S Pty Ltd v B
[2019] VSC 125
•4 March 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2018 01512
| S PTY LTD | Plaintiff |
| v | |
| B V | Defendant |
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JUDGE: | Lansdowne AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 February 2019 |
DATE OF JUDGMENT: | 4 March 2019 |
CASE MAY BE CITED AS: | S Pty Ltd v B V |
MEDIUM NEUTRAL CITATION: | [2019] VSC 125 |
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PROPERTY LAW – application for summary order for possession by mortgagee as against occupier – occupier formerly in relationship with registered proprietor and seeks division of property under the Family Law Act 1975 (Cth) – mortgagee is controlled by relatives of registered proprietor – occupier claims that mortgage taken out to remove the secured property from the asset pool - mortgagee seeks an order allowing inspection of the secured property – application refused – observations on power to inspect conferred by Memorandum of Common Provisions and s 75(c) of the Transfer of Land Act 1958 (Vic) – observations on r 53.01 Supreme Court (General Civil Procedure) Rules 2015 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr C G Button SC with Ms X Teo | Arnold Bloch Leibler |
| For the Defendant | Mr I R Jones QC | Aitken Partners |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Submissions........................................................................................................................................ 3
Plaintiff........................................................................................................................................... 3
Defendant....................................................................................................................................... 5
Analysis................................................................................................................................................ 7
Extent of the power of a mortgagee to inspect......................................................................... 8
Contractual power under mortgage................................................................................. 8
Statutory power................................................................................................................... 9
Discretion....................................................................................................................................... 9
Purpose in the context of the underlying proceeding................................................. 10
Reasons for opposition..................................................................................................... 13
Conditions of proposed access........................................................................................ 16
Potential prejudice to the plaintiff if access is refused................................................ 17
Overall balance of convenience....................................................................................... 17
Conclusion and orders.................................................................................................................... 18
HER HONOUR:
Introduction
In this proceeding, the plaintiff seeks as mortgagee of a residential property known as [redacted] (Property) an order for possession of that property as against its occupier, the defendant. The plaintiff seeks to invoke the summary jurisdiction of the Court to that effect, conferred by Order 53 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules). Rule 53.01 provides that that jurisdiction may be invoked where the plaintiff claims the recovery of land ‘which is occupied solely by a person or persons who entered into occupation or, having been a licensee or licensees, remained in occupation without the plaintiff’s licence or consent or that of any predecessor in title of the plaintiff’.
The registered proprietor of the Property is the son of a director of the plaintiff (Director). The plaintiff’s case is that in 2014 the registered proprietor borrowed funds from the plaintiff to acquire the Property which were subsequently secured by a mortgage (Mortgage), registered on the title to the Property on 26 October 2017. The defendant contends that she and the registered proprietor were in a de facto relationship between 19 August 2012 and 5 January 2018, and lived together at the Property from its acquisition in 2014 until 5 January 2018. On 20 July 2018 the defendant commenced proceedings in the Federal Circuit Court against the registered proprietor with a view to seeking final orders for property settlement.
In the defendant’s affidavit in support of interim orders in the Federal Circuit Court of Australia sworn 19 July 2018 she deposes to family violence she says was inflicted on her by the registered proprietor. On 10 August 2018, on the application of the police, the Magistrates’ Court of Victoria at Melbourne granted a Family Violence Intervention Order against the registered proprietor for the protection of the defendant (IVO). Amongst other prohibitions, the IVO prohibits the registered proprietor from approaching within 50 metres of any place where the defendant lives (and so the Property) (except for the purpose of attending his general practitioner) and prohibits the registered proprietor from getting another person to do what he cannot do under the IVO.
