Barker v Perpetual Trustee & Anor No. Scciv-02-1833

[2003] SASC 27

BARKER v PERPETUAL TRUSTEE & ANOR
[2003] SASC 27

1. WILLIAMS J. This is the plaintiff’s application as mortgagor and owner of premises for an interlocutory injunction to restrain the defendant from exercising a mortgagee’s power of sale upon the plaintiff’s default. The plaintiff is seeking relief under s 55A(3) of the Law of Property Act 1936 against the enforcement of the power of sale; the plaintiff is also seeking an extension of time in accordance with s 48 of the Limitations of Actions Act 1936 for the bringing of the application under s 55A of the Law of Property Act.

2. The proceedings were issued on 12 December 2002 and on 13 December 2002 I made an interim order that the defendant mortgagee be restrained until further order from proceeding with the auction of the plaintiff’s property comprised in Certificate of Title 5062/543.  The order was made upon the usual undertaking by the plaintiff as to damages; as a condition of the order the plaintiff was required to pay into court forthwith $5139 to abide the further order of the court.  The amount paid in provided some security for damages suffered by reason of an aborted auction and also covered acknowledged arrears in monthly mortgage repayments.

3. Upon a further hearing on 19 December 2002 I ordered that the proceedings be served upon Pioneer Homes which had lodged a Workmen’s Lien against the land.  I regarded Pioneer as being a necessary party and on 28 January 2003 Pioneer appeared by counsel and I made an order that Pioneer be joined as a defendant; that company supports the mortgagee in arguing that no relief should be granted to the plaintiff.

4. I have now heard extended argument.  Although it might be efficient immediately to hear and determine the substantive application for relief under the Law of Property Act there is insufficient material before me as to the plaintiff’s circumstances to enable me to take that course.  I have therefore confined myself to dealing with the application for interlocutory relief.

5. Mr Barker purchased a land and house package in respect of premises comprised in the abovementioned title at Lot 73 Enmore Drive Craigmore under an arrangement with Divine Pioneer Homes with finance organised with the defendant mortgagee.  The finance was to cover the cost of the land ($34,500) and the construction of the house (estimated at $105,000).  An important part of the financing deal was that the plaintiff would be entitled to a Commonwealth Government first home owner’s grant of $14,000 which could be applied in reduction of the purchase price.  However, the grant is only payable if the plaintiff enters into bona fide residence.  If the premises are prematurely sold before settlement upon the building contract then the grant is lost.  It is therefore to the disadvantage of the builder if the grant (which is already held in trust by the Macquarie Bank) cannot be made available to it.  Notwithstanding this fact and the somewhat dubious security remaining available under the Workmen’s Lien (having regard to the amount of the mortgage which precedes it) Pioneer as a matter of commercial judgment nevertheless supports the immediate sale of the premises.

6. By reason of the plaintiff’s default under the mortgage the principal has now fallen due. The plaintiff seeks to have his position reinstated “in all respects as if no breach of a covenant of the mortgage had occurred.” The plaintiff has explained the circumstances in which he temporarily had a reduction in wages and he has given evidence as to his financial obligations to a daughter aged 22 who suffers from a mental illness. This is the very sort of case for which s 55A(3) was designed. However, relief will only be granted upon fair and equitable terms and the mortgagor must therefore be prepared (and have the capacity) at least to rectify the default.

7. The plaintiff’s difficulty is that through no fault of his own he does not have the financial capacity to absorb the adversity which has befallen him.  The defendant mortgagee (with the support of the lien holder) contends that if this fact be recognised it is not in the interests of the plaintiff to allow the present proceedings to continue.

