Kleinsman v Capri
[2016] VSC 82
•2 March 2016 (revised 21 March 2016)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PRACTICE COURT
S CI 2015 01326
| HERMAN JOHN BERNARD KLEINSMAN LEGAL REPRESENTATIVE OF MARIA HUBERTINE LANGNER & ANOR | Plaintiffs |
| v | |
| JOSEPH CAPRI & ORS | Defendants |
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JUDGE: | JOHN DIXON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 March 2016 |
DATE OF JUDGMENT: | 2 March 2016 (revised 21 March 2016) |
CASE MAY BE CITED AS: | Kleinsman v Capri |
| MEDIUM NEUTRAL CITATION: | [2016] VSC 82 |
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PRACTICE AND PROCEDURE – Default judgment for possession of land and for debt – Warrant for possession in process of execution – Oral application by defendants for stay of execution and to set aside the judgment – Application refused – No new point of principle – r 21.07, 66.16 Supreme Court (General Civil Procedure) Rules 2015.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | No appearance | |
| For the first and second Defendants | In person, assisted by Mr D Bullmore as a McKenzie Friend. | |
| For the third Defendant | No appearance |
HIS HONOUR:
In this proceeding the first and second defendants, Joseph and Rosemary Capri, come before the court seeking urgent relief on an ex parte basis.
On their behalf, a financial planner, Mr David Bullmore, was given leave to appear as a McKenzie Friend. However, he effectively acted as an ineffective advocate. The first defendant, Mr Joseph Capri produced an unsworn affidavit, and in addition, Mr Bullmore made submissions to the court that included references to facts not supported by that, or any, affidavit or other document before the court.
The plaintiffs did not appear. I was informed by Mr Bullmore that in recent days they had been informed by him of the defendants’ intention to apply to the court for urgent relief but it was not clear that they were informed that an application would be made before me in this court at a particular time. In any event, they were not present. I am not satisfied that the plaintiffs were given adequate notice of this application or that Mr Bullmore and the defendants acted appropriately to ensure that the plaintiffs were present in court for their application. In view of the apparent urgency of the application, I agreed to hear Mr Bullmore for the defendants on the basis of the draft affidavit on an ex parte basis.
For the reasons that follow, the application will be refused.
The immediate cause of the application made was that the Sheriff was at the time of the hearing executing a warrant of possession that had been issued in favour of the plaintiffs in enforcement of a default judgment that had been earlier obtained against the defendants. The application could not have been made at a later point in the continuum of events.
The court file revealed some procedural issues about the default judgment for possession but ultimately a default judgment against all of the registered proprietors of the property was obtained on 30 October 2015. The initial warrant erroneously described the property address and it was re‑issued. Mr Bullmore informed me that the sheriff was at the property in question and in the process of executing the warrant as the application was being made to the court. It was unclear whether the Sheriff was proceeding to take possession or waiting for the court’s decision.
The defendants needed to make two separate applications. The first and most immediate application required a stay of execution of the judgment pursuant to rule 66.16 of the Supreme Court (General Civil Procedure) Rules 2015, which regulates the court’s exercise of its wide inherent jurisdiction to stay execution of a judgment. It is well‑established that a stay is only granted on grounds which are relevant to the enforcement proceedings. It is not a jurisdiction that extends to grounds which are a matter of defence that ought to have been raised in the proceeding.
The defendants submitted that, unsurprisingly, they are in immediate danger of losing their accommodation. Mr Capri is apparently unemployed and Ms Capri has, in the past, had significant heart surgery and is not well. In addition, it appeared that since becoming involved in their affairs, Mr Bullmore has made arrangements to engage a real estate agent and the property had been listed for an urgent auction on 2 April 2016. Mr Bullmore also informed me that the property had previously been put up for auction, but ultimately the contract of sale could not be completed because of a caveat. There was no evidence before the court supporting any of these propositions and I am reciting what I was told by Mr Bullmore.
It is apparently the belief of the agent that the property could sell for a price in the mid-$500,000 range. Mr Bullmore informed me that on the basis that the amounts claimed by the lenders are the amounts properly owed the net sale proceeds would be sufficient to pay‑out all debts secured against the property together with accruing expenses.
There must be a proper purpose for the court to exercise its jurisdiction to stay execution of a judgment. In this case that purpose would be the defendants foreshadowed application to set aside the default judgment entered against them.
To persuade me that there was some merit in an application to set aside the default judgment, it was necessary for the applicants to address a number of matters. The first of those matters is whether the defendants had a defence on the merits.
The default judgment is in two parts. Firstly, paragraph one provides that the plaintiffs may recover possession of the property and, secondly, by paragraph two, the defendants must pay the plaintiffs a sum of money. What was relevant for the purposes of this decision was the judgment for the recovery of possession since that is what is being executed by the warrant.
Mr Bullmore referred to several issues. First, the terms of the mortgage provided for an increase of 4% in the rate of interest charged when the borrowers fell into default. Secondly, the defendants alleged that they had never been provided with loan account statements from the lenders that would have enabled a reconciliation to determine the true and correct amount owing under the mortgage to the lenders.
The plaintiffs’ allegations in the writ were that the principal sum was advanced on 22 October 2012, that interest only was payable monthly and in arrears from 22 November 2012, and that the mortgage provided that the defendants were entitled to pay interest at the lower rate of 8.75% only if the interest was paid on time and that the principal sum was to be repaid in full on 22 October 2014. In fact, it appears from the lenders’ allegations that the defendants failed to make any interest payments from 22 April 2014 and failed to make the principal repayment due on 22 October 2014. The lenders also alleged that they had served a notice requiring the remedy of the default with which the defendants failed to comply.
