Supreme Court New South Wales Medium Neutral Citation: Mastronardo v Commonwealth Bank of Australia [2019] NSWSC 466 Hearing dates: 24 April 2019 Date of orders: 26 April 2019 Decision date: 26 April 2019 Jurisdiction: Common Law Before: Fagan J Decision: (1) Application for a stay of writ of possession refused. (2) The plaintiffs to pay the defendant's costs of the stay application Catchwords: PRACTICE AND PROCEDURE - application for stay of writ of execution - no proper basis to defer execution of writ – application dismissed Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth) Cases Cited: Carmelo Adriano Mastronardo v Commonwealth Bank of Australia trading as BankWest [2017] NSWSC 1052 Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 Mastronardo v Commonwealth Bank of Australia [2018] NSWCA 136. Category: Procedural and other rulings Parties: Carmelo Adriano Mastronardo (plaintiff) Commonwealth Bank of Australia (defendant) Representation: Counsel: T D Tzovaras M L Rose Solicitors: Tomaras Lawyers Norton Rose Fulbright File Number(s): 2014/86502 Publication restriction: No Judgment 1. HIS HONOUR: At 4pm on 24 April 2019, the plaintiffs, Mr and Mrs Mastronardo, brought an application before me in the Duty List for a stay of enforcement of writs of possession issued to the Sheriff on 4 March 2019 in respect of two parcels of residential property known as 8 and 8A Pile Street Gladesville ("the Pile Street properties"). 2. The writs were issued by the defendant, the Commonwealth Bank of Australia ("the Bank") to enforce a judgment in its favour for possession of the properties. That judgment was entered in these proceedings by Hammerschlag J on 21 August 2017 for reasons published by his Honour on 11 August 2017: Carmelo Adriano Mastronardo v Commonwealth Bank of Australia trading as BankWest [2017] NSWSC 1052. 3. The Pile Street properties are mortgaged to the Bank as security for loans advanced to the plaintiffs and for the plaintiffs' liability as guarantors of loans advanced to Remo Corporation Pty Limited (in liquidation) ("Remo"). The grounds upon which a stay of execution is sought are as follows: 1. The plaintiffs, being the registered proprietors of the Pile Street properties, have resided there since June 2000. They are married and their four children aged between 7 and 5 reside with them. Hardship to the family will result from execution of the writs. 2. In other proceedings brought by the Bank against Mr and Mrs Mastronardo, Mr Mastronardo proposes to seek leave to file an amended first cross-claim in which he would claim damages of between $50M and $268M. Those other proceedings are No. 2013/95636 in this Division, entitled "Commonwealth Bank of Australia v Remo 97-99 Queens Road Pty Ltd and Others". Those proceedings concern loans made by the Bank to two subsidiaries of Remo for the development of properties at Queens Road, Five Dock. I will refer to those other proceedings as "the Queens Road proceedings". 1. The trial of the proceedings that are presently before me was conducted by Hammerschlag J in July 2017. The substantive case concerned a claim by the plaintiffs for damages said to have arisen from breach of a contractual provision under which the Bank was to release the Pile Street properties as security for the debt of Remo subject to, inter alia, there being no event of default. Alternatively, damages were claimed on the basis that in failing to honour the release provision, the Bank acted unconscionably in contravention of s 12CB(1) of the Australian Securities and Investments Commission Act 2001 (Cth). 2. Hammerschlag J also had before him the Bank's cross-claim against the plaintiffs for the unpaid balance of loans that had been advanced to the plaintiffs, for the balance of their liability as guarantors of the loans that had been advanced to Remo and for possession of the Pile Street properties under the mortgages. The Bank's cross-claim also sought possession of another mortgaged property located in Queensland. At [20]-[21] of the judgment his Honour accepted that at the commencement of the hearing on 17 July 2017 the amount owing directly by the plaintiffs on their borrowing facility was $8,308,208.16 and the amount owing as guarantors of the Remo facility was $9,938,954.27, a total of $18,247,162.43. His Honour said at [22]: In final submissions Mr and Mrs Mastronardo accepted that the maximum quantum of their damages is $7,277,804.82. Assuming an equitable set-off, the Bank is entitled to a verdict of not less than $10,969,357.61. Orders for possession of [the Pile Street properties and the Queensland security] are irresistible. 1. His Honour found that the Bank had repudiated the release provision referred to at [4] above but that this did not constitute an infringement of s 12CB(1) of the Australian Securities and Investments Commission Act (at [133]-[136]). His Honour was not satisfied that any damage was occasioned by the Bank's repudiation of the release provision because at all material times there were events of default such that the plaintiffs could not have invoked it (at [138]). The plaintiffs did not establish to his Honour's satisfaction that they could have or would have rectified the defaults (at [139]-[150]). 2. Pursuant to the judgment for possession entered by his Honour on 21 August 2017, writs of possession for the Pile Street properties were issued to the Sheriff on 25 October 2017. These writs were not executed pending an appeal brought by the plaintiffs. The Court of Appeal dismissed their appeal on 22 June 2018: Mastronardo v Commonwealth Bank of Australia [2018] NSWCA 136. 