Avery v Saree Holdings Ltd; Lava Ltd v Avery - [2012] NSWSC 463

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: Avery v Saree Holdings Ltd; Lava Ltd v Avery [2012] NSWSC 463
Hearing dates: 15/02/10, 16/02/10, 17/02/10, 18/02/10, 26/07/10, 27/07/10, 28/07/10, 29/07/10, 2/08/10, 3/08/10, 4/08/10, 5/08/10, 6/08/10, 21/04/11, 11/05/11
Decision date: 09 May 2012
Jurisdiction: Equity Division
Before: Slattery J
Decision:
Judgment for possession in the Lava proceedings not set aside - No illegal scheme found in Saree proceedings directions for an account.

Catchwords:
REAL PROPERTY - mortgages - whether monies owing on mortgage - whether side agreement that monies not owing effective - two proceedings heard together-brought by mortgagor, Ms Avery against first and second mortgagees of Torrens title land, respectively Lava and Saree - first mortgagee entered judgment for possession against plaintiff/mortgagor in March 2009 - plaintiff/mortgagor seeks to set aside in Lava proceedings - plaintiff/mortgagor seeks declaratory relief against Saree mortgagee.

PROCEDURE - judgment and orders - varying, amending or setting aside - whether existing judgment for possession in Lava proceedings should be set aside under UCPR, r 36.15 as irregularly entered due to Consumer Credit Code, s 80 notice not being served before commencement of proceedings - whether "sufficient course" is shown to set aside judgment - HELD - no irregularity in the entry of judgment - in any event sufficient cause not shown to set aside judgment for possession.

CONSUMER CREDIT - credit protection - general - regulated contracts and regulated mortgages - whether by the application of Consumer Credit Code, s 6(1) the Code applies to Lava's loan agreement to the plaintiff in the Lava proceedings - whether plaintiff/mortgagor "ordinarily resident" in jurisdiction under Code, s 6(1)(a) - whether charge made for providing the credit under Code, s 6(1)(b) - whether credit provided in the course of a business Code, s 6(1)(d) - HELD: Code applies - is a regulated credit contract.
MORTGAGE - the mortgage - second mortgage registered with Saree as mortgage - plaintiff/mortgagor claims agreed in side agreement as part of illegal scheme that no money is owing to Saree on second mortgage - HELD: side agreement not part of illegal scheme - directions for taking of accounts.
Legislation Cited: Bankruptcy Act 1966 (Cth)
Consumer Credit (New South Wales) Code
Contracts (Privity) Act 1982 (NZ)
Fair Trading Act 1986 (NZ)
Real Property Act 1900 (NSW)
Uniform Civil Procedure Rules 2005 (NSW), Part 36, Rule 15
Cases Cited: Adams v Bank of New South Wales (1984) 1 NSWLR 285
Bank of Queensland Limited v Dutta [2010] NSWSC 574
Battenburg v Restom [2007] FCAFC 195 Berowa Holdings Pty Limited v Gordon (2006) 225 CLR 364
Burrell v R (2008) 238 CLR 218
Equus Financial Services Limited v RMBL Investments Pty Limited (1996) 22 ACSR 744
Ho v Powell (2001) 51 NSWLR 572
Kendell v Carnegie (2006) 68 NSWLR 193
Lava Limited v Avery [2009] NSWSC 177
Logue v Hansen Technologies Ltd (2003) 125 FCR 590
Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) [2009] NSWCA 387
R v Holmes; Ex parte Public Service Association (NSW) (1977) 140 CLR 63
Ranmor Finance Pty Limited v Dworjanyn [2010] VSC 334
Re Taylor; Ex parte Natwest Australia Bank Limited (1992) 37 FCR 194
Santos v Delphi Petropleum Pty Ltd [2002] SASC 272
Taylor Brothers Limited v Taylor Group Limited (1988) 2 NZLR 1
Category: Principal judgment
Parties:
Plaintiff- Leanne Maree Avery
Defendant- Saree Holdings Limited
Plaintiff/Cross Defendant- Lava Ltd
Defendant/Cross Claimant- Leanne Maree Avery
Representation:
Counsel:
Plaintiff (Ms Avery)- B. Walker SC (21/4/11, 11/5/11), M. Dempsey SC (26/7/10, 27/7/10, 29/7/10), R. Alkadamani (15/2/10, 16/2/10, 17/2/10, 18/2/10), D. Jenkins (26/7/10, 27/7/10, 28/7/10, 29/7/10, 2/8/10, 3/8/10, 4/8/10, 5/8/10, 6/8/10, 21/4/11, 11/5/11)
Defendant (Lava Ltd & Saree Holdings Ltd)- G. Parker SC (21/4/11, 11/5/11), M. Condon (15/2/10, 16/2/10, 17/2/10, 18/2/10, 26/7/10, 27/7/10, 28/7/10, 29/7/10, 2/8/10, 3/8/10, 4/8/10, 5/8/10, 6/8/10, 21/4/11, 11/5/11)
Solicitors:
Plaintiff (Ms Avery)- Rob Tassell, Verekers Lawyers (from 19/11/10), Nicholas Karefylakis, Nicholas Karefylakis (from 24/9/2010 to 19/11/10), Peter Stewart Moore, Moore & Associates (from 21/4/10 to 24/9/10), Rodney Commins, Patterson Houen Commins (from 14/8/08 to 21/4/10), Simon Morris, Piper Alderman (from 12/9/07 to 14/8/08)
Defendant (Lava Ltd & Saree Holdings Ltd)- Mark Nicholas Johnson, Holman Webb Lawyers

File Number(s): (09/288194); (07/261885)
Publication restriction: No

Judgment

Leanne Avery is the registered proprietor of a penthouse apartment ("Apartment 901") overlooking Sydney Harbour's Walsh Bay. In these two related proceedings, which are being heard together, Ms Avery seeks relief against each of the first and second mortgagees of Apartment 901.

In March 2009 the first mortgagee, Lava Limited ("Lava"), obtained judgment for possession of Apartment 901: Lava Limited v Avery [2009] NSWSC 177 (Price J). In those proceedings ("the Lava proceedings"), Ms Avery now seeks by motion to set that judgment aside, on the basis that it was illegally or irregularly obtained. Lava contends that its judgment for possession cannot now be set aside. But Lava says that even if the judgment for possession were to be set aside, its first mortgage over Apartment 901 ("the Lava mortgage"), obtained in May 2006, would nevertheless still be enforceable and secures a sum that has not been repaid.

In the other related proceeding Ms Avery seeks relief against the second mortgagee of Apartment 901, Saree Holdings Pty Limited ("Saree"). She contends that Saree's second mortgage ("the Saree mortgage") does not secure any sum, as it was part of a sham transaction created in September 2006 during her family law proceedings to give the appearance that her liabilities in respect of Apartment 901, and generally, were greater than they really were. She seeks declaratory relief that there is no money owing under this second mortgage. Saree contends that Ms Avery cannot be granted any relief based upon her own admittedly fraudulent scheme in the family law proceedings. Moreover, Saree says its Septemeber 2006 second mortgage with Ms Avery was genuine and moneys are still money owing to Saree on its security.

The events giving rise to both the Lava proceedings and the Saree proceedings are closely interrelated. These events include: the funding and acquisition of Apartment 901 leading to the creation of the Lava mortgage over the apartment in May 2006; aspects of Ms Avery's family law proceedings, leading five months after the Lava mortgage to the creation of the Saree mortgage in September 2006; and finally, the conduct of the Lava proceedings themselves, launched in July 2007 and thought to have been resolved in March 2009. These reasons commence with a short narrative of the main events in this history.

The Court initially embarked on hearing the Saree proceedings in February 2010. There was insufficient time to complete the evidence in the Saree proceedings over the allotted hearing time, so the Saree proceedings were adjourned after four hearing days. When the Saree proceedings resumed in July 2010, Ms Avery had changed solicitors and counsel and filed the motion to set aside the judgment in the Lava proceedings. The hearing of Ms Avery's motion presented a procedural dilemma. If the motion were successful (either at trial or after an appeal) then it would be desirable for any reopened trial of the Lava proceedings (after the judgment was set aside) to be heard at the same time as the Saree proceedings, because both proceedings had substantial evidence in common. The credibility of the principal witnesses to the Saree proceedings would also be at stake at the final hearing of the Lava proceedings, were they to be reopened upon the judgment being set aside. Lava also argued that a reason why the Court should not set aside the judgment in the Lava proceedings is that, even if it were set aside, Ms Avery must fail at the final hearing.

None of the parties wanted to risk the procedural outcome of a split trial in the event that Ms Avery's motion to set aside the judgment for possession in the Lava proceedings were successful. Much of the evidence overlapped between the two proceedings, so the parties were content for the Court to decide the relevant factual contests in the Lava proceedings, as if the Lava judgment were set aside. This meant, of course, that the Court and the parties were occupied by factual contests within the Lava proceedings which might ultimately not be relevant if the Lava judgment were not set aside. But the Court decided that the most efficient course was nevertheless to hear all issues raised on the Lava motion (including the question of whether Ms Avery would have succeeded on the facts had judgment been set aside) together with the trial of the Saree proceedings. This was not a usual procedural course. But here the Court assessed it as more satisfactory for the long-term than (1) deferring the trial of the Saree proceedings until all appeal rights in respect of the Lava motion were exhausted, or (2) risking inconsistent findings in a separate trial of the Lava proceedings, after the determination of the Saree proceedings. But conducting the proceedings in this manner necessarily involved an acceptance by both parties that they are bound by the Court's findings of fact in the Lava proceedings, even though the findings are only made in connection with setting aside the Lava's judgment for possession, ordinarily a straight forward application which would neither require the making of detailed findings of fact, nor create any issue estoppels: Santos v Delphi Petropleum Pty Ltd [2002] SASC 272 at [390] - [401].

But the advancing of the Lava motion, together with both parties filing more evidence and other changes of solicitors and counsel, meant that the proceedings were heard in segments over about 18 months between February 2010 and May 2011.

To reduce the risk of identity theft, Apartment 901 is described throughout these reasons only by that name and not with its full title particulars. Similarly, these reasons do not provide precise bank account numbers or similar financial information. If any of this information is required for purposes related to this litigation it may be obtained from the Court's file.

Throughout the proceedings Mr Condon of counsel appeared for Lava and Saree. Mr G. Parker SC led Mr Condon in final submissions. For most of the proceedings Mr Jenkins appeared for Ms Avery. He was led by Mr M. Dempsey SC in the second half of 2010 and by Mr B. Walker SC at the time of final submissions. Mr Akadamani appeared for Ms Avery in the February 2010 hearing dates.

In this case there have been a number of changes of solicitors and counsel on Ms Avery's side, and on Saree's side senior counsel came in at the very end of the proceedings. In both proceedings Ms Avery and Mr Donoghue have at times made observations in evidence about how various previous lawyers had handled their legal affairs to their disadvantage. It is appropriate to record in this case from the perspective of the bench that counsel and solicitors on both sides have most ably and efficiently assisted the Court. The analysis and attention to detail provided to the Court by the lawyers on both sides of the proceedings was of a very high order.

Ms Avery and Apartment 901 - December 2005 to March 2009

Ms Avery commenced the Saree proceedings in March 2009, the same month that she consented to judgement in the Lava proceedings before Price J. She filed the motion to set aside the Lava judgement in July 2010. The events before action may conveniently be divided into four time periods: (1) the parties and their relationships - up to 2005; (2) the funding, acquisition and mortgaging of Apartment 901 - December 2005 to May 2006 - this is the period when the Lava mortgage is created; (3) Ms Avery's family law proceedings - June to December, 2006 - this is the period that the Saree second mortgage is created; and (4) the Lava proceedings, from first default to judgment for possession - January 2007 to March 2009.