On 13 April 2018 the defendant caused a caveat to be lodged on the title to the Property claiming an implied, resulting or constructive trust. The registered proprietor commenced a proceeding for the removal of the caveat, but by orders made 23 July 2018 agreed that that proceeding be stayed having regard to the filing of the Federal Circuit Court proceeding. In this proceeding, the plaintiff contends that the failure of the registered proprietor to cause the caveat to be removed, it having been lodged without the written consent of the plaintiff, is a breach of the conditions of the Mortgage. The plaintiff contends that the full amount of the amount secured by the Mortgage became due and owing as a result of ‘an event of default’ (unspecified),[1] has not been paid following demand, and so the plaintiff is entitled to possession under the Mortgage.
[1]Demand for Payment contained in the affidavit in support of the Director affirmed 21 September 2018, Exhibit EGP-6.
The plaintiff’s application for summary possession is yet to be heard. The defendant seeks by her summons filed 18 October 2018 that the proceeding be transferred to the Federal Circuit Court for hearing with her application in that Court, or that it be stayed pending the determination of that application. That summons is listed for hearing before me on 18 March 2018, the power to hear and determine an application for transfer under the cross vesting legislation having been referred to me by his Honour Justice Garde by order made 12 October 2018.
These reasons concern an application made without summons by the plaintiff for an order permitting representatives of the plaintiff to inspect and value the Property prior to that hearing. I heard that application at the directions hearing listed on 7 February 2019. The solicitor for the plaintiff, Mr Leon Zwier, made the application in his affidavit sworn 5 February 2019. He had also flagged the application in correspondence and proposed orders for the directions hearing circulated prior to that date. The defendant applied to adjourn the application, which I refused, for reasons given orally and recorded in the transcript. I then heard the parties on the substance of the application.
For the reasons that I now give, I refuse the application for access.
Submissions
Plaintiff
The plaintiff relies on three sources of power to access and inspect the Property. The first is contractual, pursuant to its rights as a mortgagee under the Mortgage. Clause 5.11 of the Memorandum of Common Provisions (MCP), incorporated into the Mortgage by reference, provides as follows:
5.11 Access to Secured Property
(a)The Mortgagor must permit the Mortgagee, any Authorised Officer of the Mortgagee or any other person authorised by the Mortgagee or an Authorised officer of the Mortgagee to enter upon the Secured Property to enable the Mortgagee to inspect the state and condition of the Secured Property, to determine if the Mortgagor is complying with its obligations under the Transaction Documents or to exercise or attempt to exercise any Power.
(b)The right of entry under clause 5.11(a) may be exercised:
(i) If no Event of Default is subsisting, at all reasonable times during normal business hours and upon reasonable notice; or
(ii) If an Event of Default is subsisting, at any time and without the need for notice.
(c)A right under clause 5.11(a) must not be exercised in a manner which would breach any covenant of quiet enjoyment under a Lease of the Secured Property.
The plaintiff submits that clause 5.11 does not require the mortgagee to demonstrate reasons for its request to inspect, and nor does it require proof of default under the Mortgage to enable inspection – indeed, clause 5.11 specifically envisages that inspection may take place without default.
The second source of power is statutory. The plaintiff relies on the power conferred on a mortgagee by s 75(c) of the Transfer of Land Act 1958 (Vic) (TOL Act). Section 75 relevantly provides as follows:
75 Covenants to be implied in every mortgage
In every such mortgage there shall be implied covenants and powers—
(a) not relevant;
(b) not relevant;
(c)that the mortgagee may at all reasonable times until the mortgage is redeemed enter into and upon the land with or without surveyors or others to view and inspect the state of repair of such buildings or improvements;
(d) not relevant.
The plaintiff submits that this is a broader power of inspection. I observe that the covenant or power implied by s 75 is not in terms related to potential default. Nevertheless, it is of course the case that this application for inspection is made in a proceeding in which the plaintiff claims possession, which in turn is dependent on default under the Mortgage. The plaintiff submits that inspection ‘is necessary in order for the Court to receive evidence of the state of the Property going directly to the issue of whether or not there is a default based on the state of the Property’.[2] In this regard, the plaintiff relies on the obligations imposed on the mortgagor by clauses 5.4(a)(i) and (ii) of the MCP: to maintain and protect the Property; and keep the Property in a good state of repair and in good working order allowing for fair wear and tear. The plaintiff submits that the inspection sought is for a proper purpose, being to ensure that the Property is being properly maintained, and its value is not being compromised.[3]
[2]Plaintiff, ‘Outline of Submissions’, 6 February 2019 [11].
