National Australia Bank Limited v Leon Nikolaidis & Ors

Supreme Court of NSW|2011-05-26|Before: McCallum J, Mr J

Judgment 1The application before the court raises a difficult question as to the scope of the obligation of a mortgagee seeking an order for possession of land to give notice of his claim to an occupier of the land whom he has not joined as a defendant to the proceedings. 2The proceedings were commenced by statement of claim filed by National Australia Bank Limited on 18 May 2011. The only relief sought is judgment for possession of five properties. Each of the defendants is a registered proprietor of one or more of those properties. Two of the properties consist of residential units occupied by persons who are not defendants to the proceedings. There are thirteen residential tenancies referable to those properties. A third property is leased to a corporate tenant under a commercial lease. The commercial lessee is also not a defendant to the proceedings. The remaining two properties are the homes of the three individual defendants. 3The bank seeks vacant possession of all of the properties. As to the tenanted properties, it is a requirement of rule 6.8 of the Uniform Civil Procedure Rules 2005 that the bank serve the originating process on each "occupier" (within the meaning of that rule) who is not a defendant to the proceedings, together with a notice to the occupier in accordance with rule 6.8(1)(b). 4On 19 May 2011 (the day after the proceedings were commenced), the defendants wrote to the bank seeking its agreement not to serve such notices on the relevant occupiers. I will return to the detail of that correspondence in due course. In short, the basis for the request was that service of the notices at this stage was unnecessary and would cause financial damage and other stresses to the defendants. 5The bank, not unreasonably, took the view that it was legally obliged under the rules to serve the notices in the absence of an order of the court dispensing with that requirement. The bank communicated its intention to make arrangements for that to occur after 5.00 pm on 25 May 2011 and invited the defendants to approach the court before that time. The present application was filed that day and heard by me as Duty Judge on an urgent basis on 26 May 2011. The bank agreed not to serve notices as foreshadowed until the determination of the application. 6The relief sought by the defendants (in their amended notice of motion filed in court on 26 May 2011) includes an order staying the bank's claim pending the determination of a cross-claim brought by the defendants or until further order. In addition, the defendants seek orders suspending, dispensing with or staying the requirement on the bank to serve notices on the occupiers under rule 6.8(1)(b) and restraining the bank from serving such notices. 7On 27 May 2011, I determined that the application should be granted in part. I requested the parties to prepare short minutes reflecting the orders I proposed. These are my reasons for making those orders. 8The principal issues raised by the application are: (a)whether rule 6.8 requires that any notice to occupier be given at the time the proceedings are commenced; (b)if so, whether the court has power to suspend, dispense with or stay that requirement; (c)if so, whether it is appropriate to do so in the present case.

Purpose of requiring notice to be given to the occupier 9Before turning to those issues, it is appropriate to consider the purpose of rule 6.8. The rule provides: 6.8(1) If when proceedings for possession of land are commenced, a person (the occupier) not joined as a defendant is in occupation of the whole or any part of the land, the plaintiff: (a) must state in the originating process that the plaintiff does not seek to disturb the occupier's occupation of the land, or (b) must serve the originating process on the occupier together with a notice to the effect that: (i) the occupier may apply to the court for an order that the occupier be added as a defendant, and (ii) if the occupier does not so apply within 10 days after service, the occupier may be evicted under a judgment entered in the occupier's absence. (2) For the purposes of subrule (1), documents may be served on the occupier personally or by leaving the documents on the land concerned addressed to the occupier by name or addressed simply "to the occupier". (3) If originating process is amended by the addition of a claim for possession of land, the time at which proceedings for possession of that land are commenced is taken, for the purposes of subrule (1), to be the time at which the amendment is made. 10The annotations to the rule in Ritchie's Uniform Civil Procedure NSW at [6.8.10] state: The purpose of this rule is to prevent collusive actions for possession of land, by providing an occupier with an opportunity to assert any rights they may have. 11The authority cited for that proposition is Yeshiva Properties No 1 Pty Limited v Lubavitch Mazal Pty Limited (No 2) [2003] NSWSC 752. The judgment of Gzell J in that case in fact makes no reference to "collusive actions", but there is ample authority that collusion between the mortgagor and the mortgagee to deprive an occupier of the opportunity to defend his right to possession is one of the vices sought to be guarded against by the rule. Clearly, however, that is but one instance of the protection intended, which extends to any case in which the mortgagee seeks to disturb the possession of an occupier not joined as a defendant. 