Stirling v Russo - [2011] SASC 58

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
STIRLING & ORS v RUSSO
[2011] SASC 58
Reasons of Judge Lunn a Master of the Supreme Court
15 April 2011
REAL PROPERTY
Action under Part 17 Real Property Act 1886 by second mortgagee for order for possession - possession order made on 16 June 2006 - undertaking by plaintiffs not to enforce it - applications by defendant to set it aside and by plaintiffs to be released from their undertaking - uncertainty whether any valid s 55A Law of Property Act 1936 notice given to defendant before action commenced and proper amount for it dependent on result of an account still being taken in other proceedings - defendant now bankrupt - locus standi as occupant but not determined whether he could have order set aside - held reasonably arguable grounds to set aside the order - held s 55A(1) notice served by plaintiffs after action commenced could not satisfy the requirements of s 55A - dispensation under s 55A(2)(a) refused - plaintiffs released from undertaking - possession order stayed - application to set aside Order adjourned to await joinder of trustees in bankruptcy of defendant.

STIRLING & ORS v RUSSO
[2011] SASC 58
JUDGE LUNN:
Reasons on the plaintiffs’ application to be released from an undertaking and the defendant’s application to set aside a possession order (FDN50)

The defendant[1] is the registered proprietor of the property known as 189 The Esplanade, Aldinga Beach (“the property”).
[1] This term is used in these reasons to describe Angelo Peter Russo, but it should be noted that in the related action SCCIV-04-1125 he is the plaintiff.
Background
On 16 March 2001 the defendant mortgaged the property to the plaintiffs.[2] The mortgage[3] was to secure an advance of $80,000 for a term of six months (“the first loan”). On about 6 June 2002 the plaintiffs purported to make a second loan secured by the mortgage over the property for $70,000 repayable in three months (“the second loan”).
[2] In these reasons “the plaintiffs” refer to the original plaintiffs Eric and Elizabeth Buck, but they are now both deceased and their executors are the current plaintiffs.
[3] It was a second mortgage to a first mortgage previously given to the Hong Kong Bank of Australia Ltd, now known as HSBC Bank Australia Ltd (“HSBC”).
On 16 March 2004 the solicitors for the plaintiffs served a Notice of Demand (“the Demand”) on the defendant requiring repayment of $159,704.18 within seven days of its service. On 11 June 2004 the plaintiffs instituted this action[4] against the defendant under Part 17 of the Real Property Act 1886 seeking an order for possession of the property. The summons was supported by an affidavit of Annette Conn sworn on 11 June 2004. She was a finance broker acting for the plaintiffs. On 12 July 2004 the defendant filed an affidavit denying his liability for both the first and the second loans.
[4] There had been an earlier action, SCCIV-03-857 between the parties for possession of the property, on which a possession order had been made on 8 October 2003, but that action had been settled by some arrangement between the parties and it is not relevant to the present applications.
After a contested hearing on 12 August 2005, another Master delivered reasons, FDN10, on 22 August 2005 finding that there were triable issues and refusing the plaintiffs’ application for a summary possession order. He reserved the question of costs and put the matter into the Delay List.
In the meantime, on 11 June 2004 the defendant had instituted action SCCIV-04-1125 in this Court against the plaintiffs and others, seeking to set aside the mortgage on the grounds that he was not liable to repay either the first or the second loans. It is not necessary here to go into the whole of the long and tortuous history of that action, which is still not finalised.
On 10 November 2005 the plaintiffs took out an interlocutory application seeking orders that the defendant make payments under the mortgage pending the finalisation of action SCCIV-04-1125. That application was adjourned. At a hearing on 25 November 2005 the plaintiffs withdrew that application and I directed that this action be removed from the Delay List and be referred to the trial Judge in SCCIV-04-1125.
