First Mortgage Managed Investments Pty Limited v Pittman

FMI's Submissions 6FMI proposes the following orders (with minor editorial changes): "1. Judgment for FMI in the sum of $2,179,247.53. 2. On or before seven days from the date of these orders, the First Respondent (Mr Pittman) to deliver to FMI's solicitor: (a) Certificate of title folio identifier 8/751629; and (b) executed mortgage in the form annexed to these orders and marked "A". 3. In the event of a default by Mr Pittman in compliance with Order 2(b), order that the Registrar of the Court of Appeal be empowered to execute the mortgage annexed and marked "A" in the name of, and on behalf of, Mr Pittman. 4. On or before seven days from the date of these orders Mr Pittman and the Second Respondent (Mr Webster) deliver to FMI's solicitor: (a) Certificate of title folio identifier 9/751629; and (b) executed mortgage in the form annexed to these orders and marked "B". 5. In the event of a default by the Respondents in compliance with Order 4(b), order that the Registrar of the Court of Appeal be empowered to execute the mortgage annexed and marked "B" in the name of, and on behalf of, the Respondents. 6. Grant liberty to FMI to apply for further orders if Mr Pittman fails to comply with Order 2(a) and/or the Respondents fail to comply with Order 4(a). 7. Declare that the amount owing secured by the mortgages registered over the land in folio identifier: (a) 8/751629, situated at and known as 1807 Bells Line of Road Kurrajong Heights; (b) 9/751629, situated at and known as 1767 Bells Line of Road Kurrajong Heights; (c) 23/751629, situated at and known as 1727 Bells Line of Road Kurrajong Heights; is the amount of $2,179,247.53 as at 15 October 2014. 8. Judgment for FMI against Mr Pittman for possession of the land in folio identifier: (a) 8/751629, situated at and known as 1807 Bells Line of Road Kurrajong Heights; and (b) 23/751629, situated at and known as 1727 Bells Line of Road Kurrajong Heights. 9. Judgment for FMI against the Respondents for possession of the land in folio identifier: (a) 9/751629, situated at and known as 1767 Bells Line of Road Kurrajong Heights. 10. Grant leave to FMI to issue writs of possession with respect to the land in folio identifier: (a) 9/751629, situated at and known as 1767 Bells Line of Road Kurrajong Heights; and (b) 23/751629, situated at and known as 1727 Bells Line of Road Kurrajong Heights. such writs of possession not to issue prior to [a date two months after date of these orders]. 11. Grant leave to FMI to issue a writ of possession with respect to the land in folio identifier: (a) 8/751629, situated at and known as 1807 Bells Line of Road Kurrajong Heights; such writ of possession not to issue prior to [a date six months after date of these orders]. 12. The stay granted on 1 February 2013 of orders 6 to 12 in Supreme Court proceedings 2008/288217 made on 18 December 2012 be lifted." 7The sum of $2,179,247.53, referred to in proposed orders 1 and 7, comprises the Benefit Sum of $1,172,713.04 used by the Respondents to discharge the Moranon and Flamanda Mortgages (Principal Judgment at [189]-[216]); plus $1,006,534.39 in interest as at 15 October 2014. FMI calculates the amount of interest as follows:

• interest is claimed on the Benefit Sum of $1,172,713.04;
• interest is calculated on a simple interest basis, initially at 10.75 per cent per annum, being the "Lower Interest Rate" pursuant to the 2006 Loan Agreement from 15 December 2006, being the date FMI advanced monies to the Respondents and the Benefit Sum was used by the Respondents to discharge the Moranon and Flamanda Mortgages, to 19 February 2008, being the date of the variation of the 2006 Loan Agreement;
• interest is subsequently calculated at 11 per cent per annum, being the Lower Interest Rate pursuant to the 2008 Variation of the 2006 Loan Agreement of 19 February 2008 to 15 October 2014; and
• interest accrues at a rate of $353.42 per day, should orders be made after 15 October 2014. 8In the alternative, FMI submits that the appropriate amount of interest is $775,211.51 as at 15 October 2014, calculated on the following basis:
• interest is claimed on the Benefit Sum of $1,172,713.04 pursuant to s 100 of the Civil Procedure Act 2005 (NSW) (CP Act);
• interest is calculated in accordance with the rates stipulated in Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 6.12(8);
• interest is calculated from 15 December 2006 to 15 October 2014; and
• interest accrues at a rate of $208.84 per day, should orders be made after 15 October 2014. 9FMI proposes that the issue of writs of possession in respect of Lots 9 and 23 be delayed for two months, to enable the Respondents to refinance or to make other arrangements for payment of the moneys due to FMI. FMI accepts that a writ of possession for Lot 8, which is used as the Respondent's residence, should not issue for a period of six months. 10FMI submits that Orders 2(b) and 4(b) (requiring the Respondents to execute mortgages over Lots 8 and 9) are appropriate because the primary Judge made orders on 18 December 2012 requiring FMI to deliver the certificates of title to those Lots and discharges of the mortgages over those Lots to the Respondents' solicitors. In consequence, the mortgages over Lots 8 and 9 have been discharged. FMI says that it should be restored to the position it would have been in had the primary Judge not made the orders requiring, among other things, discharge of the mortgages over Lots 8 and 9. A similar order is not sought in respect of Lot 23 because the mortgage over Lot 23 remains in place.

