Darren John Ciavarella v Hargraves Secured Investments Ltd ACN 089 001 267

Supreme Court of NSW|2015-06-15|Before: Kunc J

Summary

After hours on the afternoon of 15 June 2015 the plaintiffs (the "Ciavarellas") moved the Court in its Duty List for urgent interlocutory relief seeking to restrain the defendant, Hargraves Secured Investments Ltd ("Hargraves"), from exercising its mortgagee's power of sale by selling two properties at auction fixed for 9.00am and 10.30am the next day, 16 June 2015. I commenced hearing the Ciavarellas' application at 4.50pm. The hearing concluded just over three hours later, at which time I dismissed the application by making these orders: 1. Paragraphs 1 to 3 of the Summons are dismissed. 2. The plaintiffs are to pay the defendant's costs of the hearing of today. 3. Summons listed before the Duty Judge for further directions on 19 June 2015.
These are the reasons for those orders. At the hearing the Ciavarellas were represented by Mr A. Cornish of Counsel and Hargraves by Mr R.A.M. Mulquiney, Solicitor.
While the Court was not satisfied that the Ciavarellas' complaints (in particular concerning the validity of the notice given under s 57(2)(b) of the Real Property Act 1900 (NSW) (the "RPA") dated 2 April 2015 (the "Notice")) gave rise to a serious question to be tried, even if there were assumed to be a serious question to be tried the Court nevertheless dismissed the application on the balance of convenience and as a matter of discretion because: 1. The Ciavarellas had not acted in a timely fashion in bringing the application and there was no adequate or proper reason for that dilatory conduct. 2. There was no evidence of any possibility of the Ciavarellas obtaining refinancing either promptly or at all. 3. The Ciavarellas had already had the benefit of a significant forbearance by Hargraves under a settlement agreement reached at a farm debt mediation, which agreement the Ciavarellas had breached for no or no satisfactory reason. 4. There was a serious risk that the amount of the Ciavarellas' debts would exceed the value of the properties securing their indebtedness to Hargraves.

