Steve Karamihos And Aristea Karamihos and Bendigo And Adelaide Bank Limited
[2014] HCATrans 155
[2014] HCATrans 155
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S49 of 2014
B e t w e e n -
STEVE KARAMIHOS AND ARISTEA KARAMIHOS
Applicant
and
BENDIGO AND ADELAIDE BANK LIMITED
Respondent
BELL J
TRANSCRIPT OF PROCEEDINGS
AT SYDNEY ON MONDAY, 28 JULY 2014, AT 10.00 AM
Copyright in the High Court of Australia
MS J.F. MERKEL: If your Honour pleases, I appear for the applicant. (instructed by Margiotta Solicitors & Attorneys)
MR R.I. BELLAMY: May it please the Court, I appear for the respondent in the matter. (instructed by Gadens Lawyers)
HER HONOUR: Yes, Ms Merkel.
MS MERKEL: Yes, your Honour, I would seek to read the affidavit of Anthony Margiotta which was sworn on 23 July and filed on 24 July of this year.
HER HONOUR: Yes. Mr Bellamy, is there any objection to any part of the affidavit?
MR BELLAMY: Your Honour, I could object to paragraphs 3 and 4, but I am happy for your Honour to hear some arguments about weight and just leave it at that, if your Honour is happy to ‑ ‑ ‑
HER HONOUR: Yes, very well. Mr Bellamy, there is no evidence from the respondent on the application?
MR BELLAMY: Yes, there is. There is an affidavit of Vanessa Magee.
HER HONOUR: I am sorry, Mr Bellamy. Yes.
MR BELLAMY: Sworn affidavit of 25 July.
HER HONOUR: Yes, I am sorry, that is the affidavit filed on 25 July.
MR BELLAMY: Yes, your Honour.
HER HONOUR: Ms Merkel, any objection to any part of that affidavit?
MS MERKEL: No, your Honour.
HER HONOUR: Yes. Now, does that complete the evidence on the application?
MS MERKEL: Yes, your Honour.
HER HONOUR: Mr Bellamy?
MR BELLAMY: It does for my part, your Honour.
HER HONOUR: Yes, very well. Would you just perhaps bear with me one moment, Ms Merkel? I just want to remind myself of – I have read the affidavits but I just want to remind myself of Ms Magee’s. Yes, Ms Merkel.
MS MERKEL: Yes, your Honour. Mr Margiotta’s affidavit is directed to the exceptional circumstances which attract the jurisdiction of the Court to grant a stay according to Justice Brennan’s judgment ‑ ‑ ‑
HER HONOUR: Burgundy Royale.
MS MERKEL: ‑ ‑ ‑ in Burgundy Royale.
HER HONOUR: How do you deal with the approach that Justice Barrett took, namely, the circumstance that the security is the family home would not ordinarily without something more be taken to be an exceptional circumstance?
MS MERKEL: With the fact that under the judgment of the primary judge the property was preserved. Your Honour does not need to have regard to all the interest calculations attached to Mr Margiotta’s affidavit, but they show that the primary judge reduced the amount of the loan and then made orders about what payments were to be made into the future and included in that was a finding that it was prepaid up until October of that year. So the property was preserved and there was no default under the judgment of the primary judge. That was not something Justice Barrett had regard to when he said it is not enough that it is the family home. So that is the reason why a money remedy is insufficient, because in fact the home was preserved under the orders.
HER HONOUR: I think there is some controversy about that. If one goes to the written submissions filed by the respondent, there is some issue, even if one were to accept the amount of indebtedness by reference to the primary judge’s determination, it is asserted that claimants have not been made ‑ ‑ ‑
MS MERKEL: Yes, but neither have notices been given. One of the complicating factors in all of that is that prior to the appeal to the Court of Appeal there was a partial stay of the orders, including a prohibition on sale or refinance by the applicants ‑ ‑ ‑
HER HONOUR: Yes.
MS MERKEL: ‑ ‑ ‑ and they have now made the payment as of today. When the matter was before Justice Barrett there was an amount of $55,000 held in a trust account with an irrevocable direction, for what that is worth, to pay to the Bank. Since then the Bank has identified the account to which the money should be paid and it has been paid. That puts them in a position where, in terms of the exceptional circumstances, they have pretty well brought the primary judgment payments up to date and, where there is no notice of any kind given as of today, then that effectively cures the difficulty, your Honour.
HER HONOUR: The position is this. The orders of the primary judge have been set aside. The Court of Appeal has made orders. There is an application for the grant of special leave that has not been determined. Burgundy Royale says it is an extraordinary jurisdiction in those circumstances for this Court to stay the execution of judgment, and the circumstance that your clients are now elderly, as I would understand it, I think in the later half of the seventies ‑ ‑ ‑
MS MERKEL: Yes, they are nearly 80 now, your Honour.
