Barker v Perpetual Trustees Australia Ltd & Pioneer Homes Australia Pty Ltd No. Scciv-02-1833

BARKER v PERPETUAL TRUSTEES AUSTRALIA LIMITED & PIONEER HOMES AUSTRALIA PTY LTD
[2003] SASC 148
Full Court: Prior, Bleby and Besanko JJ

PRIOR J: I agree with the reasons given by Justice Bleby and with the orders he proposes.
BLEBY J: The appellant is a mortgagor in default. The first respondent (“the mortgagee”) is the mortgagee which is seeking to exercise its rights under the mortgage to sell the mortgaged property by virtue of the appellant’s default. The second respondent (“the builder”) is the unpaid builder of an almost completed house on the subject land. Although, according to the appellant, the house is not fully completed, the land is appropriated for domestic use and is land to which s 55A of the Law of Property Act 1936 applies.
The total amount of the available loan the subject of the mortgage is $123,750. Of that sum, only approximately $34,500 was advanced by the mortgagee on settlement of the purchase of the land by the appellant.
The appellant signed a building contract with the builder to build a house on the land for the price of $105,350. The appellant paid a holding fee of $100 on the contract but has made no other payment to the builder. None of the available loan funds have been drawn down to pay the builder. The builder has rendered to the appellant a number of invoices totalling the sum of $105,250, none of which have been paid. It was intended that the bulk of the building contract price would be advanced by the mortgagee under the contract of loan secured by the mortgage.
The appellant was entitled to a first home owner’s grant of $14,000 which, if paid, was able to be applied towards the purchase price of the house. However, the conditions of the grant have not yet been fulfilled, and if the premises are sold before payment is made on the building contract, the grant will be lost.
As a result of default in payment of instalments due under the mortgage in June, July and August 2002, the mortgagee, on 23 August 2002, gave notice to the appellant in accordance with the requirements of s 55A of the Law of Property Act. On the same day, and in reliance on the same acts of default, the mortgagee also served a notice of default in accordance with the requirements of the credit contract. That notice indicated that if the appellant failed to remedy the default within 31 days, the mortgagee would be entitled to commence enforcement proceedings under the credit contract and the mortgage, and that the loan balance outstanding would become immediately payable “upon written demand by Perpetual”.
By virtue of the notice under s 55A of the Law of Property Act the appellant had 21 days in which to make an application for relief under s 55A against the enforcement of rights against him. He did not do so within that time. There were, however, discussions between him or his representatives and the mortgagee which broke down. The default continued.
The mortgagee took steps to sell the property, and an auction was scheduled for 15 December 2002. By an undated letter received by the appellant on 10 December 2002 the mortgagee’s agent listed the arrears of instalments then outstanding and legal and other costs incurred by the mortgagee to that date said to be recoverable under the credit contract. The total sum was $5,139.48. The appellant was advised that a deadline of 12 December had been set for all payments to be made on that account. The letter concluded:
“Mr Barker please note that under no circumstance will any further agreements or arrangements will be (sic) entered into after the 12/12/2002.”
The appellant deposed in an affidavit that he immediately instructed his solicitor to contact the mortgagee’s solicitors to make arrangements for him to pay the amount then outstanding. He further deposed that his solicitor had informed him that he had contacted the mortgagee’s solicitors on 10 December 2002 to make arrangements for payment, but that they had indicated that they would refuse to accept payment, and that their instructions were to proceed with the auction. The appellant then telephoned the mortgagee’s agent on the same day and was told that their position then was that they would continue with the auction regardless of whether the money was paid. None of the affidavits filed by the mortgagee sought to dispute those assertions, and no application was made to cross-examine the appellant on them.
On 12 December 2002 the appellant commenced proceedings in this Court under s 55A(3) of the Law of Property Act, applied for an extension of time in which to bring the application and sought an interlocutory injunction preventing the sale. On 13 December 2002 an interim injunction was made by the Judge at first instance which prevented the sale from proceeding. That order was made conditional upon the appellant paying into Court that day the sum of $5,139 to abide the further order of the Court. That condition was fulfilled.
