Supreme Court New South Wales Medium Neutral Citation: Gustin Group Pty Ltd and anor. v Phoenicia Trading Pty Ltd and Gilmour [2015] NSWSC 1912 Hearing dates: 18 September 2015 Date of orders: 18 December 2015 Decision date: 18 December 2015 Jurisdiction: Common Law Before: Bellew J Decision: 1. The notice of motion filed on 9 September 2015 seeking a stay is dismissed. 2. The proceedings are stood over for further directions at 9.15am on Friday 5 February 2016 before me. Catchwords: PRACTICE AND PROCEDURE – Where proceedings brought for possession following default under loan agreement – Where Deed of Forbearance entered into and orders made by consent granting plaintiff possession of property and monetary judgement – Writ of possession issued – Defendant obtained a stay of proceedings pending the sale of the property by auction – Defendant then cancelled the auction and commenced proceedings seeking to set aside the loan agreement, Deed of Forbearance and consent orders on the basis that they were (inter alia) unjust – Where defendant also filed a motion seeking a stay of the consent orders – Evidence that the defendant had the benefit of independent legal advice both as to the loan agreement and the Deed of Forbearance – No serious issue to be tried – Balance of convenience in favour of the plaintiff – Notice of Motion seeking a stay dismissed Legislation Cited: Civil Procedure Act 2005 (NSW) Contracts Review Act 1980 (NSW) Cases Cited: GE Personal Finance Pty Limited v Smith [2006] NSWSC 889 Gustin Group Pty Limited v Phoenicia Trading Pty Limited [2015] NSWSC 1071 Category: Principal judgment Parties: Donald Gilmour - Applicant Gustin Group Pty Ltd - Respondent Representation: Counsel: M W Young SC and M Tovey - Applicant N Newton - Respondent Solicitors: Bransgroves Lawyers - Applicant Summer Lawyers - Respondent File Number(s): 2015/11757 Publication restriction: Nil Judgment BACKGROUND 1. By a statement of claim filed on 14 January 2015 Gustin Group Pty Limited ("Gustin") brought proceedings against Phoenicia Trading Pty Limited ("Phoenicia") and Donald Alexander Gilmour ("the applicant") seeking orders for (inter alia) possession of a property at 8 Illarangi Street, Carlingford ("the property"). The applicant, who is 77 years of age, is the registered proprietor of that property. 2. In those proceedings, Gustin alleged that it had agreed to loan Phoenicia and the applicant a sum of $650,000.00, at an interest rate of 4% per month, with the principal to be repaid on or before 17 November 2014. As security for the loan, the applicant gave Gustin a mortgage over the property. The statement of claim alleged that the defendants had defaulted under the loan agreement in failing to repay the principal sum. 3. It seems that some years ago the applicant was introduced to a Mr Esber who is the majority shareholder in Phoenicia. The applicant asserts that over the ensuing years he loaned Mr Esber substantial amounts of money. On the applicant's case, Mr Esber prevailed upon him to borrow money on a number of separate occasions, one of which was that set out in [2] above. 4. Ultimately, the proceedings brought by Gustin against Phoenicia and the applicant were resolved. Part of that resolution involved the execution of a Deed of Forbearance ("the Deed"), the terms of which included: 1. a requirement that the applicant and Phoenicia pay, within 5 days, a sum of $15,000.00 to Gustin in reduction of the debt; 2. an agreement as to the amount of the debt at that time; 3. an agreement that Gustin would accept a reduced amount in full satisfaction of the debt, providing it was paid in full by a stipulated date; 4. an agreement that if the debt was not repaid in full, Gustin was entitled to obtain judgment in accordance with a form of consent orders which had been executed; and 5. the surrender, by Phoenicia and the applicant, of their rights to defend the proceedings. 1. The applicant and Phoenicia failed to repay the debt to Gustin. On 23 April 2015, orders were made by consent giving Gustin possession of the property, as well as a monetary judgment in its favour. 2. The applicant sought to refinance the property and the Deed contained a regime for the applicant to sell the property by 9 June 2015 in the event that the refinance did not proceed. On 18 June 2015, no satisfactory arrangement for refinancing having been made, a writ of possession was issued in favour of Gustin. That writ was due to be executed on 29 July 2015. 3. On 28 July 2015, the day before the proposed execution of the writ, the applicant sought a stay before Hamill J: Gustin Group Pty Limited v Phoenicia Trading Pty Limited [2015] NSWSC 1071. On that occasion, having set out the relevant background to the matter, his Honour observed (at [18]-[20]): [18] Mr Newton, who appears for the applicant on the hearing of the stay, was not prepared to eschew altogether the possibility that the proceedings may be defended. Indeed, he commenced his submissions by indicating that the circumstances in which the loan was advanced and the nature of the loan and the interest rates were such that there may be some possibility of a defence based around the legislative and common law concepts of unconscionability. [19] However, he acknowledges that the clear evidence that his client had independent legal advice and the clarity