HSBC Bank Australia Ltd v Mavaddat [No 2]
[2016] WASC 344
•28 OCTOBER 2016
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: HSBC BANK AUSTRALIA LTD -v- MAVADDAT [No 2] [2016] WASC 344
CORAM: ACTING MASTER STRK
HEARD: 20 SEPTEMBER 2016
DELIVERED : 28 OCTOBER 2016
FILE NO/S: CIV 1674 of 2014
BETWEEN: HSBC BANK AUSTRALIA LTD
Plaintiff
AND
MICHAEL MOOJAN MAVADDAT
First DefendantFARIBA MAVADDAT
Second DefendantFCFL PTY LTD as Trustee for the MAVADDAT FAMILY TRUST
Third Defendant
Catchwords:
Practice and procedure - Application for stay of execution of judgment for possession of land - Mortgage - No payment into court - Turns on own facts
Legislation:
Civil Judgments Enforcements Act 2004 (WA)
Result:
Application refused
Category: B
Representation:
Counsel:
Plaintiff: Mr J Garas
First Defendant : Mr C S Williams
Second Defendant : Mr C S Williams
Third Defendant : Mr C S Williams
Solicitors:
Plaintiff: Ashurst Australia
First Defendant : Solomon Brothers
Second Defendant : Solomon Brothers
Third Defendant : Solomon Brothers
Case(s) referred to in judgment(s):
Burnet v Francis Industries plc [1987] 2 All ER 323
Catlin v National Australia Bank Ltd [2002] WASCA 224
Commonwealth Development Bank of Australia Ltd v Nertec Pty Ltd [1999] WASCA 311
Fletcher v Ould Pty Ltd [2000] WASC 322
Harvey v McWatters [1949] 49 SR (NSW) 173
HSBC Bank Australia Ltd v Mavaddat [2015] WASC 153
Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161
Kwa v Bank of Western Australia [2003] WASCA 163
Mavaddat v HSBC Bank Australia Ltd [2015] WASCA 205
Mavaddat v HSBC Bank Australia Ltd [No 2] [2016] WASCA 94
New Resource Holdings Pty Ltd v Lunt [No 3] [2008] WASC 221
Town & Country Bank Ltd v Inverarity (Unreported, WASC, Library No 950138, 29 March 1995)
Tradesman Technologies Pty Ltd v Ameduri [2012] WASCA 168
ACTING MASTER STRK: This is an application by the second defendant (Mrs Mavaddat) under s 15 of the Civil Judgments Enforcements Act 2004 (WA) (CJEA), for an order suspending the enforcement of a judgment entered against her summarily on 22 June 2015 (the Judgment).
Background
Mrs Mavaddat owns the property at 8 Bateman Road, Mount Pleasant (the Property). By a series of three loan agreements entered into between 2004 and 2006 the plaintiff (HSBC) advanced $2.472 million to the first defendant (Mr Mavaddat) and to Mrs Mavaddat. The loans were secured by a first registered mortgage over the Property (the Mortgage).
The first of the three loans was entered into on 8 December 2004 when Mr and Mrs Mavaddat signed a letter of offer dated 7 December 2004 from HSBC (the first loan agreement).[1] The purpose of the first loan agreement was to finance the purchase of the Property.[2] Pursuant to the first loan agreement, HSBC advanced $1,160,000 to Mr and Mrs Mavaddat.[3]
[1] Affidavit of AJ Woods sworn 28 October 2014 [5(a)], referred to in HSBC Bank Australia LtdvMavaddat [2015] WASC 153 [14].
[2] Affidavit of AJ Woods sworn 17 March 2015 [32], referred to in HSBC Bank Australia LtdvMavaddat [14].
[3] Affidavit of AJ Woods sworn 28 October 2014 [6] ‑ [7], referred to in HSBC Bank Australia LtdvMavaddat [14].
HSBC asserted that Mr and Mrs Mavaddat defaulted on their obligations under the three loans agreements and issued notices of default under the loan agreements and the Mortgage. The last payment received by HSBC under the first loan agreement was on 20 November 2012 and the last payment received under each of the second and third loans agreements was on 29 October 2012.[4]
[4] Affidavit of JC Rodrigo sworn 17 August 2016 [17].
