Coppola v Patrick Moloney t/as Moloney Lawyers

Judgment 1On Tuesday last I delivered a judgment in these proceedings (see: Coppola v Patrick Moloney t/as Moloney Lawyers (No.1) [2013] NSWSC 1042. I found that the balance of convenience did not favour the making of the orders sought by the plaintiff, Mrs Coppola, under the Real Property Act 1900 ('the Act'), on the basis of the orders and undertakings which were then proposed by her. My judgment identified a number of deficiencies in the orders proposed, the effect of which was that the caveators would have had the value of their interests significantly diminished. 2The matter was stood down in the duty list, after delivery of that judgment, to enable the parties to give consideration to my reasons for judgment. 3Because this is the second judgment delivered in this matter, I have used the same terms, including abbreviations where appropriate, as have been used in that judgment. I have also refrained from again recounting the facts and matters which are there set out. 4One essential element which led to my finding that the application for the orders ought be refused, was that Ms Gabrielle Farmakis, who was the purchaser of two of the four properties and who was offering certain undertakings, was not a party to the proceedings and, accordingly, could not be bound by undertakings given to, or else any other orders of, the Court. 5Mr Licardy, a solicitor, was retained to act for Ms Farmakis and thereafter was present in court as the matter was mentioned from time to time. During these mentions, it was apparent that an order would be sought that Ms Farmakis be added as a party, that order would not be opposed by the other existing parties, or by Ms Farmakis. 6After my initial judgment, the matter proceeded in a rather stop/start fashion. Proposed orders were handed up, submissions were made in opposition, or else queries raised about the proposed orders. The matter would be stood down whilst further instructions were obtained, or negotiations inter-parties were undertaken. Further proposals were formulated. The impression given by that process was that the parties were bargaining with each other and the Court was being expected to settle, by expressing a view, the negotiation between the parties. This was thoroughly unsatisfactory. 7Ultimately, Mr Licardy informed the Court that his retainer was withdrawn. Ms Farmakis continued to appear for herself and was joined, with her consent and the agreement of all parties, as a third defendant. 8The plaintiff, Mrs Coppola has now asked the Court to make identified orders. Those orders are contained in a set of proposed Short Minutes of Order which have been marked MFI 1. She asks the Court to determine whether to grant the orders sought in the original summons under the Act upon the terms set out in these short minutes of order. 9There is one amendment to the proposed orders. That amendment is that the proposed mortgages which are to be given are to be the subject of a moratorium on the collection of the mortgaged debts for a period of three months. At times that period fluctuated between one and three months, but ultimately the sense I had was that the period of three months was what was sought. 10The caveators, who are the first and second defendants in the proceedings, oppose the orders sought. As I had previously said, the test which I am obliged to apply, in consideration of whether to make the orders, is whether I am persuaded by Mrs Coppola that the balance of convenience falls in favour of making the orders. 11The proposal is that two of the four properties - being No.11 and Coledale - be sold by Mrs Coppola to Ms Farmakis, and that all four properties which will then be owned by Ms Farmakis, be refinanced with the effect that the existing first mortgagees would be fully paid out, along with certain existing debtors, such as one caveator, Fast Fund Pty Limited, and various statutory authorities. The proposed orders would mean that the caveats, representing the legal fees owed to the first and second defendants, would be removed to enable the sale and refinancing to occur, and then to be placed back onto the titles. The proposal would remove altogether the caveat lodged by Denison & Toyer, the second defendant, over No.9. 12For the same reasons which I gave on Tuesday in my first judgment, I am satisfied of the following: (a)that the proposal is beneficial and advantageous to Mrs Coppola and Ms Farmakis. (b)the diminution of the overall equity in all properties which will occur, namely by a sum of about $200,000, would not realistically be likely to have an adverse effect on the caveators' interests. (c)the diminution in the equity of the property at No.9 caused by the refinance is not of sufficient weight of itself to cause the balance of convenience to fall against the applicant. 13However, the caveators submit that there are a number of features of the present proposal which weigh heavily against the balance of convenience favouring the orders sought by Mrs Coppola. 14The first of these is one referable to the position of the second defendant. Order 3 of the proposed orders is in the following form: "The Court notes the third defendant's undertaking to give an enforceable guarantee for the debts owed to the second defendant by the plaintiff, which is limited to her interest in the properties other than the property at 9 Shackle Avenue Concord." 15The second defendant submits that a removal of their caveat from one of the properties diminishes to a significant extent the value of that caveat. This must be so. The sum involved is probably in the order of $40,000. Again, of itself and without more, this would be unlikely to cause the balance of convenience to fall against the applicant. However, it is nevertheless a matter which is to be weighed in the overall balance when considering the current proposal. It does involve, to an extent, a diminution in the second defendant's caveatable interest. 