Australian Executor Trustees v Tilley

Default under the Deed 13In light of the failure to pay the second instalment an event of default, as that term is defined in the second unregistered mortgage held by AET, has occurred. That is because of the Memorandum of Mortgage AE352926 which contained the detailed provisions of the mortgage, and which required: (a)by clause 2.3 that the defendants pay to AET the "secured money" on the date agreed; (b)"secured money", by clause 13.1 meant all money due from the defendants to AET including any money due pursuant to a "collateral document"; (c)"collateral document", by clause 13.1, meant any document under which the defendants agreed to pay money to AET; (d)the Deed of Settlement was such a document; (e)by clause 10.1 an event of default as determined by AET in its absolute discretion and which was final and binding on the defendants meant the non performance of any term of the mortgage and also a failure to pay any indebtedness of the defendants to AET. 14Hence, when the defendants failed to meet their obligation to make the payment of the second instalment under the Deed of Settlement, they were in default under the mortgage given to AET. 15Once the defendants were in default a number of consequences, and events, followed. 16First, AET became entitled to file a consent judgment and to have the Court make the orders in that document, without opposition, from the defendants. 17Secondly, AET became entitled to exercise any of their rights on default as provided by the mortgage. These rights, by clause 10.2 of the mortgage, included the following: (a)the right to do anything thought appropriate to secure the money; (b)the right to deal with the secured assets which, by clause 13.1, meant the whole of the land secured by the mortgage, including fixtures and fittings, and the defendants right to receive any money in respect of the land which would include rental income; (c)the right to eject occupants, and the right to enter or take possession of the land secured by the mortgage; (d)the right to sell, lease or license the land secured by the mortgage. 18Thirdly, and unsurprisingly, AET lodged a caveat on the titles to the Pyrmont property to protect its interest in the property under the unregistered mortgage. At the time this occurred, namely 17 July 2012, the defendants and Limenight had still not bothered to register the first mortgage. 19Fourthly, the Court, without any substantial objection from the defendants, entered a monetary judgment of $440,000 against the first, second, third and fifth defendants on 16 July 2012.

The present proceedings 20By an amended notice of motion, AET now seeks orders for: (a)possession of the land; (b)sale of the land under the judicial control; (c)fixing or determining the reserve price and ancillary matters relating to the sale and (d)the joining Limenight Investments Pty Ltd ("Limenight") as a sixth defendant. 21The occupants of the property, under the lease, have been notified in July 2012 of the existence of these proceedings, albeit with an earlier form of a notice of motion, and have not, at any time, appeared. 22Limenight, a company which the second defendant is the sole director, and which his wife is the sole beneficial owner has been recently served with the amended notice of motion. Mr Moloney, solicitor for the defendants, informed the Court that Limenight does not oppose the order for joinder but that due to, at least, a potential conflict of interest, he is unable to appear for it. All of the defendants oppose the relief sought except the joinder of Limenight.

