.

GORDON J: Is it right to say that it was addressed to the lenders concerning the loan to the company on the security of a debenture charge over its assets?

MR WALKER: Yes.

GORDON J: If so, what were its assets?

MR WALKER: Your Honour, so far as we understand on the findings of fact, precisely zero or whatever button or so might have been found in the mythical bank account.

GORDON J: Thank you.

MR WALKER: There is no point us beating around the bush. This is not a company that is capitalised, let alone adequately so. My friend’s description of it is entirely fair. Of course, resort, not at our instance but for his own purposes, by Mr Stubbings, to such a vehicle for borrowing in order to obtain the benefit of title to a property is scarcely a matter that weighs against us. It imports or ‑ ‑ ‑

GORDON J: But you required it - you required the company because you would not lend to him directly.

MR WALKER: We will not lend to natural persons, that is right, your Honour, but he therefore chooses to do so. We do not push him into it. There is no misleading. There is no subterfuge involved in saying we will only lend to a corporation and the person who wishes the benefit of the money saying, “In that case, I will obtain a corporation.”

That is the first point. I will be coming back in particular to paragraphs 314, 315 and 316. They are, we accept, close to the nub of the matter, but while on this question of advice, could I remind your Honours that there were claims against Mr Topalides. If one goes in the first instance judgment, page 91 of the book, to paragraphs 329 and following, you will see that among the claims he faced was negligence, breach of a duty of care to Mr Stubbings, and that the case proceeded on the basis and was decided in Mr Stubbings’ favour on the basis that Mr Topalides failed to provide financial advice to Mr Stubbings.

The pleaded case obviously included or was adapted to what I will call the derivative position and liability of the guarantor, Mr Stubbings, to the corporation’s borrowing, by reason of the ground noted in 329(c) that he had failed to make necessary inquiries to ensure Mr Stubbings was capable of what is called maintaining the loan. Your Honours know that the way in which that fell out included observations by his Honour, paragraph 335 at the foot of 92, top of 93, to the effect that, against what his Honour was satisfied of, as a generic matter, namely:

a person borrowing through solicitors on an asset‑based loan is the type of person who could not raise the money at a bank or even a second‑tier lender. Instead of declining to sign the certificate until he had seen such supporting documentation, Mr Topalides blamed Mr Stubbings for entering into a transaction not knowing his financial affairs and ‘being prepared to lie’.

Whether that is meant to be a reference only or particularly to the question of the business dedication of the funds to be raised by the borrowing does not probably matter for present purposes. Paragraph 336 contains the findings against Mr Topalides and you can see that there is then, for the purposes of resolving a dispute raised by Mr Stubbings, Mr Topalides is being treated as a person who is undertaking to advise Mr Stubbings in such a way as to give rise to enforceable duties of care, and in particular, paragraph 338, significantly, in relation to asset‑based lending.

One sees that under 338, had the certificate not been given, as it was given by reason of negligence, his Honour at trial was satisfied the loan would not have gone ahead. Now, that is as palpable an indication as one can get that it is just not right to rope our clients in with Mr Zourkas or his misconduct, or Mr Topalides with his breach of duty. Nor are there any findings, which, with respect, would suggest that the “bridge too far” comment by his Honour at trial, paragraph 314, book 85, to which my learned friend has taken your Honours, should be treated as being a holding concerning a nefarious connection between our clients, through their managing agent, and the two so‑called advisers – the accountant and the solicitor who gave the certificates – of such a kind as to inform a finding of unconscionable conduct against our clients.

Leaving aside the tentative venturing of the figure of speech concerning the bridge too far, the independence in question may well arouse suspicion concerning independence of the borrower who obviously wanted the money and, unless the borrower could get the money, on his Honour’s view of things, there were to be eyebrows raised concerning the fact that the certifiers would not get their money and, of course, his Honour was proceeding on a basis that we would commend to your Honours as plainly correct, that if the certificates had not been supplied in the pro forma required, what might be called ticks in boxes, then there would not have been a lender.

When one puts all of that together, there may well be a concern about independence of the borrower of the advisers who would not be paid unless the borrower succeeded in his endeavour to achieve the lending of funds by our clients. But there is nothing in that, with respect, to suggest any nefarious connection by means of lack of independence or unprofessional willingness to misrepresent an opinion or to fail to carry our requisite investigations to be laid at the feet of our client.

STEWARD J: Mr Walker, can I ask, do you say that there is something in the contents of the accountant’s certificate, which somehow undoes or denies or defeats the solicitor’s suspicion that the borrower had no income to which he may ‑ ‑ ‑

MR WALKER: No, I cannot go that far and do not.

STEWARD J: All right, thank you.

MR WALKER: As your Honours know, I do – my course is set unequivocally to persuading your Honours that the way in which the Court of Appeal finally dealt with the matter – I will come to it fairly soon – in the sequence of paragraphs 131 through to 134 of their reasons, pages 196 to 198 of the book – I am committed, of course, to defending that reasoning and in further answer to Justice Steward – of course, that involves one might be called a curative or ameliorative effect of the certificates.