HER HONOUR: ‑ ‑ ‑ and that this is their family home, nonetheless it is difficult to see as representing in this context an exceptional circumstance taken by itself.
MS MERKEL: By itself, it does not. It would be a hardship matter, and part of the problem with Justice Barrett’s judgment was that he considered a case where the application was hardship and not a stay pending an application for special leave or a stay. In Burgundy Royale Justice Brennan did make orders for a stay, and the reason why he did it – and it is comparable to this case – was that, absent a stay, land would be subdivided and statutory liens would be lost, and that was an exceptional circumstance. In this case, if there is no stay, the Bank will take possession. It may sell the house before special leave is granted and restoring the orders of Justice Pembroke would lead to a money remedy but not to the remedy that was contemplated, because the underlying purpose of the litigation was to allow elderly people to continue to live in their home.
There is an affidavit – I may be anticipating my friend, but the failure to pay might be put forward to suggest in some sense that they cannot pay. That is the reason why the affidavit of Mr Margiotta refers to the daughter’s wish to pay, but it also makes quite clear she cannot – she has an ability to pay up to 1.4 million. Under Justice Pembroke’s orders, that would allow her to acquire the home and allow her parents to continue to live there, but under the figures that the Bank has put forward she would not be able to do that.
HER HONOUR: I see.
MS MERKEL: So it is this ability to preserve the property land as unique. The matters that are possibly closer in determining exceptional circumstances are when the Court will give an injunction or an order for specific performance rather than when it relieves in terms of hardship. So, yes, there is an underlying element that it is that family home, but the principal factor is the uniqueness of land and the fact that the orders preserve it under the primary judgment. But, of course, under the judgment of the Court of Appeal there is an order for possession and, of course, a large money judgment.
HER HONOUR: Perhaps, Ms Merkel, you might direct some attention to the question of demonstration on this application that the applicants have substantial prospects of the grant of special leave.
MS MERKEL: Yes, your Honour. Your Honour may have the application book.
HER HONOUR: Yes, I do.
MS MERKEL: Yes. Essentially, Justice Barrett thought that the High Court was being asked to entertain a question of fact and counter to that is that all of the grounds and the articulation of the special questions go to the question of the standard of appellate review of an intermediate Court of Appeal.
HER HONOUR: Yes.
MS MERKEL: The proposition is that when the legislature adopted the word “satisfied” in the National Credit Code it was signalling that the role of the primary judge is an exercise of judicial discretion.
HER HONOUR: I understand the argument I think in this respect. At first blush, I would have thought there is some force to Justice Barrett’s observation that the propositions underlying it are problematic. It is at paragraph 15 of his judgment where he notes that both the Contracts Review Act and the Code impose a task on the plaintiff in seeking the exercise of the jurisdiction to prove to the satisfaction of the court on the balance of probabilities the issues of fact that are essential before the jurisdiction is enlivened. The fact that one provision requires a finding of unjustness and the other satisfaction of injustice does not on the face of things suggest some material difference between the processes.
I say to you, Ms Merkel, on the face of it, one has some sympathy with that proposition. But, perhaps more importantly, let it be that your contention is good and that under the Code the judge making a determination of unjustness is exercising a discretion and that the applicable principles are House v The King.
The judgment of the Court of Appeal, so it seemed to me, made clear that its findings were of House v The King error in the third of the ways stated by Justice Starke, namely, the primary judge mistook the facts. So that in consideration of whether or not special leave might be granted, ordinarily the Court would consider not only whether a principle of law of general importance is raised, but whether this is an appropriate case in which to consider that principle.
MS MERKEL: Yes, your Honour. If I might then unbundle the reason why the Court of Appeal thought that the primary judge mistook the facts, it looked at the primary judge’s view that he was satisfied that a 2010 valuation was broadly similar to the value that would have been achieved in 2007. So there was no mistake of fact by the primary judge that there was a valuation in 2010. He did not purport to say that there was a valuation in 2007.
He applied a process of reasoning and inference to the valuation and that is the reason why it is submitted in the argument that it is a proper case for special leave because it is in that first limb of House v The King that the disturbance of inference is not something that the appellate court would engage in, in this respect. It is not in fact that he mistook the facts because he did not find as a fact what the valuation was in 2007. He found there was an opinion about a 2010 valuation. He was probably fortified by having evidence of the actual sale before him in 2010 which was a little more than the valuation but not a lot. Then he drew inferences which are in the ordinary course of ‑ ‑ ‑
HER HONOUR: But, Ms Merkel, is not all of this giving force to the view that in essence this Court is being invited to find the facts?
