Fotofili v Pepper Finance Corporation Limited [2016] NSWSC 421

Supreme Court New South Wales

Medium Neutral Citation: Fotofili v Pepper Finance Corporation Limited [2016] NSWSC 421 Hearing dates: 30 March, 6 April and 8 April 2016 Date of orders: 08 April 2016 Decision date: 08 April 2016 Jurisdiction: Equity - Duty List Before: Kunc J Decision: Summons dismissed Catchwords: REAL PROPERTY – Torrens system – Caveat by registered proprietor – Mortgagee sale – Contracts exchanged – No serious question to be tried of breach of duty by mortgagee – No issue of principle Legislation Cited: Real Property Act 1900 (NSW) Cases Cited: Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870 Texts Cited: Fisher & Lightwood's Law of Mortgage, Second Australian Edition, Lexis Nexis Butterworths 2005 Category: Principal judgment Parties: Talei Anne Fotofili (Plaintiff – in person)

Pepper Finance Corporation Limited ACN 094 317 647 (Defendant) Representation: Counsel: D.P. Newton (Defendant)

Solicitors: Kemp Strang (Defendant) File Number(s): 2016/96870 Publication restriction: No

EX TEMPORE Judgment (REVISED) 1. HIS HONOUR: On 30 March 2016, I extended the operation of caveat AK180523 (the "Caveat") on the ex parte application of the plaintiff, Ms Fotofili, who appeared in person. By reason of the operation of a lapsing notice, the Caveat would have expired that day. I extended the operation of the Caveat until 7 April 2016 to enable the matter to be dealt with on a contested basis. Due to the exigencies of the Duty List the matter has finally come on for contested hearing before me today. 2. Ms Fotofili again appeared in person. Mr D P Newton of Counsel appeared for the defendant, Pepper Finance Corporation Limited ("Pepper Finance"). 3. The Caveat referred to an attached annexure which provided: (G) ACTION PROHIBITED 2, 5, 7 and any dealing with respect to section 74H(5) (g) and (i) of the Real Property Act 1900. SCHEDULE 1 ESTATE OR INTEREST CLAIMED Particulars of the Estate or interest in the abovementioned land: Legal and equitable interest in the strata title unit 3/SP1863 as the registered proprietor. By virtue of the instrument referred to below: N/A By virtue of the facts stated below: 1/ The caveator was not in default of the mortgage with the mortgagee. 2/ The caveator is the registered proprietor of the strata title unit. The mortgagee took possession of the unit on 18 November 2015 pursuant to an order of the Supreme Court of NSW. The mortgagee scheduled an auction of the unit for 19 December 2016. The caveator made arrangements to refinance her loan from the mortgagee with Bluestone Mortgages. Notice of conditional approval of a loan from Bluestone Mortgages was provided to the mortgagee on 18 December 2016. The mortgagee refused to allow time for the approval of the loan to become unconditional and proceeded to auction the unit on 19 December 2015, at the time when the debt owing the mortgagee was approximately $350,000 and the value of the unit was $700,000. Unconditional approval of the loan from Bluestone Mortgages was given to the caveator and a copy to the mortgagee on 21 December 2015. The caveator asserts that in these circumstances the mortgagee should not have exercised its power of sale and that the sale of the unit should be set aside. 3/ The strata title unit is the registered proprietor's sole residence with her 10 year old son. 1. Significantly for present purposes the Caveat prohibited the registration of a transfer by a mortgagee (see s74H (5) (g) of the Real Property Act 1900 (NSW). 2. The evidence discloses that Ms Fotofili took out a loan from Pepper Finance. She fell into arrears and judgment for possession of the property which is the subject of the Caveat, and for her debt to Pepper Finance in the sum of $356,859.01, was obtained on 21 April 2015. 3. A writ for possession issued and on 14 July 2015 Ms Fotofili, together with her nine year old son, vacated the property. 4. On 19 December 2015 the property was sold at public auction for $585,000. It was expected that the settlement would occur on 1 February 2016. 5. On 23 December 2015 Ms Fotofili lodged a caveat (the "First Caveat"). A lapsing notice was issued in relation to the First Caveat and the settlement of the sale of the property was rescheduled to 18 February 2016. On 29 January 2016 Ms Fotofili withdrew the First Caveat and lodged the Caveat. 6. On 8 March 2016 a lapsing notice was served in relation to the Caveat and a further settlement for the sale of the property was scheduled for Friday 18 March 2016. 7. Ms Fotofili does not dispute either the validity of the judgment for possession of the property or the judgment debt. As will be apparent from the facts relied on in support of the Caveat (see paragraph [3] above), her real complaint is that the sale was allowed to continue on 19 December 2015 notwithstanding that only the day before she had received notice of conditional approval for fresh finance. Her argument is that she should have been given, in those circumstances, an opportunity to pay out the debt and avoid the sale of the property. Furthermore, she alleges that Pepper Finance's exercise of its power of sale was otherwise deficient. 8. As the registered proprietor of the property, Ms Fotofili is entitled to maintain the Caveat if she is able to demonstrate a legal or equitable entitlement, over and above the mere fact of her registered proprietorship, to prevent a dealing in the property pursuant to some right which she might allege in relation to which there is a serious question to be tried. This includes where it is alleged a mortgagee has breached its duty to the mortgagor in exercising its power of sale: Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870. 