La Trobe Financial Management Ltd v El Khouri

[2019] NSWSC 1812

Supreme Court

New South Wales

Medium Neutral Citation:	La Trobe Financial Management Ltd v El Khouri [2019] NSWSC 1812
Hearing dates:	16 December 2019
Date of orders:	16 December 2019
Decision date:	16 December 2019
Jurisdiction:	Common Law
Before:	Beech-Jones J
Decision:	1.   Refuse prayer 5 of the Notice of Motion. 2.   The Notice of Motion is otherwise dismissed.
Catchwords:	Stay of writ of possession – no question of principle
Legislation Cited:	Civil Procedure Act 2005
Category:	Procedural and other rulings
Parties:	La Trobe Financial Management Limited (Plaintiff) Said El Khouri (Defendant) Karam Elkhouri & Philippe Elkhouri (Applicants)
Representation:	Counsel: M Collins (Respondent) P Newton (Applicants)   Solicitors: Dentons (Plaintiff) Proctor Phair Lawyers (Applicants)
File Number(s):	2017/184309

EX TEMPORE Judgment

(Revised 18 December 2019)

1. The applicants on the notice of motion are the executors of the estate of the late Said El Khouri. Said El Khouri was the defendant to proceedings brought by the plaintiff, La Trobe Financial Asset Management Limited (“La Trobe”), seeking possession of premises at an address in Wentworth Street, Point Piper (“the property”). It is fair to describe the property as a luxury unit. In the circumstances in which I will explain, there is a subsisting writ of possession in favour of La Trobe over the property which is due to be executed some time tomorrow, 17 December 2019. Prayer 5 of the applicant's notice of motion seeks a stay of the execution of that writ of possession until 30 April 2020.

2. Counsel for the applicants, Mr Newton, identified the source of the Court's power to stay the writ of possession as section 135 of the Civil Procedure Act 2005. That is obviously correct. However, the metes and bounds of any such discretion in a case such as this where there is no dispute that there has been a default and there is no defence to the principal claim are very unclear. I will approach the matter on the basis that the discretion to grant a stay should be exercised having regard to: the personal circumstances of the defendants; whether the defendant has had or seeks to exercise a reasonable opportunity to sell their asset; whether there has been any relevant delay by either party; and the prejudice to the judgment creditor should the application be granted. If anything, that description appears to be a relatively liberal statement of the factors to be considered in the exercise of the power to stay a writ.

3. As noted, the property could be fairly described as a luxury unit. By way of further explanation, it is positioned on the top two floors of a six storey residential tower with extensive views of Sydney Harbour. On the top of residential tower exists a terrace area which at some stage comprised part of the common property.

The Proceedings

4. In December 2015, La Trobe agreed to lend to the late Mr El Khouri the amount of $5 million on a two year loan term with monthly repayments. At some stage, the loan went into default. In June 2017, La Trobe filed a statement of claim seeking a money judgment as well as possession.

5. In circumstances that I will describe, after some discussions between the parties, in or about December 2017 the late Mr El Khouri consented to a judgment in favour of La Trobe which was held in escrow pending a sale of the property. Ultimately, that sale did not proceed and in 2018, judgment was entered for the plaintiff.

6. On 11 May 2018, a writ of possession was issued out of the Court. In circumstances which I will describe, that writ of possession was not executed within a year and lapsed. On 21 October 2019, a further writ of possession was issued and it is that writ which is sought to be executed tomorrow.

7. On this application there was tendered a considerable amount of material outlining the discussions and correspondence between the parties, the effect of which proved the existence of various forbearance agreements reached between them; ie, agreements under which the plaintiff agreed not to enforce its rights pending a sale. The first of those agreements appears to have been reached around July 2017 and included various conditions about paying loan arrears, interest, and so forth, with the property to be sold by October 2017. No such sale occurred.

8. A further agreement appears to have been reached in November 2017. Again, it involved a forbearance by La Trobe of its rights pending a sale with one condition of the agreement being the entering into of the consent judgment referred to earlier. Again, no sale was effected.

9. In June 2018, the late Mr El Khouri's brother, a solicitor, wrote to La Trobe's solicitor in relation to arrangements for an extension of time in which execution would occur. Two particular aspects of that correspondence should be noted. Firstly, the late Mr El Khouri's brother advised La Trobe that Mr El Khouri had received a diagnosis of terminal lung cancer which, self-evidently, was making the progress of the transaction that much more difficult.

