On 7 June 2017 I dismissed an application by the Second Defendant for a stay of execution on a writ of possession. These are my reasons for so doing.
The proceedings commenced on 26 May 2016. The Plaintiff sought possession of a property at 22 Derriwong Road, Dural. That property is owned by the First and Second Defendants. The First Defendant is the son of the Second Defendant. The property was originally purchased in the name of Action Motor Group Holdings Pty Ltd in 1998. The Defendants were the directors and shareholders of that company. In March 2006 the property was purchased by the Defendants from the company but although the purchase price recorded on the transfer was $2.4 million no money was paid by the Defendants to the company. The property was purchased as tenants in common in equal shares.
In September 2007 the Defendants mortgaged the property to Westpac Banking Corporation. The mortgage secured a loan from Westpac of $2.1 million which was paid to the company.
In May 2011 the First Defendant changed banks from Westpac to National Australia Bank. New facilities were organised and the loan from NAB of 19 May 2011 was partly used to pay out the Westpac mortgage. The Defendants mortgaged the property to NAB on 27 May 2011. They also gave a guarantee for the facility which appears to have been borrowed by the company.
On 25 September 2014 the company was wound up. That was an event of default under the facility.
Demands were made on the Second Defendant on 21 November 2014, 5 December 2014, 13 January 2015 and 31 July 2015. The demand on 5 December 2014 was a s 57(2)(b) notice. None of those demands was complied with.
The Bank and its solicitors wrote again to the Second Defendant on 18 September 2015 and 5 April 2016 referring to the various demands and to the failure of the Second Defendant to respond to any of those demands. The letter of 5 April 2016 was said to be a final opportunity for the Second Defendant to contact the Bank before proceedings were issued. There was no response to that letter.
On 26 May 2016 the Statement of Claim was filed. It was served on the Second Defendant on 10 June 2016. On 8 July 2016 the solicitor for the Bank had a telephone conversation with a lawyer at Tomaras Lawyers who appears to have been approached by both Defendants. The conversation was confirmed in an email sent by that lawyer to the Bank's solicitor the same day. The email said that the firm was in the process of receiving instructions from the Defendants but the firm did not have sufficient instructions "to officially act" for them at that time or to advise them on any defence. An extension to 22 July 2016 was requested to allow sufficient time for the Defendants to respond to the Statement of Claim and file a defence. It seems that such an extension was granted.
On 27 July the Bank's solicitor wrote to Tomaras Lawyers saying that they had not heard from them and had not been served with any defence. The email went on to say that the Bank intended to file for default judgment against the Second Defendant. That led to an email from Tomaras Lawyers saying that they had received instructions and would file a Notice of Appearance the following day. They said that they had difficulty because the Second Defendant was an elderly man who resided on the Gold Coast. He was coming to see them the following week when they would obtain instructions and/or file a defence. They requested the holding of a motion for default judgment until the Friday of the following week.
Nothing further was heard from Tomaras Lawyers. The Bank waited until after Friday, 5 August before filing for default judgment. That judgment was obtained against the Second Defendant on 17 August 2016.
Default judgment was obtained against the First Defendant on 28 September 2016.
In his affidavit the Second Defendant says that he was informed by Tomaras Lawyers on or about 17 August that NAB had obtained a default judgment against him. He had a conversation with his son, the First Defendant, during which the First Defendant said words to the effect:
I will take care of the default judgment and apply to have it set aside.
It should be noted that the First Defendant had been bankrupted on 18 June 2015.
The Bank did not apply for a writ of possession until 24 March 2017.
No evidence was given by the Second Defendant of any steps that he took or any enquiries that he made of his son or otherwise from August 2016 until March 2017. The Second Defendant said that he became aware in March 2017 that nothing had been done to set aside the judgment because his son said to him:
It looks as though Tomaras has done nothing to help.
Despite having received two demands including a s 57(2)(b) notice in November and December 2014 the Defendants entered into a 12 month residential tenancy agreement of the property on 12 December 2014. On the same day they entered into a contract to sell the property to a company called MacPherson Property Holdings Pty Ltd for $2.4 million. It does not appear that it was intended between the Defendants and the purchaser that the contract would complete in the ordinary course. The Second Defendant attached only the first page of the contract for sale to his affidavit and alongside the words "completion date" was written "refer special conditions". Those special conditions were not in evidence.