3. On 17 July 2018 the plaintiffs filed an application in the High Court for special leave to appeal. The Bank instructed the Sheriff not to proceed with execution of the writs of possession until that application had been determined. On 14 November 2018 the High Court refused special leave. 4. On 25 January 2019 the Bank took steps to reactivate the writs. They had by that date expired and on the Bank's application fresh writs were issued. On 19 March 2019 the Sheriff gave written notice to the plaintiffs that the writs would be executed on Tuesday 30 April 2019 at 10:30 am (8 Pile Street) and 11:00 am (8A Pile Street). 5. With further interest that has accrued at default rates since the money judgments and the judgment for possession were entered by Hammerschlag J on 21 August 2017, the total debt now owed by the plaintiffs and secured over the Pile Street properties is $23,507,583.29. Interest is accruing at $9,247.12 per day. The Bank has tendered on the hearing of the present stay application a sworn valuation of the Pile Street properties as at 25 July 2018 at a value of $6,100,000. A sworn valuation of the Queensland security was also tendered at a value of $750,000. Given the level of debt, the value of the securities and the absence of any other funds at the disposal of the plaintiffs, every day of delay in the Bank recovering possession and realising the Pile Street properties represents significant additional irrecoverable loss. 6. On 4 February 2019 the Bank filed in the Federal Circuit Court a creditor's petition seeking an order for sequestration of the estate of Mr Mastronardo. The petition is based upon failure to satisfy a bankruptcy notice that was served on 13 July 2018. The creditor's petition was listed before the Federal Circuit court on 4 April 2019. Mr Mastronardo filed on 11 April 2019 an amended notice of opposition asserting that the petition is out of time relative to the act of bankruptcy relied upon by the Bank and that he has a counter claim exceeding the amount of the judgment debt upon which the petition is based. 7. Hammerschlag J recorded in his reasons that the plaintiffs had not paid any interest on their loan from the Bank since May 2011 (at [47]). Interest on the loans to Remo was also unpaid from May 2011 (at [46] and [48]). It is apparent from the increase in the total balance of the debt from the amounts for which Hammerschlag J entered money judgments up to the total amount now due that nothing has been paid since his Honour's decision. 8. The assertion of hardship as a ground for the stay of execution now sought must be rejected. From 14 November 2018 when the High Court refused special leave it must have been apparent to the plaintiffs that the Bank's judgment for possession would be enforced. The plaintiffs have never suggested that they can repay any part of the enormous and rapidly increasing debt from any source independent of the sale of the Pile Street properties. They have had five months from the date of the High Court's decision within which to vacate. Any hardship which may flow from a forcible eviction at the hands of the Sheriff on 30 April 2019 will be self-inflicted. 9. In support of the second ground for a stay Mr Mastronardo has sworn an affidavit regarding a cross-claim he wishes to advance in the Queens Road proceedings. In those proceedings the Bank claims against a subsidiary of Remo, namely, Remo 97-99 Queens Road Pty Ltd ("Remo 97") and against Mr Mastronardo and his father a debt in excess of $23M. 10. The Bank alleges that this debt is the balance of advances made to Remo 97 and to a second subsidiary, Remo 49 Queens Road Pty Ltd ("Remo 49") for construction and development at 97-99 Queens Road, Five Dock and 49-51 Queens Road, Five Dock, respectively. It is alleged by the Bank that Remo 97, Mr Mastronardo and his father guaranteed the borrowings of Remo 49 and that Mr Mastronardo and his father also guaranteed the borrowings of Remo 97. 11. Development of 49-51 Queens Road was completed and Mr Mastronardo's father became the registered proprietor of 62 strata lots in the finished building. He was also the registered proprietor of the undeveloped site at 97-99 Queens Road. The Bank took mortgage security over the 62 strata lots at 49-51 Queens Road and over the title to the property at 97-99 Queens Road. Upon default by the two subsidiaries on their respective loan facilities the Bank realised these securities in about 2012 and applied the proceeds in reduction of the loan balances. The Bank then made demand on Remo 97 and on Mr Mastronardo and his father for the shortfall after application of the proceeds of sale. These demands were not met and the shortfall is the subject of the Bank's claim in the Queens Road proceedings. 12. The current defence in the Queens Road proceedings was filed on 29 October 2015. It admits the lending transactions and the guarantees and securities. It puts in issue the validity of actions taken by receivers whom the Bank appointed to the mortgaged properties. The defence pleads considerable additional detail concerning the various transactions, the purpose of invoking this detail not being readily apparent. 13. At paragraphs 90-103 of the defence it is pleaded that Mr Mastronardo's guarantees of the loans advanced to Remo 49 and to Remo 97 were subject to implied terms that the Bank would "preserve the balance of" securities provided in respect of those loans and would act "bona fide and in good faith" in the realisation of the mortgaged properties. It is also pleaded that a Banking Code of Practice applies to Mr Mastronardo's guarantees and that this imports obligations on the Bank to act "fairly and reasonably and in an ethical manner". 