New South Wales Supreme Court CITATION : Mahaffy v Mahaffy [2010] NSWSC 1358 HEARING DATE(S) : 2 November 2010 JUDGMENT DATE : 2 November 2010 JURISDICTION : Equity JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 2 November 2010 DECISION : 1. Summons dismissed; 2. Plaintiff to pay the defendant's costs; 3. Exhibits may be returned after 28 days. CATCHWORDS : PROCEDURE – application to restrain sale of property or require sale proceeds to be paid into court pending final determination – where interlocutory orders previously made dismissing application to restrain sale – where mortgagee entered into sale contract in purported exercise power of sale – whether applicant in contempt of court for non-compliance with court orders – whether contempt of an order in same suit or proceedings – whether serious question to be tried that power of sale exercised validly – whether notice properly given under s 57(2)(b) of Real Property Act 1900 – where application seeks to vary or set aside previous interlocutory orders in absence of material change of circumstance or fresh material – balance of convenience – no question of principle LEGISLATION CITED : Real Property Act 1900 (NSW) CATEGORY : Procedural and other rulings Leaway Pty Ltd v Newcastle City Council (No. 2) [2005] NSWSC 826; (2005) 220 ALR 757 Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 Harvey v McWatters (1948) 49 SR (NSW) 173 CASES CITED : Solid Holdings Pty Ltd v IMFML Finance Pty Ltd [2008] NSWSC 573 Carr v Finance Corporation of Australia Limited (No 2) (1982) 150 CLR 139 Morton v Suncorp Finance Ltd (1987) 8 NSWLR 325 Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 PARTIES : Plaintiff: David Bruce Mahaffy Defendant: Jeffrey Robert Mahaffy FILE NUMBER(S) : SC 2010/358001 COUNSEL : Plaintiff: In person Defendant: In person IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Tuesday, 2 November 2010 2010/358001 David Bruce Mahaffy v Jeffrey Robert Mahaffy JUDGMENT 1 HIS HONOUR: By summons filed on 28 October 2010 the plaintiff, Mr David Mahaffy, seeks an order restraining the sale of a property at 4 Adams Street, Narrabri, New South Wales by the defendant Mr Jeffrey Mahaffy "until final hearing has been heard in appeals court". Alternatively, he seeks an order that "The money that defendant has cost order be placed in Supreme Court trust acc until final hearing in appeal court has been heard [sic])". 2 The summons was filed in court before Slattery J who was duty judge. The plaintiff appeared in person. There was no appearance for the defendant. His Honour ordered that upon the second plaintiff (sic) giving the usual undertaking as to damages, the defendant and the defendant by his servants and agents be restrained from dealing with or disposing of proceeds of sale of 4 Adams Street, Narrabri until 4 pm on 2 November 2010. Today, the plaintiff seeks the relief as claimed in the summons, essentially an order restraining the sale of the Adams Street property until a final determination of proceedings pending in the Court of Appeal between the parties, or alternatively, that the proceeds of sale be paid into court until the determination of the appeal proceedings. 3 Litigation between Mr David Mahaffy and Mr Jeffrey Mahaffy has a long history. Suffice it to say that District Court proceedings have been pending between them for some years. In those proceedings the plaintiff and a company of which he is the sole director, DB Mahaffy & Associates Pty Ltd, were plaintiffs and the present defendant Mr Jeffrey Mahaffy was defendant. Mr Jeffrey Mahaffy brought a cross-claim in the proceedings. On 12 February 2009, her Honour Judge Gibb in the District Court stayed the plaintiffs' claim and ordered the plaintiffs to pay all of the defendant's costs thus far on the plaintiffs' claim, but not on the cross-claim, on the indemnity basis. On 4 September 2009 his Honour Judge McLoughlin made a lump sum costs order against the company in the sum of $134,679.46. On 16 April 2010 Judge McLoughlin made a further lump sum order against Mr David Mahaffy in the sum of $28,655.83. On 14 May 2010, according to Mr David Mahaffy, Judge McLoughlin was considering an application to strike out Mr David Mahaffy's defence to Mr Jeffrey Mahaffy's cross-claim by reason of non-payment of the amount of $28,655.83 ordered to be paid by the judgment of 16 April 2010. On that day, apparently to forestall such an order, Mr David Mahaffy offered to provide security for the costs order of 16 April 2010 by way of a mortgage to be given over a property owned by him at Adams Street, Narrabri. Judge McLoughlin made orders by consent that Mr David Mahaffy enter into a mortgage in the form approved by the Law Society of New South Wales to secure payment of the sum of $28,655.83 plus interest from 16 April 2010 at District Court rates, and that the sum be payable by 4pm on 27 May 2010. That mortgage was signed on or about 28 June 2010. In the meantime on 17 June 2010 Mr David Mahaffy and DB Mahaffy & Associates Pty Ltd filed a summons seeking leave to appeal from the two costs orders of 4 September 2009 and 16 April 2010. On 10 September 2010 those parties filed a notice of motion in the Court of Appeal seeking a stay of the two costs orders. 