However, I cannot – and their Honours did not – point to anything in the certificates which would have allayed or tended against what was fairly called on the findings, based on the evidence, a suspicion – an assumption will do, actually for these purposes – against us – that Mr Stubbings did not have income commensurate with the periodic financial obligations for six or 12 months.

It is no use me avoiding that. There it is, and the model of lending is, obviously enough, that is a matter for the borrower and the borrower’s guarantor – the borrower being the one-man company of which the guarantor is the human face.

That is why – if I may say so – it is important with respect to the general law as it informs the statute and its norm to put to one side special disadvantage being the so-called danger that events may not turn out so as to permit meeting, in a commercially acceptable way, the financial obligations of a short-term borrowing – a kind of bridging.

Now, it is not a special disadvantage or indeed any disadvantage at all to be taken into account by the law in seeing vitiating circumstances or factors in relation to property dealings, that somebody is in a position where they need to borrow – that can be put to one side. Neither is it an advantage – let alone a special disadvantage – within the meaning of this area of legal doctrine for one to be in the position that you cannot buy unless you get what is called in the market – in the market, a hundred per cent finals.

Now, it may well be that there are many of us sufficiently conservative to regard that as irresponsible by the borrower. But responsible lending, with respect, has not become a tenet of the general law or embedded in the statutory norm informed by that general law so as to prevent people lacking special disadvantage to decide to undertake those risks.

Now, we are not going to cavil either – it would make no difference if I tried – with the words which have been marshalled against us – fairly, we accept – in relation to what can be summarised as the danger proposition – that is the danger to the guarantor, Mr Stubbings, being – for the reasons Justice Keane has raised with me – rather more substantial than the danger to a corporation which may always have been only just a cigarette‑paper side of insolvency.

So, accepting all of that, and accepting that the language of “doomed” is also a finding against us, which is, on the basis of the evidence in question, not one I am intent on removing, as it were, we do say this. There was a plan. In retrospect and, indeed, for many observers, coming to this wreckage after the event, one might think in prospect it should have been obvious that this was a big risk.

Whether or not the outcome of the big risk was that much worse than the position Mr Stubbings was already in is, of course, very unexplored in the findings of fact, and we would simply point out that his plan that he did not carry through – nothing to do with us – was to put the two Narre Warren properties on the market sufficiently promptly in order for their realised proceeds to meet obligations that by then he would owe to our clients against the refinancing of those properties being a kind of bridging finance.

With respect, all bridging finance is understood to carry a risk. People who are risk free do not pay bridging finance because they have the money themselves. So, in our submission, the notion that this danger or doom was a matter that necessarily rendered Mr Stubbings in the position of a person with a so-called special disadvantage should be rejected - query, in any event whether in truth any special disadvantage has been articulated in terms which do capture the danger and doomed point.

You are not at a special advantage because you are willing to undertake a big risk. Indeed, you need a special disadvantage in order that you may be spared the consequences in law, in property and contract law, of undertaking big risks.

It is for those reasons that it does not matter that those are matters which might be attributed as a matter of actual knowledge to our clients ‑that is, the assumption by their managing agent that there was no income and that it will depend upon the timing of the proposed sale of the refinanced properties at Narre Warren as to whether my clients, as lenders, would be commercially satisfied within the time scale permitted.

This is not a case where there has been a special disadvantage of a kind that falls within our undoubted knowledge by means of that assumption or suspicion concerning lack of capacity to pay, and we have to embrace and do embrace the fact that the business model that we are seeking to defend as not either conclusively or presumptively unconscionable – namely, asset lending – will, for all practical purposes, fall to be regarded as a manifestation in the market of the position that would‑be borrowers are when they are not able to obtain, because of incapacities to give solid assurance concerning repayment in full and on time, financial accommodation from less expensive providers of finance such as their best banks.

STEWARD J: Mr Walker, can I ask, are these propositions that you are propounding intended to undermine or deny the finding of the Court of Appeal at 132 that really, but for the certificates, it was probably the case that the solicitor had acted unconscionably in not – in abstaining from making inquiries, or do ‑ ‑ ‑

MR WALKER: No, no, because the certificates are part and parcel of the means by which I try to make good that there is no, as it were, guilty knowledge, let alone of a relevant special disadvantage. I appreciate that the statutory enlargement of the inquiry requires shifting the focus just away from special disadvantage because it is the facts as a whole, which does critically include the certificates.

To make it as crystal clear if I can in answer to Justice Steward’s question, what I intended earlier when I said there is no notice of contention, we are here to support the Court of Appeal’s reasoning, accepts what falls out in the sequence 132, 133, 134, which, as your Honours well appreciate, confronts me with the tentative suggestion by their Honours that the matters summarised in 131 may have been sufficient to justify a serious finding that it was unconscionable to abstain from inquiry. Of course, the certificates are part of that.

