On the afternoon of 15 August 2019 the defendant applied to the Court ex parte for an urgent hearing of an application to stay the execution of a writ of possession in respect of real property at 28 Ivy Street, Canterbury ("the property"). The writ was issued on 28 June 2019 pursuant to a consent judgment for possession entered on 4 June 2019. On that date there was, also by consent, a grant of leave to issue the writ forthwith. On 2 July 2019 the Sheriff gave written notice to the plaintiff of intention to execute the writ at 11.30 am on 16 August 2018.
The defendant's present solicitor was instructed concerning this impending enforcement in the first week of July 2019. He has waited until the last possible moment to bring this application before the Court. It is supported by 410 pages of affidavits, annexed documents, and a notice of motion for which leave has been granted to file in Court. There is also a proposed amended defence and amended cross-claim, the latter being of 92 paragraphs for which it is intended to seek leave to file in these proceedings if the consent judgment of 4 June 2019 should be set aside. There has been tendered on the application a proposed summons to commence fresh proceedings for the setting aside of a deed of release dated 4 April 2019 by which the plaintiff's claim for possession was settled. From this material it is evident that the defendant's solicitor must have had detailed instructions over the past four weeks to bring this application. But he gave no notice of it to the opposing party or to the Court until the eve of execution of the Sheriff's writ.
At 10.00 am this morning the application for a stay was dismissed. The Sheriff will have proceeded with execution of his writ at 11.30 am this morningThe balance of the defendant's notice of motion was stood over to a future date. These reasons are the basis upon which I dismissed the stay and allowed the Sheriff to proceed with recovery of possession of the property for the plaintiff.
It is necessary to refer to the background facts. On about 29 March 2017, the plaintiff advanced to the Vasilija Martinovic Group Pty Ltd ("the borrower") the sum of $890,000 pursuant to a loan and security deed. The defendant gave a guarantee of the borrower's obligations and a mortgage over the property, of which she is registered proprietor. The property is her home and her only significant asset.
On 12 September 2017 when this loan had been on foot for only six months, the plaintiff issued to the borrower and to the defendant a notice of default, demand and termination. Under this combined notice, taken together with the terms of the loan agreement, the whole of the balance of principal and interest, being in the order of $1,000,000, became repayable by 19 October 2017. Payment was not made. On 7 November 2017 the plaintiff filed its statement of claim for possession of the property in order to enforce its mortgage security. On 20 December 2017 the plaintiff filed a notice of motion for default judgment. By that date no appearance or defence had been filed. Default judgment for possession was entered in favour of the plaintiff on 20 December 2017.
The defendant filed a notice of appointment of a solicitor the next day. The solicitor was Mr J Sarai of Safe Harbour Lawyers. From 29 November 2017 and continuing through to the end of January 2018, Mr Sarai's firm corresponded extensively with the plaintiff's solicitors advising that the security property was listed for sale, seeking a payout figure and, at the end of January 2018, advising that the defendant had an indicative offer of a loan with which to refinance her liability to the plaintiff. On 30 January 2018, the plaintiff caused a writ of possession to issue to the Sheriff to enforce its default judgment for possession.
On 13 February 2018 a notice of change solicitor was filed. Mr Andrew Stewart now appeared for the defendant. On 20 February 2018 he filed a notice of motion to set aside the default judgment and for a stay in respect of the writ of possession. This application was supported by an affidavit of the defendant sworn 20 February 2018 in which she purported to explain her failure to appear or to file a defence, saying that during November and December 2017 she was waiting for Mr Sarai, her former solicitor, to return from overseas. This appears inconsistent with the correspondence of Mr Sarai's firm throughout the period from late November 2017 to the end of January 2018 to which I have earlier referred.
With respect to raising an arguable defence to the plaintiff's claim for possession, the defendant deposed that she had not received adequate advice before entering into the borrowing transaction with the plaintiff and that she had been advised at the time that she needed to refinance existing borrowings secured on the property because they were short-term, for six months only. The plaintiff's settlement sheet dated 29 March 2017 records the application of the loan funds advanced by it to the defendant. From this document it is apparent that the loan to the borrowing company, being the loan now secured on the property, was applied in discharge of existing debts that were secured by mortgage of the same security.
