Integrated Securities No 3 Pty Ltd v Oceans 5 Ultimate Getaways Pty Ltd

Judgment

1. A loan agreement was entered into between the plaintiff and a company called Oceans 5 Ultimate Getaways Pty Ltd on 6 August 2018. Under that loan agreement Oceans 5 borrowed the sum of $575,147.51 from the plaintiff.
2. A number of other parties were guarantors of the obligations of Oceans 5. Amongst those was the second defendant in these proceedings, Walid Chami. Part of the guarantee given by the second defendant was a mortgage over property owned by him at 205 Rochford Street, Erskineville in the State of New South Wales.
3. The loan was repayable on 31 October 2018. On that day there was a failure by Oceans 5 to repay the loan. Subsequently a notice under s 57(2)(b) of the Real Property Act 1900 (NSW) was served on 22 March 2019, and that notice was not complied with.
4. The proceedings commenced on 4 June 2019 seeking judgment for the sum owing, and for possession of two parcels of land, one of which is the second defendant's, given by way of security for the loan. Default judgment has been obtained against the first, third and fourth defendants, and the plaintiff now seeks summary judgment against the second defendant.
5. A defence was filed by the second defendant on 3 March 2020 and that defence was amended on 17 March 2020. The defence principally denies the allegations in the statement of claim, and otherwise asserts that other persons, and particularly the fourth defendant, misled the second defendant into agreeing to become a guarantor and provide a mortgage over the property. In addition, and by reason of that alleged behaviour, the second defendant pleaded that the contract was unjust within the meaning of s 7 of the Contracts Review Act 1980 (NSW).
6. The second defendant became bankrupt on 28 July 2020. Section 58 of the Bankruptcy Act 1966 (Cth) relevantly provides: (1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after‑acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; … (3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor: (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or (b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding. … (5) Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security.
7. By reason of the second defendant becoming bankrupt, he has no further interest in the proceedings brought against him for possession of the property and has no standing to be heard in defence of the plaintiff's claim: National Australia Bank Limited v Strik [2009] NSWSC 184 at [9]; see also Scott v Wondal [2015] NSWSC 1577 at [4], and Hanshaw v National Australia Bank [2012] NSWCA 100.
8. The evidence discloses that the plaintiff and the trustee of the second defendant's bankrupt estate reached an agreement in relation to the proceedings, and the seeking of possession by the plaintiff of the second defendant's land. The trustee, whilst not consenting to possession being granted of the land, says that he will not oppose the orders being made if the Court otherwise considers that they ought to be made.
9. The evidence satisfies me that the second defendant entered into a mortgage with the plaintiff in respect of his land in Rochford Street, Erskineville. I am satisfied from the affidavit of David James Cacciola of 26 February 2021 that the amount due under the mortgage is unpaid. Under cl 18.2 of the Memorandum of Conditions of the mortgage, an event of default includes one where a debtor fails to pay any secured monies in accordance with the mortgage. In those circumstances, cl 18.3 gives to the lender the right to take possession of the land, to eject any occupants from the land, and to sell or otherwise dispose of the property.
10. The plaintiff is an unregistered second mortgagee of the land in Rochford Street, Erskineville. I was initially concerned that, by reason of the orders that the plaintiff needs to seek to obtain possession in those circumstances, that the plaintiff might have been precluded by s 58 of the Bankruptcy Act 1966 (Cth) from being able to obtain possession.
11. The plaintiff seeks first a declaration that the second defendant has in equity mortgaged the property in Rochford Street to the plaintiff; secondly, an order that the agreement between the plaintiff and the second defendant be specifically performed; and thirdly seeks an order for judicial sale of the property. The decision of Mango Media Pty Ltd v Velingos [2008] NSWSC 202 on its face stood in the way of the declaration being made because of the terms of s 58(3) of the Bankruptcy Act. In that case Barrett J held that the seeking of such a declaration was not within s 58(5), because in seeking a declaration the plaintiff was not exercising a right "to realise or otherwise deal with [its] security".
12. In that case, all that was sought was a declaration that there was a security interest in the land, and an order extending a caveat to protect that interest. The position is different here. I am satisfied that the plaintiff establishes it has a mortgage over the second defendant's property without the need to resort to a determination of whether the mortgage comes into existence by virtue of the debt owed by Oceans 5 and guaranteed by the second defendant. In the present case, the mortgage came into existence, not because the loan was made, but by a contractual arrangement between the parties.