of the terms of the deed of forbearance suggest that any purported defence would be confronted with obstacles which would be extremely difficult to overcome. Added to that is the fact that the funds under the mortgage were used to discharge an existing mortgage. [20] However, when the arguments closed, Mr Newton had not in terms abandoned the possibility that a defence might be forthcoming or that an attempt to set aside the consent judgment might be made. 1. For the purposes of the application before Hamill J, the applicant retained Navado Lawyers to act for him. Samantha Parsons, a solicitor in that firm swore an affidavit of 28 July 2015 in which she deposed to the fact that: 1. instructions had been received from the applicant on 25 June 2015; 2. an opinion was received from counsel on 13 July 2015; 3. instructions were received from the applicant on 17 July 2015 to obtain a second counsel's opinion; and 4. a conference was held on 21 July 2015 with that second counsel. 1. Hamill J noted (at [22]) that the applicant was proposing that the property be offered for sale by auction. Ultimately, his Honour ordered a stay of execution on a number of conditions, including that the applicant list the property for sale by auction, with the auction to take place on or before 12 September 2015. 2. Towards the end of August 2015, the applicant retained Bransgroves Lawyers to act for him. On 1 September 2015, following his retention, Mr Bransgrove of that firm wrote to Gustin's solicitors advising that the auction which was proposed for 12 September had been cancelled. He also advised that the applicant was proposing to make application to set aside the consent orders, the Deed and the associated loan agreement and mortgage. 3. On 10 September 2015 a summons was filed by the applicant seeking (inter alia) a declaration that the Deed was an unjust contract within the meaning of s. 7 of the Contracts Review Act 1980. The summons also sought that the consent orders made on 23 April 2015 be set aside. By notice of motion the applicant now seeks a stay of those orders. That is opposed by Gustin. SUBMISSIONS OF THE PARTIES Submissions of the applicant 1. Counsel for the applicant pointed to the provisions of ss. 67 and 135 of the Civil Procedure Act 2005 (NSW) as encompassing the power of the court to grant the order sought. Counsel emphasised that such power was discretionary, and that there could be no prescription of the circumstances governing its exercise: GE Personal Finance Pty Limited v Smith [2006] NSWSC 889 at [9]. However, it was submitted that in the present case there were two fundamental questions which were relevant to whether or not the stay should be granted, namely: 1. whether the applicant had demonstrated that there was a serious question to be tried; and 2. if so, whether the balance of convenience favoured the granting of a stay. 1. As to the first issue, counsel submitted that there were a number of factors which were capable of supporting a conclusion that the Deed, and the associated loan agreement and mortgage, were unjust and liable to be set aside. It was submitted that a number of the applicant's personal circumstances, including his age, were indicative of his vulnerability, as well as his inability to reasonably protect his own interests. It was submitted that such vulnerability, combined with the influence of Mr Esber, led to a material inequality of bargaining power at the time that the loan transaction was entered into. It was further submitted that there had been no negotiation regarding the terms of the Deed. 2. Counsel further submitted that the balance of convenience clearly favoured granting the relief sought. It was pointed out that restraining Gustin from taking possession of the property would not deprive it of its security. Although it was acknowledged that the debt would escalate in the meantime, it was submitted that any prejudice to Gustin could be minimised by making directions with a view to having the proceedings determined at the earliest possible time. In this regard, counsel indicated that much of the applicant's evidence had already been served and that the preparation of the matter was well advanced. Submissions of the respondent 1. Senior counsel for the respondent submitted that unless and until the Deed of Forbearance was set aside, there was no ground upon which it was open to the plaintiff to attack the judgment which, it was emphasised, had been entered by consent. 2. In addressing the issue of whether the applicant had adduced evidence establishing an arguable case for setting aside the Deed and/or the loan agreement and mortgage, senior counsel for Gustin pointed, in particular, to the evidence that the applicant: 1. had received independent legal advice at the time of entering the loan agreement; 2. had subsequently received advice from counsel that the loan agreement was not open to be set aside; 3. was represented by lawyers when the Deed was being negotiated; 4. had received advice from those lawyers, prior to entering the Deed, that neither he nor Phoenicia had good prospects of successfully challenging the original loan agreement and associated mortgage; 5. had received advice from the same lawyers regarding the provisions of the Deed; and 6. had received advice from another lawyer about the provisions of the Deed. 1. It was submitted that in these circumstances, the applicant had failed to establish that there was a serious question to be tried. 