Ms Avery's case in the Saree and Lava proceedings described in bare summary was this. In May 2006 Lava had indeed loaned Ms Avery NZD1.5 million to allow her to acquire Apartment 901, secured on a first registered mortgage over the apartment, as she was short of funds to complete the purchase. The Lava advance to her was arranged through the assistance of Mr Garry Donoghue, a very close friend of hers. Mr Donoghue was then a major shareholder in a listed New Zealand telecommunications company, Plus SMS Holdings Limited ("Plus SMS"). He held his substantial shareholding in Plus SMS Holdings though a bare trustee, Plus Trustee Limited ("Plus Trustee"). Another New Zealand business associate of Mr Donoghue and a co-shareholder in Plus SMS, Mr John Sorensen, from time to time used both Lava and Saree as nominee vehicles through which he, Mr Sorensen, acquired, held and sold shares.

Ms Avery further says that at the same time that Lava advanced her the NZD1,500,000 and took a first registered mortgage (all under the direction of Mr Sorensen), Lava also entered into a share purchase agreement with Plus Trustee (under the direction of Mr Donoghue) in which Lava agreed to buy 5,000,000 Plus SMS shares at NZD0.35, within 12 months (by May 2007) thereby generating sale proceeds of NZD1,750,000. From these sale proceeds NZD1,500,000 was to be applied to the reduction of the Lava loan to Ms Avery, allowing the Lava mortgage to be discharged and the balance of NZD250,000 was to be paid to the Donoghue Family Trust. Effectively this was said to be Mr Donoghue giving NZD1,500,000 to satisfy Ms Avery's domestic liabilities, funds generated from his sale of Plus SMS shares he held through Plus Trustee. The gift is explained by the close relationship between Mr Donoghue and Ms Avery.

But leaving aside the many preliminary procedural arguments, the real point at issue in the Lava proceedings is that Mr Sorensen says that his nominee Lava did not agree to buy this parcel of 5,000,000 Plus SMS shares from Plus Trustee. He says that: he only took an option to purchase those Plus SMS shares; that Lava did not exercise that option and that there is therefore no obligation for Lava to apply any share sale proceeds to discharge the Lava mortgage, which remains outstanding.

Ms Avery's case in the Saree proceedings is that in September 2006 she was involved in proceedings in the Family Court of Australia against her ex-husband. She did not want her ownership of Apartment 901 to become an issue in those family law proceedings; so in September 2006 she approached Mr Sorensen and asked him, and he agreed, to make the nominee company Saree available to create the Saree mortgage and place it on the title of Apartment 901. This gave the appearance that Ms Avery's liabilities were more substantial than they were, thereby calculating by these false means to advantage herself in negotiations or in a hearing in the family law proceedings. She says that the Saree mortgage was never intended to secure any sum and there was never any actual advance from Saree to her pursuant to the Saree mortgage. Moreover, she says that Mr Sorensen executed a side agreement at the same time as the Saree mortgage in September 2006, which neutralised any liability that might nominally arise on the Saree mortgage. But when Lava pursued the Lava proceedings against her from 2007 through to 2009 and secured a judgment for possession it then became apparent to her that she should attempt to establish her non-liability on the Saree mortgage. So she commenced the Saree proceedings.

Saree says that it did advance money to Ms Avery during 2006, advances associated with Ms Avery's purchase of Apartment 901. Saree says these advances fall within the terms of and are secured by the Saree mortgage. But a central issue in the Saree proceedings and a key to the enforceability of the Saree mortgage is whether Mr Sorensen was a participant in Ms Avery's dishonest scheme to mislead the Family Court of Australia.

The larger narrative of these two mortgages starts in about 2005 with a more detailed explanation of the relationships between the parties, their shareholding and the early discussions about acquiring Apartment 901.

(1) The Parties and their Relationships - up to 2005/2006

Mr Garry Donoghue is a telecommunications entrepreneur. In mid 2003 he developed a concept of using a new dialing code from the International Telecommunications Union ("ITU") to allow text message promotions to be conducted across borders, and avoiding the need to use different numbers for each country. This concept was to enable the interactive cross networking of message services by media companies, content providers, retailers, brand marketers and broadcasters by way of mobile telephony short messaging services ("SMS"). Mr Donoghue incorporated the company "Plus SMS Limited" in the Isle of Man to conduct and promote this business. Mr Donoghue's Family Trust injected about AU$2.5 million into the company. He then set about moulding a team to help commercialise the idea.

He met Mr John Sorensen in 2005. The idea emerged between them to list Plus SMS Limited by reverse takeover of an existing New Zealand publicly listed company, Retail X Limited. After the backdoor listing, Retail X Limited changed its name to Plus SMS Holdings Limited.

But Mr Donoghue's tenure as a director of Plus SMS was short and tumultuous. He was appointed a director on 20 September 2005 and resigned amidst corporate acrimony on 31 August 2006.

During their Plus SMS discussions Mr Sorensen introduced Mr Donoghue to Mr John Lowther, an Auckland accountant. Mr Donoghue co-operated in Mr Sorensen's suggestion that Mr Lowther incorporate a company to act as a bare trustee to hold shares in Plus SMS for a number of the initial investors and seed capital providers in Plus SMS. The company Mr Lowther incorporated for Mr Donoghue and these others was Plus Trustee, which held shares in Plus SMS beneficially for Mr Donoghue, or one of his family trusts.

Plus Trustee was incorporated to act as a trustee for this purpose on 14 June 2005. Plus Trustee's holdings in Plus SMS were substantial. On 29 June 2005 the shareholders of Plus SMS resolved to issue 176,530,000 Retail X Limited shares to Plus Trustee. A total of 123,026,000, or just under 70 per cent, of these 176,530,000 shares, were held for Mr Donoghue's benefit or for that of his family trust.

On 5 July 2005 Mr Donoghue was also issued with 6 million 24 month options to purchase Plus SMS shares with a strike price of NZD0.10.

Mr Donoghue has an Australian Family Trust and a New Zealand Family Trust. Initially Mr Donoghue says he thought that Plus Trustee held his Plus SMS shares for the New Zealand Family Trust and he says that at times others have told him that they were held at the Australian Family Trust. His belief by the time of the hearing in 2010 apparently was that Plus Trustee held them on bare trust for him.

The corporate dissention within Plus SMS came to a head and Mr Donoghue finally resigned on 31 August 2011. On 1 September 2006 Plus Trustee held 104,026,000 Plus SMS shares for either Mr Donoghue or the Donoghue Family Trust benenficially.

Mr Donoghue reached a complex settlement with Plus SMS Holdings on 31 August 2006, which involved him resigning as a director of Plus SMS and transferring 85,000,000 of the Plus SMS shares he controlled back to the company in a non pro rata off market buy back, in exchange for which Plus SMS released all rights against him. The agreement was more complex than this and was recorded in a formal solicitor drafted settlement agreement made on 31 August 2009 between Plus SMS and Mr Donoghue. Mr Donoghue then turned his attention to a number of other businesses activities.

There are strongly competing allegations between Mr Sorensen and Mr Donoghue about the reasons for Mr Donoghue leaving Plus SMS. These do not have to be resolved in this judgment. Mr Donoghue makes allegations that Mr Sorensen promised to top up Mr Donoghue's interest in the company by some 5 million shares, if the 85,000,000 shares were transferred to the company on time, pursuant to the settlement agreement. But Mr Sorensen denies any such arrangement. It is not necessary to resolve this dispute either in this judgment. But the existence of the allegations are relevant background to the Lava proceedings. In a similar vein, Mr Donoghue says, and Mr Sorensen denies, that Mr Sorensen and Mr Ken Wikeley, both initial promoters and investors in Plus SMS, were going to use Lava as a vehicle through which they proposed to buy and sell shares in Plus SMS.

After the transfer of the 85,000,000 shares pursuant to the 31 August 2006 settlement agreement Mr Donoghue had 19,026,000 shares (104,026,000 minus 85,000,000 shares) left. The disposition of these 19,026,000 shares and his options became the subject of another incidental issue in the proceedings.

(2) Acquisition of Apartment 901 - December 2005 to 2006

Ms Avery and Mr Donoghue worked together in Plus SMS, and travelled widely together both within New Zealand and internationally. He was the CEO and she was a senior executive. They formed an intimate personal relationship. By 2008 Ms Avery and Mr Donoghue had a daughter together. Ms Avery had been previously married and had separated from her ex husband in December 2003. Mr Donoghue was still married.

By late 2005 Mr Donoghue had agreed to support Ms Avery's wish to purchase an apartment in Sydney. She commenced a search. Mr Donoghue was then faced with the challenge of funding the purchase as he had promised.

Mr Donoghue discussed with Ms Avery selling some Plus SMS shares to help fund the purchase. It was a busy time for Ms Avery and Mr Donoghue. Ms Avery was admitted to hospital in Sydney for a period and Mr Donoghue was travelling. By about the second week of April Ms Avery realised that for the apartment she wanted she would need between AUD3 million and AUD4 million.

Mr Sorensen alleges that to raise the funds, that between 13 and 17 January 2008 he negotiated with Mr Donoghue for Plus Trustee to sell 18,000,000 Plus SMS shares for NZD10.25 million (or NZD0.5759 per share), with another 1,026,000 shares being transferred elsewhere for no consideration. This was said to be a deal for Mr Donoghue to dispose of the balance of the shares he controlled in Plus SMS. Mr Sorensen denies the making of any such agreement then or at any other time. Mr Donoghue also says that he had agreed to sell his 6 million share options to Mr Ken Wikeley for NZD2.5 million, an allegation that is also disputed.

In late January Mr Donoghue and Ms Avery began inspecting different properties together. On 30 January 2006 Mr Donoghue returned to London. Shortly after that Ms Avery decided that Apartment 901 was the one she wished to buy.

To proceed, Ms Avery needed to exchange contracts. This was planned for early March 2006. I accept that Ms Avery and Mr Donoghue had a discussion about funding the deposit of AUD370,000 to be given over on exchange. On 28 February 2006 Ms Avery emailed Mr Sorensen requesting money to cover the deposit, instructions that Mr Donoghue confirmed. On the same day, Mr Sorensen instructed Judith Burson, of Gibson and Associates, the New Zealand accountants who made Lava available as a nominee company, to "transfer from Lava" AUD370,000 for the deposit.

Ms Avery entered a form of loan agreement with Saree on 1 March 2006. The defined "loan" amount in the Saree loan agreement was expressed as AUD3.7 million, which was stated in the document was "repayable on demand". Other features of this loan agreement are analysed in the section of these reasons dealing with the Saree proceedings. This "loan" amount differs from the principal amount of AUD2.7million expressed in the second mortgage to Saree that Ms Avery executed in September 2006.

The 1 March 2006 Saree loan agreement was made only two days before Ms Avery exchanged contracts for the purchase of Apartment 901 on 3 March 2006. But Ms Avery did not use the same Sydney solicitors, Messrs Dibbs Abbott Stillman, for the legal work on this loan agreement that she was then using for the conveyance. Rather she went to solicitors on the Isle of Man and also obtained a loan agreement and a Discharge and Release document. Mr Sorensen and she signed both these documents. But the circumstances in which they did so are the subject of dispute in the Saree proceedings.

The contract for the purchase of Apartment 901 on 3 March 2006, was in the Law Society Real Estate Institute 2005 Edition form, and expressed a total purchase price of AUD3.7 million. It provided for a 10% deposit of AUD370,000 to be paid on exchange, leaving a balance payable on settlement of AUD3.33 million. Ms Sarah Merrick at Messrs Dibbs Abbott Stillman had carriage of the conveyancing for Ms Avery, as purchaser.

In April 2006 events were occurring on two fronts. Time was running down for Ms Avery towards a settlement date in early May 2006. But by late April Mr Donoghue did not have sufficient funds to assist her to complete the purchase. Mr Donoghue was in intense discussions with Mr Sorensen about raising the funds. But there is great disagreement between them as to what those discussions were. In short, Mr Donoghue said that he was simply trying to get Mr Sorensen to pay the money that he had already agreed with Mr Sorensen as the purchase price of the shares and options being NZD10.425 million plus NZD2.05 million. Mr Sorensen disputes that any such conversation took place. Mr Sorensen does not disagree that a consensus was reached to sell Mr Donoghue's 18,000,000 Plus SMS shares. But he says that by 8 May 2006 Lava had already paid NZD5.2 million, which accounted for all of the agreed consideration for those shares.

