Supreme Court New South Wales

• Medium Neutral Citation: Australia and New Zealand Banking Group Ltd v Kavia Holdings Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2013] NSWSC 1532
• Hearing dates: 17 October 2013
• Decision date: 17 October 2013
• Jurisdiction: Equity Division - Commercial List
• Before: Stevenson J

Decision

Bank entitled to possession of property

• Catchwords: REAL PROPERTY - possession of land - proper construction of mortgage - whether property a secured debt under the mortgage - whether a tenancy order ought to be made under s 125(4) of the Residential Tenancies Act 2010 - whether "special circumstances" exist
• Legislation Cited: Real Property Act 1900; Residential Tenancies Act 2010; Social Security Act 1991 (Cth)
• Cases Cited: O'Neill v Commonwealth Bank of Australia [2013] NSWSC 836; Perpetual Finance Corporation Ltd v Blain (1996) 9 BPR 16, 243; Perpetual Trustees Victoria Ltd v English [2009] NSWSC 478; Provident Capital Ltd v Printy [2008] NSWCA 131; Re Beadle and Director-General of Social Security (1984) 6 ALD 1; Small v Tomassetti [2001] NSWSC 1112
• Texts Cited: Allan Anforth, Peter Christensen and Bill Taylor, Residential Tenancies Law and Practice New South Wales, 5th ed (2012)
• Category: Principal judgment
• Parties: Australia and New Zealand Banking Group Limited (plaintiff); Kavia Holdings Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (first defendant); Christopher William Crawley (second defendant); Judith Kiralyhidi Crawley (third defendant); Springsley Holdings Pty Ltd (fourth defendant)
• Representation: Counsel: D R Sulan (plaintiff); A J L Ogborne (second to fourth defendants); Solicitors: Clayton Utz (plaintiff); Bruce & Stewart Lawyers (second to fourth defendants)
• File Number(s): SC 2013/285059
• Publication restriction: Nil

EX TEMPORE Judgment (REVISED)

1 By a Commercial List Summons filed on 20 September 2013, the plaintiff ("the Bank") seeks possession of a property at Elizabeth Bay ("the Property"). As originally constituted, the only defendant to the proceedings was Kavia Holdings Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed). Kavia is the registered proprietor of the Property and the mortgagor of it to the Bank.

2 The matter was first before the Court on 4 October 2013. On that occasion, the second and third defendants, Mr and Mrs Crawley were joined as parties to the proceedings. Mr and Mrs Crawley sought to have the proceedings transferred to the Possession List in the Common Law Division. Hammerschlag J declined that application and listed the matter for hearing today.

3 Kavia was placed into administration on 16 April 2013. The administrators do not appear and do not oppose the orders sought by the plaintiff.

4 Mr and Mrs Crawley, at all relevant times, have been directors of Kavia. Mr Crawley is a 49 per cent shareholder in Kavia. Mr and Mrs Crawley are in occupation of the Property. On 27 March 2012, Mr and Mrs Crawley executed a Residential Tenancy Agreement ("the Lease"). They executed the Lease as directors of Kavia (as lessor) and personally (as lessees). The term of the Lease commenced on 31 March 2012 and expiries on 28 February 2015; a term of two years and eleven months.

Basis of the Bank's case

5 The Bank's claim for possession arises from the following facts.

6 On 12 May 1992, Kavia granted the Bank a first registered mortgage ("the Mortgage") over the Property.

7 The Mortgage was expressed to be "in consideration of all or any loans advances credits or banking accommodation whether made created or given on the signing hereof or that may hereafter be made created or given in its discretion by the Bank to for or on account of [Kavia]."

8 Clause 1 of the Mortgage contained the following provision:

"That [Kavia] will on demand in writing pay to the Bank... the amount or balance which shall for the time being be owing or unpaid by [Kavia]... to the Bank... for or in respect of all loans advances credits or banking accommodation heretofore made created or given by the Bank or now or which may hereafter be made created or given by the Bank to for or on account or at the request of [Kavia]... or in respect of any indebtedness from [Kavia]... to the Bank on any account whether now existing or which may hereafter be opened or by any means whatsoever including all sums which [Kavia]... is or may hereafter become liable immediately or contingently to the Bank upon or in respect of any account or accounts in which [Kavia]... is now or may hereafter be interested or concerned...".

9 The Mortgage was thus an "all moneys" mortgage.

10 The Mortgage was granted, originally, to secure to the Bank an advance then made by it to Kavia of $1.85 million to secure the purchase by Kavia of the land on which the Property is located, and the buildings then on that land.

