New South Wales Supreme Court CITATION : PERPETUAL TRUSTEES VIC LTD v BODIROZA [2010] NSWSC 238 HEARING DATE(S) : 16 December 2009 JUDGMENT DATE : 31 March 2010 JUDGMENT OF : Hulme J at 1 I publish these reasons. DECISION : I stand the proceedings over to 16 Apirl 2010 at 9.30am before me. I grant liberty to the parties to, by arrangement with my Associate, fix a date other than 16 April 2010 for further hearing. PARTIES : Perpetual Trustees Victoria Limited - Plaintiff Slavica Bodiroza - Defendant FILE NUMBER(S) : SC 2007/00261465 COUNSEL : Mr A Rogers - Plaintiff Ms M Tibbey - Defendant SOLICITORS : Kemp Strang Peter Baker Solicitor LOWER COURT JURISDICTION : Compensation Court - 14 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION No: 13071/2007 HULME J Wednesday 31 March 2010 PERPETUAL TRUSTEES VICTORIA LIMITED v Slavica BODIROZA JUDGMENT 1 HULME J: The Defendant is the owner of land at 7/118 Elizabeth Drive Liverpool, being the land contained in CT Folio Identifier 7/SP12051. Pursuant to mortgage number 939257, dated 24 January 2003, the Plaintiff is the mortgagee of that land having, on or about that date, lent the Defendant a sum of $160,000 that was employed by the Defendant in the purchase of the property for the sum of $200,000. 2 The Defendant defaulted in complying with the terms of the mortgage. The Plaintiff instituted proceedings in this Court seeking vacant possession. The Defendant responded with a claim under the Contract Review Act. In Reasons delivered on 28 August 2009, at [106], I held that the contract was unjust on account of the matters to which I then referred. So far as possible I do not intend to repeat matters set forth in those Reasons and they should be regarded as incorporated in these. 3 The parties had indicated that in the event I reached that conclusion, they desired to call further evidence directed to the issue of whether the Court should grant relief and, if so, on what terms. That evidence was called on 16 December last. Summarised, it was to the effect:- (i) The Defendant gave evidence that the mortgaged property had been leased from February 2003 to 5 November 2008. The Defendant's solicitor prepared a schedule of monies spent by the Defendant in connection with her ownership of the property and, after some adjustments, the amounts paid were agreed. They were:- Strata Levies $14,356.48 Rates 3,081.40 Water rates 2,100.00 Land Tax 369.60 Repairs and Maintenance 803.10 (ii) These amounts total $20,710.58. It was agreed that in addition the Defendant has paid the Plaintiff pursuant to the mortgage amounts totalling $51,760.01. (iii) There was no agreement but little dispute as to the rent that the Defendant had received. The schedule prepared by her solicitor stated it at $40,532.29. The Plaintiff's calculation placed the amount at $40,525.29. The difference was not explored and to the extent to which it becomes relevant I propose to proceed on the basis of $40,530.00. Exhibit K, the Plaintiff's calculation sheet, tendered without objection indicates that the amount received was net of moneys retained by the real estate agent who collected the rent (in a gross amount of $51,341.00) and of a sum of $5,380.15 paid for a Body Corporate Management fee apparently deducted from moneys received in the period 1 July 2007 to 30 June 2008. The Defendant gave evidence that, by proceedings issued on 17 July 2007 the body corporate of the building in which the Defendant's unit is situate sued her for unpaid levies in an amount of $2,142.80 plus interest and costs, and that a garnishee issued to the unit's managing agents. In infer the amount of $5,380.15 is included in the $14,356.48 referred to above. (iv) According to the Defendant, the tenant vacated the property on 5 November 2008, this being about a week after the Defendant had instructed her agent to issue a notice of termination to the tenant. The Defendant asserted that at that time the premises had suffered "much damage" which she was required to repair. This reference to "much damage" does not sit comfortably with the agreed figure as to the amount spent on "Repairs and Maintenance" but the apparent discrepancy was not explored. (v) The Defendant herself moved into the premises on or about 14 November 2009 having then vacated Housing Commission premises. She gave no evidence concerning occupation or use of the premises in the year before that, and it may be that the currency of these proceedings contributed to them not being re-let during that period. (vi) On the Plaintiff's behalf there was read a report from a valuer who had been asked to place a rental value on the property at three dates. The dates and the values he placed were:- 24 January 2003 $160.00 per week 1 June 2004 $170.00 per week 1 December 2008 $230.00 per week (vii) By estimating the rental value in between and subsequently to these dates, and making some allowance for vacant periods, the Plaintiff submitted that the rent that should have been received during the period 24 January 2003 to 15 December 2009 was $57,535.00. This figure includes amounts of $10,810.00 and $5,280.00 for the periods 1/7/08 to 30/7/09 (sic) and 30/7/09 (sic) to 15/12/09, a period which