Those debts were $394,467 owing to Australia and New Zealand Banking Group Limited ("ANZ"), and $418,997 owing to CEG Direct Securities Pty Ltd ("CEG"). That is a total of $813,464. The defendant also deposed on 20 February 2018 that the borrower from the plaintiff was a company that had been set up in her name to help with the refinance. She claimed that she expected there to be a surplus from the advance but no surplus was received by her. The defendant asserted that excessive lending fees were charged and that she would never have been able to service the loan. It appears that she sought to set up, by this evidence, a claim for relief under the Contracts Review Act 1980.
On the return of the defendant's notice of motion on 27 March 2018 the Registrar declined to set aside the default judgment but ordered a stay of the writ of possession until 29 March 2018. The Registrar directed that the defendant provide her proposed defence by 16 March 2018. The proceedings were adjourned to 29 March 2018. This was later extended by consent to 17 April 2018. Although no specific order was made in this regard, it appears that the stay on the writ of execution continued or at least that the Sheriff was not instructed to renew activities on the writ.
On 17 May 2018 the Registrar heard a further application to set aside the default judgment. The defendant supported this with a further affidavit sworn 30 April 2018 that repeated much of her earlier affidavit but added an assertion that the borrower company was a device adopted by the plaintiff to deny her the protection of consumer lending legislation. The defendant relied upon a proposed defence in which she pleaded that the lending transaction was in breach of the National Consumer Credit Protection Act 2009 (Cth), the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 (Cth). This proposed defence also pleaded that the lending transaction was unconscionable.
These were always going to be very difficult defences to support in opposition to the only orders that the plaintiff sought, namely, for possession of the land. The difficulty was that the defendant already owed the sum of $813,464, to which I have earlier referred, secured over the property. The loan from the plaintiff was a refinance. The defendant did not propound a case that the earlier lenders had advanced funds in circumstances which entitled her to refuse repayment. Still less did she advance a case that the plaintiff was somehow responsible for unenforceability of the ANZ and CEG debts and mortgages. Accordingly, on the most favourable view of what the defendant purported to plead at this time, it appeared that even if she succeeded in having the loan agreement with the plaintiff set aside that would likely be on terms that she surrender the otherwise unwarranted benefit of the payout to her former mortgagees. I considered the principles applicable to disgorgement of unwarranted benefit in Capital Securities XV Pty Ltd v Calleja No 3 [2018] NSW SC 1501 at [37]-[40]. On the plaintiff's evidence as to her financial circumstances, being that she had no significant asset apart from the home, if she was obliged to disgorge the sum of $813,464 to the plaintiff as a condition of any relief against the mortgage, the end result would be that her property would have to be sold in any event. She has no source from which to repay the plaintiff's loan apart from the proceeds of the property.
On 17 May 2018 the Registrar set aside the plaintiff's default judgment and gave the defendant leave to file a defence as she proposed. On 6 July 2018 she filed an amended defence that did little more than make cross reference to the paragraphs of a cross-claim filed at about the same time. The cross-defendants were the plaintiff and the defendant's former financier, CEG, and her former solicitors, Safe Harbour Lawyers.
The defendant alleged that Safe Harbour Lawyers negligently failed to advise her against borrowing from CEG the sum of $400,000 that she drew down on 10 August 2016. The plaintiff alleged that the mortgage she had granted to CEG was unjust, entitling her to relief under the Contracts Review Act. She made similar allegations of negligence against her former solicitors, Safe Harbour Lawyers, in relation to advising her on the refinance by the plaintiff in March 2017. The defendant alleged that the plaintiff had acted unconscionably in that transaction.
On 10 August 2018, this cross-claim was discontinued as against CEG. By 31 January 2019 all parties had filed their affidavit evidence in accordance with directions made and extended from time to time by Davies J in the Possession List. The defendant's evidence was extremely scant, comprising the two largely repetitive affidavits of 20 February 2018 and 30 April 2018 to which I have earlier referred and another affidavit of 23 January 2019.