By 26 April 2006 Ms Avery had learned from her solicitors that in preparation for settlement of the purchase of Apartment 901 on 2 May 2006, that the balance payable would be AUD3,353,067.79 but that Messrs Messrs Dibbs Abbott Stillman had only AUD2,986,847.30 in trust, with an amount of AUD199,494 also payable in respect of stamp duty. That meant there was a shortfall of AUD565,714.49. Ms Avery informed Mr Donoghue of this.

By late April 2006, Mr Donoghue realised from this information that he might be short of funds to assist Ms Avery in financing the purchase of Apartment 901. That led to an extended settlement date of 19 May 2006.

A watershed moment was then reached. On 8 May 2008 there is no dispute that Mr Donoghue sent an email to Mr Sorensen stating, "we need to have a serious chat". They disagree about what that "serious chat" was. Mr Donoghue says that he wished to vent his displeasure that he had not yet received full consideration for the sale of the 18,000,000 Plus SMS shares. Mr Sorensen says that the "serious chat" became Mr Donoghue requesting a loan to assist Ms Avery to complete the purchase of Apartment 901, and that there was no further discussion of whether further payment for Lava's purchase of Mr Donogue's Plus Trustee shares in Plus SMS.

About 9 May 2009, an important disputed conversation takes place between Mr Sorensen and Mr Donoghue, which is recounted in more detail later in relation to the Lava proceedings. Suffice it to say that Mr Sorensen's version involves discussion about a loan agreement and a related Call Option Deed. On Mr Donoghue's version he requests further payment and threatens to sell 10,000,000 shares in Plus SMS, on the open market.

A series of contacts between Mr Sorensen and Mr Donoghue between 15 and 17 May 2006 and between their solicitors, resulted in two groups of agreements being executed. The first was a loan agreement between Lava and Ms Avery dated 19 May 2006 and a Real Property Act mortgage of the same date: the Lava loan and the Lava mortgage. At the same time and on the same date, Mr Lowther executed in New Zealand a Call Option Deed on behalf of Plus Trustee with Lava. Mr Sorensen attended for Lava at Mr Lowther's office in Auckland. In the Lava proceedings, Ms Avery alleges that Mr Lowther's signature on that agreement was procured by Lava's misleading and deceptive conduct through Mr Sorensen. Ms Avery alleged that Mr Lowther was supposed to sign a different document, one that Mr Donoghue had faxed through to Mr Lowther, and which recorded Lava's commitment to purchase 5,000,000 Plus SMS shares. This important document was tendered in the proceedings and marked Exhibit 17, the name by which it is mostly described in these reasons.

The Certificate of Title to Apartment 901 shows Ms Avery as registered proprietor, after completion. By late 2006 Lava was the first registered mortgagee and Saree as the second registered mortgagee.

(3) Ms Avery's Family Law proceedings - June to December 2006

After Ms Avery and her husband separated, proceedings for settlement of their matrimonial property under the Family Law Act were commenced in 2005. These proceedings were ultimately settled in late 2006.

Ms Avery executed the Saree mortgage on 13 September 2006. This was only five days before she signed and filed a financial statement in her Family Court of Australia proceedings. The Family Court financial statement disclosed her full ownership of Apartment 901 and declared it was worth $3.7 million. The 3 March 2006 contract for the purchase of Apartment 901 indeed showed that was the consideration for the purchase. The Family Court of Australia financial statement also disclosed unspecified mortgage borrowings totalling $4.2 million.

New South Wales Loan Instrument Duty was paid on the 13 September 2006 mortgage to Saree at the rate for its expressed principal sum of AUD2.7 million. In its schedule, the Saree mortgage refers to the 1 March 2006 loan agreement as a "relevant agreement", and further provides that the principal sum will be repaid on 1 March 2006.

The disputed issues about the execution of the Saree loan and the Saree mortgage are analysed later in Part 2 of these reasons, relating to the Saree proceedings.

Principal issues in the Saree proceedings are in what circumstances and why Ms Avery and Mr Sorensen (on behalf of Saree) executed a Deed of Discharge and Release almost simultaneously with the Saree mortgage and what was the legal effect of this joint execution. Ms Avery's case was that she and Saree entered the Discharge and Release in order to cancel the effect of the Saree mortgage. The Discharge and Release recited the 1 March 2006 Loan Agreement and further recited "The borrower who has discharged the obligation contained in the Loan Agreement has called upon the Lender to execute this Discharge and Release."

But the Lava mortgage fell due in May 2007 and went into default.

(4) Progress of the Lava proceedings - January 2007 to March 2009

Lava commenced the Lava proceedings on 6 July 2007 by Statement of Claim in the Possession List of the Common Law Division of this Court. The proceedings progressed until March 2009 in the manner described shortly.

But meanwhile Mr Donoghue was engaged in the somewhat litigious aftermath of his involvement with Plus SMS and was attempting to further his future business career. He was one subject of a New Zealand Securities Commission investigation into Plus SMS' share dealings; allegations he dealt with through New Zealand lawyers. In 2007 he prepared for and then later the same year launched proceedings in the Supreme Court in Queensland to recover $900,000 arising from share sales in September 2007. In February 2008 Mr Donoghue commenced proceedings in the New Zealand High Court for defamation against Plus SMS in relation to a statement made by its then CEO, a matter not settled until about March 2009.

From late 2006 Mr Donoghue was also travelling extensively to promote a new business in which he had become involved after Plus Trustee, Comverging LLC. I accept Mr Donoghue's evidence that the number and intensity of these other activities were a major distraction for him in 2007 and 2008, a matter he seeks to have weighed in the balance, to explain some of his conduct in the Lava proceedings.

The Lava proceedings were active between July 2007 and March 2009. Lava commenced the proceedings by a Statement of Claim on 4 July 2007. Ms Avery accepted service on 24 August 2007. Within a week (on 30 August 2007) Ms Avery's solicitors wrote to Lava's solicitors seeking 28 days from the date of service to file a defence. They emphasized the need for time because of the inherent complexity of the factual and legal issues. Ms Avery's lawyers filed a defence and cross-claim for her on 26 October 2007. Thus, the issues in the Lava proceedings had been defined by 26 October 2007. But the issues so defined were materially different from those ultimately decided by the Court.

It took eight months for Lava to gear up to file its evidence. On 11 June 2008 Lava filed its evidence in chief, which was essentially a formal affidavit of Mr Gibson sworn on 4 June 2008, attaching various documents and deposing to their execution. A little over three months later on 15 September 2008 the defendant/cross-claimant, Ms Avery, filed three affidavits of herself, Mr Donoghue and Mr Henderson.

The case put by Ms Avery did not deploy the contractual terms recorded in Exhibit 17. Rather, it referred to the Loan Agreement and the Call Option Deed. Mr Donoghue's evidence also spoke about the formation of the Call Option Deed. This earlier round of evidence was inconsistent with Ms Avery's later case, that Exhibit 17 reflected the true agreement between the parties. Ms Avery and Mr Donoghue had explanations for the shift in position, connected in part with Mr Donoghue's later discovery of Exhibit 17 in November 2009. These explanations are assessed later in these reasons.

A few weeks later, on 3 October and 7 October 2008 respectively, Mr Sorensen and Mr Gibson swore and filed their affidavits in reply on behalf of Lava.

On 6 November 2008 the Court granted leave to Ms Avery to file an Amended Defence and Cross-Claim. The amendment she filed still did not rely either upon Exhibit 17, nor the agreement that it is said to record. Rather the Amended Defence asserted an agreement entered into in March 2006, an element of which was the giving of an option in favour of Lava, pursuant to which Lava was said to have "entered into a Call Option Deed" with Plus Trustee Limited as trustee of the Donoghue Trust. Thus, even this Amended Defence reaffirmed the status of the Call Option Deed as a genuine Lava - Plus Trustee agreement.

Preparations for trial were made. The matter was listed before Price J for a three day hearing commencing on 17 March 2009. Ms Avery then decided to wholly withdraw her Amended Defence and her Cross-Claim and consent to judgment, a decision she explained by an affidavit sworn on 16 March 2009. In that affidavit she describes the NZD1.5 million loan from Lava and her belief that the loan would be repaid by a transfer of 5 million shares as alleged in her Defence and Cross-Claim. She then said in her affidavit, "I accept there is uncertainty as to the outcome of this defence and, accordingly, I have determined that the best course of action is to pay out the Lava Limited mortgage to remove the uncertainty of litigation". This signalled a course of action that led to the entry of the judgment by Price J as follows.

By motion filed on the first day of the three-day hearing, Ms Avery sought orders to vacate the hearing of the proceedings on such terms as "the Court deems just". Price J considered the application. After outlining the pleadings as they then stood in profile, his Honour recorded in paragraph 5 of his judgment (Lava Ltd v Avery [2009] NSWSC 177 at [5]) the formal concession that had been made by counsel for Ms Avery:-

"[5] Counsel for the defendant informed the Court yesterday during the application to vacate that the amended defence and cross-claim were withdrawn."

His Honour's judgment records Ms Avery's affidavit evidence of 16 March 2009, that she had agreed to pay all monies claimed by the plaintiff under its mortgage, including costs and expenses, and that Ms Avery had "arranged finance with the Commonwealth Bank of Australia for an amount of AUD2 million through a mortgage broker".

His Honour elaborated the more detailed case Ms Avery's counsel had put to him: there was a disputed second mortgage to Saree on the title to the property; Ms Avery wished to try and remove this second mortgage, whilst she sought to re-finance the first mortgage; and she needed time to arrange the refinance. Then his Honour said:-

"[7] There is, however, a second mortgage which is registered on the title to the property. The mortgagee is identified as Saree Holdings Ltd (Saree Holdings). It seems that the defendant entered into a loan agreement with Saree Holdings on 1 March 2006 and the mortgage on 19 September 2006. This mortgage was allocated dealing number AD131541. It is necessary for the second mortgage to be discharged before the defendant's financing from the Commonwealth Bank can be finalised.

[8] It appears there is a dispute between Saree Holdings and the defendant as to whether any moneys are owing under the second mortgage. The defendant points to a copy of a release and discharge of the mortgage (pp 69 to 72 of Annex LMA-1) which she says were executed by John Sorensen, the sole director of Saree Holdings, at the same time as the loan agreement and second mortgage and contends that the purpose of the arrangement was to encumber the property to its full value because of proceedings in the Family Court of Australia. It was never intended, the defendant says, that moneys be advanced by Saree Holdings and none, she claims, were. Mr Sorensen, it seems, has refused to discharge the mortgage and it appears that it is Saree Holdings' position that moneys are owed by the defendant under the loan agreement which the second mortgage secures.

[9] The defendant seeks an adjournment to enable redemption proceedings to be instituted to obtain a discharge of the second mortgage so that the loan from the Commonwealth Bank can be finalised with a discharge of the first mortgage. Counsel for the defendant put to me that if I was not mindful to grant the adjournment or to grant it on terms the defendant did not oppose orders being made granting possession of the property to the plaintiff and for leave for the issue of a writ of possession to be granted, the execution of which was to be stayed pending the determination of the proposed redemption proceedings."

The submission put in outline, on Ms Avery's behalf, to Price J coincided with the allegations now made in the Saree proceedings, which were commenced not long afterwards. His Honour further recorded in his judgment at [10], that Ms Avery did not oppose an order that she pay Lava's costs of the proceedings and would undertake to prosecute the mortgage redemption proceedings diligently. Although his Honour was mindful that Ms Avery had recently taken steps to obtain finance from the Commonwealth Bank, he noted, at [12], that the issue of the second mortgage still had to be resolved. His Honour further observed, at [13], that it was not in the interests of justice to grant the application to vacate without the imposition of terms. His Honour decided that this being in substance an application to stay of execution of the writ of possession to enable the proposed redemption proceedings to be commenced against Saree, he granted, at [15], a stay on execution for six months, "in the interests of justice". His Honour did not require Ms Avery to pay accrued interest, at [17], because the evidence of the value of Apartment 901 relative to the amount secured suggested that the interest would be recoverable on sale of the property if necessary.

In the result, at [20], his Honour: gave judgment for possession; gave leave to Lava to issue a writ of possession; stayed the writ for six months; dismissed the cross-claim; and, noted the stay of execution of the writ was conditional on Ms Avery commencing proceedings against Saree Holdings before 27 March 2009, and upon her undertaking to prosecute those proceedings diligently and without delay. The plaintiff commenced the Saree proceedings within the time allowed.