included time when the property was vacant. The figures for the period 1/7/04 to 30/6/05 seem odd but a comparison between what the Plaintiff says should have been received to 5 November 2008 and the gross amount in fact received to that date shows little if any significant difference. (viii) The Defendant also gave evidence that she had been interviewed by officers of the Housing Commission, told that they intended to conduct an investigation of her, that she should have being paying market rent to the Commission, that she had broken the law because she had owned her own unit while living in Housing Commission premises, that she would owe the Commission not a small amount of money, and that she had lost her rights of obtain Housing Commission housing for as long as she lived. (ix) Mrs Bodiroza also said that she had made enquiries of real estate agents in Liverpool and Fairfield and had been informed that to obtain 2 bedroom rental accommodation would cost between $900 and $1000 per month or per 4 weeks. (x) Mrs Bodiroza said that she was in receipt of a Disability Support Pension of $678 per fortnight and her son who lives with her receives a carer's payment for looking after her of $790 per fortnight. (xi) An affidavit from a Mr Boyd who had access to the Plaintiff's records disclosed that as at 2 December 2009, the interest that, under the mortgage, had become due at normal rates totalled $90,488.70 and that (net) payments by the Defendant totalled the sum of $51,310.10 (a sum slightly different from the amount of $51,760.01 referred to in paragraph 3(ii) above, though different dates might well account for the difference). Mr Boyd also said that further amounts owing under the mortgage were:- Dishonour Fee $1,100.00 Default interest $2,362.02 GST Refund – Borrower costs -$52.13 Legal Fees $63,283.81 Valuations $412.50 (xii) The surprisingly low amount for penalty interest was because it was charged only on arrears, not on the principal of the loan. (xiii) Together with the principal, the total amount owing at the date stated was, according to Mr Boyd, $266,284.80. 4 Objection was taken to the evidence referred to in the sub-paragraphs I have numbered (viii), (ix) and (x) and, with the concurrence of counsel for the Plaintiff, I deferred ruling on that evidence until now. My ruling is that the evidence is irrelevant to any issues arising under the Plaintiff's claim or under the Contracts Review Act. The evidence would be relevant to the topics of the utility of any order under the latter Act, should I otherwise be disposed to make one and of any stay of proceedings of orders for possession. 5 Conspicuously absent from the evidence called on 16 December last was any evidence as to the capital value of the property mortgaged. Counsel for the Defendant indicated that on grounds of expense and because the Plaintiff seemed to be obtaining one, the Defendant did not seek such a valuation. Clearly the Plaintiff elected not to put the Court in possession of such a valuation. That said, it is proper also to record that at the conclusion of the hearing on 16 December, counsel for the Plaintiff indicated that without further notice to the Defendant and the Court, the Plaintiff would not charge further interest on the loan. 6 It may be that a rough indication of value is afforded by the increase in rental value referred to in the valuation that the Plaintiff obtained. That increase was something under 50% to December 2008. Assuming the same capitalisation rate as that indicated by the purchase price of $200,000 and the rental value in January 2003 of $160.00 per week, the property may now be worth approximately $300,000. 7 Notwithstanding remarks I made in paragraphs [119] et seq of my Reasons of 28 August, and that she had been unsuccessful in attempts to refinance the property, the Defendant's stance on the topic of relief was that she wished to retain the property, that the mortgage should be set aside and, to take account of the fact that the contract was unjust, that the principal be reduced, that there be no default interest and that the Plaintiff's legal costs should be borne by the Plaintiff, rather than included as an amount owing under the mortgage. Presumably in recognition of the possibilities, the Defendant's counsel did refer to Part 27 of the Uniform Procedure Rules which she suggested empowered the Court to order a sale of the property. 8 For his part, the Plaintiff's counsel submitted that the Court should make no order, leaving the Plaintiff with all its rights as mortgagee and to be able to exercise those rights whenever it wished. Mr Rogers advanced arguments as to why that should be the result of the proceedings but had no fall-back position if his primary submission was not accepted. He submitted that these proceedings being proceedings in the Common Law Division for possession of land, Part 27 did not empower the Court to order a sale. 9 The relevant statutory test contained in s7 of the Contracts Review Act is that; "Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practical an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.. 