For reasons which are not apparent from the Court file, this action was again before me on 16 June 2006.[5] The defendant, who was then acting in person, did not attend, although a friend of his informed the Court that he was ill. The plaintiffs orally applied for an order for possession in this action which I then made (“the possession Order”). On 7 June 2006 the Chief Justice had dismissed action SCCIV-04-1125 due to defaults of the defendant, although that order was later set aside on 10 August 2006. I presume I made the possession Order on the basis that the issues raised in SCCIV-04-1125 had been resolved against the defendant.
[5] I suspect it occurred in conjunction with some interlocutory hearing in SCCIV-04-1125, as the practice was for the files in both actions to be before me on the many interlocutory hearings in SCCIV-04-1125.
On 21 June 2006 the defendant, who was again legally represented, took out an application to set aside or stay the possession Order (FDN28). In the supporting affidavit the ground given was that the order should not have been made because the action had previously been adjourned to the trial Judge in SCCIV-04-1125 and that meant that no order could be made in this action until final judgment in that action. At a hearing of FDN28 on 4 July 2006 the plaintiffs gave an undertaking (“the Undertaking”) not to enforce the possession Order pending the resolution of FDN28. For reasons related to what was transpiring in SCCIV-04-1125, FDN28 was never brought on for argument and has never been finalised.[6]
[6] At a hearing on 20 December 2006 it was confirmed that the Undertaking would continue until FDN28 was finalised.
After a long trial in SCCIV-04-1125 the Chief Justice held[7] that the first loan was secured by the mortgage, but the second loan was not. On 27 February 2007 the Chief Justice ordered a Master to conduct an account and inquiry to determine what amount was then owing by the defendant which was secured by the mortgage. Regrettably, the taking of that account and inquiry has been a complicated and protracted process and it has not been completed.[8]
[7] [2006] SASC 380.
[8] See my Reasons (No 3) (FDN136) and (No 7) (FDN173) in SCCIV-04-1125.
In SCCIV-04-1125 the Chief Justice had ordered on 6 May 2007 that the defendant pay the costs of the third and fourth defendants in that action (ie. Private Funds Management Pty Ltd and Annette Conn). On 16 February 2010 I fixed a lump sum interim allocatur on account of those costs at $59,567.[9] The Chief Justice also ordered in SCCIV-04-1125 that the defendant was to pay half of the costs of the plaintiffs. On 12 October 2010 I fixed a lump sum interim allocatur against the defendant for $110,000[10] on account of these costs.
[9] See my Reasons (No 5) (FDN157) in SCCIV-04-1125.
[10] See my Reasons (No 7) in SCCIV-04-1125, FDN173.
On 29 September 2010 in the Federal Magistrates Court a sequestration order in bankruptcy was made against the defendant based on his failure to satisfy a bankruptcy notice founded upon the interim allocatur for $59,567. Peter Macks and Rob Naudi were appointed as the trustees of his bankrupt estate (“the bankruptcy trustees”). An application to stay the operation of the sequestration order was refused by the Federal Magistrates Court on 19 January 2011 and an appeal against that refusal was dismissed by Justice Besanko on 28 January 2011. The defendant has appealed to the Federal Court against the sequestration order, but that appeal has not yet been determined.
On 13 January 2011 the defendant issued an application in this action (FDN50) seeking to set aside all previous orders and judgments made in this action and in 1125/04, and that this action be dismissed. I have told him that I cannot go behind the judgment of the Chief Justice in SCCIV-04-1125 or, indeed, in this action deal with any orders made in 1125/04. The application was argued on the basis that it was one either to set aside or stay the possession Order.
On 4 February 2011 the plaintiffs took out an application, FDN54, seeking inter alia that they be released from the Undertaking, or in the alternative that a further possession order be made in their favour over the property. Paragraph 4 of FDN54 to join the bankruptcy trustees has not yet been pursued, as those trustees have not been in a position to indicate their attitude about the mortgage. FDN50 and FDN54 were heard concurrently.
Position of the defendant
The defendant is, and has been for some time, legally unrepresented. He has done his best to argue his case, but he has only a limited understanding of the legal issues involved. I cannot accept his submissions on factual assertions which are contrary to the findings of the Chief Justice at the trial in SCCIV‑04‑1125.
