RCD Super Fund Pty Ltd t/as Trustee for Red Gum Super & Anor v Morris [2016] NSWSC 83

Supreme Court New South Wales

Medium Neutral Citation: RCD Super Fund Pty Ltd t/as Trustee for Red Gum Super & Anor v Morris [2016] NSWSC 83 Hearing dates: 5 February 2016 Decision date: 05 February 2016 Jurisdiction: Equity Before: White J Decision: Refer to paras [14] and [15] of judgment. Catchwords: MORTGAGES – proceedings for possession and judicial sale – second mortgage – mortgage in registrable form – mortgage not registered – no promise by mortgagor to give up possession on default – no basis for making an order for possession – not a proper exercise of judicial discretion to order sale without evidence of value Cases Cited: King Investment Solutions v Hussain [2005] NSWSC 1076; (2005) 13 BPR 25,077 Garfitt v Allen (1887) 37 Ch D 48 Category: Principal judgment Parties: RCD Super Fund Pty Ltd trading as Trustee for Red Gum Super (1st Plaintiff) Jacqui Therese Middleton (2nd Plaintiff) Judith Lyn Morris (1st Defendant) Westpac Banking Corporation (2nd Defendant) Representation: Counsel: M Tovey (Plaintiff) No appearance (Defendant)

Solicitors: Summer Lawyers (Plaintiffs) n/a (Defendants) File Number(s): 2015/201397

Judgment 1. HIS HONOUR: This is an application for a declaration that the first defendant charged her property in Lake Haven with the repayment of amounts owing to the plaintiffs pursuant to a loan agreement and for orders for possession of the property and its judicial sale. The orders sought include an order that after paying off the first mortgage and the proper costs and expenses relating to the sale of the property, the amount due to the plaintiffs pursuant to the loan agreement be paid to them. The plaintiffs contend in their affidavit that the amount owing under the loan agreement as at 3 February 2016 was in the sum of the $98,641.83. The plaintiffs also contend in their affidavits that interest accrues at the rate of 5.5 per cent per month compounded monthly. 2. The first defendant entered into a loan agreement with the plaintiffs on 23 April 2015. The plaintiffs agreed to lend $57,500. Clause 2.2 of the loan agreement provided relevantly that: "The borrower acknowledges that the Guarantor gives the Lender security in the form of a caveat and second registered mortgage over the Guarantor's property known as … Lake Haven ... in favour of the Lender, being security for the payments due to the Lender under this Agreement." 1. The borrower was a company called Nerong Pty Ltd. The first defendant made the agreement as guarantor. Also on 23 April 2014 the first defendant executed a mortgage in favour of the plaintiffs. The mortgage is in registrable form, but it relevantly only states that the mortgagor: "mortgages to the mortgagee all the mortgagor's estate and interest in the abovementioned land and covenants with the mortgagee that the provisions set out in annexure and/or memorandum specified below are incorporated in this mortgage." 1. No annexure or memorandum was specified. References to both were said to be not applicable. It can be seen from the loan agreement that the parties agreed that the lender's security for the loan should relevantly comprise a second registered mortgage over the first defendant's property. The mortgage has not been registered. The plaintiffs do not seek an order to compel the first defendant to do anything that may be necessary on her part for the mortgage to be registered, and it is not clear that there is anything that the first defendant would be required to do for that purpose as the plaintiffs have the executed mortgage from the first defendant in registrable form. 2. There are a number of difficulties with the substance of the plaintiffs' application. The plaintiffs seek a declaration that the first defendant charged the property with the repayment of all amounts owing pursuant to the loan agreement and collateral agreement. I think the agreement to provide a mortgage which was to be registered was the granting of a charge of the property and the plaintiffs are entitled to the declaration in paragraph 1. 3. But there are substantial difficulties in respect of the balance of the substantive relief sought by the plaintiffs. They seek "consequent upon order one an order for possession of the property". No basis for making an order for possession has been established. In King Investment Solutions v Hussain [2005] NSWSC 1076; (2005) 13 BPR 25,077 Campbell J (as his Honour then was) observed (at [125]-[126]) that a registered second mortgagee of Torrens Land can bring proceedings for ejectment, but by contrast a mere equitable chargee of land has no right to possession, citing Garfitt v Allen (1887) 37 Ch D 48 at 50. His Honour continued (at [127]) that where the mortgage contains a promise by the mortgagor to give up possession upon default, then an equitable mortgagee is entitled to a declaration that it is entitled to possession once there has been default, and in appropriate circumstances could obtain an order in the nature of specific performance to enforce that promise by requiring the mortgagor to give up possession. 4. In this case, neither the loan agreement nor the mortgage includes any such promise. As an equitable chargee does not, merely by virtue of that security, have an entitlement to possession, there is no power to make the order sought requiring the first defendant to give up vacant possession. 5. The order for judicial sale is expressed in the notice of motion only to be sought consequent upon the making of an order requiring the first defendant to provide vacant possession. As an order requiring delivery up of possession will not be made, the plaintiffs, as I understand their application, do not press a claim for judicial sale. 6. I think it unlikely in any event that an order for judicial sale should be made if the Court were not able to ensure that vacant possession could be delivered up to a purchaser on completion. 7. In King Investment Solutions v Hussain, Campbell J also said (at [101]) that in most cases, it would not be a proper exercise of a judicial discretion to order sale at the suit of a second mortgagee unless there was some evidence of value. Without that evidence, it would not be possible to fix a reserve price for a sale. It would not be possible to form a view about whether it was appropriate to give the mortgagor time to pay before a sale could be made and if so, how long. And there would be serious difficulties in deciding who should have the conduct of the sale and what conditions ought be imposed for the protection of the first mortgagee. 8. In this case there is no evidence of value. That is a further reason why I would not, in any event, be prepared to make the order for judicial sale as sought, even if the other difficulties did not arise. 9. Finally, I should add that the plaintiffs are not entitled to the amount of the debt they claim to be due in their affidavits. 10. The plaintiffs obtained judgment in the Local Court against Nerong Pty Ltd and the first defendant on 12 June 2015 in the amount of $67,201.47. Their cause of action for the debt merged in that judgment. Their entitlement to interest is to post-judgment interest on the judgment debt at the prescribed rates. 11. For these reasons, I declare that the first defendant charged the property situated at and known as […] Lake Haven in the State of New South Wales being the whole of the land described in Folio [xxx]/[yyyyyy] with repayment of all amounts owing to the plaintiffs pursuant to a loan agreement dated 23 April 2015 between the plaintiffs, Nerong Pty Ltd and the first defendant. 12. I order that the claims for relief in the statement of claim be otherwise dismissed. I will hear from the plaintiffs in relation to costs. 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: 17 February 2016