That is why I have been at pains to say there are no nefarious connections that make the certifiers our catch clause, let alone our stooges, and there is no call to posit some lack of independence between us and those certifiers. It is the borrower that pays, admittedly from lent funds, for certification.

Now, your Honours, the next point I wanted to go to concerned what is said about the system by my friend, and in particular the involvement in repeated business. As you will see from page 43 of the book, at trial paragraph 155, it should be made clear that any shadow of impropriety about the relation between Mr Zourkas and Mr Jeruzalski rather disappears on looking at the factual findings. They had known, or at least:

Mr Zourkas had known Mr Jeruzalski for 25 years but had only dealt with him for three or four years . . . over the past three or four years he had referred 30 to 40 clients to Mr Jeruzalski for loans that went through and were settled . . . another 30 or 40 –

that is about the same strike rate:

whom Mr Jeruzalski had rejected.

Now, one thing about the way in which this case was constructed and presented at trial is that in relation to an argument based upon an illicit system, there was very little exploration of what I will call systemic behaviour or knowledge that would come from operation of a system. In particular, one may guess, based upon the findings in this case about Mr Topalides, that it could be that the 30 or 40 people who were knocked back upon introduction to Mr Jeruzalski by Mr Zourkas, there were many, perhaps all who were knocked back because certificates were not supplied in the pro forma form which, of course, would indicate that there was the exiguous, and it is exiguous information, supplied by a certificate concerning the capacity of a borrower to pay.

I need to expand it. The certificate’s form does not say, as your Honours well know, that these are would‑be borrowers or connections of borrowers who are in a position, here and now, with a fair degree of assurance, to meet obligations. Without going to the Wagyu and shiraz conceit, one appreciates that income tells a pretty incomplete story about the capacity to meet obligations owed to a lender, unless you know what other obligations are owed to other people as well.

Thus, for example, when one looks at the so‑called independent financial advice, it is of course true that that does not convey much, if at all, about the capacity of the borrower to meet the obligations. The exiguous content is simply that the financial risk was explained, and that the loan was required for business purposes, and that the nature and extent of the risk, in particular of the security, had been explained and understood. Well, that supplies some information – admittedly, not much and that is ‑ ‑ ‑

GORDON J: I find that a difficult proposition to accept, Mr Walker, when we know that it is a debenture, as you accept, over its assets and the company has no assets, and so its financial risks to it are very small.

MR WALKER: Your Honour, I think I have accepted that the position of the company means that it would not be sensible for me to propose that it was facing risk of what might be called downside.

GORDON J: That is my point. This is a certificate addressed to the lenders concerning the loan to the company. It is given by way of security for debenture charge over its assets. It has no assets, and so when it is said to explain the financial risk being assumed by the company, the answer is close to zero.

MR WALKER: I think, your Honour, I am agreeing with that ‑ ‑ ‑

GORDON J: Then the answer is that once you have realised that that is it, and the certificate goes no further than that, then it is what is omitted which is the explanation of the financial risks to Mr Stubbings.

MR WALKER: But it does go further than that, I am trying to persuade your Honours. It goes further than that because this is on instructions and explanation to a company which can obviously only be given to a human being. We know that is Mr Stubbings, and I have shown you how at trial that was treated as – our friends talk about the corporate veil not being lifted. Well, that is not how Mr Stubbings has proceeded below, and understandably, and without any objection, at least by us.

The fact is that the company then certified as having had things explained ‑ and we are not talking about the perception that the certificate conveys to us, of course, we know that negligence meant that none of this was done properly. But that which was presented to us was that there had been an explanation to the borrower, obviously that is to whatever person or.....natural persons constituted the borrower for the purposes of having things explained, and that they were also able to supply the information that setting up and expanding the business was the purpose of the funds – I will come back to that in just a moment – from which it follows, in our submission, that the exiguous – and I do accept the exiguous information being offered was that there was an acceptance of the nature of the burden, including the risk of not being able to shoulder the burden, by reason of that so‑called independent financial advice.

Now, I cannot take my answer, with respect to Justice Gordon’s inquiries to me, any further than that. Of course, it is true, this is a company which your Honours should treat effectively as being a hollow shell. My friend calls it a shell. I add “hollow”. Yes, it is true.

Your Honours, while on the question of certificates, because of their significance in our attempt to vindicate the approach of the Court of Appeal, may I remind you of the content of the so‑called certificate of independent legal advice. There are the answers affirmatively given to some important questions, and your Honours should proceed on the basis that if they were not affirmative then the certificate would not be regarded as having been supplied and the loan would not have gone ahead by a parity of reasoning with what was found had there been non‑negligent financial advice given.

You see there, if I may say so, a litany of questions which are still as unconvincing to the average legal reader as ever, particularly that question which raises philosophical or psychological conundrums: question 4:

Do you understand the effects of the Security Documents –

How one would know the accuracy or cogency of the affirmative answer to that simply by seeing the word “yes”, I confess we do not know. But in support of our position your Honours are familiar with that absurdity – if I can put it that way – because it is absolutely common to the point of being universal.