2. Senior counsel submitted that even if a conclusion was reached that the applicant had an arguable (albeit weak) case, the balance of convenience fell very much against granting the stay. In this regard, senior counsel pointed to the fact that the applicant had been given repeated opportunities to effect a sale of the property, and that there was clear prejudice to Gustin in view of the fact that the debt was escalating by approximately $7,000.00 per month. He also pointed to the fact that the original consent orders were made a considerable time ago. Finally, senior counsel cited the further delay until a final hearing as a factor which weighed against making the orders sought. CONSIDERATION 1. In determining whether the applicant has established that there is a serious question to be tried, I accept the submission of senior counsel for Gustin that the first aspect of that issue is whether or not the applicant has a serious case to successfully set aside the Deed. 2. Significantly, there is evidence that the applicant was legally represented in the course of negotiating the terms of the Deed. On 20 February 2015 the applicant's then solicitor, Mr Bricknell, confirmed a request made to Gustin's solicitors that he be provided with a copy of the draft Deed. Mr Bricknell, having received a copy of the Deed, sent a copy of it to a Mr Giugni, solicitor, asking that he review it. Mr Giugni responded to Mr Bricknell on the same day in the following terms: "I have instructions from Don. He will sign the deed as is but he would like you to try and reduce the interest rate further if possible. It that is not possible he will sign the deed as it is. I have explained to him that this will end any rights he may have to challenge the debt in the future". 1. The inescapable inference from that correspondence is that Mr Giugni discussed the terms of the Deed with the applicant, and gave him advice as to those terms. That advice was confirmed in a letter to the applicant dated 2 March 2015. 2. It is also apparent that counsel was retained by Mr Bricknell for the purposes of giving advice in relation to the loan agreement and mortgage. A file note of Mr Bricknell of 24 February 2015 records the following: "Telephone discussion with Tristan Bors. He has read the loan and mortgage documentation in this matter and his advice is that the borrowers cannot successfully defend the possession and debt proceedings commenced in the Supreme Court. His grounds for this are that there -+is no defence to it because of the interest rate. He said the usury laws do not apply and there is (sic) prior Court decisions that back this up. Secondly, the borrowers obtained independent legal advice from separate solicitors in the city and they are not going to be able to show they didn't understand the transaction or the documentation". 1. On 2 March 2015, Mr Bricknell wrote to the applicant. As to the loan agreement and mortgage, he said (inter alia): "We confirm our previous advice to you that we do not believe that either the company or Mr Gilmour have good prospects of succeeding in any legal challenge to the original loan to the company and the mortgage given by Mr Gilmour to secure that loan." 1. That letter went on to explain, in some considerable detail, the nature of the terms of the Deed and the effect, upon the applicant, of entering into it. In particular, the letter said: "(5) By signing the deed both the company and Mr Gilmour admit liability for the sums claimed by the lenders in the legal proceedings. This is very important because it prevents the company (and Mr Gilmour) from contesting the current court proceedings in the future. The Deed also contains legally binding releases and indemnities from the company and Mr Gilmour to the lenders regarding any claim they might have now or in the future against the lender or any related person in respect of the loan facility, the finance documents, the securities given in relation to the loan facility, any matter arising in relation to the above, any matter arising out of the relationship between the lender or an (sic) the company and/or Mr Gilmour, and this Deed. The releases are comprehensive. They are supported by a promise by the company and Mr Gilmour to each indemnify the lenders against any such claims. In short, the Deed prevents the company and Mr Gilmour from disputing the current legal proceedings and from making any future claim or legal proceedings arising from the loan and all circumstances surrounding it. We note that in a recent telephone discussion Joseph Esber suggested to the writer that the company should sign the Deed, refinance the debt and then sue the lenders. It will not be possible to do this if the Deed is signed in its current form. We expect that the lenders will not accept any modification to the Deed that removes the releases or allows a future challenge of the current legal proceedings". 