HAY v AUSTRALIAN AND NEW ZEALAND BANKING GROUP LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY JA 20 March 1989, 22 March 1989 [1989] NSWCA 99 Stay of Execution. Priestly JA On 16 February 1989 Giles J held that the Australian and New Zealand Banking Group Ltd (ANZ) were entitled to possession of properties at Fairlight and Gosford of which Mr Hay was the registered proprietor. He made orders accordingly, ordering that any writs of possession issued should lie in the office for fourteen days from the date of his order. He also gave judgment for ANZ against Mr Hay for $366,116.76. The properties had been mortgaged by Mr Hay to ANZ (as second mortgagee) as security for his guarantee of the indebtedness of Seaboard Western Corporation Pty Ltd. Mr Hay did not dispute that the mortgages had been given and that there had been default under them entitling ANZ to possession, nor that ANZ was entitled to judgment for the amount claimed to be due. Mr Hay had, however, filed a cross-claim which, in its early form made allegations against ANZ in some variety, but which, as eventually presented before Giles J was explicitly limited to a claim that Mr Hay was entitled to an amount of money, by way of restitution from ANZ which he claimed to have paid under a mistake of fact. This amount was said to be equal to the amount which a company named Transcrete Pty Ltd could have obtained from ANZ had Transcrete maintained, when ANZ called on Transcrete to satisfy its indebtedness to ANZ, a set off or cross-claim against such indebtedness for breach of contract or negligence in paying and debiting to Transcrete's account amounts of money debited to that account as a result of the activities of one of Transcrete's employees. This employee was alleged to have wrongly obtained payments from ANZ which were debited to Transcrete's account. Mr Hay claimed that Transcrete would have been entitled to recover the amount of such payments from ANZ because it had permitted those amounts to get into the employee's hands as a result of its negligent acts and breaches of contract with Transcrete. Essential to this claim of Mr Hay's was the assertion that an amount of $162,000 which had undoubtedly been paid to ANZ in January 1983 in reduction of Transcrete's indebtedness was Mr Hay's own money, paid on his own behalf, rather than money raised by him and paid to ANZ on behalf of Transcrete. To succeed in his cross-action against ANZ Mr Hay had to succeed on the issue just mentioned, as well as on a number of other issues. Giles J permitted the question whether the money had been paid to ANZ on behalf of Transcrete or not, to be dealt with as a separate question for determination. If Mr Hay succeeded on that question he would have had to establish in the same proceedings at a later hearing, that at the time of the payment of the $162,000 ANZ was already liable to Transcrete for the debits to the Transcrete account contrived by the fraudulent employee (which, as it happened, were in a sum roughly approximating $162,000) and that Mr Hay in paying his own money on his own behalf to 2 UNREPORTED JUDGMENTS discharge what he believed was Transcrete's indebtedness to ANZ, did so under the mistaken belief of fact that Transcrete actually owed $162,000 to ANZ. It was assumed for the purpose of dealing with the first question separated out from the others by Giles J that ANZ was negligent and/or in breach of contract to Transcrete in failing to detect and prevent the employee's fraud to the extent of $159,000 odd. However that assumption was made for the purpose of determining the first question without any admission of its accuracy for other purposes. Giles J found in favour of ANZ that the payment of $162,000 in January 1983 was made on behalf of Transcrete. It followed from this finding that Mr Hay's cross-claim had to be dismissed. Mr Hay filed a notice of appeal against the dismissal of the cross action. He then brought the present application for a say of execution upon the orders for possession made by Giles J and also of the judgment for $366,116.76. The evidence in support of the application for the stay was that the Fairlight and Gosford properties were a major part of Mr Hay's real estate holdings. In December of 1988 and February of 1989 Mr Hay had been negotiating with two different possible purchases for the sale of the Gosford property at a price of $475,000. He had been informed by various real estate agents that a mortgagee sale by auction of the Gosford property at the date of his affidavit, 15 March 1989, would probably not achieve the price of $475,000. An expert valuation of the Fairlight property estimated its value at $425,000. The date of this valuation was 21 December 1988. Other documentary evidence showed that the first mortgagee of the Gosford and Fairlight properties was Mercantile Mutual Finance Corporation Ltd, and that the first mortgages secured a loan of $250,000 until 9 November 1990 at an interest rate of 15%, payable monthly in arrears. A full picture of Mr Hay's financial position did not appear in the evidence. The evidence does not permit any statement of his full asset or liability position, or his income position. It is to be inferred from Giles J's narrative of the facts that Seaboard Western Corporation Pty Ltd did not fulfil its obligations to ANZ and that Transcrete was in a bad financial position. In the argument before me it was common ground that if Mr Hay were successful in his claim against ANZ for restitution, the amount, including interest, to which he would have been entitled at the date of Giles J's decision was $330,000. In these circumstances it was submitted for Mr Hay that a stay should be granted as asked. In the course of the submissions of Mr Birch who appeared for Mr Hay, an offer was made that in order to ensure that no prejudice could flow to ANZ because of the stay, Mr Hay would undertake to pay to ANZ, if he eventually lost on his cross-action, the principal amount owing together with interest at the rate required by the mortgage documents to the date of payment, notwithstanding that as from the date of judgment, 16 February 1989, interest was running at the lesser rate of 15%. It was then submitted that there would be no prejudice to ANZ by a stay being granted, whereas there would be prejudice to Mr Hay if the properties were sold by the mortgagee before the claim under his crossaction was finally determined, or if he were forced otherwise to pay the judgment debt of $366,116.76 before the final fate of the cross-action was known; that possible prejudice of course would only become real if the cross-action eventually succeeded. In support of this submission it was contended that the evidence showed that the present time was unpropitious for the properties to be sold and that it could be to Mr Hay's financial disadvantage for him to lose URJ HAY v AUSTRALIAN AND NEW ZEALAND BANKING GROUP