Australia and New Zealand Banking Group Ltd v Donnelly

Supreme Court of NSW|2012-11-01|Before: Garling J

Judgment 1The Australia and New Zealand Banking Group Limited ("ANZ") seeks through an Amended Notice of Motion dated 24 September 2012, orders for the judicial sale of a property at Bardwell Valley, a suburb of Sydney. The respondent to the motion, Mrs Fiona Donnelly, opposes the relief being sought. For the reasons which follow I have decided that had the motion should be dismissed.

FACTUAL BACKGROUND 2Mrs Donnelly is now separated from her husband, Mr Jason Donnelly. Together they are the parents of four children who are all still attending school or pre-school. 3Mrs Donnelly lives with the children in the house at Bardwell Valley, which is the subject of these proceedings. They have no other home. The Bardwell Valley property is owned by Mr and Mrs Donnelly as joint tenants. 4There are proceedings on foot in the Family Court of Australia between Mr and Mrs Donnelly in which, amongst other things, orders dealing with the property pursuant to s 79 of the Family Law Act 1975 (Cth) are being sought. The proceedings have not been resolved to date. 5In October 2006, the Donnelly family moved to live in Macau because of Mr Donnelly's employment requirements. They owned the Bardwell Valley property at that time. There was a mortgage over the property in favour of the National Australia Bank in an amount of about $500,000. 6In 2008, Mr Nicholas Stewart, a private banker with the ANZ Private Bank in Hong Kong, offered Mr and Mrs Donnelly a loan facility that he described as "ANZ's Expat Mortgage Facility". He also described it as a multiple currency loan. He told the Donnellys that he would meet with them so as to "provide you with a clear working example on how the facility operates along with demonstrated strategies that can assist you in managing/reducing the risks. The strategies will allow you to react to any shifts in currency movements by providing you with the ability to choose desirable entry/exit points". 7Subsequently, a meeting took place in Macau. What was said at that meeting is in dispute between the parties and need not be further discussed for the purposes of this judgment. However, it is clear that by 25 August 2008, the Donnellys had gone ahead with a loan from ANZ Hong Kong which was denominated in Hong Kong dollars for a total of HKD$4.105M at an exchange rate of $6.84176 to the Australian dollar. This amounted to about $600,000 AUD. 8The Bardwell Valley property was provided as security for the loan. The National Australia Bank was paid out as a mortgagee and ANZ became the holder of a registered mortgage. It is necessary to note here, and put to one side for the purposes of this motion, the fact that it appears that the initial lender was ANZ Asia Limited and there has apparently been an assignment of the loan from ANZ Asia to ANZ. 9This motion can be determined without further considering the fact of or else the efficacy of this assignment process, which was internal to ANZ. In this judgment, I will refer to ANZ without differentiating between ANZ Asia or ANZ itself. 10The first interest payment on the loan was due on 24 November 2008, but some what surprisingly, at least to Mrs Donnelly, on 19 September 2008 without warning, ANZ sent a letter to the Donnellys requiring them to make an additional deposit of cash in the sum of no less than AUD$82,000 or else to reduce the loan by AUD$61,000. They were given five days to take this action. However, the letter did not arrive until the deadline for compliance had expired. The post in Macau was to the knowledge of Mr Stewart of ANZ Private Bank Asia "a nightmare". 11By a letter dated 13 October 2008, ANZ required the Donnellys to either (a)provide additional security by way of a cash deposit of AUD$217,000 by 22 October 2008 or (b)reduce the outstanding amount of the loan by AUD$195,000 by the same date. The Donnellys were told by Mr Stewart in that letter that if they did not make either of those arrangements, the bank would exercise its rights and convert the loan into "the alternate currency" pursuant to the terms of the agreement. 12A further demand for more cash by way of a deposit or else a reduction in the loan was made by ANZ on 2 December 2008. 13On 18 December 2008 the ANZ "closed out the loan". This meant that ANZ converted the Hong Kong dollar loan into an Australian dollar loan at the exchange rate which prevailed at that time which was 5.45. This was a deterioration of about 20 percent within a three month period. 14In other words, the Donnellys owed the ANZ Bank about 20 percent more than they did when the loan was taken out three months earlier. As well, the interest rate applicable to the loan was the ruling Australian rate rather than the rate for loans in Hong Kong. It was significantly higher. 15There was no evidence that in this period, ANZ had provided, as Mr Stewart had promised, any strategy which allowed them to "react to shifts in currency movements". 16In March 2009, Mrs Donnelly and the children returned to live in Sydney in the Bardwell Valley property. She contends that all interest payments have been properly made and that the loan is not in default provided that the loan is still the denominated in Hong Kong dollars rather than in Australian dollars. 17ANZ contends that there has been default and it has served all relevant notices to enable it to take possession of the Bardwell Valley property. ANZ contends that no payments have been made since July 2010.

