First Plaintiff v Defendant

2 The Sherriff's Office had indicated an intention to immediately execute a warrant of possession. The injunction was sought for a limited period to give the plaintiffs an opportunity to consider their potential avenues for appeal against the judgment that supported the warrant of possession.

Until 4pm on 27 September 2018 the Sherriff's Office Victoria by its employees, agents and howsoever otherwise and Capital Securities XVII Pty Ltd by its employees, agents and howsoever otherwise, be and are restrained from taking any or any further steps to take vacant possession of the property known as 11 Charles Court, Warranwood, Victoria.

4 The judgment creditor, the named defendant ('Capital'), was on notice of the application on 27 September 2018.

5 On 17 July 2017 Capital agreed with OBJ & AJ Snowball Pty Ltd as borrower, and the plaintiffs as guarantors, to advance a loan of up to $500,000 to the borrower ('the facility'). Relevantly, terms of the facility included:

(a) in the event of default, Capital became entitled to take possession of and sell the property; and

(b) Capital took a registered first mortgage over the property as security (it was registered on 10 August 2017).

6 In breach of the facility and the mortgage, the borrower and the plaintiffs failed to make interest payments required by the facility.

7 On 27 November 2017 Capital issued a termination notice, notice of default, and demand to the borrower and plaintiffs pursuant to s 76 of the Transfer of Land Act 1958 (Vic), requiring payment by 2 January 2018.

8 On 31 January 2018 Capital sought judgment for possession of the property by a writ issued in the County Court of Victoria. The plaintiffs were represented in those proceedings by solicitors, Muir Legal. On 27 March 2018, a defence not having been filed by the plaintiffs, Capital applied for default judgment. That day, the plaintiffs served a defence on Capital that was never filed. That defence did not deny any of the allegations made by Capital, and attributed the default to their daughter's serious illness. They asserted that the arrears could be paid within two weeks of the date of the defence.

9 On 27 March 2018 Capital made an offer to the plaintiffs that if they agreed to and executed consent orders for judgment, to be held in escrow pending payment of arrears, interest, fees and legal costs, Capital would enter into a forbearance deed to permit orderly settlement of the default.

10 From 27 March 2018 the solicitors for the respective parties negotiated by exchange of a number of emails about the proposed offer, including the form of consent orders for possession and the terms of the forbearance deed. This correspondence was exhibited in full in the affidavit of Andrew Hack sworn 27 September 2018 and it is not necessary to set it out or summarise its content.

11 On 29 March 2018 at 2:57pm the plaintiffs' solicitor, Mr Muir, emailed a scanned copy of the deed, including consent orders signed by Andrew Snowball, to the solicitors for the defendant. At 3:05pm Mr Muir emailed a scanned copy of the forbearance deed and consent orders signed by Pamela Snowball. Critically the plaintiffs say, the forbearance deed was signed by Mrs Snowball solely in her capacity as a director of OBJ & AJ Snowball Pty Ltd, and not in her personal capacity as a guarantor or mortgagor.

12 The forbearance deed provided, inter alia, that upon a fresh event of default, the consent judgment provided as part of the forbearance deed may be filed by Capital and the debtors (defined as the borrower, guarantors, and mortgagors) agreed to hand over vacant possession of the property. A fresh event of default included a failure to perform the 'Debtor's Considerations' that included repaying the amount of $53,800 by 12 April 2018 ('the early payment sum').

13 Neither the borrower nor the plaintiffs as guarantors and mortgagors paid the early payment sum.

14 On around 23 May 2018 Capital applied for judgment for possession in the County Court proceeding. The plaintiffs opposed the application which was heard on 28 May 2018 before a Judicial Registrar. Mr Muir appeared on behalf of the plaintiffs. The Judicial Registrar gave judgment for Capital by consent, relying on the consent orders. Capital asserted Mr Snowball was present in Court when those orders were made. No point was taken about Mrs Snowball's execution of the forbearance deed.

15 On 15 June 2018 the County Court issued a warrant of possession. The eviction was ultimately scheduled for 25 September 2018.

16 Between 4 - 24 September 2018 the plaintiffs put proposals to Capital, but no agreement could be reached.

17 As at 27 September 2018, the debt owed to Capital by the plaintiffs was $648,597.06.

18 The plaintiffs sought only a short stay to enable the merits of a claim to set aside the County Court consent judgment for possession to be considered and, if deemed appropriate, brought. The plaintiffs proposed a self-executing order so that if the claim was not brought within a short period the stay of execution of the warrant would automatically be lifted.

19 The plaintiffs submitted the critical omission that might affect the validity of the possession order was the failure of the second plaintiff to sign the forbearance deed in her personal capacity, supporting a prima facie arguable case that there was no consent to the order for possession that supported the warrant and it was liable to be set aside.

