Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Caterjian v Parfit Investments Pty Ltd [2023] NSWCA 178 Hearing dates: 24 March 2023 Date of orders: 04 August 2023 Decision date: 04 August 2023 Before: Meagher JA at [1]; White JA at [91]; Mitchelmore JA at [92] Decision: Appeal dismissed with costs. Catchwords: POSSESSION – Application for possession of land – where first appellant signed a loan agreement with first respondent to fund a company's application for appointment as area representative for psychologist franchising business – where loan was secured by guarantee of second appellant wife and mortgage over residential property – whether funds advanced in accordance with terms of loan agreement – whether guarantee discharged due to breach of loan agreement – whether respondents engaged in unconscionable conduct in procuring entry into loan – whether respondents knew or ought to have known franchising business insolvent – whether argument that first respondent had actual or constructive knowledge of first appellant's exercising undue influence over his wife in relation to signing of guarantee and mortgage was available on appeal Legislation Cited: Australian Consumer Law, ss 20, 21 Corporations Act 2001 (Cth), s 95A Cases Cited: Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15 Bank of New South Wales v Rogers (1941) 65 CLR 42; [1941] HCA 9 Chan v First Strategic Development Corporation Limited (in liq) [2015] QCA 28 Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14 Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343 Lewis v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41; (2006) 14 BPR 26,639 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35 Treloar Constructions Pty Limited v McMillan [2017] NSWCA 72 Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3 Category: Principal judgment Parties: Aleiksajender Robert Caterjian (First Appellant) Minodora Sclavos-Caterjian (Second Appellant) Parfit Investments Pty Ltd (First Respondent) Andrew David Cookes (Second Respondent) Representation: Counsel: R Angyal SC with P Horobin (Appellants) J Horowitz (Respondents) Solicitors: Cordato Partners Lawyers (Appellants) TPS&Co Lawyers (Respondents) File Number(s): 2022/260573 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Common Law Division Citation: [2022] NSWSC 1093 Date of Decision: 18 August 2022 Before: Fagan J File Number(s): 2020/23637 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] The first appellant (Mr Caterjian) borrowed $250,000 from the first respondent (Parfit) under a loan guaranteed by his wife, the second appellant (Mrs Sclavos-Caterjian), and secured by a second mortgage over the appellants' residential property. Mr Caterjian borrowed those funds to finance a company, which was to be incorporated, becoming an area representative for Life Resolutions Australia Pty Ltd (LRA), the owner and operator of a psychology practice franchise business. After Mr Caterjian defaulted on interest payments under the loan agreement, Parfit commenced proceedings against the appellants, seeking judgment for the amount of the mortgage debt and possession of their residential property. The appellants brought a cross-claim seeking declarations that the loan agreement was void on the basis that Parfit and its principal director and shareholder (Mr Cookes, the second respondent) engaged in unconscionable conduct and made false representations to the first appellant. The primary judge upheld Parfit's claim, ordered the relief it sought, and dismissed the cross-claim. The appellants challenge those orders. The primary issues in the appeal are: (i) whether Parfit advanced funds in accordance with the terms of the loan agreement; (ii) whether Mrs Sclavos-Caterjian's guarantee was discharged because of Parfit's breach of the terms of the loan agreement; (iii) whether the respondents engaged in unconscionable conduct in procuring the appellants' entry into the loan and security agreements; (iv) whether the appellants could argue for the first time on appeal that Parfit had actual or constructive knowledge of Mr Caterjian's exercise of undue influence over his wife to obtain her signing of the guarantee and mortgage. The Court (Meagher JA, White and Mitchelmore JJA agreeing) dismissed the appeal, holding: As to issue (i): (1) The contentions said to underpin the appellants' submission that the funds were not advanced in accordance with the loan agreement are not made out. Mr Caterjian gave a valid and operative direction to Parfit to pay the borrowed funds to LRA, and that direction was signed before those funds were disbursed by Parfit. There was no breach of the loan agreement by Parfit in also receiving and acting upon a direction from LRA as to how Parfit should pay or apply the moneys LRA was to receive from Mr Caterjian. That LRA directed some of those moneys be applied as consideration for the assignment to LRA of a debt owed to Parfit, or in repayment of debts owed by LRA to Parfit, did not have the consequence that those funds were not advanced to or at the direction of Mr Caterjian. That direction from LRA may have been received prior to the direction from Mr Caterjian and the execution of the loan agreement between Mr Caterjian and Parfit, but the relevant time was when it was acted upon, which occurred after Mr Caterjian's direction was given and the agreement made: Meagher JA at [34]-[41]; White JA at [91]; Mitchelmore at [92]. As to issue (ii): (2) As Parfit had not advanced the funds to Mr Caterjian in a manner inconsistent with the loan agreement, there was no breach of that agreement discharging the guarantee. Moreover, that Parfit did not disclose to Mrs Sclavos-Caterjian that the moneys lent to Mr Caterjian were to be paid to LRA and applied by it, including by LRA reducing a debt it owed to Parfit and as consideration for the assignment of a debt owed to Parfit, were not unusual features of the contract of loan and did not constitute a 'special' arrangement between Mr Caterjian and Parfit requiring disclosure to Mrs Sclavos-Caterjian: Meagher JA at [42]-[45]; White JA at [91]; Mitchelmore at [92]. Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15, referred to. As to issue (iii): (3) There was no unconscionable conduct on the part of the respondents arising from their commercial considerations for making the loan. Mr Cookes' evidence that the loan was to enable Mr Caterjian to fulfil contractual obligations to LRA, in circumstances where Parfit was only willing to lend money to him for that purpose if LRA agreed that it would apply the moneys received from Mr Caterjian to fund the assignment to it of a non-performing loan from Parfit to a third party, was commercial and reasonable. Mr Caterjian's loan agreement was perceived by Parfit and LRA to hold the prospect of "beneficial outcomes" from the making of the loan for Mr Caterjian and his company, for Parfit as lender, and for LRA as franchisor. It was not established that the "true purpose" for the making of the loan was merely to enable Parfit to replace its exposure to a non-performing loan with a secured exposure to the first appellant: Meagher JA at [47]-[56]; White JA at [91]; Mitchelmore at [92]. (4) It was not established that LRA was insolvent at the time the loan agreement was made. Throughout this period, there was continuing working capital support provided to LRA by Parfit and other contributory lenders, including its principal shareholder. This meant that over the relevant period LRA was apparently able to pay its debts as and when they fell due: Meagher JA at [58]-[71]; White JA at [91]; Mitchelmore at [92]. Treloar Constructions Pty Limited v McMillan [2017] NSWCA 72; Lewis v Doran [2005] NSWCA 243; (2005) 54 ACSR 410; Chan v First Strategic Development Corporation Limited (in liq) [2015] QCA 28, considered. (5) As it was not the appellants' case that Mr Cookes mistakenly believed that LRA was insolvent, it could not be established that he engaged in unconscionable conduct because he knew or ought to have known that LRA was insolvent: Meagher JA at [72]-[75]; White JA at [91]; Mitchelmore at [92]. As to issue (iv): (6) It was not pleaded nor part of the case conducted before the primary judge that Parfit had actual or constructive knowledge of Mr Caterjian's overbearing of his wife's will such that either Parfit was subject to the equitable rights which arose as between the second appellant and her husband, or Parfit's enforcement of the agreements would constitute unconscionable conduct. Determination of these issues would require further evidence with respect to Parfit's knowledge or notice and further cross-examination of Mrs Sclavos-Caterjian as to whether she freely signed the documents. It follows that they could not be raised for the first time on appeal: Meagher JA at [83]-[89]; White JA at [91]; Mitchelmore at [92]. Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35, applied. JUDGMENT 1. MEAGHER JA: In the underlying proceedings, the first respondent (Parfit) claimed moneys owing by the first appellant (Mr Caterjian) as borrower and the second appellant (Mrs Sclavos-Caterjian) as guarantor. Mr Caterjian borrowed $250,000 from Parfit. That loan was secured by a second mortgage over the appellants' residential property at Bexley. The primary judge entered judgment for Parfit against each of the appellants for $480,551 and for possession of the Bexley property. Their cross-claim alleging unconscionable conduct within the meaning of ss 20 and 21 of the Australian Consumer Law in connection with their entry into the loan agreement and security documents was dismissed (Parfit Investments Pty Ltd v Caterjian [2022] NSWSC 1093). Mr Caterjian and Mrs Sclavos-Caterjian appeal from these judgments and orders. Background Participants 1. At the time of the hearing before the primary judge, Mr Caterjian was a clinical psychologist, and Mrs Sclavos-Caterjian, his wife, a public servant. Mr Caterjian had completed a Master of Arts degree in clinical psychology at Bond University, and Mrs Sclavos-Caterjian a Bachelor of Arts degree with a political science major at Macquarie University. 2. Parfit lends money, and in doing so also acts as a nominee lender for contributing lenders. Andrew Cookes is the principal director of and shareholder (directly or indirectly) in Parfit. Timsim Holdings Pty Ltd (Timsim) is trustee of the Cookes family trust and MGIT Pty Ltd (MGIT) trustee of the Cookes family super fund. These companies were contributory lenders to Parfit's loans to Life Resolutions Australia Pty Ltd (LRA), as were CLCL Pty Ltd (CLCL) and Regnans Super Pty Ltd (Regnans), the respective principals of which were Chris Trafford and Andrew Flint. The contributory lenders also included, at times, Ms Magalotti, a principal shareholder of LRA (J[172]). LRA's franchise business 1. LRA was, at least after August 2016, the owner and operator of a psychology practice franchise business (see J[153]). The directors of LRA were Mary Magalotti and Jodie Brenton, the former also a significant lender to LRA and the latter its chief executive officer. LRA's business involved licensing persons or companies as "area representatives" for particular regions and the appointment of franchisees within those regions. The task of the area representative was to identify prospective franchisees, known as "business associates". An upfront fee was paid by an applicant for appointment as an area representative. The area representative then recruited business associates and received a fee from LRA for each franchisee recruited. Mr Caterjian becomes an area representative and franchisee 1. In 2015 Mr Caterjian made a loan application to Parfit to fund his application for appointment as an LRA area representative for the Sydney region. At this time, his discussions were principally with Ms Magalotti. In September 2015 he received a loan offer of $635,800 from Parfit. The primary judge found that in his application for that loan Mr Caterjian falsified his financial position by overstating his net worth by about $340,000 (J[38]). 2. Mrs Sclavos-Caterjian was "frantically opposed" to her husband's becoming an area representative of LRA (J[24], [57]). During this first application, she stood her ground and would not sign a guarantee or mortgage to support any proposed loan. 3. In the course of considering this proposal, Mr Caterjian received advice from a solicitor and an accountant (J[43], [45]). The solicitor gave written advice concerning the terms of the area representative agreement, which included: Your ability to successfully sell franchises to psychologists for well in excess of $100,000 ($55,000 to go to you) is therefore at the core of this particular business model. It assumes that there are good numbers of psychologists prepared to pay this kind of money for a franchise and that competition has not depleted the numbers of psychologists prepared to pay this amount for a franchise or that competition has not undercut these franchise fees. This is your due diligence task! 1. Although he was enthusiastic to proceed with his application in 2015 (J[22]), Mr Caterjian ultimately decided not to do so at this time. 2. Discussions about Mr Caterjian becoming an area representative resumed, however, in early July 2017. Ms Brenton proposed that the two of them form a company which would become an area representative for the Western Sydney region. It was agreed that the company to be formed would be named Ellie & Mac Pty Ltd (Ellie & Mac). She also proposed that they and a third person become an LRA franchisee in Sydney's Central Business District. Although Ellie & Mac was not incorporated until 12 September 2017, an area representative agreement was signed by Ms Brenton and Mr Caterjian purportedly on its behalf in mid-July 2017. The informal agreement between them required Mr Caterjian to pay LRA $215,000 plus 10% GST, a total of $236,500 (though Mr Caterjian was ultimately only invoiced for $231,500), as his contribution on behalf of Ellie & Mac (J[64]). Of that amount, $200,000 represented one half of the $400,000 fee payable for Ellie & Mac's appointment as area representative. The primary judge rejected Mr Caterjian's assertion that he did not understand the obligation to pay that amount to LRA to become binding when that agreement was signed (J[67]). Mrs Sclavos-Caterjian was not aware that Mr Caterjian had signed and returned this agreement to Ms Brenton on about 18 July 2017 (J[79]). 3. Ms Brenton also offered to speak to Parfit about a loan to fund Mr Caterjian's contribution. She did so. In July 2017 there were email exchanges between Ms Brenton and Mr Cookes about the terms on which Parfit would make a loan to Mr Caterjian (J[82]ff). Parfit's general lending arrangements with LRA and its representatives and associates 1. As at July 2017 Parfit was a significant lender to LRA, as well as to its area representatives and franchisees. There were two LRA loan facilities. The first was a "corporate loan" made in June 2014. In 2016 the time for repayment of that loan had been extended to June 2018. By July 2017 about $800,000 was outstanding. The second was a short-term loan facility provided in April 2017 for working capital purposes. The contributing lenders to that facility were Timsim, CLCL, Regnans and Ms Magalotti. By 30 June 2017 approximately $490,000 had been advanced under this facility, which was initially repayable on 31 October 2017. As at 1 August 2017 the amount outstanding was $518,351 (J[122]). Over time the date for repayment was extended, eventually to 31 August 2018. The corporate loan was repaid on 31 August 2018. 