In these affidavits, the plaintiff deposed that she is an aged pensioner of 66 years (now 67). She said in the affidavit of 23 January 2019 that she had been a pensioner since 2015, at which date she would have been about 63. In an affidavit of 14 August 2019, filed on the present stay application, the defendant claims that she has been a pensioner since 1997. In the affidavits as they stood on the Court record at the end of January 2019 the defendant asserted that she had "difficulty in understanding English" and was "not provided with an interpreter at the time of entering into the loan facility" with the plaintiff in March 2017. She said she did not understand everything her solicitor had explained in relation to the borrowing from the plaintiff.
The defendant stated that her own language is Montenegrin. She deposed that she had no income apart from the pension at the time when she drew the loan down from the plaintiff. She recognised in these affidavits that the plaintiff's advance was a refinance of the secured debts that she already owed to ANZ and CDG. She provided in these affidavits no explanation of the purpose for which the original borrowings had been drawn down or how they had been applied.
The defendant deposed in these affidavits that she had understood in March 2017 that she had to refinance her house or it would be repossessed under the existing mortgages. She said she believed the plaintiff's loan would enable her "to remain afloat financially while my property was in the process of selling". In her affidavit of 23 January 2019 the defendant deposed that before borrowing from the plaintiff she had received from ANZ a notice of default and of intention to repossess her home.
Taking all of these affidavits together as they stood at the end of January 2019, the defendant provided no evidence that the pre-existing lending transactions were unconscionable or that the plaintiff knew this. At that stage, as mentioned, she had discontinued her claim against one of the prior lenders, CDG. She had never made any claim against the other lender, ANZ, that her secured borrowing from that entity was in any way vitiated.
The terms of the defendant's borrowing from the plaintiff included interest of 11.95% per annum with a default rate of 24% per annum. She was required to pay an establishment fee of $19,580. Interest was payable monthly in advance.
In all of this evidence there does not appear to have been any realistic prospect of the defendant obtaining relief in the proceedings that would have averted the sale of her home. Because she was not contending that the plaintiff was, on any ground, responsible for the property having been mortgaged for the pre-existing debt of $813,464, she could not have escaped liability to repay to the plaintiff at least that much of her advance. She had no means of repayment except the sale of her house. The sale of the house was inevitable. The plaintiff has known this, as she has deposed, for two years. She has known it since she received notice of default from ANZ, as sworn in one of her affidavits filed in 2018.
If the defendant had a case that the terms of borrowing from the plaintiff were unfavourable, or even harsh, at best she might have been relieved from an excessive measure of interest or from the establishment fee of $19,500 or from some other component. On any view, the proceedings were inexorably headed towards the defendant making repayment to the plaintiff of a sum which could only be derived from the sale of her home.
On 31 January 2019, the plaintiffs were directed by Davies J to attend a court mediation prior to 24 April 2019. Shortly after this the case was fixed for hearing on 3 December 2019 for 3 days. On 4 April 2019 Registrar Flaskas conducted a mediation. At 4.31 pm that day the Registrar reported to Davies J by email as follows:
I settled this matter at court annexed mediation this afternoon. The matter has been case managed by Davies J. M Young (P), D Allen (D) and G Coustin, Lawcover appeared. The parties left with an agreement and a signed deed. The matter is currently listed for hearing on 3-5 December 2019. The parties will be in touch in relation to those hearing dates."
The signed deed was not at that time provided to the Court. It has been put in evidence on the present stay application as an annexure to the affidavit of the defendant's new solicitor, Mr Koutzoumis, sworn 14 August 2019. It is signed by the defendant and provides that $110,000 is to be paid by Safe Harbour Lawyers to the defendant's solicitor in the litigation, Mr Andrew Stewart. The parties further agree that upon that payment being made, consent orders will be made as per Schedule A.