12Accordingly, it would perhaps be more accurate to say that the purpose of the rule is to protect occupiers by affording them an opportunity to uphold any rights they may have against the plaintiff mortgagee. In ANZ Banking Group v Wright (NSWSC, unreported, 3 July 1997) Giles CJ Comm D (as his Honour then was) said: The provisions of the Rules to which I have referred are referred (sic) are protective of the occupier of land of which a plaintiff claims possession from a defendant. The occupier may have rights good against the plaintiff which the defendant is not concerned to uphold, and if the plaintiff seeks to disturb his occupation is given the opportunity to assert his rights. A case such as Minet v Johnson (1890) 63 LT (NS) 507 illustrates the mischief addressed: although the note to Pt7 r8 in Ritchies' Supreme Court Procedure states that the purpose of the rule is "to prevent collusive ejectment actions", the occupier is protected even in the absence of collusion between the plaintiff and the defendant. 13Equally, it is clear from the decision in Minet v Johnson referred to by his Honour that the mere existence of a claim by an occupier to uphold such rights as he may have against the plaintiff does not place the occupier in the shoes of the mortgagor. In that case, judgment for possession had been entered by default against Johnson, whom the plaintiff believed to be the person in possession of the property. In execution of a writ of possession, the Sheriff ejected the applicant, Hartley. Hartley applied to have the writ of summons and all subsequent proceedings in the action set aside for irregularity and sought an order that the plaintiff restore possession of the house to him. 14The Queen's Bench Division made orders setting aside the default judgment and ordering the plaintiff to go out of possession, but declined to restore possession to Hartley, instead making orders calculated to afford him an opportunity to seek to be added as a defendant to the proceedings. Hartley appealed to the Court of Appeal, complaining that he had a right to be restored to exactly the same position he was in before the Sheriff ejected him. The court dismissed the appeal. Lord Esher MR said: If [Hartley] had taken his point before judgment had been signed, he would have been treated as though he were a defendant in the action; if he has done so after judgment has gone by default, without his knowing anything of the former proceedings, he must then also be allowed to defend. But the judgment must not be set aside as between the plaintiff and Johnson; it can only be set aside so far as it concerns him. 15In the present case, it is safe to conclude that there is no collusion between the mortgagors and the mortgagee. On the contrary, the mortgagors hotly oppose the plaintiff's claim and, to that extent, the position of the present occupiers is protected. However, for the reasons explained by Giles CJ Comm D in Wright , the court must be astute not to deprive the occupiers of their separate and independent entitlement to be heard at an appropriate time. Even in the absence of a risk of collusive ejectment, it cannot be assumed that the rights and interests of the mortgagors and those of their occupiers are the same. 16Separately, as noted by Giles CJ in Wright , in addition to protecting occupiers, rule 6.8 is also intended to provide some protection to the plaintiff, "enabling him to meet any adverse claims of occupiers in a timely and cost-effective manner".

When is the notice to occupier required to be served? 17It was submitted on behalf of the defendants that the only temporal prescription of rule 6.8 is that it identifies the persons required to be served by reference to their occupation at the time the proceedings are commenced. Mr Svehla submitted that, properly construed, the rule makes no prescription as to when any such notice must be served. 18Although I accept that the rule does not, in terms, specify that notice must be given at the time of commencement of the proceedings, in my view that is the plain intention of the rule. As already explained, the purpose of the rule is to provide protection to a class of persons whose interests might otherwise be adversely affected without their knowledge. Much of the benefit of that protection would be lost if the timing of service of the notice were at the whim of the mortgagee (or, indeed, the mortgagor). Accordingly, in my view, the bank was correct to take the view that ordinarily and in the absence of orders of the kind sought in the present application, a notice to occupier is required to be served within a relatively short time after the commencement of proceedings. 19Separately, whether or not that is what the rule requires, it certainly appears to be the course that is contemplated and it is doubtful whether a plaintiff should lightly be restrained from adopting that course. As already noted, one of the objects of rule 6.8 is to enable the plaintiff to meet any adverse claims of occupiers in a timely and cost-effective manner. To that end, the rule does not require personal service on each "occupier". Service may be effected by leaving the relevant documents "on the land", addressed simply "to the occupier": rule 6.8(2). 20Those considerations lead me to conclude that, ordinarily, a plaintiff is both entitled and required to give notice to any relevant occupier at around the time of commencement of the proceedings for possession. 21That is not to say, however, that the failure to do so is fatal to a claim for an order for possession in terms authorising the ejectment of any occupier of the land who is not a defendant. So much is illustrated by the decision in Minet v Johnson , which stands as authority for the proposition that an order for possession obtained without notice to an occupier will stand as against the defendant, the occupier's remedy in that instance being confined to his being let in as a defendant to the proceedings to vindicate such separate rights as he may have against the plaintiff.