MS MERKEL: Well, your Honour, it is not unlike the distinction that was drawn in Norbis v Norbis and I am sorry, I have not – it has come to me now that the distinction where the court was looking at the review of judicial discretion was between judicial discretion where the facts in a sense are at large and it is a consideration of all the facts which lead to whether or not the discretion is exercised, as opposed to a judgment that involves clear elements and underlying findings of facts. There is a clear distinction drawn between the two and so in a judicial discretion ‑ ‑ ‑
HER HONOUR: That is not what we are concerned with here, is it? Here, the Court of Appeal considered there was no basis for a conclusion that the estimate was – what was the expression – piteously ‑ ‑ ‑
MS MERKEL: Optimistic.
HER HONOUR: ‑ ‑ ‑ optimistic; simply no basis for that conclusion and no basis to infer from nothing more than the history of loan applications and grants that the applicants were foolish persons lacking in financial acumen. Now, those two conclusions, namely, that there was an absence of material upon which to base those findings, they were important to the ultimate conclusion of unjustness.
MS MERKEL: Yes, and we have not – because of the nature of the application for special leave, we have not sought to give high prominence to other matters which we would say allowed for the finding of injustice in any event, because the key area is that his Honour’s approach to the valuation was in that area of legitimate impression that there – he had regard to the failure to inquire and there was a failure to inquire and he had regard to the fact that it was known to the Bank that the loan was not going to be sustainable in the ordinary course.
In that context, his satisfaction that likely the value in 2007 was similar to 2010 was what led him to also be satisfied that a failure to inquire would have led to something else, but not in that concrete sense of an express finding of fact. He was making a finding based on opinion evidence, which is all a valuation is, and drawing an inference that under the House v The King principle we say the court, if it had clearly had regard to the limits under House v The King on disturbing inferences, would not have done and, for that reason, we argue that it is a suitable vehicle, your Honour.
HER HONOUR: Yes. Can you just perhaps assist me? There is controversy between the parties, as there was before Justice Barrett, concerning the extent of the indebtedness and in consequence the question of whether there is the risk of loss to the respondent. In the material relied on by the applicants, do I understand no element is provided respecting the costs orders?
MS MERKEL: No, for a number of reasons, your Honour. The Court of Appeal ordered that the costs of the – made a curial costs order in relation to the costs before the primary judge and in the Court of Appeal, which means that the ordinary right of the mortgagee allocated to the – as it capitalised under the mortgage does not apply. Unless and until it obtains the assessment, it will not be known.
HER HONOUR: Yes, but nonetheless, in considering the question of loss, is it not proper to have regard to the fact that an order for costs has been made, notwithstanding that it has not been precisely quantified?
MS MERKEL: Yes, your Honour. The other element is that in the Court of Appeal and in this Court the applicants are legally aided and my friend has already signalled that, absent a notice given under the Legal Aid Commission Act (NSW), the applicants do not have the benefit of protections under the Legal Aid Commission Act, that is, that they do not pay the costs and the Legal Aid Commission has its costs capped at $15,000. But I have not identified a case that supports the proposition that failure to give notice – that would bring the amount of the costs down considerably. There is also issue taken with at least one amount that is claimed. That is $45,000. We have been content to simply put forward the valuation that the drive‑by valuation that the Bank obtained of a value of between 1.9 and 2 million ‑ ‑ ‑
HER HONOUR: Yes.
MS MERKEL: But we take issue with – on the material that is now incontrovertible with a contention that the difference between the amount adjudged, which is 1.421 million, the interest up to 8 July at court rate of 34,000 which takes it up to a little over 1.45 million, and the amount of 1.9 and 2 million, will not be on the balance of probabilities sufficient to satisfy a costs order as well if there is no application granted or, if an application is granted, if the appeal is unsuccessful; that, while there is asserted to be that likelihood of loss, it is not on uncontroverted facts, apart from the amount of the order of the Court of Appeal.
HER HONOUR: I am concerned, am I not, with whether you have, among other things, established that were the extraordinary jurisdiction to grant a stay exercised, it would not occasion loss?
MS MERKEL: It is a matter your Honour must determine, although I submit it is not determinative of the whole application ‑ ‑ ‑
HER HONOUR: Yes.