Now, it is a bit different when you are looking at testamentary capacity or when you are looking at a certificate which provides the independent observation of a legal adviser where you can ask somebody to certify to sufficient catechism of the person in question to find out do they really understand it. But this is not a case that is being run on the basis that question 4 is a question which, although close to the point, common as it is, it was in itself a particular of unconscionable conduct because one can and should do a better job of finding out whether somebody understands the effects of security documents.

Without being facetious, most mortgages, for example, are not immediately apparent as to all of the effects they may have to lay readers. What does matter however, of course, is question 3, and that is a matter where, if the certificate comes to our clients, have they been fully explained, then there is nothing in the facts of this case, that is, the dealings between the human players in this case, to show that there should have been the vaguest inkling of doubt concerning the accuracy of that answer, and we do not have an adjudication about any dispute concerning that because the claim was settled.

STEWARD J: Mr Walker, I can understand how your submission would work if the purpose of the certificates is to demonstrate to the solicitor that the borrower understands what is happening and the borrower freely wishes to undertake something which is very risky. That I can understand. But if the suspicion or assumption held by the solicitor was true, and we now know it was, this is a high‑risk transaction, this is a fundamentally uncommercial transaction which, as the trial judge found, was destined to lead to default. There is a difference between those two types of situations.

MR WALKER: My attempt is to persuade your Honours that it truly is a difference of degree and timing. When the transaction was entered into, the intention was that there would be a liquidation of the refinanced documents – properties sooner than events showed might have occurred. That is down to Mr Stubbings, not to us. He could have and given his plan and his position and the risk, should have, sought to sell them as soon as possible, and we cannot and should not be held responsible for his decisions in that regard. He does not claim that we were responsible for him not taking it to market sooner than he did.

STEWARD J: But is that really realistic? In circumstances where Mr Stubbings could not borrow from a bank, the proposition that he could in six months’ time go and borrow to a bank based on what Mr Zourkas said to him would be the strength of the payments he made to your clients, that is a remarkable proposition, with great respect. No bank would lend on that.

MR WALKER: Your Honour, there is a limit to what I can add to what I have already said. The evidence is clear that Mr Jeruzalski’s acceptance, indeed, it would appear in‑chief rather talkative volunteering about his views of prospects of getting a bank loan, speak for themselves and, with respect, they are entirely fairly paraphrased for present purposes by Justice Steward’s observations to me. I accept all of that.

All I am saying is that the risk of the plan by Mr Stubbings – not our plan – by Mr Stubbings, was a risk that he is entitled at law to undertake. There is no requirement for us to become his steward or adviser. He never looked to us for planning advice, development advice, boat repair advice, financial advice, or legal advice.

GORDON J: Mr Walker, you cannot rely upon that sort of contention either, can you, in circumstances where your system ensured that they were never spoken to and were never contacted ‑ ‑ ‑

MR WALKER: We can ‑ ‑ ‑

GORDON J: You cannot – I do not know that you can isolate these ideas, and without putting them into the context, as you said a moment ago, in response to Justice Steward, you have a problem about degree and timing.

MR WALKER: Your Honour, I entirely accept, although I can only deal with one point at time, it has to be an overall exercise and some of it may be unders and overs, I accept. So, I am not trying to do anything in isolation. That is the first thing. The second thing is we are not put by our intent – commercial willingness – to lend upon indication of an appropriate margin by valuation. We are not thereby put in a position where the law requires us, on pain of infringing a relevant enforceable norm in this case imposed by a statute, by interpretation and analogy with the general law, to undertake, as it were, to council our would‑be customer not to go down a disastrous route.

So, your Honours appreciate that I am beating an obvious drum here. We are obviously not his keeper. We are at arm’s length in a commercial dealing where we are bargaining to obtain benefit for ourselves, none of which, under our system of law, is inimical to proper conduct. So, there is no misleading concerning the terms that is successfully alleged against us. There is simply the risk which, though in hindsight, I accept in prospect cannot be overlooked, that unless this timing worked there would be a real reckoning and as Justice Gordon, and I think some others of your Honours have raised, and as I accept I have to confront, in any event at the end of the six or 12 months, what was to be done.

Now, it would appear that Mr Stubbings, not by dint of anything we had permitted him to believe – we were not advising – Mr Stubbings held out the hope that if he could sell the refinanced Narre Warren properties, he could then refinance, lo and behold with the bank, the Mornington property.

Now, everything would depend upon the money and the time, no doubt. He had, after all, had bank finance. That was what was refinanced at Narre Warren. There are not factual matters that would need to take that any further and, in particular, the epithets “doomed” are, we accept – and “danger” – we accept, words of evaluation, admittedly made in hindsight, that do have support in prospect at the time. We accept all of that.

But what we do not accept, and would urge against, do urge against, is the notion that that translates without law, that translates without law into the breach of the norm imposed by these provisions on lenders in our position, because we did not tell a willing customer, “Please do not do business with us, this is not in your best interests” ‑ ‑ ‑

GORDON J: I think that is – can I raise three things about that. It is not because your client did anything to encourage him, it is because your client did not ask the question, is it not? It is the reverse of the situation that you put to us. That is the first.