Those allegations were accepted as correct because the defendants did not enter an appearance in the proceeding. It is clear enough, from the affidavits on the file, that there was evidence before the registry of service of the process before default judgment was entered. What the court requires is an explanation of the failure to contest the allegations in the writ and of the delay in now seeking to do so.
In his unsworn affidavit, the first defendant explained how the plaintiffs were able to obtain judgment in default of an appearance. Mr Joseph Capri, stated that he retained Maddocks to represent him in relation to proceedings by a second mortgagee in the County Court. He also states that he was served with the writ of possession by the first mortgagee. He handed these documents to Maddocks under the belief that they would also be representing him in the present proceeding but that appears not to have been the case.
Mr Capri expected that a defence would have been lodged on his behalf on the basis that he ‘disputed the quantum as since the commencement of the loan facility I have not received a single mortgage statement from the plaintiffs quantifying what is owed’. Mr Capri also stated that he had requested mortgage statements and was advised that they would be arranged and forwarded to him but that this had never occurred. He also expressed a belief that the default interest rate is a penalty and is unenforceable. On that final point, Mr Bullmore suggested that the charging of a default interest rate under the terms of the mortgage was unconscionable conduct in the circumstances.
These are not matters that are relevant to the question of whether I should stay execution of the warrant. Rather, they are matters that go to the question of whether the defendant could have established a defence on the merits. There was no evidence, nor any proper explanation, as to why there was no payment of any sum to the lenders in the default period. These matters do not establish any prospect of a defence on the merits to the judgment for possession.
Next, there was the issue of delay.
The judgment was first entered on 30 June 2015. The complications that I referred to earlier related to the entry of default judgment against the third defendant and some delay was occasioned in respect of that judgment but the plaintiffs had an executable judgment from the end of October 2015. The period since 30 June 2015, or alternatively November 2015, required explanation. The defendants provided no plausible explanation as to why they had not acted before the arrival of the Sherriff to execute the warrant.
In disputes about documentation, the precise sum due under the loan, or the acceleration to a default interest rate, the borrower is usually expected, whilst negotiating with the lender, to service the mortgage in accordance with its written terms. Further, it is a discretionary requirement that when seeking to restrain a lender from enforcing the security to which it became entitled when the funds were advanced, that the borrower must pay into court the amount that is in dispute, that amount being as determined by the lender, and continue to service the loan in accordance with the loan agreement in the meantime. The security is not to be lost to the lender by a simple restraint of the exercise of the lender's powers without conditions.
That was not here proposed. Mr Bullmore plainly said that the defendants are not in a position to make any payment to the plaintiffs. They are unable to even cover the costs that would be wasted by restraining the Sheriff from completing the execution of the warrant. Rather, I am invited to accept on the basis of what Mr Bullmore stated from the Bar table, that the property will sell at an auction in early April, that the sale would be completed and that in the future, perhaps 30 or 90 days hence, it being unclear on what terms the property would be offered for auction, funds would be available.
It is entirely a matter for the lender as to whether they are prepared to accept such an arrangement. It is not a matter that affects the assessment of whether the lender is entitled to the judgment that it has already obtained and whether the defendants ought to lose the benefit of execution of the judgment that they hold.
Accordingly, in the circumstances, I am not persuaded that the defendant has a good defence on the merits.
The second matter on which I must be satisfied is the defendants’ explanation of the circumstances in which the judgment was obtained. As I have said, I was informed that the defendants had mistakenly expected that a firm of solicitors would file an appearance and a defence on their behalf, although I was not persuaded that the subsequent defence would have been of any merit even if that were the case. Nevertheless, a reason has been proffered. I take that explanation into account.
The next matter that I need to consider is whether the application to set aside the judgment has been made promptly after the judgment came to the knowledge of the defendants.
This is a matter of some significance and again I do not have the benefit of any evidence on this point. I was told by Mr Bullmore that it had been only in the preceding couple of weeks that the judgment had been brought to the defendants attention. I am not persuaded that it is the case. The evidence on the application and the material on the court file suggests that it was only in the last couple of weeks when the plaintiffs moved to execute the judgment that the defendants took any action at all. It is probable that the defendants knew that they were in financial difficulty facing action from their lender well before this time. I was invited to accept that the defendants’ dilatory response is explained by Mr Capri’s unemployment and Mrs Capri’s health, but there is insufficient detail for those general assertions to amount to a satisfactory explanation of their delay.
The final matter that I must be concerned about is whether, if the judgment was set aside, the plaintiff would be prejudiced in any respect that could not be adequately compensated by an award of costs and the provision of appropriate security. As I have noted, in order to permit the borrower to re‑enter the property and conduct their own sale, it is usual for the lender to consent or for its security to be protected in other ways. In this case the defendants could not offer any comfort that the plaintiffs would not be further prejudiced if I was to grant the application. It seems likely to occur that the costs wasted by an attempted execution of the warrant of possession would be incurred by the lenders, as would the prospect of several months interest until the matter might be finally resolved.
I am not persuaded that there is sufficiently cogent evidence that permitting this process of a possible private sale to play out sufficiently protects the interests of the lenders that I should interfere with their right to enforce their judgment in the absence of their consent or their appearance before the court. Balancing all of the relevant considerations, and for the reasons I have given, I am not persuaded that I should exercise my discretion in favour of this application.
The application is refused.
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