These proceedings are listed before me today to deal with the plaintiffs' claim for judgment against the first and second defendants in the sum of $810,000. The plaintiffs claim to be entitled to judgment as a consequence of the first and second defendants defaulting under a loan agreement and guarantee and indemnity entered into with the plaintiffs last year.
In support of their application for judgment, the plaintiffs rely on parts of the first defendant's affidavit made on 4 August 2019 and documents tendered at the hearing. The summary of facts that follows is taken from that evidence and three earlier judgments given in the proceedings.
On 6 May 2019, the plaintiffs entered into a loan agreement with the first and second defendants pursuant to which the plaintiffs agreed to lend $600,000 to the first defendant, consisting of two advances of $400,000 and $200,000 (Loan Agreement).
The Loan Agreement provided for the loan funds to be repayable twelve months after 15 May 2019. It also provided for monthly loan fees to be payable; $9,000 per month in relation to the $400,000 loan advance commencing on 8 May 2019, and $5,000 per month in relation to the $200,000 loan advance commencing on 8 June 2019.
On 6 May 2019, the second defendant entered into a guarantee and indemnity agreement with the plaintiffs under which the second defendant unconditionally guaranteed due and punctual payment of all moneys owing under the Loan Agreement (Guarantee and Indemnity). She also granted a mortgage over her property in Walker Avenue, St Ives (property) to secure her obligations under the Guarantee and Indemnity.
The first loan advance of $400,000 was made to the first defendant on 12 April 2019, in anticipation of the Loan Agreement being signed. The second loan advance of $200,000 was made on 16 May 2019.
The first defendant paid a monthly loan fee of $9,000 on the $400,000 loan advance on 9 May 2019. He then defaulted on payment of the monthly loan fees that were due on 8 June 2019. This was an event of default that entitled the plaintiffs to seek payment of the principal loan amounts, which was defined to include the monthly loan fees: Loan Agreement, cl 7.2(a).
On 27 June 2019, a default notice was served on the first defendant in accordance with the Loan Agreement, which he failed to comply with.
The second defendant also failed to comply with a demand for payment that was served in accordance with the Guarantee and Indemnity on 12 July 2019.
On 5 August 2019, the plaintiffs commenced the proceedings against the first and second defendants seeking orders for possession and judicial sale of the property, as well as judgment in the sum of $614,000 which was, at the time, the total amount outstanding under the Loan Agreement.
On 24 October 2019, on the application of the plaintiffs, Westpac Banking Corporation was joined to the proceedings as the third defendant. Westpac had a registered first mortgage over the property. The fourth, fifth and sixth defendants, who claimed to have security interests in the property, were also joined on that day.
On 4 November 2019, Ball J declared that the plaintiffs held an equitable mortgage over the property, gave judgment for possession, and ordered the property to be judicially sold: Abdallah v Baygan [2019] NSWSC 1507.
On 2 March 2020, I made orders for the fourth defendant's caveat over the property to be withdrawn to enable the property to be sold: Abdallah v Baygan (No 2) [2020] NSWSC 166.
The sale of the property was completed on 11 May 2020. After payment of the mortgage in favour of Westpac and costs associated with the sale, a sum of $413,783.20 (net sale proceeds) remained available for distribution to secured creditors, including the plaintiffs.
On 31 May 2020, the plaintiffs and the fourth defendant entered into a deed of settlement and release in relation to their respective claims over the net sale proceeds (Deed of Settlement). Pursuant to the Deed of Settlement, the plaintiffs agreed that the fourth defendant would receive the amount of $70,000 from the net sale proceeds, with the balance of $343,783.20 payable to the plaintiffs.