MS MERKEL: ‑ ‑ ‑ and that where it is not incontrovertible that it would establish loss, because $55,000 has been paid and the daughter has said that she will continue to make payments. In that respect, an order on terms might provide some protection to the respondent because there is margin between the established order and the orders that they are claiming. Issue – there is a figure ‑ ‑ ‑
HER HONOUR: If I can just interrupt you, when you say “the orders that they are claiming”, again that seems to me to misstate the position. There is at the moment no grant of special leave.
MS MERKEL: Yes.
HER HONOUR: We are speaking of the orders that the court has made. I am sorry, Ms Merkel.
MS MERKEL: No, no, your Honour, if I misspoke them, I did not intend to, or to attempt to suggest ‑ ‑ ‑
HER HONOUR: Yes.
MS MERKEL: No, under the orders that the Court of Appeal have made, given the payment of $55,000 and the calculations the respondent proffers, the amount owing under the Court of Appeal orders is now a little less than the amount at 25 March 2014 because the respondent puts forward a figure of $34,758 for interest up to 8 July. So having paid 55,000 last week, that exceeds that by some margin. If further payments are made until the grant of special leave, then the exposure to loss of the respondents is in that area between a little over 1.4 million and the estimated sale price of between 1.9 and 2 million.
Some of the figures that are put forward are future figures such as the cost of selling the property, other matters of that kind, but, in any event, where the matters are not proven, although I cannot establish the negative, it is a matter where the difference – if everything else weighs towards the grant of a stay and if orders can be made that protect against loss, at least to some extent, by an order that a certain amount of money be paid each month, or that the stay be conditional on a certain amount of money being paid each month, then that would, provided that the balance of convenience favours the applicants, be a reason to weigh some potential for loss in the balance – with the balance of convenience.
HER HONOUR: Yes, thank you, Ms Merkel.
MS MERKEL: Thank you, your Honour.
HER HONOUR: Yes, Mr Bellamy.
MR BELLAMY: May it please the Court. Your Honour, firstly some basic principles. The application for special leave to appeal does not operate automatically as a stay and the burden falls squarely on the applicant to establish that there is a basis for a stay. The ordinary principle is that a successful party is entitled to the fruits of its judgment, and that is the context in which Justice Brennan came to hold and which is good law in New South Wales and applied by Justice Barrett, that a stay will not be granted in the absence of exceptional or special circumstances. The argument has really not advanced very far beyond the argument that was ventilated before Justice Barrett, that is, a family home is in and of itself an exceptional circumstance.
What the applicants do not grapple with is the proposition that residential properties are offered as security for commercial loans without legislative control or resistance, and it probably happens every day. Whenever a residential property is offered as security, the likelihood is there is someone living in it and the possibility is that those people will be elderly. It is utterly unexceptional, in my submission, that those matters and the probability or the possibility that a writ of execution might impact upon the occupants, unfortunate that that might be, can be elevated to an exceptional circumstance. That is the reasoning that Justice Adamson arrived at in Savage and with respect to my learned friend, there has not been a basis raised for that line of reasoning to not be followed.
The consequence for that proposition, if your Honour accepted it in this case, is this. Essentially, there is an argument by the applicants for the status quo, as though that has some inherent power. Indeed, my learned friend used as the proposition the term “status quo” in her submissions and ultimately I think she said to your Honour the underlying purpose of the litigation is so that Mr and Mrs Karamihos can remain in their family home.
That might be a noble notion, but the legal notion is that one would think that in this instance the status quo was not sufficient to constitute an exceptional circumstance and prior to the authorities that have been referred to to date, Justice Brennan said precisely that in Edelsten v Ward where he was at pains – this is a 1988 case in the Australian Law Journal Reports - where Justice Brennan was at pains to remind the legal profession that the jurisdiction has, as has been repeatedly pointed out, an exceptional jurisdiction. It is one which can only be exercised in extraordinary circumstances. It is as well to emphasise that observation again lest the impression be created that in the conduct of litigation the orders of this Court are available to keep matters in status quo until the litigation is finally resolved.
So what we have, in effect, in the arguments is a tension between the proposition that letting things be is a sufficient basis, as opposed to moving the court with evidence – acceptable evidence – to identify the issues that have been dealt with in Merton and as dealt with by Justice Barrett and I will just turn to those quickly.
The first is the prospects of the litigation. In my respectful submission, Justice Barrett’s assessment of the prospects of the special leave application are sound and the likelihood is at this point in time that if the objective was that Mr and Mrs Karamihos might remain in their home, again, I am sure everyone would wish that but the reality is that that will not come to pass for three reasons.
The first is that the draft notice of appeal does not deal with the fundamental issue of the error of the learned primary judge that relief in a Contracts Review Act sense or let it be in a Code sense, extends to giving the borrowers of funds under an unjust contract the benefit of the funds without the obligation to pay them back. That is problem number one.
