Supreme Court New South Wales Medium Neutral Citation: Ageist Pty Ltd v More Than Skin Pty Ltd [2020] NSWSC 1117 Hearing dates: 10, 15, 24 and 30 July 2020, 14 August 2020 Decision date: 21 August 2020 Jurisdiction: Equity Before: Robb J Decision: See pars [96], [109], [124]-[125], [137], [178]-[180] and [186]. I will give the plaintiff and the second defendant a short period to consider their position, and determine whether they can offer to the Court a satisfactory undertaking as to damages to support the interlocutory order that they seek from the Court. I will determine the orders that are most appropriate on the basis of those responses. Catchwords: LAND LAW — Caveats — Removal of caveat — Removal by order of court — whether there is a serious question to be tried — where the second defendant made a complaint to the Australian Financial Complaints Authority with respect to the exercise of a mortgagee's power of sale — where that right was subsequently assigned to the plaintiff, who was not subject to the Australian Financial Complaints Authority Scheme — where the operation of s 333 of the National Consumer Credit Protection Act 2009 (Cth) means that is unlikely that the assignment would be invalid — where there is a real risk that the property will be sold at a substantial undervalue after an 11 day advertisement process — where there is a substantial prospect that the Court will find, on a final hearing, that the plaintiff has breached its duty of good faith in the manner of the sale — where the amount the plaintiff is entitled to recover from the second defendant under his guarantee should be reduced as the increase in default interest may be a penalty — whether the guarantee of the debt is liable to be unenforceable under the Contracts Review Act 1980 (NSW) — where there are multiple serious questions to be tried LAND LAW — Caveats — Removal of caveat — Removal by order of court — whether the balance of convenience is in favour of the caveat being withdrawn — where there are numerous considerations, including interest and valuation, as to whether the security value of the properties has been exhausted — where there must be a significant probability that the effect of the prevention of completion of the Contract would impose a risk of ultimate loss on the plaintiff — where there is substantial reason for doubt that the plaintiff would have the means to pay compensation to the second defendant — where both the plaintiff and the second defendant have not offered a valuable undertaking as to damages to either secure the continuation or withdrawal of the caveat — result pending on the undertaking proposed Legislation Cited: Contracts Review Act 1980 (NSW) Conveyancing Act 1919 (NSW) Corporations Act 2001 (Cth) National Consumer Credit Protection Act 2009 (Cth) Real Property Act 1900 (NSW) Cases Cited: Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868 Australian Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454; [1989] HCA 15 Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 Forsyth v Blundell (1973) 129 CLR 477; [1973] HCA 20 Gnych v Polish Club Ltd (2015) 255 CLR 414; [2015] HCA 23 Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343 Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; [1912] HCA 9 Stone v Farrow Mortgage Services Pty Ltd (in liq) (1999) 12 BPR 22,175; [1999] NSWCA 435 Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410; [1978] HCA 42 Texts Cited: W D Duncan and W M Dixon, The Law of Real Property Mortgages (1st ed, 2007, Federation Press) Category: Principal judgment Parties: Ageist Pty Ltd (plaintiff) More Than Skin Pty Ltd (first defendant) Steven Murabito (second defendant) Little Town Pty Ltd (third defendant) Representation: Counsel: A Martin (plaintiff) D Carbone (sol) (first defendant) H Stowe (second defendant) J Pope (sol) (third defendant) Solicitors: Summer Lawyers (plaintiff) Sydney Law Practice (first defendant) Woods Lawyers (second defendant) Pope & Spinks (third defendant) File Number(s): 2020 / 158209 Judgment 1. The primary dispute in this matter is between the plaintiff, Ageist Pty Ltd (Ageist), and the second defendant, Mr Steven Murabito. 2. On 21 March 2020, Ageist, as second mortgagee by assignment of certain property in Leichhardt (the Property), entered into a contract to sell the Property in the exercise of its mortgagee's power of sale (the Contract). 3. Mr Murabito lodged caveat AQ166423 against the title to the Property, which had the effect of preventing the completion of the Contract. 4. The first defendant, More Than Skin Pty Ltd (More Than Skin) and the third defendant, Little Town Pty Ltd (Little Town), also lodged caveats against the title to the Property, to protect different interests that they claim to have in the Property. 5. Ageist commenced these proceedings by summons filed on 27 May 2020. By its amended summons filed on 29 June 2020, Ageist sought orders against the three defendants under s 74MA of the Real Property Act 1900 (NSW) (Real Property Act), as well as the inherent jurisdiction of this Court, that the defendants withdraw the caveats. 6. Ageist sought an order restraining the defendants from lodging any further caveats or otherwise taking any step to interfere with, or delay, the sale of the Property, without first obtaining the leave of this Court. 7. Ageist also sought an order for compensation under s 74P of the Real Property Act, but that claim has not yet been heard. 8. Ageist informed the Court in its written submissions that More Than Skin has withdrawn its caveat since the commencement of the proceedings, so it will not be necessary to consider that aspect of Ageist's claim. 9. The proceedings were listed for hearing on 10 July 2020 in the expectation that the hearing would take half a day. At the end of that day, the hearing was not complete, and both Ageist and Mr Murabito wished to tender further evidence. Further evidence has been served and hearings have taken place on 15, 24 and 30 July 2020 and 14 August 2020, when the hearing was completed. There has been a considerable amount of evidence served in waves. The parties have been informed that it will be necessary for the Court to focus on the matters raised by the parties' submissions, in order to permit judgment to be given as expeditiously as possible. 10. Ageist was represented by Mr A Martin of counsel and Mr Murabito was represented by Mr H Stowe of counsel. More Than Skin's solicitor and Little Town's solicitor appeared for those defendants and largely supported the submissions made by Mr Stowe. 11. I will deal with Ageist's claim for an order that Mr Murabito withdraw the caveat lodged by him, before I consider Ageist's case in respect of the other caveat. Background 1. The principal debtor is Samuel M Holdings Pty Ltd (the Borrower). 2. The Borrower borrowed amounts of $1,760,000 and $1,572,000 from the first mortgagee, The Trust Company (PTAL) Ltd (PTAL), on 31 January 2019. Mr Murabito and Lila (Lilly) Stojcevski, Mr Murabito's partner, are guarantors of those loans. 3. Mr Murabito granted a first mortgage over the Property to secure his liability as a guarantor to PTAL. PTAL has also been granted a first mortgage over another property in Leichhardt and two properties in Port Kembla. The mortgage over the second property in Leichhardt was granted to PTLA by Ms Stojcevski. 4. During the course of the proceedings, on 9 July 2020, PTAL issued a certificate to the Borrower and the two guarantors pursuant to clause 24 of the mortgages specifying the payout figure on that date. The amount was $4,022,116.79. 5. On 19 February 2019, the Borrower also borrowed the amount of $400,000 from H & H Mezz Pty Ltd (H & H). This loan was also guaranteed by Mr Murabito and Ms Stojcevski. The Borrower and the two guarantors gave second mortgages over the same four properties that were mortgaged to PTAL to secure their obligations to H & H in respect of this second borrowing by the Borrower. 6. Also on 9 July 2020, Ageist delivered a certificate under clause 24 of the second mortgages to the Borrower and the two guarantors specifying the payout figure on that date, being $941,972.64. 7. The certificates specifying the payout figures for both the first and second mortgages were given by the solicitors for Ageist in these proceedings (the Solicitors), who act for both mortgagees and H & H. 8. Earlier, on 6 June 2019, the Solicitors, on behalf of H & H, had given to the Borrower a Notice of Default and Demand pursuant to s 57(2)(b) of the Real Property Act and s 111(2)(b) of the Conveyancing Act 1919 (NSW). The amount demanded as owing at that date was $406,587.67. 9. PTAL, in about September 2019, initiated steps to sell the Property in the exercise of its mortgagee's power of sale. It appears that on 3 October 2019 an auction of the property that was to take place the following Saturday was cancelled. However, it also appears that a later auction date was fixed. 10. PTAL, through its sales agent, took the following steps, as described in Ageist's submissions, to advertise an auction of the Property to take place on 29 February 2020. Nine different marketing mechanisms were used, including internet, Facebook, Instagram, mailbox drops and hoardings on site. 11. In the meantime, on 28 February 2020, Mr Murabito submitted a complaint to the Australian Financial Complaints Authority (AFCA) about certain conduct of PTAL. In the manner that will be explained below, that complaint had the effect of preventing PTAL from completing the exercise of its mortgagee's power of sale. 12. Mr Murabito said, in his 1 July 2020 affidavit, that his complaint concerned the conduct of Sydney Wyde Mortgage Management Ltd (SWMM) and H & H. It may be that SWMM was the manager of a trust of which PTAL was trustee. The documents annexed to Mr Murabito's affidavit do not indicate that the complaint concerned H & H. 13. A response by SWMM to AFCA, apparently dated 3 February 2020, asserted that the Borrower had entered into loans totalling $6,930,000 that were secured on nine properties, and that the Borrower had been placed in receivership by some lender other than PTAL. SWMM asserted that, by reason of the amount of the loan, AFCA did not have jurisdiction over Mr Murabito's complaint. The relationship between these alleged loans and securities and the loans made by PTAL and H & H, and the securities granted to those two companies, was not explored in evidence at the hearing. There is some possibility of inconsistency with the facts as stated in these reasons, but that is an issue that cannot be resolved. 