Does the court have power to suspend, dispense with or stay with the requirement? 22In my view, however, neither common sense nor authority dictates that the requirement of rule 6.8(1)(b) should be unbending. 23It is trite to observe that the court has power under section 14 of the Civil Procedure Act 2005 to dispense with any requirement of rules of court if satisfied that it is appropriate to do so in the circumstances of the case. In ANZ v Wright , Giles CJ Comm D expressed the view, in circumstances very similar to the present case, that notwithstanding that power (then contained in part 1 rule 12 of the rules), it would not be appropriate to make an order dispensing with the requirement under the predecessor to rule 6.8 because to do so would deprive an occupier of the intended protection. However, I do not understand his Honour to have determined that the court does not have power to suspend or even dispense with the requirement in an appropriate case, or that the power to dispense with a requirement of the rules should never be exercised in the case of the rules requiring the service of notices to occupiers. 24So far as I have ascertained in the limited time available, the date on which proceedings for possession are commenced does not appear to have any juridical significance so far as the competing rights of the plaintiff and any occupier are concerned. The entitlement under section 60 of the Real Property Act of a mortgagee, chargee or covenant chargee to bring proceedings for possession arises "upon default" in payment of a sum secured by the relevant security. It is accordingly the time of the default rather than the time when proceedings for possession are commenced that is significant. 25Plainly, there is good sense in requiring the notice to be served when the proceedings are commenced, since that is the point from which the risk of eviction under a judgment entered in the occupier's absence begins to run. However, the giving or otherwise of notice at that time will not affect the title to possession of either party or be determinative as to the entitlement to possession of one party over another. 26The decision in Yeshiva Properties (No 2) provides an example of the kind of circumstance in which the court might see fit to dispense with the requirements of the rule altogether. In that case, Gzell J allowed a plaintiff to proceed to execution of a writ of possession even though occupiers who had never been served with the originating process would thereby be ejected. 27The circumstances of the case were that judgment for possession had been given after a contested hearing before Young CJ in Eq (as his Honour then was): Yeshiva Properties No 1 Pty Limited v Lubavitch Mazal Pty Limited [2003] NSWSC 615. A writ of possession was then issued. A number of occupiers subsequently brought a separate proceeding to have the writ stayed on the grounds that the originating process in the earlier proceedings had not been served on them. The three occupiers who brought the application were companies which had officers in common with the company against which the original order for possession was made. Gzell J held that: ...the commonality of directors between the plaintiffs in the proceedings before Young CJ in Eq and the applicants before me meant that the applicants were well aware of the proceedings and, if they had wished to assert rights stemming from their occupancy they had the opportunity to be joined in those proceedings. 28In those circumstances, his Honour dispensed with compliance with the requirement that the relevant notices be served upon the commencement of the original proceedings for possession. 29Other examples can be brought to mind of circumstances in which it might be appropriate to suspend the requirement for a finite period, such as where a statement of claim had been filed but, for good reason (such as the pursuit of productive settlement negotiations), not yet served on the defendant. 30It follows, in my view, that the court may properly suspend and even dispense with the requirement in an appropriate case. In determining whether to do so, of course, the court will have mandatory regard to its obligation under section 56(2) of the Civil Procedure Act to seek to give effect to the overriding purpose and its obligation under section 58 of the Act to seek to act in accordance with the dictates of justice. Further, as with any discretionary power, the power must be exercised judicially and with due regard to the objects of rule 6.8 explained by Giles CJ Comm D in Wright both of protecting the interests of occupiers and of enabling the plaintiff to meet any adverse claims they may bring in a timely and cost-effective manner. Is it appropriate to suspend or dispense with the requirement in the present case? 31I should begin by explaining something of the circumstances in which the proceedings were commenced. The proceedings arise indirectly out of a joint venture agreement between Mr Leon Nikolaidis and Mr Michael Sanchez. The object of the venture appears to have been to acquire land at Camden for the purpose of rezoning and redevelopment as a large retail commercial regional shopping centre. A company, Camden Retail Pty Limited, was established to acquire the land. In 2008, Camden Retail entered into a facility of $7.5 million with the bank for 12 months which was subsequently rolled over for a further period of 12 months. The present claim arises from guarantees and indemnities provided to the bank in relation to that facility. 