Trust (PTAL) Limited (formerly Permanent Trustee Australia Limited) v Albert [2013] NSWSC 1970

Supreme Court New South Wales

Medium Neutral Citation: Trust (PTAL) Limited (formerly Permanent Trustee Australia Limited) v Albert [2013] NSWSC 1970 Hearing dates: 18 December 2013 Decision date: 18 December 2013 Jurisdiction: Common Law Before: Campbell J Decision: (1) Judgment in favour of the plaintiff as against the defendant in the sum of $3,441,951.58. (2) The defendant to pay the plaintiff's costs on the ordinary basis forthwith after they have been agreed or assessed. Catchwords: CONTRACT - enforcement of deed of guarantee - whether conduct of mortgagee unconscionable for the purpose of section 12CC Australian Securities and Investments Commission Act 2001 (Cth) Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth) Judiciary Act 1903 (Cth) Real Property Act 1900 (NSW) Cases Cited: Currie v Dempsey (1967) 69 SR (NSW) 116 Omlaw Pty Ltd v Delahunty [1995] 2 Qd R 389 Tonto Home Loans Australia Pty Limited v Tavares [2011] NSWCA 389; 159 BPR 29,699 Texts Cited: Clyde Croft and Robert Hay, The Mortgagee's Power of Sale, third edition (2013) Category: Principal judgment Parties: Trust (PTAL) Limited (fomerly Permanent Trustee Australia Limited) (plaintiff) Marc David Albert (defendant) Representation: Counsel: J Darams (plaintiff) In person (defendant) Solicitors: Eakin McCaffery Cox (plaintiff) In person (defendant) File Number(s): 2011/411248

EX TEMPORE Judgment 1In proceedings commenced on 22 September 2011 the plaintiff seeks to recover the sum of $3,441,951.58 from the defendant. 2Earlier today, I gave the plaintiff leave to proceed by way of an amended statement of claim filed in Court this morning. The plaintiff says the amount is due under a deed of guarantee between the parties. That deed is part of a series of transactions relating to a loan from the plaintiff to a company, Samkarjo Pty Limited (Samkarjo), of which the defendant was the sole director. 3The amount of the original loan was $2.73 million. The parties entered into an agreement in principle in December 2007 and the formal contractual documents were executed on 31 January 2008. Those formal documents included the deed of guarantee, to which I have referred, and a mortgage under the Real Property Act 1900 (NSW) over commercial premises owned by the borrower in Oxford Street, Bondi Junction. 4The original term of the loan was a period of twelve months, but by agreement it was extended for a further period of twelve months so that the principal became due and payable on 31 January 2010. The interest rate fixed by the mortgage was 13.25 percent per annum reducing to 10.25 percent per annum upon timely compliance with the borrower's obligations under the mortgage. The borrower defaulted on repayment of the principal when due. Upon that occurrence the defendant became liable on the guarantee under the terms of clause 11 of the deed, which is Annexure A to the affidavit of Mr Richard Stoyles sworn on 4 January 2013. 5I accept, on the basis of the statement of account annexed to Mr Stoyles' affidavit of 28 November 2013 that the amount due and payable, in accordance with paragraph 4 of the affidavit, is the sum of $3,441,951.58. 6It seems to me that prima facie the plaintiff is entitled to judgment in that amount, the deed of guarantee having been proved to my satisfaction; the defendant's acknowledgment of the primary facts in his own evidence, in particular paragraphs 4, 5, 7, 13, 16, and 27 of his affidavit of 7 May 2013; and the business record attached to Mr Stoyles' affidavit of November setting out the full amount. 7The defendant's case is one of the confessions and avoidance. Notwithstanding the primary facts to which I have made reference, he says he is not liable for the full amount otherwise due by force of the provisions of sections 12CC and 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). 8Mr Albert says that in June 2011 an agreement was made between himself and the plaintiff to the effect that the plaintiff was not entitled to enforce the guarantee until it had realised the value of the security, and only then could he be called on to pay the balance of the debt over and above the price obtained on sale, less the costs of realising the security. His case is that the commencement of these proceedings constitutes unconscionable conduct for the purpose of section 12CC of the Commonwealth Act. 9Because the defendant invokes Commonwealth legislation in his defence, I am being asked to exercise Federal jurisdiction under provision of section 39A of the Judiciary Act 1903 (Cth) (see s 12GJ ASIC Act). In that regard, the applicable law is identified by reference to the provisions of sections 79 and 80 of the Judiciary Act which, put simply, means that I apply common law and State law only to the extent to which no applicable, or sufficient, provision governing the case is to be found in any Commonwealth enactment. Those considerations, whilst important for the purpose of identifying the nature of the jurisdiction I am exercising, are of no practical effect in the circumstances of the present case. 10It will be necessary for me to delve a little more thoroughly into the background facts for the purpose of deciding the issue raised by Mr Albert's defence. 