14. The auction for the sale of the Property was cancelled on 29 February 2020. 15. In a manner that will also be explained below, H & H was subject to the same complaints regime maintained by AFCA as was PTAL. 16. H & H purported to assign the debt owed by the Borrower, the guarantees and the four second mortgages to Ageist on 4 March 2020 (the Assignment). For convenience, I will refer to the debt, the guarantees and the second mortgage over the Property collectively as the second mortgage debt. 17. The Transfer of Mortgage from H & H to Ageist that is in evidence is undated but it records that the consideration for the transfer was $500,000. 18. Ageist's financial statements for the year ended 30 June 2020 (Exhibit P4) record that Ageist had income of $291,972.64 described as "Interest Received". After taking into account small amounts of expenses and retained earnings, Ageist's earnings as at 30 June 2020 were $294,311.87. The small amount of expenses is not consistent with Ageist operating a functioning business. Ageist had a share capital of $4.00. 19. Ageist's balance sheet as at 30 June 2020 shows that its assets of $794,638.14 were comprised almost entirely of current debtors of $791,972.64. That is the debt owed by the Borrower transferred to Ageist by the Assignment, as at 30 June 2020. 20. Ageist borrowed the $500,000 price for the Assignment. The loan to Ageist was made by H & H, and is described in the financial statements as being non-current. 21. The effect of this information is that Ageist's solvency is dependent on the recoverability of the debt owed by the Borrower. That is significant in this case because, if any of the four mortgaged properties is sold, the net sales price will be required to be paid to PTAL, as first mortgagee, until the full amount of the debt due to PTAL has been repaid. It will only be after that has happened that proceeds of sale of the mortgaged properties will be available to repay Ageist. The real value of Ageist's net assets will depend upon the amount that it receives as second mortgagee from the sale of the four security properties. 22. That means that, if Mr Murabito is able to demonstrate that Ageist has breached its duty of good faith, and that accordingly Ageist is liable to account to Mr Murabito for any sum of money, then the capacity of Ageist to pay that amount will be dependent on the residual value of the four properties, after PTAL has been fully repaid. Also, the value of Ageist's assets will be reduced if Mr Murabito is able to establish that the recoverable amount of the debt is less than $791,972.64 (as at 30 June 2020). 23. Ageist is not subject to the complaints regime maintained by AFCA, as was H & H. Consequently, if the Assignment was valid, Ageist could exercise its power of sale over the Property as second mortgagee, without fear of the sale being impeded by Mr Murabito making a complaint to AFCA. 24. It appears that Ageist entered into an agency agreement on 10 March 2020 with the sales agent who had originally been commissioned by PTAL. 25. On or about that date, the advertisement listed on the Domain "Commercial Real Estate" website was modified to refer to a new auction date on 21 March 2020. 26. Consequently, although the proposed auction of the Property on 29 February 2020 had received substantial advertising, that auction was cancelled. Only 11 days' notice of the new auction date on 21 March 2020 was given by Ageist. 27. There was no evidence that the sales agent had contacted all of the parties who had shown interest in attending the 29 February 2020 auction, in order to attempt to revive their interest in the auction then to be held on 21 March 2020. 28. On 11 March 2020, the Solicitors sent a letter to the Borrower and the two guarantors which enclosed a Notice of Assignment and Transfer of Mortgage dated 4 March 2020. 29. There is an issue between the parties as to whether Mr Murabito received the Notice of Assignment and Transfer of Mortgage. I do not consider that issue is significant to the resolution of the present dispute. 30. At the auction the Property was sold to two persons who I will call the Purchasers, who agreed to pay a price of $1,015,000, with a deposit of $101,500, under the Contract dated 21 March 2020. The Purchasers both swore affidavits that satisfy me that they are independent of Ageist. 31. The completion date under the Contract was the date 42 days after the contract date. 32. Special condition 46(b)(i) of the Contract has the effect that as, at the completion date, the Property was affected by a caveat that prevented the registration of the transfer to the Purchasers, Ageist is entitled to elect, by notice in writing given to the Purchasers, to extend the Completion Date from time to time to a date not more than six months from the date of the Contract, or to terminate the Contract. In the latter event, Ageist must return the deposit, but will not otherwise be liable to pay compensation to the Purchasers. The election to terminate may be made on the original completion date or any extension to the completion date that Ageist fixes in the exercise of its right to extend the completion date. 33. At the initial hearing, the evidence tendered by Ageist included a valuation of the Property, as at 17 January 2019, prepared by Mr David Nelson of Brett, Nelson & Associates Consultant Valuers for PTAL of $1,640,000. As that valuation was $625,000 less than the $1,015,000 price under the Contract, the appearance was created that the 11 day selling period before the auction of the Property may have led to a sale at a substantial undervalue. 34. Mr Nelson assessed the value of the Property using the capitalisation method, on the basis that the Property consisted of retail premises and was subject to a lease to Little Town, terminating on 31 January 2021, at a current rental of $114,700 per annum. 35. Mr Nelson expressed the opinion that a marketing period of between six and eight weeks would be required to achieve the stated fair market value. 36. During the initial hearing, it emerged that Ageist was in possession of a later valuation of the Property by Mr Nelson, as at 25 February 2020, that assigned a value of $975,000 to the Property. The valuation was commissioned by PTAL, but the letter of instructions was not included in the evidence. This valuation described the Property as incorporating commercial retail accommodation at the front, and said that the rear section could be converted for commercial or residential purposes. The valuation noted that the Property was currently undergoing a substantial refurbishment program, and Mr Nelson's assessment of value was based on the current condition of the internal and external areas. Mr Nelson also noted that the Property was currently vacant. Mr Nelson assessed the value of the Property using the direct comparison method, by reference to five residential properties in Leichhardt. The valuation does not contain any explanation for the differences between this valuation and the earlier valuation of the Property made by Mr Nelson. 37. Mr Nelson again expressed the opinion that a marketing period of between six and eight weeks would be required to achieve the stated fair market value. 38. It was Ageist's desire to tender this later valuation, together with additional evidence, that was a primary cause for the need for the Court to adjourn the initial hearing. 39. Later in the proceedings, further valuation evidence in respect of the Property was tendered by both parties. I will deal with this additional valuation evidence below. 40. Mr Murabito lodged a caveat against the title to the Property on 12 June 2020 (the Murabito Caveat). The description of the interest claimed by Mr Murabito was: The interest claimed is as a registered proprietor who has granted a mortgage and the mortgagee has entered into a contract for sale of the property in bad faith in the purported exercise of the power of sale Grounds relied upon by Mr Murabito 1. With this background, it will now be convenient to state the grounds put forward by Mr Murabito as the basis for the Court to permit the Murabito Caveat to remain on the title to the Property. 2. First, Mr Murabito submitted that the Assignment was invalid, because it was prohibited by the legislative regime that establishes the Complaint Resolution Scheme Rules implemented by AFCA, which I will call the AFCA Scheme and explain more fully below. Alternatively, Mr Murabito submitted that H & H made the assignment to Ageist in order to deprive Mr Murabito of the opportunity to avail himself of the AFCA Scheme, and that that conduct was a breach of H & H's duty of good faith in the exercise of its power of sale, to which Ageist was a party. As will be seen, this alternative was initially suggested by the Court, and was not developed by Mr Murabito in submissions. 3. Mr Murabito underpinned this complaint by the argument that the terms of the mortgage, whereby default interest accrues at a very high rate, compounded monthly, is a penalty, and would be found to be such by proceedings in this Court, and also would have formed a basis for a complaint to AFCA. Mr Murabito also submitted that he is entitled to relief under the Contracts Review Act 1980 (NSW) (Contracts Review Act) in respect of the terms of the mortgage that deal with the monthly compounding of interest at the default rate. 4. Secondly, Mr Murabito submitted that there has been a sale of the Property at a substantial undervalue, by reason of the limited 11 day notice period for the 21 March 2020 auction, and that there is a real risk that, if the Murabito Caveat is ordered to be withdrawn and the Contract is completed, the amount of the shortfall in the purchase price will be lost to Mr Murabito, because Ageist's financial position is not a reliable source of funds to meet any requirement that Ageist account to Mr Murabito for breach of its duty of good faith. The AFCA Scheme Regulatory regime implemented by AFCA 1. It will be convenient now to analyse briefly the regulatory regime that is implemented by AFCA. That is a complicated exercise, which cannot, in the time available for the preparation of these reasons, be undertaken in comprehensive detail. 