8. In summary the position is as follows:

   Amount advanced on mortgage  $ 34,214

   Amount owing to Pioneer  $110,402

   $144,616

   Less  credit available on mortgage loan                 $123,750

   Deficiency  $ 20,866

9. These are the amounts which were adopted for the purposes of counsel’s argument.  They vary slightly from the figures shown on the affidavits but they are not the plaintiff’s disadvantage - for example the “indicative payout figure on the loan facility is currently $35,030.83.  The amount payable to the builder has already been reduced to make allowance for some unfinished work.  (A statement in evidence shows the amount due as at 18 December 2002 and makes an allowance of $4365 for various items as there set out).

10. The deficiency of $20,866 would be satisfied to the extent of $14,000 if the Government grant could be called in so as to leave a deficiency of $6,866 of which about $1,300 could fairly be applied from the funds in court to meet the deficiency in repayments up to 12 December 2002.  However a gap of $5516 still remains.

11. The defendant mortgagee is claiming $11,652 in legal costs to 15 January 2003 associated with the mortgagor’s default and at my direction has provided a calculation of those costs.  I can see no reason why both defendants should not receive their reasonable costs of the present proceedings.  The terms of the standard mortgage are in evidence and under cl 5.3 the mortgagee upon the mortgagor’s default is entitled to sell and to apply any monies received by it in payment of its own costs and expenses incurred in exercise of its rights.

12. As the defendant mortgagee is entitled to add the various accruing expenses to the amount owing under its mortgage, this reduces the security available to the lien holder Pioneer Homes in a situation which is already very tight.  If the property is sold at auction it may bring $150,000; according to the mortagee’s solicitor an “asking price” would be $170,000 (which equates to the plaintiff’s own view of the value).

13. The amount currently available to the plaintiff (if relief against forfeiture were allowed) is $72,899.73 being the original credit of $123,750 less liabilities of $50,850.27.  This amount is $37,502.49 less than the funds needed to satisfy the Pioneer debt.

14. Pioneer is a party to these proceedings and has intimated that it would wish to enforce its lien.  The position of Pioneer deserves to be brought to account.  It has already been prejudiced by the course of these proceedings and by the mounting costs which the mortgagee has become entitled to add to its mortgage in reduction of the security available to the lien holder.  This is a crucial consideration.

15. Without attempting to make an exact calculation I formed the tentative view that if the plaintiff were to be granted an interlocutory injunction the plaintiff should be expected to find $10,000 as a condition of any further order.  The costs are continuing to accrue to the prejudice of the lien holder’s security.  Quite obviously it is beyond the capacity of the plaintiff to find this money.  He is struggling to meet even his ordinary mortgage commitments.  I am told that his monthly repayments in the ordinary course under the mortgage will escalate from about $170 per month at present to about $750 per month if and when settlement is effected with the builder.  The amount owing to the Pioneer is at present increasing by $42 per day.

16. By my order of 19 December 2002 I directed that the parties should confer and I directed that Pioneer should have the opportunity to participate.  A conference has been held but the parties have been unable to find a way to accommodate the situation.  It will be in the interests of the plaintiff and Pioneer to find a way which will allow settlement to occur and for the plaintiff to take up bona fide residence.  Nevertheless, I am not justified in adjourning the matter further.

17. The balance of convenience in this instance dictates that the court should not continue the injunction in the absence of further security being provided by the plaintiff.

18. Counsel for the plaintiff sought to close the gap of $5566 as abovementioned by suggesting a reduction in Pioneer’s contract price by reason of unfinished work.  In fact an adjustment to the extent of $4365 has already been made in the figures which I have adopted for the purposes of argument.

19. Counsel for the plaintiff also submitted that his client’s undertaking as to damages should be sufficient without any reinforcement by way of security.  I disagree.

20. There is evidence before me that the mortgagee has complied with the requirements to enable the mortgagee to take possession and to exercise its power of sale.  The plaintiff is in no financial position to put before me any realistic terms upon which an injunction might be continued.  The property ought now to be allowed to be sold in the interests of all parties.

21. The interim order for injunction made on 16 December 2002 is hereby discharged.

22. I will hear the parties as to consequential orders.