PART 1 - The Lava Proceedings

Introduction

This section of these reasons, concerning the Lava proceedings, deals first with issues of whether or not Price J's March 2009 judgment for possession should be set aside. The Court concludes that it should not. Despite that conclusion, for the reasons explained earlier, the Court nevertheless proceeds to make findings in the Lava proceedings, as if the judgment for possession had been set aside.

The Court raised with counsel in final submissions, whether, if the Court came to the view that the judgment for possession should not be set aside, it would still be necessary to make findings in the Lava proceedings. But counsel asked the Court to make those findings and the Court now does so. This has become a substantial part of these reasons. However, as has been explained earlier these findings bind the parties and reflect what would have happened were the judgment for possession to be set aside. In short, the Court concludes that, were the judgment for possession to have been set aside, that Lava would have successed in the Lava proceedings.

Setting Aside the Judgment for Possession

Ms Avery sought to set aside the judgment for possession in the Lava Proceedings under Uniform Civil Procedure Rules (UCPR), r 36.15 which provides:-

"(1)A judgment or order of the Court in any proceedings may, on sufficient cause being shown, be set aside by order of the Court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith.

(2)A judgment or order of the Court in any proceedings may be set aside by order of the Court if the parties to the proceedings consent."

UCPR, r 36.15(2) does not apply here. Lava did not consent to setting aside Price J's judgment for possession. The exercise of Court's jurisdiction to set aside a judgment under UCPR, r 36.15(1) requires an applicant to establish "sufficient cause for the order", and that "the judgment was...given or entered...irregularly". Lava submitted that Ms Avery satisfied neither requirement.

Ms Avery's case was that the judgment had been "irregularly" entered because the Lava loan agreement attracted the Consumer Credit (New South Wales) Code ("the Code") and that the required section 80 notice under the Code had not been served before Lava commenced the Lava Proceedings, to enforce the credit contract reflected in the Lava loan and to enforce the Lava mortgage. Code, s 80 provides as follows:-

"80 Requirements to be met before credit provider can enforce credit contract or mortgage against defaulting debtor or mortgagor

(1)Enforcement of credit contract. A credit provider must not begin enforcement proceedings against a debtor in relation to a credit contract unless the debtor is in default under the credit contract and-

(a)the credit provider has given the debtor, and any guarantor, a default notice, complying with this section, allowing the debtor a period of at least 30 days from the date of the notice to remedy the default; and

(b)the default has not been remedied within that period.

Maximum penalty-50 penalty units.

(2)Enforcement of mortgage. A credit provider must not begin enforcement proceedings against a mortgagor to recover payment of money due or take possession of, sell, appoint a receiver for or foreclose in relation to property subject to a mortgage, unless the mortgagor is in default under the mortgage and-

(a)the credit provider has given the mortgagor a default notice, complying with this section, allowing the mortgagor a period of at least 30 days from the date of the notice to remedy the default; and

(b)the default has not been remedied within that period.

Maximum penalty-50 penalty units.

(3)Default notice requirements. A default notice must specify the default and the action necessary to remedy it and that a subsequent default of the same kind that occurs during the period specified in the default notice for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period.

(3A)Combined notices. Default notices that may be given under subsections (1) and (2) may be combined in one document if given to a person who is both a debtor and a mortgagor.

(4)When default notice not required. A credit provider is not required to give a default notice or to wait until the period specified in the default notice has elapsed, before beginning enforcement proceedings, if-

(a)the credit provider believes on reasonable grounds that it was induced by fraud on the part of the debtor or mortgagor to enter into the credit contract or mortgage; or

(b)the credit provider has made reasonable attempts to locate the debtor or mortgagor but without success; or

(c)the Court authorizes the credit provider to begin the enforcement proceedings; or

(d)the credit provider believes on reasonable grounds that the debtor or mortgagor has removed or disposed of mortgaged goods under a mortgage related to the credit contract or under the mortgage concerned, or intends to remove or dispose of mortgaged goods, without the credit provider's permission or that urgent action is necessary to protect the mortgaged property.

(5)Non-remedial default. If the credit provider believes on reasonable grounds that a default is not capable of being remedied-

(a)the default notice need only specify the default; and

(b)the credit provider may begin the enforcement proceedings after the period of 30 days from the date of the notice.

(6)Other law about mortgages not affected. This section is in addition to any provision of any other law relating to the enforcement of real property or other mortgages and does not prevent the issue of notices to defaulting mortgagors under other legislation. Nothing in this section prevents a notice to a defaulting mortgagor under other legislation being issued at the same time, or in the same document, as the default notice under this section.

Note-

By virtue of section 161(2), a notice may contain information required to be given under other legislation or be included in a notice given under other legislation. "

Ms Avery argued that the proceedings were therefore unlawfully instituted and liable to be struck out and that the entry of judgment in those circumstances was "irregular" within UCPR, r 36.15. Ms Avery also submitted there was "sufficient cause" to set aside the judgment, in part because the irregularity was proven. Lava argued that the Code was not attracted; that the entry of judgment was not irregular; and, that there is no basis to exercise any discretion to set the judgment aside.

The parties procedural contentions about setting aside the judgment for possession therefore raise the following issues:

(a)Does the Code apply to the Lava loan or the Lava mortgage because they qualify as the provision of credit within Code, s 6(1)(a),(b), (c) and (d)?

(b)If so, was Price J's judgment for possession (i) given or entered "irregularly", and if so, (ii) has "sufficient cause" now been shown to set it aside?

Application of the Code

The first issue is whether the Lava loan is a "credit contract" within Code, s 6(1). This depends upon whether the four cumulative factors in Code, s 6(1)(a)-(d), three of which Lava contests, are satisfied. Code, s 6(1) provides:-

""6(1)This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into-

(a)the debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and

(b)the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and

(c)a charge is or may be made for providing the credit; and

(d)the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider."

Lava concedes that the Lava loan and the Lava mortgage were the provision of credit "wholly or predominantly for personal, domestic or household purposes": Code s 6(1)(b). All the other requirements for attracting the Code are in issue: Code, s 6(1)(a), (c) and (d). Thus three matters must be shown, as at the time the relevant credit contract was entered into, which in this case is 17 May 2006: that Ms Avery was ordinarily resident in the jurisdiction, New South Wales (s 6(1)(a)); that a charge is or may be made for providing the credit to her under the Lava loan or the Lava mortgage (s 6(1)(d)); and, Lava provided the credit "in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider"(s 6(1)(c)). I will deal with each of these issues in turn.

Ordinarily resident in New South Wales - Code s 6(1)(a)

The evidence supports Ms Avery's contention that on 17 May 2006 she was a person ordinarily resident in New South Wales. Ms Avery was born at Camperdown in Sydney in 1969. I accept her evidence that she has always lived in Sydney and that the longest time that she has been away from Australia is for a period of about 6 to 7 weeks. Lava did not advance any evidence that persuasively displaced her account of her travelling life. Her passport was in evidence. But its entries only relate to the period from 17 July 2006. I accept Ms Avery's evidence that she always considered Sydney to be her place of residence.

Lava's case was that in May 2006 Ms Avery was residing in a flat in London with Mr Donoghue and also travelling in Europe, where they lived in an apartment in Amsterdam. But Lava's case against Ms Avery on this issue in part relied on Ms Avery's own evidence (1) that through much of 2006 she was only spending two or three days in Australia and the reason she wanted to buy Apartment 901 was, as she said, that she "wanted somewhere to leave my things", but there was "a base that we used in London" and the rest of the time that she "slept on aeroplanes"; (2) that she was required to come back to Australia for her family law proceedings and did fly back to attend compulsory conciliation meetings; and (3) that her communications with her then solicitor, Ms Sarah Merrick of Messrs Dibbs Abbott Stillman were by email in May 2006, "because I was travelling so extensively throughout the Europe and the UK".

Lava also supported its contention that Ms Avery was ordinarily resident in London on 17 May 2006 from Mr Donoghue's evidence: that (1) he was in London on 15 May 2006; that (2) Ms Avery joined him in London from 2005; that (3) in about May or June 2006 Ms Avery and he together moved to "a different apartment in London before moving to Amsterdam in December 2006"; and that (4) they moved out of the apartment in Amsterdam in about April 2008.

Both Ms Avery and Mr Donoghue were cross-examined about their evidence on this subject and about how they rationed their time between the United Kingdom, the European continent and Australasia.

But Lava's case about Ms Avery's ordinary residence in May 2006 curiously overlooks the significance of the transaction at the centre of this case, Ms Avery's purchase of Apartment 901. My findings about that transaction immediately present a different picture. Ms Avery had been house hunting in Sydney no later than December 2005. She had been discussing the financing of that prospective purchase with Mr Sorronsen and Mr Donoghue for a period of months. She selected Apartment 901 as the apartment in which she preferred to live. When on 3 March 2006 she exchanged contracts for the acquisition of Apartment 901, she immediately entered into a licence agreement to occupy the apartment before settlement. She moved her belongings into the apartment under that licence. She made no similar attempts to buy any equivalent form of real estate in London or Amsterdam. Nor did she have any plans to do so in May 2006. She and Mr Donoghue did rent an apartment in London. They also rented an apartment in Amsterdam. In both the Saree and the Lava proceedings Ms Avery is now fighting to maintain the real estate purchase in Sydney to which she committed herself in March 2006.

The inference that Ms Avery was ordinarily resident in Australia is strengthened by her later acquisition with Mr Donoghue of Apartment 902, the apartment adjacent to Apartment 901. Although the acquisition of Apartment 902 was well after 17 May 2006, Ms Avery and Mr Donoghue had early plans for joining up Apartment 902 with Apartment 901 once both purchases had been completed. Although the relevant moment for assessment of Ms Avery's ordinary residence in this case is 17 May 2006, her later conduct in relation to Apartment 902 demonstrates Ms Avery's consistent and continuous attitude to Apartment 901, from the time she purchased it on 3 March 2006: she wanted to make it a comfortable place to live. In my view, from no later than 3 March 2006, if not long before, she regarded Sydney as the place that from then she planned to live for the medium to long term; and Sydney was a place that she visited regularly, every 6 to 7 weeks, by choice, to maintain her connection with it.

Ms Avery's place of ordinary residence can also be assessed by examining her business life. She describes herself in her January 2006 Family Court financial statement as an "entrepreneur/consultant in communications". This description hints at her and Mr Donoghue's peripatetic way of life in May 2006. I accept Ms Avery's evidence that London was not so much a place of residence for her as a "base" for her and Mr Donoghue's business activities in Europe. It was cheaper and more convenient for her to operate from a London apartment rather than from an hotel in that city. I find that Ms Avery had no clear intention to live in the long term in the UK. I find that she was only in the UK to serve the exigencies of her business life for Plus SMS. I find that London never displaced Sydney in her mind as "her home". She was in Europe far more than she was in Sydney in 2006. But I accept her evidence that she returned to Sydney regularly and about every six weeks, in part to visit her parents who lived in the Sydney suburb of Winston Hills.

Lockhart J explained the meaning of the word "ordinarily resident" in the context of the Bankruptcy Act 1966 (Cth) in judgment in Re Taylor; Ex parte Natwest Australia Bank Limited (1992) 37 FCR 194 at 198:-

"To say that a person is ordinarily resident in Australia must mean something more than that he is resident in Australia. The word "ordinarily" connotes a comparison, a measure of degree. A person may have more than one residence, but he is not necessarily ordinarily resident in each of them. The question must be determined for the purposes of s 43 of the [Bankruptcy] Act at a particular time. One must ask the question whether at that time the person was ordinarily resident in Australia. The concept of "ordinary residence" for the purposes of the Act, in my opinion, connotes a place where in the ordinary course of a person's life he regularly or customarily lives. There must be some element of permanence, to be contrasted with a place where he stays only casually or intermittently."