[3]Ibid [12].
The plaintiff also submits that inspection is for a proper purpose, given that the property market is falling, and it wishes to exercise its power of sale promptly, and requires an inspection by a valuer for that purpose.
The third source of power relied upon by the plaintiff is the Court’s power to make appropriate orders for inspection for the purpose of a proceeding. This submission is directed in particular to the application made by the defendant for transfer or stay of the proceeding. The plaintiff submits that the results of the valuation are ‘likely to inform’ the evidence it will lead in opposing that application.[4] The plaintiff wishes to be able to demonstrate any prejudice, given the fall in the property market, that may arise if there is the delay in the determination of its application for possession that would be occasioned by stay or transfer of the application.
[4]Ibid.
The plaintiff submits that its proposals for access, which have been refused by the defendant, are entirely reasonable. The plaintiff proposes that only its lawyers and valuer attend; that reasonable notice be provided; that the defendant may be present, or a representative on her behalf; or, if she so requests, the plaintiff will pay for an independent observer to attend the inspection and prepare a report to the Court.[5]
[5]Affidavit of Leon Zwier sworn 5 February 2019, Exhibit LZ-9.
Defendant
The defendant opposes the application. In her affidavit she contends that the Mortgage is a sham ‘devised in order to frustrate my claim in the (Federal Circuit Court) proceeding by keeping the Property out of the asset pool of the relationship, and thus to keep the Property (or the proceeds of its sale) within (the registered proprietor’s) family’.[6] In oral submissions, counsel for the defendant does not press this submission. What he submits is that the Mortgage is void because it was procured by ‘statutory fraud’. The transcript records him as referring to s 43 of the TOL Act in support of this submission.[7] I am not sure if this is correct, as that section protects persons dealing with the registered proprietor, except in the case of fraud. It may be that reference was, or was intended to be, to s 44 of the TOL Act which relevantly provides as follows:
[6]Affidavit of the defendant sworn 5 February 2019 [6]. See also the letter from the defendant’s solicitors to the plaintiff’s solicitors contained in Exhibit LZ-8 to the Affidavit of Leon Zwier (n 5).
[7]Transcript of Proceedings (Supreme Court of Victoria, S ECI 2018 01512, Lansdowne AsJ, 7 February 2019) 10-11.
44 Certificate etc. void for fraud
(1)Any folio of the Register or amendment to the Register procured or made by fraud shall be void as against any person defrauded or sought to be defrauded thereby and no party or privy to the fraud shall take any benefit therefrom.
Counsel for the defendant also submits that the defendant has an in personam right to claim equitable fraud in relation to the Mortgage. He did not specify the nature of the claimed equitable interest, or elaborate against whom a right to relief arising from it may arise, or what would be the effect of such equitable fraud, if proved, on the Mortgage.
Further, or in the alternative, counsel submits that the Mortgage is invalid, or cannot support this proceeding, because it is expressed to derive from the Loan Facility Agreement dated 18 September 2017 between the registered proprietor and the plaintiff (2017 Loan Facility Agreement). The 2017 Loan Facility Agreement in turn is expressed to apply only to loans made on or after its date. As against this, the plaintiff’s case is that the loan was first made in 2014 to enable the purchase of the Property pursuant to an agreement between the registered proprietor and the plaintiff dated 12 August 2014 (2014 Loan Facility Agreement), and merely restructured, not made, by the 2017 Loan Facility Agreement. In the absence of a valid mortgage, or a mortgage that can be invoked on default in this proceeding, the defendant submits that this proceeding must fail, and the contractual and statutory powers of inspection on which the plaintiff relies do not apply.