The facts

The Ciavarellas and other family members are the variously registered proprietors of: 1. An irrigated rural farmland property known as Midgee Farm ("Midgee") and two related water licences. 2. An area of dry area farmland known as Farm 1863 ("Farm 1863"). 3. Two other properties not relevant to the present proceedings and associated water rights. 4. A further water licence referred to as the Murrumbidgee Irrigation Licence.
The first plaintiff (to whom I shall refer without disrespect as "Darren") is a farmer who, with his late father and other family members, farmed and continues to farm the properties referred to in the preceding paragraph. The second plaintiff, Darren's mother, is the trustee of the estate of his late father who was the registered proprietor of Farm 1863. Farm 1863 remains in Darren's late father's estate.
In 2010, for the purpose of running his farming business on Midgee, Darren obtained a business loan of $900,000 and an overdraft facility of $150,000 from the National Australia Bank Limited ("NAB") secured by a mortgage over Midgee. On or about 30 June 2012 NAB terminated its loans to Darren. The precise circumstances of that termination are not disclosed by the evidence, which does no more than suggest that Darren disputed NAB's entitlement to do so.
Nevertheless, Darren ultimately refinanced in order to pay out NAB. He did so by entering into a loan agreement on 29 October 2013 with Hargraves (the "Loan Agreement"). The amount advanced to Darren under the Loan Agreement was $1,370,000. Its term was for 12 months with interest payable monthly calculated at 17.25% per annum, except that Hargraves would accept payment of interest at 13.25% per annum if payment was made by the fifth day of the month and Darren otherwise performed his obligations under the Loan Agreement. The Loan Agreement was secured by, among other things, mortgages and charges over the various properties and water licences set out in paragraph [4] above, including Midgee and Farm 1863.
By April 2014 Darren was having considerable difficulties making the interest payments under the Loan Agreement. By arrangement with Hargraves certain of the water rights which were secured to Hargraves were sold. That sale was completed in August 2014 for $300,000. After payment of arrears, commission and other expenses Hargraves received approximately $262,000.
A letter from Hargraves to Darren of 4 September 2014 included: OUTSTANDING INTEREST We confirm that from the sum of $262,016.93 as received we have deducted from this amount outstanding interest for the month of May, June, July, August and September being in the sum of $15,127.08 per month making a total of $75,635.40. Accordingly the balance of funds as held is in the sum of $186,381.53 and these funds have been invested pending further discussions with you and with the security providers regarding the loan. CONTINUING DEFAULT We note that under the conditions of the loan you were required to pay the sum of $30,000.00 on the 5th May, 2014 and a further $30,000.00 on the 5th June, 2014 and we note that these reductions in the principal amount have not been made. TERM OF LOAN We note that this loan which currently stands in the sum of $1,370,000.00 is due on the 5th November, 2014. … SALE OF MIDGEE We further note that the current loan that we have with you expires on the 5th November, 2015. We note in our conference of the 5th May, 2014 that the sale of Midgee at Narrandera which has a sworn valuation of $902,585.00 with a suggested value for the water being $102,400.00 making a total in the vicinity of $1,000,000.00. However it would appear that the anticipated sale price for Midgee would be in the vicinity of $900,000.00. It would appear that very little has happened with regards to the sale of Midgee over the past 4 months. There has been an indication that you are trying to sell this property for $1,700,000 which certainly is far in excess of its sworn valuation. On this basis we need to receive confirmation from you that the property has been listed with an agent and in particular John Dalton of Elders at Leeton who we understand had interested parties for the property previously to be realistic with regards to a sale. Accordingly it would appear that you are in serious default under the loan and this needs to be rectified. We believe that we need to meet urgently with regards to this loan as it would appear that all is not going very well.