MR WALKER: What I was trying to say about that proposition is that the not asking questions only has meaning if it could have had an effect, or should have had an effect on what would have happened under this borrowing, and it is plain to demonstration that Mr Stubbings’ position, consistently, forensically, has been “I should never have been allowed to borrow this money”. Now, that means that the asking of the questions is really just part of a dealing which would have amounted to active discouragement.

GORDON J: Then the second proposition ‑ ‑ ‑

MR WALKER: Where is your income or other resources by which you can repay the first, second, third, fourth, fifth months’ interest, Mr Stubbings? So says the hypothesised question on our behalf. Mr Stubbings spreads his hand and says, “God will provide”, and we say, “Not good enough for us”. We will not ‑ ‑ ‑

GORDON J: I think there are two – there are two problems, I think, possibly, with that, and I want to put them to you. One is that it was not first, second, third, fourth, to sixth or seventh month, the default was inevitable after month one or two, or two, as it ultimately paid out.

MR WALKER: That is why I said “first”, your Honour, yes.

GORDON J: Thank you. The second is that the difficulty is that it is because your client did nothing and made a deliberate choice, and I do not mean that – part of the system not to ask, at no point did anyone give any financial advice.

MR WALKER: Well, so far as we knew they did.

GORDON J: No, they did not.

MR WALKER: We know factually that they did not, Mr Topalides did not.

GORDON J: No, even in the certificates, your client knew that he had not. He was given no financial advice, he personally. The company was given financial advice, and he was given legal advice, if one looks to the legal certificate about the effect ‑ ‑ ‑

MR WALKER: Yes.

GORDON J: No one said to him, this is a financial disaster for you, you should not do it.

MR WALKER: Your Honour, it is, with respect, plain that on the face of the certificates as they were given to us that this was a man who understood the obligation of a guarantor and of a borrower, could, upon default, produce the situation of a forced sale of the property from the proceeds of which, the obligation would be met.

There is no suggestion that Mr Stubbings did not understand the fundamentals of the hypothecation he was offering. That is the first thing. The second thing is he certainly understood that the money had to be repaid, and in accordance with the terms, or at least the certificates made it tolerably plain to us that he understood that.

Justice Gordon’s question is directed particularly to a matter that I think I have already accepted is germane to the inquiry, namely, the difference between the position of the hollow shell company on the one hand, and the guarantor, the one man who owned and directed that company who, willing to say the borrowing was for business purposes in order to complete a certificate in order to obtain the money, must have understood, plainly, the certificates told us he understood, that he was taking the risk that was constituted by the monthly outgoing.

Now, it is for those reasons that the notion that failing to ask constitutes the completing component of the picture that produces unconscionability necessarily requires answering the question, but what was it about the circumstances that required you – on pain of falling short of this norm of conduct – to ask questions about a person to whom you were prepared to lend, simply if there was to you a satisfying margin between valuation and possible default obligation.

We understand the answer that is proffered is, because you knew enough to understand the so‑called dangerousness – meaning the high risk of default in financial rearrangement – perhaps loss on the part of Mr Stubbings – and, to use the figure of speech that we cannot contend against, that it was in that sense a doomed venture. That only means, of course, that unless things happened just so in the market for sale and refinancing, then there would be problems, problems Mr Stubbings obviously was prepared to undertake in order to obtain what he really wanted, which was this land. We are not responsible in any way for him wanting that land that badly.

It is for those reasons, in our submission, that there is to be avoided that reasoning for the decision of this case on its particular facts, which involves the notion that all covenantees – promisees – obtaining the benefit of a promise to pay money in the future, that is executory, need to make inquiries lest the consequences of default be regarded as the kind of misfortune for the promisor that should have and could have been avoided by proper conduct, namely inquiring about your capacity.

Now, I have expressed it in those terms because this cannot be a principle which is applicable only to lenders. The statute is not applicable only to lenders. .....applicable to vendors, and not just of land.....and undertaking, for example, terms payment obligations for a glamorous motor car or for a luxurious holiday is, in our submission, not to be seen as a priori a transaction in which there needs to be some accountant‑certified, lawyer‑blessed statement of assets and liabilities.....prospects, examination of CV and your mental and physical health. That is, in our submission, is to introduce matters which are utterly alien to the autonomy of parties who are not – who are all sui juris – and who are not, with respect, each other’s keepers.

Now, your Honours appreciate that the business model so‑called that we are seeking to defend by vindicating the approach of the Court of Appeal certainly involves acceptance of the possibility – probability can be true – that somebody is taking on more than they can chew. But that is for them to assess as a risk that they are willing or not to undertake and not for somebody who offers at a price and on terms to give them what they want to say you are in grave danger of getting yourself into a position which far from pleasing you will be a disaster. Now, I stress this is a case clearly on the other side of the line from pressured or misleading, let alone fraudulent, inducements to enter into a transaction. None of that is true here.