2. Section 29(1) of the National Consumer Credit Protection Act 2009 (Cth) (the Credit Protection Act) prohibits a person from engaging in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity. 3. "Credit activity" is defined in s 5 of the Credit Protection Act as having the meaning in s 6. That section provides: Meaning of credit activity (1) The following table sets out when a person engages in a credit activity. Meaning of credit activity Item Topic A person engages in a credit activity if: (a) the person is a credit provider under a credit contract; or 1 credit contracts (b) the person carries on a business of providing credit, being credit the provision of which the National Credit Code applies to; or (c) the person performs the obligations, or exercises the rights, of a credit provider in relation to a credit contract or proposed credit contract (whether the person does so as the credit provider or on behalf of the credit provider); or 2 credit service the person provides a credit service; or (a) the person is a lessor under a consumer lease; or 3 consumer leases (b) the person carries on a business of providing consumer leases; or (c) the person performs the obligations, or exercises the rights, of a lessor in relation to a consumer lease or proposed consumer lease (whether the person does so as the lessor or on behalf of the lessor); or 4 mortgages (a) the person is a mortgagee under a mortgage; or (b) the person performs the obligations, or exercises the rights, of a mortgagee in relation to a mortgage or proposed mortgage (whether the person does so as the mortgagee or on behalf of the mortgagee); or 5 guarantees (a) the person is the beneficiary of a guarantee; or (b) the person performs the obligations, or exercises the rights, of another person who is a beneficiary of a guarantee or proposed guarantee, in relation to the guarantee or proposed guarantee (whether the person does so on the person's own behalf or on behalf of the other person); or 6 prescribed activities the person engages in an activity prescribed by the regulations in relation to credit, being credit the provision of which the National Credit Code applies to, or would apply to if the credit were provided. (2) A subclass of any of the conduct referred to in the table in subsection (1) is also a credit activity. 1. The parties did not direct their submissions to the effect of s 6. Mr Murabito did not submit that Ageist was an impermissible assignee of the second mortgage debt because it did not have a credit licence. He submitted that an assignment to a party not bound to comply with the AFCA Scheme, because it is not a member of that scheme, is implicitly prohibited by the Credit Protection Act and other relevant legislation and rules. However, it would be a strange outcome if the Commonwealth imposed strict licensing requirements, and the obligation to submit to administrative arrangements such as the AFCA Scheme, and then left open a means of circumventing that scheme by permitting the assignment of the second mortgage debt to a party controlled by the holder of a credit licence that was not itself licensed. Items 1, 4 and 5 in the table in s 6 of the Credit Protection Act appear to be relevant. Although it is not necessary for the Court on this application to decide the matter, it would appear that, for the purposes of Item 1, an assignee of a debt provides credit under that debt. An assignee of a debt who seeks to enforce it will exercise the rights of a credit provider in relation to that credit contract. An assignee of a mortgage is a mortgagee under a mortgage for the purposes of Item 4. So is a person who exercises the rights of a mortgagee in relation to a mortgage. For the purposes of Item 5, an assignee of a guarantee will be the beneficiary of a guarantee. An assignee who enforces the guarantee will exercise the rights of a beneficiary of a guarantee. 2. If this analysis is correct, an assignee of the second mortgage debt is as much required to hold a licence authorising the assignee to engage in that credit activity as is the assignor. 3. Consequently, it appears that the stratagem adopted by H & H of avoiding compliance with the AFCA Scheme, by making the Assignment, was misconceived, because Ageist is required to hold a licence authorising it to hold and enforce the second mortgage debt, and it does not have that licence. As this argument was not put by Mr Murabito, and Ageist has not been given an opportunity to make submissions in response, I will not decide the application having regard to the possibility that Ageist is required to hold a licence under s 29(1) of the Credit Protection Act. In any event, as will be seen, I would not have refused to make an order that the Murabito Caveat be withdrawn on the basis that Ageist had contravened the Credit Protection Act. 4. However, s 333 of the Credit Protection Act provides: "(1) A failure to comply with any requirement of this Act does not affect the validity or enforceability of any transaction, contract, instrument or other arrangement". Subsections (2) and (3) authorise regulations that may provide that a failure to comply with a specified requirement of the Act has a specified effect on the validity or enforceability of a transaction, contract, instrument or arrangement. I am not aware of any regulation that may make the Assignment invalid or unenforceable. 5. The Court is empowered by s 187 of the Credit Protection Act to make the orders in relation to unlawful credit activities that are set out in s 180. That includes, where a person engages in a credit activity in contravention of s 29, by reason of not holding a licence, the ability to make various orders to prevent that person from profiting from the plaintiff by engaging in that activity, compensating the plaintiff, or preventing or reducing the loss or damage that may be suffered by the plaintiff. The power in s 180(2) extends to various orders declaring arrangements void or varying arrangements, or refusing to enforce the terms of arrangements, directing the refund of monies or the payment of damages. The effect of s 180(3) is that the Court can only make an order under the preceding subsections if the plaintiff or ASIC (on behalf of the plaintiff) applies for an order under the section within 6 years of the day the cause of action accrued. 6. The effect of these provisions is to make it unlikely that the circumstances in which the Assignment was made had the effect that the Assignment was invalid because it was impliedly prohibited by the Credit Protection Act. That is an unlikely outcome, given that s 333 has the effect that a transaction that is expressly prohibited is not invalid or unenforceable. 7. On the other hand, this Court may possibly, on the application of Mr Murabito, have jurisdiction to grant him a remedy, as a consequence of the circumstances in which the Assignment was made to Ageist, and the conduct of Ageist following the Assignment. The parties did not make any submissions concerning this possibility. Operation of the AFCA Scheme 1. I will now return to a consideration of the operation of the AFCA Scheme. 2. Section 47(1)(I) of the Credit Protection Act provides that a licensee must be a member of the AFCA scheme. 3. It will be necessary to bear in mind, as it will be relevant later in these reasons, that s 47(1)(a) of the Credit Protection Act also obliges a licensee to "do all things necessary to ensure that the credit activities authorised by the licence are engaged in efficiently, honestly and fairly". 4. Section 5(1) of the Credit Protection Act defines "AFCA scheme" as having the same meaning as in Chapter 7 of the Corporations Act 2001 (Cth) (Corporations Act). Under s 761A in Chapter 7 of the Corporations Act, AFCA scheme is defined as meaning "the external dispute resolution scheme for which an authorisation under Part 7.10A is in force". 5. The AFCA Scheme operates under the Complaint Resolution Scheme Rules (Scheme Rules). In considering the application of the Scheme Rules, it must be borne in mind that both PTAL and H & H are licensees under s 29(1) of the Credit Protection Act, but Ageist is not. 6. Rule A.1.2 of the Scheme Rules provides that the rules form part of a contract between AFCA and Financial Firms and Complainants. 7. The effect of rule A.4.2 is that a complaint must be about a Financial Firm that is an AFCA Member at the time that the complaint is submitted to AFCA (even if not an AFCA Member at the time of the events giving rise to the complaint). 8. For the purposes of the interlocutory hearing, Ageist did not contest Mr Murabito's submission that the Borrower was an Eligible Person for the purposes of making a complaint under the AFCA Scheme within the definition in Rule E.1.1. It is likely that Mr Murabito, as a guarantor, was also an Eligible Person. 9. Rule A.7.1 provides: "While AFCA is considering a complaint, the Financial Firm is subject to the following restrictions…" It is to be noted that the restrictions only apply after a complaint permitted by the Scheme Rules has been made by a Complainant and is being considered by AFCA. 10. The restrictions in rule A.7.1 include: … c) The Financial Firm must not take any action to: (i) recover the debt the subject of the complaint, including enforcement of a default judgment obtained in court, … (iii) assign any right to recover that debt… 1. Rule A.7.2(c) permits a Financial Firm, while AFCA is considering a complaint, to sell assets the subject of the complaint, but only with AFCA's consent. 