Stay Granted on Eviction Due to Hardship and Refinancing Prospects

The Court granted a stay on the eviction of the property occupier for one month to allow for refinancing or orderly departure, acknowledging the hardship faced by the occupier and the potential for refinancing.

Supreme Court New South Wales

Medium Neutral Citation: [COMPANY] v [NAME] and [NAME] as trustees of the [NAME] [2020] NSWSC 722 Hearing dates: 28 May 2020 Date of orders: 28 May 2020 Decision date: 28 May 2020 Jurisdiction: Common Law Before: Cavanagh J Decision: (1) I stay the execution of the writ of possession so that it may not be executed prior to 5:00pm on 28 June 2020 (2) I also order that the applicants on the motion, [NAME] and [NAME], be added to the proceedings as the second and third defendants. Catchwords: MORTGAGES AND SECURITIES — mortgages — duties, rights and remedies of mortgagee — possession — application for stay of execution of writ of restitution — possible application of Farm Debt Mediation Act 1994 (NSW) — prospect of refinancing and hardship Legislation Cited: Bankruptcy Act 1966 (Cth), Pt 10 Div 2 Farm Debt Mediation Act 1994 (NSW), s 5 Cases Cited: GE Personal Finance Pty Ltd v Smith [2006] NSWSC 889 Category: Procedural and other rulings Parties: [COMPANY] (Plaintiff) [NAME] and [NAME] as trustees of the bankrupt estate of [NAME] (Defendants) [NAME] and [NAME] (Applicants) Representation: Counsel: [redacted]

Solicitors: [redacted] [COMPANY] (Applicants) File Number(s): 2020/35012 Publication restriction: None

revised ex tempore Judgment 1. This matter comes before me as duty judge by way of an urgent application filed on behalf of [NAME] and [NAME] as applicants seeking an order that enforcement of the judgment and writ of possession be stayed. 2. [NAME] appears for the applicants and [NAME] appears as agent for the solicitors for the plaintiff, [COMPANY]. I am grateful for their helpful submissions and, in particular, grateful to [NAME] for allowing the matter to proceed even though relevant information had not been provided to her in advance.

Background 1. [NAME] and [NAME] are the occupiers of the relevant property in the circumstances which I will outline. [NAME] and Ms [NAME] seek to be joined as parties to the proceedings as defendants, no doubt for the purposes of this and any further applications. The applicants are partners in both their personal and business relationship.

2. The application is brought at the very last minute, as seems to be happening more regularly in this Court. The application is brought when the Sheriff is either at the door or about to be at the door. Whilst the plaintiff was given notice of the application, it was not provided with any documents in support of the application until during the course of the oral argument.

3. I must say that it is a little puzzling why parties are not able to exchange relevant documentation such as the motion and affidavit in advance of the matter actually coming before the Court in circumstances in which persons such as the applicants in this matter would be well aware that the other party — in this case being the plaintiff — has an interest in the outcome of the application and would want to be heard.

4. These proceedings were commenced by way of a statement of claim filed on 3 February 2020. The defendants are the trustees of the bankrupt estate of [NAME]. The defendants do not appear on this application and apparently have no interest in the application.

5. The plaintiff pursues the proceedings as there has been a failure to pay moneys owing on a mortgage held over a property situated at [ADDRESS], Rocky River. The property is known as "the Long Gully property". The property comprises approximately 2 acres of land, a house and two sheds.

6. The plaintiff says that on 21 December 2007 [NAME] entered into a mortgage with the plaintiff secured by the property. He borrowed an amount of $200,000 on an interest rate of 14% payable by equal monthly instalments, which was to be repaid on 1 October 2008. As alleged in the statement of claim, the mortgage continued to be varied with differing interest rates up to 2017, at which time it was varied by extending the repayment date to 1 September 2017.

7. The loan term has expired without repayment of the outstanding amount. On 17 September 2019, a trustee was appointed to the estate of [NAME]. [NAME] remains the registered proprietor of the property. No action has been taken by the trustee in this regard.

8. At least based on the affidavit of [NAME] sworn 28 May 2020, she remains in occupation of the property with her three children, aged seven, eight and four. She says that she has lived on the property on and off for around ten years and permanently for the last eight months. She says she owns no other property. She has been in a domestic relationship with [NAME] for the past ten years and the children are the children of both she and [NAME].

9. No defence was filed to the statement of claim by the trustee in bankruptcy and judgment was obtained. The plaintiff served a writ of possession. The Sheriff arranged for the execution of the writ today, 28 May 2020. I understand from the affidavit of [NAME] that she remains on the property continuing to live there, although [NAME] is said to have moved to Brisbane. I am uncertain why [NAME] is living in Brisbane at the present time.

