New South Wales Supreme Court CITATION : Equititrust v SLJM [2010] NSWSC 1059 HEARING DATE(S) : 2-3 September 2010 JUDGMENT DATE : 22 September 2010 JUDGMENT OF : Gzell J DECISION : Consumer Credit Code not applicable. Interest not a penalty. Judgment for possession and leave to issue writ of possession. Orders for sale of mortgaged properties to be conducted by the lender. Judgment for outstanding amount including interest up to judgment. CATCHWORDS : CONSUMER CREDIT - Credit Protection - loan facility to trustee company - whether sham or pretence and individuals the real debtors - whether Consumer Credit Code, s 6(1)(a) satisfied - whether interest rate included a penalty - whether should be set aside - second mortgage finance - whether an order for possession and leave to issue a writ for possession should be made - whether the lender should conduct sale of mortgaged properties LEGISLATION CITED : Consumer Credit Code Consumer Credit Act 1974 (UK) Jones v Dunkel (1959) 101 CLR 298 Snook v London and West Riding Investments Ltd [1967] 2 QB 786 Hadjiloucas v Crean [1988] 1 WLR 1006 Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 Palgo Holdings Pty Ltd v Gowans [2005] HCA 28; (2005) 221 CLR 249 CASES CITED : Raftland Pty Ltd v Commissioner of Taxation [2008] HCA 21; (2008) 238 CLR 516 Street v Mountford [1985] AC 809 AG Security v Vaughan [1990] 1 AC 417 Burdis v Livsey [2003] QB 36 Wallingford v Mutual Society (1880) 5 App Cas 685 Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656 AMEV–UDC Finance Ltd v Austin (1986) 162 CLR 170 King Investment Solutions v Hussein [2005] NSWSC 1076 Equititrust Limited (Plaintiff) SLJM Pty Limited (First Defendant) Mick Bechara Hakim (Second Defendant) PARTIES : Yvonne Hakim (Third Defendant) HI-TEK Communications Pty Limited (Fourth Defendant) Perpetual Trustees Victoria Limited (Fifth Defendant) National Australia Bank Limited (Sixth Defendant) Westpac Banking Corporation (Seventh Defendant) FILE NUMBER(S) : SC 2009/288092 COUNSEL : J White (Plaintiff) M Young (Defendants) SOLICITORS : Bransgroves Lawyers (Plaintiff) Klonis & Co Lawyers (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J WEDNESDAY 22 SEPTEMBER 2010 2009/288092 EQUITITRUST LIMITED V SLJM PTY LIMITED & ORS JUDGMENT 1 The subject of these proceedings was a loan of $2,650,000 made on 13 December 2007 of which the first defendant, SLJM Pty Limited, was the named borrower. Also on that day an earlier negotiated loan to the second and third defendants, Mick Bechara Hakim and Yvonne Hakim, of $1,188,000 was advanced. The advances were made simultaneously for the completion of the purchase by Mr and Mrs Hakim of a residence in Woolwich they had contracted to buy for $11,005,000 on 19 March 2007. Hakim facility 2 $7,000,000 had been raised as first mortgage finance from National Australia Bank Limited, the sixth defendant. Mr and Mrs Hakim needed second mortgage finance to complete the purchase of the Woolwich property. 3 An application was made on their behalf to the plaintiff, Equititrust Limited, by a broker trading as Finance for Freedom. It sought a loan of $1,500,000 net. Mr Hakim said he had sold a property at Chiswick for $3,500,000 and needed only a relatively small amount. 4 The application named Mr and Mrs Hakim as the borrowers but stated that: "if required the Trustee company SLJM Pty Ltd will be the applicant herein and the Hakim's, Mick, Yvonne and Stephanie can guarantee the loan". Stephanie was the Hakims' daughter. 5 The application stated that the moneys would be used to inject into the settlement of the Woolwich property: "which is an investment property which will be rented out for about $20,000 per month." 6 On 29 November 2007, Equititrust offered Mr and Mrs Hakim a loan facility of $1,188,000 for six months with second registered mortgage security over the Chiswick property. The purpose of the loan was stated to be property acquisition and Mark McIvor, who was in charge of the loan on Equititrust's behalf, knew that the loan was to be part of the purchase price of the Woolwich property. 7 Equititrust was a commercial lender. It did not make home loans. 8 At the time the $1,188,000 and the subsequent loan were made by Equititrust, the former Consumer Credit Code was in force. Section 6(1) provided: "This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into - (a) the debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and (b) the credit was provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and (c) a charge is or may be made for providing the credit; and (d) the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider." 9 Section 11(2) of the Code provided: "Credit is presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes)." 