Austand Edunburgh Elevators Pty Ltd v Marveggio - [2018] SASC 128

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
AUSTAND EDUNBURGH ELEVATORS PTY LTD v MARVEGGIO & ANOR
[2018] SASC 128
Judgment of Judge Roder a Master of the Supreme Court
7 September 2018
MORTGAGES - MORTGAGEE'S REMEDIES - POSSESSION - RIGHTS AND LIABILITIES OF MORTGAGEE IN POSSESSION
Defendant established an entitlement to defend the plaintiff's claim for possession of real property - parties are to file pleadings - there should be an early trial.
Real Property Act 1886 Part 17; Australian Consumer Law , referred to.
Glandore Pty Ltd v Elders Finance and Investment Co Ltd (1984) 4 FCR 130; Moonta Town Corporation v Rodgers (1980) 26 SASR 143; Salerno v Saunders [1993] SASC 4268; Tyndall Funds Management Australia Ltd v ACN 078 545 605 [2002] SASC 177, applied.

AUSTAND EDUNBURGH ELEVATORS PTY LTD v MARVEGGIO & ANOR
[2018] SASC 128

This is an application for possession of property under the summary jurisdiction of the Court conferred by Part 17 of the Real Property Act 1886 (SA). The property is situated in Edwardstown. The defendants are the registered proprietors.
A valuation was tendered by the defendants without opposition on the day of hearing. It valued the property, as at 20 December 2016 at $1,070,000.00.
The plaintiff holds a registered mortgage securing re-payment of money advanced by it to Q Developments, a company controlled by the first defendant. At 27 April 2018 that amount was $528,217.88. Interest accrues on the principal sum ($500,000) at $136.98 a day. There has been a default. The plaintiff has complied with Section 55A of the Law of Property Act 1936 (SA), and Part 17 of the Real Property Act.
Although the plaintiff’s case is made out on the documents, it was opposed when the matter first came up in the possessions list on 18 July 2018. There has been no dispute that there is a debt. The dispute that the defendants seek to agitate is that the plaintiff is not entitled to enforce the security at this time.
On 18 July I directed the parties to file draft pleadings and I listed the matter for argument. Draft proposed pleadings (in the forms of a proposed defence and proposed reply – it being assumed that the plaintiff’s affidavit evidence sets out the claim) have been filed. I have been greatly assisted by the concise submissions of counsel.
The question presently before me is not whether the plaintiff is entitled to the order for possession – it is whether I should exercise the summary jurisdiction. As Bleby J put it in Tyndall Funds Management Australia Ltd v ACN 078 545 605 Pty Ltd[1] at [12], have the defendants raised an apparently credible case in opposition to the application for possession?
[1] [2002] SASC 177.
The invariable practice of the Court has been that if a defendant can establish an arguable case, the case is not dealt with in the summary jurisdiction conferred by the Real Property Act, but is directed to proceed on pleadings in the usual way.[2]
[2] Moonta Town Corporation v Rodgers (1980) 26 SASR 143, 154.
Usually, payment in of the secured sum is required.[3]
[3] Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161.
However, it is established that payment in will usually not be required if the arguable case that has been established impugns the right to seek possession. In such a case, terms may, but will not necessarily be, imposed.[4]
[4] Salerno v Saunders [1993] SASC 4268.
The plaintiff sought to argue that the proceedings are injunctive in nature, and that the defendants had not come to court with clean hands and had not made proper disclosure. That argument was developed from Salerno. In Salerno the defendant claimed that the mortgage should be set aside on the basis of unconscionable conduct, based on Commercial Bank of Australia Ltd v Amadio[5] principles. Judge Burley held that the proposition was arguable, that the matter should proceed on pleadings, and declined to impose any conditions.
[5] (1983) 151 CLR 447.
How can Salerno be said to found a proposition that the present matter is in the nature of an application for an interlocutory injunction that all of the learning about such injunctions is to be imported? Salerno was not a case involving an application for an injunction. Like this case, it was an application under Part 17.
A mortgagee seeking to exercise a power of sale has the option of proceeding under the mortgage – in which case an injunction might be sought to restrain the exercise of the power of sale – or alternatively of proceeding for a court order for possession. If the latter alternative is chosen, the mortgagee may (but need not) seek to invoke the summary jurisdiction under Part 17.