32In October 2010, the bank appointed receivers and managers to Camden Retail and to the real property it had acquired. That property has not been sold. According to the evidence relied upon by the defendants on the present application, taking into account the value of the real property owned by Camden Retail and the value of the five properties of which possession is now sought, the bank has ample security for the defendants' liabilities, the properties in question being valued in the range of $15.85 million to $16.45 million. 33The basis for the present application is twofold. First, it is said that the service of notices to occupiers is not necessary at this stage. The defendants propose to file a statement of cross-claim seeking relief that, as it was put in argument, seeks to undo all of the bases upon which the bank seeks to enforce its right of possession. In order to bring that matter before the court on the present application, Mr Svehla sought leave to file in court a cross-summons (whilst acknowledging the requirement of rule 9.1(2) to plead that claim in due course). The relief sought in the cross-summons is framed so as to render all of the relevant security instruments relied upon by the bank unenforceable. 34The basis of the proposed cross-claim is set out in the letter to the bank dated 19 May 2011 to which I have already referred. It is not necessary to record the detail of the claim at this stage. In summary, Mr Nikolaidis contends that, to the knowledge of the bank, he and Mr Sanchez were each to procure half of the third-party security for the Camden development; each equally to procure any additional funds required by Camden Retail to proceed with the venture; each equally to bear the losses and profits of the venture and each equally to satisfy the bank that he was able to discharge or cause to be discharged half of the serviceability of the facility. 35Mr Nikolaidis further alleges that the defendants are all longstanding customers of the bank who own substantial assets and have never been in default of any facility. In those circumstances, it is alleged that, to the knowledge of the bank, the financial viability of the Sanchez side of the joint venture was critical to the defendants as guarantors and indemnifiers and the major third-party security providers for the facility. It is further alleged that, to the knowledge of the bank, Mr Sanchez and the entities associated with him who were involved in the joint venture did not have sufficient financial means to satisfy any obligation they may have as guarantor and indemnifier of the Camden facility. 36Mr Svehla submitted that the proposed cross-claim, going to the root of the title sought to be asserted by the bank, did not raise any issue concerning any rights of occupiers against the bank. He submitted that the issues raised by the cross-claim were entirely discrete and that they could and should be determined separately from any question raised by any occupier. 37The second basis for the application was, in short, that it would injure the commercial interests of the defendants if the notices were served now. In the case of the commercial property, the evidence established to my satisfaction at least a risk that the service of notice on that tenant may jeopardise negotiations presently underway for a new lease and may even result in the loss of that tenant. The evidence relating to the residential tenants similarly fixed on the risk of tenants leaving after receiving notices and referred also to the likely stress and worry that might be occasioned, unnecessarily, to residents who have been in occupation of the units in some instances for more than 20 years. 38I do not think those contentions establish any basis for granting a stay of the bank's claim. As submitted by Mr Hynes on behalf of the bank, it was open to the defendants to bring forward their proposed cross-claim at an earlier point in time. Whilst it may in due course appear that separate determination of the cross-claim is appropriate, I see no reason in the meantime to stay the proceedings properly commenced by the bank. Some of the evidence relied upon by the defendants was evidently directed to establishing that the commencement of proceedings for possession in the circumstances outlined above was high-handed on the bank's part. Even if that were so (as to which I make no comment), it would not follow that the proceedings should be stayed. The relief sought by the defendants can be achieved by orders of less drastic effect. 39Further, for the reasons given by Giles CJ Comm D in Wright , I do not think it is appropriate to restrain the bank from serving notices to occupiers. His Honour asked rhetorically in that case what "equity" the Wrights would have to restrain service. In my view, any relief granted in the present application should go no further than to suspend or defer the relevant requirements of rule 6.8. 40I am satisfied, however, that it is appropriate to suspend or defer that requirement at least until the defendants have filed their statement of cross-claim and a defence to the bank's claim. The bank should then have an opportunity to consider the appropriateness of having the cross-claim determined first (effectively as a separate question in the proceedings) or at least determined before the determination of any claims by occupiers. It is not appropriate to pre-judge those issues before a defence has been filed and the cross-claim pleaded. Nonetheless, I am satisfied that the prospect that such a course will commend itself is sufficiently strong as to warrant suspending the requirement to serve the relevant notices until that issue can be considered and determined. 