Submissions 23The principle bases upon which the defendants oppose the relief are twofold. 24Firstly, there is no evidence of the value of the land, whether by formal valuation or otherwise, such as would enable the Court to order a sale of the land and impose appropriate conditions. In support of this the defendants rely upon the decision of Campbell J, as his Honour then was, in King Investment Solutions Pty Limited v Hussain [2005] NSWSC 1076; (2005) NSWLR 441. Secondly, the defendant submits that the evidence suggests that they will be in a position to pay the outstanding sum by 6 September 2012 in circumstances, as it is submitted where AET has been the cause of their inability to pay at any earlier point in time. 25Campbell J said at [101] to [119] of King Investments that evidence of the valuation of a property, was necessary, essentially for two reasons: (a)as a basis of fact upon which the Court could rely in exercising its discretion to order a sale because Courts have traditionally exercised considerable caution in making such orders and (b)without the evidence it is not possible to fix a reserve price and make ancillary orders. 26AET accepts that there is no evidence by way of a valuation of the land nor is there any evidence such as a market appraisal or other documents which would assist the Court to fix a monetary value of the property. However, AET points to evidence of the following kind which it suggests is sufficient to enable the Court to reach a view about the value of the property. That evidence includes firstly, the fact that the original debt secured principally by a mortgage over the property, was for a sum slightly in excess of $1 million. It is said that the Court should infer from this the property had a sufficient valuation to justify the making of such loan in accordance with ordinary commercial principles. 27Secondly, that the property, being commercial premises, has been leased for a rental sum of $75,000 plus GST per annum. The defendants submit that the Court should infer from a rental value of this kind that the property itself has a significant capital value. 28Thirdly, the plaintiff points to the fact that the first tranche of payment has been made of $660,000 by an incoming first mortgagee which on the evidence has agreed to raise further funds on the security of the property thereby indicating that the value of the property is well in excess of the monies that are presently owed to the first mortgagee. The plaintiff submits that in combination these facts are sufficient for the Court to infer that the property is of a sufficient value as would enable the Court to exercise its discretion to make an order for sale. 29It is appropriate to quote [119] of the judgment of Campbell J. It says: "The point for present purposes, is not that the discretion to order a sale will necessarily be exercised in the twenty-first century in the same way as it was in the nineteenth. Rather, one point is that there is a discretion to be exercised and without factual material by reference to which the discretion can be exercised, which includes at least the value of the property and the amount owing on the security of it, the exercise of the discretion itself is likely to miscarry. Another point is that the Courts have exercised considerable caution in the making of orders for sale". 30The first question then is whether the Court should exercise its discretion to make an order for sale given the state of the evidence as it presently exists. It seems to me that the following factors are of importance. First, the parties by their own contractual agreement have provided that in the event of default, the plaintiff is to have a power of sale which it may exercise. 31Secondly, having regard to the events which have occurred, it was the parties' contemplation that the plaintiff could exercise that power of sale after the first instalment had been paid and whilst the second instalment remained outstanding. In other words, the parties themselves were satisfied that the property had sufficient value to enable the power of sale to be exercised conformably with legal principle and in accordance with their agreement. 32Thirdly, there is no doubt at all that there has been an event of default. The default is clear. The Court has entered judgment in respect of the monies which ought to have been paid and which were not. 33Fourthly, an exercise of discretion to order a sale, on the evidence as to the nature of this property, all of the previous dealings with respect to it and its current rental, would not necessarily be an exercise in futility. In other words, there is sufficient basis for the Court to exercise its discretion to order a sale. 34Having regard to this factor, I am satisfied that the evidence which is before the Court is sufficient to enable the Court to conclude, without forming any precise estimate in terms of actual value, that the Pyrmont property is of a sufficient value such that any exercise of the Court's discretion is appropriate, and would not be futile. 