10. Secondly, the correspondence reveals that there had been a sale contract exchanged the previous year but a dispute had broken out with the Owners Corporation in relation to the use of the terrace area. This, it appears, has become a significant dispute. In broad terms a by-law had been passed by the Owners Corporation which granted the owner of the property exclusive use of that area on condition that certain building work was undertaken. Whether the work was undertaken to the requisite standard appears to have become a very significant dispute. The Owners Corporation contends that it was not and that the effect of not doing the work to the requisite standard was that the exclusive use rights lapsed. It claims a very substantial amount for rectification work as well as for loss and damage alleged to have been caused to the owners of other units. Against that, the late Mr El Khouri, and subsequently his estate, maintains the work was performed to the requisite standard and claims substantial damages against the Owners Corporation, specifically an amount representing the sale proceeds referable to the termination of the sale contract to which I have referred.

11. Proceedings have now been commenced in respect of this dispute. As I understand it, pleadings have closed but no evidence has been filed nor a trial date allocated. The Owners Corporation claims that an amount for the forms of damage I referred to earlier of approximately $1.46 million is owed to it and is secured over the unit.

12. After the letter of June 2018, it appears that a further forbearance agreement was entered into which sought to accommodate the outcome of proceedings in the Civil and Administrative Appeals Tribunal relating to the dispute with the Owners Corporation. However, by October 2018, the property had still not been sold. By this stage, La Trobe was indicating that it would only be prepared to enter into a further temporary forbearance on particular conditions, including payment of some interests and so forth. They were agreed to. At some stage, one of the applicants on the motion, Mr Karim Elkhouri, received a power of attorney on behalf of his father. He became involved in and participated in the correspondence concerning these agreements.

13. By January 2019, the property had still not been sold. La Trobe nevertheless agreed to a one month extension. In February 2019, enforcement action by La Trobe was suspended pending the outcome of a complaint to the Australian Financial Complaints Authority (“AFCA”). The AFCA rejected the complaint in March 2019.

14. On 19 April 2019, the late Mr El Khouri's sister advised the solicitor for the plaintiff that Mr El Khouri had passed away, that there would be a 40 day mourning period which would continue into June 2019 and that during that period no family member would become an executor of the estate. Nevertheless, she advised that the property had been open for inspection throughout the period leading up to his death and would continue to be open for inspection.

15. In June 2019, the late Mr El Khouri's brother wrote to the plaintiff's solicitor stating that the property continued to be advertised on-line for sale and was open for inspections weekly and by private appointment. He requested that the executors of the Will have "at least one opportunity provided to them by the mortgagee that will allow them as executors to sell the property".

16. By e-mail sent on 26 June 2019, the late Mr El Khouri's brother advised of the intention of the applicants on this motion to seek an interim grant of probate so that they could apply to this Court for a stay of the writ of possession to pursue the sale process set out in his letter of 18 June 2019. As I understand it, probate was granted on 25 November 2019.

The Expression of Interest Process

17. Commencing sometime in November 2019, the applicants have been conducting an expression of interest process which is due to close on 19 December 2019. This has included the property being open for inspection on four Fridays as well as for inspection on Saturdays by appointment. During that process, a text message was apparently sent by one interested purchaser or their representatives stating "she would pay no more than $8 million at this stage" which received a reply of "Thank her for the offer but our lowest will be $9.25 million at this stage". The most recent report of inspections indicated buyers showing genuine interest.

18. On this application, there was tendered a proposed copy of the contract for the sale of land. The special conditions to that contract make it clear that the sale is premised on there not being exclusive use of the area of the terrace to which I referred to earlier.

19. As noted, the period for expressions of interest is due to close shortly. Even though the plaintiff opposes the grant of any further stay of the writ of possession, it has indicated that it would nevertheless allow a period of supervised access to the property to allow for the completion of the expression of interest process. That is not acceptable to the applicants for two particular reasons. The first is that they are currently residing in the property and they do not wish to vacate tomorrow on such short notice close to Christmas. Secondly, they wish to have control of an auction process that would follow if the expression of interest process is unsuccessful.