10 Pursuant to s19, there are limitations on the operation of an order made under s7(1)(b) or (c) but s7(1)(d) effectively enables those limitations to be overcome. 11 I do not consider the approach contended for on the Defendant's behalf would avoid an unjust consequence or result. Firstly, I would regard depriving the Plaintiff of the security afforded by its mortgage as a great injustice, and this whether or not there was some reduction in the principal. Secondly, I would regard it as unjust for there to be simple reduction in the principal. The result of that would in effect be a gift by the Plaintiff to the Defendant in circumstances where documents she signed should, as I have concluded at [105] of my principal reasons, have made the situation clear to her and particularly if, as seems likely, the Defendant has received the benefit of an increase in value of the property by reason of her use of the Plaintiff's money. Thirdly, unless there was a very substantial reduction in the principal the likelihood is that the Defendant would again, and soon, fall into default obliging the Plaintiff to take legal steps to enforce its rights. In this connection it is to be borne in mind that, even when the property was tenanted, the Defendant paid, and presumably was able to pay, only about 60% of the interest falling due. And for any reduction in the principal to be fully effective, something would have to be done also in respect of the arrears of interest, even those charged at the normal rate. Finally, the changes advocated on the Defendant's behalf would, without more, leave the Plaintiff locked in for a long time into a contract very radically different from that into which it entered. Such a result is not justified by the unjustness, particularly any for which the Plaintiff has, or could be thought to have, any responsibility. 12 I also take the view that s7 would not be satisfied if the result of an order were that the Defendant made a profit (after taking account of what she has lost, referred to below) unless the Plaintiff receives all it is entitled to (with the exception of penalty interest and costs) under the contract. 13 But nor do I regard the course proposed by the Plaintiff appropriate or just. It would give the Defendant no relief from the injustice I have found and, subject to whatever increase, if any, there may have been in the value of the unit, effectively deprive the Defendant of what little funds she had at the time of the transaction with the Plaintiff. Again subject to what may have happened to the value of the unit, the result might well be that the Plaintiff suffers no loss despite the unjustness - unjustness contributed in no small degree by the conduct of those through whose services the Plaintiff chose to conduct its activities. 14 In my view it would be just and, as far as practical avoid an unjust consequence or result if, subject to some special treatment of penalty or default interest and legal costs, any loss that arises in consequence of the transaction is shared between the Plaintiff and Defendant and, if there is no loss, the parties left with the consequences of their contractual rights and liabilities. In the absence of any firm knowledge of the value of the subject unit, or of what it will in fact realise on a sale, precision in all respects is impossible but the course which seems to me best to meet the situation and the terms of s7 is as follows:- (i) The unit should be sold as soon as this can conveniently be done; (ii) The costs of the sale should be a first charge on the proceeds of sale; (iii) The Defendant should have no liability for penalty interest; (iv) The liability for legal costs should be determined by the Court and the provision of the mortgage making the Defendant liable for the Plaintiff's costs nullified in some way; (v) Subject to the limits in paragraph (vii) below the proceeds, net of the costs of sale, should be shared between the Plaintiff and the Defendant; (vi) The sharing should be in proportion to the parties' original capital contributions or payments, viz 160:40; and (vii) The Plaintiff should not receive from the net proceeds more than all moneys due under the mortgage (amended to reflect the considerations in sub-paragraphs (iii) and (iv)). 15 Some of those sub-paragraphs merit further reference. The accruing of penalty interest and legal costs is in no small measure a consequence of the factors that led me to conclude that the contract was unjust. Although the Defendant was also at fault, a great, and in my view the greatest, contribution to that situation was by one or more of the group of intermediaries between the Plaintiff and the Defendant, a group that had the power and opportunity it did because of the way the Plaintiff chose to conduct its business. Thus it is that I take the views apparent in paragraphs (iii) and (iv) above. I have wondered whether I should take the same stance in relation to the dishonour fees but, partly because they may reflect extra costs to which the Plaintiff has been subjected, I propose not to do so. 16 Costs are affected by a further consideration. In no small measure the Plaintiff's costs are a consequence of its resistance to the Defendant's claim for relief under the Contracts Review Act, resistance that was unsuccessful. It is not just that the Defendant should have to bear the Plaintiff's costs of pursuing that unsuccessful and costly course. 