On 1 June 2020, the proceedings came before me to determine the competing claims to the net sale proceeds as between the plaintiffs and the fourth, fifth and sixth defendants. I made orders and declarations that gave the plaintiffs priority to the net sale proceeds over the claims of the remaining defendants and for the plaintiffs to be entitled to the net sale proceeds which, at the time, were held in a solicitor's trust account. I also dismissed the proceedings insofar as they related to the fourth, fifth and sixth defendants: Abdallah v Baygan (No 3) [2020] NSWSC 680. As with previous hearings in the proceedings, there are no appearances by the first and second defendants today. The evidence suggests that they left the country last year. It also establishes that they were served in accordance with orders for substituted service that were made on 16 August 2019.
Westpac, as the only remaining active defendant, was notified of the hearing and informed the plaintiffs' solicitors that it would not be participating as the mortgage debt owed to it by the first and second defendants has been repaid.
In those circumstances, I am satisfied that it is appropriate to proceed to deal with the plaintiffs' application for judgment in the absence of the first, second and third defendants.
The plaintiffs seek judgment in the sum of $810,000. This amount is made up of $210,000, being the monthly loan fees of $14,000 during the period commencing on the first default (being 9 June 2019) to today, together with the principal loan sums advanced of $600,000, which the first and defendants have failed to pay.
A question arose at the hearing as to whether the plaintiffs should be entitled to judgment for $810,000 in circumstances where they have already received the benefit of $343,783.20 from the net sale proceeds. Mr Rogers, who appears for the plaintiffs, submits that judgment should be entered for $810,000 with a notation of the amount that the plaintiffs have received in partial satisfaction of the judgment. While candidly stating that he had not been able to locate an authority dealing with the issue, he contended for this approach to ensure the plaintiffs have judgment for what he asserted was the correct amount in the unlikely event the first and second defendants seek to reclaim the net sale proceeds or bring some appeal out of time in relation to those proceeds.
I am satisfied that it is appropriate to adopt the approach proposed by Mr Rogers and grant judgment for the sum of $810,000 with a suitably framed notation. The form of order reflects the plaintiffs' entitlement to the amounts the first defendant was obliged to, and failed to, pay under the Loan Agreement and the second defendant is liable to pay under the Guarantee and Indemnity. It will also record that the plaintiffs have received an amount of $343,783.20 in partial satisfaction of the judgment.
The plaintiffs also seek an order for post-judgment interest in the amount of $14,000 per month based on the value of the monthly loan fees. I am not persuaded the plaintiffs are entitled to post-judgment interest on that basis. The Loan Agreement provides for the $14,000 to be paid each month as "Loan Fees", not as interest payments. Accordingly, I will order post-judgment interest to be payable pursuant to s 101 of the Civil Procedure Act 2005 (NSW). Interest will be payable on the amount of $466,216.80 only, being the amount of the judgment that remains unpaid.
The plaintiffs also seek an order that the first and second defendants pay their costs of the proceedings on the indemnity basis. While providing for the first defendant to be liable to pay costs, including legal fees, associated with enforcement, the Loan Agreement does not express the obligation as one that requires payment of costs on an indemnity basis: Loan Agreement, cl 10.4. The position is different in relation to the second defendant. The Guarantee and Indemnity obliges the second defendant to reimburse the plaintiffs for legal costs incurred in connection with the enforcement of any rights under the Guarantee and Indemnity on a full indemnity basis: Guarantee and Indemnity, cl 13. I will, therefore, order the second defendant to pay the plaintiffs costs on an indemnity basis and that the plaintiffs' costs otherwise be paid by the first defendant on an ordinary basis.
For these reasons, I make the following orders:
1. Judgment for the plaintiffs in the sum of $810,000.
2. The Court notes that, as at 13 August 2020, the plaintiffs have received $343,783.20 in partial satisfaction of the judgment and $466,216.80 remains unpaid.
3. Pursuant to s 101 of the Civil Procedure Act 2005 (NSW), post-judgment interest be payable on the unpaid amount of the judgment at the rate prescribed by the rules.
4. The plaintiffs' costs of the proceedings are to be paid by the second defendant on the indemnity basis and otherwise are to be paid by the first defendant on the ordinary basis.
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Decision last updated: 18 August 2020