IMB Limited v Great Wall Resources Pty Limited

Judgment 1This is a further application for a stay by Mr and Mrs Capocchiano in relation to a judgment for possession given on 16 May 2011 against Great Wall Resources for the property, 23 Condon Place, Yallah. 2The background to the application is set out in my judgment of 24 February 2012 and the judgment of Schmidt J given on 13 July 2011. Nevertheless a brief chronology is necessary. 3The first loan was made on or about 25 September 2007 to Great Wall Resources in an amount of $500,000. Great Wall Resources was a company of which Francesco Capocchiano was the sole director, secretary and shareholder. It was a company he used as part of a business of land development. Similarly he was the sole director, secretary and shareholder of a company called Comserv No 1074 Pty Limited, which company was also used for the purposes of land purchase and development. 4On or about 29 April 2009 a further amount of $300,000 was borrowed by Great Wall Resources from the Plaintiff. On 13 March 2009 a mortgage was given over the Yallah property which secured the two loans. 5Great Wall Resources defaulted in payment on or about 1 December 2010. Notices pursuant to s 57(2)(b) of the Real Property Act 1900 and s 80 of the Consumer Credit Code were served in December 2010 but not complied with. 6On 7 December 2010 Great Wall Resources was wound up and David Young was appointed as liquidator. 7The present proceedings were commenced on 24 February 2011 and judgment was given for possession on 16 May 2011. 8On 6 July 2011 the Applicants sought a stay on the execution of the writ for a period of three months, "to allow the applicants to repay the balance of the loan owing to the plaintiff". 9On the application for a stay the Applicants tendered a letter dated 21 June 2011 from their solicitor to the Plaintiff's solicitor which said this, (inter alia): Our clients instruct that they have arranged for sufficient funds to discharge the IMB loan. The property is to be purchased in the name of Italia Capocchiano. We anticipate settlement to occur on 30 June 2011. Please arrange a discharge of mortgage to be prepared and provide us with a pay out figure as at 30 June 2011. 10There was also evidence before Schmidt J at the hearing of the Motion about the age and the health of the Applicants, which evidence was noted by Schmidt J in her judgment. 11Schmidt J also said this in her judgment: The affidavit also outlined steps which Mr and Mrs Capocchiano are pursuing in order to put themselves in the position where they can repay the loan. That includes the sale of a property to Shellharbour Council, albeit the affidavit does not make clear when that sale might transpire or that the amount of the sale will be sufficient to pay out the entirety of the loan. The affidavit also recounts that Mr and Mrs Capocchiano have made a claim against the defendant company of over $3 million and they anticipate in due course receiving a dividend from the liquidator in respect of the claim. 12Schmidt J ordered that the proceedings be stayed until 13 October 2011 "to allow Mr and Mrs Capocchiano the opportunity to pursue their intention to repay the balance of the loan outstanding to the plaintiff." When that stay expired no further action was taken but on 30 January 2012 a further stay was granted by consent until 29 February. 13With an eviction scheduled for 29 March 2012 the Applicants filed a further Motion on 20 February 2012 seeking an order for a further stay for a period of six months; "to allow the applicants to repay the balance of the loan owing to the plaintiff". 14The affidavit in support detailed the fact that the Applicants had lived in the property at 23 Condon Place since it was built, they had contributed their own funds to its construction and that they had paid the rates on the property since 2009. The affidavit also referred to moneys which were said to be due to the Applicants from Great Wall Resources totalling a little over $3 million. The affidavit asked for a stay of proceedings pending the completion of the liquidator's investigation and the distribution to the Applicants of the sums which they had claimed from the company. 15I was also told on that application about the continuing intention and negotiations to sell the other property at Croome Road to Shellharbour City Council. 