Your Honours, I think in the course of answering some of those matters I have dealt with a deal of the things I had said just before – just after the adjournment I was going to look at, but if your Honours will forgive me one moment. The business set‑up endorsement in the certificate that came to us has understandably, with respect, been criticised as quite uninformative about what was to be done with the money and, much more importantly, with how much money.

There is a limit to what we can say to defend the statement and our heart is not in it, for obvious reasons. It is not our statement. It was made to us by Mr Stubbings with professional assistance and, in any event, setting up a business by buying premises or a site that you intend regardless of planning regimes, or hope in light of planning regimes, to be able to use remuneratively is, of course, well within the rather uninformative brief endorsement on the form. It is not a matter which contributes an iota to the mounting of a picture of unconscionable conduct against us.

Apropos that matter, it is literally a footnote matter, that is footnote 198 in the Court of Appeal, the explanation given in their paragraphs 131(5) at appeal book 197. My learned friend criticises the footnote but, with respect, it is correct that there was not a case made concerning unconscionability because we should have said, “Hey, watch out, green wedge will prevent you from conducting any business on this site”. That was simply not a case and it is not held against us.

As to certificates, my learned friend, in the course of his address, said that they were not able to overcome the problem. I hope you will forgive me if I paraphrase my understanding of the problem as including, at least at its heart, the notion of the assumed or suspected incapacity from income to service what was required from the outset under this finance.

We have to confront that directly in order to vindicate the approach taken in the closing paragraphs which commence with 130 and conclude at 134 of their Honours’ reasonings, pages 195 to 198. This will enable me to combine the matters I wish to add in address to our written submissions in accordance with I think most, if not all, of the remaining propositions I want to cover in address.

The role of the certificates is, we accept, indeed we assert, to ensure that the risk of failure and financial detriment, proprietary detriment arising from that failure, by defaulting in the promises Mr Stubbings was prepared to make us, including through his company, could rest fairly and squarely with Mr Stubbings, he not being a person who by any special disadvantage known to us or by being a member of any class specially favoured of the law, including equity, ought not to be allowed to undertake such risks.

As harsh as the language of risk allocation may be, it is after all the very essence of all of the transactions which are in question in this case and obviously the law cannot print the covenant to repay, the covenant to pay interest and the consequences of enforcing an hypothecation security, the law cannot treat them as matters which desirably should not occur. They are rights and obligations because they can be enforced literally and there is risk involved as soon as anything in the nature of a market is engaged, which it was in this case.

If the certificates were such as to apprise us that Mr Stubbings was not prepared to shoulder those risks, then the case may have been different – I stress, may have been different – but that is not this case at all. This is not a case where it is suggested that there is any inkling that Mr Jeruzalski, on behalf of our clients, should have understood that Mr Stubbings was not prepared for his company to borrow and for him to guarantee his company’s obligations on the financial terms, including times and sizes of payments that were undertaken in fact - no notion of a suggested bonus factor, no notice of a suggested.....being party to misleading or deceptive conduct, save by the introduced – none of that.

The question for the Court in this case is whether, as their Honours put it at paragraph 133 at page 198, the nature of the certificates in the regard I have just emphasised really does go to the extent their Honours found and that I have to vindicate, namely rendering it reasonable for our managing agent to refrain from inquiry as to how the company and Stubbings intended to, or whether they could in fact, service the loans pending refinance following the sale of the two Narre Warren properties.

Once one puts to one side the matters that their Honours then quote from the trial judge in that paragraph 133 to which I have already made reference, as not either having produced or possibly justifying a finding of the use of connivance by us with the certifiers or Mr Zourkas in relation to what might be called a rort involving all of them, once one puts that to one side, we are left with that which I regret to say appears to have produced the perceived smugness by Mr Jeruzalski as a witness. When I say I regret to say, that is because nobody likes smug.

But smug is not in itself.....retrospective attitude currently displayed to the observation of the trial judge who had all the advantages my friend has expatiated on. Smug is not in itself an indication of unconscionability. It is no doubt unpleasant and it is no doubt of a kind that might attract social disapproval but, like rude or excessively apologetic, to take two ends of the spectrum, they do not have any legal significance, however much they may excite adverse reactions in observers.

Here it would appear the sting of the perception of smugness comes down to what might be called the artisan’s pride in a device to overcome what ought to have happened according to law, to avoid, as my friend used that word, the consequences of either the equity or quasi‑equitable statutory jurisdiction. But, with respect, smugness does not contribute to that, and neither does a system which has a lender proceed more or less solely by reference to the margin that the valuation displays, together with these exiguous certificates which may do little more than to ensure that the risk is accepted by the borrower and any borrower’s guarantor.

If we are right that asset lending in itself with those features does not make out unconscionability, then the smugness or offensive self‑satisfaction of a person who, being apparently the artificer of this scheme and system, regards its features as preventing the intervention of equity because there will not be the circumstances that enliven the jurisdiction, then, as an offensive person.....socially, as it may be, it says nothing about whether their device does, in fact, avoid the intervention of equity.