By an application dated 29 October 2014, HSBC applied for summary judgment against Mr and Mrs Mavaddat pursuant to Rules of the Supreme Court 1971 (WA) (RSC) O 14 r 1, which application was defended.
On 22 June 2015, HSBC obtained judgment against Mr Mavaddat in respect of all three loans in the amount of $2,630,314.33 (being the amount owed at 11 June 2015), together with interest and costs.[5]
[5] HSBC Bank Australia LtdvMavaddat.
HSBC also obtained judgment against Mrs Mavaddat in relation to the first loan in the amount of $1,189,689.91 (being the amount owed at 11 June 2015), together with interest and costs. There was an order that she deliver up to HSBC vacant possession of the Property within 28 days.[6]
[6] HSBC Bank Australia LtdvMavaddat.
As against Mrs Mavaddat, Acting Master Gething declined summary judgment in relation to the second and third loan agreements and Mrs Mavaddat was granted leave to defend the balance of the claim.
After deduction of the costs of sale and payment of the amounts owed under the first loan agreement, together with interest and costs, the balance of the proceeds of sale of the Property was to be paid into court pending the determination of the balance of the claim, or was to be otherwise secured with the agreement of the parties.
Mrs Mavaddat appealed against the judgment in relation to the first loan and the order for possession of the Property. Pending the determination of the appeal, Mrs Mavaddat secured an order suspending enforcement of the judgment.[7] Mrs Mavaddat's appeal against the judgment was dismissed on 9 June 2016.[8] The suspension order lapsed upon the dismissal of the appeal.
[7] Mavaddat v HSBC Bank Australia Ltd [2015] WASCA 205.
[8] Mavaddat v HSBC Bank Australia Ltd [No 2] [2016] WASCA 94.
The suspension application
The suspension application now before the court was filed on 8 July 2016. In support of the application, Ms Mavaddat relies on the affidavits that she swore on 16 July 2015, 16 July 2016 and 19 September 2016, and on the affidavit affirmed by Lachlan Carlisle Bruce Richards on 24 July 2015.
In her affidavits, Mrs Mavaddat gave evidence as to her personal and financial circumstances. The effect of Mrs Mavaddat's evidence is that the Property is her family home; it is her only asset; and both she and Mr Mavaddat are unemployed.
Mrs Mavaddat gave evidence to the effect that she had placed the Property on the market for sale, the Property had a market value of $3,050,000 at 14 May 2015 (an amount greater than the total amount alleged to be owed to HSBC under the three loan agreements), and that a conditional contract for the sale of the Property had been entered into about 14 June 2016 with a purchase price of $3,500,000.
Mrs Mavaddat also deposed to having obtained approval from a private financier (Deborah Holdings Pty Ltd) for a loan for $1.6 million (initially the approval was for a loan for $1.8 million), which loan would be sufficient to discharge the monetary judgment relating to the first loan agreement. However, any loan would only be made on the basis of the provision of a first registered mortgage over the Property, and that would not be possible while HSBC maintained that the Mortgage as security for the second and third loans.
Mrs Mavaddat says that she is concerned that she will suffer serious hardship if her family are forced to vacate the Property at a time prior to the resolution of the proceedings, as she will be without means to secure alternative accommodation.
In submissions made on behalf of Mrs Mavaddat, the reason for the suspension order was expressed as follows:
(a)Acting Master Gething found that Mrs Mavaddat had an arguable defence to the claims made against her under the second and third loan agreements.
(b)The difficulty that this causes Mrs Mavaddat is that the Mortgage secures any liability that she has to HSBC under the first loan agreement, the second loan agreement and/or the third loan agreement. Consequently, HSBC will not discharge the Mortgage unless it is paid everything that it claims to be due to it under each of the loan agreements.
(c)However, if Mrs Mavaddat's defence of HSBC's claim under the second and third loan agreements was to succeed, and those loan agreements were to be set aside as against Mrs Mavaddat, then Mrs Mavaddat would be able to obtain a discharge of the Mortgage upon paying to HSBC all moneys owed under the first loan agreement.
