Court of Appeal (Qld)|2012-05-23|Before: Muir JA, Fraser JA

Kellas-Sharpe & Ors v PSAL Limited [2012] QCA 135 (23 May 2012)

FRASER JA: On 16 April 2012, I refused an application by the appellants for a stay of orders made in the Trial Division on 8 March 2012 that the respondent may enter into possession of and recover land mortgaged to it if, as occurred, the appellants failed to pay the respondent $1,366,330.95 on or before 4 pm, 28 March 2012. On 4 May 2012, the appellants filed a further application for a stay of the same order.

In the appeal, the appellants seek to challenge the trial judge's decision that a clause in the loan agreement and guarantee between the appellants and respondent was not void as a penalty. The clause provides for a "standard rate of 7.50 per cent per month" and that "whilst the borrower is not in default under the facility the lender will accept interest at the concessional rate of 4.00 per cent per month".

On the last occasion, my decision to refuse a stay was based, in part, upon the following conclusions:

(a) The best that could be said about the appellants' prospects of successfully challenging that provision was that the appeal was arguable in the High Court and perhaps also in the Court of Appeal.

(b) As to the disadvantage to the appellants of not ordering a stay, the respondent would exercise its powers as mortgagee in order to sell all of the land owned by the appellants, including a farm which has been in the first appellant's family's hands for generations, the appellants probably would become insolvent. And there was a prospect that it would become impracticable for the appeal to be pursued.

(i) On the figures produced by the appellants, the only equity available to the respondent to recover its debt was $250,000 as equity in Lot 2, 396 Lake Cooroibah Road, over which the respondent has a mortgage. A stay would erode the respondent's likely recovery by the amount of its own interest expense of 25 per cent per annum compounding annually applied to the estimated shortfall of $250,000.

(ii) The appellants' evidence suggested that there might be equity also in 545 Ainsworth Road, Leeville, over which the respondent has an equitable mortgage. According to a schedule produced by the first appellant, its value was $1,550,000 and a first mortgage to a bank secured debt of $1,300,000. However, a subsequent affidavit sworn by the first appellant deposed that $700,000 was secured over the same property to Mr Mulhern, a family accountant and friend. The evidence left it unclear whether there was in fact further equity in that property which stood as security for the respondent's debt.

(iii) The appellants' net equity positions might be eroded by the accrual of further interest owing to mortgagees having priority to the respondent and otherwise by the passage of time until determination of the appeal.

(iv) The appellants could not offer any security to protect the respondent against the erosion of the amount it would have been able to recover if the stay were granted.

In Mango Boulevard Pty Ltd v Spencer [2010] QCA 207 at [17], Muir JA referred to the observation in Chanel Ltd v F W Woolworth & Co Ltd [1981] 1 WLR 485 at pages 492 to 493, that, "even in interlocutory matters a party cannot fight over again a battle which has been fought unless there has been some significant change of circumstances, or the party has become aware of facts which it could not reasonably have known or found out in time for the first encounter."

The justification for making this additional application for a stay is said to be that certain facts did not exist when the first application was made or that the factual basis for the findings I made has "vanished in the interim". I will discuss each of the new suggested facts.

The first is that the respondent accepted the $17,000 sale proceeds of the first appellant's motor vehicle in reduction of the debt. However, the same amount was allowed for that car in the schedule in the first appellant's affidavit filed at the original hearing. The new evidence on this point is not significant.

Secondly, the appellants referred to evidence which they argue demonstrates that the amounts of the debts secured by equitable mortgages over the Leville properties, which included 545 Ainsworth Road, far exceeds its value. This evidence could have been adduced at the first hearing.

Thirdly, they refer to a debt owing to a company called "Spinnaker" secured upon another property, 260 Ainsworth Road. They submit that they have now been able to exhibit evidence showing that the secured debt is $327,000. This evidence also should have been available to the appellants at the time of the first hearing.

Fourthly, the appellants argue that since the last hearing, Lot 2, Lake Cooroibah Road has become the subject of a contract of sale for the sale price of $250,000, with settlement now due on 25 May 2012.

A copy of this contract is exhibited to the first appellant's affidavit sworn on 3 May 2012. The contract is dated 12 April 2012, four days before the date of the last hearing. It bears the first appellant's signature on behalf of the seller. Unless there is evidence to the contrary, I would infer that the contract was executed by both parties on that date.

In the affidavit of the first appellant filed on 22 May 2012, she swore that: "I received a copy of that contract, executed by the purchaser, on Tuesday, 17 April 2012...".

The first appellant did not mention the date upon which she signed the contract on behalf of the seller. Assuming, without deciding, that she had not signed the contract when, on 17 April 2012, she received the copy of the contract executed by the purchaser, she nevertheless did not swear that she was unaware at the time of the hearing before me on 16 April that the purchaser had executed the contract. Her affidavit wears the appearance of having been drafted with some care. I am not prepared to assume that the appellants did not appreciate on 16 April that a purchaser had made a written offer to buy the land for $250,000.

Furthermore, the appellants did not obtain the respondent's consent to the contract as mortgagee, so that the respondent retains the right to refuse to release the mortgage in exchange for the net proceeds of sale. The respondent has a valuation of the land that it is worth between $250,000 and $350,000. The evidence that the respondent's real estate agent told a Mr McCallum, on 18 May, that the respondent would not proceed with a scheduled auction if the agent did not get an offer that day of $260,000, is not evidence that the respondent is prepared to accept $250,000 or $260,000. Nor is the first appellant's evidence that the offer of $250,000 came after a year long advertising campaign a good reason for denying to the respondent the decision whether to accept the contract or wait for a better offer, perhaps in anticipation of an improvement in the market.

In any event, in these circumstances, I do not regard the appellants' receipt of a copy of the executed contract as such a significant change of circumstances as justifies revisiting my earlier decision.

The first appellant hopes that, if the appeal succeeds, she will be able to raise sufficient money to refinance her loans and save the family property. As I observed on the last occasion, however, even if the appeal succeeds, there must be a real prospect that she will be unable to do so. The evidence on that point has not improved.

On the other hand, the respondent wishes to exercise its security rights to attempt to recoup some of the outstanding debt. Although the appellants contend that it would not advantage the respondent to do so because there is no equity in any of the properties, the evidence on that topic essentially emanates only from the first appellant. The respondent has not been able to obtain independent verification of the debts alleged by the first appellant.

As I held on 16 April, if the appeal succeeds, the respondent would still be entitled to recover as interest at least the cost of its funds for the principal it had advanced to the appellants. On that basis, the debt to the respondent on 16 April was in the order of $580,000. Further interest has no doubt accrued since then. The anticipated sale proceeds of about $250,000 from the Cooroibah land and the proceeds of $17,000 from the sale of the car would still leave more than $300,000 owing today, even on the footing that the appellants' contention in their appeal is correct.

Again, as I said on the earlier occasion, prima facie, the respondent is entitled to exercise its security rights, and to pursue the appellants despite their contentions about the interest rate provision in their appeal.

FRASER JA: I order the appellants pay the respondent's costs of the application on the ordinary basis.

Kellas-Sharpe & Ors v PSAL Limited [2012] QCA 135

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Judgment (28 paragraphs)

Kellas-Sharpe & Ors v PSAL Limited [2012] QCA 135 (23 May 2012)

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