2. If Mr Murabito had made a complaint against H & H under the Scheme Rules before the Assignment, H & H would not, during the pendency of the complaint, have had a right to take action to recover the second mortgage debt or to make the Assignment. The effect of H & H making the Assignment to Ageist, who was not a Financial Firm, before any complaint was made, was to deprive Mr Murabito of his entitlement to exercise his rights under the Scheme Rules. 3. Section C.1 of the Scheme Rules contains mandatory exclusions from the categories of complaints that can be dealt with by AFCA. Rule C.1.2 provides: AFCA must exclude: a) A complaint about the level of a fee, premium, charge, rebate or interest rate – unless: … (ii) the complaint concerns a breach of any legal obligation or duty on the part of the Financial Firm… 1. This provision is relevant, as Ageist submitted that, to the extent that Mr Murabito's complaint is about an excessive default rate of interest, compounding monthly, that complaint is excluded by the Scheme Rules, on a mandatory basis, because it is a complaint about the interest rate. 2. That submission may be right, but I do not accept that that conclusion is certain enough for the Court to rule out the possibility that Mr Murabito would have been entitled to make the proposed complaint. 3. I have noted above that s 47(1)(a) of the Credit Protection Act imposes on licensees a duty to do all things necessary to ensure that the credit activities authorised by the licence are engaged in efficiently, honestly and fairly. I consider that it is an open question whether the charging of default interest at extremely high rates, compounding monthly, is consistent with the duty to engage in the credit activities fairly. 4. It should also be noted that Ageist made a submission based upon the mandatory exclusion in rule C.1.2(c). That provision is a mandatory exclusion of complaints that raise the same events and facts, and are brought by the same Complainant as a complaint previously dealt with by AFCA, and there are insufficient additional events and facts raised in the new complaint to warrant AFCA considering the new complaint. As I understand it, the submission was based on the fact that, at an earlier time, Mr Murabito had made a complaint against PTAL under the Scheme Rules. In my view, it is unlikely that the original complaint that Mr Murabito made in relation to PTAL raised the same events and facts as the complaint that may have been made against H & H, if the Assignment had not been made to a party who was not a Financial Firm. 5. Under Section D.2.1 of the Scheme Rules, an AFCA Decision Maker may decide that the Financial Firm must undertake a course of action to resolve the complaint including by: "(b) the forgiveness or variation of a debt", or "(c) the release of security for debt". Reason for the Assignment 1. By arguing that he is entitled to maintain his caveat based upon the existence of the AFCA Scheme, Mr Murabito must establish that H & H made the Assignment in order to deprive him of the opportunity to make a complaint against it, and that Ageist was aware of that reason. 2. On the issue of the purpose of H & H and Ageist entering into the Assignment, both must have known that Mr Murabito had lodged a complaint against PTAL, because the Solicitors acted for all of those parties. 3. No genuine commercial purpose has been demonstrated for the transfer, and Ageist did not even suggest such a purpose. 4. There is nothing in the annual financial statements for Ageist for the years ended 30 June 2019 and 30 June 2020 that is consistent with it being part of Ageist's business to deal in mortgage debts. Ageist did not apparently trade in the year ended 30 June 2019. As stated above, the financial statements show that Ageist's only purpose in the year ended 30 June 2020 was to acquire the second mortgage debt, and for that purpose it had to borrow $500,000. That sum was borrowed from H & H. 5. I am satisfied that the evidence establishes that H & H and Ageist are closely related, and that, in practical terms, H & H maintains control over Ageist. 6. The Secretary and sole director of H & H is Gabreal Halvagi. Its sole shareholder is a company that has the same reported address as Gabreal Halvagi. Until 3 March 2020, Efram Halvagi was a director of Ageist. Efram Halvagi's resignation as a director of Ageist took place the day before the Assignment. Clare Terrance became the sole director and secretary of Ageist on 3 March 2020. Clare Terrance is an employee of H & H Financial Services Pty Ltd. Gabreal Halvagi is a secretary and sole director and sole shareholder of that company. Ms Terrance has never been a director of a company before. The sole shareholder of Ageist is Victoria Abraham, whose recorded address is the same address as Gabreal Halvagi. The previous registered office and principal place of business of Ageist is the same address as that of Gabreal Halvagi. 7. Ageist is not vulnerable to complaint under the AFCA Scheme because it does not hold an Australian Financial Services Licence under the Corporations Act, it does not hold an Australian Credit Licence, and it is not a member of AFCA. 8. Consequently, the effect of the Assignment was to prevent Mr Murabito availing himself of the AFCA Scheme. 9. Possibly more significantly, the effect of the Assignment was, I am satisfied, that Gabreal Halvagi maintained control of the recovery of the second mortgage debt, but he has done so through a company that is, so to speak, a 'man of straw' in a way that I will consider more fully below. Validity of the Assignment 1. Mr Murabito has made a thorough submission as to why there is a serious question to be tried in relation to whether the Assignment is impliedly prohibited under the AFCA Scheme. It is not feasible in these reasons to consider that submission in a comprehensive way. It is essentially based upon the principles in Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 413, 423 and 436; [1978] HCA 42; Australian Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454 at 457; [1989] HCA 15; and Gnych v Polish Club Ltd (2015) 255 CLR 414; [2015] HCA 23. 2. Mr Murabito relied upon the express prohibition under the AFCA Scheme in relation to the assignment of "any right to recover" a debt "while AFCA is considering a complaint": Rule A7.1(c)(iii). He then relied on the proposition that the purpose of that express prohibition would be profoundly frustrated if an AFCA member were entitled to assign the right to recover the debt, in circumstances where it was anticipated that a complaint would be made under the AFCA Scheme. 3. Mr Murabito's argument acknowledged that there is an uncertainty that arises because the AFCA Scheme (including express prohibitions on assignment of rights during an investigation) is contained in the Scheme Rules. Those rules have force on AFCA members by operation of the law of contract (not explicit statutory force), but the AFCA Scheme nevertheless has statutory authorisation and regulatory supervision. As I have noted above, the only direct effect of the Credit Protection Act is to require a person who engages in a credit activity to hold a licence and to require licensees to be members of the AFCA Scheme. 4. In my view, the greatest difficulty that Mr Murabito faces, in succeeding on his argument that the Assignment is invalid because it is impliedly prohibited by the AFCA scheme, is not the fact that the scheme is not entirely established by statute, and instead imposes a bespoke contractual arrangement between AFCA, Financial Firms and Complainants. It is, as I have explained above, that the effect of s 333 of the Credit Protection Act is that transactions that are expressly prohibited by that Act are not thereby rendered invalid or unenforceable. 5. The Court should not rule out entirely the possibility of Mr Murabito's success in establishing that the Assignment was invalid, given the interlocutory nature of the proceedings to date, and the fact that only preliminary argument has occurred in relation to the issue. However, I have concluded that it will be proper for the Court to proceed upon the basis that it is unlikely that it will ultimately be established that the Assignment is invalid. 6. I should add that, during the course of the hearing, I raised the possibility that the circumstances in which the Assignment took place constituted a breach of H & H's duty to act in good faith in the exercise of its mortgagee's power of sale. I have previously considered the implications of the mortgagee's duty of good faith in some detail in Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868 at [485]-[533]. I did not in that judgment anticipate the possibility that a mortgagee may breach its duty of good faith by engaging in an artificial transaction that left it in de facto control of the exercise of the power of sale, but which deprived the mortgagor of the benefit of seeking a remedy under a statutory scheme such as the AFCA Scheme. Nor did I consider the consequences of a mortgagee artificially assigning the mortgage to an assignee, controlled by the mortgagee, from whom the mortgagor might not be able to recover in an action for a mortgagee's account based upon a breach of the duty of good faith. The categories of conduct that may constitute lack of good faith cannot be closed, and may extend to acts that artificially deprive mortgagors of consumer protection schemes relevant to the terms and enforcement of the mortgage. 