(d)Mrs Mavaddat is able to borrow sufficient funds to enable her to pay out the moneys claimed by HSBC under the first loan agreement and the other encumbrances to which the Property is subject. However, to do so she will need to grant a first registered mortgage over the Property to a new financier.
(e)Consequently, this is not a mere hypothetical. If it was not for HSBC's claim under the second and third loan agreements, Mrs Mavaddat could satisfy the judgment. What is preventing Mrs Mavaddat from doing so is HSBC's maintenance of the Mortgage until such time as the moneys claimed to be due under the second and third loan agreements are paid, or the court sets those loan agreements aside as against Mrs Mavaddat.
General principles
The suspension application is brought under s 15 of the CJEA. Section 15(3) of the CJEA provides that the court may only make an order suspending the enforcement of all or part of a judgment 'if there are special circumstances that justify doing so'. That is, a successful litigant is ordinarily entitled to enforce a judgment. The onus is on the applicant to move the court to a favourable exercise of discretion by showing that there are special circumstances that justify doing so.[9]
[9] Tradesman Technologies Pty Ltd v Ameduri [2012] WASCA 168 [22].
It was common ground as between the parties that:
(a)the power to make a suspension order is not limited to circumstances in which the judgment sought to be suspended is the subject of an appeal;
(b)there can be other reasons, independent of an appeal, that constitute 'special circumstances'; and
(c)the principles that apply when a suspension order is sought for reasons other than there being a pending appeal will not necessarily be the same as those that apply when an appeal is pending.[10]
[10] New Resource Holdings Pty Ltd v Lunt [No 3] [2008] WASC 221 [29] ‑ [41].
In Burnet v Francis Industries plc,[11] Bingham LJ formulated the matters requiring consideration by reference to a situation which his Lordship described in the following way:
A sues B and obtains judgment. B is associated with C. C has an unresolved claim against A. B seeks a stay of execution of A's judgment to await the outcome of C's claim against A.
[11] Burnet v Francis Industries plc [1987] 2 All ER 323.
This action concerns a situation that is different to the situation contemplated by Bingham LJ described above. Consistent with the approach taken in New Resource Holdings Pty Ltd v Lunt [No 3],[12] it is necessary to reformulate the issues identified by Bingham LJ to make them applicable to the suspension application made by Mrs Mavaddat. Therefore, I set out and deal with each of the matters in the following way.
[12] New Resource Holdings Pty Ltd v Lunt[No 3] [36] ‑ [40].
Are there special circumstances?
The nature of HSBC's claim
The point made by Bingham LJ under this head is that if the claim was (for example) based on a dishonoured bill of exchange, a judgment based on such a claim would rarely, if ever be stayed.
It is not the case that a judgment based on a loan agreement and mortgage would rarely, if ever be stayed. Indeed, Mrs Mavaddat secured a stay of the judgment pending the determination of her appeal. The nature of the judgment does however give rise to an additional consideration, the general rule identified by the High Court in Inglis v Commonwealth Trading Bank of Australia[13] which I address separately from [39] below.
The extent of the identity between the parties
[13] Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161.
In this case, there is no third party - there is complete identity as between the parties.
The interrelationship of the respective claims
The interrelationship of the respective claims arises only by reason of:
(a)the Mortgage securing the established indebtedness of Mrs Mavaddat under the first loan agreement; and
(b)the same Mortgage being alleged to secure moneys owed by Mrs Mavaddat under the second and third loan agreements.
Mrs Mavaddat says that the interrelationship and its consequence gives rise to a special circumstance. That is, if it was not for HSBC's claim under the second and third loan agreements, Mrs Mavaddat could satisfy the judgment; and what is preventing Mrs Mavaddat from doing so is HSBC's maintenance of the Mortgage until such time as the moneys claimed to be due under the second and third loan agreements are paid, or the court sets those loan agreements aside as against Mrs Mavaddat.
What weighs heavily against this is that HSBC has established that it is entitled to immediate possession of the Property under the Mortgage irrespective of whether it succeeds or fails in its claims relating to the second and third loan agreements also secured by the Mortgage. The judgment which the acting master entered appropriately reflected the rights which HSBC had established.[14]
[14] Mavaddat v HSBC Bank Australia Ltd [No 2] [105].