The Respondents' Submissions 11The Respondents disagree with FMI's proposed short minutes of order in several respects. They submit that:

• they should not be required to pay any interest on the Benefit Sum;
• in the alternative, interest should only be awarded at the rates specified in UCPR r 6.12(8), rather than at the higher rates specified in the 2006 Loan Agreement;
• they should not be required to re-execute mortgages over Lots 8 and 9;
• while they accept that they must account for the unwarranted benefit they received, this should be achieved by orders setting aside the 2006 Loan Agreement and the FMI Mortgage on condition that the Respondents pay FMI the Benefit Sum;
• alternatively, if the Respondents are required to provide security, the mortgages should be limited to Lots 9 and 23 and not include Lot 8, on which their residence is located; and
• in any event, there is no justification for the orders for possession sought by FMI. 12The Respondents propose the following orders (also with minor editorial changes): "1. Judgment for FMI in the sum of $1,172,713.04, such sum to be payable within six months of the date of these orders. 2. On or before seven days from the date of these orders the Respondents deliver to FMI's solicitor: (a) Certificate of title folio identifier 9/751629; and (b) executed mortgage in the form annexed to these orders and marked "B". 3. In the event of a default by the Respondents of Order 2(b), order that the Registrar of the Court of Appeal be empowered to execute the mortgage annexed and marked "B" in the name of, and on behalf of, the Respondents. 4. Declare that the amount owing secured by the mortgages registered over the land in folio identifier: (a) 9/751629, situated and known as 1767 Bells Line of Road Kurrajong Heights; and (b) 23/751629, situated at and known as 1727 Bells Line of Road Kurrajong Heights; is the amount of $1,172,713. 5. Upon payment of the sum in order 1 above, FMI is to deliver to the Respondents' solicitor an executed form of discharge of each of the following: (a) the mortgage over the land in folio identifier 9/751629 created pursuant to order 2 above; and (b) the existing mortgage over the land in folio identifier 23/751629. 6. FMI is restrained from taking any action to enforce the above mortgages before the expiration of six months from the date of these orders." 13The Respondents also propose that orders be made setting off their liability under costs orders made in the Reopening Judgment against FMI's liability under costs and other orders made against it. In addition, as FMI's appeal succeeded in part, the Respondents seek an order granting a certificate under the Suitors' Fund Act 1951 (NSW).