Special conditions to the residential tenancy agreement appeared to allow for the settlement to be postponed, perhaps, for some years because the purchase price was to be increased by $200,000 for every anniversary year less the cost of works and improvements undertaken on the property by the lessees. It is not clear why such special conditions were to be found in the residential tenancy agreement.
I mention those matters to put into context two earlier applications for a stay of execution of the writ.
The first such application was made by one Achilles Constantinidis who claimed to be a tenant in the property although not the tenant named in the residential tenancy agreement entered into on 12 December 2014. Justice Johnson, before whom that application came, stayed the writ up to and including 30 May 2017: National Australia Bank Limited v Hunwick and Anor [2017] NSWSC 570.
On 30 May 2017 a second application was made, this time by MacPherson Property Holdings Pty Ltd, the purchaser under the contract for sale. The basis for this stay was an assertion by the purchaser that it had an equitable claim based on proprietary estoppel or something similar giving rise to the potential for a judicial sale. The claim was put on the basis of moneys which had been expended by the purchaser on the property to the knowledge of the Plaintiff.
The application was rejected principally on the basis of the paucity of evidence put forward to support it. However, Johnson J said also that if the purchaser had a cause of action it could bring one separately: National Australia Bank Limited v Hunwick and Anor (No. 2) [2017] NSWSC 682.
In his affidavit on the present application the Second Defendant says that he was aware that the purchasers had applied to have the orders for possession stayed but that the application was rejected by the Court on 30 May 2017. He said that he swore an affidavit for the purchasers on 29 May 2017. He did not read that affidavit nor exhibit it on the present application. However, it was exhibited to the affidavit of the Bank's solicitor Ms Challis.
The significant thing about that affidavit is that, apart from mentioning that the Second Defendant signed the lease and the contract for sale to which I have referred, it contained nothing else that dealt with the application for a stay by the purchaser. Rather, the affidavit fairly closely mirrored the affidavit the Second Defendant put forward on the present application. That is to say, it dealt only with his position. Ms Challis says in her affidavit that this affidavit of the Second Defendant was never served on the Bank. The Bank only received it when she requested a copy of it on 6 June 2017 after she saw the reference to it in the Second Defendant's affidavit on the present application.
The Second Defendant does not reside in the premises. He seeks to have the writ stayed to enable him to apply to set aside the default judgment and to defend the claim made by the Bank. Significantly, in that regard, he says in his affidavit at para 64:
As soon as I became aware that the application to stay made by the purchasers was rejected I took steps to file and serve a notice of motion to set aside the default judgment. I have now appointed Simmons & McCartney Lawyers to represent me in this application.
Tomaras Lawyers continued to remain as the solicitors on the record until a Notice of Change of Solicitor was filed by Simmons & McCartney on 4 June 2017.
[3]
Determination
When I dismissed the Second Defendant's application I indicated that there were three reasons for my doing so. Those reasons were:
(1) The failure to explain the delay in making the application;
(2) The judgment against the First Defendant; and
(3) The discharge of the Westpac mortgage by reason of the NAB loan.
[4]
(1) Delay
In Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 the joint judgment said:
[103] The fact that an explanation had been offered for the delay in raising the defence was regarded as a relevant consideration in J L Holdings. Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. There can be no doubt that an explanation was required in this case.
Rule 21 of the Court Procedure Rules (ACT) 2006 is the equivalent of s 56 of the Civil Procedure Act 2005 (NSW).
The joint judgment also said at [95] that the notion that considerations of delay and costs could never be as important as the raising of an arguable case was incorrect. The joint judgment also stressed that the significant matter was that a party had a sufficient opportunity to plead their case - see at [94], [102] and [112].
Finally, the High Court stressed at [55] and [58] that the starting point for a particular application must be the rules governing such applications. In this Court that includes ss 56 and 58 of the Civil Procedure Act. Section 58(1)(a)(ii) provides that in deciding whether to make any order (inter alia) for a stay of the proceedings the Court must seek to act in accordance with the dictates of justice. Sub-section (2) says that in determining what are the dictates of justice in a particular case the Court must have regard to ss 56 and 57 and to the matters set out in sub-s (2)(b). Three of those matters are these:
(ii) the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities,
…
(iv) the degree to which the respective parties have fulfilled their duties under section 56 (3),
(v) the use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings,
The delay of the Second Defendant in making this application is explained only by his assertion that the First Defendant told him in August 2016 that he would take care of the default judgment and apply to have it set aside. There is thereafter no evidence of what enquiries the Second Defendant made of his son or, for that matter, of Mr Tomaras who was still the solicitor on the record for him. There is, in fact, no evidence that he ever instructed Mr Tomaras to file a defence to the claim arising out of the conference that Tomaras Lawyers told the Bank that they were having with the Second Defendant in early August 2016.
