Romeo v The Trust Company

Judgment 1MACFARLAN JA: This is an application by Mr Giuseppe Romeo to appeal from decisions dated 16 September and 11 October 2011 of McCallum J sitting in the Common Law Division of the Court. On the application of Mr Romeo and his wife, Mrs Anna Maria Romeo, her Honour conditionally set aside a default judgment for possession entered against them by the respondents. 2Both Mr and Mrs Romeo were applicants named in the summons filed in this Court seeking leave to appeal. However Mrs Romeo was subsequently declared bankrupt and her trustee in bankruptcy indicated by letter dated 16 January 2012 that he did not intend to pursue the proceedings on her behalf. As a result, her application for leave to appeal was dismissed upon the basis that it had been abandoned (s 60(2) and (3) Bankruptcy Act 1966 (Cth)). 3Mr and Mrs Romeo are the registered proprietors of the property on which they live at Elanora Heights. In 2006 they mortgaged the property to the first respondent to secure a loan made by the second respondent for a sum exceeding $3.5 M. Following default by the borrowers in the payment of interest, the respondents commenced the present proceedings for possession. In the absence of Mr and Mrs Romeo filing a defence, the respondents entered default judgment. 4On Mr and Mrs Romeo's application to set aside the default judgment, the primary judge found that they had adequately explained their failure to file a defence and that in relation to the debt claimed by the respondents, they had an arguable Contracts Review Act defence (to be advanced by way of cross-claim), other than as to about $1.6 M of the amount that the respondents claimed to be owing. 5In her judgment of 16 September 2011 the primary judge concluded that the default judgment against Mr and Mrs Romeo should be set aside on the condition that they pay $1.6 M into Court and maintain interest payments on that sum at 7.75 per cent per annum. Her Honour directed that upon the respondents undertaking to disgorge any payments to which they were ultimately found not to be entitled, the amount to be paid into court should be paid out to the respondents. 6The respondents however took the view that in giving that judgment the primary judge proceeded on a misunderstanding that the conditions she imposed reflected undertakings proffered by Mr and Mrs Romeo. As a result, further hearings occurred before her Honour. 7At these hearings her Honour allowed the respondents to adduce additional evidence as to the value of the subject property and as to creditors' claims against Mr and Mrs Romeo. Subsequently her Honour delivered a judgment of 11 October 2011 in which she declined to vary the orders made in her first judgment. 8Mr Romeo first complains about her Honour's admission after her first judgment of the additional evidence to which I have referred. 9Mr Romeo does not, in my view, have sufficient prospects of making good this complaint to warrant a grant of leave to appeal in relation to it. It was within her Honour's discretion to permit further evidence to be adduced, the evidence dealt with matters relevant to the exercise of her discretion and, being an interlocutory hearing, the fact that some of the evidence was hearsay did not render it inadmissible when the source of the deponent's information was identified (see s 75 of the Evidence Act 1995). 10More generally, Mr Romeo challenges the primary judge's decision to impose the condition that the applicants pay $1.6 M into Court and to permit the respondents to withdraw that amount from Court. 11Counsel for Mr Romeo accepted, for the purpose of this application only, first that $1.6 M of the debt claimed by the respondents represented an amount paid by the respondents at the direction of Mr and Mrs Romeo out of the loan proceeds to discharge an existing mortgage and secondly that Mr Romeo did not have any arguable defence in relation to that portion of the claimed debt. 12However counsel submitted that if Mr Romeo's Contracts Review Act defence succeeded, the most likely order that the Court would make would be an order under s 7 of the Contracts Review Act requiring the execution of a varied mortgage, limiting the amount secured to $1.6 M. He submitted further that if this Court regarded this as a likely outcome, it could not conclude, at least at this stage, that there had been any default by Mr and Mrs Romeo in the payment of interest in respect of the prospectively varied mortgage. To put it shortly, and somewhat simplistically, he contended that the interest Mr and Mrs Romeo had paid on approximately $3.6 M for three years, in part unnecessarily if the Contracts Review Act defence succeeded, was likely to have exceeded the interest that Mr and Mrs Romeo would have been liable to pay on $1.6 M for five years, with the result that Mr Romeo's Contracts Review Act defence, held by the primary judge to be arguable, would negate the respondents' right to possession of the property. 13This is arguably an important consideration that her Honour did not take into account in reaching her conclusions. In fairness to her Honour I point out that this contention does not seem to have been put to her Honour in explicit terms. At best it is arguably implicit in the form of draft cross-claim that Mr and Mrs Romeo relied upon before her Honour (see [2] of the relief claimed). 14In these circumstances I would grant Mr Romeo leave to appeal on the grounds contained in his draft Notice of Appeal, other than grounds 4 and 7 which relate to the admission of the further evidence to which I have referred above. 15I add that the effect, if any, of Mrs Romeo's bankruptcy on the respective rights of Mr Romeo and the respondents was not fully explored on the leave application. It will need to be the subject of detailed submissions on the appeal. 16For these reasons, I propose the following orders: (1) Grant leave to appeal on the grounds of appeal stated in Mr Romeo's draft Notice of Appeal, other than grounds 4 and 7. (2) Direct Mr Romeo to file and serve his Notice of Appeal within 14 days of the date of this judgment. 17YOUNG JA: I have read the reasons of Macfarlan JA and respectfully agree with his Honour's reasons and proposed orders. 18It is a judgment of hindsight, but examination of the facts that lay below the surface in this case makes me think it unfortunate that this was not a concurrent hearing of the leave application and the appeal. As Macfarlan JA notes in [15], bankruptcy issues were not explored before us on this application. Some of these may be vital. I believe it would be helpful to provide an outline of some of these as the parties may, after researching them, consider that it would be commercially wise to allow the appeal by consent and have the real issues determined at first instance. 19When a female mortgagor holding as joint tenant with her husband becomes bankrupt, the joint tenancy is severed and the bankrupt's trustee and the husband hold as tenants in common in equity. Until the trustee becomes registered on the title under s 90 of the Real Property Act 1900, the married couple remain joint tenants at law though the Trustee holds a moiety share as equitable tenant in common, see eg Sistrom v Urh (1992) 40 FCR 550. 20The persons entitled to possession are probably the married couple and the trustee. 21In order to obtain a writ of possession in the ordinary form (ie one which does not except the interest of a particular person) it would seem that the married couple and the trustee must be parties to the litigation whether the trustee wishes to be involved or not, unless he has disclaimed. 22The law appears to be that once bankruptcy intervenes, a bankrupt mortgagor cannot redeem: Spragg v Binkes (1800) 5 Ves 583, 590; 31 ER 751, 754. Thus, the rule that there must be payment into court by the mortgagor before equity could give relief cannot apply to the bankrupt. If the bankrupt is still a joint tenant at law, does this affect the situation of the other mortgagor? Are payments made with the intention of being payments under the mortgage by the bankrupt the property of the secured creditor because of the operation of s 58(5) of the Bankruptcy Act 1966 (Cth) or are they arguably preferences? 23Does the application for a writ of possession in respect of a bankrupt holding as joint tenant fall foul of s 58(3)(a) of the Bankruptcy Act and, if it does, is it saved by sub-section 5? 24On the other side, there are difficulties in obtaining an order for variation under the Contracts Review Act 1980; see eg Vakele Pty Ltd v Assender (1980) 4 BPR 9591. 25There may be other difficulties: these are merely those that instantly spring to mind.