The defendant also submits that the purpose of the proposed inspection is ‘colourable’, in that the plaintiff is seeking to obtain evidence to support default based on failure to maintain the Property, evidence which it does not yet have. Further, the defendant submits that it would be inappropriate for this Court to exercise its jurisdiction to order inspection when the proceeding may be transferred to another court, where the validity of the Mortgage will be determined. The submission is, in effect, that courts should act in aid of each other. The defendant does not specifically address the question of valuation to oppose the stay.
Finally, the defendant contends that the application for access could, or does, amount to ‘family violence’ within the meaning of the IVO, which the registered proprietor is causing another person to commit on his behalf, in breach of the Order.[8]
[8]Affidavit of Leon Zwier (n 5), Exhibit LZ-8.
Analysis
The plaintiff submits that notwithstanding the submissions put by the defendant as to statutory or equitable fraud, for the purposes of this application, the Mortgage must be taken to be valid. I agree. The Mortgage is registered on the title to the Property, and so has the benefit of the indefeasibility of title conferred by the TOL Act. If the defendant wishes to contend that the Mortgage was procured by fraud, is voidable for equitable fraud, or is otherwise invalid or voidable, then that must the subject of full argument at trial, or at least in a summary judgment application. The application before me was made in a directions hearing, without the formal requirements of a summons, and, as is usual in interlocutory applications, on evidence by affidavit, untested by cross examination.
The plaintiff agrees that the Mortgage secures loans made pursuant to the 2017 Loan Facility Agreement. It is surprising, at first blush, that there is no reference in that Agreement to restructure of the existing loan, which on the plaintiff’s case was made in 2014, if that was indeed the intention. Further, as the defendant submits, the definition of ‘Loan(s)’ in the 2017 Loan Facility Agreement would, on its face, appear to exclude previous loans. However, the construction of the 2017 Loan Facility Agreement was not the subject of detailed argument before me. I agree with the plaintiff that its proper construction is a matter for more detailed argument, whether at trial or on a summary judgment application. In short, for the purposes of this application I proceed on the basis that the Mortgage is valid, secures the obligations of the registered proprietor under the 2017 Loan Facility Agreement, and that the 2017 Loan Facility Agreement applies to the loan made in 2014. It follows that the powers of inspection conferred on the plaintiff by the MCP and the TOL Act apply.
I will first discuss the extent of those powers, then turn to the question of discretion. The defendant did not contest the third source of jurisdiction relied upon by the plaintiff, being the Court’s power to order inspection for the purpose of a proceeding and so I take that jurisdiction as a given, subject of course to the defendant’s submission that inspection is not warranted or appropriate in this proceeding.
Extent of the power of a mortgagee to inspect
Contractual power under mortgage
The power to inspect conferred by clause 5.11 of the MCP arises from an obligation imposed on the mortgagor. It is not expressed as a power as against an occupant, and nor could it be unless that occupant was a party to the mortgage. In short, it is a contractual obligation of the mortgagor to permit inspection. The first question is then whether it can ground an application against a third party, being an occupier. I was not taken to any authority on this question, and nor was it argued before me. On a conventional analysis of privity of contract, there may be some doubt. Paragraph (c) of the clause envisages that the secured property may be occupied by a tenant, and so assumes that the contractual right of entry as between registered proprietor and mortgagee may intrude on an occupier, but this is not necessarily the same as an order as against an occupier. Indeed, the paragraph protects the position of the tenant by providing that the right of entry must not be exercised so as to breach the contractual obligation of quiet enjoyment owed by the registered proprietor to a tenant. Despite these questions, as the question of privity was not argued, I will assume that the power conferred by clause 5.11 can arise as against a third party occupier, subject to discretionary considerations.
I accept the submission of the plaintiff that it does not need to first show default to exercise the power conferred by clause 5.11. That is made plain by paragraph (b) of the clause. To that extent, I accept that the plaintiff does not need to demonstrate a reason, in the sense of evidence suggesting a possible breach. However, the power conferred by the clause is circumscribed by purpose. It can only be exercised ‘to determine if the Mortgagor is complying with its obligations under (inter alia, the Mortgage) or to exercise or attempt to exercise any Power’ (emphasis added). In other words, it can be relied upon as against the mortgagor to determine if the Property is being properly maintained, without the necessity for evidence that it may not be being so maintained.