Grounds to challenge the possession Order
There appear to be a number of grounds upon which the making of the possession Order in the absence of the defendant could be challenged. For the purposes of the present applications I merely find them be arguable without ruling upon any of them. The first and third grounds to be mentioned were not raised in the course of submissions and have only become apparent to me on a subsequent detailed review of the Court files.
The first is whether under Part 17 a summary determination can still be made for possession after such a determination was previously refused. On 22 August 2005 the plaintiff’s application for summary determination was refused. I am not aware of any authority directly on the point. However, in relation to the analogous old Order 14, the summary judgment procedure under the 1947 Rules, there is conflicting authority on whether a second application for summary judgment could be made after a previous application had been dismissed.[11]
[11] See Kirchmann v Von Snarski [1888] 3 QLJ 78; Mackenzie v Watson [1893] 19 VLR 277; Stainer v Tragett [1955] 3 All ER 742; FCA Finance Pty Ltd v Spartan Holdings Pty Ltd (1988) 1 Qd R 105, (1989) 1 Qd R 280.
Secondly, whether the making of the order was precluded by the earlier order referring this action to the trial Judge in SCCIV-04-1125.
Thirdly, whether there had been proper compliance with s 55A of the Law of Property Act 1936 (“s 55A”), which is set out below.[12] There is no evidence in the plaintiffs’ initial affidavit that they had complied with s 55A. The Demand was clearly not a s 55A notice as it only gave seven days after service for compliance, and not the one month allowed by s 55A(1)(a)(ii). The defendant is a natural person. There is no declaration under s55A(5) and (6)(b) excluding the presumption that the property was used for domestic or agricultural purposes. Whether the notice of 1 October 2010 could be sufficient compliance with s 55A(1) is dealt with below.
[12] On taking of the account in 1125/04, including when the defendant was legally represented, it was common ground that the taking of that account was in part directed to whether the s 55A Notice before action in this action had claimed an excessive amount. As will be related later, on 1 October 2010 the plaintiff did serve another s 55A Notice apparently on the basis that s 55A applies to enforcement of the mortgage.
Fourthly, whether the amount claimed in the demand was excessive and, if so, what is the legal effect of it. Whether the amount is excessive will be determined largely from the result of the account being taken in SCCIV-04-1125. The stage reached to date in the taking of that account does not enable any confident prediction to be made on the point.
Locus standi of the defendant to set aside the possession Order
As the defendant is now an undischarged bankrupt, his own standing in this action is only as an occupant of the property.[13] While it has been the practice of this Court to allow bankrupt occupants to be heard in Part 17 proceedings, they do not have the right to set aside the order, but only to be heard on its operation. This can extend to granting a stay of the order.
[13] If his appeal against the sequestration order succeeds, he will regain the status of an owner of the property, but the refusal of the Federal Court to stay the sequestration order means that effect must be given to it by this Court until the appeal is determined.
The defendant sought to counter this point by asserting that he held the property as the trustee of the Aldinga Beach Unit Trust. This was not accepted by the plaintiffs. I need not resolve the point. As a matter of law, his bankruptcy does not remove him as a trustee, although it provides strong grounds for the Court to make an order removing him.[14] If the defendant is pursuing his application to set aside the possession Order in his capacity as a trustee, and fails, it is likely that the costs of the application will be ordered against him and these would be secured under the terms of the mortgage. This could significantly diminish any equity in the property available for either the bankruptcy trustees or the beneficiaries under the Trust. It is somewhat analogous to the circumstances in which bankrupt trustees have not been permitted to bring proceedings on behalf of their trust.[15] No point was taken about the defendant’s locus standi to set aside the possession Order, but as neither the trustees in bankruptcy nor the first mortgagee HSBC are before the Court, I am not prepared at this stage to rule that he should be allowed to bring such an application.
[14] Re Matheson (1994) 121 ALR 605 at 614; Brien v Graspas (2004) 207 ALR 275 at [107]; Chambers v Jones (1902) 2 SR NSW Eq 177 at 182.