35The second question deals with conditions of sale. The further basis for the Court to have evidence of valuation was, as articulated by Campbell J in [101] of King Investments the following, speaking of evidence of value: "Without that evidence, it would not be possible to fix a reserve price for any sale, would not be possible to form a view about whether it was appropriate to give the mortgagors time to pay before a sale could be made (and if so how long), and there would be serious difficulties in deciding who should have the conduct of the sale, and what conditions ought to be imposed for the protection of the first mortgagee". 36His Honour noted further in his judgment at [104] that the Courts themselves have repeatedly fixed a reserve price when ordering sale. 37The state of the evidence of value which, as I have said is sufficient to enable the Court properly to exercise its discretion to order a sale is however not sufficient in my judgment to enable the Court to fix a reserve price when it finalises orders for the sale. 38A reserve price is an important control mechanism for a Court to determine when ordering a sale, because it is by that mechanism that the Court ensures that the interests of the first mortgagee, in this case the first registered mortgagee, and any other interest holders in the land, are taken account of. The defendants submitted that it was sufficient for the Court to know that in the events which have occurred in the case the likely sum owing to the first mortgagees is on the probabilities in the order of no more than $700,000, and that therefore, it having been paid by the first mortgagee in March of this year, the Court would be comfortably satisfied that a reserve price somewhere in excess of that sum would be sufficient to take account the interest of the mortgagee. 39I was initially attracted to that submission but it seems to me having regard to the principles which Campbell J makes in King Investments and the authorities to which he refers, that to approach the determination of reserve price on that basis runs a real risk that the Court's discretion to order a sale might miscarry. I am not satisfied that I can presently determine what the relevant reserve price would be. 40As I have previously said, the decision of King Investments also notes that evidence of value is appropriate to allow a proper consideration to be given to whether the debtors ought to be allowed time to repay the outstanding balance. Whilst that is undoubtedly an appropriate caution to keep in mind generally in cases of this kind, the facts of this case mean that it is unnecessary to have regard to or give any weight to that element. That is because the defendants themselves agreed to pay the balance of the $440,000 by 15 July 2012 and agreed in the Deed of Settlement that time was of the essence with respect to that payment. 41Judgment was entered on 16 July 2012 and over a month has passed since that time. The defendants have had more than an adequate opportunity to pay their debts. I do not think that the absence of a valuation of the property, thereby enabling a proper assessment of whether time ought to be allowed to the defendants to pay their debts, is of any relevance or weight in these circumstances. 42Another basis upon which the defendants resist the orders in the amended notice of motion is that they submit that the evidence suggests that they will be in a position to pay the outstanding sum by 6 September 2012 and given that the circumstances are that AET, by lodging a caveat, has been the cause of their inability to pay at any earlier time they ought to be allowed that extra time to make the payment. I do not regard this submission as having merit. 43As I have said, the time for payment was 15 July 2012. There was nothing to stop the defendants paying on time. There was no conduct of AET which prevented them from so doing. The steps taken by AET to protect its interest in the land namely by lodging a caveat occurred after the due time for payment had come and gone, and after judgment had been entered by this Court. 44If the defendants wished to make arrangements to repay the moneys in accordance with their contractual agreement, they could have done so well before the caveat was lodged. In any event, the evidence is not sufficient to satisfy me that there is any good reason why the presence of the caveat prevented the defendants from raising any funds to make the second instalment. It is common in commercial practice for monies to be raised upon the security of property in circumstances where the security is not perfected until the time of settlement. Incoming mortgagees regularly agree to advance money on the strength of property as security, where that property has an existing mortgage, provided that questions of clear title and the like are addressed at the time of settlement. 45The evidence adduced by the defendants attempting to support the proposition that it was the conduct of AET which was the cause of their inability to pay at any early time does not warrant such a finding. There is no reason for me to adjourn the making of any orders to allow the defendants more time to pay their obligations which they agreed to pay over a month ago.