11But first, I will make some observations about the principles that I am required to apply. Section 12CB(1), as applicable, is in the following terms: A person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable. 12What is unconscionable is left in large measure to the judgment of the Court. Sub-section (2) of s 12CB provides a non-exhaustive list of relevant considerations in sub-paragraphs (a) to (e). It is not necessary to set them out here. 13I interpolate that I am satisfied that the version of the law applicable to this case is that in force in June 2011 when the agreement, or alleged agreement, was made, even though the proceedings were not commenced until December 2012. 14In Tonto Home Loans Australia Pty Limited v Tavares [2011] NSWCA 389; 159 BPR 29,699 Allsop P (as the Chief Justice then was) observed at [291] that (I will omit the citations): Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy (sic) on the part of the person said to have acted unconscionably; the conduct must be irreconcilable with what is right or reasonable; factors similar to those that are relevant to the [Contracts Review Act 1980] are relevant; the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and equity; the statutory provisions focus on the conduct of the person said to have acted unconscionably. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances. 15I am prepared to assume that the provision of the loan to the company is a supply of financial product under the terms of the Commonwealth Act, at least to the extent that it involves a secured loan, although I acknowledge the submission of Mr Darams of counsel, who appears for the plaintiff, that security in terms of definition generally may be taken to be a reference to the debentures and other forms of security taken over interests of that kind. 16I should, before going any further, refer to the provisions of s 12CC(4) ASIC Act. That subsection, so far as is material for the present purposes, is in the following terms: A person is not to be taken for the purposes of this section to engage in unconscionable conduct... (sub-paragraphs omitted)... merely because the person institutes legal proceedings in relation to that supply... 17I must say, as Mr Darams has submitted, given that the only allegation of unconscionable conduct made in the defence is that the bringing of these proceedings is unconscionable in the circumstances, subs (4) seems, prima facie, to provide the plaintiff with a powerful riposte to the defendant's case. However, the section, as I have quoted it, is conditioned by "merely", and, as the averment contained in the defence is conditioned by the phrase "given the circumstances", it is necessary for me to say something about the circumstances in order to decide whether in this case the commencement of these proceedings is, in fact, unconscionable in all the circumstances of the case. 18From the evidence of Mr Albert, elicited by Mr Darams in cross-examination, I am satisfied that at the time the financial product was supplied by the plaintiff, he was an experienced and successful businessman, and therefore in the position of a sophisticated borrower likely to be well aware of the nature of the obligations undertaken by a borrower in relation to a mortgage of Real Property Act land, and also the ramifications of a director of a company giving a personal guarantee. 19There is no doubt from Mr Albert's evidence in his affidavit he was well aware that as at 31 January 2010 his company was in default, that it did not have cash on hand to discharge the debt and, given what he has said about other financial arrangements with a bank, that it was probably in a position where it was unable to borrow, from a different lender, the funds necessary to discharge the loan or debt. Likewise, given his arrangements with that bank in relation to, I infer, his home at Bellevue Hill, he was not in a position personally to honour his obligations under the guarantee. 20I rather gained the impression from the brief cross-examination by Mr Albert, who appears today unrepresented, of Mr Stoyles that they were persons who knew each other, at least in a business sense, and from my careful reading of the many emails and other correspondence forming part of exhibit "MDA-1", the exhibit to his affidavit, that he and Mr Stoyles dealt with each other, even in a commercial context, on friendly, cordial and understanding terms. Indeed, looking at that correspondence overall, I formed the impression that Mr Stoyles exercised a great deal of forbearance in dealing with Mr Albert, notwithstanding that as at 31 January 2010, as the guiding mind of the plaintiff company, he would have been fully entitled to insist on full application of the company's legal rights, both in relation to the security over the company's real property and in relation to the guarantee. 21It certainly could not be said, looking at everything of significance to this case, as disclosed by that body of evidence (exhibit MDA-1), that there was anything in the nature of bullying or thuggish behaviour, undue pressure or unfair tactics, the taking advantage of any vulnerability or lack of understanding on the part of Mr Albert, and certainly no trickery or misleading conduct. Indeed, as I have said, my impression is that Mr Stoyles treated Mr Albert sympathetically, and with forbearance. 