Perpetual Trustee Australia Limited v Romeo

Judgment 1These are proceedings for possession in which default judgment was entered on 14 September 2010. On 16 September 2011, I determined that the default judgment should be set aside on terms: see Perpetual Trustee Australia Limited v Romeo [2011] NSWSC 1116 at [45]. The orders I proposed were: (1) That, upon payment into Court by the defendants of the sum of $1.6 million within 28 days of the date of these orders, and further upon their undertaking to the court to maintain interest payments on that amount at 7.75 percent per annum, the default judgment entered on 14 September 2010 be set aside. (2) That, upon the plaintiffs' undertaking to the Court to disgorge any payments received in the event that there is a final determination in this Court (including any appeal) that the sum so paid was not payable by reason of the success of the Contracts Review Act 1980 claim, the amounts paid into court in accordance with order 1 be paid out to the plaintiffs. (3) That the defendants pay the plaintiffs' costs of the application, as agreed or assessed, forthwith. 2The first order proposed in my earlier judgment reflected an offer I understood to have been made on behalf of the defendants in open court to pay $1.6 million into court: see [42] of the judgment. That understanding was derived from statements made by senior counsel for the defendants, Mr Dubler, recorded at pages 41-42 of the transcript of the hearing. 3It was explained at the hearing that the offer recognised the possibility that, even if the defendants were allowed to defend the proceedings and were successful in the prosecution of their proposed cross claim for relief pursuant to the Contracts Review Act 1980, the relief granted in due course may not eliminate the whole of their liability to the plaintiffs, but may rather see the defendants liable to the plaintiffs for a principal debt in the order of $1.6 million representing that portion of the funds advanced by the plaintiffs which was applied to discharge an earlier mortgage over the relevant security property given to St George Bank. 4In light of the fact that the defendants did not seek by their proposed cross claim to impugn the St George mortgage, an open offer had been made by Mrs Romeo and adduced in evidence in the proceedings in the following terms: "8. To the extent that I am required I would give my undertaking to pay into the Court or to the defendants, on account of future orders of the Court, interest on the sum of $1,642,623.28 at standard home loan rates of 7.5% varied with the Reserve Bank of Australia cash rates. 9. I am ready willing and able, upon removal of the current mortgage, if required, to pay out to the Plaintiff $1,642,623.28, if required, as the price of setting aside the current mortgage." 5At the hearing of the proceedings, I understood Mr Dubler to be outlining a fresh position and informing the Court that the defendants were prepared to pay the amount of $1.6 million into Court. 6Following the publication of my judgment, the solicitor for the defendants swore an affidavit explaining that the statements made by Mr Dubler at the hearing were intended only to summarise or restate the written offer made by Mrs Romeo (set out above). Mr Dubler very graciously acknowledged that the words said at the hearing could be understood differently. In fairness to him, it should also be recorded that close attention to the relevant part of the transcript discloses that he and I were genuinely at cross purposes during that exchange and that I probably ought to have discerned that. 7In the result, it is necessary to re-visit the exercise of my discretion as to whether the default judgment should be set aside and, if so, on what terms. 8Mr Dubler submitted that the default judgment should be set aside on terms reflecting the offer made by Mrs Romeo recorded above, that is, upon the defendants' undertaking to the Court to maintain interest payments on the principal sum of $1.6 million. I should note that, whereas the transcript records that the offer was to maintain such payments at the rate of 7.75% per annum, it was agreed between the parties at the further hearing before me that there was a transcription error in that respect and that the rate of interest offered to be paid was 7.5% per annum. 9It is difficult to understand why, if all that was proposed was the payment of interest, the offer prescribed that those amounts should be paid into court rather than being received by the plaintiffs, who do not have the use of the funds advanced. In any event, that is the proposal. 10Mr Dubler noted that, in the earlier judgment, I did find that there was a triable issue raised by the proposed cross claim, albeit with what I there described as "some reluctance and hesitation" (see [40] of the judgment). 11Mr Dubler submitted that, in light of the true position (namely that Mr and Mrs Romeo would not have the capacity to pay $1.6 million into court without obtaining a discharge of the mortgage), it would be unduly harsh to impose such a condition at an interlocutory stage of the proceedings. 12The plaintiffs oppose any variation to the orders proposed in my earlier judgment. Reliance was placed on a further affidavit sworn by the solicitor for the plaintiffs, Mr Sunman, directed primarily to the level of debt presently secured or recorded against the property. It was submitted that, in light of that evidence, it may be doubted whether the Romeos would ever be in a position to refinance the loan, even if the principal is reduced to $1.6 million. 13Mr Sunman's affidavit annexes a copy of a search of the property which reveals the existence of two mortgages and five caveats registered on the title. According to inquiries made by Mr Sunman, the total amount of debt reflected in those interests is $10,385,360.77. 