An Award of Interest? 14The Respondents acknowledge that the Principal Judgment contemplated (at [218]) that they would be required to pay interest on the Benefit Sum. They submit, however, that there is no general rule that a borrower who derives an "unwarranted benefit" from a contract of loan that has been found to be unjust should be required to pay interest. Whether interest should be awarded to the lender depends upon whether or not, in the exercise of the Court's discretion under s 7 of the Act, the setting aside of an obligation to pay interest is required to avoid injustice flowing from the impugned contract. 15The Respondents contend, by analogy with cases on unjust enrichment, that it is only where a borrower derives a "notional gain" from the use of the funds advanced by the lender that interest should be awarded to the lender. In this case, so they argue, the Respondents did not derive any benefit from the funds advanced in the sense that they did not have use of the money, as it was paid directly to Ms Locke's companies. They rely on evidence which suggests that the Respondents would not have been able to persuade a "responsible lender" to refinance the Moranon and Flamanda Mortgages in November 2006. They also point out that at that time FMI assessed the market value of the Land at nearly $2.8 million. Thus if, in 2006, the Respondents had repaid the moneys due under the Moranon and Flamanda Mortgages by liquidating their assets, they would at least have been able to retain Lot 8 which was then valued at $1,030,000. If, however, they are now obliged to pay interest to FMI on the Benefit Sum, they will be about $1 million worse off than if they had cut their losses in 2006 (although the Respondents accept that this proposition assumes that the Land has not increased significantly in value since that time, a matter as to which there is no evidence). 16The Respondents further submit that they were not at fault and that it was FMI's wrongful conduct that caused it to lose the Benefit Sum. These factors, so it is said, should be taken into account in determining whether they should be ordered to pay interest on the Benefit Sum. 17The Principal Judgment upheld (at [164]) the primary Judge's finding that the FMI Mortgage was unjust within the meaning of s 7(1) of the Act. However, the Court applied (at [167]-[168]) the principle that the remedies available to the Respondents were limited to those necessary to avoid the unjust consequences of the FMI Mortgage. The Court held (at [185], [189]) that his Honour erred in declaring the FMI Mortgage wholly unenforceable. One ground for that holding was that his Honour had failed to give appropriate weight to the Respondents' use of the Benefit Sum to discharge the Flamanda and Moranon Mortgages. 18The Principal Judgment specifically found (at [216]) that the Respondents derived benefits from the discharge of both the Moranon and Flamanda Mortgages and that any grant of relief should require them to account for the Benefit Sum. In the light of this finding, it is not now open to the Respondents to resist a form of relief that requires them to pay interest, on the ground that they derived no "gain" from using the Benefit Sum to discharge the Flamanda and Moranon Mortgages. The Respondents' contention, in effect, is a further attempt to reopen the Primary Judgment. Similarly, it is not open to the Respondents to resist a requirement that they pay interest on the Benefit Sum as a condition of relief on the ground that they were not at fault. The findings made by the Court did not depend upon any attribution of fault to the Respondents. 19On the findings made in the Principal Judgment, the Respondents received a benefit (or "gain") in November 2006, when they used part of the funds advanced by FMI to discharge the Flamanda and Moranon Mortgages. If the Respondents are to account to FMI for the Benefit Sum as the Principal Judgment contemplates (at [216]), it is appropriate that they be required to account for interest on the Benefit Sum. During the period between November 2006 and the date of this judgment not only has FMI been denied the use of the Benefit Sum, but the Respondents have been relieved of what otherwise would have been their obligation to pay interest under the Flamanda and Moranon Mortgages (unless they chose to discharge the Mortgages from their own resources). 20In short, it is not necessary in order to avoid the unjust consequences of the FMI Mortgage that the Respondents be relieved on an obligation to pay interest on the Benefit Sum. This conclusion is consistent with the reasoning of the High Court in Maguire v Makaronis [1997] HCA 23; 188 CLR 449 at 476-477 (Brennan CJ, Gaudron, McHugh and Gummow JJ), applied in the context of the Act by this Court in Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; 11 BPR 20,841 at [80]-[85] (Beazley JA, Santow JA and Campbell AJA agreeing).

Security 21The Respondents submit that justice will be done if the orders of this Court set aside the 2006 Loan Agreement and the FMI Mortgage on condition that the Respondents pay the Benefit Sum. Their proposed short minutes of order appear to accept that the mortgage over Lot 9 should be reinstated, but not the mortgage over Lot 8. 22The basis for the latter contention is evidence suggesting that in 2006 Lots 9 and 23 had a market value sufficient to provide security for a loan of the Benefit Sum to the Respondents without the need to provide a mortgage over Lot 8. The Respondents also point to the fact that they live on Lot 8 and it is their sole source of income as a reason not to reinstate the mortgage over that Lot. 23The Respondents' submission on the question of security incorrectly assumes that they will not be required to account for interest on the Benefit Sum. It is not necessary, in order to avoid injustice flowing from the FMI Mortgage, for the Respondents to be relieved of the mortgage over Lot 8. If they wish to repay the judgment debt by selling Lots 9 and 23, rather than Lot 8, they may take that course (provided the sale yields the funds required to repay the judgment debt). While it may be very unfortunate if the Respondents are forced to sell Lot 8, that is not a basis for denying FMI security over that Lot. 24We accept, however, the Respondents' submission that there is no basis for making an order for possession of the Land or any part thereof at this stage. We also accept that the Respondents should be allowed a reasonable period in which to repay the judgment sum. Six months is appropriate in the circumstances. The judgment debt will attract post judgment interest, in accordance with s 101 of the CP Act.

Rate of Interest 25The Respondents submit that if they are required to account for interest on the Benefit Sum, the interest rates stipulated in the 2006 Loan Agreement (as subsequently varied) should not be: "utilised as a proxy for the benefit gained by the respondents in not having had to repay [their] indebtedness ... to Flamanda and Moranon." The Respondents contend that the interest rates stipulated in the 2006 Loan Agreement say nothing about the benefit received by them by reason of the discharge of the Flamanda and Moranon Mortgages. The Respondents also point out that the primary Judge found that they did not have the opportunity to negotiate a lower interest rate under the FMI Mortgage and, in any event, did not know the rate of interest being charged. These findings were not disturbed by the Principal Judgment. 26FMI's submissions provide alternative calculations by reference to the interest rates stipulated in the FMI Mortgage and the rates stipulated in UCPR r 6.12(8), but make no submissions justifying a calculation of interest by reference to the former rather than the latter. FMI does not, for example, attempt to justify using the rates stipulated in the FMI Mortgage (as varied) on the ground that the Respondents would have been obliged to pay the same or a higher rate of interest under the Flamanda and Moranon Mortgages (see Principal Judgment at [44], referring to the interest payable under the Flamanda Mortgage). 27In Elkofairi v Permanent Trustee, the Court required the borrower (who had used part of the loan moneys to discharge an existing mortgage loan) to account for interest at the rate specified in the impugned mortgage. However, in that case the borrower did not put any contrary argument (see at [83]). In the circumstances of the present case we think it appropriate, in order to avoid the unjust consequences of the FMI Mortgage, to require the Respondents to account for interest on the Benefit Sum at the lower rates stipulated by UCPR r 6.12(8). 28The Respondents do not dispute FMI's calculations. Thus the amount of interest for which the Respondents must account is $775,211.51 as at 15 October 2014, plus $208.84 per day thereafter. Since this judgment is being delivered on 31 October 2014, judgment should be entered in favour of FMI for $1,951,266.00 (Judgment Sum).

Costs 29The Court directed on 7 April 2014 that there be no order as to the costs of the appeal. Except for the Respondents' set-off submission, the parties do not seek any variation to the costs orders made by the primary Judge. Whatever the merits of the primary Judge's approach in providing for certain liabilities to be set off against each other, we do not think that the costs orders made by this Court in the Reopening Judgment should now be subject to such an arrangement.

Form of Orders 30The parties have not directed their attention to whether any of the orders made by the primary Judge should be set aside or modified. It is necessary to set aside Order 1 (entering judgment for the Respondents on the claim made against them by FMI). Order 2 (declaring the 2006 Loan Agreement, the FMI Mortgage and associated documentation unenforceable) also should be modified to take account of FMI's success on the appeal. 31It should also be noted that the mortgages annexed by FMI to its proposed orders have been amended by omitting clauses stating that the mortgages are collateral to and interdependent with the Loan Agreement and with another mortgage. 32The following orders should be made:

1. Set aside Order 1 made by Garling J on 18 December 2012.
2. Amend Order 2 made by Garling J on 18 December 2012 by adding the words "except insofar as is necessary to give effect to the Orders made by the Court of Appeal on 31 October 2014".
3. Judgment for the Appellant (FMI) against the Respondents in the sum of $1,951,266.00 (Judgment Sum), such sum to be payable within six months of these Orders.
4. On or before seven days from the date of these orders, the First Respondent (Mr Pittman) to deliver to FMI's solicitor: (a)Certificate of title folio identifier 8/751629; and (b)executed mortgage in the form annexed to these orders and marked "A".
5. In the event of a default by Mr Pittman in compliance with Order 4(b), order that the Registrar of the Court of Appeal be empowered to execute the mortgage annexed and marked "A" in the name of, and on behalf of, Mr Pittman.
6. On or before seven days from the date of these orders the Respondents deliver to FMI's solicitor: (a) Certificate of title folio identifier 9/751629; and (b)executed mortgage in the form annexed to these orders and marked "B".
7. In the event of a default by the Respondents in compliance with Order 6(b), order that the Registrar of the Court of Appeal be empowered to execute the mortgage annexed and marked "B" in the name of, and on behalf of, the Respondents.
8. Grant liberty to FMI to apply for further orders if Mr Pittman fails to comply with Order 4(a) and/or the Respondents fail to comply with Order 6(a).
9. Declare that the amount owing secured by the mortgages registered over the land in folio identifier: (a)8/751629, situated at and known as 1807 Bells Line of Road Kurrajong Heights; (b)9/751629, situated at and known as 1767 Bells Line of Road Kurrajong Heights; (c)23/751629, situated at and known as 1727 Bells Line of Road Kurrajong Heights; is the Judgment Sum.
10. Upon payment of the Judgment Sum by the Respondents and post-judgment interest payable by the Respondents pursuant to s 101 of the CP Act, FMI is to deliver to the Respondents' solicitor an executed form of discharge of the following: (a)the mortgage over the land in folio identifier 8/751629 created pursuant to Order 4 above; (b)the mortgage over the land in folio identifier 9/751629 created pursuant to Order 6 above; and (c)the existing mortgage over the land in folio identifier 23/751629.
11. Lift the stay granted on 1 February 2013 of Orders 6 to 12 in Supreme Court proceedings 2008/288217 made on 18 December 2012.
12. The Respondents, if otherwise qualified, have a certificate under the Suitors' Fund Act 1951 (NSW). Mortgage A Mortgage B

Amendments 05 November 2014 - "I" changed to "we". Amended paragraphs: [24], [27], [29] 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: 05 November 2014