Secure Funding v Webster

JUDGMENT 1 HER HONOUR: These are proceedings for possession commenced by Statement of Claim filed on 18 October 2007. The security property is physically divided into two units, one unoccupied and the other leased. However, it appears that the legal process of dividing the title is not complete and that further steps would be required to be undertaken before a separate sale of either unit could be effected. 2 The defendants, Mr Wayne Webster and Ms Eschelle Hayward, have filed no defence to the Statement of Claim. Their defence was first due on 4 December 2007. At that time, they were legally represented. In a letter to their solicitor, the plaintiff consented to allow them until 18 December 2007 to reach agreement or file a defence. The letter warned that the plaintiff would seek default judgment and a writ of possession after that date. The evidence before me did not disclose whether the solicitor communicated that warning to the defendants. 3 On 19 December 2007 the defendants' solicitor wrote to the plaintiff asking it to withhold obtaining default judgment on the basis that the defendants anticipated exchanging contracts on both units with settlement due to take place on 7 March 2008. The plaintiff instructed its solicitor, Mr Moss, not to accede to that request and to proceed to obtain default judgment and a writ of possession. On 22 December 2007, Mr Moss told the defendants' solicitor that he would not be able to file the documents that day, because it was the last day before the Christmas break, but that he was instructed to file forthwith and would be filing for default judgment and a writ of possession immediately upon his return from leave in early January 2008. 4 That evidence coincides with the oral evidence of the first defendant, Mr Webster, who said that his solicitor told him they needed to "get something in place" in early January. The solicitor also notified him that "whoever was doing the documents [from the plaintiff] would not be able to get into the Supreme Court for 4 to 6 weeks so we had 4 to 6 weeks to sell the property". The solicitor's retainer appears to have ended some time shortly thereafter. 5 On 18 January 2008, the plaintiff filed Notices of Motion seeking default judgment for the outstanding debt and a writ of possession of the security property. The Notices of Motion were duly supported by affidavits of service establishing that the Statement of Claim had been served on each of the defendants. The Notices of Motion themselves do not appear to have been served on the defendants. There was no requirement for them to have been served: rule 16.3(1A)(b) of the Uniform Civil Procedure Rules 2005 (UCPR). 6 On 7 February 2008, Beverly Bridson, an employee of the plaintiff, sent Mr Webster the payout statement for the loan account. Mr Webster said, in effect, that the provision of a payout figure contributed to his assumption that the plaintiff was allowing the subdivision and sale to proceed: T10/42 to 11/2. 7 Judgment in accordance with the orders sought in the Notices of Motion was entered on 20 March 2008. A writ of possession was issued on 26 March 2008. 8 On Thursday 17 April 2008, the defendants sent a draft Notice of Motion to the Court by facsimile seeking a stay of proceedings pending legal representation. There was no affidavit in support of the motion but it had attachments which disclosed that the defendants wished to argue matters that went to the issue whether there was an agreement or representation made to them that they could have time to complete the subdivision and effect private sales of the two units. Unfortunately, apparently owing to an error within the Registry, that Notice of Motion was not brought before the Court that week. 9 At 11 o'clock on Monday 21 April 2008, a further draft motion together with an unsworn, draft affidavit of Mr Webster was sent to the Registry by facsimile from Coffs Harbour. The contents of that material suggest that some legal advice or assistance had been obtained by that time. The draft motion sought a stay of execution of the writ of possession, an order setting aside the default judgment and related orders. 10 The draft affidavit disclosed the haste with which it was drawn, in that it included some material enclosed within square brackets, perhaps suggesting that further detail had been intended to be included. The draft affidavit stated that, in July 2007, Mr Webster made arrangements with the plaintiff to subdivide the title and for their permission to sell one of the units. It annexed a letter dated 31 July 2007 from the plaintiff to the defendants' then solicitor. Mr Webster stated that, in reliance on that letter, he proceeded to try to subdivide the property and sell one of the units. The affidavit also stated that, in September 2007, Mr Webster negotiated with the plaintiff "in relation to the sale of both units" and that, in reliance on those negotiations, he did not file a defence in these proceedings. 11 The material in square brackets in the draft affidavit stated that the Sydney office of the firm of solicitors that represents the plaintiff had sent correspondence indicating the plaintiff's consent to the division of title, whilst the Melbourne office of that firm had sent correspondence refusing to provide that consent. However, the defendants did not tender copies of any correspondence indicating consent to the division of title and the plaintiff denied that such consent had ever been given, by its solicitors or otherwise. 12 The draft affidavit also stated that Mr Webster had relied on the fact that, in February 2008, the plaintiff provided the payout statement referred to above. As indicated above, the provision of the payout figure apparently contributed to Mr Webster's belief that the plaintiff would continue to grant some indulgence in respect of the exercise of its power of sale pending the continued negotiation of the private sales, notwithstanding the earlier indication that the plaintiff was proceeding to file an application for default judgment and the issue of a writ of possession. Finally, the draft affidavit stated that Mr Webster had a buyer "arranged" for each unit but did not assert that contracts of sale had been exchanged. 13 Unfortunately, at about the same time that the defendants' draft Notice of Motion and affidavit were being faxed through to the Court, the Sheriff was commencing to execute the writ of possession. Against that background, the matter was brought to my attention as Duty Judge some time shortly after 1pm that day. 14 I then heard Mr Webster ex parte by telephone in open court to ascertain the status of the defendants' application. During that hearing, Mr Webster informed me that the proposed sale of the leased property was a sale subject to the tenancy. At that stage, the extent to which the Sheriff had effected possession was not entirely clear, but it appeared that the Sheriff may have completed the process of entering into possession on behalf of the plaintiff and that the tenants, a family of four, had been compelled to withdraw to a caravan park for the night. I indicated to Mr Webster that, if that were the case, I might have no power to reverse the events of the morning. 15 Nonetheless, on the strength of the contents of the draft affidavit and further information provided to me in Court by Mr Webster, it appeared to me that the defendants may have a case for having the default judgment set aside and perhaps for having a stay of execution of the writ, if it was not too late. Further, since there was a proposed sale subject to tenancy, I was concerned to preserve the possibility of reinstatement of the tenants, if it still existed. Accordingly, I formed the view that I should preserve the status quo until I could hear the defendants in the presence of the plaintiff. I ordered that any further execution of the writ of possession be stayed until further order and stood the proceedings over to the next morning, 22 April 2008, before me as Duty Judge.

16 On 22 April 2008, Mr Jai Moss, solicitor, appeared for the plaintiff. By that stage, the defendants had produced a sworn affidavit in the same terms as the earlier draft (still including the material in square brackets). Mr Moss relied on an affidavit sworn by himself in which he deposed to the events leading up to the obtaining of default judgment and the issue of the writ of possession. The hearing continued before me on 22 April until the point when Mr Webster indicated that he wished to cross-examine Mr Moss on his affidavit. At that point, I stood the proceedings over to 23 April 2008 to enable the plaintiff to retain Counsel so as to avoid the situation where Mr Moss was both advocate and witness. 17 On 23 April 2008, Mr Redmond of Counsel appeared for the plaintiff and Mr Webster proceeded to cross-examine Mr Moss. 18 As already noted, the defendants' application includes a complaint that the defendants refrained from filing a defence in the proceedings in reliance on an agreement with, or representation by, the plaintiff as to their being allowed to proceed to subdivide the property and to sell the two subdivided lots. The Court has power to set aside the judgment under UCPR 36.15 if it is established that the judgment was given or entered irregularly, illegally or against good faith. A default judgment signed contrary to the terms of a contract between the parties or in breach of a promissory representation may be "against good faith" within the meaning of the rule: Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110 at 113F. In Roach, the Court of Appeal specifically noted that it would not matter that the legal practitioner who acted to obtain the judgment or order was not aware that his conduct was contrary to an earlier promise or representation made by the client. It would still be contrary to good faith for a client to attempt to obtain the benefit of an order innocently obtained by his legal practitioner if it had been obtained contrary to a promise or representation binding on the client. 19 However, the evidence in this case did not go so high as to establish that it was ever represented or promised to the defendants that they need not file a defence or that the plaintiff would not proceed to enforce its legal rights. Mr Webster stated that he made arrangements with the plaintiff to subdivide the title in July last year. He relied on the letter dated 30 July 2007, received in response to those discussions, in which the plaintiff stated that it had commenced "a review" of his request. The letter sought certain supporting documents and asked him to pay certain costs. Mr Webster assumed, in light of those requests, that the plaintiff was permitting him to subdivide the properties but the letter did not say so in terms. 20 I accept that Mr Webster reasonably formed the impression, at that early stage, that the plaintiff either had consented or would probably consent to the subdivision of the title and would permit the defendants to proceed to negotiate private sales of the two subdivided lots. However, the position changed when the Statement of Claim was served. From that time, Mr Webster was dealing with the plaintiff's employees personally, while his solicitor was dealing with the plaintiff's lawyers in respect of the proceedings. Mr Webster said that he negotiated in September 2007 for the sale of the units and, in reliance on those negotiations, he did not file a defence. It is implicit in his claim that he understood the need to do so. However, he did not provide any detail of those negotiations from which I could be satisfied that he was entitled to assume that the legal process would be suspended while the sale occurred. I accept that the two levels of communication may have been apt to confuse him, but at no stage did he suggest that anyone actually discussed whether the plaintiff would refrain from proceeding to judgment while he proceeded down the path of selling the property. The communications between the solicitors were to the effect that, after 18 December 2007, no further indulgence was to be granted. 21 I am left to conclude that there was no promise or representation made by the plaintiff, but only a unilateral assumption by Mr Webster. He frankly conceded in evidence that, about eight weeks prior to the hearing before me, he was told that the plaintiff was going to apply to the Supreme Court for the writ of possession and that the defendants would have four to six weeks (incorrectly transcribed as "forty six weeks" at T18/19 on 22 April 2008; but cf. T9/13) to sell the property. 22 In any event, the defendants adduced no evidence of any potential defence to the underlying claim in debt. Accordingly, even if I were satisfied as to the existence of an agreement or representation of the kind relied upon, there would be no utility in setting aside the default judgment. 23 A separate issue is whether there is now any warrant for the exercise of the Court's discretion to restrain the plaintiff from further execution of the writ of possession. The factors relevant to the exercise of that discretion are discussed in GE Personal Finance Pty Ltd v Smith [2006] NSWSC 889 at [9] to [30]. They include the fact that the defendant wishes to sell the property. As noted by Johnson J in GE Personal Finance at [20], the orderly preparation and presentation of a property for sale, with the plaintiff and defendant co-operating in this regard, is generally thought to maximise the prospect of a favourable sale price, which serves the interests of all parties. In the present case, a complaint of the defendants is that the posting of a notice on the door of the property communicating the fact of mortgagee possession may have put the kybosh on the sale Mr Webster has been negotiating. I have a great deal of sympathy for the defendants in that respect. 24 The principal difficulty is that the execution of the writ appears to be complete or effectively complete in that both units are now vacant and the locks have been changed. I do not know, following my earlier orders, whether the new keys have been provided to the plaintiff or kept by the Sheriff. It seemed possible when the matter first came before me ex parte that, in the face of potential sales of the units that carried the prospect of seeing the plaintiff paid in full and the tenants remain in the property, the plaintiff might consent to restore possession to the defendants and also consent to the short stay sought to complete the sale negotiations. Regrettably, that did not occur. In the absence of such consent, I do not have power to reverse the execution of the writ to the extent that it has occurred. That is unfortunate because the removal of the tenants and a mortgagee sale appear likely to cause financial loss to the defendants, who maintained that the sales they have been negotiating would have seen the plaintiff paid in full. Whether that would in fact have been the case I do not know but, in any event, the position is now irreversible. 25 The only relief potentially available to the defendants in circumstances where the plaintiff has (or almost has) possession of the security property for the purpose of exercising its power of sale is an injunction restraining the plaintiff from exercising that power. The general rule is that such an injunction will not be granted unless the amount of the mortgage debt or, if disputed, the amount claimed is paid into Court: Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 164-167, 168-169. The defendants did not apply for such an order and would have faced a number of hurdles if they had. Leaving aside the question whether the defendants could have paid the amount of the mortgage debt into Court, the plaintiff has made it plain that it will not now consent to the legal subdivision of the title. Its reasons for withholding its consent are not clear to me but the proposed separate sales cannot proceed without it. Regrettably, it follows that there would be no utility in granting an injunction restraining the exercise by the plaintiff of its power of sale to permit the present proposed sales to proceed. 26 Accordingly, the application must be dismissed. 27 On the question of costs, I note that the matter proceeded into a second day of defended hearing because Mr Moss was both advocate and witness for the plaintiff. Whilst I direct no criticism at Mr Moss, who conducted himself ably especially having regard to the urgency with which the matter came before the Court, I do not think that I should visit the costs of the second day of the defended hearing on the defendants. 28 The orders are: 1. The defendants' Notice of Motion dated 21 April 2008 is dismissed. 2. The defendants are to pay 50% of the plaintiff's costs of the motion. 3. That the stay granted on 21 April 2008 be discontinued.

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Judgment (13 paragraphs)

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