Roxo v Normandie Farm

Is Normandie in default under the Mortgage?

It is convenient to deal with these issues together.
Normandie resisted Mr Roxo's claims on the basis of Ms McKay's evidence that that it owed Mr Roxo nothing for interest and that it had repaid the principal it had borrowed from him. She explained that was why she was resisting Mr Roxo's claim for possession of her home. That evidence cannot be accepted.
I have already dealt with the claimed agreement on which Normandie's case on interest rested. In final submissions it was conceded that if the conclusion was reached that the claimed agreement was never made, it would follow that Normandie was in default, that it owed something like $3 million in total and that an order for possession should follow.
Mr Roxo's evidence was that Ms McKay first approached him in January 2005, in relation to the purchase of the property for which she had paid a deposit and which was due to settle on 29 April. She then said that she needed funds for a short time, until she received a very large down payment for a major deal she was about to sign. In May, he received information from her solicitor, about an option for sale of the property at Mollymook, owned by Sorority for some $3.5 million. He considered that this satisfied his requirement for an exit strategy, the proposed loan being for a business purpose and a means to discharge the proposed debt being demonstrated.
Professor Milton later approached him in early May about the second loan, required as a rollover of the first loan and to purchase shares in Penrose Club Holdings Limited. It was he who told Mr Roxo about a major water deal which Ms McKay was then negotiating, which they expected would more than double the value of the shareholding in Penrose, from which they stood to make millions. Professor Milton also told him that water from an adjoining property had already been sold to Coca Cola and that the water was also attractive to an energy consortium. They then needed to borrow money for 3 months maximum, to buy out other shareholders and get control of Penrose. Mr Roxo then agreed to loan him some $300,000. The second loan was secured by an unregistered mortgage over the Potts Point property and an executed share transfer of Ms McKay's shareholdings in Sorority and Penrose.
On 19 May, advances totalling $1,055,000 were made to Professor Milton and Normandie, some of which was used to fund renovations and other improvements at the Bungonia property. The third loan was secured over the property at Bungonia the subject of these proceedings, after independent legal advice was obtained. The property was Normandie's only significant asset. Those advances were due to be repaid on 19 June. The evidence establishes that they have never been repaid and that Normandie is in default under the mortgage.
That Mr Roxo had received payments totalling over $1 million, which were used to repay Professor Milton's borrowings was not in issue. It was Mr Roxo's case that after the sale of the Potts Point property, he received three payments from Ms McKay in 2008 totalling $590,000, as well as a further $145,000 in 2009, which was all applied to Professor Milton's first loan, in addition to the $23,500 paid in January 2005.
Under the terms of clause 18 of that mortgage, Mr Roxo had the right to appropriate those payments as he determined, to principal, interest, costs and expenses. The clause also provided "[a]ny such appropriation overrides the nomination made by the mortgagor". In cross-examination, Mr Roxo agreed that part of that sum may have come from the sale of the Mollymook property. He also accepted that he had then agreed with Ms McKay to accept that amount in full and final payment of that loan.
Mr Roxo also agreed that he later received some $639,000 after the sale of a property at Pittwater, which was applied to Professor Milton's other borrowings.
Mr Roxo was cross-examined as to why he had not dealt with some of these matters in his first affidavit. His explanation that he considered that they were not relevant to Normandie's borrowings was credible. It was when Ms Roxo's claim that the Normandie's borrowings had been repaid emerged from the affidavit she swore, that Mr Roxo dealt with the payments he had received and how they had been applied to reduce Professor Milton's borrowings.
Ms McKay's evidence was that, in 2008 a payment of $350,000 was made to Mr Roxo from the sale of the property which had secured Professor Milton's first loan. She also paid him $168,000 and $72,000 in December 2008, out of inheritances she had received after her mother, father, brother and Professor Milton. On Mr Roxo's direction, she had made these payments to his mother, Marie Ross. A payment of $145,000 had been made in June 2009 at his direction to Judy White. In cross-examination Ms McKay agreed that was a company of which she was a director and that the payment was made for shares, which were later issued.
That these payments had anything to do with repayment of Normandie's borrowings was not established by Ms McKay's evidence.
Without Mr Roxo's consent as mortgagor, the property at Potts Point could not have been sold as it was. Normandie's claim, in those circumstances, that the resulting payments made to him should have been directed to its borrowings, rather than to repaying what Professor Milton owed him, appears to have been disingenuous. No proper foundation for that claim was established on the evidence.
Mr Roxo agreeing with Ms McKay to treat Professor Milton's first loan as having been repaid in full by the payments made in 2008 and 2009 was inconsistent with her claim that what was paid should have been used to reduce Normandie's borrowings. It was, however, consistent with her evidence that Mr Roxo had treated her with a great deal of sympathy, at a time when in quick succession Professor Milton, her mother, father and brother had all died.
Mr Roxo's evidence was that he had also sought to enforce the transfer of Ms McKay's shareholdings, which secured the Normandie loan, but there were difficulties created by the finalisation of probate in her mother's estate. Ms McKay denied that he had ever told her about this, but this, too, was not plausible.
Mr Roxo also said in cross-examination that he had received advice that in the circumstances, other avenues which Ms McKay was then pursuing, in order to repay Normandie's borrowings, should be permitted to be pursued. That what he was then owed outweighed the value of the Bungonia property, must be accepted. That he was concerned about the price which the property might then command was unchallenged, as was his evidence that, in the circumstances, he was content to allow Ms McKay to continue living at the property as a caretaker.
This situation came to an end in 2011, when Mr Roxo formed the view that Ms McKay had acted inappropriately in relation to the Memsie property. He came to the conclusion that repayment from Normandie would not be forthcoming, the various ventures which Ms McKay had been pursuing having come to nothing. In cross-examination, he agreed that there had been ongoing discussions about the sale of spring water and subdivision and government approval of a gas project, which had led him to hold off enforcing the loan. In the circumstances, he said, he had been prepared to allow Ms McKay to pursue opportunities which would quite phenomenally allow her to improve her ability to repay the loan. She was well connected and introduced him to wealthy, high placed people, which for a long period of time had induced him to believe that something might happen, which could result in a windfall which would change Ms McKay's situation. That belief, he said, was brought to an end by her conduct in 2011. He was not asked to elaborate.
Ms McKay also claimed to have made other payments to Mr Roxo for unspecified sums, which she said came from "the Memsie Account". Memsie was the dairy farm in Queensland which Mr Roxo had acquired from a Mr Catto. Ms McKay had agreed to manage that farm in September 2010. She took a lease of the property in June 2011. They had a falling out in October 2011. Ms McKay's evidence about these matters simply did not establish that such payments, if in fact made, had anything to do with Normandie's borrowing. Even if payments were made, which Ms McKay intended to apply to repayment that borrowing, the evidence did not establish that even the principal which Normandie owed Mr Roxo would thereby have been repaid.
That Normandie has not repaid its borrowings was put beyond doubt by Ms McKay's evidence in cross-examination, where it became apparent that she was prepared to say things which she thought might advance its case, even when patently untrue.
At one point she said that she had thought by 2007/2008 that the Bungonia property was worth more than Normandie had paid for it, but still she did not refinance. She agreed that would have been difficult, but denied knowing that the loan and interest then owing exceeded the value of the property. That evidence was not credible, particularly given her earlier evidence that she had treated what Normandie and Professor Milton had borrowed as one loan, they having borrowed more than 100% of the value of the property when it was purchased, in order to pay stamp duty, renovate and improve the property and Normandie never having repaid the principal, let alone any interest.
Ms McKay agreed that she did not then attempt to refinance, because of Professor Milton's death and because of the friendly relationship she thought she had with Mr Roxo, who had not been pressing her for repayment. She also agreed that she knew that if she refinanced, a new lender would not allow years to go by without payment of interest or principal. She also said that she thought that she needed Mr Roxo's consent to refinance. That evidence was also inherently implausible.
Ms McKay was also cross-examined about the evidence she had given in proceedings in the Federal Court in June 2011, where she had said on oath when examined about Professor Milton's insolvent estate, that there was then about a million dollars owing to Mr Roxo under the loan and that she was living at the Bungonia property, which secured the loan, "under grace and favour". She also said that Mr Roxo was claiming interest on that loan, in respect of which she owed him about a million dollars.
Ms McKay claimed that she had given that evidence at a time when she had not realised that Mr Roxo had received $640,000 from Professor Milton's estate. That, too, was implausible. I have already dealt with the repayment of Professor Milton's borrowings. Consistently with Ms McKay's evidence in 2011, that had nothing to do with the repayment of Normandie's borrowings.
Later Ms McKay accepted, however, that if in 2011 she had said that a million dollars of interest was still owing to Mr Roxo, that must have been what she then believed. Still, Ms Roxo then claimed that Normandie had repaid both the principal and interest. That evidence was patently untrue, even though she denied that her claim to have repaid a million dollars in interest was a lie. At one point she said that was "not a matter for this case. It's a matter in respect of the Memsie operation". At another she claimed to have assisted Mr Roxo in his affairs in various ways, to have looked after his brother and to have been used by him as a tool. None of this evidence established that Normandie has repaid what it borrowed.
In the result it must be concluded that Mr Roxo has established relevant default under the mortgage.

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Judgment (9 paragraphs)

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Legislation Cited (5)

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