9. I accept Mr Newton's submission for Pepper Finance that the fundamental difficulty for Ms Fotofili is that nothing which has occurred gives rise to a serious question to be tried that she has an equity that would entitle her, in effect, to restrain the completion of the sale of the property through the continuation of the Caveat. She may have a weak action against Pepper Finance in relation to its exercise of power of sale. However, particularly in circumstances where innocent third party interests have intruded in the form of a purchaser who has now had settlement deferred on at least two occasions due to caveats filed by Ms Fotofili, her sufficient remedy (if any) is in damages. There is also no suggestion either that as at the date of the sale of the property she was, in fact, in a position to make good her arrears or that she could do so today in support of her application to extend the Caveat. 10. Mr Newton has drawn to my attention the observation in Fisher & Lightwood's Law of Mortgage, Second Australian Edition, 2005, at 506, that a mortgagee sale will: ....ordinarily only be stopped if the payment or tender is made before there is a binding contract for sale of the mortgaged property and that is when the power of sale is actually exercised: … 1. There was no payment or tender made by Ms Fotofili prior to or on the day of the auction which resulted in the property being sold. Nor has she made any tender to the Court today. 2. For these reasons the Court declines to extend the Caveat. It will lapse today. 3. This then leaves the question of Ms Fotofili's summons. It does claim what appears to be intended to be final relief in relation to the exercise of the power of sale. However, if Ms Fotofili intends to pursue Pepper Finance for damages in relation to the exercise of the power of sale, the court would normally order the provision of a Statement of Claim. 4. For good order in the present case, it seems to me the better course is to dismiss the summons, but without prejudice to Ms Fotofili's rights to bring proceedings for damages in relation to Pepper Finance's exercise of its power of sale. 5. Having given the reasons in the preceding paragraphs, Ms Fotofili has now applied to me for an injunction, relying on paragraph 2 of her summons, with which she proposes to persist: 2. Order for defendant to exercise its power to set aside sale of unit as per auction 19 December 2015 and for plaintiff to be granted with all proceedings for the recovery of possession of property as stated above. 1. She informs me from the bar table that she has a valuation for the property, as at about the date it was sold, of approximately $700,000. She says that selling the property shortly before Christmas was an inadequate exercise by the mortgagee of its duties in exercising its power of sale. 2. Mr Newton responds that, having sold the property by public auction, there is a very strong case (in the absence of any further evidence) that Pepper Finance exercised the power of sale in accordance with its duties. He, with respect, correctly points out that in general terms the good faith duty cast upon a mortgagee is not to obtain the best price indicated by a valuation but to sell the property for the best price in the circumstances (assuming, in the case of an auction, proper advertising and the like). There is no evidence before me that there was any deficiency in the way the property was sold. In particular, there is no lay or expert evidence before the Court that would enable the Court to conclude that there was a serious question to be tried based solely upon the fact that the property was sold in the lead-up to Christmas and that, in doing so, Pepper Finance did not properly fulfil it duties to Ms Fotofili as mortgagor. 3. The Court approaches applications for the extension of caveats by applying the same principles that govern interlocutory injunctions. Ms Fotofili's application for an injunction comes back to exactly the same question, or exactly the same fundamental difficulty, that I identified earlier in relation to the Caveat, namely that Ms Fotofili has not demonstrated a serious question to be tried and that her remedy (if any) now must rest in damages. 4. The evidence does not disclose a serious question to be tried as to a breach of duty. The balance of convenience, particularly now that a third party interest has intruded in the form of the purchase of the property, does not favour the Court interfering. There is no evidence the purchaser was on notice of anything that could be said to be an impropriety in relation to the sale by Pepper Finance. 5. The Court having determined her application for an injunction, Ms Fotofili indicated that she wished to persist with her summons. Mr Newton moved for the dismissal of the summons. In my view that is the appropriate course given that settlement of the sale will now proceed, provided that if Ms Fotofili wishes to file a Statement of Claim in relation to her rights (if any) to damages in connection with the sale of the property, dismissal of the summons should be without prejudice to that possible course. Mr Newton accepts that is an appropriate proviso to be extended to Ms Fotofili. 6. On the question of costs, Mr Newton says that costs should follow the event. Ms Fotofili resists that on the basis that she has already undergone, and continues to undergo, what she tells me is significant financial hardship. I accept that is the case. However that is not a proper reason for a party which is otherwise entitled to it costs to be deprived of those costs. Costs should follow the event. 7. The orders of the court are: 1. Summons dismissed. 2. Order 1 is without prejudice to the plaintiff's ability to pursue any rights she may have for damages in connection with the sale of the property by the defendant in fresh proceedings. 3. The plaintiff is to pay the defendant's costs of these proceedings.