First Mortgage Managed Investments Ltd v Oberlechner

Consumer Credit (New South Wales) Act 1995 (NSW) Contracts Review Act 1980 (NSW) LEGISLATION CITED : Industrial Relations Act 1996 (NSW) Real Property Act 1900 (NSW) Uniform Civil Procedure Rules

Chamberlain v DCT (1988) 164 CLR 502 Hall Chadwick v Doyle [2006] NSWSC 1195 Jonsson v Arkway Pty Ltd (2003) 58 NSWLR 451 Linkenholt Pty Ltd v Quirk [2000] VSC 166 CASES CITED : Logwon Pty Ltd v Council of the Shire of Warringah (1993) 33 NSWLR 13 Metropolitan Water Baord v London, Brighton & South Coast Railway Co [1910] 1 KB 804 Perpetual Trustee Compnay Limited v Albert and Rose Khoshaba [2006] NSWCA 41 Project Blue Sky v ABA (1998) 194 CLR 355 Somander v Minister for Immigration and Multicultural Affairs (2000) 178 ALR 677 Tszyu v Fightvision Pty Ltd (2001) 104 IR 225

PARTIES : P: First Mortgage Managed Investments Ltd D: Alfred Oberlechner

COUNSEL : P: M J Cohen D: A Rogers

SOLICITORS : P: Boyce Lawyers / Gadens Lawyers D: -

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION POSSESSION LIST

11898 of 2005 FIRST MORTGAGE MANAGED INVESTMENTS LTD v ALFRED OBERLECHNER

JUDGMENT 1 HIS HONOUR: These proceedings concern the plaintiff's claim for possession of property arising from the default of the defendant in the repayment of money owing on loans provided by the plaintiff. 2 The fundamental factual position is not in dispute. The defendant originally possessed a number of investment properties, which were the subject of mortgage. For some significant period of time the defendant was able to service the debt from substantial earnings as an employee of the Commonwealth Bank of Australia. His employment was transferred to being a contractor to the Commonwealth Bank, from which employment he was dismissed due to redundancy. Thereafter the defendant was unable to service the debts arising from the mortgages and was made bankrupt. Prior to the trustee in bankruptcy executing a sale of the assets of the defendant, the defendant refinanced the properties in question, discharged his bankruptcy, and emerged from the bankruptcy with different mortgages on the same properties. 3 The second mortgages, obtained for the purpose of discharging the bankruptcy and/or retaining the properties, are in default and the mortgagee seeks possession of the properties. The defendant submits that the loans are subject to the Consumer Credit Code because the credit was provided wholly or predominantly for personal, domestic or household purposes. While, necessarily, the defendant also relies upon the other criteria for the application of the Code, it is only the criterion relating to the purpose of the loan that is in issue. 4 It is necessary to deal with some alternative submissions of the defendant and for that purpose to recite in more detail the factual circumstances and deal with a minor issue of fact between the parties. I will then set out the terms of the relevant legislation and deal with the major issue, being the construction of the legislation and its application to these facts.