2. At the end of August 2016 LRA reorganised its corporate and business structure. In that restructure, nominees of Parfit became 29.9% shareholders in LRA's parent company, Life Resolutions Holdings Pty Ltd. On 4 October 2018 a liquidator was appointed to LRA pursuant to a creditors' voluntary winding-up (J[129]). At that time $1,044,000 remained outstanding under the short-term facility. 3. Parfit also made loans to area representatives of LRA. One such representative was Solucionar Pty Ltd (Solucionar), in relation to which $420,000 had initially been advanced, $210,000 by LRA and $210,000 by Parfit. The three contributing lenders to Parfit's loan were Timsim, CLCL and Regnans. The security for repayment of that loan included a guarantee from LRA, secured by a charge over its assets (J[86]). That by July 2017 Solucionar was in default under this loan was referred to in the email exchanges at the time, and the loan was referred to as "Elton's loan". Parfit's loan to Mr Caterjian, guaranteed by Mrs Sclavos-Caterjian 1. As the primary judge found, no "formal loan application was submitted. Mr Cookes took into account [Mr Caterjian's] curriculum vitae and the financial details that had been supplied in connection with the 2015 loan application." Mr Cookes said he "felt able to offer the finance… because he had approved the larger loan… two years earlier and because Ms Brenton was involved" (J[88]). The primary judge accepted this evidence (J[90]). 2. On 4 August 2017 Parfit offered to make an investment loan to Mr Caterjian of $250,000. That offer required a guarantee from Mrs Sclavos-Caterjian and a registered second mortgage over the Bexley property. On 7 or 8 August 2017 Mr Caterjian signed and returned the letter of offer (J[92]). The primary judge found Mr Caterjian did not discuss this letter with his wife (J[94]). On 7 August 2017 Mr Caterjian received an invoice from LRA for $231,550 including GST. That invoice was addressed to Ellie & Mac for the attention of Mr Caterjian. The invoice amount was for his half-share of the $400,000 fee, a training fee of $9,000 and a business associate document fee of $1,500 plus GST. 3. On 10 August 2017 the appellants' 11-month-old daughter was admitted to hospital and diagnosed with a serious and life-threatening disease. She remained in hospital until 13 October 2017, and underwent continuous and significant treatment. Her parents more or less lived in the hospital during that period. Ms Brenton was informed of the daughter's admission to hospital on 10 August 2017, and she told Mr Cookes on the same day. 4. Between 7 and 9 August 2017 Parfit, lending funds provided by Timsim, advanced $45,000 to LRA (by three equal payments of $15,000) to assist with its cashflow. Between 14 and 16 August 2017 Parfit, using funds of MGIT, advanced a further $40,000 to LRA (by two payments of $15,000 and one of $10,000) to assist with "cashflow next week". These loans were made under the April 2017 short-term facility. 5. On 29 August 2017, at the hospital where their daughter was being treated, Mr Caterjian and Mrs Sclavos-Caterjian signed several documents, including: a loan facility agreement (Mr Caterjian); a guarantee and indemnity (Mrs Sclavos-Caterjian); and a second mortgage of the Bexley property (Mr Caterjian and Mrs Sclavos-Caterjian). Mr Caterjian also executed a direction to pay addressed to Parfit which instructed how his "mortgage loan proceeds" of $250,000 were to be disbursed. It included a direction that $231,050 be paid to LRA. That was $500 less than the amount of LRA's tax invoice dated 7 August 2017 and was an error subsequently notified to Mr Caterjian (J[119]). Earlier and on or about 18 August 2017 Ms Brenton as chief executive of LRA had sent an undated direction to pay to Parfit which instructed Parfit how it was to disburse the amount of $231,050 due to LRA. 6. The detail of this direction to pay is addressed in the consideration of grounds of appeal 4 and 5 at [34]ff below. On about 31 August 2017 the loan transaction was completed. How that occurred is also dealt with in that treatment of grounds 4 and 5. 7. On 12 September 2017 Ellie & Mac was incorporated. On 29 September 2017 the loan transaction documents were re-executed because there were thought to be "issues" with the authenticity of Mrs Sclavos-Caterjian's signatures or initials on the already-signed documents. There were no changes made to the terms of any of the relevant documents, and no issue arises in the appeal concerning this re-signing. 8. Parfit transferred $11,000 to Mr Caterjian's bank account on 25 October 2017. Earlier on 18 October 2017 Mr Cookes had sent an email to Mr Caterjian explaining how the difference between the LRA invoice of $231,550 and the $250,000 advanced by Parfit had been disbursed. That difference was $18,450 and included the amount of $11,000 paid into to Mr Caterjian's bank account. Also on 25 October 2017, as had been agreed with Mr Caterjian in August 2017, JAM Pty Ltd was incorporated to be the business associate of the psychology practice in the Sydney CBD. That practice, a corporate joint-venture between Mr Caterjian, Ms Brenton and a Ms Opacic, opened in Circular Quay in early November 2017 (J[100], [127]). On 29 March 2018 Mr Caterjian made his last interest payment under the Parfit loan facility. He defaulted on payment of interest due under that agreement from then (J[2]). Grounds of appeal 1. There are thirteen grounds of appeal, supporting four arguments. 2. First, it was argued that Parfit had breached the loan agreement by failing to advance the amount of $250,000 to Mr Caterjian. The primary judge found that upon the lender disbursing the loan proceeds in accordance with Mr Caterjian's direction to pay signed and dated 29 August 2017 the loan agreement was performed in relation to the $231,550 to be paid to LRA, concluding at (J[133]): His direction to pay the bulk of the loan directly to LRA for this purpose was a normal commercial arrangement, following a pattern that is very common in the settlement of advances from lending organisations. Upon the direction being carried out, the advance to Mr Caterjian was effected and what LRA chose to do with the funds it received could not alter the fact that the Loan Facility agreement had been performed by the plaintiff. 1. That conclusion is challenged by grounds of appeal 4 and 5, which are directed to the advancing of the amount of $231,550. 2. Secondly, it was contended that Mrs Sclavos-Caterjian's guarantee was unenforceable because Parfit had failed "to observe the terms of its lending arrangement with the principal debtor", Mr Caterjian. The primary judge dismissed this argument for the reasons given in relation to the appellants' first argument (J[134]). That conclusion is challenged by ground 6. 3. Thirdly, it was contended that Parfit engaged in unconscionable conduct in procuring the appellants' entry into the loan and security transaction by taking advantage of their ignorance of LRA's financial position and by taking security over their home in place of the non-performing loan to Solucionar. The circumstances in which that conduct occurred were said to include: (1) that the true purpose of the loan to Mr Caterjian was to replace Parfit's non-performing loan to Solucionar with a loan secured against Mr Caterjian and Mrs Sclavos-Caterjian's home; and (2) that the loan to Mr Caterjian was made only because of the availability of his home as security and in the absence of any evidence that he could service the loan. 4. The primary judge did not make findings in these terms or findings consistent with these being the purposes of Parfit in making the loan (J[88]-[90]). That his Honour did not make those findings is the subject of grounds 1 and 2. 5. His Honour also accepted Mr Cookes' evidence that he offered the loan without close scrutiny of Mr Caterjian's financial standing because he had earlier approved the larger loan ($635,800) and because Ms Brenton, the CEO of LRA, was involved as a co-venturer (J[88], [90]). 