Lockhart J also explained that it is possible for a person to establish a place of ordinary residence in another country but nevertheless to remain ordinarily resident in Australia, a possibility which is raised on the evidence in this case:-

"It depends on the facts of each case whether the debtor is ordinarily resident in Australia at the time of the commission of the relevant act of bankruptcy. At first blush it may seem strange to say that a person can be ordinarily resident in more than one country at the same time; but on closer analysis it is not. Plainly you cannot be physically present in more than one place at the same time. But the lifestyles of people vary greatly. Some people in the ordinary pursuit of their lives regularly or customarily live in more than one place, each of which has an element of permanence about it and is not merely a place of casual or intermittent resort."

Subsequent authorities have affirmed this approach: Battenburg v Restom [2007] FCAFC 195. The state of mind of the person whose residence is in question is of central importance and the language used in the cases focuses upon whether the person habitually or normally resides in that jurisdiction and does so for a settled purpose: Logue v Hansen Technologies Ltd (2003) 125 FCR 590 per Weinberg J at [24] and [26]. In the context of the Code, the Victorian Supreme Court in Ranmor Finance Pty Limited v Dworjanyn [2010] VSC 334 (Mukhar AsJ) has applied Lockhart J's statements in Re Taylor.

Lava's counter arguments that Ms Avery is not ordinarily resident in New South Wales are not persuasive. Although, as Lava says, Ms Avery described in her Family Court financial statement that Mr Donoghue was "an occupant of her household", her description of her London "household" was not an attempt to indicate her place of ordinary residence. Although Ms Avery's then solicitor at Piper Alderman asserted in August 2007 that she was "a resident of Europe", that is not inconsistent with ordinary residence in Australia. The Piper Alderman description was more than 12 months after the material date for assessment here. Ms Avery's Family Court financial statement was correct in this respect. I do not accept her denial that she had a "household" with Mr Donoghue in January 2006. But whether she shared a "household" or not with someone is not the legal test now to be applied. Nor does the absence of independent evidence from parents or friends relevantly impair her case. Although it can be accepted that Mr Donoghue did say in evidence that he and Ms Avery were "living together full time", that is not evidence that can easily be accepted. Mr Donoghue was otherwise married. Lava says Mr Donoghue's evidence founds an inference that he and Ms Avery were living together full time in Europe. In my view that inference is displaced by the other evidence I have identified. I take into account that detailed evidence of passports and itineraries have not been put in evidence: Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168. But the larger decisions Ms Avery's made in her life, to regularly return to Sydney, and to buy Apartment 901, do indicate ordinary residence in New South Wales. I accept her evidence on this issue without her calling a range of family and friends to corroborate her case.

In summary, I find that Ms Avery had a purpose in regularly returning to Australia: reconnecting herself with Sydney, with her parents and with her other friends and acquaintances in Sydney, notwithstanding that her way of life was one of regular international travel. Her London apartment was only a convenient substitute for staying in hotels, when she was in the United Kingdom. That, together with her purchase of Apartment 901, show she was ordinarily resident within the jurisdiction in May 2006.

Charge for Providing the Credit - Code, s 6(1)(c)

Code, s 6(1)(c) is also satisfied. The Lava loan was undoubtedly the provision of credit. It involves Ms Avery incurring a deferred debt to Lava: Code, s 4(1)(b). By the terms of the Lava loan "a charge is or may be made for providing the credit". I do not find Lava's case to the contrary, to be persuasive. That case is that Lava levied no "charge" at the time of entry into the loan. The Lava loan was interest free for its 12 month term. Lava says that no fees or charges were payable at the time of entry into the loan.

Lava's contention is answered by attention in Code, s 6(1)(c), to the words that "[a charge] is or may be made" for providing the "credit". Code, s 6(1)(c) may be satisfied if the contract entered into provides a liability for the charges that "may be made" for providing the credit. The Lava loan actually imposed a liability for two kinds of financial charges: (1) default interest after 12 months, if the principal were not repaid; and, (2) legal fees and charges associated with the transaction. Both these obligations are embedded within the cluster of promises Ms Avery made in exchange for the supply of credit to her. Lava's legal fees for the transaction were in fact deducted from Lava's advance to Ms Avery. Default interest was chargeable under the terms of the Lava loan and was claimed in these proceedings. Each of these two is a charge that "is or may be made" for providing credit.

Lava also contended that "charges" had a special meaning in the Code. But this argument is equally unpersuasive. Lava relied on the definition of "credit fees and charges" in Code, Schedule 1, which mean "fees and charges payable in connection with a credit contract or mortgage but does not include...interest charges". Lava's point was that to the extent that default interest was charged under the Lava loan, it did not qualify as a "charge" for the purposes of Code, s 6. But Lava's Code, Schedule 1 contention is not persuasive for two reasons. First, the composite expression "costs, fees and charges" in Code, Schedule 1 has a different application from the simple expression "charge" in Code, s 6(1)(c). The composite expression appears in Code, ss 61, 100(1)(b), 140(3), 146(A) and 159(1), in different contexts, to represent a group of charges that are, in their setting, not related to interest. But in contrast "charge" in Code, s 6(1)(c) does include interest.

Secondly, the expression "costs, fees and charges" in Code, Schedule 1 includes the regular administrative fees which Lava actually charged and deducted from its advance in this case. So even if the Code, Schedule 1 definition of "costs, fees and charges" is to be read into Code, s 6(1)(c), the Lava loan's requirements upon Ms Avery to pay legal fees and other transaction fees, does qualify as "costs, fees and charges".

Provision of Credit in the Course of a Business - Code, s 6(1)(d)

One of the alternative limbs of Code, s 6 (1)(d) is satisfied in this case. Lava established that Lava did not provide credit "in a course of a business of providing credit": Code, s 6(1)(d). Lava does not conduct such a business. But Lava did not displace the alternative: that Lava was a credit provider providing credit "as part of or incidentally to any other business of the credit provider".

Lava's provision of credit incidentally to another business emerges from Lava's operations as a nominee company. Mr Gibson's accounting practice used Lava for acquiring, holding and disposing of property held on trust for his clients. Mr Gibson himself explained, Lava's business operations were incidental to the conduct of his accounting practice. Charges for Lava's services were sometimes included in the hourly rate Mr Gibson charged to his clients. Sometimes Mr Gibson made specific charges for Lava's services related to the particular transactions in which his clients were involved. Lava did not itself operate trust or other accounts or receive money. Such operations occurred within Mr Gibson's practice, in transactions otherwise organised between himself and his clients.

When the Lava loan was made, Lava was one of three such nominee companies through which the clients of Gibson and Associates Limited, could on a fee-for-service basis use Lava as a vehicle through which they could buy, hold and sell shares or conduct other similar share related transactions. Saree was another. The evidence of Mr Gibson and Mr Wikeley supports this finding. Notwithstanding the absence of Lava financial accounts and that Lava did not itself receive money, Lava's business operations involved acquiring property, holding property, disposing of property, entering into contracts for the sale of shares, call options and other subsidiary transactions to facilitate the acquisition, holding and disposal of property, principally shares. Mr Gibson insisted that all this business was really that of his clients, who were the beneficial owners of the property Lava held. But Lava itself was in my view still carrying on a business.

The Call Option Deed records a transaction in shares that falls within Lava's ordinary business, so described. The Lava loan was executed in May 2006 at approximately the same time as the Call Option Deed. They are really two aspects of the same transaction. Mr Gibson, Lava's director, agreed that in making an advance to Ms Avery, Lava was acting "in the course of its usual activities as a nominee" and Lava conducts a business as a nominee company. It provides the credit reflected in the Lava loan and the Lava mortgage, incidentally to [that] other business of the credit provider [Lava]": Code, s 6(1)(d). The words in Code, s 6(1)(d) "incidental to" are expression of wide import but there must be some connection between, in this case, the business of the credit provider and the particular loan that provides the credit, which in turn does involve the questions of degree: R v Holmes; Ex parte Public Service Association (NSW) (1977) 140 CLR 63 at 77 per Gibbs J. Here the Lava loan is directly contemplated by the terms of the Call Option Deed: cf the definition of "Loan Agreement" and Clause 4(1)(b) in the Call Option Deed. The Call Option Deed explains Lava's acquisition and holding of the subject shares, functions that are within its ordinary business. The Lava loan is incidental to that business.

This is sufficient to establish that Code, s 6(1)(d) is satisfied in this case. But Ms Avery put her Code, s 6(1)(d) case in two other ways, one of which is also made out. Ms Avery submitted that the Lava loan was also provided incidentally to Mr Wikeley's business as an investor. Mr Gibson said that Mr Wikeley held the benefit of the Lava loan. Mr Wikeley was undoubtedly an active investor/entrepreneur. But I prefer Mr Wikeley's and Mr Sorensen's own evidence on this issue, that Mr Sorensen, not Mr Wikeley held the benefit of the Lava loan. Thus, Ms Avery's next way of putting the Code, s 6(1)(d) case fails.

Ms Avery finally submitted that Mr Sorensen held the benefit of the Lava loan, as he and Mr Wikeley claimed it was held. She submitted that the Lava loan was provided incidentally to Mr Sorensen's business. Mr Sorensen was a self employed company director. He had experience in listing public companies, buying and selling shares and providing loans to purchase shares, in all of which he was well experienced. But Mr Sorensen gave other confusing evidence about who else held the benefit of the Lava loan. Among the other beneficial owners of the Lava loan that he named were 8 to 10 corporate or trust entities with which he was associated, entities described as "Crown Holdings" and "Crown Trust". But even if these associated entities did hold the benefit of the Lava loan, it is nevertheless reasonable to infer that the Lava loan was provided incidentally to their businesses or to Mr Sorensen's business operated through them. Mr Sorensen's confusing evidence is certainly not enough to alter the standing presumption that the Code applies to the Lava loan: Code, s 11(1).

I conclude therefore the Code applied to the Lava loan and the Lava mortgage. Lava's arguments do not displace this conclusion. Lava emphasises: that Ms Avery approached Mr Sorensen for a loan; that the transaction was an isolated one; that it was not entered into in the course of trading activities that Lava was promoting; and, that no interest was payable on the loan if its terms were satisfied. All of this can be accepted. But even an isolated loan, not promoted by Lava, can attract the Code, provided it is incidental to what can be described as Lava's "other business".

Lava concedes that it commenced the Lava proceedings for enforcement of the Lava loan and the Lava mortgage, without prior service of a notice in conformity with Code, s 80(2). The Lava proceedings were therefore brought in contravention of Code, s 80(1) and (2). But the next question is about the relevant legal effect of this contravention.

Engaging UCPR, r 36.15

Lava argues that even if the Code applies and it is found to have contravened Code, s 80, the contravention does not mean that the judgment for possession was entered "irregularly" within UCPR, r 36.15. Nor, Lava says, does it mean that the judgment should be set aside, as there are still strong discretionary reasons against that result. Moreover, Lava argues, even if it were entered irregularly that any such irregularity could, now easily be rectified a number of ways: the Court can, for example, authorise Lava's commencement of the proceedings after the event, or nunc pro tunc.

Ms Avery submits in response: that entry of the judgment for possession before Price J occurred irregularly; that the judgment should be set aside; and that authorisation of any contravention of Code, s 80 after the event is not possible and, that such late authorisation should not be given in this case. These arguments are dealt with in this section.

Was there a UCPR, r 36.16 Irregularity?

Lava's first argument is that UCPR, r 36.15(1) is not engaged. The principles that govern the operation of UCPR, r 36.15(1) are clear. The Court of Appeal recently considered them in Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) [2009] NSWCA 387. Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) is authority for the following propositions:

(a)it is a central and pervading tenent of the judicial system, as the High Court stated in Burrell v R (2008) 238 CLR 218; [2008] HCA 34, that controversies once resolved are not to be re-opened except in a few, narrowly defined circumstances, at [32];

(b)this tenent requires powers to re-open proceedings such as those conferred by UCPR, r 36.15 to be narrowly confined and sparingly exercised, at [33] and [45];

(c)the focus of the UCPR, r 36.15 power is on irregularity in the steps which resulted in the entry of judgment itself, not on the merits of the judgment or irregularities in the anterior conduct of the proceedings, at [16]; and

(d)if follows that UCPR, r 36.15 principally operates in cases of default or consent judgments or those given ex parte and can only have limited application to judgments and orders made or entered after hearing on the merits at which all parties were represented and fully heard, at [17].