PROCEDURAL HISTORY 18Proceedings were first commenced by Statement of Claim filed by ANZ on 22 September 2011. 19On 6 December 2011, ANZ obtained default judgment against Mr Donnelly. This gave ANZ a monetary judgment against Mr Donnelly in the sum of $800,552.48. As well, ANZ obtained an order for the possession of the property but only as against Mr Donnelly. 20Mrs Donnelly has attempted to defend the proceedings. To that end, she has filed an Amended Defence and a Cross-claim. These substantive proceedings have not yet been fixed for hearing. For the purpose of the hearing of this motion only and reserving its rights for later argument, ANZ accepted that so long as the Defence and Cross-claim remained on foot and had not been struck out, the Court ought act on the basis that Mrs Donnelly had an arguable defence. ANZ made plain, as did its motion, that at some later point in the proceedings it wished to move to strike out Mrs Donnelly's pleadings.

ORDERS SOUGHT 21The ANZ sought the following orders in its amended notice of motion: (1)An order that leave be granted to it to issue a writ of possession for the Bardwell Valley property and/or in the alternative, an order for the judicial sale of the Bardwell Valley property together with an order for the appointment of trustees to take possession of and sell the land. 22Other relief was sought dealing with the pleadings. This relief was not proceeded with in the argument before me but may need to be considered in due course.

ANZ SUBMISSIONS 23ANZ argued that by reason of the judgment which it had obtained against Mr Donnelly for possession of the property, it was entitled to possession of the property as a whole and that it was entitled as of right to an order for the judicial sale of the property. 24ANZ submitted that as a judgment creditor of one joint tenant, namely Mr Donnelly, it was entitled to execute against that joint tenant's aliquot share with the result that a "severance of the jointure must be effected": see Guthrie v ANZ Banking Group Limited (1991) 23 NSWLR 672 at 680B per Meagher JA. 25ANZ also sought to rely on Van den Heuvel v Perpetual Trustees Victoria Limited [2010] NSWCA 171 as authority for the proposition that, in this case, Mrs Donnelly's title as joint tenant was affected by the mortgage given by Mr Donnelly, such that ANZ was entitled to exercise its rights over the whole property. It argued that it was in the same position as against Mrs Donnelly as an equitable mortgagee because it was only seeking to rely on the rights arising from the judgment against Mr Donnelly. 26Relying on its position as an equitable mortgagee or chargee, ANZ then submitted that where default was established, it was entitled as of right to an order for judicial sale. In support of this contention ANZ drew attention to the decision of Brereton J in Sood v Christianos [2008] NSWSC 1087 at [16] where his Honour said: "[j]udicial sale is the standard remedy of an equitable chargee. Upon default, an equitable chargee is entitled as of right to an order for sale; this is not regarded as a matter of discretion. Sykes and Walker say as much (at 198): 'The chargee on default has the right to apply to the Court for an order for sale. Such order is of right and not regarded as a matter of discretion'. In this field, where it is a remedy of an equitable chargee, judicial sale is not a remedy of last resort but the standard remedy ...". 27The reference to Sykes and Walker in this extract is to Edward Sykes and Sally Walker, The Law of Securities, 5th ed (1993) Law Book Co. An examination of the text book does not suggest that the learned authors have cited any authorities to support the statements which Brereton J has extracted. It seems to me that the context for the remarks of Brereton J was that a judicial sale at the suit of an equitable chargee is a standard remedy rather than a last resort remedy, in accordance with remarks to the effect that an order for judicial sale is a remedy which was to be only applied as "a last resort" see Yarrangah Pty Limited v National Australia Bank Limited [1999] NSWSC 97 at [27] per Young J (as his Honour then was). 28It seems to me that Brereton J took a great deal of care to emphasise that where a default exists, an order for judicial sale is a standard remedy available to an equitable chargee. I do not with respect take Brereton J's statement that an equitable chargee is entitled to have a Court make an order for judicial sale, to be an automatic entitlement to the relief regardless of any submissions which the Court may receive as to whether it is appropriate to make such an order. 29So, it seems to me that in order to obtain an order for judicial sale, an equitable chargee does not have to demonstrate what, if any, other steps have been taken to enforce the charge. Nor does an equitable chargee have to prove any special or exceptional entitlement to the order. It is sufficient that the equitable chargee can show that the charge exists and is enforceable and that default has occurred. That said, it seems to me that before a Court makes an order for judicial sale, it is and must be entitled to have regard to the position of those who will be affected adversely by the making of the order. 30I find it difficult to accept that a Court would grant an equitable remedy where the remedy itself would become an instrument of injustice. Although an equitable chargee may have an entitlement upon default to seek an order for judicial sale, the Court retains a discretion to determine whether, in all the circumstances, such an order ought to be made. To the extent that ANZ contended that Brereton J's judgment expressed some other principle which had the effect of removing all discretion from the Court as to whether it would make such an order, and that the order would in effect automatically be made in every case, I reject that submission. That is not how I understand the principle to which his Honour refers.

