GKQ Mortgages Pty Ltd v Maureen Pedersen

[2010] NSWSC 230

CITATION:	GKQ Mortgages Pty Ltd v Maureen Pedersen [2010] NSWSC 230
HEARING DATE(S):	25/03/10
JUDGMENT DATE :	26 March 2010
JUDGMENT OF:	Hoeben J
DECISION:	The judgment entered by the plaintiff against the defendant on 25 January 2010 is set aside. The defendant has leave to file and serve within 14 days a defence to the statement of claim and if she so wishes, a cross-claim. The proceedings are stood over for directions before the Registrar on 29 April 2010. In accordance with the undertaking to this effect given to the Court on behalf of the plaintiff on 25 March 2010, but nevertheless confirmed by this order, the plaintiff is to pay the net proceeds of sale, after deduction of sale and marketing expenses, of the property contained in Folio Identifier 4/39/758090 and 5/39/758090 and known collectively as 4957 The Oxley Highway, Bendemeer in the State of New South Wales into Court. Otherwise the notice of motion filed on behalf of the defendant on 22 March 2010 is dismissed. The plaintiff’s costs of entering default judgment in January 2010 and the costs of the motion filed on behalf of the defendant on 22 March 2010 are reserved for decision by the Judge who ultimately hears the matter.
CATCHWORDS:	PRACTICE AND PROCEDURE - Application to set aside default judgment - relevant principles - whether application futile - costs of application to set aside judgment - extra curial conduct by mortgagee to take possession of mortgaged property.
LEGISLATION CITED:	Contracts Review Act 1980 Fair Trading Act 1987 Real Property Act 1900 Uniform Civil Procedure Rules 2005
CATEGORY:	Procedural and other rulings
CASES CITED:	Hamafam Pty Limited & Ors v Saadullah & Anor [2007] NSWSC 818 at [7] Permanent Custodians Limited v El Ali (No 2) [2008] NSWSC 1391
PARTIES:	GKQ Mortgages Pty Ltd - Plaintiff Maureen Pedersen - Defendant
FILE NUMBER(S):	SC 2009/176921
COUNSEL:	Mr V Bedrossian - Plaintiff Mr DC Eardley - Defendant
SOLICITORS:	Bransgroves Lawyers - Plaintiff G & D Lawyers - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
DUTY JUDGE LIST

HOEBEN J

Friday 26 March 2010

2009/00295591 – GKQ MORTGAGES PTY LTD v Maureen PEDERSEN

JUDGMENT

1 HIS HONOUR:

Nature of Proceedings
This matter came before the Court as an urgent matter in the Duty Judge’s list on Thursday, 25 March 2010. The issue before the Court was an application by the defendant to set aside a default judgment and a writ of possession to enable her to defend the matter and bring a cross-claim if appropriate. The urgency arose because the property, the subject of the writ of possession, had been sold by the plaintiff and settlement was due to take place on 26 March. The defendant was also applying for an injunction to prevent the sale taking place.

Background Facts

2 The defendant is now aged 51. She is the registered proprietor of a property known as 4957 The Oxley Highway, Bendemeer in New South Wales (the property).

3 Between October 2008 and March 2009 the defendant came under the influence of a Tim Magnus. He persuaded her to invest in a company with which he said he was associated – Profit Runner Pty Ltd – which was based on the Gold Coast. He persuaded her to mortgage the property, invest the proceeds with Profit Runner, explaining that she could pay off the mortgage debt with the profits she would earn from the investment.

4 At the time the defendant was unemployed and receiving social security benefits. She owed approximately $10,000 to the Northern Inland Credit Union which was secured by the property, $17,000 to the National Australia Bank by way of a Visa card debt and $1,000 to an organisation identified as Buyers Edge.

5 With the assistance of Mr Magnus, the defendant applied for a loan from Rebfin Pty Limited, which is the lending agent for the plaintiff. Rebfin offered to loan $55,000 at an interest rate of 8 percent per month, increasing to 15 percent per month if there were default in interest payments. On an annualised basis that interest rate was 180 percent, reducing to 96 percent if interest were paid on time.

6 The defendant completed a declaration that the loan was required for business purposes. She received independent legal advice from a solicitor. The solicitor apparently pointed out the risks associated with the loan agreement, but did not advise the defendant not to enter into the transaction.