22One example of that, and one example only, is that it was not until June 2010 that the plaintiff issued a notice under s 57 of the Real Property Act in relation to the secured property. And notwithstanding the statutory right to enter into possession, Mr Stoyles agreed to call off the sheriff, if I may put it that way, in March 2011, when the sheriff had arranged to take possession of the secured premises on behalf of the plaintiff. That, I infer, was because of an arrangement made, again on what seems to be amicable terms between the plaintiff and the defendant, for the defendant to take a caveat over the Bellevue Hill property as additional security for its debt. But notwithstanding that consideration, it seems to me that the dealings, as I have said, were amicable, cordial and business like. 23I infer from the material attached to Mr Albert's affidavit that he was in the process of selling the Bellevue Hill property to satisfy the bank in respect of the debts due to it, and in that regard sought further co-operation from Mr Stoyles on behalf of the plaintiff to enable the sale of that property to proceed, which required the removal of the caveat the plaintiff had obtained in exchange for its forbearance from going into possession of the secured property. The removal of the caveat to allow the Bellevue Hill sale to proceed provides the context in which the alleged arrangement was made in June 2011. And, from the material, being print-outs of emails and a power of attorney, appearing between pp 66-70 of exhibit MDA-1, together with the answers that Mr Albert gave to my questions, I am satisfied an arrangement was made but I am not satisfied it was made in the terms that Mr Albert now recalls. 24In relation to this defence, being a matter by way of confession and avoidance as I have said, Mr Albert bears the legal onus of proof in accordance with the principles discussed by Walsh JA (as his Honour then was) in Currie v Dempsey (1967) 69 SR (NSW) 116 at 125. In any event at paragraph 19 of his affidavit, Mr Albert swore that whilst negotiations were being carried out, which was on or about 3 June 2011, there was a telephone call with Mr Stoyles whilst Mr Albert was at the office of his then solicitor. Mr Albert says that Mr Stoyles said in the course of the conversation: All we want is to have access to the property and maintain the business in there to maximise the value of the property. With your co-operation we can reduce any potential loss from the sale of the property. We won't pursue you for the residual debt. 25In paragraph 21 Mr Albert said that, subjectively, he took that to mean that the plaintiff would not pursue him personally for the debt due under the loan pursuant to the guarantee before the property had been sold, or at all. In his evidence today before me he said he regarded himself as being under a moral obligation to pay the money but the effect of the conversation was that Mr Stoyles had released him from his obligations under the guarantee. 26I do not accept that his version accords with the probabilities in the case. First, it is clear to me from all that went before that although, as I have said, through Mr Stoyles' agency the plaintiff acted with forbearance, it never at any time suggested under any circumstances that it did not expect to recover the full amount of its debt owed by Mr Albert's company. Indeed, taking the caveat over the Bellevue Hill property, I infer, was by way of additional security because it was expected that the commercial premises at Oxford Street would not satisfy the full amount of the debt due. 27It also seems that in dealing with Mr Albert, although Mr Stoyles was attempting to be fair about it, in his own terms, he certainly wasn't prepared to waive any entitlement that the plaintiff might have to recover the whole amount due, either from the borrower or from the guarantor. After all that is the whole reason, commercially, why lenders insist upon guarantees from those who control corporate borrowers, at least when one is dealing with a private company. 28Secondly, and perhaps more importantly, Mr Albert's account in his affidavit and his stated understanding of the effect of what was said is inconsistent with the objective contemporaneous documentary evidence. The trail starts at p 66 with Mr Stoyles' email which appears to have been sent to Mr Albert's then solicitor, copies being forwarded to Mr Albert at what I infer must be both his home and business email addresses. The email in part says this: I just want to be clear that we will not be providing a removal of caveat until we have a signed agreement by the directors of Samkarjo and Mark's entities agreeing [to certain stipulations]. 29Those stipulations were an irrevocable power of attorney to execute a contract of sale in respect of the security premises, an agreement that an amount of $5,000 be paid each week after settlement of Bellevue Hill until the debt was fully repaid, thirdly, and perhaps slightly inconsistently, if there was a shortfall after the sale of the Oxford Street premises, the amount of $5,000 a week was to continue to be repaid with "a fixed and floating charge over all related companies as security" until the debt was repaid. 30That offer whilst business like is not, in my judgment, and in all the circumstances, unreasonable, and certainly does not suggest Mr Stoyles was about to release the defendant or his related companies from the amount of the indebtedness, although he was prepared to be reasonable as to the terms upon which it might be repaid. 31Mr Albert replied by email at 11:27am on 3 June 2011 indicating that he would need legal advice to respond to the offer. Later that same day, I infer from the email print-out at the top of page 70, and the evidence Mr Albert gave me this morning, a counter offer was made, sent by email to Mr Stoyles from - and while Mr Albert was present in - the offices of his solicitors. That email is in the following terms: Dear Tim, I agree to the following matters: (1) to execute [power of attorney] in the form now agreed between [the respective solicitors], (2) I agree to pay $4,165 per week commencing 7 June 2011 to [the plaintiff] until completion of the sale of [the Oxford Street property], (3) after the sale of [the Oxford street property] the balance debt is to be paid by the terms of an unsecured loan, the terms of which are to be agreed between us subject to the mortgagee's consent. 