4 The summons for leave to appeal came before Giles JA and Sackville AJA on 23 September 2010. Counsel then appearing for Mr David Mahaffy and the company sought an adjournment on the basis that the papers filed by those parties were not in proper order. Their Honours ordered: " As a condition of the adjournment order ... the applicants pay to the respondent the sum of $2,000 in respect of his wasted attendance at court today and the further sum of $20,000 in part payment of the costs payable pursuant to the order of Gibb DCJ in both cases within 7 days, that is by 5pm on 30/9/10. " 5 The application for leave to appeal was adjourned to 8 October 2010. 6 In the meantime steps had been taken by Mr Jeffrey Mahaffy to sell the Adams Street property. Mr Jeffrey Mahaffy deposed that over four weeks the property was advertised for sale in local newspapers. The property in question is vacant land and an auction was scheduled for 2 pm on 24 September 2010. Also on 23 September 2010 an application was made ex parte to Hamilton AJ in the Equity Division seeking an order to restrain the sale of the Adams Street property on that day. The summons was filed for both DB Mahaffy & Associates Pty Ltd, named as first plaintiff and Mr David Mahaffy named as second plaintiff. Mr Jeffrey Mahaffy was the defendant. The summons sought as interlocutory relief an order restraining the sale of the Adams Street property until further order, and also a stay of the orders made by the District Court on 4 September 2009, 26 April 2009 and 14 May 2010. As final relief the plaintiffs sought an order that the mortgage given by Mr David Mahaffy to Mr Jeffrey Mahaffy over the Adams Street property be set aside. The plaintiffs also sought a declaration that: " the defendant may not exercise any mortgagee's power of sale over the property without first serving notice required by s 57(2)(b) of the Real Property Act. " 7 On 23 September Hamilton AJ ordered that Mr Jeffrey Mahaffy be restrained from selling the Adams Street properties up to and including 1 October 2010. 8 The matter came before Rein J on 1 October 2010. His Honour made the following orders: " 1. Plaintiff's [sic] application that the defendant be restrained from selling the property at 4 Adams Street, Narrabri ... up to and including 1 October 2010 dismissed. 2. Plaintiff to pay the defendant $1,100 for expenses of the application within seven days of today's date. " 9 On 8 October 2010 the adjournment application for leave to appeal was returnable again before Giles JA and Sackville AJA. There was no appearance on that occasion for Mr Jeffrey Mahaffy. Mr David Mahaffy had not complied with the condition of the order of 23 September 2010 on which the proceedings had been adjourned, namely, that he pay the sum of $22,000 within seven days. Nonetheless, on 8 October 2010 the application for leave to appeal was further adjourned to 3 December 2010. 10 The notice of motion filed by DB Mahaffy & Associates Pty Ltd and Mr David Mahaffy on 10 September 2010 in the Court of Appeal seeking a stay of the two costs orders was dealt with by Handley AJA on 25 October 2010. That application was dismissed. In the course of his reasons His Honour said: " A stay of the order for payment of $28,655.83 would not prevent Mr Jeffrey Mahaffy completing the sale of the Narrabri property under the mortgage. The mortgage is an independent ground for the sale which is not dependent on the enforceability of the order as such. A stay of the order would not set aside the debt, and prima facie, although the mortgage is not before me, it would not stop completion of the sale. " 11 Also on 8 October 2010 Mr Jeffrey Mahaffy, as mortgagee, purported to exercise his power of the sale over the Adams Street property. He has advised that the property was sold for $79,000. There is no evidence as to the time by which the sale is required to be completed, but I was told by Mr Jeffrey Mahaffy that completion is due on Friday of this week. Notwithstanding that there are currently proceedings on foot challenging the validity of the mortgage and seeking a declaration that the defendant is not entitled to sell the property until a notice under s 57(2)(b) of the Real Property Act 1900 has been given, and notwithstanding that on 1 October 2010 Rein J dismissed the plaintiffs' application for an injunction restraining the sale of the property, on 28 October 2010, Mr David Mahaffy instituted new proceedings by filing in court before the duty judge a fresh summons. That summons seeks the orders which I have set out earlier in these reasons. 