17 Because the unjustness I have found was not solely caused by one party, it seems to me that any losses arising in consequence should be shared, and this notwithstanding that the Defendant was owner and the Plaintiff a mortgagee. 18 The 160:40 proportion to which I have referred seems to me fair, and indeed the fairest proportion, having regard to the circumstances relating to the contract at the time it was made including the fact that, although the Defendant could have done more to protect herself, she was vulnerable and taken advantage of. 19 Hopefully, in light of the increase in rental value referred to in the valuation report and projected in Exhibit K, there will be no loss. That said, I recognize that one could take the view that any loss should be shared equally or in some other proportion. However, having regard to the little by way of assets the Defendant has, and the fact that I would assess her responsibility for the unjust result as substantially less than 50%, I would not regard equal apportionment of any loss as fulfilling the terms of s7. 20 There are, of course, financial matters other than the parties' original contributions which could be taken into account in determining the proportion in which any loss should be borne. The Plaintiff could claim that the shortfall in what has been paid in rent should be taken into account. This amounts to about $39,200 ($90,488 - $51,310). On the other hand, the Defendant has also suffered significant loss. She has received, net of body corporate levies, rates land tax and repairs, rent of approximately $19,800 ($40,530 - $20,710). She has paid interest of $51,760 so, putting aside the legal etc costs on purchase of the unit, she has already lost some $31,900. Of course the rental figure just used does not take account of any period when the unit was empty. 21 However, the mere fact that one party may have lost (or not received) more than the other in connection with these sorts of matters does not lead me to the view that the proportion I have selected is wrong. To value the amounts referred to in the immediately preceding paragraph properly for their inclusion in the proportion by which proceeds were to be divided, one would also need to take account of the time when the moneys were spent or not received and, at best, this would not be an easy task. 22 In concluding as I have, I have not ignored the arguments advanced on behalf of the Plaintiff. It was submitted that it was not shown that there was any unjust consequence to the Defendant from entry into the contract with the Plaintiff and the fact that she has been unable to pay the interest is not an unjust consequence of that contract and even the default interest could have been avoided by the Defendant selling the property years ago. Furthermore, it was submitted that, even if there was power to order a sale, the Court would not do so because the timing might not be propitious. The point was also made that the nature of a sale transaction was such that the most that the Court could do was to order that the property be offered for sale. 23 The possibility that the timing might not be propitious would have more weight if the Defendant had not chosen not to put before the Court evidence as to the value of the property. In any event, the placing of a reserve price on the property is probably an adequate way of dealing with problems in this area and, given the width of the powers given to the Court, I see no inherent difficulty in framing orders to take account of the suggested concerns. 24 I accept that the Defendant's inability to pay the interest (at what does not appear to be an excessive rate) is not of itself an unjust consequence of the mortgage or the contracts to which it relates. However, there is an unjust consequence when there is associated with that inability, the accruing of a power in the Plaintiff to thereafter enjoy all of the very, very many rights it has included in the mortgage in its interest including to take control of the property, potentially deprive the Defendant of her equity when that represented almost all the property she had in the world, and lay all the costs of doing so at her door. Certainly is this so when the Defendant suffered the personal disadvantages to which I referred in my principal reasons. 25 I have referred to the parties' arguments concerning whether Part 27 of the Uniform Procedure Rules authorized the Court to direct a sale. Neither party adverted to the terms of s8 and Schedule 1 of the Contract Review Act which include the following:- "8 Ancillary relief Schedule 1 has effect with respect to the ancillary relief that may be granted by the Court in relation to an application for relief under this Act. Schedule 1 Ancillary relief Where the Court makes a decision or order under section 7, it may also make such orders as may be just in the circumstances for or with respect to any consequential or related matter, including orders for or with respect to: (a) The making of any disposition of property, (b) The payment of money … (c) … (g) the disposal of the proceeds of sale or other realisation of property (j) the appointment and regulation of the proceedings of a receiver of property (k) … and such orders in connection with the proceedings as may be just in the circumstances." 