Solicitors:
John B Hajje and Associates (Plaintiffs)
Thomson Geer (Third Defendant)
File Number(s): 2019/242734
[2]
EX TEMPORE Judgment
By a loan agreement dated 6 May 2019, the plaintiffs agreed to lend the first defendant the sum of $600,000 consisting of an amount of $400,000 loaned by the first plaintiff and $200,000 loaned by the second plaintiff. The loans were expressed to be repayable 12 months after 15 May 2019. The first defendant agreed to pay a loan fee of $9,000 per month on the $400,000 loan advance, and $5,000 per month on the $200,000 loan advance commencing on 8 June 2019.
Clause 7.2(a) of the loan agreement provided:
On or at any time after the Occurrence of an Event of Default the Lenders [the Plaintiffs] may by notice to the Borrower [the first defendant], do any or all of the following:
(i) declare that the commitment of the Lender to provide the Loan Facility is cancelled;
(ii) declare that the Principal Sum is immediately due and payable; or
(iii) enforce and exercise any of its rights under any Security.
Clause 12.14 of the loan agreement dealt with the service of notices. Relevantly, it permitted notices to be served by post at the address as set out in item 7 of the schedule to the loan agreement or any other address last notified.
By a Guarantee and Indemnity of the same date, the second defendant, who is the partner of the first defendant, unconditionally guaranteed due and punctual payment of all monies owing under the loan agreement.
Abdallah v Baygan [2019] NSWSC 1507 | Case summary | Zoe
Clause 3 of the Guarantee and Indemnity relevantly provides:
Nature of guarantee
This Guarantee:
(a) Is a principal obligation and will not be treated as ancillary or collateral to any other right or obligation however created or arising;
(b) may be enforced against the Guarantor [the second defendant] without the Lender first being required to exhaust any remedy it may have against the Debtor or to enforce any security it may hold with respect to the Money Owing;
…
Clause 15 of the Guarantee and Indemnity deals with notices. It provides:
Notices
Any demand or notice will be made in writing signed by an officer or agent of the Lender and may be served on the Guarantor either by hand or by post. Any demand or notice may be addressed to the Guarantor at the address or place of business last known to the Lender and will be deemed to have been received on the second business day following the day on which it was posted and will be effective even if it is returned undelivered to the Lender.
On 6 May 2019, the second defendant granted a mortgage over a house she owns in Walker Avenue, St Ives, NSW (the Property), to secure her obligations under the Guarantee and Indemnity. The mortgage, although in registrable form, is unregistered. It is the subject of a caveat lodged by the plaintiffs.
Clause 6 of the mortgage provides:
Upon default being made in payment at the respective times and in the manner shown in the mortgage of the principal sum or any part thereof, or of the interest thereon or any part thereof, or upon default being made in the observance or performance of any of the covenants contained herein or in the mortgage or implied therein by the Real Property Act 1900 or the Conveyancing Act 1919 the mortgagee shall (notwithstanding any omission, neglect or waiver of the right to exercise all or any of such powers on any former occasion) be at liberty to exercise all or any of the powers of a mortgagee under the said Acts immediately upon or at any time after default as herein before mentioned, subject however to compliance with any requirements of the said Acts in respect of the exercise of such powers. If at any time default shall be made in the due payment of me interest on any of the days when the same respectively shall become payable or within the time thereafter mentioned in the schedule to the mortgage, or, if the power of sale given to the mortgage under either of the said Acts shall become exercisable, then the principal sum shall immediately become due and the mortgagor will thereafter pay the same on demand.
I accept the submission of Mr Rogers, who appeared for the plaintiffs, that this clause creates a contractual right to possession of the property in the event of default. It appears that the Property was, at least until recently, the first and second defendants' family home.
The first loan advance of $400,000 was, in fact, advanced on 12 April 2019 in anticipation of the agreements being signed. The second advance was made on 16 May 2019.
The defendants defaulted on payment in respect of both loan amounts. On 27 June 2019, a default notice was served, in accordance with the loan agreement, on the first defendant. On 12 July 2019, a demand was served on the second defendant in accordance with the Guarantee and Indemnity.
On 5 August 2019, the plaintiffs commenced these proceedings seeking judgment against the first and second defendants in the sum of $614,000, which was the amount then outstanding under the loan agreement, and an order for judicial sale of the property. The evidence suggests that the first and second defendants have or may have left the country and that the property has been placed on the market.
On 16 August 2019, the Court made orders for the substituted service of the summons and commercial list statement. I am satisfied that those documents have been served in accordance with that order. No appearances have been filed by the first or second defendants.
On 18 October 2019, the matter was set down for hearing on 4 November 2019. On 24 October 2019, on the application of the plaintiffs, the Court joined a number of additional defendants including the third defendant, Westpac Banking Corporation, which has a registered first mortgage over the property. It appears that the fourth to sixth defendants also claim, or at least some of them also claim, a security interest in the property. For that reason, they were joined to the proceedings. No order is sought against them.
The third defendant appeared today and, with some modifications, agreed to the orders sought by the plaintiffs. There were no appearances by the other defendants.