6. His Honour concluded in relation to the allegation of unconscionable conduct at J[183]: There is no substance in the defendants' allegations that the plaintiff unconscionably pressured them to draw their loan and sign the loan documents, or that LRA was insolvent, or that the plaintiff knew LRA to be insolvent, or that the plaintiff took unconscientious advantage of the defendants' ignorance of the company's financial condition. The defendants have not established a cause of action against the plaintiff under ss 20 and 21 of the Australian Consumer Law, on either of their grounds noted at [141] above, and they are not entitled to any relief on that account. 1. This holding is challenged by ground 10. In so concluding, the primary judge did not make the findings of fact sought by grounds 1 and 2. His Honour also did not make the findings sought with respect to Mr Cookes' involvement in the management of LRA or LRA's insolvency in August or September 2017. The absence of a finding as to Mr Cookes' involvement in the management of LRA is challenged by ground 3. 2. Grounds 7 and 8 challenge the primary judge's conclusion that the appellants had not proved that LRA was insolvent in August or September 2017 (J[162]); and ground 9 challenges his Honour's finding that Mr Cookes did not consider LRA to be insolvent or close to insolvent at that time (J[170], [179]). 3. There remains the appellants' fourth argument, which is supported by grounds 11, 12 and 13. Those grounds contend that Parfit had actual or constructive knowledge of Mr Caterjian's conduct in obtaining his wife's guarantee and mortgage security by the exercise of undue influence. That case was not pleaded or conducted before the primary judge. In answer to these grounds, the respondents contend that they would have conducted their case differently had this claim been made. 4. In the following paragraphs, the grounds of appeal are dealt with in the same order as they appear above. Whether Parfit advanced funds in accordance with the terms of the loan facility agreement (grounds 4 and 5) 1. The matters said to "underpin" the appellants' submission that the funds were not advanced in accordance with the loan agreement are that: (1) LRA's direction as to the disbursement of funds due to LRA was given before Mr Caterjian's direction to Parfit as to the payment away of the mortgage loan proceeds. The latter was not signed until 29 August 2017, whereas the former was given around 17 August 2017; (2) Ms Brenton did not have authority to issue the LRA direction because Mr Caterjian did not execute any authority to date or complete documents until 29 August 2017; (3) The payments made by Timsim and MGIT to LRA totalling $85,000 were made before the directions to pay were signed; (4) The LRA direction to pay required that amounts be paid by Parfit to Timsim and MGIT rather than by the latter two companies to LRA; (5) The "LRA direction to pay resulted in the entire amount of the loan except $25,065.39 being paid back to Parfit's contributories"; (6) At the time the LRA direction to pay was given, there was no loan agreement between Mr Caterjian and Parfit; and (7) Contrary to the terms of the Parfit loan offer, the 'Principal Sum' was not "paid to Mr Caterjian, nor to LRA, but to the pool of lenders which provided funds to Parfit". 2. These various contentions are said to be inconsistent with the primary judge's conclusion at J[125]: The advance to Mr Caterjian was made on 30 August 2017, after the first signing of the loan documentation. Upon correction of the $500 error referred to at [119] and [120], the balance payable into LRA's account with the CBA was $25,565.39. That sum was transferred on 30 August 2017. The remaining application of funds advanced to Mr Caterjian, up to the total of $231,550 that he was required to pay to LRA, was effected by entries in the books of the [Parfit]. 1. As to contentions (1) and (2), the relevant direction to pay is that from Mr Caterjian to Parfit, which had been signed before any advances were made by Parfit, either by payment or by entries in books of account recording consensual transactions between Parfit and LRA. As a result of that direction to pay, Parfit was required to pay $231,550 to LRA (taking account of the $500 error in the direction to pay); and in doing so discharged a substantial part of its obligation to advance $250,000 to Mr Caterjian. In relation to that payment, as at 30 August 2017 Parfit had also received a direction from LRA as to how it wanted those funds to be dealt with. Ms Brenton and LRA required no authority from Mr Caterjian to give that direction to Parfit, which was to pay the amount of $231,050 as follows: 1. Parfit Investments Pty Ltd (repayment of Parfit Short Term Loan Advances – Timsim $45,000 and MGIT $40,000) $85,000.00 2. Timsim Holdings Pty Ltd (repayment balance Solucionar Pty Ltd (Elton del Cid) loan) $16,361.65 3. CLCL Pty Ltd (repayment balance Solucionar Pty Ltd (Elton del Cid) loan) $50,291.77 4. Regnans Super Pty Ltd (repayment balance Solucionar Pty Ltd (Elton del Cid) loan) $54,331.19 5. Balance by cash to LRA CBA account $25,065.39 Total Loan $231,050.00 1. As to contentions (3) and (4), Parfit as nominee for Timsim and MGIT had advanced $85,000 to LRA between 7 and 16 August 2017 under the short-term loan facility (see [17] above). Part of the $231,050 due to LRA was to be applied in repayment of those advances (J[123]). Contention (4) is correct, but irrelevant except as explaining why $85,000 was to be applied to reduce LRA's short-term debt to Parfit. That these short-term advances made by Parfit as nominee for Timsim and MGIT were repaid on 31 August 2017 was established by the record kept by Mr Cookes as to the amount due under the short-term loan from time to time. Those entries support the correctness of the finding at J[123], which is not in any event challenged. 2. As to contention (5), the payments made to Timsim, CLCL, and Regnans totalling $120,984 were paid by LRA to Parfit for the assignment to LRA of the balance of the contributory loan due from Solucionar to Parfit as nominee lender for each of those companies in those amounts, as the primary judge's unchallenged findings at J[86], [90] and [124] record. The consequence of the assignment of that loan was, absent any notice to Solucionar of the assignment, that Parfit held the benefit of that outstanding loan for LRA. The earlier mentioned repayments to Parfit totalling $85,000 reduced LRA's liability under the short-term facility by that amount. The balance amount of $25,065.39 was the amount in Item 5 of LRA's direction to pay. That amount plus $500 to account for the calculation error was transferred to LRA's bank account in two payments made on 30 August 2017 ($15,000) and 31 August 2017 ($10,565.39). 3. As to contention (6), the relevant date is the date on which the LRA direction to pay was acted upon, which was 30 August 2017. At that time, there was a loan agreement between Parfit and Mr Caterjian and a direction to pay from Mr Caterjian which instructed that payment of the greater part of the loan proceeds was to be made to LRA. 4. As to contention (7), this submission ignores the valid and operative direction given by Mr Caterjian that the principal sum of $250,000 was to be paid where applicable to the persons or entities or for the purposes described in his direction to pay. 5. Grounds 4 and 5 are not made out. Whether Mrs Sclavos-Caterjian's guarantee discharged because of the manner in which Parfit advanced funds (ground 6) 1. The primary judge dismissed this contention as having "no substance" for the reasons given in relation to the issues raised by grounds 4 and 5 (J[134]). 