The irregularity said to justify the setting aside of judgment in Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) was said to be that the appellant/defendant had conducted its defence on the basis it was the correct defendant but on appeal it was contended that the correct defendant was a subsidiary, thus, it was said, all the respondent/plaintiff's steps in the proceedings up to the point of judgment were taken on a false basis. The Court of Appeal decided that UCPR, r 36.15 was not engaged because it could not be said that judgment itself had been given "irregularly". The relevant irregularity alleged in Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) related to an earlier part of the proceedings and could not itself be relied upon to attack the giving of judgment: Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) [2009] NSWCA 387 at [18].

I accept Lava's argument that the principles stated in Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) are decisive here against Ms Avery's motion to set aside judgment. The Lava judgment was neither made nor entered "irregularly". It should be accepted that these proceedings are not a nullity by reason of the conceded non compliance with Code, s 80, a matter explained below. The relevant Code, s 80 irregularity relates to the commencement of the proceedings. It was an irregularity which had it been pleaded may well have caused the proceedings to take a different procedural course in the short term. An application may have been made for the proceedings to have been dismissed. That may have in turn been met by various counter applications by Lava. But Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) directs the Court's attention to the time of making or entry of judgment, as the time of which any irregularity should be assessed. At that time there was no irregularity.

The process of entering judgment before Price J was unexceptionable. Indeed, objectively assessed Ms Avery appears to have been well served throughout that process. She at all times had counsel and solicitors representing her. Her legal advisors apparently took a view about the strengths and weaknesses of the Lava case compared with the Saree case, a view which this judgment demonstrates to have been quite correct. She received the benefit of a six-month stay on execution of the writ for possession, a stay which has now become extended. She does not have to pay ongoing interest on the Lava loan, until these proceedings are resolved. As her own evidence in March 2009 explained and Price J's judgment records, she not unwisely pursued a course which would give her some security against the uncertainties of her defences in the Lava litigation. In substance, all that has really happened now is that, although she did not perhaps appreciate it at the time this tactical course was taken, there was indeed another defence to the litigation that she could have deployed. In my view that does not make any difference. That sometimes occurs in litigation. Ms Avery had months to consider her defences with her lawyers and was legally represented throughout.

I should add that I accept Lava's argument that Ms Avery's advance of her proposed defence based upon Exhibit 17, the alleged true version of the agreement between Plus Trustee (Mr Donoghue) and Lava (Mr Sorensen), does not assist in inferring that the judgment for possession was made or entered "irregularly or illegally or in bad faith". This is just one of the possible defences that Ms Avery could have deployed before judgment but chose not to. Indeed, Mr Donoghue's evidence supports the finding, which I make, that he was aware of this possible defence and told Ms Avery about it but he was cautious about Ms Avery relying upon the Defence in the absence of his finding Exhibit 17.

Accordingly, Lava's non-compliance with Code, s 80 did not result in an "irregularly" made or entered judgment for possession. As a result there is strictly no need to consider the exercise of the Court's UCPR, r 36.15 discretion to set the judgment for possession aside. But the issue has been fully argued, and the exercise of the discretion is an independent basis on which the Court declines to set the judgment aside.

Exercising the UCPR, r 36.15 Discretion

Lava submits that the UCPR, r 36.15 requirement for judgment to be set aside, on "sufficient cause being shown", has not been satisfied even if the judgment were entered irregularly. Lava submits this expression in UCPR, r 36.15 recognises the need for finality in litigation by preventing judgments from being set aside "for slight or uncertain causes": Kendell v Carnegie (2006) 68 NSWLR 193, [2006] NSWCA 302 at [45]. In my view, this judgment would not have been set aside, if it had been entered irregularly.

Lava's arguments that "sufficient cause" has not been shown to set aside the judgment for possession really fall into three baskets: (1) any Code, s 80 contravention was only slight and of no causative effect; (2) Ms Avery took a deliberate decision to consent to the entry of the judgment, for tactical reasons, and should not now be permitted to resile from that decision; and (3) it would be pointless to set aside judgment as Ms Avery would not be able to propound the arguments she now raises. The second and third of these arguments were the most persuasive.

(1) Code, s 80 Illegality Only Minor. Lava's first argument is any Code, s 80 contravention here is a minor illegality; that Lava's failure to comply with Code, s 80 did not cause any identifiable injustice that Code, s 80 was intended to prevent; and Ms Avery did not need the grace period Code, s 80 would provide, because she had no intention of paying the debt claimed in any event, her position being that she was not indebted, as alleged.

This argument takes too narrow view of Code, s 80 and is not supported by the evidence. A defendant who pleads he or she is not indebted to a credit provider, may nevertheless suffer an injustice because of the credit provider's contravention of Code, s 80. Code, s 80 provides an opportunity to negotiate a refinancing or to put the borrower's affairs into order, before the borrower deals with the credit provider. A borrower taking advantage of the procedural opportunities Code, s 80 offers, is not acting inconsistently by also denying liability on the substantive claim the credit provider brings.

Moreover, at the time Price J gave the judgment for possession he recorded that Ms Avery did propose to refinance, with GAP Finance and the CBA, to pay out the Lava mortgage. The statutory pause that Code, s 80 provides would perhaps have been of some benefit to her. It can and should be inferred from Ms Avery's later conduct in approaching GAP Finance that, presented much earlier with a Code, s 80 notice, she may well have used the statutory opportunity, to commence a re-financing.

(2) A Tactical Decision. But Lava's best argument against the exercise of the UCPR, r 36.15 discretion is that Ms Avery took a considered tactical decision to consent to the judgment for possession. In my view, this is a decisive reason why the judgment should not be set aside. The strategic calculus in which Ms Avery engaged with her lawyers, leading to her consent to the judgment for possession is sufficiently described above under the previous hearing, "Was there a UCPR, r 36.15 irregularity?" It does not need to be repeated. But it resulted in her making a deliberate choice on legal advice and without any demonstrable disadvantage, other than the usual uncomfortable pressures of the litigation itself.

Moreover, if judgment were set aside, the cost of the proceedings before Price J would have been entirely wasted. Ms Avery does not undertake to secure to Lava the costs of the proceedings in the event that judgment is set aside. Now that more interest has accrued and given the concessions that Ms Avery has made, the Court would not contemplate setting aside judgment without some such security being provided. Of course, it could be made a condition of setting aside judgment but there is no evidence it could be met.

Nor is Ms Avery's failure to advance the defences that she now identifies Lava's fault. Indeed, Ms Avery was aware in March 2009 of the possible availability of an Exhibit 17 related Defence. There is no evidence that Mr Sorensen or anyone else associated with Lava was aware that the Code applied and deliberately took steps to commence proceedings without serving a Code, s 80 notice.

(3) Setting Aside Pointless. Lava put its argument about discretion another way. If offered a "see through" argument that assumed that the UCPR, r 36.15 discretion was exercised in Ms Avery's favour, but looked at what would then happen. Lava submitted that even if the judgment were set aside Ms Avery must face several more exercises of discretion, all or most of which would be likely to go against her. These were: the Court's discretion to deal with the Code, s 80 defence; the discretion to refuse Ms Avery leave to withdraw admissions; and, the discretion to decline leave to amend her Defence.

First, Lava submitted there was no point in the Court exercising the UCPR, r 36.15 discretion in Ms Avery's favour, when the Court was likely to excuse the contravention of Code, s 80 in this case. That argument is persuasive.

I do not doubt that Ms Avery knew the document was being created. Indeed she said she believed she knew why it was being created: for provision to the Commonwealth Bank. Ms Avery said, and I accept, that her initial impression was that this was going to be a low doc loan. She wrote her "I am confused" email in a context that when the Commonwealth Bank became involved and asked for more documentation than would be required for a low doc loan, she needed help. This episode was another reason for the Court to be cautious about accepting Ms Avery's evidence.

The Saree Loan Agreement

The Saree loan agreement executed on 1 March 2006 is not lengthy. It provides as follows:-

"THIS LOAN AGREEMENT is made the 1st day of March two thousand and six (2006)

BETWEEN: -

1.SAREE HOLDINGS LIMITED of c/ [address not published], Auckland New Zealand ("the Lender")

2.LEANNE AVERY of [address not published], Sydney 2001 NSW Australia ("the Borrower")

Recitals

1.The Borrower has requested and the Lender has agreed to give the Loan in order that the Borrower can purchase the Property.

2.The Terms and Conditions of the Loan are set out in this Agreement.

1.Definitions

In this Agreement the following words and expressions shall (unless the context otherwise requires) have the meanings opposite them: -

the "Borrower"

Leanne Avery and her executors and her administrators and assigns

the "Default Date"

the date when repayment of principal and or interest

the "Interest"

the Base Rate of 5% which shall be calculated on a daily basis on the balance of the above loan payable on the interest payment date

the "Interest Payment Dates"

quarterly on the 12th day of February May August and November in every year up to and including the Loan Repayment Date

the "Interest Period"

the relevant quarter year ending on each Interest Payment Date

the "Lender"

SAREE HOLDINGS LIMITED and their executors and their administrators and assigns

the "Loan"

the sum of Australian Dollars 3,700,000 (Three Million & Seven Hundred Thousand)

the "Loan Period"

the period commencing on the date hereof and ending on the Loan Repayment Date

the "Loan Repayment Date"

The date when the Loan is repaid pursuant to Clause 4

the "Property"

ALL and SINGULAR the hereditaments known as the The Parbury, 901/1 Pottinger Street, Walsh Bay, New South Wales, Australia.

2.The Loan

2.1The Lender hereby agrees to lend to the Borrower and the Borrower agrees to borrow from the Lender the Loan and subject to the terms and conditions contained herein

2.2The Loan shall be drawn down in one amount upon the Borrower giving the Lender 48 hours notice of the Borrower's intention to draw down the Loan

3.Interest

3.1The Borrower will pay the Interest (accruing daily from and including the date on which the amount of the loan is paid by the Lender to the Borrower) on the Loan.

3.1.1Interest for the period in question shall be calculated on the 12th day of February May August and November in each relevant year and upon the outstanding principal sum due at such date.

3.2Interest on the Loan shall be paid by the Borrower to the Lender on the Interest Payments Dates in each year of this Agreement the first such payment to be made on the 12th day of February May August and November and quarterly yearly in arrears thereafter.

3.3If the Borrower fails to pay any sum on its due date for payment under this Agreement (whether of interest or principal) ("the Default Date") the Borrower shall pay interest on such sum from the due date up to the date of the actual payment equal to 10 percent accruing daily on the outstanding sums due from the date of default

4.Repayment of Loan

4.1The loan is repayable on demand.

4.1.1The Borrower and the Lender may agree for the Borrower to provide Consultancy work in lieu in whole or in part of the Loan Repayment

4.2The Loan shall be immediately due and payable together with accrued interest thereon (if applicable) (whether or not such repayment is demanded in writing by the Lender)

4.2.1if the Borrower becomes or is declared insolvent

4.2.2if the Borrower proposes or makes any agreement or composition with the Borrower's creditors or a petition is presented or a meeting is convened for the purpose of considering that a petition be presented for the bankruptcy of the Borrower.

4.2.3if any payment of principal sum and/or of interest is more than one calendar month in arrears

4.2.4if the Borrower shall commit an act of bankruptcy

4.2.5if an execution or judgment is granted against the Borrower and not paid or satisfied within fourteen days thereafter;

4.2.6if the Borrower shall fail to observe or comply with any of the covenants conditions agreements and stipulations herein contained

4.2.7if the Borrower shall sell or part with possession of the Property or any part thereof

4.2.8if the Borrower shall die

4.3All payments by the Borrower under this Agreement (whether in respect of principal or interest) shall so far as the law permits be made in full without any deduction or withholding (whether in respect of set off counterclaim duties taxes charges levies or otherwise howsoever).