Problem number two is that at the moment, even the way the argument is articulated by my learned friend, it is ineluctably and irretrievably embedded in a contest of fact and is not an appropriate vehicle for this Court to opine upon the way in which a code might work in a general sense, or the Act might work in a general sense.
The third problem is that, even if one accepts for a moment the possibility that – well, accept it as a reality that my learned friend is successful on the special leave application and is successful on the appeal, the orders that were made by Justice Pembroke have not been observed by Mr and Mrs Karamihos. They are in default of their loan obligations. There is no evidence before your Honour of an acceptable kind they will be in a position to pay another cent to the Bank and so by the time this matter came around for this learned Court to hand down its decision, the Bank will be taking proceedings with respect to breaches by Mr and Mrs Karamihos of their payment obligations under the modified loan agreement as ordered by Justice Pembroke. It means the utility of the litigation is seriously questioned and that must reflect back, in my submission, on the balance of convenience.
Now, just on the question of money and that issue, if your Honour looks at the affidavit of Mr Margiotta, bearing in mind this is the second application for a stay of execution and Mr Margiotta has had a reasonable amount of time to put some evidence on or collate it or obtained it from Ms Antoniou, the best he is able to say in the affidavit is she has – that is Ms Antoniou - this is in paragraph 4:
has the ability to obtain finance to purchase her parents’ home from them for a price that equals or exceeds the amount adjudged due by the primary judge.
The difficulty is, your Honour, that it does not deal with what is going to happen. If one lets it be the case for a moment that the special leave application is successful and goes through to a full appeal and this Court with its workload delivers judgment in due course, what happens to the repayment obligations in the meantime? Where is the evidence from Ms Antoniou that she can pay a cent? There are not any terms offered by the applicants, with respect.
HER HONOUR: I understood there was an offer of terms relating to payments consistent with the orders made by the primary judge on a regular basis pending the determination of the appeal.
MR BELLAMY: As to that, if I could deal with that. Thank you, your Honour. As to that, one might ask rhetorically where is the evidence they can comply because they have not to date. This payment of $55,000 has not come from Mr and Mrs Karamihos but from their daughter. It seems to have taken a long time for them to be able to get that money together. There is no evidence as to its source. There is no evidence that there is another dollar or another cent available.
Now, the Court essentially it would appear, if the terms like that are being offered, is being put in a position of constant supervision as to the outcome of this stay. Are we to be back every month asking your Honour to re‑exercise the discretion in the event that Mr and Mrs Karamihos had not been able to come up with that month’s payment? But really, your Honour, the issue is starker than that because at this moment standing here today they are in default. They have not paid all that they should. The $55,000 has been received and we acknowledge that and we thank the applicants for it, but at the moment that leaves a deficiency on what they are meant to have paid which is identified in the affidavit Ms Magee.
HER HONOUR: Is that a deficiency of around $1,400?
MR BELLAMY: Yes, and it will be $8,000 next month and it will be $14,000 the month after, so it is just going to go on and on. It is all very well to say well, we have not issued a default notice, that is the Bank has not issued a default notice, but these are the borrowers asking the Court to exercise a discretion in their favour to let them remain in the property in circumstances where they have not demonstrated they are in a position to comply with the modified orders, that is the modified loan by Justice Pembroke.
The other point to be made, your Honour, about the financial aspect of it is Mr and Mrs Karamihos are not asking for a stay that begins today and ends tomorrow. They are asking for a stay until disposal of the appeal, and so the correct methodology of the Court, the inquiry to be taken is what is it that the Bank could potentially be looking to recover from the security property by the time the High Court hands down its reserved decision on a full‑blown appeal and how is the Bank’s position adversely affected by the imposition of a stay in the meantime.
The answer to that question is against the applicants in the sense that it is not enough, it is not a valid approach to simply disregard the legal costs that are recoverable in the proceedings against Mr and Mrs Karamihos for the reason that they have not been assessed yet. It is to be heedless of the future expenses that will be incurred that the Bank must also look to the property to recover or to generate. Those delays, that is the Bank being kept out of its money for that period of time, exacerbates the Bank’s financial position.
Now, on the legal aid issue, your Honour, I made the point before – it seems to have generated a bit of controversy. I made the point before Justice Barrett, under the Legal Aid Act provisions for the legal aid – that is, for the costs cap that benefits legally‑aided litigants to apply, my submission is that a notice is required under the Act and to be given. That notice must be given to the other litigants.