HSBC also points out that on her own evidence, Mrs Mavaddat does not have the capacity to service or repay the proposed $1.6 million loan, which is repayable in one year with interest. Mr and Mrs Mavaddat are unemployed and they do not have any other source of funds. This is a factor to be considered and weighed.
The strength of HSBC's claim and Mrs Mavaddat's defence
The point made by Bingham LJ under this head is the more obvious it appears that A will have to pay C eventually, the less likely it is that he will be prejudiced by denial of the fruits of his judgment against B in the short term.
Applied to these circumstances, I note that the acting master found that there is a factual dispute as to whether or not the steps taken by HSBC were sufficient to enable a finding that it took sufficient steps to explain the transactions to Mrs Mavaddat, and that such dispute should not be determined summarily. The acting master was therefore satisfied that Mrs Mavaddat has an arguable defence to the claim brought by HSBC in so far as it relates to the second and third loan agreements.[15]
[15] HSBC Bank Australia LtdvMavaddat [50] ‑ [51].
If Mrs Mavaddat was to succeed in defending the remainder of the claim, HSBC would remain entitled to recover the full amount of the judgment debt as it concerns the first loan agreement, and to enforce its Mortgage security. A stay simply allows Mrs Mavaddat an opportunity to refinance the Property, if the Property is not sold in the interim.
The likely delay before adjudication
As to the balance of the claim against Mrs Mavaddat concerning the second and third loans, trial dates are not yet allocated. It appears that programming orders were made for the filing of witness statements, responsive witness statements and objections to witness statements, and that the time for compliance has been extended several times since March 2016. If a stay was granted, it would appear likely that HSBC would be restrained for the remainder of this calender year and (most likely) for at least some months into the next.
The prejudice to HSBC if it is denied the fruits of its judgment until the balance of its claim is determined
HSBC says that it will suffer prejudice from the suspension of the judgment. It says that the Property was valued at $3.05 million in July 2015 and $2.6 million in December 2015.[16] HSBC says that without considering the increasing interest which accrues on a daily basis on the outstanding balances plus HSBC's legal costs, the total amount owing under all three loan agreements now exceeds the value of the Property and HSBC is at risk of being unable to fully recover the amount due as against its secured interest.
[16] Affidavit of JC Rodrigo sworn 17 August 2016 [6] and annexure JCR‑1.
Mrs Mavaddat put into evidence a conditional contract for the sale of the Property, entered into about 14 June 2016 with a purchase price of $3,500,000 (an amount which exceeds the valuation on which she relies). The contract remains conditional. A deposit is only payable by the buyer upon the contract becoming unconditional.
In oral submissions, Counsel for HSBC referred to the sale contract as being 'dubious'.
It is not necessary for me to make any finding in relation to the veracity of the contact. The contact is clearly conditional and so there is some prospect that the contract will not complete.
On the evidence before me, including the valuation evidence, it cannot be said that there is no prospect of HSBC suffering prejudice if a stay is granted.
The risk of prejudice to Mrs Mavaddat
Mrs Mavaddat expresses concern about the duties owed by HSBC on a mortgagee sale. I do not accept that this is a consideration that ought to be afforded any weight in all of the circumstances of this case. In any event, if the contract of sale was to become unconditional, HSBC might simply complete that contract.
Mrs Mavaddat also says that she is concerned that she will suffer serious hardship if her family are forced to vacate the Property at a time prior to the resolution of the proceedings, as she will be without means to secure alternative accommodation. However, she acknowledges that the order to deliver up possession does not of itself create special circumstances of hardship. Her real concern is the loss of opportunity to secure finance to pay the judgment without having to sell her home. This is a factor to be considered and weighed.
Additional consideration - Mortgagee actions
Bingham LJ emphasised that the list of matters identified in Burnet v Francis Industries plc was not intended to be exhaustive and that the relative significance of the factors amoung themselves would vary enormously from case to case.[17]
[17] Acknowledged in New Resource Holdings Pty Ltd v Lunt[No 3] [41].