[15] Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank [2006] SASC 381, Anderson J, 19 December 2006; Garrett v Macks (2007) 249 LSJS 193; Garrett & Anor v Mildara Blass Ltd & Ors; Attorney-General for the State of South Australia v Garrett [2009] SASC 19, Layton J, 30 January 2009.
Release of the Undertaking
No good reasons were put forward why the plaintiffs should not now be released from their undertaking not to enforce the possession Order. They will be so released. However, it will be of no practical consequence if a stay is now to be imposed.
Re-granting of the possession Order
One of the plaintiffs’ alternative applications was that I should make a new possession order. This was based on the defendant not having complied with a s 55A Notice served on him on about 1 October 2010.[16] The Notice of 1 October 2010 alleged a number of breaches of the mortgage occurring after this action had been commenced. The defendant did not expressly contest these defaults. It raises the interesting legal question of whether the pre-conditions for a possession order imposed by s 55A(1) can be satisfied by a notice served after the institution of the action but before the order is made. I am not aware of any authority on the point or of it ever having been previously raised.
[16] This may well be after the sequestration in bankruptcy took effect, but I have not considered whether that is legally relevant.
Section 55A provides:
55A—Enforcement of rights against mortgagor
(1)A right of sale or foreclosure in respect of mortgaged land, a right to enter into possession of mortgaged land or a right to appoint a receiver in respect of mortgaged land shall not be enforceable by the mortgagee under a mortgage to which this section applies against the mortgagor by action or otherwise unless—
(a)the mortgagee has served upon the mortgagor a notice in writing—
(i)alleging a breach of a covenant or condition of the mortgage by the mortgagor; and
(ii)if the breach is capable of remedy, requiring the mortgagor within one month after service of the notice, or such longer period as may be stipulated in the notice, to remedy the breach; and
(iii)if the mortgagee seeks compensation for the breach, requiring the mortgagor within one month after service of the notice or such longer period as may be stipulated in the notice, to pay to the mortgagee the amount of the cost and expenses, stipulated in the notice, that the mortgagee has reasonably incurred in consequence of the breach; and
(b)where requirements are made of the mortgagor in the notice, he has failed to comply with those requirements.
(2)Where a mortgage to which this section applies contains a provision by virtue of which a liability to repay moneys under the mortgage falls due in the event of a breach of a covenant or condition of the mortgage at an earlier date than if there were no such breach, that provision shall be inoperative unless a notice has been served upon the mortgagor in conformity with the provisions of subsection (1) of this section and where requirements are made of the mortgagor in the notice, he has failed to comply with those requirements.
(2a)Upon the application of a mortgagee, a court may dispense, upon such terms and conditions as it thinks fit, with the requirement of notice under this section.
(2b)Where such a dispensation has been granted, the provisions of subsection (1) and subsection (2) of this section shall not apply in respect of the mortgage.
(3)In any proceedings brought by a mortgagee for the recovery of a mortgage debt or for the enforcement of a mortgage, or in proceedings instituted by a mortgagor within twenty-one days after service of a notice under this section, a court may, upon such fair and equitable terms as it may determine, grant relief to a mortgagor against the enforcement of rights of a kind referred to in subsection (1) of this section, and may reinstate the position of the mortgagor in all respects as if no breach of a covenant or condition of the mortgage had occurred.
(5)This section applies to a mortgage of land (whether or not the land has been brought under the provisions of the Real Property Act where—
(a)the mortgagor is a natural person; and
(b)the land is appropriated for domestic or agricultural use.
(6)For the purposes of this section—
(a)land shall be deemed to be appropriated for domestic or agricultural use unless the mortgagor has made a statutory declaration that during the currency of the mortgage—
(i)no part of the land is to be used as a place of dwelling for the mortgagor's own personal occupation; and
(ii)in the case of land exceeding two hectares in area, no part of the land is to be used by the mortgagor for the business of primary production; and
(b)where such a declaration has been made it shall be conclusively presumed that the land is not appropriated for domestic or agricultural use.