26 It may also be noted that, under s94 of the Civil Procedure Act, if any person does not comply with an order of the court directing the person to execute any conveyance, contract or other document, the court may order that the document be executed by such person as the court may nominate and the document if so executed operates as if it had been executed by the person originally directed to execute it. 27 Thus the Court is empowered to ensure the property is sold if, as I think, such a course is appropriate and to effect the other results that I have detailed above. 28 In light of the positions they took, the parties did not explore the mechanics of the course I propose. The appointment of a receiver is likely to result in extra costs, and it may be that the Plaintiff should be left to effect the sale. It is in the highest degree likely that the Plaintiff, either itself or with assistance of others is capable of doing so and, given I propose that it bear the lion's share of any loss, it has an interest in seeing that the property is not sacrificed at a low price. On the other hand, because under what I propose there is a limit to what the Plaintiff can recover, it may not have an incentive to obtain a price higher than enough to ensure it suffers no loss. 29 Consideration should be given to other matters also, such as whether there should be an auction, a reserve, and whether it is desirable that the sale be obviously by a mortgagee or receiver. It may be that a sale by the Defendant, per medium of an irrevocable authority to some third party acceptable to the Plaintiff would be best. The timing of any sale and whether the result I intend to achieve is best effected by variation of the mortgage (along the lines of the draft herewith or otherwise) or orders for payment are also matters which both parties may wish to consider. Notwithstanding the time these proceedings have taken, and because these matters were not the subject of debate I propose to afford the parties an opportunity of considering these reasons and addressing me on these mechanical matters. 30 However, lest the remarks in that last sentence be misunderstood, I would add this. I have decided that the property should be sold and, unless there is some agreement or compelling reason to the contrary, sold in the immediate future. The Court has the power and the means to do this, with or without the co-operation of any parties. However, the result is likely to be better if the parties can co-operate in the implementation of the decisions at which I have arrived. Nevertheless, they should bear in mind that, whatever be the situation with costs to date, special orders may be appropriate if one party causes the unnecessary incurring of any further costs. In that connection, both parties may well have moneys to lose. At that further hearing I will also deal with the question of costs. 31 My decision means that the Defendant must vacate the property. I accept that this will be a hardship to her particularly if, as it seems likely, that she has nowhere else to go and the rental figures she was given take up about 2/3 of the combined income of the Defendant and her son. It may be of course that accommodation further from Sydney is less expensive. Be that as it may, the Plaintiff is under no obligation to effectively provide accommodation for the Defendant when she failed or was unable to keep to her obligations under the mortgage she signed. The fact, if it be the fact, that the Housing Commission is no longer willing to accommodate the Defendant is not a reason why the Plaintiff should be compelled to do so. 32 In these circumstances, I propose to make orders directed to ensuring that the Defendant (and her son) vacate the property 6 weeks from the delivery of these reasons (and if she does not vacate voluntarily, that the sheriff will remove her within a day or 2 of the end of that period). If in the course of the further hearing I propose I am persuaded that a sale should be postponed it may be that I will extend that time but the Defendant should proceed on the basis that she will be required to vacate within the 6 weeks mentioned. 33 Because I am presently engaged in a criminal trial in the country (where these reasons will be delivered and from where they will be emailed to the parties' solicitors and counsel) it will not be possible to hold the further hearing I propose for some weeks. I will accordingly fix 16 April at 9.30 for the further hearing, subject to the parties having liberty by agreement to arrange with my Associate some other date at about that time. 34 Accordingly at this stage, 1 I publish these reasons; 2 I stand the proceedings over to 16 April 2010 at 9.30 before me; and 3 I grant liberty to the parties to, by arrangement with my Associate, fix a date other than 16 April 2010 for further hearing. ********** 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.