Rod Cameron, Hicksons: CASE STUDY - Mortgage enforcement

Rod Cameron, Hicksons: CASE STUDY - Mortgage enforcement



Rod Cameron, Partner, Hicksons delivered this presentation at the 2013 Credit Law conference. The event offers key insights from the regulators; thought-provoking sessions from industry leaders; and ...

Rod Cameron, Partner, Hicksons delivered this presentation at the 2013 Credit Law conference. The event offers key insights from the regulators; thought-provoking sessions from industry leaders; and updates on all the regulatory changes impacting the sector. For more information on the annual event, please visit the conference website:



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Rod Cameron, Hicksons: CASE STUDY - Mortgage enforcement Rod Cameron, Hicksons: CASE STUDY - Mortgage enforcement Presentation Transcript

  • This address represents a brief summary of the law relating to the issues raised and should not be relied on as a substitute for professional advice. Specific legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred as a result of reliance on this address. © Hicksons 2013 Mortgage Enforcement Update 3 October 2013 Address by Rod Cameron
  • © Hicksons 2013 Slide 2 Overview • Stay applications – relevant factors in recent cases • Unjust contract defences – trends in recent cases • Proportionate liability – impact on enforcement and related claims
  • © Hicksons 2013 Slide 3 Stay applications • Where a lender is enforcing a mortgage through a court a borrower may make an ‘11th hour’ attempt to stop or delay the process, often by seeking a stay of a possession judgment or order • On a stay application the court must weigh up the interests of all parties to determine what is fair and reasonable and what is in the interests of justice: • the borrower must be afforded reasonable opportunity to put a case • the lender must be allowed to enforce its rights without undue delay • NSWSC Practice Note SC CL 6 sets out procedures for stay applications in NSWSC and provides a useful guide for other jurisdictions
  • © Hicksons 2013 Slide 4 Hargraves Secured Investments v Poole [2012] NSWSC 1612, Garling J, 21 December 2012 • Default judgment entered • Borrowers applied for stay of writs and setting aside of default judgment • Compromise agreement allowed borrowers 120 days to sell property with consent judgment to be held by lender pending expiry • Borrowers applied for stay of judgment on grounds lender: • breached compromise agreement by notifying local council that mortgagee in possession by lodging change of address • failed to promptly provide payout figure • should allow borrowers to complete negotiations for a wind farm
  • © Hicksons 2013 Slide 5 Hargraves Secured Investments v Poole (continued) • Court found no breach of compromise agreement, no delay in providing payout figure and, balancing interests of judgment, no basis to grant another stay in light of earlier agreement
  • © Hicksons 2013 Slide 6 BNY Trust v Shepherd [2013] NSWSC 51, Harrison As J, 7 February 2013 • 68 year old lady unable to read or write, duped by step daughter into borrowing to on-lend • Multiple default notices and enforcement notices intercepted by step daughter who paid arrears a number of times however in April 2012 step daughter told lender she would no longer be assisting • Borrower applied for stay of enforcement, setting aside of judgment and opportunity to file a defence
  • © Hicksons 2013 Slide 7 BNY Trust v Shepherd (continued) • Court held: • technical deficiencies on default judgment application (incorrect identification of occupants and lack of details of sources of knowledge in affidavits) minor and did not go to substance of dispute – did not justify stay • proposed defence was bona fide and delay, whilst 5 years and presumably would cause some prejudice, not sufficient to prevent a fair trial to both parties – did justify stay • Default judgment set aside and borrower allowed 14 days to file defence
  • © Hicksons 2013 Slide 8 Ozden & anor v CBA [2013] VSCA 195, Robson AJA, Hansen JA, 2 August 2013 • Borrowers defended possession proceedings unsuccessfully at first instance • Borrowers appealed and applied for stay • Court of Appeal noted: • special circumstances required to depart from ordinary rule successful litigant entitled to benefits even if appeal pending • special circumstances likely if necessary to prevent successful appeal being nugatory
  • © Hicksons 2013 Slide 9 Ozden & anor v CBA (continued) • Court held: • Borrowers sentimental attachment to family home where children borne not special circumstances • Borrowers had not been fully frank in disclosing their financial circumstances in evidence • Court dismissed stay application