Inspection for the purpose of exercising or attempting to exercise any power, which would include the power of sale, is also a permitted purpose, but as I set out below I consider valuation for sale to be premature.
Statutory power
The power conferred by s 75(c) of the TOL Act is broader in that it is not expressed to confer an obligation on the mortgagor to permit access, or indeed to relate to compliance with contractual obligations at all. The boundaries of this power were not argued before me. The defendant sought the opportunity to put further submissions after the hearing as to s 75(c), which I granted given that the section had only been raised as a source of power immediately before the hearing. The defendant did not, however, make any such further submissions. I proceed on the basis that, subject to her other submissions on discretion, the defendant does not contest that this section confers a power on the plaintiff on which it can rely in this proceeding.
Discretion
I consider that the plaintiff has shown sources of power on which it can rely to seek an order for inspection. However, the Court plainly has a discretion as to whether or not to make such an order. In my view, relevant considerations going to the exercise of that discretion include the following:
· the nature of the underlying proceeding, in particular as it relates to the stated purposes of the inspection;
· the prospects of success of the underlying proceeding;
· the reasons for opposition to inspection;
· the nature and degree of intrusion of the proposed inspection;
· any prejudice to the plaintiff if inspection is refused; and
· the overall balance of convenience.
I can deal with the second of these shortly. The defendant submits that the proceeding will fail because the Mortgage is either invalid or does not secure the subject loan. As noted, however, these are submissions to be determined after fuller argument. The applicability of the summary procedure provided by r 53.01 is also yet to be determined. That jurisdiction applies where the defendant occupies the property in question ‘solely’ without consent, or as a person who was previously in occupation as a licensee, but that license has been revoked. The plaintiff agrees that the defendant lived in the Property with the registered proprietor at least until October 2017,[9] which may make it difficult to argue that she did not do so at least initially with his consent. The question would then become revocation of that consent. Further, the defendant asserts by her caveat an equitable interest, and so it may be that she does not occupy the Property ‘solely’ as a licensee. These are questions yet to be determined, however, and it may be that the proceeding can continue by conversion to a recovery application made on pleadings. Given these issues are not for determination before me in this application, I do not take the prospects of success of the underlying proceeding for possession further into account in the exercise of my discretion on the application to inspect.
[9]Affidavit in support of the Director (n 1) [5].
Purpose in the context of the underlying proceeding
I do not consider that the stated purposes of the inspection withstand analysis, and I consider this to be a substantial factor against the grant of the application. I accept that the right to inspect is not dependent on default under the Mortgage, but the application is made in a proceeding predicated on default. The plaintiff can recover possession and exercise its power of sale only if there has been default under the Mortgage, which has not been remedied. In my view, it would be entirely artificial to ignore the nature of the underlying proceeding and its requirements in consideration of the application to inspect.
In her affidavit in support of the application for recovery of possession, the Director recites certain obligations of the registered proprietor, being the obligation to maintain the Property as identified earlier, and the obligation to cause a caveat lodged without the consent of the mortgagee to be removed (imposed by MCP clause 5.4(g)).[10] The affidavit then recites the provisions of the MCP by which breach of any of these obligations constitutes an Event of Default under the Mortgage (definition of Event of Default in MCP clause 1.1) which, if continuing, renders the Mortgage immediately enforceable and the moneys secured by it immediately due and payable by the mortgagor, on notice if notice is required (MCP clause 6.1).[11]
[10]Ibid [7]
[11]Ibid [8].
The Director then deposes that an Event of Default under the Mortgage has occurred by reason of the matters recited in paragraphs 5 and 6 of her affidavit. The matters recited in those paragraphs are:
· the continued occupation of the Property by the defendant without the consent of the registered proprietor after the end of their relationship, and the registered proprietor vacating the Property in October 2017;
· the obtaining of an order by the defendant denying the registered proprietor access to the Property; and
· the registration of a caveat by the defendant.