Now, that notice was not given. I think there is an issue between myself and my learned friend about whether or not that is going to affect anything, but there is a bigger argument here and that is that whatever the Legal Aid Act says about the cost cap in litigation, it does not affect the Bank’s rights under the contract and they must subsist and it would be an extraordinary thing if the Legal Aid Act was jumping into the middle of mortgagee/mortgagor relationships in that way.
HER HONOUR: Yes.
MR BELLAMY: So, your Honour, in my submission, the material that is annexed to the affidavit of Ms Magee dealing with financial outcomes is reliable and ought to be had regard to as realistic and it falls to my learned friend to satisfy your Honour as a reason to consider that unrealistic and that there is an identifiable and sufficiently certain surplus that the Bank can take comfort as to its existence in a way that means that the stay is one that might reasonably be given. They are the respondent’s submission.
HER HONOUR: Yes, thank you, Mr Bellamy. Ms Merkel.
MS MERKEL: Firstly, your Honour, I did use the words “status quo” but it was not intended as a term of art. It was intended to encapsulate the idea that land is unique, that a money remedy would not be sufficient and to therefore echo the principles that Justice Brennan adverted to in Burgundy Royale not to say that – clearly the status quo at the moment is the Court of Appeal’s orders and that is – so if that was taken to be a term of art it was not intended, your Honour.
HER HONOUR: Nonetheless, there is the point that Mr Bellamy makes that commonly enough a family home is the security that is offered in transactions entered into every day. There is in that case always the interest in land, but the essential point is that this litigation was concluded with the orders made by the Court of Appeal. True enough it is, an application for special leave has been filed, but before its determination the position is that there is a judgment in favour of the Bank and absent some exceptional circumstance it is inappropriate for this Court to ‑ ‑ ‑
MS MERKEL: Yes, your Honour, and again, the exceptional circumstances that the court below preserved the property in the hands of the mortgagee. So that is the only exceptional circumstance ‑ ‑ ‑
HER HONOUR: The exceptional circumstance is that you succeeded before the primary judge.
MS MERKEL: In those circumstances no order for possession was made. It is the order for possession that is the key. That is all, your Honour, and not the other matters.
HER HONOUR: I understand.
MS MERKEL: As far as the question that the discretion miscarried in relation to the relief ‑ ‑ ‑
HER HONOUR: Yes.
MS MERKEL: Justice Macfarlan referred to the need to consider the cause of their loss, he did not make absolute findings in relation to that.
HER HONOUR: I am sorry, is this some reference to some part of the ‑ ‑ ‑
MS MERKEL: The judgment of Justice Macfarlan.
HER HONOUR: Yes.
MS MERKEL: Yes, because there were remarks made without, in our submission, absolute findings about the extent of the relief that was granted. It was doubted that ‑ ‑ ‑
MR BELLAMY: …..
HER HONOUR: Yes, I understood that. I was just wondering if you could take me to the paragraph that you are referring to.
MS MERKEL: Yes.
MR BELLAMY: Paragraph 67 and following.
HER HONOUR: Paragraph 67 and following.
MS MERKEL: Yes, I am indebted to my friend, your Honour. He adverted to the need to consider – that is the reason why nothing is advanced in the grounds of appeal because these were matters that he adverted to rather than made absolute findings about which is natural given his primary findings. But the key point, of course, is that there is a halfway point between giving no relief at all and giving relief from the principal debt and that is relief in relation to interest on the additional amount default charges, costs of enforcement, and that may be why Justice Macfarlan said that an inquiry would have been needed.
The inquiry was not conducted and that is the reason why the question if otherwise the appeal was successful that it might be a matter for further consideration somewhere else rather than to render the appeal futile and, of course, Justice Sackville’s comments were firmly based on what he saw to be the incorrectness of the inferences the primary judge drew about the Marrickville home so that if he was incorrect in that then he is incorrect in his observations about causation.
I think there was one other point, simply that it is not unusual to make a stay contingent on making payment obligations, and that is certainly and as your Honour adverted to, the offer has also been mentioned in Mr Margiotta’s affidavit.
HER HONOUR: Thank you.
In 2007, the applicants, who are husband and wife, and who were then aged in their early 70s, borrowed $1.2 million from the respondent Bank, secured by mortgage over their home in Maroubra. At the time they were operating a takeaway food business from premises which they owned in Marrickville. They applied to the respondent (“the Bank”) for the loan for the stated purpose of refinancing an existing loan that was secured over the Maroubra family home and to raise additional funds for investment purposes. The applicants defaulted in payment of the monthly instalments due under the loan agreement and the Bank commenced proceedings for possession of the Maroubra home and judgment for the outstanding balance.