(7)In this section—
business of primary production means the business of agriculture, pasturage, horticulture, viticulture, apiculture, poultry farming, dairy farming, forestry, or any other business consisting of the cultivation of the soil, the gathering in of crops, or the rearing of livestock.
(8)This section shall not apply to any mortgage granted before the commencement of the Law of Property Act Amendment Act (No. 2) 1972.
Section 55A is consumer protection legislation[17] and is designed to protect borrowers in a non-commercial context from the costs and the significant consequences of default under their mortgages. In effect it gives them one month within which to remedy the default before they become liable for the substantial costs[18] of proceedings under Part 17 which would result in them losing possession of their properties. That purpose will be thwarted if mortgagees could give a second s 55A notice, or even the first notice, after the proceeding had been commenced. The usual principle is that all elements necessary to be established by a plaintiff for the relief sought in an action must have occurred before the action is commenced.[19] Section 55A is to be so interpreted. Thus, the Notice of 1 October 2010 is of no effect.
[17] Cooperative Building Society v Plane (1993) 170 LSJS 457.
[18] Including a filing fee which is now $1780.
[19] Eshelby v Federated European Bank [1932] 1 KB 423.
Dispensing with the s55A Notice

In the alternative, the plaintiffs’ counsel orally applied under s 55A(2)(a) for a dispensation from having to give any further notice. In this matter the costs are already very substantial. There is no good reason why the plaintiffs should be put in a position where they could claim the costs of the action if they had not properly complied with s 55A, or be saved the costs of a subsequent set of proceedings under Part 17, by a dispensation. The plaintiffs have not given any explanation about why s 55A was apparently not properly complied with before the action was commenced. The confusion about the amount properly owing under the mortgage is in part the responsibility of the plaintiffs in having maintained the validity of the second loan. Such dispensations, which are not occasioned by a default of the defendant, are not to be readily granted.[20] A dispensation is refused.
[20] Commonwealth Bank v Saunders (1995) 181 LSJS 363. Also see Storr v Stoilov [2007] SASC 426, Lunn M, 6 December 2007.
Stay of possession order
For the reasons given, the possession Order is not at this time to be set aside. However, there is sufficient doubt about whether it should be maintained to justify imposing a stay on it until it becomes clear whether the application to set it aside is to be pursued. As the costs of any further pursuit of it may adversely affect any equity in the property available after the secured creditors have been satisfied, the trustees in bankruptcy should be at liberty to be heard on the point if they so wish.
There is also a further complicating factor. Since reserving my decision on the applications, I have become aware that there is an action in this Court (SCCIV-11-80) commenced on 21 January 2011 by HSBC as the first mortgagee seeking possession of the property. HSBC is entitled to be heard on whether the Order for possession in this action should stand.
Points raised by the defendant
I briefly deal with some of the points made by the defendant:
·Any offers made by the defendant, if they are properly categorised as offers, are not relevant to what I have now to decide. The fact is that the defendant fought the trial before the Chief Justice on the ground that he was not liable for the first loan and he lost on that point.
·Any application for payment out of the monies in Court has to be made in Action SCCIV-04-1125, as the order for payment in was made in that action. I have already refused an order for payment out to the defendant.[21]
·The defendant complains that the failure to complete the account in SCCIV‑04-1125 expeditiously has prejudiced him in being able to refinance using the property as security. The delays in taking that account are as much attributable to him as they are to the plaintiffs. Neither party has taken any steps actively to pursue the finalisation of the account since October 2008.
[21] See my reasons (No. 6), FDN165.
Orders
I have today made the following orders:
1Application FDN50 to set aside the possession Order is adjourned to a date to be fixed.
2The plaintiffs are released from their undertaking given on 4 July 2006.
3Possession Order of 16 June 2006 is stayed until further order.
4Costs reserved.
5Adjourned to a directions hearing on Monday 9 May 2011 at 9.30am.