16I determined that there should be a further stay for a three month period principally to enable the negotiations for Croome Road and the receipt funds from its sale. The Applicants have been paying interest payments due on the loan as and when they fell due. I made it a condition of the stay that they continued to make those payments. The stay was extended until 25 May 2012 and I listed the matter for mention on 18 May. 17On 19 April 2012 the Plaintiff filed a Notice of Motion returnable on 7 May seeking that the stay of the writ of possession granted on February be lifted. The basis for that Motion appears to have been that a process server had been to the Croome Road property on 29 February and had asked Mr Capocchiano if he lived there. Mr Capocchiano said, "We stay here and at Yallah but we spend most days here". That was taken by Mr Jones and subsequently the Plaintiff to be understood as indicating that the Applicants resided at the Croome Road property and were able to do so. That Motion was not proceeded with. 18When the matter was mentioned on 18 May 2012 Mr Klooster of counsel informed me that his clients wished to make a further application for a stay. The Plaintiff opposed the Capocchianos being given leave to make a further application. Mr Kerr, who appeared for the liquidator, confirmed what he had told me in February that the liquidation was unlikely to be completed before the conclusion of 2012 and perhaps a bit later and he indicated that he would oppose any further stay. I indicated at that time that as nothing much had changed since 24 February I did not like the Applicants' chances of succeeding. 19The matter was stood over until 25 May to enable such an application with supporting material to be filed and served. 20When the matter came before me on 25 May a Motion had been filed on 21 May. It sought a further stay for six months: To allow the applicants to complete Supreme Court proceedings 2012/1306488 [the proceedings brought by the liquidator against Comserv and Mr Capocchiano] and either: (a)repay the balance of the loan owed to the plaintiff by the defendant; or (b)purchase the land; or (c)make arrangements to vacate the land. 21Some of the material in support of the Notice of Motion was directed to the Croome Road property. The Applicants claim what they meant when Mr Capocchiano said they stayed at the Croome Road property was that they spent the day time hours there because animals were kept on the property and documents associated with this business and this case were kept there. 22The Applicants rely on a s 149 certificate to show that the land was not zoned in a way to allow them to reside on the Croome Road property. However, the certificate provides in Part 2 the following information: 2.2For what purposes may development be carried out within the zone without the need for development consent: 1(r1)rural landscape under Shellharbour LEP 2004 exempt development and developments for the purposes of the following may be carried out without development consent: ... Home businesses, home occupation identification signs. ... Draft Shellharbour LEP 2011/RU2, extensive agriculture, home based child care, home occupations. 23Moreover the fact that dwelling houses could be built on the land with development consent under draft Shellharbour LEP 2011/E3, as the Notice discloses, casts some doubt on the statement of Mr Capocchiano in his affidavit that he had applied for development consent numerous times but had always been unsuccessful. 24Although the Plaintiff submits that the s 149 certificate tends to show that the Applicants could have resided at Croome Road, it seems to me that the position is sufficiently uncertain that it cannot be determined that it is so available. However, for the purpose of this application it does not matter one way or the other. 25I will now consider the bases on which the stay is sought - first, to repay the loan owing to the Plaintiff by the Defendant. Mr Capocchiano has annexed to another affidavit an affidavit that he swore in the proceedings brought against him and Comserv by the liquidator. The use of such an affidavit was contrary to the provisions of UCPR 31.9 unless leave is given by the Court and the Plaintiff opposed it on that basis. The authorities suggest that leave ought not be granted in a case where the evidence sought to be relied upon has not been in proceedings between the same present parties where they are privy: Printing Telegraph and Construction Company of Agence Havas v Drucker [1894] 2 QB 801. 26Even if the evidence was to be admitted in the present proceedings it does not provide a justification for a further stay of execution of the judgment. The evidence consists of the Applicants' explanation for why they say they were entitled to receive a significant dividend out of the liquidation. Even if they were, that would not occur for a considerable period of time and all it would enable the Applicants to do is to tender the money to the Plaintiff, presumably on behalf of the company in liquidation, in order to discharge the mortgage. The fact remains, however, that the property then unmortgaged would still form part of the assets of the liquidation. It can never without some sale from the company in liquidation to the Applicants be the property of the Applicants. This was a matter I referred to in my judgment of 24 February. 