5.Costs

5.1The costs and expenses of and incidental to this Agreement and to the security documentation required shall be borne solely by the Borrower

5.2The liability for costs and expenses together with all costs and expenses of the Lender arising out of any legal advice and assistance and any legal proceedings in connection with the enforcement of the Lender's rights hereunder shall be due on a full indemnity basis

6.Notices

6.1Every notice request demand or other communication under this Agreement shall be in writing delivered personally or by first class prepaid letter facsimile transmission or cable (confirmed in the case of a facsimile or cable by first class letter sent within twenty four hours of despatch). Every notice request demand or other communication shall subject as otherwise provided in this Agreement be deemed to have received in the case of a facsimile transmission at the time of despatch thereof (provided that if the date of despatch is not a business day in the country of the addressee it shall be deemed to have been received at the opening of business on the next such business day) in the case of a cable twenty four hours after despatch and in the case of a letter when delivered personally or three days after it has been put into the post

6.2Every notice request demand or other communication under this Agreement shall be sent to the Borrower at:-

[address not published], Sydney 2001 NSW Australia

shall be sent to the Lender at:-

c/- [address not published], Auckland New Zealand

or such other address or addresses as may be notified by one party to the other party

7.Miscellaneous

7.1The liability of the Borrower's hereunder is joint and several

7.2Simultaneous to the exchange of this Agreement, the Lender shall execute a Release and Discharge of the loan in the form annexed which will be held by a Third Party and dated and given to the Borrower when the Borrower's obligations have been discharged

8.Law and Jurisdiction

8.1This Agreement is governed by the laws of New South Wales, Australia

8.2The parties to this Agreement irrevocably submit to the exclusive jurisdiction of the Courts of New South Wales

9.Clause Headings

9.1Clause headings are for each of reference only and shall not affect construction

IN WITNESS WHEREOF the parties hereto have executed these presents the day month and year first before written

EXECUTED by the Lender in the presence of:

[Signature of J Sorensen]

SIGNED and DELIVERED by the Borrower in the presence of:

[Signature of L Avery]
[Signature of G Donoghue]"

"

The Saree loan agreement is dated 1 March 2006, two days before the sale contract for Apartment 901, but six months before Ms Avery's submission of the financial statement in her divorce proceedings.

The Saree Discharge and Release

The Saree Discharge and Release was also executed between Mr Sorensen and Ms Avery and was in the following terms:-

"THIS DISCHARGE AND RELEASE is made the 1st day of March two thousand and six (2006)

BETWEEN:-

1.SAREE HOLDINGS LIMITED of c/- [address not published], Auckland, New Zealand ("the Lender")

and

2.LEANNE AVERY of the [address not published], Walsh Bay, New South Wales Australia ("the Borrower")

Recitals

1.By a Loan Agreement dated the 1st day of March 2006 ("the Loan Agreement") the Lender did lend to the Borrower a Loan in the sum of Australian Dollars 3,700,000 (A$ Three Million and Seven Hundred Thousand) upon the terms stated therein

2.The Borrower who has discharged the obligation contained in the Loan Agreement has called upon the Lender to execute this Discharge and Release

Acknowledgement

1.The Lender hereby acknowledges that the Borrower has discharged al obligations required under the Loan Agreement and does hereby absolutely grant this Release.

Law and Jurisdiction

1.This Agreement is governed by the laws of New South Wales, Australia

2.The parties to this Agreement irrevocably submit to the exclusive jurisdiction of the Courts of New South Wales

IN WITNESS WHEREOF the parties hereto have executed these presents the day month and year first before written

EXECUTED by the Lender in the presence of:

[Signature of J Sorensen]

SIGNED and DELIVERED by the Borrower in the presence of:

[Signature of L Avery]
[Signature of G Donoghue]"

"

On its fifth and final page, against the execution clause, the Saree loan agreement is signed by Mr Sorensen and also by Ms Avery. Ms Avery's signature appears to be witnessed by Mr Donoghue whose name is then spelt out as the witness.

The circumstances of Ms Avery's execution of the Saree loan agreement were unusual. Ms Avery flew from Sydney to New Zealand in March 2006 for it to be executed with Mr Sorensen. At first Ms Avery said Mr Donoghue accompanied her on this visit. But she retreated from this. I find he was not present at the time that Ms Avery and Mr Sorensen signed the document in New Zealand. I find Mr Donoghue did not sign the Saree discharge and release at that time but signed it later, it is unlikely in my view that he did accompany her on this trip. What happened, in my view, was that she arranged for Mr Donoghue to place his signature under hers, after she had already signed it in the presence of Mr Sorensen. But her memory of when and how she did this is very weak.

Ms Avery's recollection how long after Mr Sorensen signed the Saree discharge and release that Mr Donoghue witnessed her signature on it is poor. All she could say was that it was "shortly" after. But of course, this could be a period of days, weeks or months. When Ms Avery had Mr Donoghue sign the Saree discharge and release, she did so, as she understood it, "as part of having the document legally enforced". Ms Avery says when she had Mr Donoghue sign, she only showed him the final page, which she either removed from the rest of the document or showed to him with the preceding pages folded over. She does not recall where Mr Donoghue witnessed her signature or indeed whether she had the whole of the loan agreement and not just the last page with her at that time. Her recollection of all of this aspect of the witnessing was poor. The original of the Saree Discharge and Release that Ms Avery took away has been asked for but has not been produced.

Although Ms Avery asked Mr Donoghue to witness the signature, she says that she did not tell him what it was about. She believes that she may have said that it was an arrangement involving Mr Sorensen but did not elaborate her reasons any further to Mr Donoghue. Ms Avery was challenged as to whether or not she explained the document to Mr Donoghue before his signature as a witness was obtained. She says she did not. She says that she had no reason to. His only task was to witness her signature. Her evidence on this was difficult to accept.

Mr Sorensen's Version or Ms Avery's Version?

The Court cannot accept Ms Avery's version of the creation and execution of the Saree loan and Saree mortgage. The reasons for that are explained in this section. The problems with Ms Avery's version relate to both the execution and treatment of the relevant documents.

At Execution

There were many problems with Ms Avery's version, arising from the time of execution. First, her Family Court legal advice was that there was little risk of her ex husband making a claim against Apartment 901, as it was acquired after her divorce. Her whole object of keeping the property away from her divorce proceedings could have been satisfied without any of these transactions being undertaken. It could have been left in the name of a nominee company for a short period, and then transferred to her after the Family Law proceedings were over. The Court was not satisfied that the transactions were even necessary to serve the purpose that she stated.

Secondly, the Saree loan agreement does not contain any charging clause. The Saree loan agreement does not serve Ms Avery's purposes of giving the appearance that Apartment 901 was, in her words "mortgaged to the hilt". It does not create any legal encumbrance over the property and does not charge repayment of $3.7million on the property either at law or in equity. The document would not have withstood scrutiny. It would only show an offsetting unsecured obligation loosely related to the purchase for $3.7million. That may have partially served her purposes in the short term. But this was unlikely to have survived serious analysis by lawyers acting for Ms Avery's former husband. I accept Ms Avery did not appreciate that the document did not have a charging clause in it. But this just shows that she had not taken any steps to check that the document might serve her purposed in the Family Court. Really, the better view is that it was not to be so used.

Thirdly, Ms Avery and Mr Donoghue planned to purchase Apartment 902, the apartment adjoining Apartment 901, in their joint names for AUD2.8 million. Ms Avery took no steps to disguise that proposed purchase from her former husband in the same way as she did from Apartment 901. The purchase of Apartment 902 proceeded at about the same time as the purchase of Apartment 901. Ms Avery could give no adequate explanation of why concealment was necessary in one and not the other. The evidence clearly supports that she was a proposed purchaser of Apartment 902.

Fourthly, the Saree loan agreement, clause 7.2 refers to the Saree Discharge and Release, as can be seen from the text above. This actual reference to the existence of the "Release and Discharge" in the text of the Saree loan is wholly inconsistent with Ms Avery's version of creating a document that could be used in the Family Court proceedings and later discharged by deploying a secret discharge and release. Ms Avery's explanation of the consistency between clause 7.2 and her alleged scheme was not persuasive.

Fifthly, Ms Avery's incapacity to produce the original documents, in particular the Saree Discharge and Release was very difficult to accept. She said that her previous lawyers had mislaid the document. She could have easily called evidence, with only a limited loss of client privilege from her previous lawyers to explain just that. No such evidence was called. One document which would be of critical importance for her to obtain would be the original of the Saree Discharge and Release. It was the key, on her version, to her unlocking the scheme that she had created. The better view was that there was no such scheme.

Sixthly, two related aspects of Ms Avery's story are impossible for the Court to accept. She says that she wanted to keep this whole arrangement away from Mr Donoghue. But she asked Mr Donoghue to witness her signature on the Deed of Release and Guarantee. He did so after it had been earlier executed by both Mr Sorensen and Ms Avery. She could not adequately explain to the Court why she could not get someone else to witness her signature and why she chose Mr Donoghue in these circumstances. Equally, she involved Mr Sorensen in the alleged scheme, despite the fact that he was a close business associate and in regular contact with Mr Donoghue.

After Execution

But there were many problems with Ms Avery's version after execution.

First, Ms Avery's case is that she wanted the property to be "mortgaged to hilt". But no mortgage was in fact either prepared or executed until September 2006. It is true this is shortly before she filed her financial statement in the Family Court and it is true that the amount for which the mortgage was stamped at AUD2.7 million, does not bear a very obvious relationship to what then have been outstanding on the mortgage, in September 2006. But if Ms Avery was anxious to pursue the scheme for which she says she was propounding, it could be expected that she would have pushed for creation of the mortgage, and even its registration, much earlier. I do not accept her explanation that she did not wish to incur the additional expense of preparing a mortgage at that stage.

Secondly, and most importantly, Ms Avery's Family Court proceedings were settled on 1 February 2007. In that settlement she was declared to be the owner of Apartment 901. But Mr Sorensen sought to have the mortgage registered on the property in April 2007. Here was the moment for Ms Avery to resist registration if the mortgage was created in the circumstances that she claimed. There is no evidence that she did resist in any way or seek to take the matter up with Mr Sorensen. The Court found it very puzzling that she would allow the mortgage to be registered. The following exchange took place between Ms Avery and the Court in the course of her cross examination:-

"The Court:But if these facts add up, and I don't know because they're yet to be established, but the I mean, the request wouldn't make any sense, would it?

Ms Avery:No, but I don't recall ringing Mr Sorensen and asking him what was happening. And I also don't recall asking Sarah Meric. I would she was my lawyer and

The Court:But you know that what a mortgage does is it gives people the right to bring proceedings for possession.

Ms Avery:Well, I do now.

The Court:Well, you did then, didn't you?

Ms Avery: Yes.

The Court:Well, why would you not, if the Family Court proceedings had finished in February and that's the assumption. Why would you not resist the registration of a mortgage in May of 2007 because of the risk that might be entailed for you and the property?

Ms Avery:I didn't I didn't believe there was a perceived risk because I had the discharge and release that would counter any claim over the property under under the loan, under the mortgage.

The Court:Well, what was the point of Mr Sorensen, as you remember, seeking as you understood it, to register a mortgage in respect of an obligation where you had a complete release?

Ms Avery:I I don't remember.

The Court:Well, it doesn't make any obvious sense, does it?

Ms Avery:No.

The Court:Well, did it make any sense then?

MS Avery:No, but I also don't understand the difference between having the caveat lodged or registered and having a mortgage registered. I presume because we're here right now that it's a stronger lien over the property, if that's the correct term, but I don't know why

The Court:But why would you need a further step to be taken in relation to the property when you knew that you had a release and it was all pointless?

Ms Avery:Oh, I was I couldn't say definitely but I was probably told some rationale that didn't concern me because I had the release and I don't remember whether we had Mr Sorensen and I had a conversation about it or not. I don't recall if Sarah Meric passed along to me what they wanted to do, but I wasn't concerned. I thought I had my out in my back pocket, so to speak, over any of it. "

I do not accept Ms Avery's evidence about this. She claimed a lack of understanding of some legal transactions, which may be partly right. But there was no doubt, in my view, even in her mind that the security position was being advanced against her by registration. If the mortgage was created in the circumstances that she says, this was the time for her to say "no" and she did not.