32I understand the expression "subject to the mortgagee's consent" to mean subject to Mr Stoyles' board ratifying the terms of any such agreement. The power of attorney authorising the plaintiff to do all things necessary to effect the sale of the secured property was executed by the defendant on behalf of Samkarjo Pty Limited, I infer on the same day. It seems therefore, on the probabilities, that the contents of Mr Albert's email from his solicitor's office, which contains a facsimile of his signature, actually represents an agreement arrived at on that day. 33It is clear to me, viewing these facts and circumstances objectively, that the mutual contemplation of Mr Stoyles and Mr Albert on behalf of their respective companies was that there would be no real difficulty in selling the Oxford Street premises in the near term and that they could then, once they knew what the net proceeds were, work out the terms of repayment of the balance. As I have said, all of this indicates that the plaintiff, far from being guilty of any moral obliquity, was prepared to deal with the defendant on a fair basis. It certainly could not be said that in acting in the way I have described so far the plaintiff's conduct was irreconcilable with what is right or reasonable. 34Pursuant to the power of attorney the plaintiff took steps to put Oxford Street on the market and an auction was organised for about mid-July 2011. Initially hopes were high about the prospects of a favourable sale. 35On 11 July 2011 (page 84 exhibit MDA-1) Mr Stoyles emailed the defendant and indicated that in accordance with the terms of the power of attorney, the plaintiff would execute a contract of sale if the property were sold at the auction fixed for 12 July 2011. Mr Stoyles also pointed out that there had been some interest. One buyer had expressed interest in response to a price indication of $2.9 to $3 million but a problem had arisen in relation to that buyer's satisfaction with the terms of the lease enjoyed by the tenant. His legal advice had been that the lease did not provide for the directors of the corporate tenant to provide a personal guarantee for the payment of the rent, which made the property a much less attractive investment proposition. 36Mr Stoyles indicated that the estate agent had advised that $3 million would be a reasonable price but was doubtful about the advisability of going ahead with the auction, as it seemed there would be no bidders on the day. However, notwithstanding the estate agent's advice, the plaintiff was prepared to set a reserve of $3.5 million to accommodate the defendant's desire to obtain a high price, if possible, on the sale of the property, given the plaintiff had received "no indication as to how you intend to meet the shortfall if the property is sold at the agent's estimate". I infer that the auction did not proceed. Mr Albert responded to that email by saying that he would begin payments against the rent "while we await agreement on how we are to proceed to sale following my telephone conversation with you yesterday afternoon". It is clear from that email, dated 13 July 2011, that there was no agreement as to "how to proceed in this matter" and that Mr Albert was requesting a meeting to work out how to "move forward urgently to sale". 37What seems to follow from all of this, and these are all circumstances surrounding the agreement of June 2011, is that the expectation of both parties to that agreement was dashed because of the lack of real interest by prospective purchasers in the attempts to market the property. Although there seems to have been further correspondence between the parties by way of email about the matter it seems that no agreement was arrived at on the evidence before me as to how to progress the matter further. 38It should be said that Mr Albert, as he said in paragraph 27 of his affidavit, and in the witness box today, which is confirmed by inspection of the statement of account attached to the affidavit of Mr Stoyles of 28 November 2011, continued to pay the amount of $4,165 per week as agreed in June up until September 2011. In fact he paid $4,200. 39What then happened is, in default of an agreement about selling the property and realising the whole debt, the board of the plaintiff company decided to revert to its legal rights and notice of that development was given to the defendant by an email from Mr Stoyles dated 22 September 2011 at 9.24am. 40However, once again it could not be said that the plaintiff company in any way acted high-handedly. Although it had determined to go into possession, the email said: We will not be changing the locks or evicting the staff. A representative will meet the sheriffs at 1.30pm to be handed possession of the property and we'll then leave the premises. 41Moreover an application to wind up Samkarjo Pty Ltd was to be adjourned for two weeks "pending an agreement on the additional security and payments to be made going forward as per the discussion at our meeting". It seems, however, bearing in mind where the onus lies, that no agreement was arrived at between the defendant and the plaintiff "going forward" and no "additional security and payments" had been put in place. 