The unregistered mortgage takes effect as an equitable charge. A primary means for enforcing that charge is an order for judicial sale: see Catherine Margaret Thorn, as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd and Dawn Kathleen Boyd [2016] NSWSC 1344 at [64] per Sackar J and the cases cited there. In this case, I am satisfied that an order for judicial sale is appropriate. The terms on which it is to occur are consented to by the first registered mortgagee. Although there is no evidence before the court concerning the value of the property, I was informed by Mr Rogers that an offer has been made for $3.25 million. It seems to me that, in the particular circumstances of this case and having regard to the orders which are sought, there would be no utility in requiring the plaintiff to provide evidence concerning the value of the property before an order for judicial sale is made.
The plaintiffs do not seek judgment, at this stage, for the amount that they claim, bearing in mind a possible argument that, if judgment were to be given, they would lose the benefit of their security.
The orders of the Court therefore are:
1. Declaration that the Plaintiffs hold an equitable mortgage ("the Mortgage") over the whole of the land comprised in certificate of title Folio Identifier 27/226211 and known as 21 Walker Avenue, St Ives ("the Land") which mortgage secures all money owing by the First Defendant to the Plaintiffs pursuant to the agreement entered into between the Plaintiffs and the First and Second Defendants on or about 6 May 2019 ("the Loan Agreement").
2. Order that the Mortgage be specifically performed.
3. Order that the Land be judicially sold.
4. Order that the Plaintiffs be appointed the Court's agent in order to effect the judicial sale of the Land.
5. Judgment to the Plaintiffs for possession of the Land.
6. Order that the Second Defendant provide vacant possession of the Land to the Plaintiffs within 14 days of the making of these orders.
7. Leave to the Plaintiffs to issue forthwith a Writ of Possession such Writ to be stayed for 14 days after the making of these orders.
8. Order that the Land be sold by the Plaintiffs in such manner and on such terms as the Court may in these orders and from time to time direct but, except to the extent of such direction, in accordance with the duties that a mortgagee owes when selling mortgaged land but otherwise as the Plaintiffs see fit.
9. Direct that the Plaintiffs, in selling the Land, shall:
1. consult with the Third Defendant prior to offering the Property for sale and ascertain from the Third Defendant the indicative amount owing necessary to pay out the Third Defendant's mortgage over the Land ("the Indicative Amount"), which shall include a reasonable allowance for further interest and costs under the mortgage up to the anticipated date of completion of the sale;
2. offer the Land for sale at a total price that is not less than the Indicative Amount; and
3. in the event that the Third Defendant does not provide to the Plaintiffs the Indicative Amount within 7 days of request, or if the Indicative Amount is a figure that the Plaintiffs reasonably believe is unlikely to be realised or exceeded on a sale of the Land, the Plaintiffs shall not proceed to sell the Property or to offer the Land for sale, but shall instead cause the matter to be relisted before the Court for the purpose of the Court making directions as to a minimum reserve price for any auction and minimum sale price for any sale by private treaty.
1. Order that the Third Defendant supply to the Plaintiffs the Indicative Price within 7 days of request by the Plaintiffs for the figure in question.
2. Order that in the event of the sale of the Land as provided in these orders the Plaintiffs are hereby appointed to transfer the said Land to the purchaser or purchasers thereof upon any such sale.
3. Order that the First and Second Defendants, whether by themselves or their agents, within 7 days after any written request from the Plaintiffs, deliver to the Plaintiffs all deeds or documents of title in their possession or control relating to the Land as may be properly required for the completion of any such sale.
4. Liberty to the parties, and to any other person claiming an interest in the Land, to apply with respect to any matter that may arise with respect to the sale of the Land or the distribution of the sale proceedings.
5. Subject to order 13, order that the Plaintiffs pay the proceeds of the sale of the Land in the following order:
1. Payment of all of the Plaintiffs' proper costs and expenses relating to the sale of the Land;
2. Payment of the whole of any amount due to the Third Defendant pursuant to registered mortgage AN450122;
3. Payment of the whole of any amount due to the Fourth Defendant secured by any charge recorded in Caveat AN710218;
4. Payment of the whole of the amount due to the Plaintiffs pursuant to the Loan Agreement;
5. Any surplus to be paid into Court.
1. Order that, in the event that there is any dispute as to any of the matters specified in subparagraphs 14(i), (ii), (iii) or (iv), any disputed monies to be paid into Court.
2. Order that the Plaintiffs' costs be paid by the First and Second Defendants proceedings on the indemnity basis against the First Defendant.
3. Liberty to apply to the fourth to sixth defendants on 3 days' notice in relation to order (14).
4. Stand the matter over to 13 December 2019 for directions before the Commercial List Judge.
[3]
Amendments
06 November 2019 - Amendments under slip rule:
Change in para 18 ("the Mortgage") to ("the Land")
Amend 18 to read "Liberty to apply to the fourth to sixth defendants on 3 days' notice in relation to order (14)".
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Decision last updated: 06 November 2019