10. The plaintiff has complied with all the necessary requirements. A notice to occupier and notice to vacate has been served. Indeed, the notice to vacate was served on 21 April 2020. Again, it is surprising that this application is being made at the very last minute in those circumstances. Further, the fact that the application has been made at the last minute means that some of the evidence which might have been expected or might otherwise have been available has not yet materialised.

The case for a stay 1. Having said that, the applicants seek a stay on three bases, being: 1. they say there may be a substantive defence; 2. they say that [NAME] is in the process of refinancing and that she expects to obtain refinance to discharge the loan outstanding to the plaintiff; and 3. hardship grounds.

1. In terms of the substantive defence, [NAME] submits that the way in which the statement of claim is pleaded does not accurately reflect the relationship between the parties and that that there may have been a defence available to the defendant. He also submits that the provisions of the Farm Debt Mediation Act 1994 (NSW) might apply and that the commencement of these proceedings might have been precluded by virtue of that Act.

2. Whilst I understand that [NAME] raises these matters as possibilities, at least on the evidence I have seen, they could barely be described as possibilities.

3. Firstly, as pointed out by [NAME], pursuant to section 5 of the Farm Debt Mediation Act, the Act does not apply in respect of a farmer whose property is subject to control under division 2 of part 10 of the Bankruptcy Act 1966 (Cth).

4. Further, [NAME] was the registered proprietor of the property. There was a mortgage. Whether or not he was also the guarantor may not matter very much.

5. I doubt from what I have heard that there is any real basis on which the judgment might be set aside.

6. The second basis identified by [NAME] may have more merit. Attached to the [NAME]'s affidavit are two letters from potential financiers, being a [NAME], dated 24 June 2020 and [COMPANY] dated 25 May 2020.

7. At best, these letters tend to suggest that [NAME] is seeking refinance and that there is some prospect of obtaining refinance. In his letter, [NAME] says that he is considering favourably the request that he purchase the [NAME]' Mortgage which has an outstanding balance of $120,000 plus costs. [NAME] suggests that it will proceed with the refinancing, subject to documentation, finalisation of the disaster recovery grant amount and permission from the Queensland Government to enter without quarantine to enable usual pre-finance inspections to be carried out. 8. [NAME] submits that there is no possibility of obtaining refinance. The property is subject not only to a first mortgage but it is subject to a second mortgage. She points out that the full amount was repayable back in 2017. [NAME] is an undischarged bankrupt. [NAME] says that the likelihood of [NAME] obtaining finance would seem to be remote.

9. The third ground relied upon by [NAME] is hardship. Unfortunately, the property serves not only as her home but also as a place in which her business is conducted, at least in part. [NAME] submits that the property is used for the processing and sale of timber.

10. In September 2019, the property was significantly damaged by a bush fire which caused widespread damage in the district. The fire destroyed facilities at the property, including a 30,000-litre water tank, which was the main water supply for the property, the solar power system, sheds, vehicles, equipment and stored timber.

11. At the time, insurance on the property was held with [NAME]. A claim was made and CGU paid the sum of $79,143.98 in settlement of the claim through the insurance broker, [NAME].

12. At the direction of [NAME] (I assume in this case she means [NAME] the law firm being the solicitors for the plaintiff), all of the insurance money was remitted to [NAME] in January 2020 and applied in reduction of the loan principal owing to the plaintiff. 13. [NAME] says that, on his instructions, neither [NAME] nor [NAME] gave instructions for that to occur. 14. [NAME] says that in circumstances in which the property is subject to a mortgage and that there is money outstanding on the mortgage, it would not be unusual for the insurance moneys to be directed in payment of the outstanding loan rather than to the owners/occupiers of the property for the purposes of repairing the property which had been damaged as a result of the fire.

15. I accept that as a general practice, although I have not seen either the insurance contract or any other documents which might explain such a course of events.

16. Further it does not seem to me that that the principle or practice would apply in all circumstances.

17. I hasten to add, of course, that [NAME] has not suggested that there has been anything improper in terms of dealing with the insurance moneys but an issue has been raised as to how it came to be that the insurance moneys were paid directly to the plaintiff leaving the insured person under the policy without any benefit in terms of the ability to repair that part of the property used for the business.

18. The hardship identified by [NAME] is that without the insurance moneys she has been unable to repair the sheds and pursue the business. She has received small grants from the Salvation Army and Red Cross but has not been able to access any other financial assistance.