14. In paragraphs 104-116 of the current defence in the Queens Road proceedings it is alleged that the Bank enforced the guarantees that had been given by Mr Mastronardo's father and executed the securities that he had provided (namely the mortgages over the 62 lots at 49-51 Queens Road and over the property at 97-99 Queens Road) at a time when, as alleged by the defence, the Bank's rights in respect of these securities had not accrued. It is pleaded that the Bank thereby breached its alleged obligation to Mr Mastronardo to "preserve the balance of the securities" and to act in good faith. These events are said to have discharged Mr Mastronardo from liability on his guarantees of the debts of the two subsidiary companies. 15. In paragraphs 124-126 of the current defence the alleged discharge of Mr Mastronardo's liabilities as guarantor is pleaded on the alternative basis that the Bank breached an equitable duty owed to him not to "sacrifice or impair" the security that his father had given over the 62 lots at 49-51 Queen Road and over the property at 97-99 Queens Road. A further defence is pleaded in paragraphs 117-120 with respect to the Bank's claim for interest, namely that the provision for interest is void and unenforceable as a penalty. 16. On 21 December 2015 Mr Mastronardo's father filed a cross-claim against the Bank in the Queens Road proceedings. Notably Mr Mastronardo is not a cross-claimant. His father's cross-claim extensively and unnecessarily repeats verbatim many of the matters alleged in the defence. In essence, it is alleged that the Bank purported to execute the mortgages that Mr Mastronardo senior had given in support of his guarantees without the Bank first having made demand upon him under those guarantees and at a time when he was not in default and was not obliged to make any payment. Mr Mastronardo senior alleges that this premature action of the Bank constituted a breach of various express and implied terms of his guarantees and resulted in him being discharged from liability. 17. In the cross-claim as filed, Mr Mastronardo senior claims restitution of the proceeds of sale of the mortgaged strata lots at 49-50 Queens Road. There were two groups of sales, the first of which grossed $6,140,799.73 and the second of which grossed $12,948,280.58. Mr Mastronardo senior similarly claims that 92-99 Queens Road was sold by the Bank wrongfully in purported exercise of its power of sale, for $4,350,000. Mr Mastronardo senior claims restitution of the total of all of these proceeds of sale, a combined sum of approximately $23.5M. He makes further allegations in the existing cross-claim that some of the sales of mortgaged securities were at an undervalue and that the Bank is liable to him for loss on this account of up to $13,050,000. 18. Mr Mastronardo and his father filed a notice of motion in the Queens Road proceedings on 4 April 2019 seeking leave to file an amended defence and an amended cross-claim. The only amendment to the defence appears to be the addition of paragraphs 127-139. If those amendments should be allowed it would be alleged, additionally to what I have already summarised, that the Bank's deed of appointment of receivers to some of the secured properties did not confer upon those receivers authority to exercise a power of sale. To the extent that the receivers purported to realise the securities, it would be alleged that they acted outside their appointment and in so doing prevented Mr Mastronardo and his father from satisfying their obligations as guarantors. It would be alleged that the Bank's alleged breaches of the guarantees given by Mr Mastronardo's father and breaches of the mortgages (presumably referring to such breaches as are pleaded in the cross-claim) "are inseparably connected to and are liable to be set-off against the Bank's claims". This is apparently intended to invoke the cross-claim for restitution as an equitable set-off to the Bank's claim in debt. 19. The additional paragraphs of pleading in the amended defence also would allege that Mr Mastronardo was induced to provide his guarantee of the Bank's loan to Remo 49 by a representation that the Bank would not enforce any of the loan agreements, guarantees or mortgages prior to completion of the development of both sites in Queens Road, unless there should be "a material breach" of those agreements. It would be alleged that this representation was false and that Mr Mastronardo is on that account entitled to have his guarantee of the Remo 49 debt set aside. 20. The proposed amended cross-claim would include claims by Mr Mastronardo as pleaded in paragraphs 147-154, 159-162, 172-175 and 179-186. This is the first attempt by Mr Mastronardo to mount a cross-claim in the Queens Road proceedings. Those proceedings were commenced on 28 March 2013. Thus they have been on foot for six years and concern defaults and realisation of securities that occurred within one to two years earlier than that. Only now, 8 years after relevant events, does Mr Mastronardo seek leave to formulate a claim against the Bank arising out of the Queens Road development project and its finance facilities. 