27The highest the Applicants can put their case in this regard is that they believe they will be successful in receiving a substantial dividend out of the liquidation and if they put out the Plaintiff in respect of the mortgage, they hope they will be able to come to an arrangement with the liquidator whereby they will be entitled to the property. In circumstances where default occurred in December 2010, even though some moneys continue to be paid to the mortgagee, it would be not be appropriate to grant a stay for a further indefinite period likely to exceed seven or eight months based on nothing more than the hope of a successful negotiation. 28A letter was also tendered in relation to the Croome Road property negotiations with the Council. The letter was from the Applicants' local member who reported in the letter she had been liaising with an officer of the Council. The highest the letter goes in favour of the Applicants is the penultimate paragraph which reads: Council is currently reviewing its options in relation to this matter. A report will be prepared by Council's property manager which will be considered by the executive management group this month. I am of the understanding that Council will contact you again once this occurs. 29It must be reiterated that negotiations have been going on with the Council since February 2011 and have not reached any conclusion. There is no basis for granting a further stay based on this matter. The sale price would not in any event be sufficient of itself to repay the Plaintiff and there would still remain the difficulties mentioned earlier arising from the ownership of the mortgaged land. This basis is rejected. 30As to the second basis, the purchase of the land, this depends in the first instance on either, some or all of the obtaining of a dividend from the liquidation, the sale of Croome Road and the agreement of the liquidator to sell the land to the Applicants. If that occurs it will not occur until well into next year. It is entirely speculative. That basis rejected. 31As to the third basis, the making of arrangements to vacate the land, the first thing to note is that the Applicants have now had in excess of a year to make arrangements to vacate the land since judgment was given. It has become increasingly clear and ought to have been clear to the Applicants that there could not be an early resolution of the sort they hoped for. The liquidator has repeatedly said that liquidation would not be concluded for some time and the proceedings against Comserv and Mr Capocchiano bear that out. No agreement has been reached with the Council to sell it the Croome Road land despite negotiations for fifteen months. Quite frankly the Applicants have been unrealistic and appear to have put their heads in the sand. There can be no justification for a further stay of six months or, subject to one further mattter, of any more time at all to enable them to vacate the land. They have had ample opportunity to do so. 32The one further matter is that on 16 May Mr Capocchiano was admitted to Wollongong Hospital and underwent emergency tracheotomy as a result of breathing difficulties that he had. There was a letter from the ENT registrar, Dr Jefferson, which said this: This letter is to certify that Frank Capocchiano is currently an in-patient in Wollongong Hospital and has been since 16 May 2012. His current medical condition will require hospital admission for likely another week and he will remain medically unwell for likely a minimum of two months after. He has a tracheotomy tube and is unable to speak. 33Further medical information discloses that he has a subglottal tumour for which he has required steroids and tracheostomies. A PET scan shows signs consistent with renal cancer of the left kidney for which he is currently being reviewed by urology, as well as a retrosternal goitre. The suspected laryngeal carcinoma is said to demonstrate moderate metabolic activity but there is no evidence of metastatic disease. I am informed that a second opinion is being sought in relation to this tumour. 34No further information is available about how long it might be before Mr Capocchiano recovers but I think it is likely to be the case that this is ultimately a terminal illness and the only real question is when he will be a position to leave hospital or might be in any remission from any treatment that he receives. 35Both the Plaintiff and the liquidator oppose the granting of a further stay. The Plaintiff relied on the affidavit of William Johnstone, who is the Lending Services Manager, Collections and Quality Assurance of the Plaintiff. Mr Johnstone refers to what is required by the Australian Prudential Regulation Authority which regulates the Plaintiff as an authorised deposit taking institution. Mr Johnstone says when a loan defaults the standards produced by APRA requires a lender to make provision for loss and to report them to APRA. 36Any provisioning then affects the Plaintiff and it may not use capital in the amount of a provision to finance its activities. The affidavit discloses that provisions have been made in relation to both loans in an amount of $630,243. If a loan for which provision is made is repaid in whole or in part, the provision may be set aside or reduced in the amount of any repayment. The affidavit discloses that the ongoing provision made in respect of these loans is causing a prejudice in this regard to the Plaintiff. 