Now, I have used the device deliberately because that is the nature of the argument against us which, as it were, seeks to attribute a deprecable artificiality of a kind that the law and equity might be astute not to reward to the structuring of transactions in light of laws such as the statute in this case.

Now, the first is an obvious proposition which your Honours would expect to hear from counsel in my present position, namely, there is nothing deprecable about taking care to organise one’s affairs, personal or business, that they fall on the right side of lines drawn by the law, either general law or statute law. That is the first thing. In other words, deliberateness and legal calculation are either neutral or to be commended, rather than deprecated. It could not possibly be that equity only looks kindly on people who proceed by accident, with an intellectual blindfold.

Now, the second point is this. Unless there is something about a person who wishes to lend, guided commercially only by the perceived adequacy of the margin on valuation, unless the law says that is, unless you make inquiries and therefore, of course, radically alter the model, that is on the wrong side of a norm that it cannot follow that you are bound not to choose that model on pain of being held unconscionable.

So that is why we say that their Honours have, with respect, admittedly with compressed reasoning, in the paragraphs to which we have drawn attention, correctly seen that the certificates do make all the difference. I can fairly say that I would be repeating myself to seek to elaborate that critical argument more than I already have.

Your Honours, I have now covered everything I wanted to and in address to our written submissions all the propositions up to 14 in our outline. In relation to proposition 15, apart from what I have already said about the trial judge’s perception of a witness as a smug witness, it needs to be said that concerning the principles of appellate review, my learned friend is, with respect, right that particularly where there is a detailed record - and these proceedings present a sufficiently detailed record for this purpose - appellate review for the.....second appeal, needs to bear in mind the, what I will call, synthetic endeavour of the trial judge which will not necessarily, and indeed in order to prevent insanity, ought not involve a blow‑by‑blow molecular account of how the impressions have been formed.

So, we accept all of that as judicial approach. But, we say the Court of Appeal did not stray into forbidden territory. These were not what I will call credibility questions and, in particular, the Court of Appeal has explained why what his Honour at trial regarded as giving rise to a reprehensible failure to inquire was answered not by witnesses, not by the overall description – one might, I am afraid, even say vaunting by Mr Jeruzalski of the system - but rather by the role that, given the nature of these transactions, the certificates took in ensuring that Mr Stubbings’ voluntary and informed position of the risks, no doubt very large, that he was undertaking were the ones he was wanting to undertake and at the price we were offering, that that would suffice to dispense us from any supposed duty to find out whether our prospective commercial counterparty, Mr Stubbings, ought to be dissuaded from doing what he evidently wanted to do.

Now, if our clients were his advisers, then your Honours would hear exactly the opposite from us, that is, that would be precisely ‑ ‑ ‑

GLEESON J: But you are his lawyers, Mr Walker ‑ ‑ ‑

MR WALKER: I am sorry ‑ ‑ ‑

GLEESON J: Did not your client – well, not the lenders, but Mr Jeruzalski charged Mr Stubbings $6,500 for legal services?

MR WALKER: But not for legal advice, your Honour. We were not sued – we, the lenders – were not sued on the basis that our managing agent had given legal advice to Mr Stubbings and the payment of the counterparties’ legal fees do not show a retainer to provide advice. It is, in our submission, too late of the heel of the hump for this to be turned into a case where the lenders, somehow derivatively, suffer from a supposed breach of fiduciary duty owed by Mr Jeruzalski to Mr Stubbings, which has not hitherto seen the light of day.

In 17 of our outline, the only point I wanted to add by way of emphasis is nothing in the description of the system shows that it was devised to take advantage of vulnerable people, not unless of course, and wrongly, one were to regard as vulnerable people who need to borrow and will not be lent to by the banks. May it please your Honours.

KIEFEL CJ: Thank you, Mr Walker. Any reply, Mr Hutley.

MR HUTLEY: Thank you, if your Honours please. Our case does not call for the Court to lay down the charter for any form of lending. The system case formed a central part of this litigation at all levels. If your Honours look at the trial judge’s judgment from core appeal book 80, commencing at paragraph 293, your Honours will see the system of conduct identified.

If your Honours go over onto the next page, that one was dealing with a system for the purposes of section 12CB(4) as apparent from the footnote 207, and the system is found was a system which has aspects beyond those which my learned friend referred to, for good reason, being the system of, as it were, using persons of the variety of Mr Zourkas to introduce business in a circumstance where the system also secured to the people of that variety their payment, as was the case with respect to advisers. So, we say that the system has always been central to the case and it is important to appreciate the true metes and bounds of the system.