The applicants commenced separate proceedings in the Supreme Court of New South Wales, contending that the loan contract and mortgage were unjust and claimed relief under the National Credit Code (“the Code”) and the Contracts Review Act 1980 (NSW). The primary judge found that the loan contract and mortgage were unjust within the meaning of each of those statutory schemes. His Honour made orders, relieving the applicants of their liabilities to the Bank other than in respect of that portion of the loan applied to the discharge of the earlier mortgage.
The Bank appealed to the New South Wales Court of Appeal. On 14 February 2014, the Court of Appeal allowed the appeal and set aside the orders made by the primary judge. The applicants filed an application for special leave to appeal on 14 March 2014. On 25 March 2014, the Court of Appeal gave leave to issue a writ of possession. By summons filed on 24 July 2014 the applicants applied for a stay of the writ of possession, pending determination of their application for special leave to appeal. They rely on the affidavit of their solicitor, Mr Margiotta. From this it appears that should special leave be granted and the appeal allowed the applicants’ daughter, Ms Antoniou, may be in a position to obtain finance permitting her to acquire the Maroubra property and pay the Bank the amount adjudged by the primary judge to be due. Ms Antoniou would allow the applicants to continue living in the home for so long as they are able to do so. She has told Mr Margiotta that her parents are physically and emotionally unwell and that as a consequence she manages significant transactions on their behalf.
There is an issue between the parties as to the extent of the applicants’ indebtedness to the Bank. In its case the Bank relies on the affidavit of Ms Magee which addresses this latter consideration. The sheriff has served the applicants with a notice of intention to take possession of the property on Tuesday, 29 July 2014. Since 7 July last, the sum of $55,000 has been paid to the Bank on the applicants’ behalf in reduction of the debt. They have offered to make ongoing payments of $6,100 per month, pending the determination of the leave application and any appeal. The Bank notes the absence of more detailed evidence of the capacity to make those payments. The Bank opposes the grant of the stay.
As at 21 May 2014, in correspondence the Bank asserted the amount owing under the facility was $1,801,947.19. It asserted that additional interest expenses and legal costs were to be added to that figure. Based on a “kerbside appraisal” conducted in March 2013, the Bank estimated the value of the Maroubra property as between $1,750,000 and $1,850,000. In her affidavit, sworn on 25 July 2014, Ms Magee calculates that as at 17 October 2014 the amount of the applicants’ indebtedness will be of the order of $1,968,663.02. Seventeen October is suggested to be the next possible available date on which the application for special leave to appeal might be heard.
Among other grounds for opposing the stay, the Bank asserts that the total amount reasonably expected to be payable at the time of the determination of the application exceeds the value of the security, and for that reason the stay would unreasonably deprive it of the benefit of its judgment.
The applicants contend that the true state of their indebtedness as at 14 August 2014 is of the order of $1,421,482.52, together with interest at court rates. They note that no assessment of the costs of the proceedings below has been made and they point to a “drive‑by valuation” of the property as between $1.9 and $2 million.
It is not in issue that the applicant bears the burden of establishing exceptional circumstances to warrant a stay to preserve the subject matter of litigation pending an application for special leave to appeal[1]. In the event the extraordinary jurisdiction to grant a stay is enlivened, factors material to the exercise of the Court’s discretion include: whether there is a substantial prospect that special leave to appeal will be granted; whether the grant of the stay will cause loss to the respondent; and the balance of convenience.
[1] Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd[No 1] (1986) 161 CLR 681 at 685, per Brennan J; [1986] HCA 84.
On 7 July 2014, the applicants filed a motion in the Court of Appeal claiming an order staying the execution of the writ of possession pending the determination of their special leave application. Barrett JA heard the application the following day. His Honour reserved his decision and granted a stay until the delivery of judgment. On 11 July 2014, his Honour dismissed the applicants’ motion[2]. Barrett JA considered the fact that the security is the family home was not of itself an exceptional circumstance of the kind that would justify the grant of a stay. His Honour observed that the position may be different where there is some special factor relevant to the occupation of the family home. No such special factor was identified in the application before him. No such factor is identified in the material in evidence on the present application.
[2] Karamihos v Bendigo and Adelaide Bank Ltd [2014] NSWCA 221.
Nonetheless, I turn to a consideration of the factors relevant to the exercise of the discretion. The first requires consideration of the prospects that special leave to appeal will be granted. It is necessary to say something more about the history of the proceedings in order to address that consideration. Under the Code the court may reopen a transaction if it is satisfied that a contract is “unjust”. That concept applies to contracts that are “unconscionable, harsh or oppressive”. Under the Contracts Review Act the court may reopen a transaction if it finds that a contract is unjust. That concept applies to contracts that are unconscionable, harsh or oppressive.
