Before me for hearing is an application by the plaintiff, Liv Style Group Pty Ltd, seeking orders for the judicial sale of a property in Rosebery (Property), and ancillary orders for possession.
The relief is sought against the second defendant, Mr Zihuan Qin, who is the registered proprietor of the Property. Mr Qin has not appeared at today's hearing or participated in the proceedings, a matter to which I will return.
The plaintiff relies on an affidavit of Mr Aaron Tippett, a director of the plaintiff, dated 8 September 2021, three affidavits of Ms Susan Owen, a paralegal employed by the plaintiff's solicitors, dated 16 March 2021, 3 June 2021 and 24 August 2021, and the exhibits to Mr Tippett and Ms Owen's affidavits. It also relies on written submissions.
[2]
Factual background
On or about 4 August 2019, the plaintiff entered into a loan agreement as lender with the first defendant, Eternity Fortune Group Pty Ltd, as borrower for the principal sum of $200,000. The loan was for a term of six months, with monthly interest payable, at the rate of 20% per annum, and was made to enable Mr Qin to settle his purchase on the Property.
It was a term of the loan agreement that security was to be provided by way of a registered second mortgage over the Property. A first registered mortgage had already been granted by the fourth defendant in these proceedings, the Bank of China (Australia) Ltd.
Liv Style Group Pty Ltd v Eternity Fortune Group Pty Ltd [2021] NSWSC 1398 | Case summary | Zoe
Mr Qin signed the loan agreement as a co-guarantor of the loan. The other co-guarantor was Mr Tung Tong, the third defendant.
Also on 4 August 2019, as security for his obligation as the guarantor, Mr Qin granted a second mortgage over the Property. The mortgage, which is in registerable form, is unregistered and the subject of a caveat lodged by the plaintiff in relation to the Property.
The unregistered mortgage granted by Mr Qin incorporates a registered mortgage memorandum, which relevantly includes the following terms:
1. the mortgage is granted as security for payment of the Secured Money, which is defined to include the principal amount of the loan: cll 1.1 and 2.1;
2. a failure by the Debtor (who is defined to include Mr Qin as the Mortgagor), to pay any of the Secured Money prior to the end of the term is an Event of Default: cll 1.1, 3.1(a) and 18.2(a);
3. in the event of an occurrence of an Event of Default, the plaintiff as Lender may, amongst other things, exercise any right as a mortgagee, take possession and eject occupants from the mortgaged property, sell, assign, transfer or dispose of the mortgaged property and pay to any other mortgagee the whole or any part of the amount owing to that mortgagee: subcll 18.3(b), (c), (d) and (h); and
4. the plaintiff is not obliged to notify the Debtor of an Event of Default: cl 18.4(c).
The memorandum of mortgage also includes the terms of the guarantee given by Mr Qin, which relevantly provide that he agrees to guarantee to and indemnify the plaintiff as to the payment of the Secured Money and the performance of the Debtor's obligations: cl 28.5.
The principal sum and interest under the loan were due to be repaid by 6 February 2020. No repayments were ever made. Letters demanding payment were emailed to Mr Qin, first via his conveyancer on 9 March 2020 and later to Mr Qin directly on 27 August 2020.
According to Mr Tippett's evidence, as at 2 September 2021, no payments of principal or interest had been made under the loan agreement and mortgage and the total sum owed to the plaintiff, not including recoverable expenses, was $302,339.31.
[3]
Procedural background
On 16 June 2020, the plaintiff commenced these proceedings seeking orders for judicial sale and for Mr Qin to deliver up vacant possession of the Property. Judgment was also sought against the third defendant, as co-guarantor of the loan in the amount of $228,275.17 and against Eternity Fortune and Mr Qin for the balance of the debt after the sale of the Property. The fourth defendant was included as a party having regard to its interest in the Property as the first registered mortgagee.
On 23 October 2020, the plaintiff filed an Amended Statement of Claim to include, amongst other things, orders that provided for consultation with the fourth defendant in relation to the proposed judicial sale. Pausing there, I note that the changes to the relief sought and included in the Amended Statement of Claim were made after communications between the plaintiff's solicitors and the fourth defendant's solicitors.
Subsequently, on 27 April 2021, the fourth defendant filed an appearance submitting to the making of orders sought today, save as to costs.
On 8 June 2021, the Court made orders dispensing with personal service on Mr Qin and providing for the steps required to serve him. I am satisfied that those steps have been undertaken, that the substituted service orders have been complied with and that Mr Qin is on notice of the claims made against him and the hearing today. The evidence indicates that Mr Qin has been in China since around March 2020 and unable to travel to Australia due to the COVID-19 travel restrictions. It also indicates that he has been on notice of the proceedings since mid-2021 and has more recently corresponded with the plaintiff's solicitors about the proceedings and in anticipation of today's hearing.
Mr Qin has not filed a notice of appearance or a defence despite being served and, as noted above, he has not appeared at the hearing today. I should record that, in addition to the plaintiff's solicitors notifying Mr Qin of the hearing, my Associate sent an email and calendar invite to the email address which Mr Qin appears to have been using to enable him to join the hearing today, which has been conducted on the Microsoft Teams platform. There has been no response from Mr Qin to my Associate's emails.