7. Mr Murabito embraced this possibility in submissions, but did not seek to develop its consequences. A novel type of breach of the duty of good faith may entitle a mortgagor to some equitable remedy, but it should not have the effect that a transaction of the nature of the Assignment is invalid at law. The nature of the equitable remedies that may be available was not explored. Consequences of the Murabito Caveat remaining on the title 1. It is necessary to investigate the consequences of the Murabito Caveat remaining on the title to the Property, for the purpose of considering the balance of convenience. That is because it is necessary to have regard to what Mr Murabito has lost, as a result of the allegedly illegal Assignment, in order to consider the effect of that loss in relation to the other factors relevant to the balance of convenience. 2. If the Court does not order the removal of the Murabito Caveat, Mr Murabito will be required to commence and prosecute expeditiously a claim for a declaration that the Assignment was invalid. If Mr Murabito succeeds in obtaining that relief, the effect will be that H & H will remain the owner of the second mortgage debt. H & H will then be able to seek to enforce the second mortgage debt, but Mr Murabito will be able to lodge a complaint under the ACFA Scheme. That will have the effect of a moratorium on H & H enforcing the second mortgage debt, subject to ACFA giving leave to the contrary. 3. Mr Murabito gave no evidence as to the terms of the complaint that he would have made under the ACFA Scheme had he been able to do so, and the Court has no basis for predicting what the range of outcomes from that complaint could have been. I make this observation, while recognising that it may have been difficult for Mr Murabito to provide evidence concerning the manner in which the ACFA Scheme would have been implemented, and what the result of his complaint may have been. 4. I note that, in the context of his submissions concerning the balance of convenience, Mr Murabito submitted that there is a serious question to be tried as to the enforceability of contractual rights in relation to default interest, by operation of the equitable doctrine of penalties, and the Contracts Review Act. That is the only positive attack that Mr Murabito has made on Ageist's claim to be entitled to recover the full amount payable by Mr Murabito under the terms of the second mortgage debt. 5. It is reasonable to assume that, if Mr Murabito had been given the opportunity to make a complaint against H & H under the ACFA Scheme, he would have asked to be relieved from the liability to pay excessive default interest that has compounded on monthly rests. 6. For the moment, I will merely note that, although the conduct of H & H and Ageist has deprived Mr Murabito of the opportunity to make a complaint under the AFCA Scheme in relation to the penalty interest, he will be able to pursue an equivalent claim in proceedings in this Court. Breach of duty of good faith in the manner of the sale 1. I am satisfied that there is a substantial possibility that the Court will hold, on a final hearing, that Ageist breached its duty of good faith in the exercise of its power of sale, by reinstituting the sales campaign on the basis of an 11 day notice period for the new auction date of 21 March 2020. 2. The expert valuation evidence that is available is to the effect that a selling period of six to eight weeks would be necessary for the campaign to have a reasonable chance of securing the fair market value of the Property. 3. While the earlier sales campaign instituted by PTAL may have generated some interest in the market to purchase the Property, the information that was provided concerned an auction that was to take place on 29 February 2020. The cancellation of the auction on that date probably dissipated much of the interest in the Property that may have been created in potential purchasers. The cancellation of one auction date and its reinstatement 21 days later on 11 days' notice is sufficiently unusual to require the Court to doubt that a substantial part of the interest in the Property that had been generated by the first marketing campaign would have carried over to the date of the auction on 21 March 2020. As mentioned above, Ageist gave no evidence that could give the Court confidence that the second campaign was effectively part of the original one, by establishing, for example, that all parties who had earlier expressed an interest in the Property had been informed of the new auction date. 4. It is well-established that a mortgagee may breach its duty of good faith in exercising its power of sale if the mortgagee "wilfully and recklessly deals with the property in such a manner that the interests of the mortgagor are sacrificed", or if the mortgagee fails to "take reasonable precautions to obtain a proper price": see Forsyth v Blundell (1973) 129 CLR 477 at 481; [1973] HCA 20. It is also well-established that "some advertisement [is] necessary" for the discharge of the mortgagee's duty of good faith, and that the object is to "induce such competition as will be likely to secure a fair price": see Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 at 683; [1912] HCA 9. 5. My conclusion that there is a substantial prospect that the Court will find, on a final hearing, that Ageist breached its duty of good faith, in the manner in which it entered into the Contract, is substantially reinforced by the evidence that the Court has concerning the true market value of the Property. 6. Mr Murabito did not submit that the mere fact of sale at an undervalue is conclusive of the occurrence of a breach of the duty of good faith, or that a mortgagee has a duty to wait for the market to improve before selling. However, he correctly submitted that "if it can be demonstrated that the price obtained was substantially below the true value, this may be some evidence that proper steps were not taken": Stone v Farrow Mortgage Services Pty Ltd (in liq) (1999) 12 BPR 22,175; [1999] NSWCA 435. The steps taken by the mortgagee in relation to the sale and the comparison between the sale price and the true value of the property are "interdependent" considerations in determining whether the mortgagee acted in good faith: see W D Duncan and W M Dixon, The Law of Real Property Mortgages (1st ed, 2007, Federation Press) at 233. 7. As mentioned above, Ageist initially relied upon a valuation report prepared by Mr Nelson as at 17 February 2019, which assessed the market value of the Property as being $1,640,000. 8. Ageist then tended a new valuation of the Property by Mr Nelson as at 25 February 2020 in the amount of $975,000. 9. Mr Murabito tendered a current market valuation of the Property as at 25 February 2020 "as is" by Mr Dean Galanos of $1,700,000. 10. Mr Galanos acted on the basis that it would be necessary for the owner of the Property to spend the sum of $200,000, inclusive of GST, to cause the Property to be completed to an acceptable "cold shell" standard, excluding occupant fit out. Mr Galanos also allowed a 10% contingency allowance. 11. Mr Galanos derived his valuation on the direct comparison method, by reference to comparable retail premises. He adopted a value of $2,150,000 "as if complete", but reduced that value by "cost to complete" of $220,000, plus a further 10% profit and risk factor of $215,000, yielding a result of $1,715,000, which Mr Galanos rounded down to $1,700,000. 12. Mr Galanos also checked his valuation using the capitalisation of rent method. 13. Mr Galanos provided the following criticisms of Mr Nelson's valuation as at 25 February 2020: … 5. The comparable market evidence noted in the 2020 Nelson Report reflects that of "residential properties" in this general locality; as distinct from "retail premises". The nature and extent of the improvements ("construction works in progress" notwithstanding) clearly provide for use as a retail premises, not as a residence. In that regard, the Nelson Report fails to adequately identify the highest and best use potential of the land which (in this instance) is as a retail premises. 6. In any case (and with reference to the above point), the sales evidence presented reflects that of residential real property assets "on completion" or on an "as if complete" basis; and on that basis only, might only be considered fit for cross comparison & analysis purposes generally (assuming that a direct comparison analysis was being undertaken in the first instance on a "like-for-like" basis as a residential property). 7. Whilst the property is (correctly) noted as being vacant, a secondary check method (in the form of capitalisation of net income assessment) is absent from the exercise. 8. Notwithstanding the above however, the Valuer otherwise makes no qualitative nor quantitative distinction between the sales evidence so presented; with no reference either to an estimated cost to complete nor appropriate profit and risk factor. In that regard, there appears (in the absence of appropriate rationale / calculations) to be a substantial and material disconnect between the "as is" and "as if complete" values. 9. I further note that Mr Nelson also produced a valuation report on 17 January 2019 ("the 2019 report"), wherein a value of $1,640,000 was ascribed. The property at the time was not subject to construction works and was (apparently) the subject of the lease. That report (in clear contrast to the 2020 Report) did however utilise sales evidence of retail premises in the general locality. 1. Ageist responded to Mr Galanos' valuation report by tendering a valuation report prepared by Mr Mauricio Espinoza of Knight Frank Residential Valuation & Advisory Sydney as at 6 August 2020. Mr Espinoza adopted a market value of $1,050,000. However, Mr Espinoza stated: "… We have been instructed to disregard any commercial development approvals and/or any existing use rights and to value the subject on a residential basis only". That is the basis upon which the valuation was undertaken, as Mr Espinoza made a comparable analysis of residential sales. The arbitrary restriction by Ageist of the basis upon which the valuation should be carried out significantly reduces the evidentiary weight of Mr Espinoza's valuation opinion. 2. Furthermore, the email instructions given by Ms Terrance of Ageist to Knight Frank included: Property was sold at Auction for $1,015,000 – We just require a valuation to confirm this price. 