On the same day, but after the making of the interim injunction by the Court, the mortgagee served a notice pursuant to the general terms and conditions applicable to the loan. In it the mortgagee alleged that the appellant had committed an event of default by failing to pay monies in the sum of $5,552.48 to the mortgagee “in the manner required by the credit contract”. That was the first indication, at least on the papers, that the unpaid amount was now $5,552.48. The notice alleged that the appellant had failed to remedy “this default”. As at that date the amount outstanding under the credit contract was $34,890.68 plus the previously mentioned figure of $5,552.48. The mortgagee demanded immediate payment of the sum of $40,443.16. By virtue of the general conditions forming part of the contract of loan the entire balance owing under the loan agreement (“the accelerated payment”) became due and payable as alleged in the notice.
Further proceedings took place before the Judge, who decided to deal only with the question of an interlocutory injunction to enable the appellant’s application under s 55A to proceed. The Judge directed that the builder be joined as a defendant because it had registered a lien on the property under the Worker’s Liens Act 1893, thus having a potential interest in the sale of the property, subject to the prior interest of the mortgagee. However, by the time of the hearing, no action had been taken within the required time to enforce the lien, and the builder claimed and still claims no security in the land.
After a substantial hearing and after reserving his judgment, the Judge, on 6 February 2003, refused the appellant’s application for an interlocutory injunction and dissolved the interim injunction.
By virtue of s 50(3)(b)(iii) of the Supreme Court Act 1935 the appellant had an appeal as of right against that order to the Full Court. By virtue of Rule 95.02 of the Supreme Court Rules 1987 any such appeal had to be instituted within 14 days, i.e. by 20 February. On 20 February 2003 the appellant purported to apply for leave to appeal. On 5 March 2003 the Judge held that leave was not necessary and extended the time for instituting the appeal to 8 March. No notice of appeal was filed until 14 March. By that notice the appellant also sought a further extension of time in which to institute the appeal and purported to appeal against an order for costs which had not then been made. In the meantime the mortgagee had taken further steps to sell the land.
On 14 March another Judge made an order extending the time within which to file the notice of appeal and granted an injunction preventing the sale of the appellant’s property. That order was not limited as to time, but was plainly made in contemplation of the appeal. It continues in force. It was made upon the appellant’s undertaking to pay into court by 27 March the further sum of $1,850. That was done. It is not entirely clear from the papers before us how that figure was arrived at.
The mortgagee alleged that, as at 24 January 2003, the amount outstanding had risen, with the incurring of further costs, to $50,850.27. The mortgagee has no doubt incurred further costs in relation to the second attempted sale, the further proceedings that took place before the Judge at first instance after the dismissal of the appellant’s application, the further application for an extension of time in which to appeal, the granting of the further holding injunction and the hearing of the appeal itself.
On 1 May 2003 the Judge at first instance made a further order that the appellant pay the first respondent’s costs of the original application, such costs to be taxed as between solicitor and client. He also granted leave to appeal against that order.
Other evidence before the Court indicated that, prior to the issue of the notice under s 55A of the Law of Property Act, and during the course of 2002, payment of instalments had been quite erratic. Monthly instalments were to be made by direct debit from the appellant’s bank account, but were dishonoured through lack of funds. One payment, involving several instalments, was made by postal order. The evidence also showed that the appellant had made many broken promises of payment and had been abusive on the telephone to staff of the mortgagee’s agent. There was further delay beyond the due dates in payment of instalments after the grant of the interim injunction on 13 December 2002. At an especially arranged conference on 15 January 2003 for the purpose of negotiating, if possible, a compromised solution, the appellant left after five minutes, having become agitated and angry, and not wishing to negotiate further. There is no evidence of any attempt to refinance the development of the property.
Against that, the appellant deposes to having had to assist financially and in other ways his 22 year old daughter who lives interstate, who suffers from a mental illness and whose income is a disability pension. That caused a temporary interruption to the appellant’s employment and a reduction in his earnings until September 2002. However, the initial mortgage instalments were relatively modest, being related to the actual amount advanced. They would increase substantially if the full advance were drawn. One can only infer that that has not occurred because the appellant has not referred the builder’s invoices to the mortgagee for payment. The appellant also deposed to certain difficulties of a transitional nature as he was changing his place of employment from Victoria to South Australia during 2002.
While the appellant deposed to his net weekly wage from employment, he gave no details of his assets or outgoings. He merely asserted that he was “in a financial position to be able to afford the mortgage payments”. It is not clear whether that relates to the instalments then payable under the mortgage or to the much higher instalments payable if the loan were to be fully drawn. The amount unpaid under the building contract is said to be increasing at the rate of approximately $42 per day.