In Salerno, Judge Burley said:
…where possession of land is sought pursuant to a mortgage and an arguable ground of defence arises which cannot be disposed of summarily, the Court may direct that pleadings be filed and that the matter proceed to trial in the ordinary way. As a condition of such a direction the Court may require the defendant to pay into Court a sum of money "so as to ensure adequate protection to the mortgagee and to otherwise do justice between the parties during the period pending the final hearing": per Morling J, Glandore Pty Ltd v Elders Finance and Investment Company Limited,[6] at p.135. Although this case involved an application for an interlocutory injunction to restrain a mortgagee from enforcing a mortgage, the principle there stated is equally applicable where a mortgagor opposes a summary application for an order for possession on the basis that the mortgagor has arguable grounds of defence.[7]
[6] (1984) 4 FCR 130.
[7] [1993] SASC 4268 at [7].
I agree. That aspect of an application for an interlocutory injunction to restrain the exercise of a power of sale is equally applicable where a mortgagor opposes the exercise of the summary jurisdiction under Part 17. But that does not mean that all of the principles that relate to interlocutory injunctions are imported into the question of whether or not the Court should exercise the summary power under Part 17. There are some similarities between the tests that are applied. But the two sorts of proceedings are quite distinct in nature. The plaintiff could have proceeded in a way that required the defendants to apply for an injunction. It did not stop. It elected, no doubt for proper forensic reasons, to proceed in the way that it has.
In any event, I am not satisfied that “unclean” hands have been shown – or that there was any need, in the circumstances in which the matter comes before me (given the orders of 18 July 2018), to make the disclosure that the plaintiff suggests is necessary.
I turn to the question of whether the defendants have raised an apparently credible case in opposition to the application for possession.
In the draft defence (FDN 4) the defendants indicate that they propose to plead (inter alia) that:
·The loan was made in the context of an agreement for commercial development of the property, in which development the plaintiff would have the contract to supply and install lifts and would also purchase an apartment on advantageous terms.
·Mr Zhang, director of the plaintiff, made representations to the first defendant that the plaintiff would not require payment by Q Developments until such time as it could make payment, and would not enforce the loan agreement until that time.
·The defendants relied on the representations and executed guarantees and the mortgage in consequence.
·The loan was only one element of a broader agreement between the parties, Mr Zhang and Q Developments about the development of the property and about the plaintiff’s entry into the South Australian market.
·The subject property is owned by the defendants as trustees of a Self‑Managed Superannuation Fund and they executed the mortgage in error – they believed that they were mortgaging an adjacent property.
The defendants contend that there has been misleading and deceptive conduct contrary to the Australian Consumer Law, unconscionable conduct in equity or under the Australian Consumer Law, and illegality.
The relevance of the Self-Managed Superannuation Fund is said to be in Section 34 of the Superannuation Industry (Supervision) Act 1993 (Cth), which provides:
Prescribed operating standards must be complied with
Standards must be complied with
(1)    Each trustee of a superannuation entity must ensure that the prescribed standards applicable to the operation of the entity are complied with at all times.
Note: Section 166 imposes an administrative penalty for a contravention of subsection (1) in relation to a self managed superannuation fund.
Offence
(2)    A person who intentionally or recklessly contravenes subsection (1) commits an offence punishable on conviction by a fine not exceeding 100 penalty units.
Note: Chapter 2 of the Criminal Code sets out the general principles of criminal responsibility.
Validity of transaction not affected by contravention of (1)
(3)    A contravention of subsection (1) does not affect the validity of a transaction.
The draft reply (FDN 5) denies that the representations were made. That is a matter that cannot be resolved in summary proceedings. The draft reply further asserts that the alleged representations could not, as a matter of law, be “material”. I cannot say that the defendants’ proposed plea is so hopeless as a matter of law that I should determine it without a trial. Similarly, the draft reply denies unconscionable conduct and also pleads the defendants’ allegations cannot, as a matter of law, amount to unconscionable conduct. The particulars do not – to me – appear to address the question of law. Unconscionable conduct is a notoriously fluid concept and always depends on findings as to facts.