Schedule A provided for these orders:
1. Judgment for the plaintiff for possession of the secured property.
2. Leave to issue a writ of possession forthwith.
3. All prior costs orders in the proceedings be vacated and there be no further costs orders.
4. Judgment in favour of Safe Harbour Pty Ltd against the defendant in relation to the cross-claim.
5. The cross-claim is otherwise dismissed.
6. Possession pursuant to the writ of possession shall not be taken prior to 1 June 2019, save by consent of the defendant.
The document is signed by the defendant herself, by the solicitor for the plaintiff and by the representative of the cross-defendant, Safe Harbour Lawyers. It was a term of the agreement that the whole proceeds of sale would be paid to the plaintiff and that the plaintiff and defendant would mutually release each other from all further claims. At the time of this agreement, the most current valuation available to the parties appears to have been one of 9 March 2017, annexed to an affidavit of Mr Hack dated 15 May 2018. The value of the property was given at $1.2 million. The most recent statement of the level of debt appears to have been that given by Mr Scanlon in an affidavit sworn on behalf of the plaintiff on 11 October 2018. The figure was $1.387 million. On that information, accepted at face value, it would have appeared to the parties at the mediation that there would be no surplus payable to the mortgagor from the proceeds of sale.
The plaintiff agreed to act with reasonable speed to sell the property and to pay $50,000 of the proceeds of sale to the defendant. The effect of the mutual release was that if the proceeds were not sufficient to cover the $50,000 plus the entirety of the debt owed to the plaintiff under the lending arrangement, the plaintiff would suffer the shortfall. The defendant's signature on this document is apparently not disputed. It was witnessed by her solicitor, Mr Stewart.
At the time of the settlement agreement being signed on 4 April 2019, two handwritten forms of instructions were prepared and they were also signed by the defendant. The first one read as follows:
I, Vasilija Martinovic, authorise A Stewart and D Allen to settle her claim with Capital Securities XVII P/L on the following terms:
1. Possession is to be given to [sic] 28 Ivy Street, Canterbury, to the plaintiff.
2. The plaintiff is to pay the defendant $50,000.
3. All payments to be made by the other parties to the defendant are to be paid to Stewart Law Pty Limited's trust account.
The second document signed by the defendant on 4 April 2019, in the nature of instructions, was handwritten in these terms:
I, Vasilija Martinovic, acknowledge:
1. The settlement with the other parties contained in the deed signed today.
2. The money payable by Safe Harbour Legal is being appropriated to my legal fees of $110,000.
3. The money payable by the plaintiff is payable direct to me.
Following receipt of the Registrar's advice that the case had been settled, the associate to Davies J wrote to the parties on 12 April 2019 seeking their proposal as to how the proceedings should be concluded. On 6 and 7 May 2019 each of the three solicitors on the record signed consent orders in accordance with Schedule A of the settlement agreement. These were sent to Davies J's chambers on 7 May 2019. The consent orders were made and entered by his Honour on 4 June 2019. The hearing dates fixed for December this year were vacated.
The present stay application is interlocutory to a proposed further application to have the consent orders entered on 4 June 2019 set aside, pursuant to rule 36.15 or in exercise of the Court's inherent power. In concert with that application the defendant seeks to file a summons to commence fresh proceedings, in which she would ask the Court to set aside the settlement agreement of 4 April 2019 on the grounds of mental incapacity and/or non est factum.
Mr Koutzoumis has deposed that he received instructions from the defendant in the first week of July 2019. He met her on 10 July 2019 and was shown the Sheriff's notification of 2 July, to the effect that possession of the property would be taken at 11.30 am on 16 August 2019. Mr Koutzoumis communicated with the defendant through an interpreter. In the defendant's affidavit of 14 August 2019 she has deposed that she is limited to speaking and understanding simple conversation in English.
Commencing on 10 July 2019 Mr Koutzoumis proceeded to assemble evidence that the defendant is terminally ill with cancer and that she suffers severe side effects from her treatment. The side effect have included malignant hypercalcaemia. The evidence includes a letter of 30 July 2019 from a staff specialist in medical oncology at Chris O'Brien Lifehouse in these terms:
[The defendant] did not have the capacity to make an informed decision on 4 April 2019 due to acute illness (hypercalcaemia). Her life expectancy is 12 - 24 months.