As to the other defendants, no relief is sought by the plaintiff against the first and third defendants. I also note that the latter has never been served.
As noted earlier, the fourth defendant has filed a submitting appearance and there is evidence that indicates that it has no objection to the orders sought. I should record that, at the hearing today, the plaintiff seeks orders that are in a slightly different form to, but in substance the same as, the relief sought in the Amended Statement of Claim. There is evidence that the fourth defendant does not object to the revised orders (Ex D).
[4]
Consideration and determination
The plaintiff submits, and I accept, that it is appropriate in the above circumstances for the Court to proceed to hear and determine the plaintiff's application for relief in the absence of Mr Qin and the other defendants.
As to the substance of the application, I accept the plaintiff's submission that it is appropriate in this case for the Court to exercise its discretion and make orders for judicial sale of the Property in the terms sought.
The unregistered mortgage granted by Mr Qin in favour of the plaintiff takes effect as an equitable charge over the Property. The authorities recognise that the Court's power to grant an order for judicial sale arises from its inherent equitable jurisdiction, is a standard remedy of an equitable chargee seeking to enforce its interests in real property, and is not a remedy of last resort: Thorn (as executrix of the Estate of the late McAuley) v Boyd [2016] NSWSC 1344 at [64], cited in Morris Finance Ltd v Free [2017] NSWSC 1417 (Morris Finance) at [33]-[34] and Abdallah v Baygan [2019] NSWSC 1507 at [16].
The evidence identifies that there has been a default under the loan agreement and mortgage and the terms of the orders for judicial sale take into account the interests of the fourth defendant as the first registered mortgagee. There is also evidence that, as at 7 September 2021, the Property was valued at $1,375,000, which exceeds the amount outstanding to the plaintiff, and the plaintiff does not press a claim for monetary judgment against any of the defendants.
The plaintiff drew my attention to emails sent by Mr Qin as recently as 22 October 2021 stating that he will pay part of the amount owing under the loan agreement and mortgage as soon as possible, with the principal sum and interest possibly paid by 30 December 2021. In his emails, Mr Qin apologises for the inconvenience caused and asserts that the funds in his Australian bank account have been frozen.
I do not consider that Mr Qin's offer to pay the outstanding amount warrants a refusal to grant the relief sought by the plaintiff. This is in the circumstances where there is no apparent dispute that he is in default, the amount outstanding is increasing due to interest and costs associated with these proceedings, representations by Mr Qin to the effect that he would try to find a way to repay what is due since as early as March 2020 have gone unfulfilled, and it is not clear why the lack of access to funds in an Australian account means that Mr Qin has been unable to pay the amount due. It is also relevant that Mr Qin has chosen not to participate in these proceedings and, as I will come to, the orders that I will make should provide him with an opportunity to repay what is owing prior to the likely time of any judicial sale and execution of the writ of possession.
By way of ancillary orders, the plaintiff seeks an order that Mr Qin deliver up vacant possession of the Property and an oral application has been made and granted for the plaintiff to have leave to amend the Amended Statement of Claim to include a new prayer for relief granting leave to issue forthwith a writ of possession, with such writ to be stayed for a period not exceeding 14 days. I am satisfied that such an order should be made in this case, although I do not consider that 14 days is an appropriate period of time.
An order for possession is a necessary ancillary order to the primary order for judicial sale: Boutros v Nationwide Capital Pty Limited [2013] NSWCA 246 at [43]-[44], [47]; Morris Finance at [124]. Further, and as noted above, the mortgage includes as a right and power to be exercised by the plaintiff on default the right to take possession of the Property and to sell it.
As to the time by which vacant possession should be given and when a writ of possession should be able to be executed on, there is evidence to suggest that the Property may be occupied by a third party, although the plaintiff does not know who they might be nor is it in a position to identify under what arrangement with Mr Qin any person may be doing so. I accept the plaintiff's submission that the interests of any person who is in occupation could be protected, in part, by requiring a copy of the orders made today to be left at the Property within a short period of time of the orders being made. However, I was concerned that requiring vacant possession to be given in just over two weeks and for the execution of the writ to be stayed until 26 November 2021, as sought in the plaintiff's proposed orders, was insufficient in this case. When I raised this issue with plaintiff's Senior Counsel, he did not oppose a longer period of time and submitted that sometime in December would be acceptable to the plaintiff.
Recognising the need to balance the interests of the plaintiff and any potential third party occupants, as well as Mr Qin who has made an offer to repay, I consider that the orders for vacant possession of the Property and the writ not to be executed should provide for the date of 10 December 2021. Those extra weeks should go some way to ameliorating any hardship on a third party by providing a reasonable period of time for them to consider and act on their options, including, if necessary, taking steps to approach the Court in advance of any writ becoming enforceable, and provide Mr Qin with a window of time to pay what is owing.