Circumstances 5 The defendant, Alfred Oberlechner, is over 40 years of age and between 1986 and 2000 worked as an Information Technology Specialist. He designed, analysed and wrote software programs. He initially worked for the Commonwealth Bank until, in October 1997, the Bank outsourced its IT Department and thereafter he worked for the contractor to the Bank, EDS Australia Pty Ltd. 6 The defendant ceased employment in 2000 and suffered major depression and anxiety. He has not worked since 2000. 7 Over a period of time during his employment, the defendant purchased a number of properties including the properties which are the subject of dispute in these proceedings. 8 In approximately August 2003, after three years of unemployment and a continuing inability to service the loans on the properties he had purchased, Commonwealth Securities successfully petitioned for the defendant's bankruptcy and Jones Condon was appointed his trustee in bankruptcy. 9 At the time of the bankruptcy, the defendant was solvent in that the total value of his realisable assets exceeded his liabilities. All of the investment properties that the defendant then owned were subject to mortgages, but the value of the properties exceeded the amounts secured by the mortgages over them. 10 On and before 21 May 2004, the defendant sought to refinance the loans against the properties from another lender. The defendant in evidence states that he sought to refinance because he was "keen to get out of that state [i.e. bankruptcy]". The plaintiff was one of the mortgagees approached by the defendant or by one or more brokers on his behalf. 11 On 21 May 2004, the defendant and plaintiff executed a loan contract secured by the first registered mortgage over the properties at 8 Elizabeth Parade Tura Beach and 4 Rebecca Place Tura Beach. Under that contract the defendant borrowed $615,000. Other loans were taken out from other mortgagees and were secured by other mortgages on other properties. 12 The money obtained by the defendant under the mortgages of the two properties at Tura Beach, together with the amounts received from the other mortgages, were used to discharge the bankruptcy. The plaintiff attended the settlement conference called for the purpose of the discharge of the bankruptcy. 13 Given the interest rate charged on the mortgages in question here and the loan fees that were payable thereon, the defendant was not in a position to service the loans in question at the time they were executed. At the time that the loan contract was executed the defendant was not in receipt of any rent, or any other payment, in respect of the properties that were subject to the mortgage. Such rent or other payment, depending upon the amount thereof, may have allowed the defendant to service the debt. 14 In or about December 2004, the defendant defaulted on the loan agreement and was served with a notice under section 57(2)(b) of the Real Property Act 1900 on 21 January 2005. 15 The defendant and the plaintiff, or their legal representatives, discussed the refinancing of the loans for a significant period of time. On 11 April 2005 the plaintiff provided payout figures, as requested by the defendant on 6 April 2005. On 11 May 2005, the plaintiff commenced proceedings for possession of 8 Elizabeth St Tura Beach and provided updated payout figures on 19 May 2005, 27 May 2005, 17 August 2005 and 2 September 2005. 16 The plaintiff took possession of the other property of the defendant for which it was the mortgagee. These proceedings do not concern that other property, except to the extent that it impacts upon the attitude of the parties in these proceedings and in particular the belief of the defendant that the possession and sale was invalid because of a lack of proper notice.

On 21 September 2005 orders were made by this Court, by consent, to the following effect:

i. judgment for possession of security property, 8 Elizabeth St Tura Beach;

ii. leave granted for the plaintiff to issue a writ of possession; and

iii. judgment and writ stayed until 10 October 2005. 17 The plaintiff consented to the stay so that the defendant would have further time to organise any refinance. 18 Thereafter, the defendant obtained a number of orders, either ex parte or over the objection of the plaintiff, continuing or extending the initial stay granted on 21 September 2005. A stay is still in place. 19 There is some dispute as to the circumstances of the obtaining of the consent orders on 21 September 2005 and the proceedings immediately thereafter. The defendant alleges that a director of the plaintiff, Michael Boyce, spoke to the defendant, by telephone, in or about October 2005, around when they came before the Court on the defendant's motion. The defendant alleges that Mr Boyce said to him words in or to the following effect: "If you agree to discontinue the above summons relief action you have taken against us [Supreme Court File No 4287/05], and agreed to a default judgment in this matter, we won't pursue action for possession of 8 Elizabeth Parade, Tura Beach. We only want the vacant land [4 Rebecca Place] for now and not the house at Elizabeth Parade." 20 Mr Boyce, who was called in evidence and cross-examined, denied this conversation or any conversation to like effect. According to Mr Boyce, he was in Fiji at the time the conversation was alleged to have occurred. A copy of Mr Boyce's passport and airline boarding pass was tendered in support of that oral evidence. 21 There are inconsistencies and/or absurdities in the oral and affidavit evidence of the defendant in this regard. While the fact that Mr Boyce was overseas does not, of itself, prevent a telephone conversation in the terms deposed by the defendant, it is most unlikely that the defendant would not remember that it was an overseas call on which this conversation occurred. Further, the terms of the conversation seemed to suggest that it was a conversation that occurred prior to the entering of the consent orders on 21 September 2005. If the conversation were in the words suggested by the defendant, or words to that effect, then the consent orders would be inconsistent with its tenor. Further, if, as is vaguely suggested, the conversation occurred in October, then Mr Boyce was, on the defendant's version, seeking consent to orders that had already been made. I find that the conversation did not occur in those terms and that, in that regard, the defendant, either mistakenly or otherwise, is wrong. 22 There are other matters of detail to which reference needs to be made. On 21 February 2006, the defendant filed a Notice of Motion seeking that the default judgment of 21 September 2005, obtained by consent, be set aside and, inter alia, leave to file an Amended Defence. The Proposed Amended Defence seeks: an itemised payout figure, including legal costs in assessable form; an avoidance or variation of the loan contract under the Contracts Review Act, and other orders. At the hearing, the defendant raised (not for the first time) the argument based upon the Consumer Credit Code.