I cannot give any weight to this opinion in the absence of evidence that its author has expertise in the assessment of cognitive function or that he had any contact with the defendant or made any observation of her at or about 4 April 2019. As it stands, the opinion is inadmissible for want of reasoning and of any demonstrated expertise. See Makita (Australia) Pty Limited v Sprowles (2001) NSWCA 305, 2001 52 NSWLR 75; Dasreef Pty Limited v Hawchar [2011] 243 CLR 588, [2011] HCA 21.
The defendant's affidavit of 14 August 2019 contains an account of her attendance at the mediation on 4 April 2019. She has deposed that over the course of two days before the mediation she was urged very strongly by her solicitor to attend. She says that she did so over protest to the effect that she was too unwell. The defendant had been receiving daily chemotherapy since January 2019, causing nausea, diarrhoea, lethargy and bloating of her abdomen due to fluid retention. The defendant arranged for a friend who speaks her native language to meet her at the Court but she says he was not permitted to enter a room where discussions took place. It is not clear whether these were discussions between the defendant and her legal advisers only, or discussions involving them and opposing parties and/or the Registrar.
The defendant has deposed that her solicitor directed her to sign documents at places indicated but that she did not know what the contents of the documents were. She does not describe in her affidavit any oral explanation having been given to her, but she does not state one way or the other whether this occurred.
I do not consider that this evidence shows a serious triable issue of lack of legal capacity to sign a legal document or of non est factum, applying the principles considered in Ford v Perpetual Trustee Victoria Limited (2009) NSWLR 42; [2009] NSWCA 186. If the defendant should ultimately litigate a claim to set aside the settlement agreement on these proposed grounds, then she would have to show the following matters:
1. That her solicitor and counsel acted without her instructions in causing the agreement to be prepared in the terms that it was.
2. That her solicitor subsequently signed the consent orders that were sent to Davies J without instructions supported by comprehending discussion with the defendant.
3. That the defendant's solicitors and counsel failed to explain to the defendant - and to satisfy themselves that she understood - the nature of the document that she was signing, namely, an agreement in settlement of the proceedings.
4. That those legal representatives did not explain to her - and ensure that she understood - the essential terms of the agreement, including the consent orders.
5. That although her legal representatives procured the defendant's signature to two single pages of instructions, as quoted above, they did not explain those to her or obtain her response to indicate that she understood these essential aspects of the settlement.
6. That although the defendant was unable to converse sufficiently to receive advice and to give instructions in English (if that be the case), her legal representatives declined to enlist the help of her friend, Mr Visnic, who was in attendance at the Court who could interpret.
7. That the Registrar who conducted the mediation failed to appreciate the settlement was taking place by execution of an agreement that had not been explained to the defendant in a manner that she understood and that she acknowledged she understood.
These numerous and substantial hurdles could not be overcome by the evidence tendered for the defendant on this application for a stay. I do not regard that evidence as even constituting a prima facie case of the grounds that are propounded, having regard to the entirety of the circumstances.
Even if I considered that the evidence filed by the defendant on this application disclosed a serious question to be tried for setting aside the settlement deed, I would not exercise the Court's discretion to vacate the consent orders for possession and for the issue of the writ. When counsel for the plaintiff appeared before me on the second day of the application, at 9.15 am on 16 August 2019, two hours before the Sheriff was scheduled to act on the writ, I was informed that the $110,000 payable to the defendant's former solicitors had been paid. Further, the Court record shows that the hearing dates for the original litigation, 3-5 December 2019, have been vacated. The state of the Court lists is such that fresh dates could not be given before 2020, for a three day hearing. Setting aside consent orders is a matter of discretion, the exercise of which is to be undertaken in accordance with the principles considered in the Owners of Strata Plan 57164 v Yau [2017] NSWCA 341. The parties' alteration of their respective positions is a consideration strongly against such an application.