The plaintiff has not yet been called upon to identify with precision the default upon which it relies. It is difficult to see, however, how the first two of these matters could constitute an Event of Default as between mortgagor and mortgagee, as opposed to matters between the mortgagor and the defendant. Further, if the order to which the Director refers in the second dot point above is the IVO, this was obtained on the application of the police. These are, of course, preliminary observations, and subject to further argument if the contention that they are Events of Default is pressed.
In her submissions on the application for access, counsel for the plaintiff relied on two established or potential Events of Default. The first is the failure of the mortgagor to cause the caveat to be removed. The second is the possibility that the obligation to properly maintain the Property may have been breached.
Dealing first with the caveat, on the strict terms of the MCP, the mortgagor would appear to have been in breach of his obligation to cause a caveat to be removed by consenting to the stay of his proceeding seeking that relief. It is, however, difficult to see how inspection of the Property could be required as a consequence of the lodgement of the caveat, or agreeing not to prosecute an application for its removal, and nor did counsel for the plaintiff contend that inspection related to this breach of the Mortgage. The plaintiff seeks to inspect in relation to the other (potential) breach of the Mortgage, being the obligation to properly maintain the Property. Counsel for the plaintiff frankly concedes that the plaintiff does not currently have any evidence, or at least not in this application, of such a breach. She contends that it is not necessary to have such evidence, because the obligation imposed by clause 5.11 does not require proof of default, and permits inspection to determine if such a default has taken place. As noted, the power conferred by s 75(c) of the TOL Act would appear to be even wider.
I accept that evidence of default is not necessary to ground inspection. However, when the power is sought to be utilised as against a third party, who at least initially had the consent of the registered proprietor to reside in the Property, in my view it would ordinarily be appropriate for there to be some reason shown to suspect breach of the maintenance obligation. There is no such evidence here, and the only evidence is that of the defendant, who deposes that she is properly maintaining the Property.[12] The absence of evidence of any breach, and the fact that there is sworn evidence of compliance, tends against grant of the inspection.
[12]Affidavit of the defendant sworn 5 February 2019 [15].
As raised in argument, I am also concerned at the submission that the plaintiff should be permitted to inspect the Property with a view to obtaining evidence to support this proceeding. The plaintiff only has standing to bring this proceeding if there is an Event of Default, triggering its rights under the Mortgage. Assuming that the failure to remove the caveat is such an Event of Default, the plaintiff does not need to prove any other Event of Default, such as failure to properly maintain the Property. If the caveat default is not relied upon, then the plaintiff is seeking to obtain evidence that it does not currently have not just to prove its case for possession, but to justify its very right to bring the proceeding. As noted in argument, I consider this a bootstraps argument. It tends against a proper purpose for the application, and so against granting it.
The contractual power may also be utilised to exercise, or attempt to exercise, a power of sale, arising from default by reason (at least) of failing to remove the caveat. Inspection to value for sale can undoubtedly be a proper purpose, but in this case inspection would be premature. The plaintiff’s claim to possession is opposed, it is unclear as yet when it will be determined, and it may not be determined at all in this Court if the defendant’s application for transfer is successful.
Reasons for opposition
I have already discussed the defendant’s submissions that the Mortgage is invalid. The defendant also submits that the application is ‘colourable’, by which I take her to mean for an ulterior purpose, and that viewed in that light it would be intrusive.
To the extent this submission relates to the stated purpose of the inspection, as discussed above, I accept that an appropriate or necessary purpose is not shown. To the extent the submission asserts that inspection would, or could, amount to a breach of the IVO, I do not accept it. First, while there may be grounds for suspicion that the plaintiff is acting at the direction of the registered proprietor, given that the directors of the plaintiff are his mother and brother, the suggestion is refuted by the plaintiff and there is no evidence to support it. It is entirely possible that the plaintiff is acting, as it contends, in its own interests in relation to a substantial loan.