LTD (Priestly JA) 3 control over the sales of the properties, particularly as ANZ would not be prejudiced by the sales being postponed to a time considered more suitable. For ANZ two matters were principally relied upon in answer to the application for the stay. It was pointed out that although on the figures I earlier set out, ANZ might appear to be well secured, even as second mortgagee, by the mortgages it held over the two properties, a real possibility of prejudice existed if ANZ should be prevented from realising its securities when it chose to do so. It was argued that notwithstanding the valuation of the Fairlight property and the negotiations with potential purchasers for the Gosford property, neither of them had been sold at the figures mentioned. That is, the evidence really showed that at the present time $425,000 could not be said to be the sale price obtainable for the Fairlight property nor $475,000 obtainable for the Gosford property. Rather, the evidence showed that those figures could not be obtained for the two properties. Thus the present market value of the two properties was necessarily something less than $900,000. How much less was, on the evidence, a matter for speculation. The first mortgage is for $250,000, with monthly repayments of $3,125. The evidence does not disclose what Mr Hay's capacity is to make the monthly interest payments. Although he appears to be a man of some assets, he has been trying to sell the two properties, without success, and the Court does not know the extent of his liabilities. It was submitted there must always be a possibility, particularly in light of the way the evidence was left, that there could be default under the first mortgages and mortgagee sales by the first mortgagee, at prices significantly lower than an aggregate of $900,000. If such an event occurred the amount the first mortgagee would be seeking to recoup would be the principal of $250,000 together with whatever interest payments had not been made, together with legal costs connected with the first mortgagee's exercise of the power of sale. The judgment debt owing to ANZ of $366,116.76 is increasing from the date of judgment at the rate of 15% or more if the claimant's undertaking were to be accepted), so that in the event of the first mortgagee exercising power of sale, the evidence shows that to satisfy whatever the judgment debt of ANZ had grown to at that time a figure significantly but at the present time unquantifiably less than $650,000 would be available. It seems to me that the general thrust of this submission is sound; that is, it cannot confidently be said on the materials before the Court what sum would be available to satisfy the second mortgagee's debt if the situation arose where the first mortgagee exercised power of sale of the two properties. This conclusion links in with the other matter relied upon by ANZ, that is that securities are obtained by lenders at the time the lenders make credit available to borrowers so that in the event of default it will be for the lender, not the borrower, to decide when is the appropriate time for the securities to be realised so that the lender may be recouped. Thus the submissions for ANZ really respond to what was contended for on behalf of Mr Hay by saying first, ANZ could be prejudiced by a stay and it has not been satisfactorily established by Mr Hay that it would not be prejudiced, second that Mr Hay's wish to retain control over sales of his two properties is something that he contingently bargained away when he mortgaged the properties. The contingency, default, has occurred. I have mentioned that Mr Hay at the time of this application for the stay has been trying to sell the properties. Thee is evidence that he is still actively seeking to sell them. These sales, if he is successful, can only be accomplished if he obtains the mortgagee's consent, which amounts to paying out ANZ. In the 4 UNREPORTED JUDGMENTS course of the submissions, his counsel acknowledged that this would be the case. Thus, in the end Mr Hay is seeking to sell his properties, knowing that if he succeeds in doing so ANZ will be paid out, so that his application for stays really does come down to what his counsel contended for, that he is seeking to be the one to decide when and at what prices the properties shall be sold. As I have already remarked, this is the reverse of the situation which is bargained for between mortgagee and mortgagor at the time of money being lent upon the security of a mortgage, in the event of default. In Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 694, the following statement, made in the unreported decision of Re Middle Harbour Investments Ltd (In Liquidation) by Mahoney JA, with whom Moffitt P and Glass JA agreed, was again recognised by this Court: "... a court asked to grant a stay will consider each case upon its merits, but where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party." In Alexander the Court went on to say that the onus is upon the applicant for a stay to demonstrate a proper basis for a stay that will be fair to all parties (at 694); the Court will weigh considerations such as the balance of convenience and the competing rights of the parties before it (at 694); as a condition of the grant of a stay, where funds are available, a Court may impose on the applicant the payment of the whole or part to the judgment creditor (at 695); a Court may grant a stay if not to do so will stultify an arguable appeal (at 695). In the present case the Court does not have a sufficient picture of Mr Hay's financial position to know whether he is able to pay the judgment debt to ANZ as a condition of the stay being granted, nor has any offer been made. On the other hand it has not been contended that the refusal of the stay will mean that Mr Hay cannot proceed with his appeal. Finally, echoing another matter referred to in Alexander (at 695), although I have not heard any detailed argument on the merits of Mr Hay's cross-action, and certainly am not in a position to express more than a very tentative view about it, after reading what was said about it by Giles J and after hearing the brief remarks made about it by counsel in the present application, I am left with quite a strong impression that it will be extremely difficult for Mr Hay to succeed in the appeal on the one issue decided by Giles J and thereafter establish the various other matters he would still have to establish to obtain judgment on his cross-action. In all these circumstances it does not seem to me that the claimant has made an appropriate case warranting the exercise of discretion in favour of the granting of a stay. In my opinion the claimant's application should be dismissed with costs. Counsel for the Claimant: Mr C Birch Solicitors for the Claimant: Aubrey F Crawley Counsel for the Opponent: Mr P Greenwood Solicitors for the Opponent: Minter Ellison