The Legal Result of these Findings

Although the parties also undertook a contest before me as to how much might be due under the Saree mortgage, it is important in my view to pause and examine; now the Court has rejected Ms Avery's primary case in the Saree proceedings, what is the correct procedural course. Saree submits that the conventional remedy for the mortgagor wishing to discharge a mortgage is a redemption suit which would normally require an account to be taken so as to determine the amount owing under the mortgage. This process normally requires a complete and final determination as between mortgagor and mortgagee of the amount owing and one cannot have an account in "bits" and pieces: Adams v Bank of New South Wales (1984) 1 NSWLR 285 at 296 and Equus Financial Services Limited v RMBL Investments Pty Limited (1996) 22 ACSR 744 at 745.

I agree with that submission that that is the correct process. But the contest between the parties does not seem to have been framed before me for the taking of such account. That is very troubling. I am reluctant to proceed to make a partial determination about how much is due on the mortgage until the parties are agreed upon the procedure and what the Court is doing. For that reason, after these lengthy reasons there should be a procedural pause. The Court is prepared to determine the other issues raised, but only in a context where the parties fully agree upon the procedure.

In this respect two observations are appropriate. First, I do not agree with Saree's submission that these proceedings have not been framed as a redemption suit. It is true that Ms Avery seeks a declaration in paragraph 1 of the Statement of Claim that she does not owe Saree any money. But in substance the other orders are sought and the conduct of the proceedings makes it clear that redemption is the object.

As a result of my prior findings Ms Avery certainly bears the risk of having to pay Saree's legal costs of these proceedings under the terms of the mortgage and at general law. Also the mortgagor is required to pay a mortgagee's costs as a condition of obtaining relief by way of discharge, unless the mortgagee is guilty of misconduct: cf Liberty Funding Pty Ltd v Steel Smith (2004) NSWSC 1100. Given the findings that I have made any case of misconduct against Saree would be very difficult if not impossible to maintain. Saree's position in the proceedings has been vindicated so far. Thus in my view the mortgage is arguably likely to secure something.

Saree has submitted that the proceedings should be dismissed. In my view, that will only lead to further litigation. The Court needs to quell this dispute. Accordingly, I will direct the parties to put on submissions about what further needs to be done, if anything, for the taking of a final account as between Ms Avery and Saree. I will direct that those submissions be provided by 18 May 2012.

Conclusions and Orders

The Court has before it two proceedings, the Lava proceedings in the Saree proceedings.

In the Lava proceedings Ms Avery has sought to set aside the judgment for possession Price J entered on 18 March 2009. The Court has found that Ms Avery's case to set aside that judgment must satisfy UCPR r 36.15. But the Court has found that Ms Avery fails on the motion. She fails both because she did not establish that the judgement was entered "irregularly" as she contended. This was so, notwithstanding the Court's finding that the Consumer Credit Code did apply to the Lava loan. Any irregularity that had occurred in Lava say to comply with code section 80 related to the commencement of proceedings, not the entry of judgement. Thus UCPR r36.15 was not enlivened.

Nor did Ms Avery establish that sufficient cause had been shown to set aside the judgment in the Lava proceedings in accordance with the discretion conferred on the Court under UCPR r36.15. The circumstances in which Ms Avery, when legally represented and calculating what was then in her best interests, consented to the judgment for possession during the hearing before Price J in March 2009 are significant obstacles to her persuading the Court that the judgement should be set aside. The Court is not persuaded that it should exercise the discretion.

But there were special procedural circumstances of this case that compelled the Court to decide the issues that would have decided had the judgment for possession been set aside. All parties wanted finality without risking multiple trials. Ms Avery had commenced the Saree proceedings against the second mortgagee of Apartment 901, when she sought to set aside the judgment for possession of the Lava proceedings. There was a very substantial factual overlap between the factual issues in the Saree proceedings and the factual issues in the Lava proceedings. So with the consent of the parties, the Court proceeded to determine all the issues for trial raised in the Lava proceedings.

The principal issue for trial in the Lava proceedings was whether on or about 19 May 2006 Mr Donoghue on behalf Plus Trustee had agreed with Mr Sorensen on behalf of Lava for Plus Trustee to sell 5 million shares in Plus SMS to Lava at NZD0.35 per share, thereby generating sale proceeds of $1,750,000 from which the Lava mortgage could be repaid. On that issue the Court is not persuaded that such an agreement was made. Rather the Court has reached the view that Mr Sorensen is correct that Lava and Plus Trustee entered into a Call Option Deed, under which Lava was not obliged to acquire Plus SMS shares and did not do so.

In the result Ms Avery fails in her attempt to have the Lava mortgage set aside. But even if it had been set aside, she would have failed in the proceedings in any event.

In the original proceedings that Ms Avery commenced, the Saree proceedings, she sought a declaration that there is nothing owing on the Saree loan and therefore that there was nothing owing on the associated Saree mortgage. But the Court has found that Saree's contention is correct that the relief she seeks can only be obtained in proceedings for the redemption of the Saree mortgage. Nevertheless, the Court has made findings about the contested facts in the Saree proceedings and concluded that Mr Sorensen did not collude with Ms Avery to create a false second mortgage on the title of Apartment 901. But the Court has not yet determined what is owing on the mortgage as an account needs to be taken. The Court will do that.

The Saree proceedings will not otherwise be dismissed. This combined result may lead to further argument between the parties on issues of costs. The Court therefore directs the parties to bring in agreed short minutes of order to give effect to these reasons. If the parties cannot agree upon a form of orders for that purpose, then the parties should file their competing short minutes of order by 4 pm on Friday 18 May 2012 together with any submissions on procedure (see [266] above) and costs. List the proceedings for further argument before me in relation to the making of appropriate orders, including costs at 9.30am on Friday 25 May 2012.

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Amendments

16 May 2012 - quote amended - address removed and not to be published

Amended paragraphs: 244

Decision last updated: 16 May 2012

Medium Neutral Citation:	Avery v Saree Holdings Ltd; Lava Ltd v Avery [2012] NSWSC 463
Hearing dates:	15/02/10, 16/02/10, 17/02/10, 18/02/10, 26/07/10, 27/07/10, 28/07/10, 29/07/10, 2/08/10, 3/08/10, 4/08/10, 5/08/10, 6/08/10, 21/04/11, 11/05/11
Decision date:	09 May 2012
Jurisdiction:	Equity Division
Before:	Slattery J
Decision:	Judgment for possession in the Lava proceedings not set aside - No illegal scheme found in Saree proceedings directions for an account.
Catchwords:	REAL PROPERTY - mortgages - whether monies owing on mortgage - whether side agreement that monies not owing effective - two proceedings heard together-brought by mortgagor, Ms Avery against first and second mortgagees of Torrens title land, respectively Lava and Saree - first mortgagee entered judgment for possession against plaintiff/mortgagor in March 2009 - plaintiff/mortgagor seeks to set aside in Lava proceedings - plaintiff/mortgagor seeks declaratory relief against Saree mortgagee. PROCEDURE - judgment and orders - varying, amending or setting aside - whether existing judgment for possession in Lava proceedings should be set aside under UCPR, r 36.15 as irregularly entered due to Consumer Credit Code, s 80 notice not being served before commencement of proceedings - whether "sufficient course" is shown to set aside judgment - HELD - no irregularity in the entry of judgment - in any event sufficient cause not shown to set aside judgment for possession. CONSUMER CREDIT - credit protection - general - regulated contracts and regulated mortgages - whether by the application of Consumer Credit Code, s 6(1) the Code applies to Lava's loan agreement to the plaintiff in the Lava proceedings - whether plaintiff/mortgagor "ordinarily resident" in jurisdiction under Code, s 6(1)(a) - whether charge made for providing the credit under Code, s 6(1)(b) - whether credit provided in the course of a business Code, s 6(1)(d) - HELD: Code applies - is a regulated credit contract. MORTGAGE - the mortgage - second mortgage registered with Saree as mortgage - plaintiff/mortgagor claims agreed in side agreement as part of illegal scheme that no money is owing to Saree on second mortgage - HELD: side agreement not part of illegal scheme - directions for taking of accounts.
Legislation Cited:	Bankruptcy Act 1966 (Cth) Consumer Credit (New South Wales) Code Contracts (Privity) Act 1982 (NZ) Fair Trading Act 1986 (NZ) Real Property Act 1900 (NSW) Uniform Civil Procedure Rules 2005 (NSW), Part 36, Rule 15
Cases Cited:	Adams v Bank of New South Wales (1984) 1 NSWLR 285 Bank of Queensland Limited v Dutta [2010] NSWSC 574 Battenburg v Restom [2007] FCAFC 195 Berowa Holdings Pty Limited v Gordon (2006) 225 CLR 364 Burrell v R (2008) 238 CLR 218 Equus Financial Services Limited v RMBL Investments Pty Limited (1996) 22 ACSR 744 Ho v Powell (2001) 51 NSWLR 572 Kendell v Carnegie (2006) 68 NSWLR 193 Lava Limited v Avery [2009] NSWSC 177 Logue v Hansen Technologies Ltd (2003) 125 FCR 590 Perpetual Trustees Australia Limited v Herperu Pty Ltd (No. 2) [2009] NSWCA 387 R v Holmes; Ex parte Public Service Association (NSW) (1977) 140 CLR 63 Ranmor Finance Pty Limited v Dworjanyn [2010] VSC 334 Re Taylor; Ex parte Natwest Australia Bank Limited (1992) 37 FCR 194 Santos v Delphi Petropleum Pty Ltd [2002] SASC 272 Taylor Brothers Limited v Taylor Group Limited (1988) 2 NZLR 1
Category:	Principal judgment
Parties:	Plaintiff- Leanne Maree Avery Defendant- Saree Holdings Limited Plaintiff/Cross Defendant- Lava Ltd Defendant/Cross Claimant- Leanne Maree Avery
Representation:	Counsel: Plaintiff (Ms Avery)- B. Walker SC (21/4/11, 11/5/11), M. Dempsey SC (26/7/10, 27/7/10, 29/7/10), R. Alkadamani (15/2/10, 16/2/10, 17/2/10, 18/2/10), D. Jenkins (26/7/10, 27/7/10, 28/7/10, 29/7/10, 2/8/10, 3/8/10, 4/8/10, 5/8/10, 6/8/10, 21/4/11, 11/5/11) Defendant (Lava Ltd & Saree Holdings Ltd)- G. Parker SC (21/4/11, 11/5/11), M. Condon (15/2/10, 16/2/10, 17/2/10, 18/2/10, 26/7/10, 27/7/10, 28/7/10, 29/7/10, 2/8/10, 3/8/10, 4/8/10, 5/8/10, 6/8/10, 21/4/11, 11/5/11) Solicitors: Plaintiff (Ms Avery)- Rob Tassell, Verekers Lawyers (from 19/11/10), Nicholas Karefylakis, Nicholas Karefylakis (from 24/9/2010 to 19/11/10), Peter Stewart Moore, Moore & Associates (from 21/4/10 to 24/9/10), Rodney Commins, Patterson Houen Commins (from 14/8/08 to 21/4/10), Simon Morris, Piper Alderman (from 12/9/07 to 14/8/08) Defendant (Lava Ltd & Saree Holdings Ltd)- Mark Nicholas Johnson, Holman Webb Lawyers
File Number(s):	(09/288194); (07/261885)
Publication restriction:	No

the "Borrower"	Leanne Avery and her executors and her administrators and assigns
the "Default Date"	the date when repayment of principal and or interest
the "Interest"	the Base Rate of 5% which shall be calculated on a daily basis on the balance of the above loan payable on the interest payment date
the "Interest Payment Dates"	quarterly on the 12th day of February May August and November in every year up to and including the Loan Repayment Date
the "Interest Period"	the relevant quarter year ending on each Interest Payment Date
the "Lender"	SAREE HOLDINGS LIMITED and their executors and their administrators and assigns
the "Loan"	the sum of Australian Dollars 3,700,000 (Three Million & Seven Hundred Thousand)
the "Loan Period"	the period commencing on the date hereof and ending on the Loan Repayment Date
the "Loan Repayment Date"	The date when the Loan is repaid pursuant to Clause 4
the "Property"	ALL and SINGULAR the hereditaments known as the The Parbury, 901/1 Pottinger Street, Walsh Bay, New South Wales, Australia.