On 26 November 2014 the parties attended a mediation under the Farm Debt Mediation Act 1994 (NSW). That mediation resulted in an agreement (the "Mediation Agreement") whereby Darren and other members of the Ciavarella family acknowledged that they were indebted to Hargraves for a principal sum of $1,370,000 and approximately $178,000 in interest. The Mediation Agreement also included: The Farmer to have entered into a unconditional Contract of Sale for the lands known as "MIDGEE" by the 27 March 2015 with a Auction date to be set for the said property no later than the 20 March 2015 with settlement no later than the 14th May 2015. If the said property is not sold by unconditional contract of sale by the 27 March 2015 then vacant possession of all secured lands and water are to be given to the Creditor on the 27 March 2015. If vacant possession is not given by the 27th March 2015 then the Farmer shall pay the higher rate of interest (17.25%) on the loan as from the 5th May 2014. Farmer to pay interest on the loan from the water sales held ($262,016.93) from the 5th April 2014 to the 5th May 2015 being 13 payments as set out in the Schedule.
Midgee had been listed by Darren on an internet farm sales site since April 2014. He had also listed it with a local real estate agent. However, contrary to the terms of the Mediation Agreement, Darren never put Midgee up for auction and did not give vacant possession of Midgee and Farm 1863 to Hargraves by 27 March 2015. Darren's affidavit evidence about this was: 47. I did not auction Midgee as required under the Mediation Agreement because Midgee was not, as I believed at the time and still believe, in a state that would be attractive to buyers and that would lead to obtaining the best possible price because I had not funds to clean the property up for cultivation and planting the 2015 winter crop. I had intended that the monies I received from the Water Sale Monies to be used for cleaning up the property and looking after the crops as I had discussed with Hargraves around early May 2014, but due to the issues as explained above regarding the release of the Water Sale Monies, I did not receive enough funding to do those things. 48. Vacant possession of the properties mortgaged and secured to Hargraves was never given because Hargraves never asked My Mother or me to give vacant possession on 27 March 2015 onwards. In fact, I was simply locked out of Midgee on about 15 May 2015, and My Mother was locked out of Farm 1863, without prior notice.
On 1 April 2015 Mr Mulquiney emailed Darren on behalf of Hargraves. The email noted that there had not been an auction of Midgee, no unconditional contract for sale had been entered into and vacant possession had not been provided. The email demanded immediate vacant possession and notified Darren that enforcement proceedings would be commenced.
On 2 April 2015 Mr Mulquiney sent a further email noting that there had been no response from Darren to the email of 1 April 2015 and enclosed the Notice. Darren received the hard copy of the Notice on 8 April 2015.
The Notice purported to follow the form required by s 52(2)(b) of the RPA. It cited default under Hargrave's mortgage for failure to repay the principal sum as well as reciting defaults under the Mediation Agreement. The Notice specified that the defaults could be remedied by paying Hargraves $1,444,927 plus $600 in legal expenses. The fact that the amount demanded exceeded the principal owing to Hargraves and apparently included some of the interest provided one of the bases for the Ciavarellas' attack on the validity of the Notice.
On 18 May 2015 Darren found that Hargraves had taken possession of Midgee and Farm 1863.
On 22 May 2015, while browsing the local newspaper, Darren discovered that auctions of both Midgee and Farm 1863 were to be held on 16 June 2015.
Darren's affidavit evidence about what he did after receiving the Notice and his endeavours to refinance was as follows: Delay 73 After I received the Default Notice I was still trying to obtain refinance from other lenders and trying to prepare some cropping for the 2015 winter crop program to the best I could. 74 I terminated my previous solicitor, Cater & Blumer before April 2015, although I cannot remember when. 75 After I found out about the Midgee Auction and 1863 Auction on or about 22 May 2015 I contacted Matthew Hogg ("Matthew"), barrister at Sir Owen Dixon Chambers, who told me to into (sic) contact with another solicitor named Nader Youssef Zaki ("Nader") of Leader Law Group. I initially met Nader with Matthew early this year regarding other matters. 76 On or about 22 May 2015, I tried contacting Nader via various means, including telephone calls, emails and text messages. The first time Nader contact me back was on 5 June 2015 to tell me that he will be back in his offices on the following Tuesday. 