41An issue raised at the hearing of the defendant's application was the fact that, if the bank does not serve the notices to occupiers now, it will be unable in the future to prove service upon those persons who were in occupation of the land when the proceedings were commenced. To address that concern, the defendants proposed that they would provide the bank with affidavit evidence identifying who is presently in occupation of the various premises, and later evidence (if the cross-claim is unsuccessful) identifying the persons in occupation of the premises at that time. 42A difficulty with that proposal is that it would impose a higher burden on the plaintiff. Whereas, at present, the plaintiff can satisfy the requirements of rule 6.8 by leaving the notices on the land, upon receiving such affidavits the bank would arguably fall under an obligation to serve a notice on each occupier personally. In that respect, the bank complained that the proposed evidence may not disclose the correct identity of the present occupiers; that other occupiers may come into occupation of the premises between now and the time of the conclusion of the proceedings; and that the bank cannot reasonably be expected to go to the extent of locating and serving occupiers identified in the affidavit as those presently in occupation. 43There is force in those complaints. Accordingly, I do not think it is appropriate to direct the defendants to serve the affidavit evidence foreshadowed. A more sensible and appropriate course, in my view, is to mould the relief granted so as to require the bank only to serve notice on those persons in occupation of the land at the time the requirement to service the notices is enlivened. For the reasons already explained, I do not think that approach does any injury to the protection of occupiers discussed in the decision in Wright. Arguably, the greater risk is that if notices are served on those persons presently in occupation and then a substantial period of time passes before the cross-claim is determined, the application of rule 6.8 will have failed to protect those persons most in need of protection, being those in occupation of the land at the time when the risk of eviction is real and present. Accordingly I am satisfied that it is appropriate, in accordance with the dictates of justice, to suspend or defer the plaintiff's obligation to give notice in accordance with rule 6.8 on the understanding that the court will in due course, if the occasion arises, direct the plaintiff to serve the originating process upon and give notice in the terms of rule 6.8(1)(b) to any person not joined as a defendant who is then in occupation of the whole or any part of the land. 44I do not mean to suggest that the requirement to serve notices to occupiers in accordance with rule 6.8 should be suspended in every case in which a cross-claim is brought in proceedings for possession. The dictates of justice will vary according to the circumstances of the case. In the present case, I have had regard to the fact that, so far as the evidence discloses, the bank holds ample security for the debt claimed and the defendants are not suggested to be recalcitrant debtors in the sense that they have defaulted in the regular payment of amounts due. The principal contest between the parties appears to be a discrete and arguably anterior issue as to whether the security held by the bank is enforceable. Further, as noted on behalf of the defendants, in the event that their proposal occasions extra costs to the bank, those costs will ultimately be borne by the defendants under the relevant securities (the cross-claim, on that assumption, having failed). 45However, since a significant consideration in the conclusion I have reached is the likelihood that the cross-claim does properly raise discrete issues for the court's determination, I consider it appropriate in the first instance to limit the period of the order until the defendants have filed their defences and statement of cross-claim and the parties have had an opportunity to address the court as to the appropriate course of the proceedings from that point. 46In written submissions filed with leave after the hearing of the application, the parties drew my attention to the separate requirement on the plaintiff to comply with section 124(2)(b) of the Residential Tenancies Act 2010. That section provides: (1) This section applies if proceedings for the recovery of possession of residential premises are commenced before a court or the Tribunal (whether under this Act or otherwise) by a person (the "plaintiff") who is not the landlord or former landlord under the agreement. (2) The court or Tribunal must not give judgment or make an order for possession, unless it is satisfied: (a) as to whether or not there is a person in possession of the residential premises as a tenant under a residential tenancy agreement or a former tenant holding over after termination of a residential tenancy agreement, and (b) that any such person has had reasonable notice of the proceedings brought by the plaintiff. (3) Failure to comply with this section does not invalidate or otherwise affect the judgment or order. 47Mr Svehla submitted that the section is concerned with the position of persons in occupation as a "tenant", not at the time of the commencement of the plaintiff's proceedings but at a relevant period before the plaintiff's possession claim is heard and determined. 48Without having heard full argument on that issue, I am reluctant to express a concluded view as to the content of that requirement. There may be force in the defendants' suggestion that the section does not impose a more onerous obligation on them than the requirements of the rules. In the event that any additional orders are sought in respect of that separate obligation on the plaintiff, a separate application should be made so that the matter can be fully argued. 49The orders will be in accordance with the short minutes prepared by the parties.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 June 2011

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