19. She also says that the notice to vacate was received by her during the current health crisis. She was isolating locally at the property with her children, whom she was home schooling. She says she has searched for several properties to rent in the area, in case she needs emergency accommodation but has not found anywhere to live at this time. She says that if she is forced to leave the property, she will have to leave the local area which means that her children will be removed from their current school, to which they have just returned, causing further disruption to the children on top of that which has occurred as a result of the COVID-19 crisis. 20. [NAME] points out that subsequent to [NAME] becoming an undischarged bankrupt, [NAME] was appointed a director of another company, [COMPANY], and that in that documentation, [NAME] lists her home as being in Brisbane.

21. I am not in receipt of that documentation, perhaps because [NAME] and [NAME] did not serve this application on the plaintiff in sufficient time for [NAME] to prepare evidence.

22. I am only able to make a decision on the application based on the evidence. I do not know why other documents might suggest that her home is in Brisbane. 23. [NAME] also points out that there is another property in the area seemingly owned by [COMPANY] and there is also default under a mortgage in respect of that property. Arrangements have been made to sell that property in early July 2020. She says that the plaintiff intends marketing that property with the property the subject of these proceedings because there is a house on this property and the other Macleod Creek Pastoral property is merely a vacant block of land. She says that if a stay is granted the plaintiff will be forced to either try and sell the properties independently or postpone the sale of the other property.

24. As is well established, there is no prescription of the circumstances in which a stay of the execution of a writ of possession should be granted: GE Personal Finance Pty Ltd v Smith [2006] NSWSC 889 at [9] ("GE Personal Finance"). In GE Personal Finance at [13], Johnson J identified that there are usually three particular circumstances that are relied upon to give rise to a stay. They are: 1. the raising of a potential substantial defence; 2. the possibility of refinancing, and 3. where the defendant wishes to sell the property.

1. In each of those circumstances it would be expected that the party seeking a stay would adduce evidence sufficient for the Court to make a determination on either the prospects of refinance, the prospects of the defendant selling the property or the prospects of success should the defendant be intending to make an application to set aside the judgment.

2. It must be said that the evidence is very limited in this matter. The evidence really relates only to two points, being (i) the possibility of refinancing and (ii) hardship.

3. Hardship itself is generally not a sufficient basis for a stay except in extraordinary circumstances. In circumstances in which a financier is seeking to evict an occupier of a home from the property in which the occupier has been living for a number of years, there will always be hardship.

4. Indeed, there will often be little point in granting a stay on hardship-only grounds if all that is to occur is that the occupiers will be forced to leave the property a short time later. The financier is entitled to enforce its rights and the Court must have regard to its entitlements and its interests in arranging for the property to be sold so that it can recover as much as possible of the amount owing under the loan.

5. However, it seems to me that there are a combination of factors which provide some basis for the application. There are two letters from potential financiers giving rise to the possibility of refinance. 6. [NAME] has not been required for cross-examination. I am not suggesting she should have been, but I am entitled to have regard to the content of those letters at face value. Further, as I have already indicated, the circumstances which have arisen, particularly over the past six months and more recently as a result of COVID-19, are such that they may be viewed as extraordinary. Not only was there a bush fire on the property in September, but [NAME] has been self-isolating in her home in recent months while her partner, [NAME], has apparently been residing in Queensland. The borders have been closed until very recently. She says that she has been unable to find any other accommodation in the local area. 7. [NAME] submits that if I am minded to make a stay, which she emphasised she opposed, I should merely stay the eviction of [NAME] rather than grant a general stay on the writ of possession. That is what I intend to do.

8. In my view, the granting of a stay on the eviction for a period of one month will allow [NAME] and her children to make an orderly departure from the property or arrange refinance (as she suggests she will be able to do) and organise for the outstanding loan to be paid off.

9. If this is not achievable, then [NAME] will need to make arrangements to move out of the property and reside somewhere else.

10. I note that [NAME] agreed that in the circumstances of such an order, the plaintiff would not make any attempt to enforce its rights independently of the sheriff.

11. In the circumstances, I stay the execution of the writ of possession so that it may not be executed prior to 5:00pm on 28 June 2020.

12. For clarity, the effect of my order is that unless something else happens in the interim, that is prior to 28 June 2020, or unless there is some further application made by the applicants, the sheriff may be permitted to attend at any time after 28 June 2020.

13. I also order that the applicants on the motion, [NAME] and [NAME], be added to the proceedings as the second and third defendants.

14. Having regard to the matters raised by the applicants, I reserve the question of costs.

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