77 On 10 June 2015, I spoke to Nader again and he told me that I needed to meet him in Sydney on 11 or 12 June 2015. 78 On 11 June 2015, I took an airplane flight from Leeton to Sydney to meet Nader, however, after arriving, I could not reach Nader by telephone at all. 79 On or about late May June 2015, I also sought the assistance of Geoffrey Shannon ("Geoff") who I understood to be someone who helped people with banking issues. Geoff suggested perhaps I should issue another notice to mediate under the FMDA and I did that on 3 June 2015 and received an email from Ross saying he would not agree to further mediation. … 80 On 11 June 2015, when I was not able to contact Nader, I contacted Geoff who asked me to contact Blueprint Law, my current solicitors and formally instructed them on 12 June 2015. Refinance 81 I say that if I was let back onto Midgee and Farm 1863 that: (a) I can clean up the farm properties and at least plant some crop on the farm so that they are more attractive to any prospective purchaser which will help increase the sale price if the farms were to be sold; and (b) It would assist me in trying to obtain refinance if I can demonstrate to a lender that I am still possession of the properties and that I am planting crop on them. 82 In relation to my current attempts to obtain refinance to pay the Principal, I say: (a) I have approached a group called Universal Financial on 23 May 2015 and lodged a loan application by email with the assistance of the Rural Counsellor and they are waiting for me to follow-up the application as I need to resolve the current situation with Hargraves and the relevant auctions. (b) I have approached agents to approach Suncorp and Westpac in recent months regarding refinance, however, my agents have told me that both banks will not consider granting me a loan due to substantial crop losses in the past twelve months; and (c) I approached Bendigo Bank about 5 weeks ago and submitted a loan application with them regarding a refinance but they required me to provide them with tax returns and I have tried to chase my accountant to obtain those tax returns but he has told me that due to the end of the financial year, he has been extremely busy.
Hargraves' evidence was that as at 5 June 2015 the amount owing to Hargraves by Darren was $1,467,612.56.
Hargraves provided valuation evidence that the total value of the assets over which it held security (including Midgee and Farm 1863) was $1,608,000. Its evidence was also that costs of sales and additional interest pending settlement of sales of the other security properties would increase the debt by approximately $200,000.
Darren produced valuation evidence which suggested that the value of the security properties (excluding the various water licences) was approximately $2,100,000.
The primary final relief sought in the Ciavarellas' summons filed in Court at the hearing of their application on the afternoon of 15 June 2015 is a declaration that the Notice is invalid. At the hearing before me they sought the following interlocutory relief: 1. An order that, upon the plaintiffs by their counsel giving the usual undertaking as to damages, the defendant be restrained until [insert date] from, by itself, its servants or agents exercising or purporting to exercise any power of sale in respect of: (a) the land situated in NSW comprising folio identifier 2/48323, known as "Midgee", of which Darren John Ciavarella is the registered proprietor (Midgee); and (b) the land situated in NSW comprising folio identifier 2/806841, known as "Farm 1863", of which Shirley Lynette Ciavarella is registered proprietor (Farm 1863). (together - Properties). 2. An order that, upon the plaintiffs by their counsel giving the usual undertaking as to damages, the defendant be restrained until further order of the court from, by itself, its servants or agents exercising or purporting to exercise any power of sale in respect of: (a) Midgee; and (b) Farm 1863. (together - Properties). 3. An order that the defendant, its servants and agents, be restrained until further order of the court from interfering with: (a) the first defendant's resumption and continuation of possession of Midgee; (b) the second defendant's resumption and continuation of possession of Farm 1863. 4. Costs. 5. Such further or other orders as the court deems fit.
Having given notice to Mr Mulquiney that they would be approaching the Court, Hargraves was able to be represented at the hearing by Mr Mulquiney, who had prepared evidence in anticipation of the application. The application was therefore dealt with on a contested basis.