11 Some 19 years later, on 28 July 2011, the Bank, by Letter of Offer offered to make available to Kavia a range of facilities in an amount in the order of $60 million. The Letter of Offer was addressed to the "Aldonet Group", of which Kavia is evidently a member. The various members of the Aldonet Group, including Kavia, accepted the Bank's offer. Mr and Mrs Crawley accepted the Letter of Offer on behalf of Kavia as its directors.

12 The facilities in the Letter of Offer relevantly terminated on 29 February 2012. Upon termination of the facilities, the outstanding amount under them was due and payable.

13 Mr and Mrs Crawley thus executed the Lease within a month of the termination of the facilities.

14 The Bank made demand on Kavia on a number of occasions for the amounts due under the facilities referred to in the Letter of Offer. Relevantly, the Bank purported to make demand on Kavia on 5 February 2013 in circumstances to which I will refer further below.

15 There is no dispute that Kavia is liable to, but has not paid, the amount the subject of the demand of 5 February 2013. The amount due is, as at today, $45,499,296.53.

16 Mr and Mrs Crawley seek to resist the Bank's claim for possession of the Property on three bases.

Mortgage not secured debt

17 As I mentioned, the Mortgage is expressed to secure, in effect, "all moneys". On the face of it, the words of the Mortgage are apt to capture the advances made pursuant to the Letter of Offer.

18 However, Mr Ogborne, who appeared for Mr and Mrs Crawley, submitted that because the Letter of Offer was not expressly incorporated into the Mortgage (unsurprisingly as it was executed some 19 years before), Kavia's admitted obligations under the Letter of Offer are not secured by the Mortgage. Mr Ogborne submitted that the Mortgage does not, and he adds did not at any time, secure any obligation of Kavia to the Bank. Not the amounts advanced by the Bank to Kavia concurrently with provision of the Mortgage. Not the amounts now due by Kavia to the Bank under the Letter of Offer. Nothing.

19 Mr Ogborne accepted the effect of this submission is that execution of the Mortgage by Kavia did not confer on the Bank any right beyond the personal covenants in the Mortgage.

20 In support of this alarming proposition, Mr Ogborne relied on a line of authorities summarised recently by Simpson J in Perpetual Trustees Victoria Ltd v English [2009] NSWSC 478; and in particular, on the decision of the Court of Appeal in Provident Capital Ltd v Printy [2008] NSWCA 131.

21 However, those cases were concerned with the circumstances where, although the Mortgage was registered, the signature purporting to be that of the mortgagor was a forgery.

22 In those cases, the mortgagor, in truth, had made no promise to the mortgagee.

23 Because the mortgagor's signature was forged, the mortgagee's entitlement under the mortgages in question was entirely dependent on the registration of the mortgage and such rights of indefeasibility which arose thereby (see, for example, Printy at [14]).

24 In each of those cases, Campbell J's familiar question in Small v Tomassetti [2001] NSWSC 1112 arose for consideration:

"Notwithstanding that registration confers indefeasibility on a mortgagee there is still a question, 'Indefeasibility for what?'" (at [9]).

25 The effect of this line of cases was summarised by Simpson J in English at [121] to [128].

26 In summary the position is that, in the case of forgery of the mortgagor's signature, the indefeasibility provisions of the Real Property Act 1900 will only protect the mortgagee if the promise of repayment of the particular debt relied on is actually incorporated in the mortgage.

27 But that is not this case.

28 Here, there is no dispute that Kavia gave the Bank the promises in the Mortgage. Thus, the questions which arose in the cases to which I have referred do not arise here. Here, the Bank does not rely merely on the registration of the Mortgage. It relies on the promises made by Kavia in the Mortgage.

29 The Bank moves for an order under s 60 of the Real Property Act for possession of the Property. The matters arising in cases such as Printy have no bearing on the question. The fact that the Bank is relying on an "all moneys" clause in the Mortgage, which does not, in terms, incorporate by reference the Letter of Offer is beside the point.

30 I therefore reject the submission that the debt is not secured by the Mortgage.

Proper construction of the Mortgage

31 Mr Ogborne also submitted that, on the proper construction of the Mortgage, the Bank was not entitled to possession, unless there was default "under the Mortgage" (and not merely under the Letter of Offer).

32 I have mentioned that cl 1 of the Mortgage provides that Kavia "will on demand in writing" pay the Bank the amount due.

33 Mr Ogborne submitted there had been no "demand in writing" made by the Bank to Kavia.

34 In support of that submission, Mr Ogborne pointed to the fact that the notice of demand of 5 February 2013, after reciting the identity of the various members of the Aldonet Group (including Kavia), referred to them as "together the Aldonet Group". Nonetheless, it appears to me from the form of the demand that it is addressed to Kavia, albeit as one of a number of other companies. It appears to me plain on the face of the demand that it is addressed to each of those companies, severally, and it is a demand sufficient to enliven cl 1 of the Mortgage.