20 The submission was that Mrs Snowball was not a party to the deed because she did not sign it in any personal capacity. Accordingly, she could not be said to have given the warranties in that deed as to obtaining legal and financial advice that supported signed consent orders given as a guarantor/mortgagor and required as consideration for the forbearance afforded to the principal borrower.

21 The second plaintiff instructed her solicitor that:

(a) she did not receive any legal advice about whether or not she was obliged to sign the consent order;

(b) she did not receive any legal advice about the effect of the consent order;

(c) had she been advised that she was not obliged to sign the consent order under the terms of the forbearance deed (as she had not executed the deed), and had she been advise that its effect would have been to give up possession of her family home, she would not have signed the consent order.

22 However, the second plaintiff has not deposed to these matters herself or to the circumstances more broadly and her claim is not supported by an affidavit from Mr Muir. That there were time constraints on the application is a limited explanation for proceeding on the basis of the solicitors' selective assertion of instructions.

23 The first plaintiff swore an affidavit in which he relevantly said:

I had seen a solicitor who had tried to help me on my matter but did not help at all or tell me what needed to be done. I have never been told about hardship or being able to explain these problems to the lender.

I am told that there were 'consent orders'. I did not agree to anything and do not know about these.

24 The plaintiffs conceded that the primary facility and the power of sale in the mortgage were immediately enforceable, but submitted that the primary facility did not support execution of the warrant obtained on the basis of consent that were subject to attack.

25 The plaintiffs contended the balance of convenience favoured granting the stay because it was for a limited time, the property is a family home, and the usual undertaking as to damages would meet any loss suffered by the defendant.

26 The plaintiffs disputed Capital's valuation of the property at $640,000 by a report dated 13 July 2017. The plaintiffs asserted the property was of significantly higher value (up to $800,000 - $900,000), and that there would be equity remaining once the full indebtedness was repaid. In this way, the undertaking as to damages was supported. Counsel for the plaintiffs properly conceded that there was no evidence for this assertion, which was made on instructions. By contrast, in reliance on the property report, Capital submitted that it was prejudiced by any further delay in execution as the value of the property is now less than the debt. I am not persuaded to conclude that the plaintiff's undertaking is of value.

27 Making these findings solely for the purposes of the present application, I consider the plaintiffs' factual assertions regarding the circumstances in which the forbearance deed and consent orders were signed unconvincing if not disingenuous in light of the correspondence annexed to the Hack affidavit. I note that Mr Snowball does not deny being present when the orders were made by the Judicial Registrar. A further difficulty with the statements attributed to Mrs Snowball and those made by Mr Snowball is that they deal with very limited aspects of the transactions that led to the forbearance deed and consent order. There is no explanation of the fact of forbearance, the acknowledgment of default, their understanding of the basis on which they continued in possession of the property, or of the negotiations in September 2018.

28 The absence of any evidence directly from the second plaintiff, or from Mr Muir is only explained by the alleged circumstances of urgency that I find unconvincing.

29 The court is empowered to stay execution under r 66.16 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), and the inherent jurisdiction.[1] This is a discretionary power exercised by reference to all the circumstances of the case.[2] The principles relevant to granting a stay were conveniently summarised by Robson J in Re S&D International Pty Ltd (in liq) No 6 and I need not repeat them here as they were not in dispute.[3] It is sufficient for present purposes to note three principles from the authorities:

(a) the prima facie position is that a party entitled to judgment is entitled to immediately enforce that judgment;[4]

(b) any exercise of the inherent jurisdiction to order otherwise 'must be exercised on grounds relevant to a stay of the enforcement proceedings, rather than on grounds which may bear upon the validity or correctness of the judgment';[5] and

(c) the applicant for a stay bears the onus of demonstrating the stay sought is justified.

30 The plaintiffs contended that once they commence (as they foreshadow) a proceeding to dispute the possession order, it would be necessary to restrain the execution of the possession order to protect the integrity of the fruits of that new proceeding. This submission focusses the grounds of the stay to be grounds that bear upon the validity or correctness of the judgment.

31 Capital cited GE Personal Finance Pty Ltd v Smith,[6] in which Johnson J referred to three common classes of case in which a stay is sought, the first two of which are relevant to the present case. First, where a defendant indicates the proceedings are to be defended, the defendant should be in a position to make submissions regarding the proposed grounds. As already observed the plaintiffs disclose no substantive defence to the County Court proceedings and referred in general terms to unformed arguments that might provide a basis to challenge a perfected consent order. Secondly, when a defendant indicates the loan is to be refinanced, proof of the steps take to secure that finance will be required. Although the plaintiffs assert they would be seeking to refinance the loan, the evidence did not go beyond that assertion.

32 Capital also relied on Johnson J's observations in that case regarding the relevance of hardship to such applications. His Honour said:

Ordinarily, if a Defendant is not in a position to demonstrate a reasonable foundation for a stay in one of the three circumstances referred to in paragraph 13 above, then there could be no reasonable expectation of an extended stay on hardship grounds only. If it is inevitable that the Plaintiff will obtain possession of the property for the purpose of exercising the power of sale, then it will be necessary for the Defendant to vacate the property.

