Two Property Developers
hit the wall – after clutching at straws to forestall
possession orders on their properties
Property developers are known to use ingenious arguments to
forestall possession orders sought by their lenders, after
the lender calls up the loan.
But mostly, they are clutching at straws. The property
developers will lose the arguments and their properties, as
two recent decisions of the New South Wales Court of Appeal
How the Court treated the property developer’s arguments in
In Carnemolla v Adelaide Bank  NSWCA 122,
Sebastian Carnemolla and his wife Lucia, appealed
unsuccessfully against an order for possession made against
their family home in Smithfield. The orders were made due to
their default in making loan repayments since February 2007
on a loan obtained for a development site. The loan was
secured by mortgage against their home.
Carnemolla was a builder who in the 1990s had developed a
property with five two-storey townhouses. Their family home
was one of those townhouses.
The development site was land at Cabramatta (in western
Sydney) was purchased in 2003. They obtained development
consent. But the development was not feasible. The
development site was sold at a loss in 2007.
The Court of Appeal (McColl JA; Barrett JA; Tobias AJA;
jointly) considered four arguments raised by the Carnemollas,
which they rejected for these reasons –
- Unconscionable conduct – Although the
Carnemollas were parents of senior years, they were not
able to use their age or lack of education to avoid
enforcement of the loan against their home because they
had benefitted as borrowers from mortgaging their home.
This situation was unlike other cases where parents of
senior years guarantee a loan made to their adult
children, and receive no benefit. Also, their experience
in the purchase and financing of real estate and in the
development of building sites weighed against this
- Mental health - Sebastian Carnemolla gave
evidence that in 2008 he was suffering either from
schizophrenia or paranoid delusions or both. However the
evidence needed to be given as of December 2004, when
the loan was taken out.
- Forged signatures – The Carnemollas alleged
that their signatures were forged on the loan
application which the mortgage broker said was signed at
a coffee shop in Earlwood. But no evidence from a
handwriting expert was adduced at the trial, and on
appeal the evidence tendered was rejected as it was
qualified and too late.
- The mortgage broker’s misleading and
unconscionable conduct – The allegation was that the
mortgage broker falsified the asset values and the tax
returns to have the loan application approved. The Court
took the sanguine view that it was more likely that the
borrower would paint his ‘financial position far more
rosy than was the case’ than the mortgage broker would
falsify the information [para 74]. They also claimed
that the mortgage broker acted unconscionably in
arranging the refinance for them. The Court said that it
was a legitimate business decision to refinance
to pay out the existing loan and to use the excess funds
to pay the mortgage for a reasonable time to allow them
to sell the Cabramatta site [para 65].
Later, the Court of Appeal rejected a stay of the
possession order pending an application for leave to appeal
to the High Court, saying that it has not been shown that
the appellants have any real prospects of success at all
(Barrett JA)  NSWCA 166.
The result was that the family home was lost, with the
loan debt of over $1 million likely to exceed the proceeds
of the mortgagee sale.
How the Court treated the property developer’s arguments in
In National Australia Bank v Caporale  NSWC 1014,
Giuseppe Caporale, his brother Tommaso Caporale and his
sister Rosa Caporale, their building and property companies,
were unsuccessful in resisting orders for possession made
against 15 properties they owned including family homes,
investment properties and commercial development sites.
The Corporale family were experienced property
developers, and had completed a high rise residential strata
development at 17 MacMahon Street, Hurstville.
The property development project was: to create an
education hub for the Illawarra region comprising teaching,
training and special education facilities, and also
residential homes and student accommodation. Between 2004
and 2006, the National Australia Bank extended loan
facilities which totalled approximately $7.726 million to
purchase land at Darkes Forest near Helensburgh (south of
Sydney) for the project. The loan fell into default in
The only argument raised for consideration by the Court
(Beech-Jones J) was that the lender (the NAB) was estopped
from seeking recovery and possession by virtue of the
latitude it extended; and by various statements made by its
bank officers to Rosa Caporale in the period from February
2007 until April 2009 that –
- The monthly interest payments to the NAB could be
deferred or capitalized until the property development
project had reached a more advanced stage.
- The NAB would fund the whole property development
- The NAB would not press for repayment until the
project finances were restructured.
The Court rejected the argument saying – At no
point did the NAB ever state that it would preclude itself
from enforcing its rights until some unspecified point in
the future development of the project... The failure of the
NAB to take any enforcement action other than issuing
letters does not amount to any representation.
Nor did the evidence show that it was unconscionable for
the NAB to pursue its enforcement rights. There was no
reliance (to their detriment) by the Caporale family upon
Bank representations to reorganise their financial affairs.
In fact, they contracted in March 2008 to purchase a larger
property at Dapto for the property development project,
without the Bank’s financial involvement. There lay the
problem – the Corporale family decided that instead of a
small scale project near Helensburgh, they would pursue it
as a much larger $500 million project at Dapto (south of
The Court entered judgment for a debt of about $11
million and made possession orders against the property
Later, the Court of Appeal rejected a motion for a
stay of execution of Writs of Possession and an injunction
to prevent the sale of property already in the Bank’s
possession pending hearing of an appeal on the basis that
there is very little ground to show that there is a viable
appeal. (Young AJA)  NSWCA 427.
Footnote: The Hurstville property securities were
sold progressively in 2013 by mortgagee auction sales.
This article was first published by Cordato Partners in
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