16The second issue relied upon by both the first and second defendant is that the mortgages, which are proposed to be given, are in the form in which they presently exist defective and unenforceable. It is said that the mortgages do not provide for a sum certain. It is said that the mortgages do not provide for any period during which they will subsist. Both of these are legitimate criticisms. It is hard to see how a mortgage in the current form proposed would be a valid mortgage. However, no doubt a skilled and competent solicitor could restructure these mortgages to take account of these criticisms. That has not been done. I am left in the position of considering the enforceability of the mortgage which is proffered. 17It is unnecessary for me to make a final determination of that issue. It is sufficient for me to note that I am not presently satisfied that in the absence of rectification of those features that these mortgages would be readily enforceable. 18The third matter upon which the caveators rely is that the period of moratorium which is proposed, whether it be of one month or three months, is yet a further significant diminution in the value of the defendant's caveatable interest. It is obvious that a moratorium on the collection of debts which are presently due and owing and are presently collectable is a diminution in the rights of the caveators. It is also necessary for the Court to assess whether that diminution is, in all of the circumstances, a significant one. 19So far as is apparent from the material tendered to date in all of these proceedings, and from what I have been told without objection from the bar table, the first mortgagees of each of the four properties, the subject of these proposals, have taken action to enforce their mortgages. In the case of the Stanmore property and No.11, BankWest, or as it has now become, the Commonwealth Bank of Australia, have obtained writs for possession of those properties, no doubt consequent upon the judgment for possession, but those writs have been stayed temporarily by an order of this Court. 20The position is less clear with respect to the other two properties, No.9 and Coledale, but it does appear from the affidavit filed by Mr Moloney that the first mortgagees of each of those properties are taking action to enforce their mortgage and to obtain possession of the properties. 21That state of affairs makes it plain that recovery by at least the first defendant pursuant to a judgment of the Court and the caveatable interest of the sums is in reasonably close prospect. After all, once the first mortgagees take possession, and they become entitled to enforce the writs, then the properties will be offered for sale. Once the properties are offered for sale, assuming a sale succeeds and settlement occurs in the ordinary course of events, then the caveators will be entitled to be paid such of their debts as the sale proceeds permit. 22It appears from that description and that state of affairs, and in my assessment, that the caveators can expect to be repaid at some time in the next six months or so. In other words, not only do they have a valuable caveat, but the prospect of being paid the sums which they are owed is a near rather than a distant one. That of itself is a value to the caveators. 23Mrs Coppola's counsel submits that questions of further delay are irrelevant so far as the first defendant is concerned because the first defendant has already waited a considerable period of time to enforce his debt. I do not accept that submission. The first defendant has taken time to ensure that his interest is properly established and has appropriately waited for the first mortgagee to take recovery action. I do not accept that there has been any inappropriate or undue delay on the part of the first defendant. 24So far as the second defendant is concerned, steps are still in progress to ensure the assessment of the final value of the caveatable interest. This position of ready recovery in the near future is to be contrasted with the caveators' position with respect to recovery under the proposal put before the Court. The first observation to be made is that the caveators will be prohibited from taking any steps to recover the debts due to them by reason of the moratorium period. The second is that assuming demand for the debts is made and the demand is unsatisfied, then the caveators will need to take steps to enforce their caveatable interest and, if appropriate, attempt to have the properties sold to collect their debts. Such a process, given the presence of an existing first mortgagee whose mortgage may not at that point in time be in default, are likely to take considerably longer, be far more expensive and far more complex for the caveators in order to put them in a position to recover their funds than the present position is. It seems to me that this is a significant disadvantage to the caveators and a significant diminution in the value of their caveats. 25It is clear that Ms Farmakis, as the incoming owner and mortgagor, has no plan formulated which would enable her to repay the debts which are to be secured by these caveats. Her evidence, which I thought was entirely truthful, was that in effect she had found it difficult enough to take into account in the short time available all of the steps and obligations necessary to effect the refinance, and she had not yet had the opportunity to consider or take advice about formulating any plan for the repayment of the debts which would be secured by the new mortgages to the caveators. 26In her evidence, she significantly underestimated the sum owed to the caveators. In respect of the first defendant's position she said in evidence that she thought that only a "couple of hundred thousand dollars" was owed. In truth the sum is nearer to $420,000. That is a significant difference. I must say I was left with the sense from Ms Farmakis' evidence that she had less than a full appreciation of the obligations that she was taking on with respect to the caveators. That of itself is beside the point, because the obligations she is proposing to take on would be legally binding. However, as a matter of commonsense and experience seen in this Court regularly, if a party has a less than full understanding of the proposal into which they are entering, there is likely to be difficulties in due course in one party enforcing their rights against that party. 