7 It was the defendant’s apparent intention that the loan would be for a short period only, during which time she would refinance at a lower rate of interest. The plaintiff knew that the defendant had no income.

8 The loan moneys were advanced and the mortgage was entered into on 11 March 2009. $11,661.08 went to pay off the debt to Northern Inland Credit Union, $4,780 was deducted by the mortgagee for document preparation, registration fees and an establishment fee. $4,062 was deducted by way of payment of the first month’s interest and $211 was deducted for stamp duty. The balance of $34,338 was paid to Vision Bloodstock Pty Limited, a company controlled by Mr Magnus.

9 The loan went into default on 11 June 2009 for failure to repay the interest. Attempts made by the defendant to refinance the loan were unsuccessful. In the course of the refinancing exercise, it became obvious that the property was in poor condition and was worth in the order of $55,000. In June the plaintiff served a notice under s 57(2)(b) of the Real Property Act 1900.

10 Between June and October 2009 there was contact between the defendant and Mr Simon Hall, the principal of Rebfin and the plaintiff, in the course of which the defendant made it clear that she was unable to meet the interest payments under the mortgage. In November 2009 the defendant contacted Profit Runner and learned that Mr Magnus had not invested the moneys with that company, but had taken the money for his own benefit. She learned that Mr Magnus had no association with the company.

11 It is apparent that in October – November 2009 the defendant was not residing in the property. The evidence does not reveal when she ceased to do so. She had, however, left most of her belongings there. She was at that time residing in a property in Wentworthville where she was looking after a cousin who suffered from dementia.

12 On 4 November 2009 the defendant learned from a neighbour that people had entered her house and removed her belongings which were being placed in garbage skips. On enquiry she learned that a contractor had been retained by Mr Hall to clean up the property and prepare it for sale. There was no proper basis for this action by Mr Hall.

13 Mr Hall explained his actions in these terms:

“I am aware that in my mortgage I have the right to enter the property and take possession if the mortgagor is in default. It is a registered first mortgage. I decided I should do this in order to have the property sold as soon as possible and ensure that there was no delay in realising the property given that interest was accruing under the mortgage and the market value of the property was so low.”

This is a surprising explanation given that Mr Hall once practised as a solicitor.

14 The defendant contends that all that she was able to salvage from the house was her father’s ashes and two family portraits. She says that she lost all her valuables and personal belongings, including jewellery valued at approximately $3,500, a coin collection valued at approximately $25,000, together with other personal belongings of sentimental value and some household furnishings.

15 A statement of claim and orders for substituted service were served at the Wentworthville address on 30 October 2009. The statement of claim sought recovery of principal and interest under the mortgage and possession of the property. There was no issue that the statement of claim was properly served on the defendant.

16 It is not clear what the defendant did between the beginning of November and 9 December 2009 when she attended a Legal Aid advice clinic at Parramatta. Legal Aid advised the defendant that it could not assist her because she did not come within its guidelines.

17 The Legal Aid solicitor who was assisting the defendant was relatively inexperienced, having been admitted in August 2009. She made unsuccessful attempts in December to obtain pro bono assistance for the defendant and to contact the solicitors for the plaintiff. She made inquiries of the Supreme Court to find out whether default judgment had been applied for. On 3 February 2010 she was advised by Messrs Gilbert and Tobin, with whom she had been negotiating, that they did not have the capacity to assist the defendant. The solicitor learned on 16 February 2010 that default judgment had been entered against the defendant on 25 January 2010.

18 In her evidence the Legal Aid solicitor told the Court how distressed the defendant had been on the occasions that she had consulted with her. This was particularly so on 16 February 2010 when she advised the defendant that pro bono legal assistance was not yet available. Eventually the Legal Aid solicitor was able to obtain representation for the defendant from her current solicitors. This occurred on 2 March 2010.

19 Without wishing to be critical of the Legal Aid solicitor, who clearly worked very hard to obtain legal representation for the defendant, she did fail to take two important steps which would have assisted the defendant’s position. This was undoubtedly due to inexperience. She failed to renew her attempts to contact the solicitors for the plaintiff in the New Year so as to clarify with them what their intentions were in relation to the entry of default judgment and she failed to advise the defendant about the importance of filing a defence.

20 The plaintiff attempted to sell the property for $60,000 in November 2009 but that sale did not proceed when the purchaser was unable to obtain finance. Contracts for sale of the property were exchanged in January 2010 with a sale price of $69,950. It is that transaction which was due to settle on 26 March 2010. The only valuation evidence in the matter indicates that this was a good sale price for the property.

21 It is common ground that not only was default judgment obtained on 25 January 2010 but leave to file a writ of possession was granted on that date. The defendant does not take any issue with the service of the documents on her, either directly or by way of substituted service.

Consideration

22 In the course of argument it was accepted by the defendant that the purchase price, which had been negotiated for the sale of the property, was a good one and she withdrew her application to injunct the sale. It was agreed between the parties in general terms that the sale price was to be placed into an interest bearing deposit pending the outcome of the substantive proceedings.

23 Accordingly, the only matter to be decided was the defendant’s application to set aside the default judgment. In that regard I should note that an open offer was made in Court by the plaintiff that it would accept the proceeds of the sale of the property in full settlement of all of its claims against the defendant under the mortgage. That offer was refused by the defendant.

24 The relevant rule is UCPR 36.16(2)(a) of the Uniform Civil Procedure Rules 2005 (UCPR). This provides that a court may set aside or vary a judgment or order after judgment is entered if the order or judgment is a default judgment. The principles applicable for setting aside a default judgment were recently stated by Hislop J in Hamafam Pty Limited & Ors v Saadullah & Anor [2007] NSWSC 818 at [7] as follows:

“(a) Whether the defendant has shown a satisfactory explanation for the delay in filing a defence or moving to set aside the judgment.
(b) Whether the default judgment was obtained without notice to the defendant.
(c) Whether the proposed defence is asserted bona fide.
(d) Whether, if the judgment were set aside, prejudice would be occasioned to the plaintiffs.
(e) Whether the proposed defence presents an arguable or triable issue.
(f) Whether it would be futile to set aside the judgment.”

25 I am satisfied that the defendant has provided a satisfactory explanation for the delay in filing the defence, or moving to set aside the judgment. I appreciate that there is a lack of specific explanation for the delay between the beginning of November and the first consultation with the Legal Aid solicitor on 10 December 2009. I believe this is explained by the obvious lack of knowledge on the part of the defendant of legal affairs. I found her to be a somewhat naïve person who has little understanding of legal or business affairs. Once she consulted the Legal Aid solicitor, the delay has been adequately explained by the failure on the part of the solicitor to provide advice to her concerning the filing of a defence.

26 There was, as I have indicated, no issue that the statement of claim was served and that the defendant was aware of that fact. As also indicated, I do not believe that the defendant had any real understanding of the effect of the service of the statement of claim.

27 The question of the existence of a bona fide defence and a triable issue should be considered together. The evidence on this issue is obviously incomplete and will need to be significantly amplified when the matter comes on for hearing. It is not possible on the present state of the evidence for there to be any concluded view reached as to the prospects of success of the defence which has been raised.

28 Nevertheless, there is sufficient material available to satisfy me that there is a genuine issue to be litigated under the Contracts Review Act 1980 and/or the Fair Trading Act 1987. There is also the application of the equitable doctrine of unconscionable conduct to be considered. The matters I have particularly had regard to in reaching that conclusion are the patently excessive interest rate, the difference in bargaining positions between the plaintiff and the defendant, the difference in commercial acuity between the plaintiff and the defendant, the defendant’s patent inability to meet the repayment obligations under the mortgage and the indicia that this was in reality an asset lending exercise.

29 The benefits flowing to the defendant from this transaction were largely illusory and although the defendant did receive legal advice, the precise nature and terms of that legal advice will in due course need to be explored. I have already indicated my preliminary finding that the plaintiff was well aware of the defendant’s impecuniosity and inability to service the loan. I am also satisfied that it was not reasonably practicable for the defendant to negotiate for the alteration of any of the provisions of the loan or mortgage. In particular, there was no evidence that any of the provisions of the loan or mortgage were the subject of negotiations at the time they were entered into.

30 The question of prejudice, if the judgment is set aside, is fairly evenly balanced. Much of the force of that consideration has been removed by the agreement between the parties for the property to be sold and for the proceeds of the sale to be held in an appropriate account. From the plaintiff’s point of view there is the delay in obtaining access to the principal sum and interest, although its prospects of recovering anything more than the principal sum from the defendant in any event seems remote. From the defendant’s point of view, if the judgment is allowed to stand she has lost any chance of retaining any moneys from the sale of the property. Given the defendant’s parlous financial state, any financial benefit she receives from the sale of the property will be of considerable benefit to her. I am of the opinion that when considering prejudice, that likely to be incurred by the defendant outweighs that of the plaintiff.