  • © Hicksons 2013 Slide 10 Windlock v V & M Davidovic [2013] NSWSC 1320, Davies J, 12 September 2013 • Judgment for possession 23 July 2012 • Discussions resulted in March 2013 agreement that writ could be issued but would not be enforced until after 26 June 2013 • Borrower subsequently requested stay of writ on the basis: • need to relocate business from security property • potential offer for purchase of security property • borrower agreement to pay 6 months rent in advance • borrower had equitable right based on conversations with lender
  • © Hicksons 2013 Slide 11 Windlock v V & M Davidovic (continued) • Court held: • No legal or equitable right to remain in property demonstrated • Effect on third parties caused by borrower’s failure to act • No certainty regarding potential sale • Court dismissed stay application
  • © Hicksons 2013 Slide 12 Unjust contract claims • Contracts Review Act 1980 (NSW) s7 Where contract unjust at the time it was made, the Court may, if it considers it just: • refuse to enforce any or all of the contract • declare the contract void, in whole or in part • vary the contract in whole or in part and/or vary or terminate a land instrument • National Credit Code s76 Where credit contract unjust at the time it was entered into or changed, the Court may reopen the credit contract and: • reduce the amount payable by the borrower • set aside or vary the credit contract • order discharge of any mortgage • make orders for the benefit of the parties • make ancillary or consequential orders
  • © Hicksons 2013 Slide 13 Unjust contract claims (continued) • Borrowers can seek to avoid or vary loan contracts and mortgages alleging that the contract was unjust • Frequently such cases involve allegations that the borrower has been conned into the loan contract by a son, daughter or close friend
  • © Hicksons 2013 Slide 14 First Mortgage Management v Pittman [2012] NSWSC 1332, Garling J, 1 November 2012 • Borrowers were 2 elderly brothers, uneducated, unsophisticated, living a subsistance lifestyle • Margot Locke was a neighbour and property developer – befriended the borrowers – described by court as manipulative, greedy, exploiter of the vulnerable and thoroughly discreditable • Locke convinced borrowers to borrow money secured by mortgages over their properties for her development projects • Locke dealt with lender and arranged for her solicitor to provide ‘independent’ legal advice to borrowers to meet lending requirements
  • © Hicksons 2013 Slide 15 First Mortgage Management v Pittman (continued) • Court concluded the loan contracts were unjust when made for the following reasons: • material inequality in bargaining power between lender and borrowers • no negotiation about terms – presented by Locke as ‘fait accompli’ • no reasonable opportunity for borrowers to negotiate or reject terms, given documents sent to lawyers nominated by Locke • neither borrower able to reasonably protect their own interests • lender’s superior and dominant position not rectified by legal advice because it was not of substance and was not independent of Locke • borrowers’ legal advice did not meet and could not have met lender’s requirements of independence
  • © Hicksons 2013 Slide 16 First Mortgage Management v Pittman (continued) • borrowers’ legal advice did not explain the terms and their legal and practical effect • loan structure – LVR and interest rates meant all equity likely to be quickly consumed by interest • reliance on development proceeds problematic because no legal obligation on Locke to make any repayment and lender made no enquiries regarding its nature and extent • lender failed to comply with lending manual • borrowers received no direct financial benefit
  • © Hicksons 2013 Slide 17 Provident Capital v Naumovski [2013] NSWSC 40, Garling J, 8 February 2013 • Husband and wife borrowers immigrated from Macedonia in 1968, husband only 2 years formal education and spoke only basic English, wife no formal education and spoke practically no English, neither could read or write • Home purchased in 1993 unencumbered until 2004 when mortgaged to secure loan to assist daughter and son-in-law fish and chip shop business. Loans were refinanced in 2006 and 2007. Refinance loans went into default and refinancing lender claimed possession under mortgage or restitution for payout of previous loans • Borrowers claimed that loans were unjust and claimed against their solicitors (negligence) and Registrar General (Torrens Assurance Fund)
  • © Hicksons 2013 Slide 18 Provident Capital v Naumovski (continued) • Court did not accept borrowers or their daughter as truthful witnesses • Court was satisfied on solicitor’s evidence that before signing the 2006 and 2007 documents the borrowers received and understood the explanation of the documents given by the solicitors • Court determined that the transactions were not unjust: • loans did not result from fraud by daughter • parents consciously provided financial support to daughter knowing potential consequences • transaction was financially unwise but not unjust • loan was an asset lend but that did not necessarily mean unjust