Section 125 of the Residential Tenancies Act 2010

35 Alternatively, Mr and Mrs Crawley seek an order under s 125(4) of the Residential Tenancies Act 2010.

36 Section 125 provides that if, as here, a party who is not a "landlord" commences proceedings for recovery of land, a tenant under a "residential tenancy agreement" may apply for an order under s 125(4).

37 Section 125(4) is in the following terms:

"The court or Tribunal may, on such an application, and if it thinks it appropriate to do so in the special circumstances of the case, make an order vesting a tenancy over the residential premises in the applicant."

38 There is no dispute that Mr and Mrs Crawley are tenants under a "residential tenancy agreement".

39 However, to enliven s 125(4), Mr and Mrs Crawley must show that it is "appropriate" to make an order vesting a tenancy in the "special circumstances" of the case.

40 In Perpetual Finance Corporation Ltd v Blain (1996) 9 BPR 16, 243, Giles J said, in the context of s 76(3) of the former Residential Tenancies Act 1976:

"The word 'special' invites comparison so that it may be asked special in relation to what. There must be more than the fact that the tenant must otherwise give up possession...; not all tenants who have to give up possession will qualify, and the successful tenant must provide grounds for taking his position out of the ordinary to the extent that the circumstances attract the description of special".

41 The authors of Anforth et al, Residential Tenancies Law and Practice New South Wales, 5th ed (2012), point out that there are few cases in the tenancy jurisdiction which discuss the concept of "special circumstances" but that the expression has received a great deal of consideration in the context of the Social Security Act 1991 (Cth). For example, in Re Beadle and Director-General of Social Security (1984) 6 ALD 1, Toohey J said:

"An expression such as "special circumstances" is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special." (at 3).

42 Mr Ogborne relied upon a number of matters which, he submitted, amounted to "special circumstances".

43 First, he submitted that Mr and Mrs Crawley had entered into a lease for a "substantial term". It is true that Mr and Mrs Crawley entered into the Lease for a period of two years and eleven months. But they did so after the term of the loan had expired. And they did so as directors of Kavia, as well as tenants.

44 The "substantial term" was one month short of the date by which Mr and Mrs Crawley would be obliged to cause the Lease to be registered for the purposes of s 42(1)(d) of the Real Property Act. In cross-examination, Mr Crawley accepted he had caused the Lease to have a term of two years and eleven months for that reason. Mr Crawley also said that he had no recollection of giving any notice to the Bank of entering into the Lease.

45 Mr Ogborne pointed to the fact that Mr and Mrs Crawley had paid rent in advance. That is true, but the manner in which the rent was paid in advance was by the giving by Mr Crawley of instructions (evidently not implemented until well after the Lease was commenced) to some person within the Aldonet empire to set-off the rent against Mr Crawley's loan account with Kavia.

46 Mr Ogborne submitted it is unlikely Mr and Mrs Crawley will be able to recover the rent. That may be, although there is no evidence before me as to Kavia's financial position.

47 Further, Mr and Mrs Crawley have no other available place of residence. Mr Crawley's evidence does establish that. But that is not a weighty consideration (see the observations of Giles J at [40] above).

48 Mr Ogborne submitted that the Bank has not established the necessity for possession, in that it has not proved that sale of such other securities, as the Bank has, will not be sufficient to cause repayment of the overall amount due. There is no evidence either way on that subject.

49 The legislation is plainly beneficial legislation designed to protect tenants who find themselves in a vulnerable position because of action taken by a mortgagee in circumstances not connected with their tenancy of the property.

50 Here, Mr and Mrs Crawley are not in that position. In no sense are they at arms length from the mortgagor.

51 The circumstances before me are quite unlike those which were recently considered by Slattery J in O'Neill v Commonwealth Bank of Australia [2013] NSWSC 836. In that case, the mortgagor, without notice to the mortgagee, leased premises for three months to an arms length tenant. Unbeknownst to the tenant, the mortgagee had by then obtained judgment for possession and had been granted a writ of possession. The matter came before Slattery J urgently because, after the tenant had been in possession for about a month, the mortgagee levied execution and caused the tenant to be locked out. It was under those circumstances Slattery J granted the tenant a s 125(4) tenancy until the expiry of the three month term.

52 The circumstances before me are a far cry from those.

53 In my opinion, the legislation is not directed to give effect to what I would conclude was a device adopted by Mr and Mrs Crawley to thwart what they must have anticipated to be the Bank's intention, ultimately, to move for possession.

54 In those circumstances, I am not prepared to find the existence of special circumstances such as to warrant the creation of a s 125(4) tenancy.

55 The Bank is entitled to the relief it seeks.

**********

Decision last updated: 18 October 2013