The Consumer Credit (NSW) Code ("the Code") applies by virtue of s5 of the Consumer Credit (NSW) Act 1995 and cl6 of the Code adumbrates the criteria for the application of the Code. The criteria are: a) the debtor is a natural person ordinarily resident in the jurisdiction; b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; c) a charge is or may be made for providing of the credit; and d) the credit provider provides the credit in the course of the business of providing credit. 23 The plaintiff, properly and appropriately, accepts that criteria (a), (c) and (d) are, in relation to the plaintiff and/or defendant, satisfied. The issue, as earlier stated, is whether the credit was provided in circumstances that satisfy (b). The onus lies on the plaintiff to displace the operation of the Code: see cl11(1) of the Code and Linkenholt Pty Ltd v Quirk [2000] VSC 166 at [61]. 24 The satisfaction of criterion (b) is not without difficulty because of the particular factual situation with which the Court is here concerned and an apparent ambiguity in the words "personal, domestic or household". 25 The Macquarie Dictionary defines "personal" as "of or relating to a particular person; individual; … relating to or characteristic of a person; … relating to the person, body, or bodily aspect." It also defines "domestic" as "of or relating to the home, the household, or household affairs". Perhaps redundantly, "household" is defined by the Macquarie Dictionary as "the people of a house collectively; in previous times, a family, including servants, etc; a domestic establishment; of or relating to a household; domestic". 26 It is clear that the terms overlap and might properly be particular aspects of the one genus. It is unnecessary, in this judgment, to determine whether the terms may properly be construed ejusdem generis. The evident purpose of the relevant provisions of the Code is directed to ensure fairness to consumers of loans and mortgage finance, but not in circumstances where the loan or mortgage finance is used for business purposes: see Jonsson v Arkway Pty Ltd (2003) 58 NSWLR 451 at 455. 27 The authorities on the meaning of the words, albeit in a different context, confirm the overlapping meanings of each and confirm the correctness of the meanings contained within the dictionary definitions. Most relevantly is the judgment of Phillimore J: "It should not be assumed that domestic means civilised or domesticated or something appertaining to man, either the natural or the civilised man. It means, I think, something to do with man as occupying or using a house or dwelling. It may be that the occupation need not be through the night as well as the day …. It does not follow, because a man generally cooks, eats, and reads in his house, that the cooking of roasted chestnuts on a stall, or the eating of chocolate out of an automatic machine at a station, or the reading of a book … while walking along the street, is domestic. In the same way it does not seem to me to follow that the use of sanitary conveniences in some public place or some place of temporary resort during a journey is domestic." ( Metropolitan Water Board v London, Brighton & South Coast Railway Co [1910] 1 KB 804 at 810, discussing the meaning of the word "domestic"). 28 Ordinarily, the purpose of a loan provided to discharge a person's bankruptcy would be personal, domestic or household. Such a loan would relate to the status of the person as such, to the person's characteristics and to the circumstances of her or his domestic or household situation. However, as can be seen from the above, there are some exceptional characteristics to these circumstances. 29 As attested by the defendant, he was solvent at the time that he was rendered a bankrupt. His realisable assets exceeded his liabilities. Therefore, his bankruptcy would have been discharged if no action were taken by him and the trustee in bankruptcy were permitted to realise his assets. One must then ask: for what purpose did the defendant seek to refinance, and succeed in refinancing, the loans on the mortgaged premises or this property in particular? When the question is posed in that way, it almost answers itself. It was not for the purpose "wholly or predominantly" to discharge the bankruptcy, but for the purpose of ensuring that the discharge of the bankruptcy did not result in a loss to the defendant of the investment properties. 30 For the above reason, I determine that the credit deriving from the mortgage in this case was not provided or intended to be provided wholly or predominantly for personal, domestic or household purposes and that the Code does not apply to the credit contract secured by the mortgage giving rise to the debt here in issue. 31 In this way the evident purpose of the legislation is given effect without creating an obvious absurdity in the application of the legislation. "A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions." ( Project Blue Sky v ABA (1998) 194 CLR 355 at 381-382, [70]). 32 If I were of a different view, it would be necessary to deal with the effect, if any, of the declarations and agreements made by the defendant at the time that he entered into the loan agreements. The defendant has declared on two separate occasions (see exhibits F and G) that the defendant had received independent legal advice before signing the documents (including security documents), which documents included a declaration that the credit provider was providing the credit "wholly or predominantly for business or investment purposes (or for both purposes)". That declaration was not hidden away or obscured in a number of other documents. It was a separate document, sworn on oath by the defendant, which contained a prominent warning about the non-application of the Consumer Credit Code.