42The evidence before me is otherwise silent about what happened between the plaintiff going into possession and the commencement of these proceedings, except to say that it did not disturb the tenants and it continued to collect the rent, which was put towards Samkarjo's indebtedness as I so find, having regard to the contents of the statement of account, to which I have already referred. 43It is well known that a mortgagor in possession, subject to its duty of good faith, is entitled to sell the secured property at a time of its choosing and as best fits its purpose. There is no allegation before me that by being in possession of the premises since 2011 the plaintiff has in some way breached that obligation of good faith. Although when making an application for an adjournment this morning Mr Albert expressed disappointment about the price agreed on a currently proposed sale. 44Before coming to a final decision about the defendant's defence it is appropriate that I should record some further details. Since the proceedings commenced the plaintiff has attempted to sell the property. It had secured a sale, or thought it had, by contracts exchanged on 14 June 2013 (see Mr Stoyles affidavit 14 August 2013). The purchase price was $2,250,000. On the basis of that sale the plaintiff sought only the balance then due of around $1.2 million from the defendant, which he was unable, or unwilling, to pay. 45In the event, according to Mr Stoyles' affidavit of 18 December 2013, that sale fell through without the purchaser paying the customary deposit of ten per cent. I was informed from the bar table by Mr Darams that proceedings have been taken to recover that amount. Today a contract has been signed with a sale price of $1.9 million and a proposed settlement date of 31 March 2014. I was informed by Mr Darams that it was hoped that exchange would take place today, but I have no evidence before me as to whether that has occurred or not. 46Examining all of the circumstances of this case in accordance with the dictum of Allsop P in Tavares I am not satisfied on the balance of probabilities that Mr Albert has established that the agreement in June 2011 involved a release of him from the terms of the guarantee or an agreement by the plaintiff to forbear from exercising its legal rights in relation to the guarantee until the Oxford Street premises were sold. 47Moreover and more significantly on the facts, as I have found them to be, I am not satisfied it could be said that by insisting upon its legal rights and commencing these proceedings the plaintiff company has acted unconscionably such that Mr Albert has shown an entitlement to a remedy under the provisions of s 12GM of the ASIC Act. 48The only other submissions that were advanced to me by Mr Albert were those based upon his view of the requirements of fairness. He submitted it was unfair that he should be facing a judgment for the total amount of the present indebtedness when it was likely that he would in due course be entitled to credits for the net proceeds of sale of the Oxford Street premises; and the amount of the net proceeds of the litigation to recover the amount of the unpaid deposit in respect of the previous sale that had fallen through. 49Regrettably those submissions, however reasonable they may appear at one level, do not amount to a legal answer to the plaintiff's action on the guarantee. By reference to the decision Omlaw Pty Ltd v Delahunty [1995] 2 Qd R 389 at 394, Wheeler J in the Commonwealth Bank v Lee (1996) 22 ACSR 574 said the following: [T]he law appears to have put into a special category a mere omission on the part of a creditor to exercise rights under a mortgage or other security. A guarantor cannot complain of such omission, even if the result is that the creditors' indolence foreseeably causes the guarantor "grievous loss". [The Queensland Court of Appeal] noted that the point was "too well established to be reconsidered in an intermediate appellate court", and an examination of the authorities amply justifies that proposition. Her Honour went on to say: ...it is clear from the authorities to which I have referred that in the absence of any bad faith or duty arising from the particular terms of the contract or from a representation or the like, the bare relationship of creditor/debtor or creditor/guarantor gives rise to no duty to enforce a security promptly or at all As the learned authors of Mortgagee's Power of Sale third edition observe at p 174 [7.6]: As to guarantors, it has been held that if a surety is concerned that the security may decline in value, he or she may try to persuade the mortgagee to sell, but if a surety does not succeed he or she should pay off the debt and take over the security. If the existence of other guarantors prevents this cause of action, it does not impose any greater onus on the mortgagee [footnotes omitted]. 50In these circumstances it is not open to me to act upon the other submissions that Mr Albert has made. 51Before concluding I wish to observe that on the facts as I have found them to be I do not regard the plaintiff's forbearance for so long in favour of the defendant as indolence, and certainly not as evidence of bad faith on its part. Quite the contrary. 52In the circumstances the plaintiff is entitled to judgment on the guarantee as sought in the amended statement of claim. 53My orders are: (1)Judgment in favour of the plaintiff as against the defendant in the sum of $3,441,951.58. (2)The defendant to pay the plaintiff's costs on the ordinary basis forthwith after they have been agreed or assessed.

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