10 It was the standard practice of Equititrust, if an individual was a borrower, to require such a declaration to be made. If the declaration was not made, Equititrust would not proceed with the loan. 11 Equititrust's offer of 29 November 2007 contained a special condition: "Subject to the execution of a declaration vis Consumer Credit Code – which is to confirm the Borrowers' earlier advice that this loan is for a business purpose." 12 Mr Hakim was overseas but had provided a power of attorney to Stephanie Hakim. She and Mrs Hakim signed a declaration on 1 December 2007 that the credit to be provided by Equititrust was to be provided wholly or predominantly for business or investment purposes or for both purposes. The declaration contained a warning: "IMPORTANT You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code." 13 On 7 December 2007, Equititrust and Mr and Mrs Hakim executed a credit facility deed. It provided that the security was a mortgage intended to be executed on the same date as the credit facility deed by Mr and Mrs Hakim as mortgagor and Equititrust as mortgagee over the Chiswick property to be registered as a second mortgage. The term "mortgagor" was defined to mean any or every party to any security other than Equititrust. 14 Also on 7 December 2007, Kathy Klonis, the solicitor of Mr and Mrs Hakim, executed a certificate in the following terms: "It appeared to me that the Mortgagor/s acknowledged and understood that: (i) he/she had declared that this loan was predominately for a business or a commercial purpose; and (ii) the declaration referred to in the proceeding Clause removed this loan from the protection provisions of the Consumer Credit Code." 15 Ms Klonis did not give evidence and I was invited to draw a Jones v Dunkel (1959) 101 CLR 298 inference. 16 In addition, Mr and Mrs Hakim each made a solemn declaration before Ms Klonis that they had received independent legal advice regarding the loan and security documents and after receiving that advice they had freely and voluntarily signed the credit facility deed and the mortgage. SLJM facility 17 The sale of the Chiswick property fell through and the Hakims needed further finance. On 7 December 2007, Business Acquisitions Australia lodged with Equititrust a credit submission for $3,750,000 naming Mr and Mrs Hakim as the borrowers. It specified the loan purpose as the purchase of Security Property No 1, which was the Woolwich property. 18 The credit submission was processed in a rush as settlement of the purchase of the Woolwich property was set for 13 December 2007. 19 A letter of offer issued on 11 December 2007 for a loan facility of $2,650,000, naming SLJM as borrower and the purpose of the loan as working capital and prepaid interest for approximately six months on the facility and six months on the Hakim facility. 20 Mr McIvor was taken to task in cross-examination in relation to the change of borrower from Mr and Mrs Hakim, nominated in the BAA credit submission, to the trustee company. He was invited to identify any reference to the company as borrower. He did so by reference to the offer in the earlier Finance for Freedom application to which reference has been made. 21 Mr McIvor said he had discussion with Ian Lazar, a finance broker. He said Equititrust was invited to structure a loan in a certain way and moneys were advanced according to those instructions. While he was aware that the moneys would end up as part of the purchase price of the Woolwich property the purpose of the loan, in his view, was to access the equity that resided in a host of corporate owned real estate. 22 Mr Lazar was not called as a witness. The suggestion was that a Jones v Dunkel inference should be drawn against Equititrust. But Mr Lazar was the agent of Mr and Mrs Hakim and Mr McIvor had fallen out with Mr Lazar over borrowers introduced by him not complying with loan facilities. 23 It was put to Mr McIvor that there was nothing in the BAA credit submission that suggested the purpose of the loan was for working capital. He said that was the precise nature of it since the borrower was a corporation. 24 The securities that were offered in the BAA credit submission and which were identified as the security in the letter of offer of 11 December 2007 were a second registered mortgage given by Mr and Mrs Hakim over the Woolwich property; a second registered mortgage by Mr and Mrs Hakim over the Chiswick property, that had already been given; a second registered mortgage given by SLJM over units 1 and 6 of The Avenue at Bankstown; a second registered mortgage given by HI-TEK Communications Pty Limited, the fourth defendant, over units 7 and 8 at Bankstown; a second registered mortgage given by SLJM over land at MacDonald Street, Cronulla; a second registered mortgage given by SLJM over a property at Victoria Road, Rydalmere and a second registered mortgage given by SLJM over a further property at Rydalmere. 