Contracts Review Act 33 Another ground upon which the defendant seeks to set aside the consent judgment, in order to defend the proceedings, is based upon a defence which allegedly arises under the Contracts Review Act 1980 ("the Act"). 34 The consent judgment, as has been stated, was made on 21 September 2005 and has since been entered. In Hall Chadwick v Doyle [2006] NSWSC 1195, I discuss the circumstances in which the Court may recall or reopen a judgment once passed and entered. I there refer to the three most utilised exceptions: the 'slip' rule; the power to amend where the intention of the Court has not manifested in the judgment; and the capacity to allow the opening of orders made in chambers. I also refer to the attitude of the Court, both common law and equity, to circumventing the limitations on reopening in cases of manifest injustice or inconvenience. 35 The judgment that was entered in this case gave effect to the contract as it existed, and as it still exists. A defence based upon the Act would seek to vary (or avoid) that contract on the basis that the Court finds that it or one or more of its provisions was unjust at the time it was made. But the contract has already been enforced and the judgment for its enforcement has been entered. 36 In the context of s106 of the Industrial Relations Act 1996, the Court of Appeal held that it was impermissible to vary the contract which formed the basis of a judgment of the Court: "[59] The contract formed upon the due exercise of the option in 1995 was the basis upon which the issue of breach was addressed and concluded in the contract proceedings and the yardstick against which damages were calculated: see especially 47 NSWLR at 491-496, 497. Conversely, the award of damages was the enforcement of a secondary obligation necessarily based upon the primary obligation of the contractual terms cf Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848-849. For that contract now to be declared void or varied in its terms (an essential precursor to relief pursuant to s 106(5) whether against Fightvision or those standing behind it) would be to contradict the very basis upon which the judgment stands, together with issues necessarily decided by that judgment: cf also Caird v Moss (1886) 33 Ch D 22. Viewed in this way, the continued prosecution of the industrial proceedings would run smack into the principles of issue estoppel and for that reason their continuation was properly held to be an abuse of process. [60] It is well established that the preclusive effect of an issue estoppel cannot be sidestepped by resort to fresh proceedings which are "unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings": per Mason CJ, Deane J and Dawson J in Walton v Gardiner (1993) 177 CLR 378 at 393. It is no answer that the proceedings may be cast in a different mould ostensibly invoking a fresh cause of action: see generally Reichel v Magrath (1889) 14 App Cas 665; Hunter v Chief Constable of the West Midlands Police [1982] AC 529 and Rogers v The Queen (1994) 181 CLR 251. It is equally well established that proceedings whose success depends upon litigating afresh an issue foreclosed by these principles may itself be permanently stayed for abuse of process and consequently dismissed for futility ( Ridgeway v The Queen (1995) 184 CLR 19 at 41, 43). In a proper case of an anti-suit injunction will also lie ( CSR at 393-394). This was a proper case for such an order." ( Tszyu v Fightvision Pty Ltd (2001) 104 IR 225; [2001] NSWCA 103 per Mason P, with whom Priestley and Powell JJA agreed). 37 I bear in mind, in these current circumstances, that the same Court which issued and entered the original judgment is being asked to vary the contract upon which it is based, unlike the situation in Tszyu. Nevertheless, the issue of principle remains the same. The plaintiff does not now seek enforcement of rights derived from the contract between the plaintiff and defendant; the plaintiff seeks to enforce the judgment it has obtained, which gives it the right to possess the property and to realise the assets. 38 Unless the judgment already entered can be overturned or set aside, any variation or avoidance of the contract will be ineffective. 39 Further, there is nothing in the facts or submissions that arguably renders the contract unfair, in the sense used in the Act: see Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41 at [60].