12 The matter was dealt with by Slattery J ex parte on 28 October 2010 when his Honour made an order restraining Mr Jeffrey Mahaffy from dealing with or disposing of the proceeds of sale of the property until 4 pm today. The question now is whether I should make an order as sought by Mr David Mahaffy that completion of the sale of the property be restrained until the final determination of the proceedings in the Court of Appeal or whether I should require proceeds of sale to be paid into court until the final determination of the proceedings in the Court of Appeal, or, although this is not expressly claimed, whether I should otherwise extend the existing injunction until that time. 13 Mr Jeffrey Mahaffy makes an initial objection that Mr David Mahaffy is not entitled to be heard because he is in contempt of court. Mr David Mahaffy has not complied with at least two orders of this court requiring the payment of money. The first was the order of the Court of Appeal on 23 September requiring him to pay $22,000 to Mr Jeffrey Mahaffy by 30 September. The second is the order of Rein J of 1 October 2010 that he pay Mr Jeffrey Mahaffy $1,100 within seven days. 14 Mr David Mahaffy has given evidence that he was not in court on 1 October 2010. There is no contrary evidence. He denied knowing of the order requiring him to pay $1,100 until today. It would be surprising, to say the least, if the solicitor for Mr David Mahaffy who appeared on 1 October 2010 did not advise his client of the orders made by Rein J on that day, but I cannot conclude on the evidence presently before me that Mr David Mahaffy did have knowledge of that order prior to today. I therefore cannot conclude that he is in contempt of the orders of 1 October 2010 on the basis of the material now before me. However it may be relevant to the ultimate disposition of the application that Mr David Mahaffy has not proffered to undertake to pay the sum ordered to be paid on 1 October 2010. 15 The costs orders made by the Court of Appeal on 23 September 2010 are in a somewhat different position. Mr David Mahaffy who, like the defendant, represents himself on this application, advised me in the course of submissions that when the matter was before the Court of Appeal on 8 October he expected that Giles JA or Sackville AJA would raise with him the question as to whether the costs, or rather the amounts, ordered to be paid on the previous occasion had been paid. I infer that notwithstanding other statements made to me by Mr David Mahaffy which might be thought to be of contrary effect, that he, for some time, has been well aware of the orders made on 23 September 2010. Mr Jeffrey Mahaffy submits that it should therefore be concluded that Mr David Mahaffy is guilty of contempt of court and that either as a matter of law, or at least as a matter of discretion, he ought not be heard on the present application. 16 However, in Leaway Pty Ltd v Newcastle City Council (No. 2) [2005] NSWSC 826; (2005) 220 ALR 757, Campbell J (as His Honour then was) considered the cases which establish an exception to the rule or principle that a party in contempt is not entitled to be heard until the contempt is purged. The exception considered by his Honour (at [60]-[74]) is that for the rule or principle to apply, the contempt must be a contempt of an order made in the same suit, or the same proceedings as that in which the application was made. His Honour said, by reference to authority, that it was not enough that there was a close connection between the subject matter of the suit in one court and a suit in another, or that there was a close connection between the subject matter of two suits in the same court. 17 There clearly is a close connection between the matter pending in the Court of Appeal and the present application, because the Court of Appeal is concerned with a challenge to the costs orders of 16 April 2010 which was the foundation of the mortgage given on 28 June 2010. However, as Handley JA observed in the passage quoted above, a stay of the order of 16 April 2010 would not set aside the debt secured by the mortgage. His Honour said that the mortgage was an independent ground for the sale which was not dependent on the enforceability of the order as such. On the basis of Leaway Pty Ltd v Newcastle City Council (No. 2) I do not consider Mr David Mahaffy's application is barred by reason of his non-compliance with the order of the Court of Appeal of 23 September 2010. 18 However, insofar as general discretionary considerations arise on the application for an injunction, his breach of that order is significant. 19 On an application to restrain completion of the sale, Mr David Mahaffy must show that there is at least a serious question to be tried that Mr Jeffrey Mahaffy is not entitled to sell the property. 20 Mr David Mahaffy does not offer to pay into court the debt secured by the mortgage. Even if (which I do not consider to be the case) there were serious grounds to challenge the manner in which Mr Jeffrey Mahaffy has exercised the power of sale, I would not restrain the completion of the sale on that ground in the absence of payment into court (Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; Harvey v McWatters (1948) 49 SR (NSW) 173; Solid Holdings Pty Ltd v IMFML Finance Pty Ltd [2008] NSWSC 573). However, if there were a serious question to be tried that the power of sale has not arisen, then it is not necessary in order to obtain an injunction for the mortgage debt claimed by the mortgagee to be paid into court. 