2. It is submitted that Parfit as lender did not disclose to Mrs Sclavos-Caterjian as guarantor that the moneys being lent to Mr Caterjian were to be paid to LRA and applied by it – partly in reduction of a short-term debt due to Parfit ($85,000) and partly as consideration for the assignment to it of a debt owed to Parfit by an area representative of LRA, Solucionar ($120,984). That these matters were not disclosed is not controversial. The appellants do not submit that Parfit's not having done so constituted an implied representation which was false and on which Mrs Sclavos-Caterjian relied. Rather, it is tenuously suggested that these facts had the consequence that Parfit, "by effectively advancing the loan to itself and its contributories, did so in breach of its contract of guarantee with [Mrs Sclavos-Caterjian]"; and that because this constituted a material breach of that contract, it discharged her obligations under it. 3. This submission is to be rejected. First, the matters not disclosed were not unusual features of the contract of loan, and did not constitute a 'special' arrangement between Parfit as creditor and Mr Caterjian as debtor. As such, the alleged non-disclosure did not give rise to any implied representation that the facts described above did not exist which was falsified by their existence in fact (cf Commercial Bank of Australia v Amadio (1983) 151 CLR 447 at 458; [1983] HCA 14). Secondly, the assertion that those facts established that Parfit had advanced or "effectively" advanced the loan to itself is unfounded (see [37]-[38] above), as is the contention that Parfit's so acting constituted a breach of the contract of loan or of the guarantee (cf Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 559-560, 569; [1987] HCA 15). 4. Ground of appeal 6 is rejected. Whether respondents engaged in unconscionable conduct in procuring appellants' entry into loan and security transactions (grounds 1, 2, 3, 7, 8, 9 and 10) 1. It is convenient first to consider the findings of fact sought by grounds 1 and 2, then the findings sought by grounds 7 and 8, and separately grounds 3 and 9, which concern Mr Cookes' knowledge and involvement in the management of LRA. The unconscionable conduct argument in ground 10 is then addressed. Whether "true purpose" of loan was to replace non-performing loan to Solucionar (ground 1) Whether loan only made because of availability of appellants' home as security (ground 2) 1. The primary judge rejected the appellants' contention that these findings should be made (J[89]-[90]): Counsel for the defendants put to Mr Cookes that the amount of $250,000 to be loaned to the first defendant was not calculated by reference to any requirement to fund the fees payable to LRA under the Area Representative Agreement but was simply the amount that the plaintiff required to reimburse its contributory lenders in respect of the non-performing loan to Solucionar Pty Ltd. It was put that the whole object of the exercise was to convert the exposure of those contributories into an exposure to Mr Caterjian, secured by second mortgage over real property, and to substitute LRA as the sole contributory to the Solucionar Pty Ltd loan – which would remain nominally a loan from the plaintiff but as bare trustee for LRA. Mr Cookes rejected those propositions and I accept his evidence. As between the plaintiff and Mr Caterjian the $250,000 loan had the clear purpose of enabling him to fulfil the contractual obligation he had undertaken, with Ms Brenton and through Ellie and Mac Pty Ltd, to LRA. The plaintiff was only willing to lend to Mr Caterjian if LRA agreed that it would apply the fees that would come to it under the Area Representative Agreement towards paying out the contributories to the Solucionar Pty Ltd loan. In the plaintiff's dealings with LRA, as a borrower in its own right and as an introducer of Area Representatives and Business Associates who required finance, it was commercial and reasonable for the plaintiff to insist that LRA take over a non-performing loan before the plaintiff would advance a new one. This aspect of management of the plaintiff's loan portfolio made no legal difference to the substance of its lending transaction with Mr Caterjian. 1. The findings sought are related and in terms are as to the "true purpose" of the loan and as to the "only" reason why it was made. The purpose is that of Parfit, as lender, and purports to describe Parfit's motivations and reasons for making the loan to Mr Caterjian. 2. Mr Cookes denied that was the reason for making the loan. The primary judge accepted his evidence, describing as "commercial and reasonable" Parfit's insistence that LRA take over the non-performing Solucionar loan before Parfit would make any further advances to a prospective area representative (J[90]). That finding was justified by the evidence, reasonable and is not shown to be wrong. 3. Ms Brenton's evidence was that she initiated the further contact with Mr Caterjian that led to his agreeing in early July 2017 to acquire area representative rights with her. Those discussions produced a need on his part to borrow $250,000 to fund his 50% share of the total fee to be paid by Ellie & Mac. The initial email exchanges between Ms Brenton and Mr Cookes do not suggest that Mr Cookes initiated the discussions about a loan to Mr Caterjian or the amount of that loan. She proposed a "$250k secured loan only" in which she would "partner" with Mr Caterjian, concluding Parfit's "support on this is greatly appreciated". Mr Cookes' response following a meeting with Ms Brenton included, having noted that she was going into a "50/50 JV with [Mr Caterjian] for the AR region", that it "sounds like an innovative idea, which might provide a range of beneficial outcomes" – a comment at least directed to the potential for such outcomes from the perspective of LRA and the proposed joint venture. 4. In the same email dated 17 July 2018 Mr Cookes set out the basis on which he would recommend a loan of $250,000 from Parfit. He described the "net result" of the proposed loan as being: … extracting Parfit from Elton's loan (taken over by LRA), funding [Mr Caterjian's] loan, better security for the Parfit lenders ([Mr Caterjian's] loan v. Elton's loan), LRA funding contribution from you (through introduction of Michelle)… 1. That summary looks at the immediate outcomes of the proposed loan from the perspective of the borrower ("funding [Mr Caterjian's] loan"), the lender ("better security") and the underlying funders (the reference to "Michelle" being to Ms Brenton's sister and to her funding as an "LRA funding contribution"). Mr Cookes' proposal that LRA should "[take] over" the Solucionar loan to enable the funding of the Parfit loan would permit a new area representative to be appointed. Mr Cookes' evidence was that LRA's business strategy was to increase the number of "BAs to [a] critical mass" of 100 to 150, and that this was to be achieved by increasing the number of area representatives (J[174]). 2. The primary judge did not err in not making the findings sought. The transaction was reasonably perceived to hold the prospect of "beneficial outcomes" for the borrower and his co-venturer, for the lender, and for LRA. The evidence summarised above provides sensible commercial reasons for why the transaction proceeded. It does not establish that it was initiated and pursued for either of the asserted purposes. 