1. The letter concluded by asking that a copy of it be signed to acknowledge receipt of the advice contained within it. 2. It is clear from this evidence that the applicant was given advice as to the terms of the Deed. It was against a background of that advice being given that the applicant executed the Deed. There is nothing in the evidence before me which has the effect of impugning any aspect of the advice which the applicant was given at any time. 3. On the evidence which was before him on the previous application for a stay, Hamill J described the applicant as being "confronted with obstacles which would be extremely difficult to overcome". In light of the evidence which is now before me, and which details the advice that the applicant was given at relevant times, his Honour's assessment may even understate the position. 4. There are also aspects of the applicant's own evidence which I find troublesome. In his affidavit of 14 September 2015, the applicant deposed (at [121]): "In or about July 2015, I instructed Navado Lawyers to appear on my behalf. As part of my giving them instructions and them giving me advice, I came to understand that a consent judgment had been entered against me and I understood that practically my only option was to sell the property and I considered that it would be better if I sold the property rather than it be sold by the plaintiff". 1. Part of Mr Bricknell's advice to the applicant of 2 March 2015 included the following: "(2) The lenders have agreed to compromise the amount of that debt at $865,000 inclusive of interest, enforcement costs and disbursements (the Settlement Amount). That is conditional upon compliance with the terms of the terms of the Deed. Most important of these is that the debt be refinanced and repaid in full by no later than 5PM on 17 April 2015. Strict compliance with this deadline is required. A failure to do so will invoke the default provisions of the Deed as well as the original loan and security documents. A default will result in the Delayed Settlement Amount of $870,000 being payable in place of the compromised Settlement Amount of $865,000. … (7) The Deed requires that the company and Mr Gilmour both sign two further court documents which are to be held by the lender. The 1st of those documents is a Consent Judgment by which the company and Mr Gilmour consent to a legal judgment being entered by the court against each of them for the full amount of the debt as claimed by the lender with interest to be calculated at the higher default interest of 10% per month plus enforcement costs and expenses. The total of such an amount will be substantial and we expect could be approximately $1 million by 17 April 2015. In the event of a default under the Deed of Forbearance the lender will be entitled to lodge with the court the Consent Judgment and obtain a court judgment against the company and Mr Gilmour for the full amount of the debt, default interest and expenses. The company will not be entitled to object to this or otherwise dispute the judgment. You should assume that this amount will prevail against the Delayed Settlement Amount of $870,000. 1. At paragraph at [109] of his affidavit, the applicant deposed to the fact that he was pursuing avenues of refinance in May 2015. He must have known by that time that the debt had not been repaid. There would otherwise have been no need to pursue alternate finance. In these circumstances I am unable to accept the suggestion conveyed by the applicant in paragraph [121] of his affidavit that it was only in July 2015 that he came to understand that a judgment had been entered against him. Moreover, the clear advice that he had been given by Mr Bricknell was such that he must have been aware of the consequences of not paying the settlement amount by the date for which provision was made in the Deed. 2. Further, and as I have already noted, Hamill J observed that counsel for the applicant, when appearing before him on the previous application for a stay, did not eschew the possibility of an application being made to have the consent orders set aside. That is somewhat inconsistent with the contents of paragraph [125] of the plaintiff's affidavit in which he stated that at the time of the proceedings before Hamill J, he: "… did not consider that (he) had the option to defend the proceedings and (he had) reluctantly accepted that (he) would have to sell (his) property…" 1. For all of these reasons I am not satisfied that the applicant has demonstrated that there is a serious question to be tried. 2. Further in my view, the balance of convenience clearly favours Gustin. The consent orders were made almost eight months ago. The debt is necessarily escalating and whilst there are obviously difficulties in the applicant vacating the premises, the fact remains that at this stage, the value of the property would appear to be sufficient to cover the debt. At the rate of escalation of the debt, that will not continue to be the case indefinitely. Added to this is the fact that any hearing would be some considerable time in the future. CONCLUSION 1. For all of these reasons, the applicant has failed to establish the necessary basis for a stay. I have not heard the parties in relation to the issue of costs and will deal with that issue on the next occasion when proceedings are before me for directions. 2. I make the following orders: 1. The notice of motion filed on 9 September 2015 seeking a stay is dismissed. 2. The proceedings are stood over for further directions at 9.15am on Friday 5 February 2016 before me. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 December 2015