25 The letter of offer also required as securities a deed of guarantee and indemnity given by Mr and Mrs Hakim and HI-TEK, a fixed and floating charge over SLJM, a deed of cross collateralisation with the earlier facility and deeds of priority with all first mortgagees. 26 Perpetual Trustees Victoria Limited, the fifth defendant, held the first registered mortgage over the four Bankstown units. National Australia Bank Limited was to hold the first registered mortgage over the Woolwich property and Westpac Banking Corporation, the seventh defendant, held a caveat over units 7 and 8 at Bankstown. 27 The letter of offer was executed on 12 December 2007 by Mr Hakim and Stephanie Hakim on behalf of SLJM, by Mr and Mrs Hakim as guarantors and by Mr Hakim and Stephanie Hakim on behalf of HI-TEK as guarantor. 28 Mr Hakim said that when he saw that the letter of offer of 11 December 2007 specified the purpose of the loan as working capital he was surprised and telephoned Mr Lazar. He said he would get in touch with Mr McIvor. Mr Hakim said Mr Lazar rang him back and said Equititrust had approved the loan as a working capital because it had regular audits and as a result the letter of offer had to be worded that way as a formality. Mr Hakim said that Mr Lazar went on to say that this did not affect him. It was still a home loan and he couldn't draw down on it as working capital and what could be done was to proceed with the loan for six months during which period Mr Lazar could refinance the amount at a lower interest rate. 29 Mr Hakim said that with this explanation and the pressure to settle the next day he signed the documents. 30 Mr McIvor denied that it was a home loan and denied that he had ever had such a conversation with Mr Lazar. 31 Mr Hakim's evidence on this issue is problematic because Mr Lazar some time later on 28 October 2009 sent an email to Arthur Taylor an executive of Equititrust in the following terms: "I spoke with Kathy and we discussed this in detail about the fact that the loan was not in anyway a credit loan and that it was a commercial loan for Hakim to make money on the house because he acquired it under market valuation and was to live there for a short time and on sell. The reason it was not in a company name was that he was not organised and would be liable for double stamp duty if he in fact changed the entity to a company as it was exchanged in personal names." 32 While the business investment reason given by Mr Lazar differs from that in the Finance for Freedom application, it is consistent with the executed documents that do not invoke the Consumer Credit Code and with Mr McIvor's evidence that Equititrust made commercial loans and not home loans. 33 Achilles Constantinidis swore an affidavit in which he deposed to a conversation between Mr McIvor and Mr Lazar and himself: "Lazar: I have another deal for you. McIvor: What are the details? Lazar: It is a home loan for Mick Hakim and his wife. They are buying an $11 million home at xxxxxxx Woolwich and they need another $3.5 million to complete the sale. McIvor: Sounds like a good site. I love that type of security. Lazar: There is also a property at Chiswick that can be put up as security. Let's have a look at the properties now that you're in Sydney. Constantinidis: I need to get Mick his home loan funds before he gets back for Christmas with his family as he is being charged high default interest by the Vendor and is going to lose his deposit." 34 Mr McIvor accepted the conversation except for the reference to a home loan. Later in cross-examination he rejected most of it. Notwithstanding this discrepancy and the fact that Mr Constantinidis was not cross-examined, I prefer the evidence of Mr McIvor to that of Mr Hakim about his telephone calls with Mr Lazar, which is inconsistent with Mr Lazar's email, and I prefer it to that of Mr Constantinidis in the above exchange. 35 Mr McIvor's evidence of commercial loans only and standard practice in relation to the Consumer Credit Code, s 11(2) declarations where individuals were involved was convincing and the documentation for the first loan supported this evidence. The second loan was in the same category, albeit that the named borrower was SLJM. Mr Hakim's complaint was focused on the working capital description rather than the name of the borrower. According to him, Mr Lazar's explanation did not mention the borrower's name yet Mr Hakim was content to sign the documents. 