A further discretionary consideration against setting aside these orders flows from the fact that, even if the agreement for settlement of the underlying proceedings should ultimately be set aside, this would not result in the defendant being able to retain her home. On the contrary, the setting aside of the settlement agreement would only be a first step in going back to the litigation in which, for reasons I have given, the defendant would inevitably lose her home in satisfaction of, at least, repayment to the plaintiff of the sum of $813,464 that it paid out to her former lenders.
As the application for a stay has been refused, the Sheriff will proceed to deliver up possession of the property to the plaintiff and it will be sold under the mortgage. If the settlement agreement is left undisturbed the plaintiff will receive $50,000 of the proceeds and her costs liability to her former solicitor, Mr Stewart, will stand discharged by the settlement payment of $110,000. If the defendant should press on to file her proposed summons, claiming orders to set aside the settlement agreement, and if she should succeed, then it will not be possible to unwind the consent judgment for possession. That will have been fully executed in the meantime. In those circumstances the defendant will be limited in her remedies to setting aside her release of the plaintiff and the cross-defendant and to prosecuting her cross-claim for monetary adjustments of her liabilities under the loan agreement of March 2017.
An extremely unsatisfactory aspect of this stay application is that it was brought at 3.30 pm the day before the writ of possession was to be executed. Further, no notice had been given to the plaintiff or to the cross-defendant, being the counter parties to the impugned settlement. This timing placed the Court under unacceptable pressure to consider overnight more than 400 pages of affidavits and exhibits and a voluminous underlying Court file. This had to be undertaken without the benefit of a contradictor, as the earliest the plaintiff could appear following notification to it of the stay application on the evening of 15 August was at 9.15 am on 16 August.
In such a situation, the Court will not grant a stay merely to make time for itself to consider materials which could have been provided weeks earlier. A short stay for such a purpose becomes a long stay. If the Sheriff is stopped in his process on the writ, he must cancel the arrangements for it and reschedule. The exigencies of the Sheriff's duties dictate that rescheduling will be for a date six weeks later. In the meantime, the Sheriff will already be committed to other executions and duties. A stay of seven days does not result in a mere seven days delay in carrying out the Court's order. The real consequence, a 6 week delay, would be significantly to the detriment of the plaintiff. The plaintiff holds a judgment for possession pursuant to the consent of solicitors apparently acting upon their instructions and within their ostensible authority. That judgment followed more than a year of unmeritorious delaying conduct by the defendant.
The importance of giving an immediate decision on a stay application in these circumstances, in order to do justice to both parties, means that a defendant who brings a last minute application cannot be permitted to obtain a stay by leaving the Court insufficient time to decide the matter. Time will be found. The only effect of delaying the application to the last minute is to place the Court under great inconvenience and pressure.
I do not overlook that there are strong subjective and hardship considerations on the defendant's side in this case. These naturally attract the sympathy of the Court. It is no light matter for a terminally ill pensioner to be turned out of her home. But the circumstances presented to the Court show that the defendant has recognised for 2 years that her home would have to be sold to discharge liabilities that pre-existed March 2017 and for which the plaintiff bears no responsibility.
Whether the litigation was settled or not, as I have said already, the defendant's home would be lost. The settlement delivered benefits to her, including an agreed two months' grace that has been observed and that in fact became more than three months, to 16 August 2019. Other benefits include the payment of $50,000 and the discharge of the defendant's liability to her solicitors.
Hardship considerations are in any event subordinate to the Court's assessment that there is a lack of any serious case to be tried for setting aside the settlement of 4 April and that success in that regard would, in any event, not save the defendant's house, but at best delay sale while more interest and costs would accrue and would almost certainly be irrecoverable by the plaintiff out of the realisable value of the security.
It is for these reasons that the stay was refused. The defendant is to pay the plaintiff's costs of the application. The balance of the notice of motion is stood over to 13 September 2019.
[2]
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Decision last updated: 20 August 2019
Parties
Applicant/Plaintiff:
Capital Securities XVII Pty Ltd
Respondent/Defendant:
Martinovic
Legislation Cited (3)
Australian Securities and Investment Commission Act 2001(Cth)