37The other side of that must be that as appears to be the case here, although there is no clear evidence about the matter, where there is adequate equity in the property the Plaintiff will ultimately be benefited by receiving the principal on re-sale together with default interest. 38The Plaintiff complains about the length of time involved in the stays to date. It is desirous of the matter being concluded as soon as possible and is justified in so complaining. 39The liquidator opposes the stay principally because of the additional costs being incurred in the proceedings. The liquidator rightly points out that any costs incurred either by the Plaintiff or by the liquidator are all money that will reduce the dividend which will ultimately be paid to creditors out of the liquidation. The liquidator asks, therefore, that any further stay that is to be granted should only be granted on the basis the Applicants continued to make interest payments and also pay amounts in respect of the liquidator's costs incurred in the proceedings. 40The Plaintiff points to what was said by Johnson J in GE Personal Finance Pty Limited v Smith [2006] NSWSC 889 where he identifies the three usual circumstances advanced on a stay application. These are (a) where the proceedings are be defended; (b) where the loan is to be refinanced or; (c) where the property is to be sold. His Honour went on the to say at [22]: 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 above, then there could be no reasonable expectation of an extended stay on hardship grounds only. 41I respectfully agree with Johnson J but it is to be noted he says "ordinarily" and it could not be expected there would be "an extended stay" on hardship grounds only. 42It is clear that Mr Capocchiano is very ill and will remain seriously unwell for perhaps up to two months. There was a suggestion in Mr Klooster's submissions that he may have to undergo surgery for throat cancer but there has been no medical evidence of that so far. 43Bearing in mind Mr Capocchiano's health problems, it would an intolerable hardship if the Applicants were required to vacate the property in the immediate future,. There cannot be any doubt about the seriousness of those problems at least in the short term because a tracheostomy tube had to be inserted into his throat. The question is how ill he will remain and for how long. 44Because of the uncertainty surrounding his health, I consider that I should accept the evidence of Dr Jefferson that he will remain unwell for a two month period from 20 May 2012. Nevertheless, the Applicants will have to make arrangements in that time to move to other premises. It is clear they have the financial wherewithal to do so because they have continued to make repayments under the loan up until this time. If they take the view that they are unable to reside at the Croome Road premises, they will need to rent or obtain other premises. 45I want to stress it is only by reason of the hardship ground brought about by Mr Capocchiano's unexpected illness that I consider a stay should be granted. I consider that the Applicants have not faced up to the reality of the situation in which they have found themselves since December 2010. 46It is clear that negotiations to sell the Croome Road property have scarcely advanced since early 2011. It is also clear that the statement made in the letter of 21 June 2011, which was before Schmidt J, could not have been accurate since no funds were forthcoming as the letter said they would be. The Applicants are also not facing up to the fact that the Yallah property belongs to the company in liquidation and not to them. That was the result of the way that they wished to organise their affairs when the property was purchased in the name of one of their companies. Payment out of the Plaintiff, even if the funds were received from the liquidator or elsewhere, will not entitle them to continue to occupy the premises. 47In all of the circumstances I will stay execution of any writ of execution until 16 July 2012 on the condition that the Applicants make interest payments of $2,022.31 and $907.83 respectively on the loans when they are due and pay an amount of costs to the liquidator in the sum of $15,000. I was informed that the estimate of the liquidator's costs is between $10,000 and $15,000 and I have chosen the top of that range because, on one view, it might have been appropriate to order the Applicants to pay a reasonable sum towards the Plaintiff's costs to protect, in the same way, the equity in the property. However, I have not thought it appropriate to do that. 48Accordingly, I make the following order: Stay execution of any writ until 16 July 2012 on the condition that the Applicants make interest payments of $2,022.31 and $907.83 respectively on the loans when they are due and pay an amount of costs to the liquidator in the sum of $15,000 by 4.00 pm 27 June 2012.