36 In evidence were tax invoices to and from SLJM at the Woolwich property address. Mr Hakim could give no explanation but denied that SLJM was trading from the Woolwich property. 37 Mr McIvor said that on 12 December 2007 Equititrust received copies of a number of documents. They did not include a declaration under s 11(2) of the Consumer Credit Code but he regarded such a declaration as unnecessary as it had already been established that the loan was required for investment purposes and the borrowing entity was an incorporated business entity. 38 Notwithstanding this, Ms Klonis provided a copy of a certificate that it appeared to her that the mortgagors acknowledged and understood that they had declared that the loan was predominately for a business or commercial purpose and that declaration removed the loan from the protection provisions of the Consumer Credit Code. 39 The copies of the pre-loan documents included a minute of a meeting of the board of directors of SLJM signed by Mr Hakim as chairman recording and tabling the documents to be executed with respect to the loan of $2,650,000 from Equititrust and containing the following resolution: "IT WAS RESOLVED that: (a) after due consideration by the directors, it was in the best interest of and for the benefit of the Company its shareholders and creditors; 2 the Company unconditionally execute and deliver the Documents together with all ancillary documents and perform each of its obligations under each of the Documents and each ancillary document; and 3 the common seal of the Company be affixed to those Documents and ancillary documents requiring execution under the Company's common seal and that each director be authorised to execute any Document, ancillary document or other document considered necessary or desirable by such director." 40 The document was certified to be a true copy of the extract of minutes of meeting of the board of directors of the company duly convened and held. 41 There was also a copy of a solemn declaration made before Ms Klonis by Mr and Mrs Hakim that, as third party mortgagors, they had received independent legal advice regarding the loan and security documents and after receiving that advice they had freely and voluntarily executed the security documents specified in the declaration. There was a copy of a solemn declaration made before Ms Klonis by Mr Hakim on behalf of SLJM to similar effect. 42 A credit facility deed was executed on 12 December 2007 by Mr and Mrs Hakim and on behalf of HI-TEK as guarantors and by Mr and Mrs Hakim and on behalf of HI-TEK as security providers and on behalf of SLJM and Equititrust. 43 The entirety of the loan to Mr and Mrs Hakim was not paid out and under the deed of collateralisation together with the agreement of Mr Hakim, a balance of $350,175.31 was added to the facility for SLJM in November 2008. 44 Mr and Mrs Hakim, SLJM and HI-TEK maintained that with respect to the loan to SLJM, Mr and Mrs Hakim were debtors for the purposes of the Consumer Credit Code. The term is defined in Sch 1 to mean a person other than a guarantor who is liable to pay for, or to repay, credit and includes a prospective debtor. 45 The deed of guarantee and indemnity and the credit facility deed with respect to the loan to SLJM refer to Mr and Mrs Hakim as guarantors and SLJM as the borrower. 46 It was submitted that the Consumer Credit Code cannot be avoided by cunning use of contractual terminology. That is so but a basis for a conclusion that Mr and Mrs Hakim were other than guarantors and reference to SLJM as borrower was artificial has not been made out. Direct liability 47 It was submitted that as security providers Mr and Mrs Hakim were under a direct liability to repay the loan. 48 Clause 4.2 of the credit facility deed provides that the borrower and each security provider acknowledge that the security is charged with payment of the money secured. 49 But that does not create a direct liability to repay the loan. It is an acknowledgment that if a liability arises it is secured against the security provider's property. 50 The liability of Mr and Mrs Hakim is defined in the deed of guarantee and indemnity. They and HI-TEK were the guarantor. Clause 3.1 provided: "The Guarantor unconditionally guarantees to the Lender the punctual performance and observance by the Borrower of all the covenants, terms, conditions and other provisions of the Security, including without limitation, the payment of the Money Secured by the Borrower at the time or times and in the manner provided for in the Secured Agreement and/or the Security and undertakes to pay the Money Secured to the Lender on demand." 