1. It does not appear that the valuation was prepared for the purpose of giving expert evidence to the Court, and the instructions set out above cast substantial doubt on whether Knight Frank was truly instructed to provide an independent valuation, on the basis of the valuer's professional opinion as to the highest and best use for the Property. 2. Ageist also relied on a report described as a valuation critique prepared by Mr Dean Bennett of Macquarie Bell, which stated a valuation opinion of $1,180,000, as at 25 February 2020. Mr Bennett approved the valuation methodology adopted by Mr Galanos, but stated that Mr Galanos' valuation appeared to be too high. Mr Bennett applied the same valuation methodology as Mr Galanos, but derived a lower 'as if complete' value of $1,500,000, by analysing the comparable sales evidence used by Mr Galanos to give a lower value per square metre of building area. Mr Bennett also reduced the value by $200,000 to complete the works, and $150,000 for profit and risk. Mr Bennett then applied the capitalisation method to check his valuation. 3. Mr Bennett also agreed with Mr Galanos that the use of retail premises for the comparable sales analysis was "paramount to accurately assessing the value of the subject property", contrary to the approach adopted by Mr Nelson (and Mr Espinoza). 4. The ultimate position established by the expert valuation evidence is, in my view, that, as at February 2020 the highest and best use of the Property was as retail premises, but the valuations given have ranged between about $1,180,000 and $1,700,000. The difference represents different expert analysis of the comparable retail sales. 5. Mr Murabito accepts that, for the purposes of an interlocutory hearing such as the present, the Court cannot resolve the difference in the expert opinions. Mr Murabito submitted that the valuation given by Mr Galanos should be accepted as the most reliable. I consider that the evidence requires the Court simply to accept that there is a real question as to where the valuation of the Property lies, within the range stated above. The fact that there was only an effective 11 day sales period for the auction that actually occurred on 21 March 2020 further enlivens doubt as to what the true fair market value of the Property was at relevant times. 6. As the sale price under the Contract was $1,015,000, if the Court permits the Contract to be completed, there is a real risk that the Property will be sold at an undervalue that ranges up to about $685,000. Challenge to enforceability of default interest 1. Mr Murabito challenges Ageist's entitlement to default interest under the second mortgage debt, in addition to his challenge that the Property has been sold at an undervalue. 2. Mr Murabito's submissions noted that both mortgages granted to PTAL and to Ageist by assignment contain the same common mortgage provisions. Under cl 5.7, if the Borrower fails to pay any amount due under the mortgage, the Borrower is required to pay the "Higher Interest Amount". Interest is compounded, so that interest is paid on the accrued interest: cl 5.8. Relevantly, interest compounds monthly: cl 5.11. For the PTAL mortgage the ordinary interest rate is 9.95% per annum and the Higher Rate of Interest is 12.95% per annum. In the case of the second mortgage assigned to Ageist, the ordinary interest rate is 2.5% per month and the Higher Rate of Interest is 5% per month. 3. The amount of the first mortgage debt due to PTAL, as at 9 July 2020, was $4,022,116.79, and as at 30 June 2020, the monthly interest was $36,197.83. 4. The total amount of the second mortgage debt, as at 9 July 2020, was $941,972.64, with the monthly interest that accrued on 13 June 2020 being $37,712.98. The payout figure includes an amount of $150,000 claimed for Ageist's legal costs. It may be noted that the monthly interest on the second mortgage debt loan of $400,000 was accruing at a greater rate than the loans of $3,332,000 made by PTAL. 5. The interest component of the payout figure for the second mortgage debt is $391,972.64. This is equivalent to annual simple interest of 73% for the period that the debt has been outstanding. Mr Murabito submitted that the $37,712.98 in interest for June 2020 is equivalent to annual simple interest of 113% per annum. 6. Mr Murabito relied upon the fact that cl 1.1 of the common mortgage provisions provides that the Secured Money means the "aggregate of all monies which the Debtor" is liable to pay to the Lender, which includes "any costs, expenses, fees, charges, disbursements including all Legal Fees incurred by the Lender arising from or in connection with … the exercise by the Lender of any of its rights arising from any Event of Default … [and] … the enforcement of the Guarantees". Thus, Mr Murabito submitted, there is an explicit and comprehensive right of recovery in relation to any costs arising from default under the mortgage. 7. Mr Murabito submitted, in reliance upon Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 at [29], that a contractual provision for default payment is characterised as a penalty if it is not a genuine pre-estimate of loss, and that involves the question "whether a provision for the payment of a sum of money on default is out of all proportion to the interests of the party which it is the purpose of the provision to protect". Mr Murabito further submitted that the principles discussed in Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343 at [166] and [174] (Kowalczuk) will support a finding at the final hearing that the whole of the default interest is a penalty, including for the reason that, under the terms of the second mortgage, Ageist is entitled to recover all of its costs arising out of the default, including its costs of enforcement. 8. Alternatively, Mr Murabito submitted, a personal guarantee provided by a shareholder or director of a company is within the scope of the Contracts Review Act: Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 at [119]-[124]. Relying on Kowalczuk, Mr Murabito submitted that there was a real likelihood that the Court will find that the second mortgage should be varied, under the Contracts Review Act, to exclude Ageist being entitled to receive any default interest at the Higher Rate compounding monthly. 9. As I understand Mr Murabito's submissions, the amount of the interest claimed by Ageist that is default interest at the higher rate is $195,986.32: Murabito submissions at par 77. The total of the unpaid interest in the payout figure of $941,972.64 as at 9 July 2020 is $391,972.64: see Ageist certificate, Exhibit P5 at 37, which shows that the $20,000 interest claimed to be due on 13 April 2019 was paid. The amount of $195,986.32 is half of the total amount of the outstanding interest. 10. I have noted that Mr Murabito also submitted, in par 77 of his submissions, that there was also a serious question to be tried as to the recoverability by PTAL of interest at the default rate under its mortgage. Mr Murabito did not calculate any specific amount for the reduction claimed in the debts due by the Borrower to PTAL. As PTAL is not a party to the proceedings, I would hesitate to decide this interlocutory application having regard to any right that Mr Murabito claims against PTAL, which PTAL has not been given an opportunity to answer, and as to which no submissions have been made. 11. For the purposes of this interlocutory application, I am prepared to accept that Mr Murabito has established a serious question to be tried as to whether the amount that Ageist is entitled to recover from him under his guarantee of the Borrower's debt should be reduced by an amount in the order of $200,000, calculated as at 9 June 2020, on the ground that the increase in default interest is a penalty, or liable to be unenforceable by order under the Contracts Review Act. Consideration of the balance of convenience 1. Ageist and Mr Murabito accepted that the present application must be dealt with on an interlocutory basis, and that, provided relevant serious questions to be tried are established, the question is what orders should be made on the balance of convenience. 2. Although I will now consider the issues relevant to the balance of convenience, I should state that I have not found that the parties' evidence and submissions has addressed all necessary issues, and I have not found it possible to identify with sufficient confidence the course required by the balance of convenience. That is because there is a real risk that, if the Court makes the orders sought by either Ageist or Mr Murabito, the other will suffer significant loss, and neither party has offered to give to the Court the usual undertaking as to damages, or demonstrated that such an undertaking would provide adequate protection to the other party. 3. I will give Ageist and Mr Murabito a brief opportunity to respond to this omission, on the basis that the orders that the Court will make will probably reflect the relative adequacy of the undertaking as to damages which each party offers to give to the Court. 4. In the absence of the Court receiving at least one satisfactory undertaking as to damages, the Court will need to make a somewhat arbitrary choice between two unsatisfactory alternatives. 5. Although I have expressed strong doubt that Mr Murabito will establish on a final hearing that the Assignment is invalid, it is relatively clear that the Assignment was made to prevent Mr Murabito taking advantage of the AFCA Scheme. It may also be that the exercise involved a breach of the Credit Protection Act, and that Ageist has been acting unlawfully in accepting the Assignment and attempting to enforce the second mortgage debt. That conduct may give Mr Murabito a right of action in this Court under s 180 of the Credit Protection Act. 6. I do not ignore the fact that this deprivation may cause a real loss to Mr Murabito, because, even if he is able to seek and obtain comparable relief in this Court, he will almost certainly be put to substantially more expense than he would have incurred if he had been able to seek informal relief under the consumer protection provisions of the AFCA Scheme. 