Also relevant to the exercise of the Court's discretion is an asserted interest in the Property by Mr Steven Nicols, the liquidator of the previous registered proprietor of the Property, Anteros Developments Pty Ltd, as described in a caveat lodged by Mr Nicols subsequent to the lodgment of the plaintiff's caveat. There is evidence that the plaintiff has been in contact with Mr Nicols regarding the plaintiff's interest in the Property and an opportunity was given to him to identify whether he wished to be joined as a party to these proceedings. There is no evidence that he wished to be joined, that he asserted that his interest took priority to that claimed by the plaintiff, or to suggest that the relief sought by the plaintiff would prejudice his interest as a subsequent caveator.
In any event, the orders proposed by the plaintiff provide for the payment into court of any sale proceeds remaining after the payment of costs and expenses relating to the sale and in satisfaction of what is owed to the fourth defendant and the plaintiff as the respective first registered and second unregistered mortgagees. In my view, that order, together with a direction that these orders be served on Mr Nicols, will go some way to protecting his asserted interest in the Property, assuming any protection is necessary.
For these reasons, I make the following orders:
1. Pursuant to the Court's inherent jurisdiction, the land identified as Lot X in Strata Plan XXXXX and located at XX Dunning Avenue, Rosebery in the State of New South Wales (the Property) be sold by the Plaintiff subject to the supervision of the Court.
2. By way of order ancillary to order 1, the Second Defendant deliver up vacant possession of the Property to the Plaintiff on or before 10 December 2021.
3. Leave is granted to the Plaintiff to issue forthwith a Writ of Possession, such writ not to be executed earlier than 10 December 2021.
4. The Plaintiff shall conduct the sale by public auction or, if not sold at auction, by private sale, and pay the proceeds of sale in the following order:
5. first, for all the proper costs and expenses relating to the sale of the Property;
6. second, as to any remaining proceeds of sale after payment in accordance with order 4(a), the whole of the amount due to the Fourth Defendant pursuant to registered mortgage AP445803;
7. third, as to any remaining proceeds of sale after payment in accordance with order 4(b), the whole of the amount due to the Plaintiff in discharge of its interest in the Property, including payment of the Secured Money, interest, costs and expenses under the Plaintiff's unregistered Mortgage, including the costs and expenses of, and incidental to, these proceedings, and the costs and expenses of, and incidental to, the enforcement of the Plaintiff's unregistered mortgage;
8. fourth, as to any remaining proceeds, to be paid into Court.
9. Prior to offering the Property for sale or entering into a contract of sale for the Property, the Plaintiff shall consult with the Fourth Defendant and ascertain from the Fourth Defendant the amount necessary to pay out the registered mortgage AP445803, which shall include a reasonable allowance for further interest and costs that shall accrue under that mortgage up to the anticipated date of completion of the sale.
10. For the purposes of the consultation with the Fourth Defendant pursuant to order 5, the Fourth Defendant is to disclose to the Plaintiff, upon the Plaintiff's request, the amount required to pay out registered mortgage AP445803.
11. Unless the Court orders otherwise, the Plaintiff shall not offer the Property for sale or enter into a contract for the sale of the Property for a price that is less than the amount advised to the Plaintiff by the Fourth Defendant pursuant to orders 5 and 6 together with all of the costs and expenses relating to the sale of the Property to be paid in accordance with order 4(a) (Minimum Price).
12. In the event that the Minimum Price is an amount that the Plaintiff reasonably believes is unlikely to be realised or exceeded on the sale of the Property, the Plaintiff shall not proceed to sell the Property but shall instead apply to relist these proceedings for the purpose of obtaining further directions as to the minimum reserve price for any auction and minimum sale price for any sale by auction or private treaty, and shall notify the Fourth Defendant of the relisting.
13. The Plaintiff shall act at all times in relation to the selling of the Property in accordance with the duties owed by a mortgagee in exercising a mortgagee's power of sale.
14. Subject to orders 7 and 8, prior to offering the Property for sale, the Plaintiff shall consult with and obtain advice from a real estate agent or valuer before seeking to fix a reserve sale price of the Property.
15. The Plaintiff is appointed to transfer the Property to the purchaser(s) thereof to effect the sale and the Plaintiff is granted the power to transfer the Property and all the interests of the Second Defendant in the Property to the purchaser(s), subject only to the registered mortgage of the Fourth Defendant.
16. The plaintiff shall deliver a sealed copy of these orders to the Property within 7 days of these orders having been entered.
17. The plaintiff to serve a sealed copy of these orders on the second defendant by email at , the fourth defendant and on the liquidator for Anteros Pty Ltd, Mr Steven Nicols by email to his lawyers, CLH Lawyers, within 24 hours of these orders being entered.
18. List the proceeding before the Equity Registrar at 9.30 am on 14 December 2021.
19. There be no order as to costs without prejudice to the plaintiff to seek its costs of these proceedings pursuant to the terms of the guarantee and mortgage granted Mr Qin.
20. Liberty to apply on 2 days' notice.
[5]
Amendments
01 November 2021 - Date of hearing and decision corrected.
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Decision last updated: 01 November 2021