51 That liability is typically that of a guarantor. 52 The same can be said of the other provisions with respect to security providers in the credit facility deed upon which Mr and Mrs Hakim relied. Sham 53 Mr and Mrs Hakim did not submit that the documents with respect to the loan of $2,650,000 were a sham in the sense that word has come to be understood. 54 In the often quoted passage of Lord Diplock in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802 sham arises when it is the common intention of the parties to deceive third parties by making their real agreement appear to be something else. His Lordship said: "As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a "sham," it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create… for acts or documents to be a "sham", with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating." 55 This is not a case of sham because there was no common intention that the documentation of 12 December 2007 should give the appearance of creating a loan to SLJM when in reality it was a loan to Mr and Mrs Hakim. That was not Mr McIvor's intention and nor was it the intention of Mr Hakim. I prefer Mr McIvor's evidence that Mr Lazar did not have the conversation Mr Hakim said he had with Mr McIvor. 56 But even if Mr Hakim believed that a loan to SLJM was a formality and Mr Lazar would refinance within six months, Mr Hakim intended that the loan should be made, and made to SLJM. He participated in the meeting of the board of directors of that company which approved the loan to it. 57 In Hadjiloucas v Crean [1988] 1 WLR 1006 at 1019 Mustill LJ enunciated three situations in which a court might take an agreement otherwise than at face value: sham, correctly understood, arrangements never intended to create legal obligations and agreements reflecting an agreement but where the language superficially indicates that it falls into one legal category when it falls into another. 58 Neither of those additional categories applies in the instant circumstances. 59 In Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 454 Lockhart J said that for the purpose of Australian law a sham is something that was intended to be mistaken for something else or that was not really what it purported to be. 60 Again neither of those situations exists in the present case. There was no intention that the loan should be mistaken for something other than a loan. Nor was the loan something it did not purport to be. 61 In Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at 486 [46] the High Court said that the expression "sham" had a well-understood legal meaning. It referred to steps that took the form of a legally effective transaction but which the parties intended should not have the apparent, or any, legal consequences. 62 Again the element of common intention is necessary and lacking in the instant circumstances. 63 The passage from Glengallan was cited with approval by the High Court in Palgo Holdings Pty Ltd v Gowans [2005] HCA 28; (2005) 221 CLR 249 at 261 [26]. 64 The High Court in Raftland Pty Ltd v Commissioner of Taxation [2008] HCA 21; (2008) 238 CLR 516 at 531 [33] said that in various situations the court may take an agreement or other instrument as not fully disclosing the legal rights and entitlements for which it provides on its face. At 531-532 [34]–[35] the Court said: "One such case is where other evidence of the intentions of the relevant actors shows that the document was brought into existence "as a mere piece of machinery" for serving some purpose other than that of constituting the whole arrangement…. The term "sham" may be employed here, but as Lockhart J emphasised in Sharrment Pty Ltd v Official Trustee in Bankruptcy the term is ambiguous and uncertainty surrounds its meaning and application. With reference to remarks of Diplock LJ in Snook v London and West Riding Investments Ltd , Mustill LJ later identified as one of several situations where an agreement may be taken otherwise than at its face value, that where there was a "sham"; a term, when "[c]orrectly employed", denoted an objective of deliberate deception of third parties." 65 Again, the instant circumstances do not meet that discussion in that there was no common intention of deliberate deception. Once Mr Hakim accepted what he said he was told by Mr Lazar there was a common intention that the loan documentation should be taken at face value. 