The submission was made on behalf of HSBC that in mortgage actions, like the present case, a significant additional consideration arises - the following general rule identified by the High Court in Inglis v Commonwealth Trading Bank of Australia:[18]
A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into court.
[18] Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161, 164 (Walsh J).
In Kwa v Bank of Western Australia[19] the general rule in Inglis was explained in the following terms:
Neither an injunction nor a stay of execution will, generally speaking, be granted in a case where the debt leading to the judgment for possession is not of itself sought to be impeached (as in this case), so as to restrain the exercise by a mortgagee of its rights under the mortgage instrument, unless there is paid into court or otherwise secured to the mortgagee the amount of the mortgage debt, including accrued interest.
[19] Kwa v Bank of Western Australia [2003] WASCA 163 [10] (Murray ACJ & Steytler J).
In Commonwealth Development Bank of Australia Ltd v Nertec Pty Ltd,[20] Murray J, quoting a passage of his reasons in a previous decision,[21] said:
Where the court is dealing with a mortgage security ... the rule in Inglis's case ... although not invariably to be applied, would generally ... provide an additional factor to be satisfied before the defendants might succeed under [the predecessor of s 15 of the RSC]. That is, even if special circumstances were able to be established which would move the court to grant the stay, prima facie at least, it ought to be upon the condition precedent that the defendants provide the alternative security by payment, at least to a stakeholder, of the claimed mortgage debt.
See also Catlin v National Australia Bank Ltd.[22]
[20] Commonwealth Development Bank of Australia Ltd v Nertec Pty Ltd [1999] WASCA 311 [10] (Murray J).
[21] Town & Country Bank Ltd v Inverarity (Unreported, WASC, Library No 950138, 29 March 1995).
[22] Catlin v National Australia Bank Ltd [2002] WASCA 224 [3] ‑ [5] (Wallwork, Murray & Parker JJ)
Mrs Mavaddat says that this is not a case to which the general rule in Inglis applies and there is no reason why a suspension order ought be refused unless the amount of the judgment is paid into court by Mrs Mavaddat. She asserts that the general rule in Inglis only applies in circumstances where there is a challenge to the manner in which a power of sale is being exercised, as opposed to a challenge to the availability of a power of sale at all.
I agree that the rule in Inglis is a general one and exceptions have been upheld from time to time. It also appears that one possible exception is a case where there is a question as to whether the mortgagee's power has become exercisable at all. [23]
[23] Harvey v McWatters [1949] 49 SR (NSW) 173, 178; referred to in Fletcher v Ould Pty Ltd [2000] WASC 322 (Steytler J)
However, this is not a case where Mrs Mavaddat contends that there is nothing payable and consequently no call for the exercise by HSBC of the powers which are afforded to it under the Mortgage. Rather, HSBC has established that it is entitled to immediate possession of the Property under the Mortgage irrespective of whether it succeeds or fails in its claims relating to the second and third loan agreements also secured by the Mortgage.
In all of the circumstances, this is not a case where the general rule in Inglis ought not apply.
Mrs Mavaddat deposes to having no ability to pay the judgment debt into court. Indeed, no payments have been made under any of the loan agreements for a number of years and there is no offer to pay interest on the judgment debt. In this case, the significant additional consideration which arises by operation of the general rule identified in Inglis cannot be satisfied.
Determination
Mrs Mavaddat asserts that her circumstances (in particular, the continuation of the Mortgage which prevents an immediate refinance) give rise to difficulty and hardship beyond the usual hardship that a mortgagor will suffer when required to deliver up possession of their family home.
After having regard to all of the evidence before me, and having reformulated the issues identified by Bingham LJ so as to make them applicable to the suspension application made by Mrs Mavaddat and considering the same, I am not satisfied that in all of the circumstances, 'special circumstances' exist that justify a favourable exercise of discretion.
Further, I note that having failed in her appeal, Mrs Mavaddat cannot dispute the amount of the mortgage debt, nor that it is due and payable. Applying the test in Inglis, I would not grant a stay in circumstances where Mrs Mavaddat cannot provide alternative security for payment, at least to a stakeholder, of the judgment debt.
I therefore dismiss the application.
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