21. In paragraphs 147-154 of Mr Mastronardo's belatedly formulated cross-claim he proposes to plead, in effect, that it was a term of the loan agreements with both Remo 49 and Remo 97 and a term of his own guarantees that the repayment date for the companies' borrowings would be the completion date of the project of developing both sites. He would allege that the Bank breached the lending agreements, the guarantees and the mortgages, by appointing receivers to the mortgaged properties on 23 December 2010 when the project on the two sites had not yet been completed. He proposes to claim damages for this alleged breach. 22. In paragraphs 159-162, Mr Mastronardo would plead a misrepresentation case to the effect that he was induced to provide his guarantees by a misrepresentation that the Bank would not enforce any of the lending transactions prior to completion of the project on both sites unless entitled to do so "as a result of a breach of a material term of the agreements". Again Mr Mastronardo would, pursuant to these paragraphs, claim damages on the basis that he acted to his detriment in reliance upon this representation and that it was false. 23. In paragraphs 170-176, this misrepresentation case is in substance repeated in the character of a claim of misleading and deceptive conduct contrary to s 12DA of the Australian Securities and Investments Commission Act "or, alternatively, s 52 of the TPA [Trade Practices Act]". In paragraphs 179-180, the misrepresentation case is yet again repeated, this time in the character of a claim of unconscionable conduct contrary to s 12CB of the Australian Securities and Investments Commission Act "or, alternatively s 51AA of the TPA [Trade Practices Act]". 24. Other paragraphs of the proposed amended cross-claim within the range 139-178 would plead equivalent causes of action to be relied upon by Mr Mastronardo's father. 25. In paragraphs 181-186, Mr Mastronardo proposes to plead that the formation of the two subsidiary companies of Remo and their project of redeveloping the two properties in Queens Road were dealings carried out pursuant to a joint venture agreement between himself and his father and that the alleged breaches of contract, misrepresentation, misleading and deceptive conduct and unconscionable conduct as pleaded in paragraphs 139-180 were wrongful conduct of the Bank "prejudicial and detrimental to the interests of" both himself and his father as partners in the joint venture. 26. The proposed cross-claim does not particularise the damages claimed by either or both of Mr Mastronardo and his father on any of their causes of action. Mr Mastronardo's affidavit in support of the stay application before me provides no particularisation. It merely states in bald terms that Mr Mastronardo estimates his damages to be claimed under this proposed cross-claim "to be at least $50M and up to approximately $268M". 27. If leave is granted in the Queens Road proceedings for the amended cross-claim to be filed, it could not be relied upon as an equitable set-off to the debts for which the Bank has obtained judgment in the proceedings that are now before me. It is too late for a defensive equitable set-off to be mounted against the debts that the Bank has proved in these porceedings are owed to it by Mr and Mrs Mastronardo directly in respect of loans advanced to them, and as guarantors for the Bank's loans to Remo. This is an obvious proposition and I mention it only because on the stay application Mr and Mrs Mastronardo adduced evidence in an endeavour to show that the financial affairs of Remo and of the two subsidiaries that were concerned in the Queens Road development were intertwined. They have sought to show that some of the funds advanced by the Bank to Remo and secured over the Pile Street properties may have been transferred to Remo 49 and Remo 47 for expenditure on the Queens Road project. That evidence and the submissions made by Mr and Mrs Mastronardo's solicitor were directed to the proposition that the proposed amended cross-claim by Mr Mastronardo in the Queens Road proceedings is "significantly connected with the Bank's claim the subject of the [21 August 2017] judgments". 28. As the putative "significant connection" cannot be relied upon to found a defensive equitable set-off, it is not material to the question whether a stay should be granted. The proposed cross-claim in the Queens Road proceedings has no relevant status on the present stay application beyond it being a possible source of recovery of funds out of which Mr Mastronardo might be able to redeem the mortgages of the Pile Street properties. Even before judgment for possession of the Pile Street properties had been entered by Hammerschlag J on 21 August 2017, the Court would not have refused the Bank that relief by way of enforcement of its securities merely upon the ground that the mortgagors were proposing to make a claim against the Bank, being a claim not propounded as an equitable set-off. See Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161. 29. The position is still clearer against granting a stay of execution now that judgment for possession has been entered following a contested hearing and exhaustion of appeal rights. The possibility that one of the registered proprietors may obtain leave to file a cross-claim against the Bank in other proceedings and may recover some damages on a cause of action proposed to be advanced in that cross-claim provides no justification for staying the writs of possession or otherwise denying the Bank its rights under the mortgages or delaying the enforcement of those rights. Orders 1. Accordingly: 1. The application for a stay is refused. 2. The plaintiffs are to pay the defendant's costs of the stay application. ********** 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: 29 April 2019