66 Mr and Mrs Hakim rely on the notion of pretence. In Street v Mountford [1985] AC 809 the House of Lords considered whether an agreement to occupy premises described in the agreement itself is a licence was really a lease protected under Rent Acts. At 825 Lord Templeman said: "Although the Rent Acts must not be allowed to alter or influence the construction of an agreement, the court should, in my opinion, be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts." 67 In AG Security v Vaughan [1990] 1 AC 417, Street v Mountford was applied and the purported right of a landlord to introduce further occupiers into a flat was held to be a pretence to avoid the provisions of the Rent Acts, whereas in reality there had been an intention to confer on the occupants exclusive possession of the flat. At 462 Lord Templeman referred to his observation in Mountford and said: "It would have been more accurate and less liable to give rise to misunderstandings if I had substituted the word "pretence" for the references to "sham devices" and "artificial transactions"." 68 Again, the parties had the common intention of giving and taking exclusive possession while presenting to third parties the impression that the landlord had introduced further occupants. The common intention feature is lacking in the instant circumstances. 69 Further reference to the notion of pretence as a wider concept than sham arose in Burdis v Livsey [2003] QB 36. The Court of Appeal was considering whether an agreement was subject to the provisions of the Consumer Credit Act 1974 (UK). Aldous LJ at 63 [32] referred to Lord Templeman's "pretence" as a mere "dressing up." 70 There is no room for the concept of sham or pretence in this case to convert the borrower in the documents executed on 12 December 2007 from SLJM to Mr and Mrs Hakim or to Mr and Mrs Hakim in addition to SLJM. Debtor 71 I find that Mr and Mrs Hakim were not debtors within the meaning of the Consumer Credit Code with respect to the provision of credit and the credit contract into which they entered on 12 December 2007. 72 The Consumer Credit Code, s 6(1) contains a number of cumulative elements for the operation of the Code. The first is that the debtor is a natural person ordinarily resident in the jurisdiction or a strata corporation formed in the jurisdiction. 73 Since the debtor was SLJM and it is not a natural person nor is it a strata corporation, the Code does not apply to this transaction and it is unnecessary to consider the other elements and, in particular, whether the credit was provided wholly or predominantly for personal, domestic or household purposes. Penalty 74 Both the letter of offer and the credit facility deed provided for both a higher rate and a lower rate of interest and the question is whether the higher rate includes a penalty. 75 If the higher rate of interest is the interest payable on the loan with a lower rate as an incentive for prompt payment there is no penalty (Wallingford v Mutual Society (1880) 5 App Cas 685 at 702). 76 The interest provisions of the credit facility deed were structured in that way. Clause 3.2 provided that interest under the credit facility deed was calculated at the Higher Rate. Clause 3.4 provided that if the borrower paid the lender interest at the Lower Rate on every day that interest was payable and if the borrower duly observed and performed all the terms of the credit facility deed, the lender would accept payment of the interest calculated and charged at the Lower Rate. 77 The terms "Higher Rate" and "Lower Rate" were defined in the credit facility deed as "the prevailing rate of interest plus 6% per annum" and "initially 16% per annum and then as specified in the letter of offer for the current term" respectively. 78 There was no definition of the "prevailing rate". It was submitted that it was the Lower Rate with the consequence that the intended structure with respect to interest was undone as the Lower Rate was then the interest on the loan. 79 I do not read the credit facility deed in that fashion. The reference to the prevailing rate is just a convenient way of defining the Higher Rate. It does not detract from the operation of cl 3.2 that specifically provided that the loan interest was at the Higher Rate. 80 So far as the Lower Rate was concerned, the letter of offer contained the following: "The interest rate applicable to the total facility will be 16% per annum (for prompt payment). The Borrower acknowledges that the interest rate of 16% assumes strict observance of the loan terms. In the event of default, the default rate in the Credit Facility Deed shall apply. Please note this interest rate is variable and is linked to the National Australia Bank Business Base Rate (as published in the Financial Review). If the NAB Business Base Rate moves upward, then the rate applicable to this advance will adjust by the same amount. The interest rate applicable will not be less than 16% p.a." 81 It was submitted that the incorporation of this provision had the effect of making the Lower Rate the prevailing rate with the consequence that a penalty emerged. 