Karamihos v Bendigo and Adelaide Bank Ltd

JUDGMENT 1The present applicants, Mr and Mrs Karamihos, moved the court at 8am on 8 July 2014 for an order staying execution of a writ of possession in respect of their home that the Sheriff was due to execute later that morning. Their notice of motion had been filed on 7 July 2014. I reserved my decision on the application and granted a stay until delivery of judgment. 2Leave to issue the writ of possession was granted by this Court on 25 March 2014 in consequence of its judgment of 14 February 2014 reversing a decision of a judge of the Equity Division that a loan contract between the present respondent, Bendigo and Adelaide Bank Ltd, as lender and the applicants as borrowers was "unjust" for the purposes of the Contracts Review Act 1980 (NSW). The decision of this Court was, in substance, that the loan contract had effect in unmodified form and could be enforced according to its terms. 3The applicants filed in the High Court of Australia an application for special leave to appeal. The stay sought on 8 July 2014 in respect of the writ of possession is a stay pending determination of that application for special leave to appeal. 4The grounds on which special leave is sought are set out in an amended application dated 10 June 2014. The application identifies three respects in which this Court is said to have erred, namely: (a) in holding that it was unnecessary to decide whether the National Credit Code in Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) applied to the case rather than or in addition to the Contracts Review Act when there were material differences between the two pieces of legislation; (b) in substituting and giving effect to its own view, that the contract was not unjust under the Contracts Review Act without also considering whether the decision of the primary judge disclosed a specific error in approach or was unreasonable or plainly unjust so as to entitle to an intermediate court of appeal to interfere with the primary judge's exercise of discretion in that respect; and (c) in reversing the conclusion of the primary judge to the effect that the conduct of the respondent bank in failing to make reasonable inquiries to establish that its loan could be repaid without hardship was unjust in the circumstances and against the public interest. 5Following the decision of this Court in Rinehart v Welker [2012] NSWCA 1; 83 NSWLR 347, the approach to be taken upon an application such as the present is that stated in the judgment of Brennan J in Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd [1986] HCA 84; 161 CLR 681. Brennan J said (at 684): "A stay to preserve the subject matter of litigation pending an application for special leave to appeal is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted. If an order for a stay is made, the respondent is kept out of the benefit of the order of the court in which the matter is pending until the hearing of the application for special leave to appeal." 6He later said (at 685): "In exercising the extraordinary jurisdiction to stay, the following factors are material to the exercise of this Court's discretion. In each case when the Court is satisfied that a stay is required to preserve the subject-matter of the litigation, it is relevant to consider: first, whether there is a substantial prospect that special leave to appeal will be granted; secondly, whether the applicant has failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies." 7In the present context, of course, the second of the questions referred to by Brennan J in the latter passage does not arise and it is necessary to address only the first, third and fourth. 8As to the preliminary question whether "exceptional circumstances" exist in this case, counsel for the applicants pointed to one matter only, namely, that the property the subject of the writ of possession is (and has been for a considerable time) their home. It should be explained that the relevant loan contract was entered into for essentially commercial or investment purposes and that, while the loan proceeds were employed in the acquisition of real property, it was the pre-existing family home, not the property acquired, that was mortgaged as security for the repayment of the loan. 9Counsel for the applicants referred to "the importance of the family house" as recognised in Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41; 14 BPR 26,639. But the relevant parts of the discussion in that case did not refer to questions of security enforcement. Importance was attached to the family home for a different purpose and in a different context. 10It was submitted on behalf of the respondent that the fact that the relevant property is a family home cannot be said to represent "exceptional circumstances" in the sense to which Brennan J referred. Counsel submitted that, in the ordinary course of proceedings in the Possession List of the Common Law Division, the fact that a particular property is a family home does not militate against the levying of execution in circumstances where that action is otherwise warranted. That submission should be accepted. It is sufficient to refer to the recent decision of Adamson J in National Australia Bank Ltd v Savage (No 2) [2013] NSWSC 1927 where her Honour held that the inconvenience of having to move from one's family home is not sufficient reason to warrant the grant of a stay of a writ of possession. Her Honour said at [11] - [12]: "In the instant case the predicament in which Mrs Savage finds herself is the result of financial imprudence by her husband, who has been declared bankrupt. One can sympathise with anyone who is required to leave their home of many years, particularly one in which they have brought up their children and to which they are attached in an emotional and practical sense. Nonetheless, the bank is entitled to judgment for possession for the reasons I have given in the judgment I handed down in this case, National Australia Bank Limited v Savage [2013] NSWSC 1718. I am not satisfied that it would be appropriate to grant a stay of these orders on the ground of hardship. It will be inconvenient whatever time Mrs Savage has to move her family and the matters in her draft affidavit do not persuade me that I should grant a stay of the writ of possession, since they would appear to me the usual difficulties which would be suffered by anyone in her position. Furthermore, given the indication that the writ will not be executed in any event until mid January I do not see any reason to grant the stay sought by Mrs Savage." 11The position may be different where some special factor relevant to the occupation of the family home is at work. Thus, for example, in Trust Company (Australia) Ltd v Galloway [2013] NSWSC 1571, Campbell J was persuaded to grant a short stay where execution of a writ of possession in respect of a family home would have caused hardship to the defendant's daughter whose Higher School Certificate examinations were imminent. No such factor affecting an innocent third party is identified in the present case. 12In summary, the threshold requirement identified by Brennan J for the exercise of the extraordinary jurisdiction to preserve the status quo pending an application for special leave is not satisfied in this case. I proceed nevertheless to consider the other matters relevant to the application. 