Valuations

20. There are two competing valuations that have been placed before the Court on this application. The applicants on the motion tendered a letter from a prestige property valuer in October 2018 who valued the property on the basis that the exclusive use rights had lapsed. The relevant range was between $9 million and $10 million. La Trobe tendered a valuation prepared in March 2019 which valued it on a sale by a mortgagee in possession as being worth $7.25 million.

21. Two matters should be noted about those valuations. First, the parties debated the significance to any assessment of the value of the property of the outstanding dispute with the Owners Corporation. Mr Newton submitted that in practical terms no sale could ultimately complete without that matter being resolved by at least the setting aside of part of the purchase price to meet any claim of the Owners Corporation. He contended that while it would undoubtedly be a complication upon the effecting of any sale, it would not be a matter that would diminish the purchase price. Counsel for La Trobe submitted that it would be a significant disincentive to a number of potential purchasers with the inevitable consequence that, if there are less purchasers, there is likely to be a lower price. On an application of this kind it is not possible for me to resolve that dispute other than to say that I think the latter submission has greater force.

22. Second, one potential obstacle to the completion of any sale is the existence of three caveats over the property, two of which are in favour of relatives of the applicants; the other of which was placed by another unit owner and concerns a claim for an alleged failure to comply with an agreement to place carpet in the unit. Again, it is not possible for me on an application of this kind to make any assessment of the relative strengths and weaknesses of these caveats. Without knowing more, I do not regard them as favouring the grant or refusal of the relief sought.

23. In the end result, the existence of a dispute with the Owners Corporation and the existence of the caveats are obstacles to a sale that both the applicants on the motion and the plaintiff will have to overcome. The material that was tendered on this application suggests that there is a greater reason to have confidence that a sale can be effected if the plaintiff has possession in that the plaintiff is more likely to be able to effect, at least, an interim agreement with the Owners Corporation to allow a sale to proceed, including by allowing such access to the terrace area as is necessary to complete the work to the Owners Corporation's satisfaction.

Assessment

24. This material reveals that however one looks at it and allowing for the no doubt difficult and distressing circumstances surrounding the late Mr El Khouri's illness and subsequent passing, that the mortgagors, including the applicants, have had a very substantial opportunity to effect the sale of the property but have been unable to do so.

25. When it is borne in mind that there is no real suggestion that the plaintiff is not entitled to recover its mortgage debt, it is difficult to accept that it should continue to be locked out from enforcing its rights. The plaintiff has already allowed a number of periods of forbearance in execution of its rights, all of which have not been successful in securing a sale.

26. While I am not in a position to resolve any competing opinions about the respective valuations I consider that there is at least a significant risk that a further delay in the sale may yield a shortfall to the plaintiff or, at least to the plaintiff and Owners Corporation, in recovering their debts. It may be that if the plaintiff obtains possession and makes attempts to pursue the sale it will be unsuccessful, but that will at least be as a result of its own efforts and not those of the defaulting mortgagors or its legal representatives. There is a point at which the plaintiff is entitled to assume control of the asset over which it is secured for a substantial amount of money.

27. Further, as noted, to refuse the applicants’ claim for relief will not frustrate or render futile the existing process of sale by expression of interest as the plaintiff has expressly stated that that will be allowed to continue. There is no commercial reason why it would attempt to frustrate that process if it yields a genuine purchaser. Against that, I am satisfied that prolonging the unjustified occupation by the applicant does risk occasioning prejudice to the plaintiff, namely, further delay in the sale process with the realistic potential of a shortfall.

28. I am cognisant of the dislocation that would be caused to the occupants of the property from refusing the relief sought. However, there is no basis for any suggestion that they cannot secure suitable accommodation. Having lived for a such significant period in a property that was subject to a writ of possession they must have been on notice of the probability that at some stage they would have to leave the property and do so on short notice if the attempts to obtain a stay were unsuccessful.

29. Ultimately, I am satisfied that the mortgagor and his legal representatives have had more than a reasonable opportunity to effect a sale of the asset and that to now extend the time in which they have the opportunity to do so risks occasioning prejudice to the judgment creditor.

30. Accordingly, I refuse prayer 5 of the notice of motion.

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Decision last updated: 18 December 2019