7. However, for the purpose of considering the balance of convenience, the fact is that Mr Murabito can seek orders from this Court that terms of the mortgage constitute a penalty, or are unenforceable under the Contracts Review Act. Relief may also be available under s 180 of the Credit Protection Act (and possibly also the National Credit Code, which is Schedule 1 to the Credit Protection Act – a possibility that was not considered at the hearing). 8. Notwithstanding the attractiveness of the informality of the AFCA Scheme, it will only become available to Mr Murabito if he establishes at a final hearing of these proceedings that the Assignment was invalid. There will be a substantial delay, and costs will be incurred to achieve that result. The balance of convenience favours Mr Murabito being required to pursue the relief that is available to him in this Court. Not only is that the more direct course, but Mr Murabito can pursue that relief in the same proceedings in which he attempts to demonstrate the invalidity of the Assignment. It may be, if the Assignment involved a breach of H & H's duty of good faith, and that breach was known to Ageist, Ageist's duty to account may include compensation for the deprivation of Mr Murabito's right to make a complaint under the AFCA Scheme. 9. Consequently, in my view, the issue that is most relevant to the determination of the balance of convenience concerns the weighing of the financial losses that may be suffered by Mr Murabito and Ageist, depending upon whether the Court does or does not order the withdrawal of the Murabito Caveat. 10. The primary submission made by Ageist on the balance of convenience was that it should be permitted to complete the Contract, because the value of the four security properties, having regard to the differences between the valuers concerning the true value of the Property, is such as to give rise to a real risk that Ageist will not be able to recover the full amount of the debt due to it, if the second mortgage debt is ultimately found to be enforceable in accordance with its terms. 11. Furthermore, interest is accruing on the first mortgage debt due to PTAL and the second mortgage debt due to Ageist at rates that will ensure some ultimate loss by Ageist, if it is restrained by the Morabito Caveat from selling the Property, until the completion of any proceedings commenced by Mr Murabito to establish the claims that he has foreshadowed in these proceedings. 12. The following alternative possibilities may be derived from the evidence considered above – accepting that the appearance of arithmetical certainty is misleading, as figures are given at particular dates and interest will continue to accrue: 1. As at 9 July 2020, the total of the debts claimed by PTAL ($4,022,116.79) and Ageist ($941,972.64) was $4,964,089.43; say $5,000,000. 2. As Mr Murabito accepted PTAL's valuations for the three other security properties, if the Contract is permitted to be completed, the total value of the security properties is $3,745,000 for the three other properties, plus the purchase price for the Property of $1,015,000, giving $4,760,000. 3. If the debts claimed by the two mortgagees are enforceable in full, then as at 9 July 2020 there would be a shortfall of $240,000. 4. PTAL's claim for interest is accruing at $36,179.83 per month, say $36,000. Ageist's claim for interest is accruing at about $40,000 per month, although this claim will increase because of the monthly compounding of interest. If only one month's additional interest is allowed to the present time from 9 July 2020, then the present shortfall would be $316,000. 5. If the debts claimed by PTAL and Ageist are ultimately found to be enforceable in full, then the shortfall will increase by at least $76,000 per month (with that sum increasing with the monthly compounding of interest due to Ageist). 6. If the valuation of the Property by Mr Galanos ultimately proves to be correct, the total value of the four security properties will be about $5,445,000, say $5,500,000. 7. In that case, given the total debts claimed by PTAL and Ageist, if those debts are ultimately found to be enforceable in full, there will have been about $500,000 of security value in excess of the debts as at 9 July 2020. 8. That excess will have been reduced by at least $76,000 to the present time so the excess will be $424,000, and will be exhausted within about six months. 9. If Mr Galanos' valuation does not ultimately prove to be correct, but Mr Murabito succeeds in his penalty claim and reduces the debt payable by the Borrower to Ageist as at 9 July 2020 by about $200,000, then the shortfall as at 9 July 2020 would be only $40,000. 10. As the total monthly interest payable to Ageist will be reduced to 2.5% of $400,000, the monthly interest shortfall will increase by $10,000 for Ageist and $36,000 for PTAL, or $46,000 per month in total. 11. If Mr Galanos' valuation is ultimately accepted as correct, and Mr Murabito also succeeds in his penalty claim, then as at 9 July 2020, there will have been about $700,000 security value in excess of the debts payable by the borrower. 12. That excess in security value would have been reduced by about $46,000 to the present time and every month thereafter. The excess would be exhausted in about 15 months. 13. These calculations do not allow for increased legal and other costs of enforcement incurred by PTAL and Ageist, between now and the conclusion of the proceedings. If those mortgagees succeed, and are entitled to recover their costs under the mortgages, any periods calculated above, concerning the exhaustion of any excess security value, will be substantially decreased. 1. In broad terms, this analysis demonstrates that, on the assumption that PTAL and Ageist both establish that they are entitled to the amounts that they claim are payable by the Borrower, and that the price under the Contract represents the fair market value of the Property, the security value of the four properties has already been exhausted. Different results occur depending upon whether or not Mr Murabito ultimately succeeds on his penalty case, and in proving that the Property has the value ascribed to it by Mr Galanos. As there must be a significant probability that, even if the price under the Contract is not the fair market value, the fair market value is at some point midway between the Contract price and Mr Galanos' value, the effect of the prevention of completion of the Contract will be to impose a significant risk of ultimate loss on Ageist. 2. That consideration would be decisive in placing the balance of convenience in favour of the Court ordering the withdrawal of the Murabito Caveat, in order to permit the completion of the Contract, were it not for the combined effect of the apparently inadequate selling period, the possible substantial undervalue of the sale price in the Contract, and the financial position of Ageist. 3. From a reasonable commercial perspective, the only future course that is convenient is that all four security properties be sold as soon as possible for the best prices obtainable. That is the only way that interest can be stopped from running. 4. Mr Murabito responded to this problem by informing the Court that he would offer a number of undertakings to the Court, if it dismissed Ageist's application. 5. First, Mr Murabito would undertake to file a cross claim seeking the necessary substantive relief expeditiously, and then prosecute the cross claim with all reasonable expedition. 6. Secondly, Mr Murabito would consent to Ageist selling the Property on the market on the following terms (Exhibit 2D6): The Second Defendant consents to the Plaintiff selling the Property by public auction, on the following basis: 1. The marketing campaign be no shorter the 4 weeks; 2. The sale process be conducted by: a. an agent agreed between the Plaintiff and Second Defendant; or, in absence of agreement, by an agent nominated by the President of the Real Estate Institute (NSW) (on the joint request of the Second Defendant and Plaintiff); b. A solicitor agreed between the Plaintiff and Second Defendant; or, in absence of agreement, by a solicitor nominated by the President of the Law Society of NSW (on the joint request of the Second Defendant and Plaintiff); 3. Subject to agreement to the contrary, the reserve price to be the same reserve price set for the auction conducted by the Plaintiff on 21 March 2020: ie, $950,000; 4. There be no restriction on what party can attend (and bid at) the auction 1. Ageist could protect itself from liability to the Purchasers for breach of the Contract by exercising its right in special condition 46(b)(i) to terminate the Contract. 2. In some ways this offer would reduce the risk of ultimate loss to Ageist, but it is not entirely satisfactory. 3. First, for Ageist to accept the alternative approach offered by Mr Murabito, it would be required in practical terms to abandon its case in these proceedings. 4. Though that observation may be true, the fact that Ageist is a second mortgagee and must pay the whole of the net sale price to PTAL means that, if it succeeds in completing the Contract, it may crystallise an obligation to account to Mr Murabito for an amount in the order of $685,000. That will be all for the benefit of PTAL. That risk would be avoided if the Property were put to the market again, with the consent of Mr Murabito, in circumstances that would remove any grounds for him to assert a breach of the duty of good faith by Ageist. 5. Secondly, it is not inevitable that the new sale price will be substantially greater than the price in the Contract, and interest will continue to accrue during the sales campaign and in the period up to completion. On the other hand, the Purchasers could complete the Contract relatively quickly. 