21 The ground of challenge in this case is that a mortgagee's power of sale under s 58 of the Real Property Act has not arisen because no notice has been given under s 57(2)(b). There is at least a serious question to be tried that that is so. Mr Jeffrey Mahaffy submits that no notice was required to be given under s 57(2)(b) of the Real Property Act because the mortgage dispensed with any such requirement. He also submitted that he was entitled to exercise a power of sale under the mortgage. He submitted that a notice under s 57(2)(b) was not required where the amount of the principal secured by the mortgage had already fallen due and the mortgagor was not merely in default of an obligation to make timely payment of instalments. Finally, he submitted that a letter dated 30 June 2010, which he said was duly served, was a notice that complied with s 57(2)(b). 22 As to the first matter it appears to me that the submission is inconsistent with the decision in Carr v Finance Corporation of Australia Limited (No 2) (1982) 150 CLR 139. It is true, that in Morton v Suncorp Finance Ltd (1987) 8 NSWLR 325, Mahoney JA considered that it was possible that under an appropriately drawn mortgage document, a mortgagee might have a power to sell land as an agent for the mortgagor (at 334). The present mortgage does not contain such a power. Nor do I accept that it is seriously arguable that the parties would be capable of dispensing with the requirements of s 57 in the circumstances of the present default. That is because s 58A(1) expressly excludes from the operation of that section notice prescribed by s 57 relating to default in the payment, in accordance with the terms of the mortgage, of any principal, interest or other money. 23 There is no doubt that Mr David Mahaffy is in default of the mortgage. The mortgage required him to pay the sum of $28,655.83 plus interest at the court rates from 16 April 2010 by 4 pm on 27 May 2010. However, the fact that Mr David Mahaffy is in default, so that the power of sale is exercisable, does not mean that the power could be properly exercised without service of a notice under s 57(2)(b). Nor do I accept that s 57(2)(b) and the requirements of s 57(3) are inapplicable because the mortgage secures payment of one sum which was due by 27 May 2010. The default is a default in the payment, "in accordance with the terms of the mortgage ... of the principal [and] interest ... : the payment of which is secured by the mortgage ... ". Section 57 applies to it. 24 Mr Jeffrey Mahaffy relies on his letter of 30 June 2010 to Mr David Mahaffy as being a notice under s 57(2)(b). Mr David Mahaffy disputes receiving a letter of that date. However, the facsimile transmission verification report provides at least prima facie evidence that the letter was duly sent by fax to Mr Mahaffy. The mortgage permits of service of notices by facsimile. 25 In his letter of 30 June 2010 Mr Jeffrey Mahaffy relevantly said: " In accordance with the terms and conditions of the Mortgage offered and consented by you [sic] on 14 May 2010 ... you are now in default of the Mortgage. You have failed to pay the amount of $28,655.83 plus applicable interest to me by 4pm on 27 May 2010. I hereby by put you on notice that if the amount of $28,655.83, plus calculated interest from 16 April 2010, is not paid to me immediately I intend to exercise my rights contained within the Mortgage by taking immediate possession of the property and to sell the land at [xx] Adams St Narrabri NSW to satisfy costs due to me pursuant to Court orders. I await your immediate response to the opportunity now provided for you to rectify the matter. " 26 It does not appear to me that that notice complies with paras (a) or (d) of s 57(3). It is not stated to be a notice pursuant to s 57(2)(b) and it does not allow the mortgagor one month after service of the notice to comply with its requirements. 27 Accordingly it seems to me that there is a at least a serious question to be tried that the power of sale had not arisen. 28 However, these were matters that would presumably have been ventilated before Rein J on 1 October 2010. I do not have the advantage of his Honour's reasons for orders made on that day (if His Honour gave reasons). His Honour's order of 1 October 2010 dismissing the application for an order continuing the restraint on sale of the property was an interlocutory order. It creates no issue estoppel or res judicata. However, the approach described by McLelland J (as his Honour then was) in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46 to 47 applies. Whilst the overriding principle governing the approach of the court to interlocutory applications is to do whatever the interests of justice require in the particular circumstances of the case, interlocutory orders made after a substantive hearing, ordinarily at least, should not be set aside, varied or discharged except on a material change of circumstances since the original application was heard, or on the discovery of new material which could not reasonably have been put before the court on the hearing of the original application. 