  • © Hicksons 2013 Slide 19 Provident Capital v Naumovski (continued) • even though lender was not aware of the circumstances, the product was a low doc product and lending guidelines regarding serviceability required only self certification of income and affordability • Court held that the borrowers’ solicitors: • in 2006 and 2007 were not negligent in advising the borrower using their daughter as translator • in 2004 were negligent in advising the borrowers without a translator but the borrowers’ deliberate conduct entering into the refinancing transactions broke any chain of causation with the loss
  • © Hicksons 2013 Slide 20 Provident Capital v Papa [2013] NSWCA 36, Allsop P, Macfarlan JA, Sackville AJA, 28 February 2013 • Divorced female 61-year-old Sicilian immigrant at son’s request borrowed $700,000 plus a subsequent advance of $125,000 to assist son with purchase of equipment and working capital for gym business – loan secured by mortgage over borrower's home from which she conducted her business • Loan introducer arranged solicitor for borrower and son • Gym business failed, lender took proceedings for possession • Borrower cross claimed alleging loan contracts unjust and alleging negligence of solicitor caused loss
  • © Hicksons 2013 Slide 21 Provident Capital v Papa (continued) • At first instance Fullerton J found the loan introducer was the agent of the lender and the loan contracts were unjust and reduced liability by amounts applied to gym business and dismissed borrower’s cross-claim against solicitor
  • © Hicksons 2013 Slide 22 Provident Capital v Papa (continued) • On appeal court allowed lender’s appeal against borrower and borrower’s appeal against solicitor, finding: • the loan introducer was not the agent of the lender however the loan introducer’s knowledge was relevant to unjustness • loan contracts were not unjust: • borrower applied for a low doc loan • public interest does not necessarily require asset lending to be proscribed or even deterred – if lender is satisfied borrower is able to make the decision or has received appropriate advice public interest will ordinarily have been satisfied
  • © Hicksons 2013 Slide 23 Provident Capital v Papa (continued) • lender was not completely unconcerned about servicing because lender required borrower declaration of affordability, undertook credit checks and required borrower to get independent legal advice • lender entitled to assume independent legal advice would be proper • lender was not aware borrower suffered any disability • borrower’s solicitor negligent and liable for the borrower’s loss: • failed to advise borrower of risks • failed to advise borrower to obtain independent financial advice
  • © Hicksons 2013 Slide 24 Williams v CBA [2013] NSWSC 335, Pembroke J, 3 April 2013 • Guarantee and mortgage to support bank facilities provided to son • No default, demand or claim for possession • Guarantor took proceedings alleging guarantee and mortgage unjust • In 2007 when guarantee and mortgage entered into guarantor was 76 years old
  • © Hicksons 2013 Slide 25 Williams v CBA (continued) • Court determined guarantee and mortgage were not unjust noting: • age itself not a disabling condition • not enough that guarantor obtained no personal benefit other than moral satisfaction of paternal benevolence • lender not required to investigate motives of guarantor or relationships with other children (unless put on notice) • ordinarily sufficient if lender ensures guarantor understands transaction, comprehends legal effect and agrees • lender must ensure guarantor understands independent legal advice is desirable and guarantor has opportunity to obtain
  • © Hicksons 2013 Slide 26 Karamihos v Bendigo & Adelaide Bank [2013] NSWSC 172, Pembroke J, 8 March 2013 • Husband and wife borrowers elderly migrants from Greece • Highly geared with history of frequent refinancing • Lender credit policy stated borrowers’ age must be considered and if elderly exit strategy available for loan • In loan application borrowers asserted separate commercial property securing separate $750,000 loan was worth $2 million • No independent legal or financial advice
  • © Hicksons 2013 Slide 27 Karamihos v Bendigo & Adelaide Bank (continued) • Court held: • Borrowers probably couldn’t read or understand representations in loan documents that independent legal and financial advice recommended • Lender reliance on borrowers’ estimate of commercial property value (being the exit strategy) unreasonable • Public interest required protection of aged borrowers not able to look after themselves • Court determined loan and mortgage contract unfair – reopened to put borrowers in same position they would have been in if they had not taken on the increased borrowings on the new loan terms.