6. Thirdly, Mr Murabito's financial circumstances do not appear to permit him to give the usual undertaking as to damages to the Court, if it does not require him to withdraw his caveat. Such an undertaking would be worthless unless there was evidence that Mr Murabito had net assets that were sufficient to enable him to satisfy the undertaking if that became necessary. 7. In an affidavit made on 9 July 2020, Mr Murabito explained why he and Ms Stojcevski had been unable to refinance the debts owed by the Borrower to PTAL and Ageist. Mr Murabito asserted, in pars 15 and 16, that he had sold two other properties and that he expected to receive $670,000 on settlement of one of the contracts on 27 July 2020, and $900,000 from the settlement of the other contract on 18 July 2020. However, Mr Murabito said in par 17 that he was unable to obtain the documents to substantiate his entitlement to receive these funds, but he would undertake to provide them once they were available. 8. No evidence was tendered at the hearing to establish that Mr Murabito has net assets that would enable him to give a valuable undertaking as to damages to the Court. That undertaking has not formally been offered to the Court, and it was not mentioned in Mr Murabito's comprehensive written submissions. The Court must infer that the reality is that Mr Murabito may not be in a position to give a valuable undertaking as to damages to the Court. 9. The final reason why the undertaking to give consent to a further sale process for the Property is not satisfactory is that it only deals with the Property, and not the three other security properties. As stated above, if the Property is the first of the security properties to be sold, the net proceeds of sale must be given to PTAL, as the first mortgagee. Unless all four properties are sold quickly, PTAL will remain unpaid, and interest will continue to accrue on all of the debts owed by the Borrower, so the Court will not be able to evaluate the real risk to Ageist that will flow from the continuation of the lodgement of the Murabito Caveat. 10. The Court must assess the balance of convenience on the basis that Mr Murabito has not been able to procure an undertaking from Ms Stojcevski to consent to the sale of the other Leichhardt property, or from the Borrower to consent to the sale of the two Port Kembla properties. As all that is known about the Borrower is that it is in receivership, the Court cannot draw any inferences about the circumstances in which the Port Kembla properties may be sold. 11. Some consideration should also be given to the interests of the Purchasers. If the Murabito Caveat is not withdrawn, the Purchasers will lose the benefit of the Contract. That benefit may be substantial, if in reality the fair market value of the Property is substantially higher than the price under the Contract, as Mr Murabito claims. However, the balance of convenience would favour the Court depriving the Purchasers of a windfall gain, rather than imposing upon Mr Murabito an unfair deprivation of the full market value of the Property. 12. Nonetheless, the interest of the Purchasers in the Property under the Contract is a factor that weighs significantly in favour of the Court making an order that the Murabito Caveat be withdrawn. The Purchasers are innocent and have entered into the Contract in good faith. 13. Mr Murabito will have an action in account against Ageist, if the Assignment is found to be valid, and the Court ultimately finds that Ageist has breached its duty of good faith to Mr Murabito, and sold the Property at an undervalue. If Mr Murabito ultimately establishes that the Assignment was invalid, Ageist's action in completing the Contract and allowing the Purchasers to become registered as proprietors of the Property, are likely to make Ageist liable for damages to Mr Murabito for trespass or on some alternative bases. 14. In either event, Mr Murabito would have a right of compensation against Ageist. 15. But for the fact that there is substantial reason for doubt that Ageist would have the means to pay compensation to Mr Murabito, in my view the balance of convenience would clearly favour the making of an order that Mr Murabito withdraw his caveat against the title to the Property. 16. That doubt arises in the following way. Assume that the fair market value of the Property is $1,700,000. If the three other security properties could be sold immediately and the Contract was completed, the amount generated would be $4,760,000. Mr Murabito would suffer a loss of $685,000. Ageist would be obliged to account to Mr Murabito for that amount of money, if Mr Murabito succeeded in proving that the sale breached Ageist's duty of good faith. 17. The shortfall in the recovery of the debt owed by the Borrower to Ageist would be $204,089.43. Instead of Ageist recovering $791,972.64 (as at 30 June 2020), it would recover $587,882.71. 18. Ageist could then use this recovery to repay the debt of $500,000 that it owes to H & H. That would leave Ageist with $87,882.71 to meet Mr Murabito's claim for an account. 19. Although it is not possible to do the arithmetic with any semblance of reality, the amount that Ageist will ultimately recover, as its share of the value of the four security properties, will decrease with the time taken to sell all four properties, with the consequent increase in the interest payable by the borrower to both PTAL and Ageist. That will be true, even if success by Mr Murabito on his penalty claim reduces the amount of interest that is payable to Ageist. The amount ultimately recoverable by Ageist will also be reduced by the costs of PTAL and Ageist of recovering the debts owed to it by the Borrower. 20. If any funds come into the hands of Ageist, as a result of the realisation of the security properties, in addition to the possibility that it will repay H & H, there is the probability that it will expend those funds on its costs of resisting Mr Murabito's claims in these proceedings. 21. The consequence of the Assignment is that the second mortgage debt has been transferred to a mortgagee whose financial position is such that, if the Court orders the withdrawal of the Murabito Caveat, and that crystallises the sale of the Property at a substantial undervalue, Mr Murabito may not be adequately compensated under his right to an account. The real extent of the risk to Mr Murabito cannot be predicted, as it depends upon the timing and prices of the sale of the other three security properties – of which the Court knows nothing – and whether Ageist uses money that comes into its hands to repay the debt to H & H. 22. As the present application is in substance an interlocutory one, the Court is in my view entitled to require Ageist to give the usual undertaking as to damages to the Court, in return for an order that the Murabito Caveat be withdrawn. For the reasons I have explained above, I am not satisfied that Ageist's financial position is sufficient to enable it to satisfy the usual undertaking as to damages. 23. These circumstances create a dilemma for the Court. On the one hand, Mr Murabito has not offered a valuable undertaking as to damages to the Court to secure the continuation of the Murabito Caveat. On the other hand, H & H, by its stratagem of assigning the second mortgage debt to Ageist, has created the result that Ageist does not appear to be able to give a valuable undertaking as to damages to the Court to support the making of an order for the withdrawal of the caveat. 24. The conduct of H & H and Ageist has created a very real impediment to the Court permitting the Contract to be completed, because of the extraordinarily short sales period of 11 days, the fact that the price under the Contract is at the bottom of the range of valuations that have been put before the Court, and the fact that the Assignment appears to have been for the purpose of enabling H & H to avoid its obligations under the Credit Protection Act. 25. As neither choice available to the Court would constitute a satisfactory resolution to the determination of the balance of convenience, I will publish these reasons and give Ageist and Mr Murabito a short period in which to consider their position, to determine whether they can offer to the Court a satisfactory undertaking as to damages to support the interlocutory order that they seek from the Court. 26. I will then determine the orders that are most appropriate to be made upon the basis of the further responses of Ageist and Mr Murabito. 27. It will be convenient to make the following observations concerning the nature of the orders that are likely to be made. If the Court simply dismissed Ageist's application, then the Murabito Caveat would remain on the title to the Property, and PTAL would be precluded from exercising its power of sale, as a transfer could not be registered upon completion of the contract. That is because the Murabito Caveat prohibits the recording in the Register of a transfer or any other dealing affecting the estate or interest claimed by Mr Murabito. 28. As the only claims that Mr Murabito has been able to establish in these proceedings to the level that there is a serious case to be tried concern the circumstances in which Ageist entered into the Contract, any continuing interlocutory relief granted to Mr Murabito should be restricted to an interlocutory injunction restraining Ageist from completing the Contract. Application to remove caveat lodged by Little Town 1. Ageist seeks in its amended summons an order that Little Town withdraw caveat AQ188316, which was lodged on 22 June 2020. The interest claimed by Little Town is as a lessee by virtue of a lease agreement dated 1 February 2016. The lease has not been registered. 2. Notwithstanding orders made by the Court for the service of evidence by the parties, Little Town did not serve any evidence, and accordingly has not attempted to establish that it has an arguable interest in the Property sufficient to support its caveat. 3. In the circumstances, Ageist is entitled to an order by the Court that Little Town withdraw its caveat forthwith. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 August 2020