31 The final consideration is perhaps the most difficult and that is whether it would be futile to set aside the judgment. The resolution of this question depends upon what benefit the defendant received from the mortgage and loan transaction. Clearly she received a benefit in having the debt owed to the Northern Inland Credit Union discharged. The moneys which were taken by the plaintiff for an establishment fee and service fees, were clearly of no benefit to her. The real question is whether a court would ultimately decide that the moneys which were paid to Vision Bloodstock Pty Limited should be considered to have been for the plaintiff’s benefit in the relevant sense. There is insufficient evidence available to me to decide that question, even on a preliminary basis. It is sufficient to say that if the defendant were successful on that issue and successful under the Contracts Review Act the amount of the principal debt which she will be required to repay would be significantly reduced, as would her interest payments. She would in a real sense obtain a substantial financial benefit from the sale of the property.

32 Taking into account all of those matters, it seems to me that the setting aside of the default judgment is not a futile exercise and that subject to ultimate fact finding by the court which determines the matter, there could be a real financial benefit for the defendant.

33 Most of the matters relevant to setting aside a default judgment favour the defendant and I propose to make orders setting aside the default judgment.

34 That leaves outstanding the question of the costs of the hearing before me. As counsel for the plaintiff correctly pointed out, the usual order for costs in a matter such as this is that the defendant should pay the plaintiff’s costs of the application, even where the defendant has been successful. This is because the defendant is seeking an indulgence from the Court, usually for the consequences of his or her own inaction.

35 In this case there is no real explanation for the lack of activity on the part of the defendant between the beginning of November and 9 December when she first consulted Legal Aid. I suspect that the defendant in reality tried to put the matter out of her mind in the hope that it would go away. The cases relied upon by the plaintiff, in particular Permanent Custodians Limited v El Ali (No 2) [2008] NSWSC 1391, a decision of Rothman J, in very similar circumstances, set out the principles. An application of those principles, subject to one matter which I will come to, favours a costs order being made in favour of the plaintiff.

36 The matter to which I have referred is the highhanded extra curial conduct on the part of the plaintiff in entering the defendant’s property without permission on 4 November 2009 and removing her property. That conduct appears to have been further exacerbated by a complete absence of any warning to the defendant that this assault upon her rights was going to occur and without any concern to place in storage, or otherwise preserve, the defendant’s property. Such conduct is to be deplored and should not in any fashion be rewarded.

37 My firm inclination in this matter is to award costs against the plaintiff because of this conduct. I am mindful, however, that the application before the Court was an interlocutory one and that there may be some explanation for the plaintiff’s conduct, other than that set out in Mr Hall’s affidavit or in his evidence. In those circumstances, it would be unfair for me to make findings in this application when full evidence on the issue will undoubtedly be adduced when the defendant’s cross-claim against the plaintiff is heard.

38 In those circumstances, the most appropriate costs order is that the plaintiff’s costs of entering default judgment in January 2010 and the costs of the defendant’s motion filed 22 March 2010 should be reserved, for decision by the Judge who ultimately hears the matter.

Orders

39 I make the following orders:

1. The judgment entered by the plaintiff against the defendant on 25 January 2010 is set aside.

2. The defendant has leave to file and serve within 14 days a defence to the statement of claim and if she so wishes, a cross-claim.

3. The proceedings are stood over for directions before the Registrar on 29 April 2010.

4. In accordance with the undertaking to this effect given to the Court on behalf of the plaintiff on 25 March 2010, but nevertheless confirmed by this order, the plaintiff is to pay the net proceeds of sale, after deduction of sale and marketing expenses, of the property contained in Folio Identifier 4/39/758090 and 5/39/758090 and known collectively as 4957 The Oxley Highway, Bendemeer in the State of New South Wales into Court.

5. Otherwise the notice of motion filed on behalf of the defendant on 22 March 2010 is dismissed.

6. The plaintiff’s costs of entering default judgment in January 2010 and the costs of the motion filed on behalf of the defendant on 22 March 2010 are reserved for decision by the Judge who ultimately hears the matter.

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