The position of Limenight 46However, the circumstances of this case demonstrate that the amended notice of motion was served by Limenight a little over 24 hours before the matter was heard before the Court. 47Limenight would ordinarily be entitled to be represented and make submissions to the Court about matters which flow from the ordering of a sale by the Court. For example, Limenight may choose as the first registered mortgagee to exercise its power of sale and it may wish to conduct the sale. I accept from Mr Moloney, the solicitor for the defendants, that in his professional judgment he is unable to represent Limenight, if there is to be any issue before the Court about the conduct or the process of sale. It is appropriate for the Court to give Limenight an opportunity to make submissions with respect to the manner of the exercise of the power of sale if it chooses so to do.

Summary 48In summary, what does this lead to? 49First, I am satisfied that the Court should enter the orders set out in the consent judgment, just as the parties have agreed the Court should do, if there is a default. There is no good reason for this Court to refrain from giving effect to the consent judgment which the parties agreed between themselves should take effect if, as events have happened here, the second instalment is not paid. So, the Court will make an order in due course in accordance with Orders 1 and 2 of the consent judgment. 50Secondly, I am satisfied that the Court in the exercise of its discretion should make an order for the sale of the property. For the reasons which I have earlier indicated there is sufficient evidence of the value of the property to justify the making of the order for sale, and the Court's exercise of its discretion so to do. 51Thirdly, I am not satisfied that the conditions proposed by the amended notice of motion with respect to the way in which the property should be sold are appropriate conditions to be imposed in the exercise of the Court's discretion. On the contrary, rather than leaving it to the consultation of the parties together with various default options about the fixing of a minimum price as is proposed, it is preferable and appropriate for the Court itself to fix a reserve price. But in order for that to occur it will be necessary for the Court to have evidence of the current value of the property and the current state of indebtedness of the defendants to the first mortgagee, and also it would be appropriate before fixing those terms, for the Court to hear from Limenight. 52It will thus be necessary for the matter to be adjourned for a short period to enable that evidence to be obtained, a form of order to be formulated and for Limenight to have the necessary opportunity to make submissions. 53As I have not given the parties the opportunity to address on costs I will after the pronouncement of orders, hear the parties on costs. 54Accordingly, I will make the following orders: (1)I order that the plaintiff be given possession of the whole of the land comprised in folio identifier 33/SP69950 situated at and known as 33/30-32 Pirrama Road, Pyrmont, New South Wales. (2)I order that the plaintiff be given possession of the whole of the land comprised in folio identifier 190/SP69950 situated at and known as "car space" 30-32 Pirrama Road, Pyrmont, New South Wales. (3)I order that the plaintiff have leave to issue a writ of possession in relation to the Pyrmont land to which I have made in reference to in orders 1 and 2. (4)I order the that the Pyrmont property be sold by the plaintiff in such manner and on such terms as the Court may direct. (5)I stay orders 3 and 4 for a period of 21 days. (6)I direct that if the plaintiff seeks to file any further evidence it does so on or before 4pm, Friday, 31 August 2012. (7)I direct the defendants including Limenight to file and serve any evidence upon which they wish to rely on or before 4pm, Friday, 7 September 2012. (8)I adjourn these proceedings before me at 9.30am on Tuesday, 11 September 2012. (9)I further order that Limenight Investments Pty Limited be joined to these proceedings as sixth defendant. (10)I order that Limenight Investments Limited Pty Limited, if so advised, file any notice of appearance on or before 4pm, Friday, 31 August 2012. I note that the order with respect to the filing of evidence by the defendants includes the filing of any evidence by Limenight Investments Pty Limited. (11)I give the parties liberty to apply on 24 hours notice.

Costs 55The parties have at issue as to the appropriate order for costs. 56The defendants submit that I should reserve costs and be determined when the matter is next before the Court. The plaintiff submits that I should make an order for costs which follows the terms of the mortgage. 57I do not think it appropriate to reserve costs because the motion has been heard and disposed of, and the principal issues determined between the parties. If costs are to be incurred by reason of any further hearing and the determination of conditions of sale they can be dealt with in due course. As well, if as a consequence of any later orders that are made, the defendants wish then to contend that, contrary to the present fact, the plaintiff has not been substantially successful it is always open to them to apply to vacate an order for costs. 58In all of the circumstances, I think costs should follow the event. The plaintiff has been substantially successful. Accordingly, I propose to order the defendants pay the plaintiff's costs. I will not make an order that those costs are in accordance with the terms of the registered mortgage because I will reserve liberty to the plaintiff to apply for that additional order when the matter is concluded. In other words, I am not yet in a position to determine whether the costs that the plaintiff has incurred may have been incurred in circumstances where the plaintiff has potentially been in breach of some obligation in the mortgage. I do not say that I have determined that one way or the another. I simply just don't know. 59In all those circumstances, I order that the defendants pay the plaintiffs costs on an ordinary basis and I reserve to the plaintiff the right to apply for that order to be varied so as to include costs on the indemnity basis.

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