Our learned friend then went on to submit that, in effect, it was our fault – that is, my client’s fault – in not, as it were, perfecting the sale of the Narre Warren properties timeously. That is contrary to the evidence accepted by the trial judge and recorded in the primary reasons. If your Honours go to core appeal book pages 41 and 42, your Honours will see paragraphs 146 to 148 and your Honours will see that AJ Lawyers stood in the way because there had been failure, almost instantaneously, in any, as it were, early disposal of the property, but of course as my learned friend did not direct, the terms of the loan prevented a sale for six months and Mr Jeruzalski knew that it was impractical to effect a sale in under six months.

Now, your Honours, my learned friend went to the further materials, page 75 at line 12, and the point of that is, as we drew your Honours’ attention to in‑chief, there cannot be said to be a standard of conduct by asset‑based lenders which follows the practices of my learned friend’s claims. That was our point, and our sole point.

Now, can I then turn next to the certificate. My learned friend, when it came to dealing with the position of the lawyer, Mr Kiatos, was astute to say just look at the certificate. When my learned friend came to look at the position of Mr Topalides, the accountant, my learned friend took you to the case run against Mr Topalides at trial. Now, in that regard, what my learned friend did not take your Honours to, just to complete that story, is paragraph 334 in the trial judge’s reasons where the true nature of the person Mr Stubbings has been put in the hands of becomes a little more apparent. That is at page 92 of the core appeal book:

The evidence discloses that Mr Topalides himself did not understand the transaction into which Mr Stubbings was proposing to enter. He did not understand that the CBA loans were being paid off. He did not find out the extent of Mr Stubbings’ existing liabilities. Given my earlier assessment of the reliability of Mr Topalides’ recollection, I am doubtful that Mr Stubbings ever stated that he was earning $16,000 per month.

So, effectively, nothing happened on going to see Mr Topalides, except Mr Topalides filled in the certificate with business purposes and he signed it. Of course, that certificate is in a form which was mandated in a form by Mr Jeruzalski. So, it is not for my learned friend to say Mr Jeruzalski should infer that some discussion beyond the content of the form was likely to occur. We say it was calculatedly drafted so that Mr Topalides was not faced with any prospect of that having been done.

With his non‑code loans he would seek to use, as it were, shell companies practically, looking to the security from third parties to be the real deposit or equity, as your Honour Justice Keane observed. So, the certificate is, with respect, a particularly damning, in our respectful submission, aspect of this system.

KEANE J: Mr Hutley, can I ask, was it or is it part of your case that the significance of the certificates lies in the circumstance that they were apt to defeat or deflect scrutiny on point of purposes of the loan, just as the fact that loans were only made to companies was calculated to defeat scrutiny under the code?

MR HUTLEY: Well, your Honour can see it in paragraph 316 of his Honour’s judgment at trial.

GORDON J: I think the question is more direct, Mr Hutley. It is what I put to Mr Walker. Is it not, in a sense, that the content and purpose of both certificates and to whom they are directed is part of the system, i.e., it does not ask the questions that you would expect it to ask, because he does not actually want to know whether or not the ultimate guarantor can pay. He does not want to know what financial advice might have been given, that he has been given advice and it is all fine, because that is not part of the system.

MR HUTLEY: Quite. Your Honour, to answer further Justice Keane’s observation, if your Honour goes to 314, the judge was acutely aware of the use to which the systems were deployed. Now, the precise terminology of the certificates was not addressed by your Honour, but until the Court of Appeal came to find that the critical thing that saved this loan, and it was
the Court of Appeal’s change in approach, was the form of the accountant’s certificate, that that showed, in effect, the – with respect, the flaw in their Honours’ approach.

They did not look to the terms of the certificate, they did not analyse them. His Honour obviously treated these certificates as just basically designed, as he said, to try and push it away and, as his Honour said, were calculated to drive through the loans for the benefit of, in fact, AJ Lawyers. So, his Honour was acutely aware that these certificates were designed to drive through the loans.

The particular analysis of the terminology became central because of what the Court of Appeal did and said that the accountant’s certificate saved all. They do not in effect address – other than setting it out, there is not a word of analysis by the Court of Appeal as to what is involved, and my learned friend has frankly accepted the certificate is meaningless.

In fact, to take up an observation by her Honour Justice Gordon, a person who was asked to give that certificate for money who was going to only be paid if the loan would go through, is given a two‑dollar company, says, “Well, it’s a no brainer. Great, I’ll give you this certificate, because it’s a no risk, no loss transaction. Also, I’m told by the certificate whatever I do, don’t speak to the person in front of me about his” – and I accept for the moment he is the face of the company – “personal position”.

The certificate in form is, in our respectful submission, quite extraordinary and his Honour in effect discounted it and saw it for what it was. I have to accept, your Honours, he does not analyse it in the terminology, but that only became of critical importance where in the Court of Appeal the saviour of the certificate was put up and the Court of Appeal accepted it. If that answers your Honour’s question. I think other than that, your Honours, our learned friends and ourselves are at issue.

KIEFEL CJ: Yes, thank you, Mr Hutley. The Court reserves its decision in this matter and adjourns to 9.30 am tomorrow.

AT 3.40 PM THE MATTER WAS ADJOURNED