  • © Hicksons 2013 PTVL v Belcastro (No 2) [2013] NSWSC 1189, Adams J, 30 August 2013 • Husband and wife borrowed funds by low doc loan to support fencing business they had bought into • Repayments made from 2003 to 2008 • Borrower wife defended claim for possession alleging loan and mortgage contract were unjust
  • © Hicksons 2013 Slide 29 PTVL v Belcastro (No 2) (continued) • Court determined loan and mortgage were not unjust noting: • public interest had to be taken into account – keeping people to their bargains • public interest also required protecting the vulnerable and promoting suitable lending systems • borrowers in this case knew the nature of the transaction • borrowers in best position to assess viability of business • no imbalance of power other than usual lender/borrower • no indication necessity to resort to security was inevitable • lender not bound to carry out detailed investigation of borrowers’ ability to carry through plan for repayment
  • © Hicksons 2013 Slide 30 Proportionate liability and mortgage enforcement • Proportionate liability not usually relevant to a lender claim against a borrower seeking to enforce a mortgage • However mortgage enforcement can lead to other claims, eg against mortgage brokers, borrower’s solicitors, lender’s solicitors and valuers – proportionate liability can dramatically impact on the outcome of such claims
  • © Hicksons 2013 Slide 31 Vella v Mitchell Morgan [2008] NSWSC 505, Young CJ in Eq, 28 May 2008 • Caradonna fraudulently obtained CT’s owned by Vella • Caradonna with assistance of Flammia (Caradonna’s solicitor) applied in Vella’s name to Mitchell Morgan for a loan offering Vella’s Enmore property as security • Flammia misrepresented to Hunt & Hunt (Mitchell Morgan’s solicitors) that he had witnessed Vella signing the mortgage documents • Mitchell Morgan advanced just over $1,000,000 and registered the mortgage
  • © Hicksons 2013 Slide 32 Vella v Mitchell Morgan (continued) • Caradonna took the money • Vella challenged the enforcability of the loan and mortgage • Mitchell Morgan cross claimed against Hunt & Hunt • The mortgage drafted by Hunt & Hunt used only an all moneys clause such that it only secured money payable by Vella to Mitchell Morgan
  • © Hicksons 2013 Slide 33 Vella v Mitchell Morgan (continued) • At first instance Young CJ in Eq determined: • Vella having not signed the loan agreement and not being party to the fraud, owed no money to Mitchell Morgan such that the mortgage secured nothing • Hunt & Hunt was liable to Mitchell Morgan for negligent preparation of the mortgage • Caradonna and Flammia were concurrent wrongdoers with Hunt & Hunt • The responsibility for Mitchell Morgan’s loss was apportionable 72.5% to Caradonna, 15% to Flammia and only 12.5% to Hunt & Hunt
  • © Hicksons 2013 Slide 34 Mitchell Morgan v Vella [2011] NSWCA 390, Bathurst CJ, Giles JA, Campbell JA, Macfalan JA, Sackville AJA, 15 December 2011 • The Court of Appeal determined: • Young CJ in Eq was wrong • The damage caused by Caradonna and Flammia was the advancing of funds which would not otherwise have been advanced • The damage caused by Hunt & Hunt was the lack of the benefit of the security which should have been available • As Caradonna and Flammia did not cause the same damage as was claimed against Hunt & Hunt, Caradonna and Flammia were not concurrent wrongdoers • Accordingly Hunt & Hunt’s liability could not be apportioned with Caradonna and Flammia and Hunt & Hunt were liable to Mitchell Morgan for 100% of the loss