27The next matter that the caveators relied upon was that, without consent being obtained from the incoming first mortgagees to the mortgages being entered into and the caveats being lodged to protect those unregistered mortgages, the entire proposal was not viable. There is much to commend that view. However, the formula proposed in the Short Minutes of Order would take account of that issue because if the incoming financiers declined to consent to the lodging of caveats then the settlement proposed would not take place and the whole proposed scheme would be unable to be given effect to. Accordingly, in determining this question of the balance of convenience I do not see the need to determine that question finally. 28Lastly, the caveators submit that the essence of the proposal is that Ms Farmakis give a series of undertakings to the Court. 29The caveators, having heard the evidence given by Ms Farmakis, submit that she does not understand the nature and effect of the undertakings and that accordingly the Court could not have any confidence that the undertakings which were being proffered would be given effect to in a substantial way. 30Counsel for Mrs Coppola submits that the Court would not find such a submission relevant. On the contrary, he submits that where an undertaking is being given the person giving the undertaking is bound by it and the Court ought not take into account in considering the balance of convenience whether or not the person giving the undertaking understands it. That is to say understands the full effect and consequence of it. 31In the particular circumstances of this case where the person giving the undertaking, namely Ms Farmakis, has had a limited period in which to consider the undertakings which are being proffered. She has had limited access to some legal advice which has not been continued throughout the entirety of the period, and in fact which legal advice has ceased to be available to her during the course of the proposal being considered. Having regard to the content of Ms Farmakis' evidence and the way in which she gave her evidence, which demonstrated what seemed to me to be some real difficulty in understanding, and accepting the full terms and consequences of the undertakings, I am of the view that this is a proper matter for the Court to take into account. 32The notion of the provision of an undertaking to the Court forming an integral part of a proposal upon which the Court is asked to make orders, necessarily carries with it the fact that the Court ought be assured by the giving of the undertaking that it is appropriate to make the orders that are sought. If a Court can have no confidence in the undertaking, then it would be inappropriate for the Court to exercise its discretion to make orders which depend for their success upon an undertaking which the Court is not satisfied is able to be completed or fulfilled. 33Applying those principles to this case, I am not satisfied that Ms Farmakis, by her evidence, and in the absence of being represented by, and receiving comprehensive advice in a time frame which is sufficient to enable due consideration and reflection from, a lawyer, understands the true nature and effect of the undertaking. Nor am I satisfied that Ms Farmakis fully appreciates the obligations which those undertakings mean that she will be subject to. It may be that she will come to a proper understanding, but her evidence, in the absence of any assurance by a lawyer being present who could inform the Court that his or her client knew well and understood the undertaking and had been properly advised about the extent of it, together with my observations of Ms Farmakis while she was giving evidence, all combine to give me no confidence that the undertaking which she proffers is understood, is capable of being fulfilled, and would be ultimately enforceable. 34It is necessary to weigh all of these matters in the balance. As I have said, the proposal is undoubtedly advantageous to Mrs Coppola and Ms Farmakis. It is probably advantageous in a commercial sense, but certainly in an emotional sense. After all, the late Mr Coppola had acquired these properties, no doubt with the intention of making provisions for his family's well-being over time and after his death. However, the properties that he has put together were the subject of mortgages. He was in no different a position in that respect to any other individual who invests in property. 35In an emotional sense, I can understand that Ms Farmakis sees these properties as her inheritance and a legacy from her father, but that is a mistaken view. All she has inherited from her father is, in truth, the net equity in these properties, because before his death he chose to encumber them with first mortgages. 36On the other hand, the proposal has the various adverse consequences that I have outlined for the caveators. 37As I have said, I need to be persuaded that the balance of convenience favours Mrs Coppola. I am wholly unpersuaded that the balance of convenience favours her. The proposal which is formulated, and upon which the Court is asked to make orders, is significantly disadvantageous for the defendants, and in those circumstances it seems to me that the balance of convenience does not favour making the orders because there is no good reason, in my assessment, to disadvantage the caveators to the extent which this proposal will do. 38In those circumstances the appropriate orders are: (1)The summons dated 11 July 2013 is dismissed. (2)I order the plaintiff to pay the defendant's costs of the summons.