29 The present application ought to have been brought in earlier proceedings number 316623 of 2010. The fact that they are brought in fresh proceedings does not affect the operation of the principle which his Honour described. Indeed, if anything, it accentuates the importance of adherence to that principle. As Rein J refused a claim for an injunction to restrain the sale of the property, it appears to me that it would be in substance to seek to set aside or to vary the order his Honour made rejecting that claim now to restrain completion of the sale. That is to say, where his Honour refused to restrain entry by the mortgagee into a contract of sale it would not be right, in the absence of material change of circumstances or the discovery of new material, now to restrain completion of the sale which His Honour must have contemplated might eventuate. 30 However, a different position, it seems to me, might apply in relation to the proceeds of sale. It is quite a common practice for a court to refuse to restrain a sale, but to require the proceeds of sale to be held pending resolution of the parties' dispute, particularly if their dispute is as to title to the land sold. I cannot conclude that by rejecting the plaintiffs' application for an injunction against sale of the property that Rein J should be taken to have contemplated that the proceeds of sale might be dealt with without restraint. 31 But the question then is what is Mr David Mahaffy's equity to restrain dealing with the proceeds of sale? The objection based upon an absence of a notice under s 57(2)(b) of the Real Property Act might justify a restraint on the sale of the property. But, if the sale itself is not be to be restrained, I do not think that the apparent absence of a valid s 57(2)(b) notice is sufficient ground for restraining Mr Jeffrey Mahaffy from dealing with the proceeds. 32 There is no doubt that Mr David Mahaffy is in default under the mortgage. As questions of balance of convenience undoubtedly arise, it is relevant, where my discretion is sought to be invoked, that Mr David Mahaffy has not complied with the orders for payment of costs including the orders made by the Court of Appeal. It is also relevant that he has proffered no undertaking to pay the moneys ordered by Rein J. It is also relevant that Mr David Mahaffy obtained the orders he did from Slattery J last Thursday through the use of an affidavit in which he deposed "I am prepared to give the usual undertakings as to damages. I have an unencumbered home, which will be available to make good that undertaking in the event it was ever required to be honoured", Mr David Mahaffy gave his residential address before me as the property in [xxx xxx], Narrabri and he confirmed that that was his home. It is clear both from a company search and from an affidavit sworn by Mr David Mahaffy on 8 June 2010 in the District Court that that property is not unencumbered. In his affidavit in the District Court he said that the property was valued by him at $160,000, but was subject to security to Landmark Real Estate in the sum of $135,000. 33 When a plaintiff seeks an interlocutory injunction, particularly where the application is made ex parte, it is of fundamental importance that the plaintiff state truthfully and accurately matters relevant to his ability to satisfy the undertaking as to damages. That was not done. 34 I also take into account that Handley AJA has refused the application for a stay of the costs order of 16 April 2010. I take into account that Mr Mahaffy consented to the orders of 14 May 2010 whereby he agreed to grant the mortgage. There is no proper explanation as to why he has reneged on his obligation under the mortgage to pay the costs of $28,655.83 by 27 May 2010. In my view, the justice of the case would not require that Mr Jeffrey Mahaffy be precluded from dealing with the proceeds of sale at least as to that sum. 35 Mr David Mahaffy says that there is also a threat that the balance of the proceeds of the sale will be sought to be obtained by Mr Jeffrey Mahaffy pursuant to garnishee orders he has obtained. I accept that there is that risk. However, the garnishee orders in question, which require the garnishees to pay a debt due to Mr Jeffrey Mahaffy as judgment creditor, require such payments up to $137,701.44 to answer a judgment in the District Court. The judgment in question was a judgment given on 16 July 2010. That is, a different judgment from the two judgments the subject of the application for leave to appeal pending now in the Court of Appeal. 36 If there is a stay of execution of the judgment of 16 July 2010, then there will be a stay of the garnishee orders. But if there is not, I see no reason why Mr Jeffrey Mahaffy should not seek to execute against moneys otherwise payable to Mr David Mahaffy from the proceeds of sale of the Adams Street property. 37 The summons seeks only interlocutory relief. As I have said, the claim ought to have been made in the earlier proceedings. The appropriate order is to dismiss the summons. 38 I order that the plaintiff's summons be dismissed and that the plaintiff pay the defendant's costs. The exhibits may be returned after 28 days. ****** 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.