There is then no explanation for why the Second Defendant did nothing when he actually became aware in March 2017 that nothing had been done to set aside the judgment. To the extent that it can be inferred from paragraphs 62 to 64 of the Second Defendant's affidavit that he was waiting to see the outcome of the application for a stay by the purchasers, two comments can be made. First, no explanation is provided for the delay between March 2017 and when the Second Defendant swore the affidavit on 29 May 2017 that, in any event, had nothing to do with the purchasers' application. Secondly, if the real desire of the Second Defendant was to have the default judgment set aside and to defend the Bank's proceedings, the application by the purchaser for a stay would not have achieved that.
Finally, the matters now put forward by the Second Defendant in his affidavit of 6 June 2017 were all known to him at the time he swore the affidavit of 29 May 2017. There is no explanation why he did not at least join in the application of the purchaser or make a separate application at that time.
A consideration of the matters set out in s 58(2) all tell against the Second Defendant. He has been given ample opportunity from November 2014 until the Bank signed default judgment in August 2016 to take some action if he wished to defend the claim being made by the Bank. All of the Bank's efforts were met by silence until solicitors commenced to act for the Second Defendant in July 2016. Despite those solicitors being given two extensions by the Bank nothing was done to file a defence.
The Second Defendant does not given evidence that he instructed Tomaras Lawyers to file a defence to the claim nor as to what defence he had. Whilst I have read the defence he proposes now to file if the default judgment is set aside, I have no evidence that he gave those instructions to Tomaras Lawyers in July/August 2016.
To permit the Second Defendant now to stay the writ of possession and attempt to set aside the default judgment would be clearly inconsistent with ss 56 and 58 of the Civil Procedure Act.
[5]
(2) Judgment against the First Defendant
Counsel for the Bank submitted that even if the Second Defendant was successful in his Motion to set aside the default judgment the Bank still had an undisturbed order for possession in its favour made in respect of the First Defendant. That judgment was not challenged with the result that the Bank is entitled to possession of the property. Further, the Bank would be able to exercise its contractual power of sale.
That submission is undoubtedly correct and I accept it. Any rights that the Second Defendant has, assuming the allegations he makes in the proposed defence and cross-claim are correct, would lie in damages against either the Bank or the First Defendant, subject to the First Defendant's having become a bankrupt.
[6]
(3) Part of the funds loaned by the NAB went to pay out Westpac and resulted in Westpac discharging its mortgage over the property
Under the principle enunciated in Collier v Morlend Finance Corp (1989) 6 BPR 97,462; [1989] ANZConvR 515 the Second Defendant would be required to offer that part of the NAB loan that went to pay out the Westpac mortgage as a condition of having the judgment set aside. No such offer was made by the Second Defendant. Senior Counsel for the Second Defendant suggested faintly that the Second Defendant may wish to impugn the Westpac loan for similar reasons put forward to challenge the NAB loan. A successful challenge to the prior mortgage may overcome the Collier v Morlend Finance principle: Bank of Western Australia Ltd v Tannous [2010] NSWSC 1319.
However, in the present case there was no evidence at all to suggest that the Westpac loan and mortgage was able to be impugned. The reason suggested for that lack of evidence, as with the lack of evidence in relation to delay and other matters, was said to be because of the shortness of time available to explore those matters before the present application was made. It was submitted also that what was being sought was interim relief for a very short period of time, and that further evidence may well be available when the application to set aside the judgment was heard.
On the face of the evidence before me shortness of time cannot explain the problem. Almost all of the information contained in the present affidavit was to be found in the affidavit sworn by the Second Defendant on 29 May 2017. This was not the case of a defendant being confronted with an eviction a day or two before the sheriff was due to arrive.
In the face of the extreme delays and failures to take any steps since default was first notified including the period from June 2016 to June 2017 there was an obligation on the Second Defendant to provide as much detail as possible to justify why those delays should not prevent him being able to raise a properly arguable defence to the claim. In my view, he has not discharged that obligation.
Accordingly, the Notice of Motion filed 7 June 2017 is dismissed.
[7]
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Decision last updated: 20 June 2017