Secondly, even if it were shown that the plaintiff was acting at the instance of the registered proprietor, I consider it very doubtful that this could be held to be in breach of the IVO. The inspection proposed is on very reasonable terms, and the defendant herself acknowledges in her application in the Federal Circuit Court that the Property will need to be valued. Indeed, she seeks that it be valued.
It would, however, be artificial to ignore the nature of the Mortgage and the loan and their potential relationship to the breakdown of the relationship between the registered proprietor and the defendant. These are, in my view, appropriate matters to consider in the Court’s discretion.
This is not a conventional commercial loan and mortgage between a mortgagor and mortgagor at arm’s length. First, the plaintiff is controlled by the mother and brother of the registered proprietor. Secondly, the loan is very large but was initially at least not required to be secured. Thirdly, neither the 2014 Loan Facility Agreement nor the 2017 Loan Facility Agreement require any quantified payments of interest or principal on specific dates, as would usually be the case with a commercial mortgage. The 2017 Loan Facility Agreement at its highest requires a repayment of principal and interest in the amount required by income tax legislation (clause 4). A purpose of both the 2014 and 2017 Loan Facility Agreements would seem to be to enable the provision of funds to the registered proprietor, by a company controlled by his relatives, that passes the scrutiny of the Australian Taxation Office, rather than the usual commercial purposes of a third party arm’s length loan.
Next, there is no evidence to explain how the sum claimed to be owing on an Event of Default is calculated. That sum is $1,688,311.20.[13] This is more than the amount recorded in the 2014 Loan Facility Agreement of $1,669,285.92, and the difference is not explained. The amount in the 2014 Loan Facility Agreement is itself substantially more than the amount which the solicitor for the plaintiff deposes on information and belief was advanced to enable the Property to be acquired. That amount is said to have been $1.45 million of the purchase price of $1.85 million of the Property.[14] The plaintiff does not adduce any evidence, or put any explanation in submissions, as to the difference. Counsel for the defendant submits that the difference is interest at the rate required by the Australian Taxation Office, and the plaintiff did not dispute this.
[13]Affidavit of the Director (n 1), Exhibit EGP-6.
[14]Affidavit of Leon Zwier (n 5) [8].
This sum, rounded up to $1,669,286, is the amount recorded as owing in the plaintiff’s 2015 financial statements.[15] It is striking that this same amount is recorded in the 2017 Loan Facility Agreement, three years later. This could imply that no repayments were made in the intervening years, and no further interest accrued, or that repayments made precisely offset the further interest. There is no evidence to explain this. In particular, there is no evidence as to whether any repayments have been made, and default by non-payment is not alleged. Certainly, if repayments were required, and not made, the restructure of the loan in 2017 for precisely the same amount would suggest the mortgagee plaintiff was not sufficiently concerned to take action to recover the amounts due.
[15]Affidavit of Leon Zwier sworn 6 February 2019, Exhibit LZ-11.
In summary, it is plain that this is not the usual case of default by non-payment of principal or interest under a commercial mortgage between parties at arm’s length. In such a case, particularly where the market is falling, the mortgagee may be reasonably concerned to ensure that the market value of the property will be sufficient to meet the amount outstanding under the mortgage. In this case, however, there is no assertion of default by non-payment of an amount due; only that the full amount is due and owing by reason of failure to comply with other obligations, and no evidence of any action taken by the mortgagee to recover any repayments if they were required and not paid.
The defendant contends that the 2017 Loan Facility Agreement and the Mortgage are attempts to remove the Property from the asset pool for division between her and the registered proprietor if she is successful in her Federal Circuit Court application. As noted, the contention of fraud is for determination at a later point. I do take into account, however, that the Mortgage is dated and was registered in October 2017, which coincides with the period the plaintiff contends that the registered proprietor vacated the Property and the defendant continued to reside there in connection with the cessation of their relationship.[16] This timing suggests a connection to the breakdown of the relationship between registered proprietor and the defendant. If the timing is independent of that breakdown, the plaintiff has not advanced any evidence to that effect.