Setting Aside Consent Judgment 40 A judgment obtained by consent of the parties is as effective as any other kind of judgment, perhaps more so because the consent, absent a judgment, may be independently efficacious: see Chamberlain v DCT (1988) 164 CLR 502 at 508; Somander v Minister for Immigration and Multicultural Affairs (2000) 178 ALR 677 at [35]. 41 Apart from the exceptions available under the inherent power of the Court, to which reference has already been made, the power conferred upon the Court to set aside the judgment is dealt with in pt36 r26.15(1) of the Uniform Civil Procedure Rules. That rule permits the Court to set aside judgment given or entered on sufficient cause being shown that the judgment was made irregularly, illegally or against good faith. The defendant put no argument to justify the setting aside of the judgment on that basis, save, perhaps, to the extent that he relied upon the conversation between the defendant and Mr Boyce. 42 In the case of an order of the court made by consent of the parties it may be that there is in this Court an inherent power, and in other courts an implied power, to set aside judgment for any reason that would vitiate the agreement or consent giving rise to the judgment: see Logwon Pty Ltd v Council of the Shire of Warringah (1993) 33 NSWLR 13 at 28-29. Again, in this case, the only basis upon which such an argument can be made would be based upon the terms of the conversation between the defendant and Mr Boyce. I have rejected the terms of that conversation. 43 In the circumstances of this case, there is no basis either under the inherent power of the Court, or under the Rules, to set aside the judgment.

Conclusion 44 It should be made clear that nothing in these reasons for judgment reflect on the capacity of the Court to deal with the defence based upon the Contracts Review Act, or any other claim, prior to judgment being entered, nor to the capacity of the Court to set aside judgment entered in a different factual context. 45 It is unnecessary to deal with any other submission of the plaintiff and on no other basis can the defendant succeed. The defendant has now had that for which he originally applied, namely, sufficient time to reorganise his affairs and alternative means of finance. I make the following orders:

i. the Notice of Motion filed by the defendant on 21 February 2006 be dismissed;

ii. any and every stay of the orders of the Court issued on 21 September 2005 is set aside on and from 8 January 2007;

iii. the defendant pay the plaintiff's costs of the proceedings, as agreed or assessed;

iv. the proceedings are otherwise dismissed. **********

19/12/2006 - Added in date of decision to cover sheet. - Paragraph(s) N/A

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