Nibar Investments Pty Ltd v Manikad Pty Ltd

Judgment 1These are two Notices of Motion. The first is by the Plaintiffs filed 14 April 2014 seeking summary judgment for possession. The second Notice of Motion is brought by the Defendant and an applicant Maria Sophie Angelou, such a Notice of Motion being filed 27 June 2014 and seeking that Ms Angelou be joined to the proceedings as a cross-claimant. 2The proceedings claim possession of land arising from default under a loan agreement and a mortgage entered into to secure that agreement. The land is at 27 Scarborough Street, Monterey. The Defendant entered into a loan agreement on 31 October 2012 to borrow $900,000 from the Plaintiffs. A mortgage was entered into on the same day and the sum of $900,000 was advanced to the Defendant. Default occurred on 31 August 2013, and has not been rectified since that time. 3It is convenient to deal with the Notice of Motion by the Defendant and Ms Angelou first. The order she seeks to be joined is in reliance on Rule 6. 24 UCPR which provides: "If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party." 4Ms Angelou was the person who first approached the Plaintiffs to borrow money to purchase the property. She had entered into a contract to purchase the property, but at that stage did not have any loan approval or other means of paying the balance of the purchase price. As she said, she thought it would be possible for her to obtain finance relatively easily. She approached four different finance brokers, but none was able to obtain a loan approval for her because of her financial situation and her credit record. She says she was desperate to obtain finance so that she did not lose the deposit she had paid on the property. 5She approached solicitors, Robert Kremnizer and David Bleier, in relation to borrowing money to complete the purchase of the property. She says that they advised they would not lend her money directly but would be prepared to lend money to a corporation that she controlled. For that purpose, the Defendant company was purchased and Ms Angelou used that company as the vehicle for the loan. That resulted in a rescission of the earlier contract, and an entry by the Defendant into the contract to purchase the same land. 6Ultimately, the applicant provided a guarantee to secure the obligations of the company. In the proposed cross-claim that Ms Angelou and the Defendant wish to bring, she seeks orders to set aside the loan agreement, the mortgage and the guarantee. Whilst she accepts that the Defendant is precluded by s 6(1) of the Contracts Review Act 1980 (NSW) from its being granted relief under the act, she will rely on the provisions of s 8 of the Act to obtain ancillary relief. She says that the effect of clause 3 of Schedule 1 to the Act might result in a collateral benefit to the Defendant in having the loan agreement and mortgage, which it entered into, set aside. 7At the present time the Plaintiffs have not sued Ms Angelou as guarantor, but it seems likely that if possession of the land is obtained, it is sold and less than the full amount is recovered, the Plaintiffs will seek the balance from Ms Angelou. In that sense, I consider that she has a sufficient interest in the proceedings to justify her becoming a party and becoming a cross-claimant in the way she seeks. It would be unsatisfactory if she were merely joined as a Defendant in the proceedings, where the Plaintiffs at the present time do not seek any relief against her. 8She wants to challenge for herself and the company the whole arrangement that involved the company buying the land, and she also wants to challenge the unjustness of the contract by reason of such matters as the limited period of the loan of one year at the interest rate charged, and the fact that her financial position was such that the loan should never have been lent by the Plaintiffs. She suggests that what the Plaintiffs were doing, by entry into this arrangement, was engaging in asset lending. 9The Plaintiffs, as I have said, seek a summary judgment for possession of the land. The Plaintiffs filed an amended Statement of Claim on 17 March 2014. The Defendant company had filed a Defence to the original Statement of Claim on 26 February 2014. After service of the Amended Statement of Claim, it filed an Amended Defence on 30 May 2014 but it did not expressly plead to the Amended Statement of Claim. 10It pleaded no answer to either paragraph 4A or paragraph 5A of that Amended Statement of Claim. It did, however, admit in paragraph 3 that the company did not make payments in accordance with the agreement set out in paragraph 4 of the Statement of Claim. Somewhat inconsistently, it did not admit paragraph 4 of the Statement of Claim which pleaded the agreement. Nevertheless, Mr Allen of counsel, who appears for the Defendant and Ms Angelou, accepts that the whole basis of the Cross-Claim that is sought to be brought assumes that the loan agreement was entered into. 11It does not seem to me that the Amended Defence filed 30 May 2014 demonstrates any defence to the claim. 12The Defendant and Ms Angelou may well have arguments from the Contracts Review Act and principles of unconscionability that might afford some relief in limiting any monetary judgment against them. However, it does not seem to me that those arguments would serve to diminish the obligation of the Defendant to repay the $900,000 principal lent by the Plaintiffs. 13In Australian and New Zealand Banking Group Limited v Fink [2013] NSWSC 1781 Adams J was dealing with a Notice of Motion for summary judgment for possession where the principal sum advanced by the Plaintiff had been used to pay a prior mortgage. In those circumstances, Adams J held that to the extent of the payment of principal to the earlier mortgagee there could be no defence to the claim for summary judgment for possession. 14The position in the present case seems to me to be analogous. The $900,000 was advanced which enabled Defendant to complete the contract to buy the land. The Defendant retains the land. 15Further, the principle derived from Collier v Moreland Finance Corp (1989) 6 BPR 13, 337; [1989] ANZ ConvR 515 tends to support the proposition that there can be no defence to that part of the claim that relates to the principal sum. 16Mr Allen has directed my attention to what the Court of Appeal said in First Mortgage Managed Investments Pty Limited v Pittman [2014] NSWCA 110 at 187. But it does not seem to me that what is there said diminishes the point that the $900,000 that was advanced would be repayable in all circumstances. It may be that the Defendant and Ms Angelou will recover damages or will show an entitlement not to have to pay moneys over and above the $900,000. However, where they have the consideration of the land purchased for the $900,000 that principal sum must be repaid. That is not able to be done without the land being sold. 17It seems to me that the Plaintiff is entitled to an order for possession of the land. However, by reason of the cross-claim, which will be pursued by the Defendant and Ms Angelou, there should be, in effect, a stay on any execution of the judgment of any amount in excess of $900,000. From a practical point of view that may mean that the proceeds of sale received on a resale of the land, by the Plaintiffs, over and above $900,000, after payment of sale expenses, will need to be either paid into Court or lodged in a controlled moneys account under some arrangement that is made between the parties to the proceedings. 18Accordingly, I make these orders: