Stolyar v Scott

Background 4 The background of these proceedings was outlined in the primary judgment. As that judgment is very long (necessarily so given the broad factual sweep), I will give a brief summary here. 5 Ms Stolyar and her late husband purchased the Francis Street property in 1985. They resided there. Ms Stolyar became, and remains, its sole registered proprietor after the death of her husband: Scott (Trustee), in the matter of Stolyar (Bankrupt) v Stolyar [2022] FCA 691 (Stolyar (No 1)) at [51], [61]. An appeal from this matter was dismissed by the Full Court (Banks-Smith, Downes and Jackman JJ) in Stolyar v Scott (Trustee) [2023] FCAFC 61. 6 In 1992, Mr Ian Stolyar purchased the Ocean Street property. This property was transferred to Ms Stolyar as an unencumbered property in 2013 for no consideration. The transfer was successfully voided by the respondent as Mr Stolyar's trustee in bankruptcy pursuant to s 120 of the Bankruptcy Act 1966 (Cth) (see Stolyar (No 1) at [306]). The portion of the appeal which dealt with these orders was abandoned at the hearing before the Full Court. 7 On 8 May 2015, Ms Stolyar entered into a loan agreement with BABL and borrowed the sum of $1,480,000 (BABL Loan) secured by way of a first registered mortgage over the Ocean Street property and the Francis Street property (see Stolyar (No 1) at [527], primary judgment at [10]). 8 On 6 September 2022, orders were made declaring that Ms Stolyar held the Ocean Street property on trust for the respondent and requiring her to transfer the Ocean Street Property to him (6 September orders). The orders provided that: 14. [Ms Stolyar] take all necessary steps and do all necessary things to enable title to 11/2 Ocean Street to be transferred to [the respondent], including by: (a) executing a transfer without monetary consideration in registrable form, providing for the transfer of the title to 11/2 Ocean Street to the [respondent]; … 9 Ms Stolyar then ceased paying interest on the BABL loan and went into default. In proceedings commenced in the Supreme Court of New South Wales, orders were made in favour of BABL for possession of the Ocean Street Property (Bendigo & Adelaide Bank Limited v Stolyar [2024] NSWSC 710). 10 The respondent then brought an application - the subject of the primary judgment - seeking the sale of the Francis Street Property in exercise of his equity of exoneration so as to enable repayment of any balance of the BABL Loan not covered by the sale of the Ocean Street Property. Ms Stolyar resisted this on the basis that the relief sought should not be allowed on an exercise of liberty to apply, post-judgment, and that laches on the part of the respondent negated his claim.

The decision of the primary judge 11 The primary judge was satisfied that the respondent's interlocutory application was properly brought pursuant to Order 40(d) of the 6 September orders, which provides that: The parties have liberty to apply for any further orders or directions: … (d) otherwise consequential or required to give effect to these declarations and orders. 12 The primary judge at [20] relied on the statement of claim filed in the Supreme Court of NSW proceedings to find that as at 20 May 2024 the amount owing by Ms Stolyar under the BABL Loan was $1,687.160.16. The value of the properties were assessed as follows at [21]: (1) the Ocean Street Property is between about $1.45m and $1.575m; and (2) the Francis Street Property is between about $1.75m and $1.925m. 13 The primary judge found at [58] of the primary judgment that: (1) as the Ocean Street Property is subject to a mortgage securing Mrs Stolyar's obligations under the BABL Loan, the Trustee is a surety for that loan. The Trustee had an interest in the Ocean Street Property at the time the mortgage over it was given to Bendigo and Adelaide Bank. That is, the property in which he has a beneficial interest by reason of the 6 September Orders is mortgaged as security for the BABL Loan; (2) Mrs Stolyar is the principal debtor under the BABL Loan. The Trustee is entitled to be indemnified by her in respect of that loan; and (3) the right of indemnity is secured by way of a charge over the Francis Street Property and the Trustee also had an entitlement to be subrogated to Bendigo and Adelaide Bank's mortgage over that property if it is paid out: see Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [4]. 14 The primary judge found at [59] that: The Trustee's beneficial interest will be taken and sold by Bendigo and Adelaide Bank upon the exercise of its power of sale under its mortgage and the proceeds of that sale will be applied by Bendigo and Adelaide Bank in satisfaction of the BABL Loan. 15 And at [62]: Mrs Stolyar's liability to Bendigo and Adelaide Bank has clearly arisen. Bendigo and Adelaide Bank has issued a demand for the amount owing under the BABL Loan, has obtained an order for possession of the Ocean Street Property and has notified the Trustee of its intention to sell. To adopt the phrase used by the Full Court in Abigroup, "the cloud" is hanging over the Trustee's head and he should be able to remove it before it starts to rain. 16 The primary judge held that Ms Stolyar failed to discharge her onus of proof in relation to the defence of laches. She concluded that first, it cannot be said that the respondent unduly delayed his interlocutory application nor otherwise acted inconsistently with his entitlement to be indemnified by Ms Stolyar for her liability under the BABL Loan, and second, Ms Stolyar had not demonstrated that she suffered any prejudice or prejudicial change in circumstances (at [66]-[67]). The primary judge accordingly appointed the respondent as receiver, and made orders for the sale of the Francis Street property in aid of the respondent's right of indemnity.

Grounds for leave application and stay application 17 The grounds of the application for leave to appeal were based on (in summary): (a) A lack of procedural fairness on the basis of the primary judge "making her decision without any evidence" from the respondent or from BABL, and an allegation of bias "by making her decision without evidence" (b) The determination of the issue under exercise of liberty to apply; (c) An argument based on a calculation of "the amount of the mortgage against Ocean Street property"; (d) Errors in the application of the doctrine of laches; and (e) A lack of consideration of the effect of the order on Ms Stolyar, and "without giving Ms Stolyar an opportunity to make submissions in opposition of the appointment" of the receiver. 18 The stay application was based on similar grounds to (e) above, and raised discretionary issues of hardship. 19 The following affidavits were read on the applications: (a) Affidavit of Ms Stolyar dated 24 September 2024 (for the applicant on the leave application); (b) Affidavit of Ms Stolyar dated 23 September 2024 (for the applicant on the stay application); and (c) Affidavit of Stephen Keith Mullette dated 21 October 2024 together with two exhibits, SKM-1 and SKM-2 (for the respondent on both applications). 20 Each of the parties filed written submissions. However, Ms Stolyar's oral submissions (as delivered by her son) differed to some extent from the grounds enunciated in both the draft grounds of appeal, and the written submissions. Those oral submissions focused on the fact that there were two properties over which the BABL mortgage was secured, and the fact that the respondent had been receiving the rent but had not making payments on the mortgage. Further, Ms Stolyar pointed me to annexure A to her affidavit of 24 September 2024 which established, it was said, that the value of the Ocean Street property was, in 2020, around $1.2M and that "[the Bank's] mortgage was about $700K". 21 On 21 October 2024, the Respondent filed submissions opposing the stay application. In its submissions, the Respondent states that these would be the "same submissions as would be made by the respondent in response to Ms Stolyar's application for leave to appeal". In short, those submissions were that:- (a) The proposed appeal was hopeless; (b) The arguments advanced on this application do not reflect the grounds of appeal or the arguments advanced before the primary judge; and (c) The balance of convenience weighs against a stay.

The applicant's submissions 22 As noted above, the applicant's written submissions differed somewhat from the grounds identified in her application. They were made under the following headings: (a) Trustee's case; (b) Evidence: it was up to the Trustee to prove his case; (c) The Appeal; and (d) The Balance of Convenience (which were submissions on the stay). 23 Additionally, the applicant submitted on laches, and whether the primary judge was entitled to grant the relief on the exercise of liberty to apply granted to the respondent. 24 As to the "Trustee's Case" argument, the main basis of the applicant's affidavit and submissions on this point can be summarised as follows. The "trustee's case" was that "the whole $1,480,000 was secured by the Ocean Street property". The respondent was entitled to a transfer of the Ocean Street property, but did not exercise that right, and because the mortgage was in default, the bank obtained possession of the Ocean Street property. The claim that the trustee had an "equitable charge" over the Francis Street property was "false". 25 Ms Stolyar characterised the process by which BABL took possession of the Ocean Street property as the respondent having "given up his right to the property". Ms Stolyar cited the transcript of questions asked by the primary judge as to the role of the trustee and why the bank was not appearing in the proceedings, given the existence of the Supreme Court of NSW proceedings before Lonergan J. The passage from the transcript was that before the primary judge on 22 August 2024 at page 16 where her Honour asked the following question of Mr Golledge SC who there appeared for the respondent: HER HONOUR: I don't understand why the bank isn't here, quite frankly. MR GOLLEDGE: It's clear from what's happened in the Supreme Court, the bank, with respect, is taking the line of least resistance. There was no defence to an order that possession be taken of Ocean Street, for frankly obvious reasons. It's Mrs Stolyar's preference that that be sold, because she no longer has any entitlement to that property. And the bank, seeking to, no doubt, act in its own best interest, has taken up that opportunity - taken that course, because it will produce a relatively large sum of money and will reduce a large part but not all of its debt. And unfortunately, that's a matter for the bank. We wouldn't be in a position to require it to marshal against the other property. 26 Ms Stolyar pointed to her Honour's question as an indication that the Bank should have appeared and been subject to questioning by her (or her son) in those proceedings, and the failure of the Bank to appear was not procedurally fair to her. 27 In relation to the "Evidence" point, Ms Stolyar said in her affidavit that "the [respondent] failed to provide any evidence and the Court made its judgment without evidence, hence I feel that I was not provided with Procedural Fairness". The lack of evidence is said to be that she was unable to cross-examine a representative from the bank. 28 Ms Stolyar submitted that because the bank was a party to the primary proceedings, but took no active role, there was "some kind of a relationship" between the bank and the respondent, and that there were "some kind of conversations going on". When queried as to the relevance of this, Mr Stolyar said he was saying it "in a negative way" and that the net result was that "Ms Stolyar couldn't cross-examine the bank on what the loan was or why - you know, why these things happened, to give [the primary judge] a bit more understanding of how everything was structured". 29 The "structure" argument was, as I could discern it, as follows. First, there was (on the basis of a table annexed to Ms Stolyar's affidavit as Annexure A) around $500,000 equity in the Ocean Street property after $700,000 was allocated for the BABL mortgage. I pause here to note that the provenance of this document was described as being prepared by the respondent, in 2020, when there was a discussion about the sale of another property in the Stolyar portfolio. It appears from its terms to be a document prepared for some kind of settlement or other arrangement as it includes figures put forward by both the respondent and by Ms Stolyar. 30 Second, the trustee should have sold the Ocean Street property and taken the equity in it, and "that would have left the bank with only one property against whatever the mortgage was left there". Third, there was "no evidence" before the primary judge as to why BABL proceeded against the Ocean Street property when two properties were secured by its mortgage. Fourth, the respondent "blamed the bank" for taking proceedings "in its own best interest". 31 Ms Stolyar was insistent that had the respondent sold the Ocean Street property, the bank would have been content with a partial discharge of $720,000 and would have been content to leave the balance of the mortgage secured against the Francis Street property. In her affidavit, Ms Stolyar said that the equity in Ocean Street "would have fully repaid the $520,000, the value of the property at the time of the transfer in 2013 plus interest". No evidence was provided in relation to the assertion that the bank should or would be satisfied with such a partial discharge, apart from a reference to paragraph [459] of Stolyar (No 1) sent by Mr Stolyar to the Registry after judgment was reserved and without leave to provide further submissions. I have therefore not had regard to this, but note however that her Honour's reference to a partial discharge of the Ocean Street property as security for a different loan, by a different bank, does not prove the point Ms Stolyar sought to make. 32 In relation to "The Appeal", the short point was that, without the evidence referred to above, the primary judge should not have "published her judgment and orders without evidence and believes a miscarriage of justice has occurred". 33 As to "The Balance of Convenience", Ms Stolyar relied on her need for somewhere to live, or alternatively her need for the income from the property to provide her with an income. She relied on her affidavit of 23 September 2024 which set out that the rent from Francis Street ($3,324 per month) paid for her medications, her "current lodgings and living expenses", and set out her health conditions. Obviously a stay would only be relevant were the applicant to be successful in a grant of leave to appeal. 34 Additionally, the argument as to laches was put on the following basis: MR STOLYAR: So the trustee was aware at that time in 2020 that there was - first of all, there was a mortgage, and there was equity in the actual property, but for whatever reason, he still decided not to proceed with the thing - with the transfer or with the sale of the property, realising the equity, which was Federal Court orders - orders of Markovic J allowed him to do. So what was left at that time is that the trustee withdrew from the whole of this deal. So what basically happened is it was the bank against Ms Stolyar, and from Ms Stolyar's point of view, it was that the trustee has given up his right to the property. He didn't want to be involved in selling the property or discharging the actual debt. … And so it went to the Supreme Court, your Honour, and Supreme Court Lonergan J, after listening to Ms Stolyar's evidence, has basically said, okay, the trustee is not involved in this, you sure you want to know about the - I mean, she was given the trustee's orders, she knew all about it, she said, "Look, the trustee doesn't want to have anything to do with it, it's against Ms Stolyar, and Ms Stolyar's argument was that the sale of Ocean Street property would be enough to clear the whole debt. And she agreed with that, and she made orders that only Ocean Street property - sorry, that the bank only take possession of Ocean Street property. From there, the trustee, about two months later, has brought up this application here, your Honour, that we are appealing. 35 On the question of whether the primary judge was entitled to make the orders she did on an exercise of the liberty to apply, the applicant (through Mr Stolyar) put her argument as follows: It wasn't open to [the primary judge] to - to state that the trustee was … allowed to - to apply for fresh orders under liberty to apply. And also, for the - as to regard to the Francis Street property. Francis Street property was never part of any claim by the trustee. It was not part of the judgment. It's a property which is outside of all the realms of all the claims. And Francis Street property has got its own - its own mortgage, its own debt. Its own life, basically. (edited slightly for clarity)

The respondent's submissions 36 The respondent relied on what it said was a fundamental misunderstanding by Ms Stolyar of the effect of the mortgage and of the right of exoneration. Counsel for the respondent noted that the submissions for the applicant were advanced by Ms Stolyar on the incorrect basis that she was liable only for around $760,000 of the principal debt on the Ocean Street property and that the balance was to be paid into court. 37 As to the Trustee's Case, the respondent pointed to the fact that this ground raised a factual dispute which was not raised by Ms Stolyar before the primary judge (being the amount of the mortgage originally referable to the Ocean Street property), nonetheless the respondent said that the ground was "hopeless on the merits", and pointed to evidence before the primary judge of the total amount borrowed. The respondent submitted that the right of exoneration would be the same regardless of the precise amount borrowed by Ms Stolyar. 38 As to the Evidence point and The Appeal, the respondent noted that these are based on the same premise, that Ms Stolyar's liability to the Bank and to the respondent rested on two loans, one over each property, and that that premise was manifestly incorrect. The respondent relied on the mortgage annexed to the affidavit of Mr Mullette which, as counsel for the respondent said, was "literally one mortgage" - one loan, secured by two properties. I note that Counsel used the word "literally" in its primary dictionary meaning of "in a literal sense" and not in the common figurative meaning as an intensifier (see Macquarie Dictionary, definition 2 as opposed to 3(b)). 39 The respondent noted that there was no challenge to the facts found by the primary judge and that raising on this leave application an issue of there being two separate loans, one over the Ocean Street property and one over the Francis Street property, was not available given the finding by the primary judge that: On 8 May 2015 Mrs Stolyar entered into the BABL Loan and borrowed $1.48m from Bendigo and Adelaide Bank secured by way of a first registered mortgage over both the Ocean Street Property and the Francis Street Property. See Stolyar (No 1) at [527(2), and [10] of the primary judgment). 40 There was, it was submitted, significant evidence on the issue of the properties secured by the mortgage before the primary judge, including the Court Book in those proceedings which was in evidence before me, which included the mortgage document itself at Exhibit SKM-1 at page 26 citing Folio Identifier 11/SP9328 (the Ocean Street property) and Folio Identifier 5/SP17061 (the Francis Street property) as the properties mortgaged to BABL by Ms Stolyar in 2015. 41 As to Laches, the respondent submitted that there was no evidence of the respondent acting inconsistently with his right of exoneration, nor was there any prejudice suffered. Counsel for the respondent submitted that while the respondent had not transferred the Ocean Street property into his own name, it was not possible to do so while it remained subject to BABL's mortgage, and it was unlikely to have any equity in it unless that mortgage was cleared. Again, the respondent submitted that Ms Stolyar did not rely upon the question of the equity in the loan being different to that of the sum secured by the mortgage before the primary judge. 42 Counsel for the respondent submitted: In the absence of any challenge to the proposition that the loan debt is all Ms Stolyar's loan debt in the relevant sense, and that she is the one who bears the sole obligation to exonerate the trustee, there can be no relevant prejudice to Ms Stolyar in the trustee not selling his property and then bring[ing] an exoneration claim. 43 The respondent also raised the point that, as the decision of the primary judge was a final judgment, the leave application was incompetent, as no leave need be granted for an appeal. He submitted that what was really required was an extension of time for an appeal, and that (if made) that application was likewise bound to fail. 44 The respondent noted that the draft notice of appeal did not raise any issue regarding the primary judge's determination on the respondent exercising its liberty to apply, although the applicant in its Grounds of Application for Leave does raise the matter briefly. No particular details of the "legal principles" which is it alleged that the primary judge applied erroneously were provided by Ms Stolyar, and so the respondent submitted that the contention that there was an error need not be considered.

Disposition 45 The applicant's position - not put before the primary judge - that the mortgage to BABL was somehow in reality two loans over two properties, and that the respondent has no right therefore to exoneration from the Francis Street property, is fundamentally misconceived. The mortgage was in evidence before the primary judge and, as noted above at [39], it has been found in both Stolyar (No 1) at [527] and in the primary judgment at [10] that Ms Stolyar mortgaged both properties as a single loan. No challenge was made to that finding. 46 Accordingly, the primary judge did not find, as submitted by Ms Stolyar, that "the whole $1,480,000 mortgage was secured by the Ocean Street property" to the exclusion of the Francis Street property (as appears to have been submitted by Ms Stolyar in her written submissions at [9], somewhat inconsistently with her contention that the bank was only entitled to enforce against Ocean Street the original value of the property, being around $700,000- $760,000 and as purportedly evidenced by "Annexure A" to Ms Stolyar's affidavit on the leave application). 47 Once it is accepted, as it must be, that the mortgage debt is one debt, secured over two properties, much of Ms Stolyar's grounds for leave to appeal falls away. The primary judge carefully considered the principles relating to exoneration and cited the Full Court of this Court in Parsons v McBain (2001) 109 FCR 120 and Ogilvie v Ferry [2010] NSWSC 379. Ms Stolyar does not raise any issues with the process of reasoning engaged in by the primary judge and, as noted above, does not seek to challenge the findings of fact which ground those principles. 48 Instead, Ms Stolyar seeks to raise issues unrelated to the reasoning in the primary judgment, such as whether the primary judge acted on "no evidence" and that an alleged failure to require the Bank to provide an officer to be cross-examined was a breach of procedural fairness. The transcript before the primary judge was before me in Exhibit SKM-1, and no apparent steps were taken by Ms Stolyar to obtain that evidence by way of issue of subpoena to give evidence. In any event, there is no basis for a grant of leave on that point, given that the documentary evidence of the mortgage, and the amount owing at the date of the hearing, was part of the evidence before the primary judge. 49 As to laches, it is unclear how it can be said that the respondent's case has been "defeated by delay" (see the authorities cited at [64] of the primary judgment). As was the case in before the primary judge, Ms Stolyar bears the onus to show that the primary judge erred in her findings in relation to laches. The primary judge said, and I agree, that she has failed to discharge that onus. At [66] her Honour noted that the respondent's hands were tied until BABL made its determination as to which property it would proceed against first. Once that determination was made, the respondent acted to exercise its liberty to apply and sought the orders it did. Further, there was no prejudice arising out of any delay, such as it was (see paragraphs [68]-[69] of the primary judgment), and Ms Stolyar was not able to point to any particular prejudice on the hearing of the leave application. 50 The respondent is correct that while the leave application raises the issue of liberty to apply, the draft notice of appeal does not. Accordingly, it is not necessary to decide this point. Even if it were, it is correct that the respondent's exercise of the liberty to apply falls within the statement of the Full Court of this Court in Abignano v Abigroup [1992] 39 FCR 74 at [56] (cited in the primary judgment at [33]) and Australian Hardboards Ltd v Hudson Investment Group Ltd (2007) 70 NSWLR 201 (cited in the primary judgment at [37] - [39]). As Campbell JA (with whom Tobias JA agreed) said in Australian Hardboards at [56]: … what can be done under a reservation of liberty to apply depends on what needs to be done, in the particular case, to work out the particular orders that have been made. If an order is one the working out of which of its nature involves deciding complex questions, or questions that were not specifically raised at the time that the order was made, those questions can be raised and decided in the original suit pursuant to liberty to apply. 51 Order 40 of the 6 September orders provided: 40. The parties have liberty to apply for any further orders or directions: (a) in respect of the accountings the subject of Orders 29 to 33 above; (b) in respect of the administration of the statutory trust for sale in respect of Campbell Parade; (c) for the enforcement of the security given to the applicant pursuant to Order 5 made on 23 April 2020 in this proceeding; or (d) otherwise consequential or required to give effect to these declarations and orders. 52 While not necessary to decide, the primary judge was correct to find that the question of exoneration of the respondent was properly brought, as the 6 September orders required a degree of supervision, and further or supplementary orders, in order for them to achieve their purpose. 53 In relation to the question of whether Ms Stolyar would properly require an extension of time to appeal rather than leave to appeal, I take same view as did Perram J in Stolyar v Scott (Leave to appeal) [2024] FCA 1182 where his Honour said in similar circumstances (at [17]): It is a question of some nicety whether the orders made by the primary judge were final or not and I would prefer to express no view. It will be sufficient merely to dismiss the application on its merits. In any event, the appeal time has now expired. Even if I were to treat Ms Stolyar's application for leave to appeal as an application for an extension of time within which to appeal, I would dismiss it for the same reasons. 54 The leave application is dismissed with costs. 55 Accordingly, it is not necessary to decide the stay application, as the stay was sought pending the outcome of the appeal, and that application is also dismissed with costs. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Needham.