[16]Affidavit of the Director (n 1) [5].
These factors tend against the grant of the application for access, in the absence of a demonstrated purpose related to a breach of the Mortgage that is shown to have occurred, or which is reasonably suspected. They support the defendant’s opposition to access as being subjectively intrusive.
Conditions of proposed access
I do accept, however, that the plaintiff’s proposal viewed objectively is reasonable. It does not require the defendant to encounter any member of the registered proprietor’s family, would be of relatively short duration, and would allow her to either attend or have someone of her choice attend on her behalf. This goes in favour of the grant of the application.
Potential prejudice to the plaintiff if access is refused
There are two limbs to this submission. First, the plaintiff contends that it wishes to exercise its power of sale quickly because the property market is falling. In relation to valuation for sale, as noted I consider this premature.
The more compelling argument in my view is that the plaintiff should be permitted to value the Property to demonstrate prejudice if the stay or transfer is granted. Indeed, I consider this to be the most compelling argument advanced by the plaintiff. It arises in response to an application brought by the defendant, which would ordinarily occasion further delay if granted, and in a context where the defendant herself concedes that the Property will need to be valued at some point.
There is no evidence of financial default, and indeed all the evidence suggests that the plaintiff has not required any repayments by the mortgagor to date. However, if the property market is falling and the value of the Property is likely to fall to an amount less than the amount owing if there is further delay, then there is a strong argument that the plaintiff should be permitted access to demonstrate that. This favours the grant of the application.
Overall balance of convenience
On balance, however, I consider that the other factors that I have identified tending against the grant of access outweigh this factor. I reach this conclusion for the following reasons. The Property is the defendant’s home, and is sought to be inspected by a plaintiff related to her estranged former partner, in a context where an order for her protection has been granted against him. It is understandable that she would perceive inspection as intrusive. Further, the plaintiff acknowledges that it seeks inspection with a view to finding evidence of a breach of the Mortgage on the basis of which it can seek to eject the defendant. I do not consider this a sound basis on which to grant access.
In relation to potential prejudice in the stay application, I have considered permitting access by a valuer agreed by the defendant, or a joint valuer, only. This is not, however, the plaintiff’s application, and it may be difficult to distinguish inspection by a valuer reporting solely to the plaintiff from inspection by the plaintiff. I will allow this aspect of the application to be renewed on further evidence. As it currently stands, the only evidence as to the purchase price of the Property, and the relationship it bore to the advance, is that given by the solicitor for the plaintiff on information and belief. He deposes that the plaintiff advanced $1.45 million of the purchase price of $1.85 million of the Property.[17] $1.45 million, of a purchase price of $1.85 million, was well within the requirement in clause 2(b) of the 2017 Loan Facility Agreement. That clause requires the market value of the Property when the loan was first made i.e. in 2014 to be at least 110% of the loan. The amount now claimed to be owing is $1.68 million. That is also well within the purchase price of the Property. There is no evidence to show that the amount owing will increase, and it would require a very significant drop in value, for the ratio between current market value and the amount claimed owing to be imperilled. There is no evidence before the Court of a drop in property values to such an extent.
[17]Affidavit of Leon Zwier (n 5) [8].
Further, I do not consider inspection to be essential for the stay application. To the extent that the plaintiff opposes the stay on the basis of prejudice occasioned by delay, it is at liberty to adduce evidence to that effect in that application. That evidence will be necessarily less direct than that obtained by actual inspection, but the defendant will be constrained in putting any such submission as to weight by her opposition to the application for inspection.
Conclusion and orders
For these reasons, I refuse the plaintiff’s application to inspect the Property. I have requested the parties to be in a position to address timetabling for the upcoming stay application on delivery of this ruling. I will hear them at that time in relation to costs.
It is my intention, subject to submission to the contrary, to publish these reasons with appropriate pseudonyms to protect the identity of the parties to the proceeding in the Federal Circuit Court.
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