3. The evidence also supports and justifies the primary judge's acceptance of Mr Cookes' reasons for why he made the loan without further close scrutiny of Mr Caterjian's financial position (J[90]). The earlier loan proposal was for $635,800. The second was for $250,000. Mr Caterjian was to partner with the CEO of LRA. Under the area representative agreement, the representative's target was six franchise or business associate agreements in each of the first three years. In addition, Mr Caterjian was to be one-third owner in a psychology practice in the Sydney CBD. 4. Mr Cookes gave the following the evidence as to the matters being considered: We knew he was going to be an AR. He had to sign up four BAs in the first year, and he's - gets 150,000. I mean, he signed up the BAs. That's - that's - that's the source of income. We also knew that he and his wife were employed. We also knew that, first they said it was going to be refinanced within two months. Secondly, they said it was going to be refinanced within three to six months. This was a - a shorter term loan. And also, Jodie Brenton was a 50/50 partner in the BA - sorry, BA practice and in the AR region, and therefore we would have thought that there were going to be grantings of BAs in this region, which would have generated sign on fees, which would have come 50% to Ms Brenton and 50% to Mr Caterjian, to enable the loan to be serviced and repaid, if not refinanced within that short time that we were advised would happen. 1. Grounds 1 and 2 are rejected. Whether primary judge erred in holding a finding of insolvency or near insolvency could not be made without expert evidence (ground 7) 1. Ground 7 does not correctly record any holding or reasoning of the primary judge. It suggests his Honour held that a finding of insolvency or near insolvency "could not be made" without expert evidence. His Honour did not so hold. It follows that this ground cannot be made out. There remains the question raised by ground 8, namely, whether the evidence sufficiently established that LRA was insolvent or near insolvent to justify a finding to that effect. Whether LRA insolvent or near insolvent as at August or September 2017 (ground 8) 1. The primary judge approached this issue by reference to the test for solvency stated in s 95A of the Corporations Act 2001 (Cth). That section provides: 95A Solvency and insolvency (1) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. (2) A person who is not solvent is insolvent. 1. This version of s 95A omitted the earlier reference to payment out of the debtor's "own monies". The significance of the omission of those words in a case such as the present one is captured in the following two observations, each cited with approval by this Court in Treloar Constructions Pty Limited v McMillan [2017] NSWCA 72 in the discussion at [76]-[83] (Beazley P, Gleeson JA and Emmett AJA). 2. In Lewis v Doran [2005] NSWCA 243 at [109]; (2005) 54 ACSR 410, Giles JA said: Particularly when the limiting words [out of a company's "own monies"] are no longer part of the test, there is no compelling reason to exclude from consideration funds which can be gained from borrowings secured on assets of third parties, or even unsecured borrowings. If the company can borrow without security, it will have funds to pay its debts as they fall due and will be solvent, provided of course that the borrowing is on deferred payment terms or otherwise such that the lender itself is not a creditor whose debt can not be repaid as and when it becomes due and payable. It comes down to a question of fact, in which the key concept is ability to pay the company's debts as and when they become due and payable. (Italics added; underline in original) 1. Secondly, in Chan v First Strategic Development Corporation Limited (in liq) [2015] QCA 28, Morrison JA, having referred to this observation of Giles JA, said in relation to the proof of insolvency at [44]: … Given that the resolution of this issue will almost always depend upon an assessment of facts, in my view it is better to proceed on the basis that, where the financial support is being provided by a director or related entity, and in circumstances where there is no formalised agreement or understanding, what is required is cogent evidence which enables the court to conclude that there is such a degree of commitment on the part of the provider of the financial support to continue it, such that it can be said that at any point of time it was likely to be continued, with the result that, at any of those times, the company was able to pay its debts as and when they fell due. (Citations omitted) 1. The primary judge considered the issue of insolvency at J[146]-[162]. His Honour did not separately consider the allegation of "near insolvency", which describes a state of affairs not recognised by s 95A. It was not contended that his Honour erred in not doing so, either in relation to this ground or ground 9, which focuses on Mr Cookes' state of mind. His Honour's consideration proceeds as follows. First, it is noted that there is no expert evidence analysing the relevant undertaking's solvency by reference to actual or reconstructed financial statements which the expert is satisfied are sufficiently reliable to form the basis for such an analysis. In the absence of such evidence, the primary judge described his task as being to "sift the documents and the transcript for any indicia of insolvency and to [undertake] an analysis" with respect to that topic (J[152]). 2. So proceeding, the primary judge identified balance sheets and profit and loss statements for the financial years ending 30 June 2015 through to 30 June 2018. The accounts from 1 July 2014 to 31 August 2016 were prepared on the basis that the business was owned and conducted by a partnership of two trusts – The Magalotti Franchise Trust and The Brenton Franchise Trust (J[153]-[154]). The working capital, net equity and net profit or loss figures for each of those financial years were then extracted and analysed, in some cases by reference to the evidence of Mr Cookes, which called into question the accuracy and sufficiency of entries in the underlying accounts (J[154]-[158]). With respect to the balance sheet of LRA as at 30 June 2017, the primary judge observed at J[159]: … The FY17 balance sheet cannot be accepted at face value. Without competent explanation of it by reference to the underlying transactions, and either verification or correction of the way assets and liabilities have been reported, the Court cannot rely on the document as a basis for any affirmative finding about solvency at 30 June 2017. 1. The correctness of this observation is not challenged. His Honour then considered LRA's balance sheet stated as at 30 September 2017 in management reports dated 9 October 2017. In comparison to LRA's balance sheet as at 30 June 2017, which showed a working capital deficit of $36,735 (J[155]), the management accounts balance sheet showed a working capital surplus of $2.4 million (J[160]). With respect to that difference, the primary judge observed at J[161]: There is no evidence of transactions between 30 June 2017 and 30 September 2017 that could have transformed LRA's balance sheet as suggested by these successive financial statements. It would be unsound for the Court to rely upon the tendered balance sheets at either of the two dates as a basis for drawing any conclusion about the sufficiency of the company's working capital at any time. 1. The correctness of this observation also is not challenged. With respect to the subject matter of ground 9 (whether Mr Cookes knew LRA was insolvent), the primary judge considered his evidence concerning the financial support provided by Parfit and others during the period between April 2017 and September 2018. His Honour also had regard to Mr Cookes' evidence concerning LRA's monthly cashflow forecasts for the period between July 2017 and February 2018. Finally, his Honour dealt in some detail with an exchange of emails between Mr Cookes and Ms Brenton in October 2017. Of particular relevance to the appellants' argument was Mr Cookes' email to Ms Brenton sent on 10 October 2017, which included the following "important points" discussed in a meeting on that day (J[178]): 6 Importantly, Parfit will not be providing any more funding to LRA. 7 LRA negative cash flow will have to be addressed by LRA directors. 