The plaintiff criticised the proposed pleading relating to the Self-Managed Superannuation Fund. I agree that the defendants cannot rely on their own misconduct in respect of the Superannuation Industry (Supervision) Act absent a plea that implicates the plaintiff in that breach. In any event, it appears clear to me that the plaintiff’s submission about Section 34 is correct – the admitted breach does not invalidate the transaction.
Counsel for the defendants asserted in argument that the defendants do not rely on that plea as a separate basis of relief. It was said that it goes to the plea of mistake. If that is now the defendants’ position, paragraph 2.3 of the “orders and ancillary remedies” in FDN 4 is untenable.
On the evidence, the proposed plea and counsel’s submission, the proposed plea of mistake could only be a plea of unilateral mistake by the defendants. There is no proposed plea – or evidence – that implicates the plaintiff in any such mistake. Again, counsel explained in submissions that the mistake plea was not to set up a cause of action (and I take it also not to set up a defence) but goes to the issue of prejudice in the context of both the pleas of misleading and deceptive conduct and unconscionability. I cannot say that that could not work. I do, however, say that the plea needs to be re-cast.
On that point, the proposed defence asserts a positive case and claims relief. It is clear that it should be treated as a defence and counterclaim – and should the defendants be entitled to pursue it, they should proceed accordingly.
I express no view whatsoever on the defendants’ prospects of successfully making out misleading or deceptive conduct – or unconscionable conduct – other than to say that I cannot say that the proposed pleas could not work, nor could I say that there is no evidence at all to support them. In those circumstances they are “credible”.
I am satisfied that this matter should not proceed on a summary basis. I will direct that it proceed on pleadings. The parties have prepared drafts of their pleadings. It should not take long for them to be formally filed. Disclosure should not take long. There should be an early trial.
I am satisfied that this is a case of the type in which the right to enforce the security is impugned. That being the case, it is not necessary for an order for payment in of the debt to be made. The remaining question is what, if any, terms should be imposed.
At this stage, it appears to me that considerations similar to the “balance of convenience” test will often play an important part. That is both in deciding whether conditions should be imposed and, if so, in moulding such conditions. I accept that the plaintiff is not a bank. On the other hand, it is a commercial investor in a commercial project in what is alleged to be a larger context. Counsel for the plaintiff said that the plaintiff “needed” its money back. There is no evidence of any “special” “need”, but I accept that a party who has been kept out of its money and who has given notice under Section 55A must at least be taken to be a party who wants its money – and I doubt that proof of “need” is necessary.
I also take into account the valuation, accepting that there are difficulties associated with its date and the timing of its tender. I repeat that the tender was by consent, and there was no request for any time to consider it – or its basis.
In my view, the “balance” clearly favours the defendants, provided that there is compliance with the timetable I propose to put in place. I am satisfied that a tight time-table with an early trial should provide sufficient protection to the plaintiff.[8]
[8] See Salerno at [12]. See also Gerblich v Perpetual Trustees Victoria Ltd [2016] SASC 14.
The defendants suggested that there should be a mediation in the period in which the parties are preparing for their early trial. The plaintiff opposed that. It is clear that in this case, there is, at least in the plaintiff’s view, “nothing to mediate”. Given my conclusion about the need for an early trial (for the protection of the plaintiff) it is appropriate to dispense with any order for mediation or other alternative dispute resolution. Of course, that does not prevent the parties negotiating in the meantime. I note that these parties have previously engaged in litigation about this loan, and that that litigation[9] was discontinued on 7 May 2018. I would urge the parties to attempt to resolve the current dispute.
[9] SCCIV-18-210.
I will make the following orders:
1Plaintiff is to file and serve statement of claim within 7 days.
2Defendants to file and serve defence and any counterclaim within a further 7 days.
3Plaintiff to file and serve reply and any defence to counterclaim within a further 7 days.
4Within those 21 days both parties make disclosure.
5I direct an early trial of the Action.
6I dispense with mediation, settlement conference, or any other alternative dispute resolution, but without preventing the parties engaging in such activity of their own motion.
7Adjourned to 11 October 2018 at 9.45am.
8Compliance with this timetable is important. If the plaintiff does not comply, the Action may be withdrawn from the urgent list. If the defendants do not comply, the Action may be returned to the summary judgment list.
9Permission to both parties to apply on short notice.