Of course, particular factors may exist in an individual case which bear upon this class of stay application and which may ground the exercise of discretion by way of a stay for a longer period. However, in circumstances where vacation of the premises by the Defendant is inevitable, there ought be no reasonable expectation of an extended stay being granted on hardship grounds.[7]

33 Johnson J observed that relevant considerations also included the level of indebtedness, the defendant's history of payments and attempts to comply generally with the terms of the facility, and the likely sale price of the property.

34 The starting position is that a consent order regularly made and entered cannot be recalled.[8] The plaintiffs relied on an exception to this principle derived from Harvey v Phillips,[9] and following authorities,[10] to the effect that:

The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like. The rule appears rather from positive statements of the grounds that suffice ...

'[I do not have] the slightest doubt that a consent order can be impeached, not only on the ground of fraud but upon any grounds which invalidate the agreement it expresses in a more formal way than usual ... To my mind the only question is whether the agreement on which the consent order was based can be invalidated or not. Of course if that agreement cannot be invalidated the consent order is good': Huddersfield Banking Co Ltd v Henry Lister & Son Ltd (citations omitted).[11]

35 Although Harvey was a case in which the orders of the court had not yet been perfected, subsequent decisions accept there are circumstances in which consent orders may be set aside, notwithstanding their perfection.[12]

36 The fundamental difficulty appears to be that even if I assume for the sake of the submission that the consent order might be set aside, there is no dispute that the facility documentation, including the mortgage, was fully and properly executed by each of the plaintiffs as directors of the borrower, as mortgagors, and as guarantors. There was a default under the mortgage and a notice to pay under the Transfer of Land Act was served. All these matters are undisputed. Capital's entitlement to exercise the power of sale was not disputed. No defence was ever advanced and the plaintiffs have enjoyed an extended opportunity to satisfy the creditor in recognition of hardship grounds. Claims of the type identified in Harvey were restricted to the circumstances of the forbearance deed and the consent order and do not extend to the primary transaction that established the creditor's right to possession to exercise the power of sale.

37 I consider that it is futile to make the orders sought, in circumstances where:

(a) the failure of the second plaintiff to execute the forbearance deed is arguably an oversight, created by a combination of the deed failing to include the second plaintiff's name in the execution block of the guarantor on the second plaintiff's counterpart of the deed (it read Andrew Snowball), combined with the failure of either party's solicitors to identify this oversight. The plaintiffs have not sufficiently engaged with the circumstances surrounding the forbearance deed on this application and appear to have 'cherry picked' a possible ground of attack on the consent order. That attack is not a ground relevant to a stay of an enforcement proceeding, but a ground that may bear upon the validity or correctness of the judgment;

(b) the plaintiffs do not dispute the primary facility or the events of default;

(c) the parties acted in accordance with the forbearance deed as if it was enforceable. In other words, the plaintiffs, relevantly the second plaintiff received the benefit of the creditor's forbearance;

(d) the authorities make it plain that the time for impugning the possession order is at the time it was made;

(e) the second plaintiff's challenge is to the consequences of enforcement of the forbearance deed having taken the benefit of it. Even if there be a basis to challenge the consent order for possession there is no basis to challenge Capital's underlying entitlement to possession of the property to exercise the power of sale.

38 Relief is refused. The interim injunction that I granted on 25 September 2018 and extended until the day of delivery of this judgment is discharged and the plaintiffs' application is dismissed with costs.

[1] Everest Project Developments Pty Ltd v Westpac Banking Corp [2009] VSC 563.

[2] Sami v Roads Corp [2009] VSCA 44 [24] (Williams JA).

[3] [2011] VSC 119 [120]-[130] and the cases cited therein.

[4] State Bank of Victoria v Parry [1989] WAR 240, 244 (Malcolm CJ); Sami v Roads Corp [2009] VSCA 44 [25] (Williams JA).

[5] State Bank of Victoria v Parry [1989] WAR 240, 244 (Malcolm CJ).

[6] [2006] NSWSC 889.

[8] Bailey v Marinoff [1971] HCA 49; (1971) 125 CLR 529, 530-1.

[9] [1956] HCA 27; (1956) 95 CLR 235 ('Harvey').

[10] See Owners Strata Plan No 57164 v Yau (2017) 355 ALR 571, 584 [57]-589 [83], and the cases cited therein.

[11] Harvey [1956] HCA 27; (1956) 95 CLR 235, 243-244 (Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ).

1. [12] See, for example Permanent Trustee Co (Canberra) Ltd (executor estate of Andrews) v Stocks & Holdings (Canberra) Pty Ltd (1976) 15 ACTR 45 (Brennan J), cited in Owners Strata Plan No 57164 v Yau (2017) 355 ALR 571.