82 I do not read the definition of the "Lower Rate" in that fashion. What was referred to was the second paragraph of the letter of offer and its adjustment of the 16% if there was upward movement in the NAB Business Base Rate. The interest structure remained sound. The suggestion of a higher default rate in the first paragraph of the letter of offer was overtaken by cl 3.2 and 3.4 of the credit facility deed. 83 In any event, in Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656 at 669 [31] the High Court cited with approval a passage from AMEV–UDC Finance Ltd v Austin (1986) 162 CLR 170 at 190 that there was much to be said for the view that the courts should return to the concept of allowing parties to a contract greater latitude in determining what their rights and liabilities were, so that an agreed sum was only characterised as a penalty if it was out of all proportion to damage likely to be suffered as a result of breach. The court continued at 669 [32]: "Exceptions from that freedom of contract require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed. That is why the law on penalties is, and is expressed to be, an exception from the general rule. It is why it is expressed in exceptional language. It explains why the propounded penalty must be judged "extravagant and unconscionable in amount". It is not enough that it should be lacking in proportion. It must be "out of all proportion". It would therefore be a reversal of long standing authority to substitute a test expressed in terms of mere disproportionality. However helpful that concept may be in considering other legal questions, it sits uncomfortably in the present context." 84 It must be remembered that this was mezzanine finance with only second mortgage security. A 6% addition to the prevailing interest rate does not strike me as being extravagant or unconscionable or out of all proportion. So that even if the argument that the prevailing rate was the Lower Rate with the consequence that the Higher Rate included a penalty were correct, it was not such as should be struck down. 85 Equititrust seeks judgment for possession for of the secured properties with leave to issue a writ of possession. 86 In King Investment Solutions v Hussein [2005] NSWSC 1076 at [124]–[132] Campbell J discussed the appropriateness of an order for possession and an order for leave to issue a writ of possession. 87 His Honour pointed out that an order for specific performance of a covenant for possession upon default was in personam and did not bind the first mortgagee. 88 But in this case the first mortgagees have been joined and do not seek possession such that the existence of a first mortgage is not a reason why a mortgagor is entitled to deny a registered second mortgagee possession. Further, a registered second mortgagee can bring proceedings in ejectment. 89 In the present circumstances it seems to me to be appropriate that an order for possession and an order for leave to issue a writ of possession be made. 90 Equititrust seeks orders for the sale of the mortgaged properties. In Hussein at [120]–[123] Campbell J discussed the matters taken into account in a court ordered sale of mortgaged property in choosing who should be in control of the sale, including in whose interests was it to obtain the best price. 91 What is proposed in this case is a consultative process to determine a payout figure for the first mortgagees, all of whom have been joined as parties but have played no part in these proceedings. 92 In my view sufficient protection is given to ensure a proper price will be achieved by Equititrust if it be given the conduct of the sale and the defendants may have liberty to apply to the court if they are of the view that a property is to be sold at an undervalue. 93 I will grant the conduct of the sale of the mortgaged properties to Equititrust on that basis. 94 Equititrust also seeks a monetary judgment against each of the defendants. That is also appropriate. 95 I will stand the matter over for the parties to compute the amount of that judgment including interest and the appropriate terms of the orders for sale. I direct the parties to bring in short minutes of order reflecting these reasons. ********** 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.