13. The plaintiff is in no different position from that of a registered mortgagee except for the fact that it is not registered. Indeed, in Harden Shire Council v Richardson [2012] NSWSC 622 at [191], Johnson J considered that an unregistered mortgagee had the rights under s 60 of the Real Property Act. See also Butt's Land Law, 7th Edition, 2017, Thomson Reuters Australia at [11.800], but cf. King Investment Solutions v Hussain (2005) 64 NSWLR 441; [2005] NSWSC 1076. On that basis, no declaration would be necessary as a preliminary to an order for possession being made. It was presumably sought here because of what was said in King Investment
14. Moreover, the second defendant admits that the loan agreement and mortgage were made, but says only that they are unenforceable by reason of the misleading conduct and the Contracts Review Act.
15. I am also satisfied that what was said by White J in Savieri v Brown [2008] NSWSC 1210 at [31] strengthens my view that the plaintiff in the present case is not precluded by the provisions of s 58(3) of the Bankruptcy Act from obtaining possession of the land as a secured creditor.
16. In the circumstances where the second defendant has been made bankrupt, albeit after a defence was filed, I am satisfied that the plaintiff is entitled to summary judgment for possession of the land.
17. For those reasons summary judgment should be given.
18. I make the following orders: An order pursuant to rule 13.1 of the Uniform Civil Procedure Rules 2005 that there be summary judgment for the Plaintiff against the Second Defendant as follows: a. A declaration that the Second Defendant has in equity mortgaged the property situated at and known as 205 Rochford Street. Erskineville in the State of New South Wales 2043 being the whole of the land described in Certificate of Title Folio Identifier 7/SP75928 (205 Rochford Street) and charged the property with the repayment of all monies owing to the Plaintiff under the Agreement entered into between the Plaintiff and the First, Second, Third and Fourth Defendants on or around 9 August 2018; b. An order that the agreement between the Plaintiff and the First, Second, Third and Fourth Defendants be specifically performed by the Second Defendant; c. An order for judicial sale of 205 Rochford Street, with the Plaintiff to be appointed as the Court's agent for effecting that sale; d. An order that the Second Defendant provide vacant possession of 205 Rochford Street to the Plaintiff by 5 May 2021; e. Leave to issue a writ of possession such writ not to be executed before 6 May 2021; f. An order that the Plaintiff shall, with respect to the sale of 205 Rochford Street, act in the following fashion: i. The Plaintiff shall consult with the Fifth Defendant with respect to the sale of 205 Rochford Street and request from the Fifth Defendant the amount owing to the Fifth Defendant and secured against 205 Rochford Street (the Fifth Defendant's Mortgage Debt); ii. Unless the court otherwise orders, the Plaintiff shall not sell 205 Rochford Street at less than the Fifth Defendant's Mortgage Debt; and iii. In the event that the Fifth Defendant does not provide to the Plaintiff the Fifth Defendant's Mortgage Debt within 7 days of request, or if the Fifth Defendant's Mortgage Debt is a figure that the Plaintiff reasonably believes is unlikely to be realised or exceeded on a sale of 205 Rochford Street, the Plaintiff shall not proceed to sell 205 Rochford Street but shall instead cause the matter to be relisted before the Court for the purpose of the Court making directions as to a minimum reserve price for any auction and minimum sale price for any sale by private treaty. g. An order that the Plaintiff pay the proceeds of the sale of 205 Rochford Street in the following order; i. First, for all the Plaintiffs proper costs and expenses relating to the sale of 205 Rochford Street; ii. Secondly, any amount due to the Fifth Defendant pursuant to registered mortgage AC843765; iii. Thirdly, the whole of the amount due to the Plaintiff secured by the Plaintiffs equitable mortgage; iv. Fourthly, any surplus to be paid to the Second Defendant's Trustee in Bankruptcy. h. An order that the Plaintiff act in relation to the sale of 205 Rochford Street in the manner of a mortgagee exercising power of sale over that property, with the duties of such a mortgagee; j. An order that the Plaintiff be empowered to transfer the legal title of 205 Rochford Street to any purchaser(s) of 205 Rochford Street; k. Liberty to the parties, and to any other person claiming an interest in 205 Rochford Street, to apply with respect to any matters that may arise with respect to the sale of 205 Rochford Street and the distribution of the proceeds.

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