  • © Hicksons 2013 Slide 35 Hunt & Hunt v Mitchell Morgan [2013] HCA 10, French CJ, Hayne J and Kieffel J, contra Bell J and Gageler J, 3 April 2013 • High Court determined: • Court of Appeal was wrong • Loss or damage, in the context of economic loss means harm to economic or property interests • The loss claimed by Mitchell Morgan against Hunt & Hunt was not clearly pleaded but was held by the High Court to be the inability to recover the loan • That was the same as the loss caused by the fraudsters • Accordingly the fraudsters were concurrent wrongdoers with Hunt & Hunt such that Hunt & Hunt was only liable for the portion of loss caused by Hunt & Hunt (held at first instance to be 12.5%)
  • © Hicksons 2013 Slide 36 Perpetual v CTC Group (No 2) [2013] NSWCA 58, Macfarlan JA, Meagher JA, Barrett JA, 20 March 2013 • CTC was a loan originator • CTC failed to exercise reasonable care to identify a borrower and ensure the making of the loan application was authorised – the loan application and the execution of the loan documents was fraudulent • Perpetual claimed against CTC for its loss based on CTC’s failures • CTC argued there were concurrent wrongdoers being the JP’s who incorrectly witnessed the execution of the loan documents and Resimac who reviewed the loan application
  • © Hicksons 2013 Slide 37 Perpetual v CTC Group (No 2) (continued) • The Mortgage Origination Deed (‘MOD’) provided that CTC indemnified Perpetual and Resimac against any loss arising from breach by CTC of its warranties or obligations under or arising from the MOD or failure to perform any obligations under the MOD • Perpetual argued that the proportionate liability regime did not apply because the parties had contracted out of the regime by the indemnities in the MOD
  • © Hicksons 2013 Slide 38 Perpetual v CTC Group (No 2) (continued) • The court held that the indemnity under the MOD was expressly inconsistent with the proportionate liability regime and as the parties had contracted out of that regime proportionate liability did not operate in respect of the claim • The court said: • the legislation does not require the parties to use any particular form of wording to contract out • no reference needs to be made to the legislation • all that matters is that the contractual indemnity is inconsistent with the legislation
  • This address represents a brief summary of the law relating to the issues raised and should not be relied on as a substitute for professional advice. Specific legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred as a result of reliance on this address. © Hicksons 2013 This address represents a brief summary of the law relating to the issues raised and should not be relied on as a substitute for professional advice. Specific legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred as a result of reliance on this address/document/paper [etc] by those relying solely on this address/document/paper [etc] Hicksons Lawyers, Level 32, 2 Park Street, Sydney NSW 2000 Australia DX 309 Sydney ABN 58 215 418 381 Telephone +61 2 9293 5311 Fax +61 2 9293 5333 Liability limited by a Scheme approved under Professional Standards Legislation SYDNEY · NEWCASTLE · CANBERRA · MELBOURNE · BRISBANE This was a presentation by Rod Cameron of Hicksons. If you require any further information, please contact: Rod Cameron, Partner Direct Telephone +61 2 9293 5407 Direct Fax +61 2 9293 5207 Email