9 [Ms Brenton and Ms Magalotti] would prefer to continue running LRA, under current or varied business model. Most points below address more negative outcomes, but realistic possibilities that should be considered in the event that they have to play out. 10 LRA is still negative cash flow, for a variety of reasons, and has no net worth after taking account of total liabilities (estimated at 3.5m+). 11 LRA shares worth $nil. 13 Apart from small working capital assets, the only assets of LRA are brand (? damaged reputation), footprint of circa 20 BA practices (some presently disgruntled), franchise BA legal agreements and IT/marketing collateral. 14 To prevent dispersal of BA practices out of group LRA needs to retain solvency and service needs of BAs, in order to retain enforceability of BA legal agreements. 15 As LRA cannot be sold in current condition it needs to find merger partner(s) […] or other structures if preferred by other parties. 16 Easiest option may be to find another franchise or to take an assignment of LRA's franchise or interest in the BA franchise agreements, by name, IT, etc. […] What would he pay? - $nil to $1m, but probably much less than $1m, a guess more like $100 - $200k. 17 First sale $ go to Parfit corporate loan, as holder of first ranking charge over LRA. […] Consequently it is in [Ms Magalotti's] interest to do everything she can to keep LRA going, to get some realisation $ benefit from it – in short/medium or long-term. 18 Parfit investors (with other LRA creditors) will probably lose all their investment (shares, loans shortfalls, etc), but would expect some part compensation from [Ms Magalotti] of part LRA realisation proceeds […]. 1. Ultimately, his Honour accepted Mr Cookes' evidence that at this time "he considered LRA solvent… and that his purpose [in sending his email of 10 October 2017] was to motivate the principals [of LRA, especially Ms Magalotti] to attend to its management and working capital requirements" (J[179]). Ms Brenton's subsequent email on 22 October 2017 included an assurance that Ms Magalotti would "be coming back" in the New Year (J[180]). The evidence also shows that she provided substantial financial support to LRA after April 2017. 2. Taking account of this evidence and his earlier analysis of LRA's financial records, the primary judge concluded at J[162]: … the defendants have failed to prove on the balance of probabilities that LRA was insolvent or approaching that condition in August or September 2017 or at any time up to when the external administration commenced. 1. The appellants' written submissions in support of ground 8 continue to focus upon the financial statements of LRA, in particular its profit and loss statement for the period ending and balance sheet as at 30 June 2017. By reference to those financial statements, the submissions refer to a "dearth of income", an operating loss, "total revenue" of "only… $1.8 million" and an assessment of net assets which depends upon the recoverability of a loan of $3.8 million to related parties. They also address cashflow forecasts and management reports for the period April to August 2017, which showed cashflow shortfalls of $197,030 for April 2017 and $148,153 for May/June 2017. The primary judge's findings as to the unreliability of those accounts and Mr Cookes' evidence as to advances made by Parfit under the short-term facility, including by Ms Magalotti as a contributory lender, are not the subject of specific challenge (J[170]-[176]). 2. In oral argument, the appellants focused on the primary judge's finding with respect to Mr Cookes' email of 10 October 2017. Their argument did not address his Honour's acceptance of Mr Cookes' evidence that at this time he did not believe LRA was insolvent because of the continuing working capital support provided by Parfit, including Ms Magalotti, and "other lenders" (J[170]-[173]). 3. This is the most persuasive evidence concerning LRA's ability to pay its debts as and when they fell due in the period from April 2017 to mid-2018. The amounts advanced total over $1.4 million: $603,000 under Parfit's short-term facility between April and 16 August 2017 and about $500,000 thereafter; and approximately $345,000 from four other lenders after August 2017. Of that $603,000, $215,000 was contributed by Ms Magalotti as part of the short-term facility. The time for repayment of those moneys was ultimately extended to 31 August 2018. With the exception of $50,000 contributed by Timsim, the remaining $445,000 advanced under the Parfit short-term facility after 8 August 2017 was contributed by Ms Magalotti. The remaining $345,000 was advanced by private lenders, including Prospa Advance, Mr Lee, Ms Munao and Get Capital. There is no finding as to when those advances were to be repaid. 4. In the face of this evidence and Mr Cookes' explanation that the cashflow management reports did not take account of further funds that would be provided to LRA to meet those requirements, the primary judge did not err in not being satisfied that LRA was insolvent in August or September 2017. Over the period between April 2017 and February 2018, with the financial support of those various parties, LRA was apparently able to pay its debts as and when they fell due. Ground 8 should be rejected. Whether primary judge erred in holding Mr Cookes was not involved in management of LRA (ground 3) Whether primary judge erred in failing to hold Mr Cookes knew or ought to have known LRA was insolvent or near insolvent (ground 9) 1. The finding contended for by ground 3 is relied on in two ways. First, it is said that by reason of Mr Cookes' involvement in the management of LRA he was aware in August and September 2017 that LRA was insolvent. Secondly, it is said that, using his management power and influence, in agreeing to the Parfit loan Mr Cookes imposed "indisputably disadvantageous terms on LRA" by requiring it to pay out or take over Parfit's loan to Solucionar. 2. The primary judge rejected the appellants' claim that "Mr Cookes engaged himself in the management and decision making of LRA to such a degree that knowledge of every aspect of its financial affairs could be attributed" to Parfit (J[164]-[167]). His Honour held as to Mr Cookes' knowledge that it was based "only upon such information as the company supplied from time to time" (J[167]). 3. Under the agreement between Parfit and LRA dated 7 October 2015, Parfit in its capacity as lender was entitled to "all information reasonably requested to enable [it] to be continuously informed of the financial performance and financial position of LRA" (cl 3.7). LRA was also required to send Parfit copies of its monthly management accounts and from 31 January 2016 quarterly financial statements and cash flow projections (cl 3.8). In addition, LRA was required not to deviate materially from its "current… business strategy and plan", nor to lend or repay money or provide any guarantee or security in each case without Parfit's consent (cll 3.10, 3.11, 3.12). In support of their contention that Mr Cookes was involved in the management of LRA, the appellants also refer to documents answering the above descriptions being sent for "weekly" shareholder meetings. By late 2017, a nominee or nominees of Parfit held a 29.9% shareholding in LRA; and the evidence shows that such shareholder meetings were being held by June 2017. However, it remains the position that Parfit received this financial information in its capacity as a lender, and later also as a shareholder. Receipt of this information in either capacity and Mr Cookes' attendance at such meetings does not of itself establish that Parfit was engaged in managing LRA, rather than closely monitoring LRA's financial position in Parfit's interest as a significant funder and indirect shareholder. 