In the Court of Appeal the Bank accepted that it was open to the applicants to seek relief under the Contracts Review Act but contended that there was no scope for the Code to apply because the credit was not provided “wholly or predominantly for personal, domestic or household purposes”. The Court of Appeal considered that there was no material difference between the applicants’ claims for relief under the Code and under the Contracts Review Act. It said that the applicants obtained no advantage from a finding that the Code applied. In these circumstances, the Court of Appeal decided the appeal by reference to the provisions of the Contracts Review Act alone.
The Court of Appeal found that the primary judge made wrong findings of fact. The finding that the primary judge identified as the most important circumstance to his conclusion of unjustness was that the Bank had failed to make reasonable inquiry as to whether the applicants could meet their obligations under the loan. The loan approval had been dependent upon a “viable exit strategy”. The Bank relied on the applicants’ estimate that their Marrickville property was worth $2 million in determining that they had such a strategy. The primary judge found that the applicants’ estimate of the value of the Marrickville property had been “piteously optimistic and unsupportable”.
Macfarlan JA, with whose reasons Wood JA and Sackville AJA concurred, held that the primary judge’s finding that the value of the Marrickville property was less than the applicants’ estimate was not supported by any evidence. His Honour was critical of other factual findings. In particular, his Honour said that the evidence of the applicants’ loan history did not justify the primary judge’s conclusion that they were foolish persons lacking in financial acumen.
Macfarlan JA said that there is a need for appellate restraint in cases of this kind. Nonetheless, his Honour concluded that he was bound to give effect to the “firm view” that he had formed[3]. His Honour endorsed Kirby P’s statement in Beneficial Finance Corporation Ltd v Karavas[4] that even if determinations under the Contracts Review Act are “not discretionary in character there are many reasons for the exercise of care in the appellate review of the decision”[5].
[3] Bendigo and Adelaide Bank Ltd v Karamihos [2014] NSWCA 17 at [66].
[4] Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256.
[5] Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 262.
Sackville AJA, in a separate concurring judgment, addressed the applicants’ argument that differing standards of appellate review apply to a finding of unjustness under the Contracts Review Act and satisfaction of unjustness under the Code. On the assumption that the Code applied and that the determination of unjustness under it is the exercise of a discretionary determination, Sackville AJA said that the primary judge’s finding could not stand. Each of two substantial factual errors would warrant the setting aside of the decision on the principles stated in House v The King[6].
[6] Bendigo and Adelaide Bank Ltd v Karamihos [2014] NSWCA 17 at [75], citing House v The King (1936) 55 CLR 499.
The applicants’ Amended (Draft) Notice of Appeal contains three grounds: first, error in holding that it was unnecessary to decide whether the Code applied; second, error in substituting the Court of Appeal’s view that the contract was not unjust under the Contracts Review Act without considering whether the primary judge’s satisfaction under the Code that the contract was unjust disclosed specific error in approach or was unreasonable or plainly unjust; third, in overturning the finding that the Bank had failed to make reasonable inquiries in circumstances in which the primary judge held that the Code applied and was satisfied of the factors mentioned in subparagraphs of section 76(2).
I am not persuaded that there are substantial prospects that there will be a grant of special leave to appeal in this case. That is a determination to be made by two or more Justices. It is sufficient for the purposes of the present determination to endorse Barrett JA’s analysis of the difficulty standing in the way of success on the applicants’ first ground. Putting that to one side, and assuming the correctness of the applicants’ contention as to the applicable principle, it remains that the Court of Appeal was firmly of the view that the primary judge mistook the facts. The Court of Appeal identified patent error vitiating the primary judge’s decision of the third kind identified in House v The King[7].
The Court of Appeal’s conclusion that the judgment below was the subject of two important factual errors does not make the matter a promising vehicle for consideration of the standard of appellate review of unjustness under the Code. My view that the circumstances are not of an exceptional character and that the applicants do not have substantial prospects of obtaining special leave to appeal is determinative. However, for completeness, I note the uncertain state of the evidence with respect to the applicants’ indebtedness to the Bank.
The applicants bear the burden. Their estimate takes no account of the costs, the subject of the orders below, and the expenses associated with the sale. On the material in evidence the applicants have not demonstrated that the Bank would suffer no loss in the event the stay were to be granted. However, as I have made clear, that controversy is not critical to my determination of the application. For these reasons, there will be the following order:
[7] House v The King (1936) 55 CLR 499 at 505, per Starke J.
1. summons dismissed with costs.
Adjourn the Court.
AT 11.13 AM THE MATTER WAS ADJOURNED
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