SHOULD AN ORDER FOR JUDICIAL SALE BE MADE? 31The end point of a grant of relief in accordance with the orders which ANZ seeks would be that Mrs Donnelly and her children would be required to hand over possession of the property to ANZ, leave the property and find alternative accommodation. The property would then be sold. After sale, ANZ accepts that some part of the sale price would need to be set aside as representing Mrs Donnelly's share pending the resolution of the current proceedings between Mrs Donnelly and the ANZ. 32Mrs Donnelly argues that this result would have the practical effect of defeating the real aim of the litigation namely, to retain the house. It is to be recalled that it is her case that had ANZ not converted the loan into Australian dollars, no default would have occurred on the loan. In other words, no occasion has as yet arisen for the exercise of any powers under the mortgage let alone the obtaining of judgment against Mrs Donnelly. 33ANZ does not agree with that submission. It contended that default can be established on a number of bases including the undoubted fact that Mrs Donnelly, as one of the joint borrowers, has returned to Australia thus allowing ANZ to convert the loan to Australian dollars. Hence, ANZ submits there is no reason to think that the orders it seeks would have the effect of stifling the litigation. 34I do not propose to resolve this dispute as to whether there has been a default. The evidence dealing with it is far from complete. No cross-examination of the relevant witnesses has happened. It is sufficient for present purposes to note the nature of the dispute. 35I do not regard Mrs Donnelly's arguments on the material before me as completely hopeless or wholly without merit. That is not to say that I have been persuaded by them. On the contrary, my impression is that she will need compelling evidence to make out her contentions. The short point is that to accept ANZ's arguments at this stage of the proceedings would be analogous to the entry of summary judgment. This is not an appropriate case in which to take such a course, at least, indirectly by holding that default has occurred. 36I am satisfied that to make the orders sought by ANZ would be unjust to Mrs Donnelly. So far as I am concerned she presently has an arguable defence which may result in her being able to remain in the house which she owned as a joint tenant before the ANZ loan was made. The fact that four school-aged children for whom Mrs Donnelly has the day-to-day care also reside in the house which is their home also assists in understanding any potential detrimental effect of allowing ANZ's motion. 37If ultimately Mrs Donnelly is successful, she and her children would not be able to be restored to their current position if the orders ANZ requests were made because in the ordinary course of such events the house would have been sold by ANZ. In all of the circumstances, assuming in ANZ's favour that it is proper to equate its position to that of equitable chargee as it has sought to do, I would nevertheless not be prepared to make the orders sought. 38I make the following orders: (1)Orders 1 and 2 of the Amended Notice of Motion filed 24 September 2004 are dismissed. (2)The Amended Notice of Motion is otherwise adjourned to 9.30am on 7 December 2012. (3)I order ANZ to pay Mrs Donnelly's costs of the hearing of this part of the amended notice of motion.

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: 24 January 2013

At a glance

Court

Decision date

Before

Source

Judgment (7 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (4)

Cited By (6)