13Having regard to the criteria identified by Brennan J in the second of the two passages set out above, it is necessary to decide whether there is a "substantial prospect" that special leave to appeal will be granted by the High Court. That question must be approached by reference to the grounds stated in the amended application for special leave to which I have already referred, and having regard to s 35A of the Judiciary Act 1903 (Cth) which states that the High Court may have regard to any matter that it considers relevant but is compelled to have regard to two particulars matters: first, whether the proceedings involve a question of law that is of public importance (either because of its general application or otherwise) or in respect of which a decision of the High Court is required to settle the state of the law; and, second, whether the interests of the administration of justice either generally or in the particular case require consideration by the High Court of the decision to which the application for special leave relates. 14This Court held that the Contracts Review Act was the applicable legislation and found it unnecessary to decide whether the National Credit Code also applied. This was because, on the view the Court took, there is no material difference between the two legislative regimes, as relevant to the particular case. The first of the grounds in support of the special leave application is that that view is incorrect and that an important difference comes from the circumstance that the Act allows a court to intervene if it "finds" a contract or a provision of a contract to be unjust while, under the Code, the court can intervene only if it is "satisfied" that a credit contract is unjust. The applicants say that, under the Act, the jurisdiction is founded on a finding of fact (that is, that the contract or provision is unjust) but under the Code the process by which the court becomes satisfied that a loan contract is (or is not) unjust is a discretionary process. The distinction is said to be of particular importance when it comes to determining the correct approach on appeal. 15These propositions are highly problematic. Under each piece of legislation, the task of a plaintiff seeking exercise of the statutory jurisdiction is to prove to the satisfaction of the court on the balance of probabilities the issues of fact essential to the case sought to be made. On the basis of the facts thus proved, the court will, in the way the legislation prescribes, make an evaluation against the statutory "unjust" criterion. The fact that one enactment enables the court to intervene if it "finds" that the contract is unjust while the other permits intervention if the court "is satisfied" that the contract is unjust does not mean that there is some material difference between the two statutory processes. 16The second ground on which special leave is sought assumes that the correct appellate approach is that indicated by House v The King [1936] HCA 40; 55 CLR 499. I proceed on that assumption without pausing to test it. This Court identified a central issue of fact on which the primary judge's assessment of the "unjust" quality of the loan contract depended, namely, the value of the commercial property in 2007. The Court concluded that the judge's finding on value was not supported by any evidence. The case was therefore, in terms of the House v The King formulation, one in which the judge "mistakes the facts". This ground is therefore also highly problematic. The third ground on which special leave is sought stands in the same light as the second. 17The matters in dispute were essentially factual matters. Despite the contention that some point of principle is raised concerning the relationship between the two pieces of legislation, what the High Court is asked to entertain is that factual dispute. The prospects of its deciding to do so must be regarded as remote. There is, in terms of Brennan J's formulation, no "substantial prospect". 18The respondent emphasises one additional point relevant to prospects of success in the special leave application, namely, the finding of the Court that the relief granted by the primary judge was not available because it conferred a windfall on the applicants. The matter is dealt with at [69] of the Court of Appeal judgment. No challenge to the finding of windfall is foreshadowed. There is considerable substance in the submission of the respondent that special leave is most unlikely to be given if success on appeal would restore such a windfall. The conclusion as to absence of "substantial prospect" is therefore reinforced. 19As to the question of whether a stay will occasion loss to the respondent, there are competing views about the current state of the applicants' indebtedness in light of this Court's decision. As I have said, the applicants say that they owe something of the order of $1.4 million while the respondent says that the correct figure exceeds $1.9 million (to be precise, $1,968,663.02, as at 17 October 2014 - a date apparently representing the estimated date of the hearing of the special leave application). I am in no position to come to any concluded view on which of these contentions is correct. I would, however, observe that the schedule provided by counsel for the respondent appears plausible. 20Each party has made attempts to establish the price at which a sale of the security property might be made. The respondent has tendered without objection a "kerbside appraisal" by a real estate agent indicating "a realistic selling price ... in the vicinity of $1,900,000 - $2,000,000". The applicants have tendered without objection another estate agent's "marketing program" indicating "an appropriate selling price ... in the vicinity of $2,200,000 - $2,300,000". It is made clear, however, that this is "the appropriate asking price if offering the property for sale". 21It may be inferred that a sale will yield gross proceeds (before commission and expenses) of $1.9 million, but it is not possible to say with any degree of confidence that any higher sum will be realised. That being so, the possibility of loss to the respondent through delay must be taken to be real. In the overall context, it makes no real difference that the applicants' daughter has offered to make available a sum of $55,000 (roughly five and a half months' interest) if a stay is granted. 22On the question of balance of convenience, the applicants point again to prejudice in the form of eviction from their home of many years' standing. Two points are made in response. First the risk of dispossession is one that is always consciously assumed when borrowers make their home available as security for business or investment loans. Second, the applicants' daughter says in her affidavit that she and other family members "are prepared to and have taken steps to arrange to purchase my parents' home if it must be sold with the intention of ensuring that they can live there for as long as they are able to do so". Resolution of prejudice to the applicants in the form of dislodgment from their home thus appears to be in hand. 23From the perspective of the respondent, prejudice in the form of real risk of financial loss through delay is relevant to the balance of convenience. 24If there were otherwise grounds for a stay, the balance of convenience would be against the grant of any stay. 25I make the following orders and notation: