Serobian v Commonwealth Bank of Australia [2009] NSWCA 309 | Case summary

THURSDAY, 17 SEPTEMBER 2009 SHAHEN SEROBIAN & ANOR v COMMONWEALTH BANK OF AUSTRALIA Judgment 1 CAMPBELL JA: This is an application for a stay of a judgment that was given by Hammerschlag J in Commonwealth Bank of Australia v Shahen Serobian [2009] NSWSC 302. 2 The litigation arose from the entering of two bill facilities agreements and execution of some mortgages in December 2004. One bill facility related to an amount of $4.8 million that the Commonwealth Bank was to make available to Mr and Mrs Serobian personally, and there was a separate $2 million facility to their company, Schypsl Pty Limited, that was guaranteed by the Serobians. 3 The loan proceeded satisfactorily so far as the Bank was concerned until July 2007, when there were some events of default consisting of insufficient credit being available in the nominated account to meet the amounts due for roll over of bills. A s 57(2)(b) Real Property Act 1900 notice was served on 8 August 2007 and not complied with. The security that the Bank had for its loan was over, relevantly so far as the judgment of Hammerschlag J was concerned, three properties: the Manly home of the Serobian family, a property at Cranebrook, and another property at 62 Oakland Avenue, The Entrance. 4 The Bank filed a summons and a Commercial List statement on 6 December 2007. It sought orders for possession of two of the properties, one at Cranebrook and the other at Manly, and a judgment for in excess of $7.1 million together with interest from November 2007. 5 In March of 2007, the Serobians filed a cross summons alleging that the circumstances leading to the signing of the various documents sued on, and some other documents that had been entered between the Serobians and the Bank at the same time, contravened ss 51AC and 52 Trade Practices Act 1974 (Cth), ss 42 and 43 Fair Trading Act 1987 and were unjust within the meaning of the Contracts Review Act 1980. They sought that those documents should be either judicially obliterated or varied pursuant to the powers contained in those Acts. 6 Concerning the Contracts Review Act, the Bank raised a defence under s 6 whereby no relief is available concerning a contract that is entered for the purpose of a business, trade or profession. 7 In March of 2009, there was an eleven-day hearing before his Honour Hammerschlag J. His Honour delivered reasons for judgment on 24 April 2009. Judgment was actually entered on 13 May 2009 for over $8.1 million, against each defendant. There was a judgment for possession of the Manly property together with leave to issue a writ of possession forthwith. Virtually immediately, Mr and Mrs Serobian filed a notice of intention to appeal. 8 There was an application for a stay that was made comparatively quickly before a judge of the Equity Division but rejected. A notice of appeal was filed in the Court of Appeal pursuant to the notice of intention to appeal on 24 July 2009. On 24 August 2009, a notice of motion seeking a stay of the judgment was filed in the Court of Appeal. The sheriff issued a notice to vacate on 3 September 2009, giving until 10am on Monday next, 21 September 2009, in which to vacate the premises at Manly. There was an application to his Honour Sackville AJA on 7 September 2009 seeking a stay. His Honour refused that application. 9 What I am hearing today is a further application that seeks a stay and also seeks some interrogatories. A relevant circumstance that was taken into account by his Honour Sackville AJA is that no payments have been made by the Serobians to the Bank since August 2007. Both before Sackville AJA and before me, Mrs Serobian has said that they are not in a position to make any interim payments to the Bank as a condition of any stay that might be granted. 10 The cross summons that the Serobians brought alleged that there had been various pre-contractual representations made by the Bank that it did not comply with, that there were material differences between the documents that they had signed and the documents that the Bank had represented it would require them to sign, that there was no explanation by the Bank of the documents, that there was no opportunity given to them to obtain independent legal advice, that there was no opportunity to have the assistance of an interpreter, and also that the Bank was taking advantage of certain known weaknesses of the Serobians both concerning health and language difficulties. 11 There were also some allegations of representations made by the Bank and not complied with during the course of the running of the loan, in particular, representations alleged to have been made about the circumstances in which it would make further accommodation available in 2007 that according to the Serobians would, if granted, have enabled them to avoid there being any default. 12 The representations that were sued on were all oral ones. Mr and Mrs Serobian and their adult son Patrick were involved in the meetings in which the representations were alleged to have been made, though on everyone's account Mrs Serobian and Patrick were more actively involved than Mr Serobian had been. 13 The conversations that the Serobians alleged the representations were made in were all disputed by the Bank officers. There were some contemporaneous documents that the judge regarded as supporting the evidence of the Bank officers. The Serobians allege that some of the documents that the Bank relied on were concoctions. There was extensive evidence about conversations in the course of operation of the facilities. Again, the evidence of the Serobians and the Bank officers differed. I mention these matters to give an account of the type of issues that were before the trial judge for resolution. 14 It will be recalled that there were two separate facilities, namely the $4.8 million facility that had been made available to the Serobians personally and the $2 million facility that had been made available to their company. The judge recorded at paras [318] and [319] of his judgment that there were only two matters that were relied by the Serobians in defence of the claim concerning the $4.8 million facility. One of those was that the mortgage of the Manly property was liable to be set aside because it had been witnessed by someone who was a party to the mortgage, namely a bank officer, and they also challenged the interest rates that were claimed by the Bank as being excessive. They claimed that those were excessive not only as contributing to an ultimate increase in the amount that was owed to the Bank but also as being relevant to them having fallen into default in the first place. 15 Concerning the $2 million facility, they alleged that it was represented to be without recourse to their personal assets. They also asserted that the Bank had represented that it would not be requiring a security over the properties at Cranebrook and The Entrance, then reneged on that representation. There were various guarantees that the Serobians gave that were attacked under the Contracts Review Act. The relief that they sought concerning those guarantees was not of immediate relevance to the Bank's claim against them because they were not being sued on those guarantees. 16 The challenge to the mortgage was based on a witness to the document being a bank officer and the contention that a party to a mortgage cannot be a witness to such a document, and the bank officer was a party to the mortgage. The judge held that that submission was unsustainable because the bank officer was not a party to the mortgage. I can see no reason to doubt the correctness of that conclusion from a legal point of view. 17 As well, the mortgage was in a form that was prescribed under the Real Property Act 1900. The legal requirement that a witness not be a party to a document that the Serobians had relied on was a requirement under s 38 Conveyancing Act 1919. That requirement applies to a deed. A Real Property Act dealing is not a deed. It has the effect of a deed once registered under s 36(11) Real Property Act but that does not make it a deed at the time of execution. Indeed there is a specific provision in s 36(1D) Real Property Act that gives the Registrar-General a discretion to refuse to accept for registration a dealing that is not attested by a person who is a party to the dealing. That the Registrar-General has such a discretion is inconsistent with a dealing witnessed in that fashion being void from the outset. 18 Each of those reasons is sufficient for this argument of the Serobians to fail. I do not regard it as having any prospects of success on the appeal. 19 As well, the judge did not accept the evidence of the Serobians concerning the alleged representations. His non-acceptance was based upon some factors in the surrounding circumstances that supported the evidence of the Bank officers, and also upon the view that he formed that neither Mrs Serobian nor Patrick was a truthful witness (paras [364]-[366]). He also did not regard Mr Serobian as a truthful witness. He described some of the relevant bank officers as being entirely unshaken in cross-examination. Though he had reservations about another bank officer as a witness (para [438]), he still preferred the evidence of that bank officer to the evidence of the Serobians. 20 The grounds in the notice of appeal are extensive, but they fall into three broad categories. The first category is one that challenges the judge's decision of law concerning whether the manner of attestation of the mortgage made it void. As I have said, I do not regard that ground as having any realistic prospect of success. The next large group of grounds all allege that the judge erred in making some particular factual finding about what had happened in the course of communications between the Serobians and the bank officers. The third group is really a consequential set of grounds alleging that the judge erred in not granting the various types of relief that had been sought in the cross summons. 21 The principles of appellate review concerning factual findings made by a trial judge are those stated by the High Court in Fox v Percy [2003] HCA 22; (2003) 214 CLR 118. Those principles recognise that a trial judge has an advantage that an appellate court cannot have, and that the circumstances in which an appellate court is able to overturn a trial judge's decision in part based on demeanour are limited. The sort of circumstances where that can happen is where there are incontrovertible facts or uncontested testimony that will demonstrate that the trial judge's conclusions are erroneous, or in some quite rare cases that, although the facts fall short of being incontrovertible, the appellate court may reach the conclusion that the decision at trial is glaringly improbable or contrary to compelling inferences in the case (Fox v Percy at [28]-[29]). I have read the submissions that Mrs Serobian seeks to make and she does not point to any matters of those types. She contends strongly that the judge was wrong, but her submissions do not reach the higher standard that is required under Fox v Percy. 22 I have mentioned that there was an earlier application made by the Serobians to Sackville AJA. Concerning interlocutory injunctions, McLelland J in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46 laid down a principle, that has often been repeated, to the effect that even though there is no res judicata or issue estoppel that prevents an interlocutory order from being revisited and varied, there is an ordinary but not invariable rule of practice, founded on the interests of justice, that such an application should be founded on a material change in circumstances or discovery of new material. In light of the close similarity between interlocutory injunctions and stays pending appeal, that rule of practice is also applicable concerning applications for stay pending appeal. 23 There has been no relevant material change in circumstances or discovery of new material since the application before Sackville AJA. Rather, in substance today, Mrs Serobian is seeking another opportunity to put arguments that she did not put to Sackville AJA. In accordance with the usual practice articulated in Brimaud v Honeysett Instant Print Pty Ltd I would be justified in peremptorily dismissing the present application. However, as I have had an opportunity overnight to consider the matter, and as it is of considerable importance to the Serobians, I will go on to deal with the arguments that Mrs Serobian wishes to put. 24 The first of them is that the appeal would be nugatory without a stay. That is a submission that is not altogether correct. Besides argument about the order for possession there are also arguments about other matters such as the extent to which interest ought be charged on the facilities. Nonetheless, it is true that a very substantial practical objective of the appeal would be lost if the Manly property were to come to be in the Bank's possession prior to the appeal being decided. 25 She also relies on there being significant hardship if the stay is not granted in that the home will be lost. It is the home of not only of Mr and Mrs Serobian but also of five other people by the name of Serobian who I take to be their children. One of those occupants is a child who is sitting for the Higher School Certificate. For anyone to lose their home is a very significant matter and one that needs to be taken into account. Likewise though, it is of great social importance that credit be available, and available in circumstances where legal arrangements concerning securities are enforceable and are not frustrated in their enforcement. 26 The next matter that she puts forward is a fear that the Bank will sell the house at an undervalue. That is a matter for which there is only a very slight evidentiary basis. As well, there is no offer to make any payment of any amount secured by the mortgage at all, which is a frequent condition of granting a stay of exercise of power of sale in circumstances where there is no challenge to the existence of the power of sale. The only challenge to the existence of the power of sale is the argument about witnessing of the mortgage and arguments that are dependent upon the success of the argument that were put in the court below about misrepresentations on the part of the Bank. In those circumstances, for reasons I have already given, I am not satisfied for the purposes of an interlocutory application that there is prospect of establishing that the power of sale does not exist. 27 The limited evidentiary basis that I mentioned of a fear that the Bank might sell at an undervalue is that there was another security property that the Serobians had at 3/22-26 Addison Road, Manly that a real estate agent estimated should bring between $3.8 to $4.2 million. It was in fact sold by the Bank for $1.95 million. Those bare facts are insufficient to establish a serious case to be tried that the Addison Road property was sold at an undervalue, or that the Manly property would be sold at an undervalue, in each case in a way that would be a breach of a mortgagee's duties in exercising a power of sale. 28 Mrs Serobian relies on allegations that the Bank failed to follow its own practices in various respects. That is the sort of thing that can be of relevance in an application under the Contracts Review Act, but it seems to be the case of the Serobians themselves that the facilities were being sought at least substantially for business purposes. That would have the consequence that a defence under s 6 of the Contracts Review Act would be likely to succeed. Failure of the Bank to follow its own practices can also be a relevant factor so far as the Trade Practices Act unconscionability defence is concerned, but it is only a factor and is the sort of thing that would need to be taken into account along with the allegations concerning representations. 29 There is an allegation that it was the Bank that put the Serobians into default by not agreeing to refinance proposals in the course of 2007. Insofar as those allegations related to a contention that in 2007 the Bank agreed that it would make a $750,000 facility available but did not do so, it has been considered by the judge at [449]-[463], and rejected by the judge on grounds that include credibility. That means that the Court of Appeal would be subject to the difficulties I have earlier adverted in overturning that decision. Otherwise, so far as actions of the Bank after the default are concerned, the contentions were not put to the judge and I am not persuaded that there is a sound evidentiary basis for them. 30 There is a dispute about whether the Bank has adequately accounted for an amount of $275,000, being the sale proceeds of the property at The Entrance. Even if the Bank has not accounted properly for that amount, a topic on which I say nothing, that would at best reduce the principal that was owing on the Manly property. 31 There was no dispute on the pleadings in the case that the $4.8 million was advanced to Mr and Mrs Serobian personally. There was a dispute about whether it was advanced on the type of facility that Bank officers had represented that it would make it available on. There was a claim that the Bank had initially represented that it would make available a type of facility that charged a lesser interest rate than that which was ultimately entered. The judge has rejected the Serobians' evidence about those representations. In any event, even if such a representation had been made, it would affect the interest rate chargeable but would not affect the fact that the principal was owing. 32 Mrs Serobian makes a point about her medical records being removed from an affidavit. There is no evidence before me about the circumstances in which they were removed so I am not able to place weight on that factor. 33 She reiterates a claim made to the judge that Mr Serobian knows only rudimentary English. The judge rejected that claim on bases that included his own observations. Again, an appellate court would be constrained about what they could do concerning that finding. 34 The mortgages in question were executed in December 2004. Apart from the legal argument to which I have earlier adverted, the attestation of the mortgage is contested on the ground that the witness, Ms Bell, said that the Serobians were personally known to her. Even if that statement were false it would not invalidate the mortgage. 35 In any event, even on Mrs Serobian's account, the Serobians' mortgage broker first made contact with the Bank and in particular Ms Bell on their behalf. According to Mrs Serobian's account, the Serobians met Ms Bell on 14 October 2004 at a meeting attended by their mortgage broker. They also met Ms Bell on 22 October. After that there was a course of correspondence in which both Ms Bell and Mrs Serobian were involved concerning the proposed loans. 36 The attestation clause on a standard form mortgage, insofar as it requires the witness to say that the person executing the mortgage is someone with whom the witness is personally acquainted, has as its purpose the prevention of execution of a mortgage by someone who is falsely pretending to be the registered proprietor. The "personally acquainted" phrase takes its colour from that purpose. I do not see a basis on Mrs Serobian's evidence for contending that Ms Bell did not have enough acquaintance with the Serobians to be able to give the certificate. 37 Mrs Serobian repeats a claim that was made to the trial judge that a letter that purports to emanate from Mrs Serobian dated 16 December 2004 is a forgery. The judge has considered and rejected that claim on grounds that include demeanour of witnesses and matters concerning the inherent probabilities of the claim such as the typed fax transmission report that appears on the head and foot of the letter. On an appeal, this contention also would need to be evaluated in light of the principles of Fox v Percy. 38 There was also an application for leave to administer interrogatories to the Bank to ascertain some additional facts concerning circumstances in which the documents came to be executed and enforced. A Court of Appeal does have power to receive fresh evidence under s 75A Supreme Court Act 1970. The principles in accordance with which fresh evidence is allowed have been summarised by Handley JA (Hodgson JA and Hunt AJA agreeing) in Wright v Ryan [2005] NSWCA 368 at [24]. They require that the evidence be such that it could not have been discovered by the exercise of reasonable diligence before the trial, that it must be of such probative value and significance that taken with the evidence given at the trial it will in all probability be decisive of the issues between the parties and result in a different verdict. 39 There is no reason why interrogatories could not have been administered in the court below. Even if they were answered, the evidence resulting from them could not be said, now, to meet the test for admission of further evidence on appeal. In those circumstances I am not prepared to order that they be answered. 40 For the reasons that I have given, and have deliberately given at some considerable length, it seems to me that it is not appropriate to make an order for stay pending an appeal. I am, however, minded to make an order of stay for a very short period of time. The basis for that is purely a basis of hardship. It is true that the Serobians have been living in a waterfront home without paying a cent since the latter part of 2007. They do not offer to pay a cent now. They say that is because they cannot. I do not have any reason to doubt that. Nonetheless, the rights of the mortgagee cannot be overlooked, and indeed must be given considerable weight. It may be that up to now a prospect of success on appeal may have led the Serobians to not face up to the practical reality that they may need to move out of their home. It seems to me that now they must face up to that practical reality. 41 The course that I propose to take is to allow them sufficient time to be able to leave in a somewhat more orderly fashion than would happen if the sheriff were to arrive on their doorstep on Monday morning next. I am conscious that they have already had the benefit of very considerable indulgence from the Bank. The Bank has made offers to them in the past to permit them to leave in an orderly fashion by extending them time in which to do so. They have chosen not to take up those offers. 42 I am conscious that the Bank will, in the period that I propose to allow, have a debt that is increasing, with no practical prospect of recovering it. However, much of the Bank's debt already is a debt that it has no practical prospect of recovering. The order that I am prepared to make is to stay the execution of the order for possession for a further four weeks. 43 I order that execution of the writ of possession of the premises at 1/30A Addison Road, Manly be stayed until 10am Monday 19 October 2009. 44 Mr Dowdy, counsel for the Bank, has submitted that I should require as a condition of an extension that I obtain an undertaking from the Serobians that they will vacate the property. The only person who is before me is Mrs Serobian. There are six Serobians living in the property. I do not think anything practical would be gained by obtaining an undertaking from her alone. I therefore decline that application. 45 Should any further application for stay be made, Mrs Serobian will need to take into account the extent to which the matter has received consideration today, and also the principles in Brimaud v Honeysett Instant Print Pty Ltd. Of course, it would be a matter for any judge hearing any further application as to what he or she did with it. However, I should not be thought to be encouraging the making of any such application. 46 [Discussion as to costs.] 47 Beyond the orders I have made, I order that the motion be dismissed with costs. **********

Serobian v Commonwealth Bank of Australia

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