4. As ground 8 is not made out, it is unnecessary to pursue further the extent to which Parfit and Mr Cookes had access to LRA's financial information. It was not the appellants' case that Mr Cookes believed that LRA was insolvent, although he was mistaken in doing so. It follows, from this and the above finding that LRA was not in fact insolvent, that it could not be established that Mr Cookes knew or ought to have known that asserted fact. For that reason, ground 9 is not established. 5. The remaining relevance of ground 3 is to the asserted purpose of the loan being to replace Parfit's non-performing loan to Solucionar. It is contended that Mr Cookes "imposed" that outcome on LRA. Although this was an outcome of the loan transaction going ahead, for the reasons given in relation to grounds 1 and 2 it does not explain why the transaction was undertaken. As those reasons recount, the proposal that a company owned by Ms Brenton and Mr Caterjian become an area representative was initiated by Ms Brenton. That proposal had the potential to generate income for LRA, as well as that company. Mr Cookes' first response to LRA and Ms Brenton was that a "new loan offer would be very problematic" in view of "what has transpired with AR borrowers over the last 2 years". The way forward involved the funding of the Parfit loan by LRA taking over the Solucionar loan, thereby allowing LRA to pursue its business strategy directed to growing the number of its franchisees. 6. For these reasons, the rejection of grounds 1 and 2 makes it unnecessary to consider ground 3 any further. Whether primary judge erred in holding the respondents did not engage in unconscionable conduct (ground 10) 1. As formulated in their written submissions, the appellants' unconscionable conduct case is as follows. The loan to Mr Caterjian was made solely for the purpose of improving Parfit's security against its overall lending. As such, it involved no consideration of his ability to repay the loan. The consequence was that Parfit engaged in "naked asset lending". In addition, it is said the following circumstances, some already referred to, made the enforcement of Parfit's rights as lender and mortgagee "unconscionable". First, the "true nature" of the transaction was to enable Parfit to achieve the repayment of a non-performing loan "at the expense of LRA". Secondly, at the time the loan was made, LRA was in a "parlous financial situation" and Mr Cookes knew that it was insolvent or close to insolvent. Thirdly, the fact that the non-performing loan was repaid or transferred to LRA was not disclosed to Mr Caterjian or his wife. 2. In oral argument, the appellants' counsel submitted that the primary judge's holding at J[183] that Parfit did not take "advantage of the defendants' ignorance of [LRA's] financial condition" involved error because it did not have regard to the first of the specific circumstances described above. Otherwise, the appellants relied on their written argument. 3. In view of the fate of grounds of appeal 1, 2, 7, 8 and 9, the conduct of Parfit which the appellants contended was unconscionable and in contravention of ss 20 and 21 of the Australia Consumer Law did not occur. 4. The "true" purpose of Parfit and Mr Cookes for making the loan was not to replace the Solucionar loan with one which was secured, although it can be inferred that that was part of their motivation. That was a legitimate commercial consideration from the lenders' perspective. Nor did Parfit proceed with the loan with no basis for believing that Mr Caterjian (and Ms Brenton) would be able to service the loan, including revenue generated by the appointment of franchisees in Ellie & Mac's region. For the reasons appearing above, the transaction did not involve "naked asset lending" (as that expression is used in cases such as Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41; (2006) 14 BPR 26,639 and Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343); and was not undertaken solely because it offered security over the appellants' house. Nor was it undertaken at a time when LRA was and was believed by Mr Cookes to be insolvent. 5. Ground 10 is not made out. Whether primary judge should have found guarantee and mortgage liable to be set aside because Mr Caterjian exercised undue influence and Parfit had knowledge of that conduct (grounds 11, 12 and 13) 1. These grounds contend that, having found that Mr Caterjian "overbore [his wife] and induced her to sign the [transaction] documents" (J[96]), the primary judge should have found either (1) that Parfit had actual or constructive knowledge of that conduct with the consequence that it was subject to the equitable rights which arose as between Mrs Sclavos-Caterjian and Mr Caterjian with respect to the setting aside of the documents; or (2) that by reason of Mr Caterjian's conduct and that actual or constructive knowledge, Parfit's enforcement of the documents against Mrs Sclavos-Caterjian constituted unconscionable conduct in contravention of ss 20 and 21 of the Australian Consumer Law. 2. The fundamental problem for the prosecution of these grounds is that neither claim was pleaded or part of the case conducted before the primary judge by the appellants, and specifically by Mrs Sclavos-Caterjian. That is not controversial. Nor is it controversial that in the way these claims have been formulated in this Court they raise at least two factual issues. The first is whether Mr Caterjian exercised undue influence over his wife in having her sign the transaction documents on each of the occasions that she did. The second is whether Parfit had either knowledge that the undue influence was being exercised or sufficient notice that the impropriety might occur as to constitute some form of constructive knowledge of that conduct. 3. In this context, it is not necessary to consider further how such equitable rights may have arisen. To do so would require consideration of the principles applied in Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3 as explained by the majority of the High Court in Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 esp at [31]-[38]. The appellants' formulation of the equitable claim as requiring, where there has been actual undue influence, actual or some form of constructive notice on the part of the lender is founded on statements in Bank of New South Wales v Rogers (1941) 65 CLR 42 at 55 (Starke J), 60-61 (McTiernan J); [1941] HCA 9. 4. The same factual issues would arise in the alternative way in which the appellants formulate this claim under ss 20 and 21 of the Australian Consumer Law. 5. Those issues would have invited further evidence with respect to the knowledge or notice of Parfit, and required reconsideration of the primary judge's finding at J[143] that, although Mrs Sclavos-Caterjian was placed under pressure by her husband to sign the loan documents, there was "no evidence that this became known to Mr Cookes or that he should have been aware of it". There most likely would also have been further cross-examination of Mrs Sclavos-Caterjian as to whether she did nevertheless freely sign the documents. 6. As to whether these claims can be pressed on appeal, the principles are well-established and the answer is clear. In Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; [1950] HCA 35, the Court said: The circumstances in which an appellate court will entertain a point not raised in the court below are well established. Where a point is not taken in the court below and evidence could have been given there which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards. 1. That is the position in this case. It follows that the claims sought to be made by these grounds cannot be argued on appeal. The grounds must be dismissed. Conclusion 1. In the result, none of the four arguments made by the appellants is made out. Their appeal should be dismissed with costs. 2. WHITE JA: I agree with Meagher JA. 3. MITCHELMORE JA: I agree with Meagher JA. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 August 2023