Consideration

With no disrespect to the thorough way in which Mr Cornish put the legal arguments on behalf of the Ciavarellas, because the Court was ultimately able to resolve the application by reference to matters of discretion it is unnecessary for me to set out those arguments in detail. However, in the short time available during the course of the hearing I came to the view that while arguable (in the sense they would not be liable to being struck out) those arguments were not particularly strong and therefore did not give rise to a serious question to be tried. However, the Court ultimately acted upon its firm view that, even assuming in favour of the Ciavarellas that there was a serious question to be tried, matters going to the balance of convenience and the exercise of the Court's discretion meant that the application should be rejected.
It was, correctly, submitted for the Ciavarellas that because their application to restrain the exercise of the power of sale was based upon the absence of a power of sale, it was not necessary for them to offer to redeem. However, Mr Cornish candidly accepted that the Ciavarellas were not in a position to redeem the mortgages but were making efforts to refinance. The evidence concerning their refinancing efforts is set out in paragraph [17] above.
The arguments then put on behalf of the Ciavarellas may be summarised as: 1. The Notice failed to comply with s 57(2)(b) of the RPA because it failed to state the action necessary to remedy the default of the mortgage in respect of which the notice was issued, being the failure to pay the principal. This was because the Notice went on to claim a larger amount. This meant the Notice either did not tell the Ciavarellas what they had to do to comply with the notified breach of the mortgage or, at least, that the Notice was materially misleading. It was not a case of mere overstatement of the moneys owing but rather a misstatement of the conduct necessary to rectify the breach upon which the Notice was premised. 2. Insofar as the Notice referred to further defaults under the Mediation Agreement, it failed to specify what action was required to remedy those defaults. 3. Insofar as the Notice relied on default under the Mediation Agreement in relation to the payment of interest, it involved a component which was not a reasonable pre-estimate of loss arising from the Ciavarellas' breach and so was a penalty. The Notice was invalid insofar as it required payment of a penalty. 4. On its proper construction the Mediation Agreement varied the date for repayment of the principal under the Loan Agreement such that the Principal was due to be repaid on 15 May 2015. This meant that, as at the date of its issue, there was no breach upon which the Notice could be issued. 5. Alternatively to the previous submission, if the Mediation Agreement did not vary the Loan Agreement, it gave rise to an estoppel against Hargraves which prevented it from issuing the Notice in respect of a default in payment of the principal earlier than 15 May 2015. 6. Since Hargraves had accepted interest pursuant to the Mediation Agreement after a default by Darren in the payment of the principal sum at the expiry of the term of the Loan Agreement and related mortgages, Hargraves should also have given a notice to the Ciavarellas under s 92 of the Conveyancing Act 1919 (NSW) (the "s 92 Notice"). giving three months' notice of Hargraves' intention to enter into possession or exercise any power of sale. This had not been done.
As stated in paragraph [23] above, even assuming in the Ciavarellas' favour (contrary to the Court's view) that there was a serious question to be tried as to the validity of the Notice and the absence of the s 92 Notice, four balance of convenience or discretionary considerations led to the conclusion that the application should be dismissed. Those considerations arise against the backdrop conceded by the Ciavarellas that the principal sum of $1,370,000 was owed to Hargraves, the Ciavarellas had no capacity to redeem the mortgages securing the Loan Agreement and that their efforts to refinance had thus far been unsuccessful. The Court will now consider the four decisive matters.
First, on the basis of the evidence set out in paragraph 17 above, the Court finds that the Ciavarellas had not acted in a timely fashion in bringing the application. Nor was there any adequate or proper reason for their failure to do so. Having received the Notice by email on 2 April 2015 and in hard copy on 8 April 2015, Darren took no steps to obtain legal advice until 22 May 2015. Thereafter Darren allowed two weeks to pass before being contacted by the solicitor who he intended to retain and even then did not appear to press that solicitor with the urgency of the matter. Darren did not treat the matter with the urgency or proactivity it clearly required, ultimately not instructing solicitors until two business days before the auction, being one business day before the application was brought before me.
Darren's evidence offers no explanation for the delays referred to in the preceding paragraph. Equity expects applications of this kind to be brought as quickly as possible, not least to give an adequate opportunity for all parties to be heard and their arguments to be properly considered. In the events which happened, the application was brought at the last possible moment.
Second, the lateness in the bringing of the application may well have been overcome if there was evidence that refinancing had been arranged or, less persuasively, was likely to be able to be obtained within a reasonably short time. As was the case in relation to obtaining legal advice, Darren did nothing between when Hargraves issued the Notice at the start of April 2015 and when he became aware on 22 May 2015 of the auctions planned for mid-June. No explanation was offered for this delay. Furthermore, the evidence (set out in paragraph [17] above) reveals that Darren has not been particularly assiduous in following up such leads for refinance as he had. That evidence also demonstrates that at least two banks have made it clear that they would not advance funds to Darren to refinance.
Darren's history of default with both NAB and now Hargraves suggests that any prudent, properly informed lender would approach the question of advancing funds to Darren extremely cautiously. The evidence of rejection by two banks also supports the conclusion that it will be very difficult for Darren to obtain refinancing. Taken together, all of the available evidence suggests that the likely outcome is that finance will not be available and the various properties securing the Loan Agreement will have to be sold in any event.
Third, the Ciavarellas had already had the benefit of the forbearance provided by the Mediation Agreement. That forbearance included an arrangement whereby Darren would be permitted to sell Midgee in his own right, only in default of which then would possession of Midgee and all the other secured properties have to be delivered up to Hargraves. The Mediation Agreement did not give Darren any discretion about whether or not he would put Midgee up for sale. Notwithstanding that, Darren breached the Mediation Agreement for the reasons set out in paragraph [11] above. Those reasons do not reflect any entitlement which he had under the Mediation Agreement but rather support the conclusion that Darren deliberately breached the terms of the Mediation Agreement.
Even if he did not have a valid legal reason to act as he did the Court, for the purposes of exercising its discretion, might take into account why such a breach occurred. However, the reasons given by Darren are entirely unsatisfactory. Equity will be slow to assist mortgagors such as the Ciavarellas against their mortgagee when the mortgagors have already breached an agreement such as the Mediation Agreement.
Fourth, at least on the basis of Hargraves' evidence there was a serious risk that the value of Hargraves' security would, if matters were delayed further, be exceeded by the amount of the debt owed by the Ciavarellas. The Court did not overlook the more optimistic figures provided in the Ciavarellas' valuation evidence. However, while it is not possible for the Court to resolve the valuation issues in the context of an urgent interlocutory hearing such as occurred in this case, the Court can and does take into account credible evidence of a real possibility that the value of Hargraves' security would be completely eroded if there was further delay. Furthermore, even if the Ciavarellas' valuations ultimately prove to be more accurate, given the Court's conclusions about the possibility of refinancing (see paragraphs [29] and [30] above), it is difficult to see what benefit there would be for the Ciavarellas to have their equity in the various properties, including Midgee and Farm 1863, further eroded by delaying the auctions.

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: 01 July 2015

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