14Mr Sunman also annexes a copy of a valuation of the property which, in summary, assesses its value as at 10 August 2009 as being $4.5 million on market valuation and $4 million in the event of a forced sale. An updated valuation as at 29 September 2011 assesses the value of the property as being $3.250 million as a market valuation and $2.750 million in the event of a forced sale. The affidavit also addresses, in considerable detail, other aspects of the financial circumstances of the Romeos including the outcome of their disputes with several other lenders. 15I should note that the defendants objected to the reading of the affidavit. Mr Dubler stated that, in the interests of containing the costs of defending the present proceedings, it was not expedient to go to the lengths required to respond to all of that material and re-open the defendants' case. He submitted that, in those circumstances, the affidavit should be rejected. I formed the view, however, that I should have regard to the contents of the affidavit, albeit with the qualification that it was evidence untested and unanswered by the defendants. 16With that qualification in mind, I am satisfied that the affidavit discloses forceful considerations for concluding that it is not in the interests of justice to set aside the default judgment other than on the terms I initially proposed, notwithstanding the fact that my judgment was based on a misapprehension as to what had been offered by the defendants. Taking a careful approach to the contents of the affidavit, and bearing in mind the fact that Mr and Mrs Romeo have not responded to it, it is clear enough on any analysis that Mr and Mrs Romeo face claims for debts well in excess of the value of the property. 17Accordingly, even if their cross claim were successful to the extent of having their loan agreement with Perpetual varied by order of the Court so as to provide for a principal advance of only $1.6 million, it is doubtful whether they have any equity in the property at all. I note in that context that although Mr Dubler made no concession to this effect, it is difficult to conceive that any better result could be obtained on the cross-claim than is reflected in the defendants' offer, which acknowledges their likely liability to Perpetual for a principal advance of $1.6 million. 18By way of response to Mr Sunman's affidavit, Mr Dubler noted that the largest creditor of the Romeos (apart from Perpetual) is reflected in the caveat lodged by Mr Frank Papalia and Ms Julie Rance. Mr Dubler informed the Court that Mr Papalia is Mrs Romeo's brother and submitted that the Court accordingly should not assume that the debts revealed by the affidavit are necessarily likely to be enforced in the ordinary way. 19In response to that submission, after the conclusion of the further hearing before me, the plaintiffs sent to my chambers a copy of the decision of Sackar J in Papalia & Rance v Romeo [2011] NSWSC 696. The defendants objected to my having regard to that judgment on the grounds that it was provided after the conclusion of the further hearing and without leave. Accordingly, on the date on which I had anticipated giving my further decision in the proceedings (7 October 2011), I heard from the parties as to whether I should have regard to that further material. On that occasion, it was made clear by Mr Walsh on behalf of the plaintiffs that the only purpose for which the judgment was relied upon was to demonstrate that, contrary to the submissions put by Mr Dubler in response to the material set out in Mr Sunman's recent affidavit, the Court could confidently conclude that Mr Papalia and Ms Rance are unlikely to resile, for family reasons, from the enforcement of any claim against Mr and Mrs Romeo. The judgment certainly establishes the force of Mr Walsh's contention. Indeed, if anything, the judgment reveals that Mrs Romeo does not resist Mr Papalia's claim. 20Separately, Mr Walsh submitted that, leaving aside the Court's misunderstanding as to the import of the open offer made in support of the application to set aside the default judgment, the Court was correct to rely on the fact that the St George mortgage is not sought to be impugned in the proposed cross claim. Mr Walsh submitted, in those circumstances, that the term I proposed requiring payment into court was correct and appropriate. 21I have concluded that the orders should be as proposed in my earlier judgment. I accept that there is force in Mr Dubler's contention that, there having been a finding that there is a triable issue raised by the cross claim, the defendants should be able to have a trial, but that of course is subject to the Court's obligation to exercise its discretion in the interests of justice. The evidence brought forward by the plaintiffs in Mr Sunman's most recent affidavit has persuaded me that there is a substantial risk that to permit the defendants to have their trial other than on the terms I proposed would suffer the Court to be an instrument in the deferral of enforcement not only of the $1.6 million debt likely to remain even if the cross claim is successful but of the debts claimed by other creditors of Mr and Mrs Romeo. 22For those reasons, I am satisfied that, even though my earlier judgment was based on a misunderstanding as to what was offered by the Romeos, it would not be in the interests of justice to grant the relief sought by them other than on the terms I proposed in my earlier judgment. No other variation of the proposed orders has been sought. 23I make the orders proposed in the judgment set out at [1] above with the variation that the interest rate referred to be 7.5 percent per annum, not 7.75 percent per annum. I direct that the orders be entered forthwith.