Before the Judge at first instance the appellant sought to rely, in support of the injunction, on the letter from the mortgagee’s agent received on 10 December and the subsequent refusal of the mortgagee to entertain arrangements for payment of the amount then outstanding by the date specified. He also relied on grounds of personal hardship for the non-payment of past instalments, whilst asserting his ability to continue to make payments of future instalments.
It was accepted before the Judge at first instance and before this Court that the appellant had a serious question to be tried on the application under s 55A of the Law of Property Act. It seems to me that that could not be based on any notion of estoppel founded on the December letter, as there is no evidence that the appellant acted to his detriment as a result. It is more likely that the concession of a serious question to be tried was based on hardship to the appellant, and in particular, the loss of the first home buyer’s grant if the power of sale were exercised now with relatively little to be done to complete the house. Although the existence of a serious question was not in issue, I mention those possibilities here because it is relevant to what the Judge took into account in determining where the balance of convenience lay.
The Judge at first instance based his refusal to grant the injunction on what he considered to be the balance of convenience. One of the factors which his Honour seems to have taken into account is that, if relief from the exercise of the power of sale were granted under s 55A, the appellant would be quite unable to satisfy his then liabilities to the mortgagee and to the builder, and that in the absence of his being able to provide further security, the balance of convenience dictated that the property should now be sold.
To the extent that those considerations were taken into account by the Judge at first instance as being relevant to the balance of convenience, I consider that that constituted an error. Those factors might be relevant to the consideration of the main application, but they were not material to the question whether the exercise of the power of sale should be delayed for a relatively short time to enable the application to be determined.
The Judge calculated the deficiency that the appellant would have to find if the loan were fully advanced. He summarised the position as follows:
Amount advanced on mortgage  $ 34,214
Amount owing to the builder (as at 18 December 2002
and increasing at the rate of $41.46 per day)                   $110,402
$144,616
Less credit available on mortgage loan  $123,750
Deficiency  $ 20,866
The Judge observed that that would be reduced by the sum of $14,000 if the first home owner’s grant was called in, and that of the monies paid into Court, about $1,300 could be applied to meet the deficiency in repayments to 12 December 2002. That would leave an unfunded gap of $5,566 plus an amount of $11,652 which the mortgagee was then claiming by way of costs associated with the appellant’s default. His Honour expressed the view that he could see no reason why both defendants should not receive their reasonable costs of the proceedings before him – an amount not then quantified. On that basis, his Honour could not see how, if the loan were reinstated, the appellant could fund the deficiency. No attempt had been made by the appellant to explain how that could be found.
On the hearing of an interlocutory injunction to preserve the status quo pending the determination of an application under s 55A(3), there may sometimes be a temptation to blur the line between what is considered to constitute a serious question to be tried on the principal application and what constitutes the balance of convenience in determining whether to grant the holding injunction. If hardship is the primary reason put forward in support of the principal application, there will necessarily be a weighing of the balance of convenience in determining whether a remedy should be granted, and if so, on what terms. However, that process should not be confused with the assessment of the balance of convenience in granting or not granting an interlocutory injunction while those questions are determined.
The convenience to be weighed is the convenience or inconvenience of granting the holding injunction while the principal questions are determined. As will be seen later in these reasons, although it has not transpired in this case, that should normally be for only a relatively short period. Therefore the balance of convenience at that stage relates to the effect on both parties of delaying the sale for that relatively short period of time. The mortgagor’s ultimate ability to repay the loan the subject of the security will not usually be relevant to that question, but a number of other factors will. They include any irrecoverable loss that may be suffered by the mortgagor if the sale proceeds before the principal application is determined, any costs thrown away by the mortgagee in preparing the property for sale and marketing it, whether those costs are paid or recoverable, the costs and inconvenience incurred by the mortgagor in granting possession for the purposes of sale, the costs of delaying the sale and other like considerations. It should not, at that stage, involve a pre-judgment of the likely success of the principal application for which a relevant consideration may well be the mortgagor’s ability to repay the total debt.
I can well understand the Judge’s scepticism, based on the information then before him, as to the ability of the appellant to be able to meet the mounting financial burden if his position under the mortgage were reinstated. If that were a consideration relevant to the balance of convenience, much information within the appellant’s knowledge was lacking.
On the hearing of a substantive application under s 55A based on hardship to the mortgagor, the power of the Court is to interfere with the exercise of the lawful rights of a mortgagee. It then behoves the mortgagor to make a true, full and frank disclosure to the Court of all relevant circumstances. There must be a full and frank explanation by the mortgagor as to why the default has occurred. Where the application is based on circumstances of alleged temporary or permanent hardship or unexpected changes in circumstances, those circumstances must be fully explained, with no room for suggestion or inference that there may be some other reason for the default. When, as is usually the case, the mortgagor is seeking the indulgence of the Court, it will be necessary to propose what the mortgagor suggests should be the fair and equitable terms on which the relief should be granted. The mortgagor cannot hope to avoid a sale without being required to comply with some material and perhaps ongoing terms and conditions.
Where there has been a temporary lapse in payment of instalments payable under the mortgage and the mortgagor proposes to resume payments, the Court should be satisfied that the mortgagor has a reasonable prospect of making those payments or of complying with the fair and equitable terms that the mortgagor proposes or that the Court thinks fit to impose. The mortgagor must present sufficient information to enable the Court to reach its own independent conclusion that that is the case. The mortgagor’s unsupported assertion to that effect will seldom be sufficient.
If, when viewed as a whole, the mortgagor’s application appears to be no more than an attempt to delay and frustrate the exercise of the mortgagee’s rights, then the application for relief may well fail.
Also relevant to the exercise of the Court’s decision to grant or withhold substantive relief will be the diligence with which the mortgagor has sought to pursue the remedies available to him. There would need to be good and cogent reasons why the time limits imposed by s 55A and by any relevant rules of Court have not been observed, particularly where, as in this case, delay can cause the mortgagee to incur expense which will have to be reimbursed by the mortgagor.
All these considerations will be relevant to the Court’s decision to grant the primary relief and to its assessment as to whether the mortgagor is likely to be able to comply with any terms and conditions necessarily imposed by the Court under s 55A. If the Court cannot be so satisfied, and there are no other countervailing considerations requiring relief under s 55A, the Court will, in all probability, refuse the relief.
It follows that, the mortgagor will need to place before the Court, as a matter of some urgency, all material relevant to the exercise of the Court’s discretion to grant or withhold the remedy.
On the material before the Judge, the reasons for default were not fully explained. The appellant gave no detail of his financial circumstances which caused the initial default. As it was, there was no explanation for the many broken promises and abusive telephone calls or the failure to entertain any sensible negotiations as to the settlement of his liability under the mortgage. There was no explanation for the continued late payment of instalments after the grant of the interim injunction. There was no explanation for the failure to draw down the loan as invoices from the builder were received. There was no information as to the appellant’s ability to finance any difference between the moneys available to be drawn down on the one hand and his apparent liability for the additional costs and expenses incurred by the mortgagee and the amount due to the builder, on the other hand. There was no information as to how that liability might affect the appellant’s ability to make payment of instalments due under the mortgage. There was no explanation, other than alleged ignorance of the statutory time limit, for the delay in instituting the proceedings for three and a half months in circumstances that demanded urgent action. The inference that might be drawn from the facts deposed to, without more, is that this was a last minute attempt to avoid the auction of the property which was due to occur two days after the application was filed. There has been no explanation of which I am aware for the delay in lodging the notice of appeal almost three weeks outside the time limited by the rules of Court and after the time fixed by the Judge, other than the inference that that too was only prompted by the second attempt by the mortgagee to sell the property. At no stage to date has there been any suggestion by the appellant of any terms on which the application should be granted, notwithstanding the acknowledged default in payment of instalments. In all the time that the appellant has had since the initial notice of default, there has apparently been no inquiry made as to the possible refinancing of the house and land purchase.

The mortgagee, in the meantime, has continued to incur expense in its efforts to enforce its rights under the mortgage. The appellant has been made aware of the incurring of that expense. He has known or ought to have known that most of that expense is merely adding to his ultimate liability under the contract of loan and is secured by the terms of the mortgage. His inaction has largely been the cause of that additional expense.
Unless further information is forthcoming, the appellant may well find that there are insuperable hurdles to the granting of relief, and the Court may infer that he has no genuine desire or ability to accommodate some reasonable modification of his liability under the mortgage, and that there is no reasonable prospect of satisfying the Court that he could meet any reasonable obligations imposed upon him as a condition of the Court’s exercising its powers in his favour under s 55A.
However, these are matters relevant to the granting of relief under the section. They are not relevant to determining, on the balance of convenience, whether an interlocutory injunction should be granted while that application is being dealt with. To the extent that the Judge at first instance took such factors into account, he erred.
The Judge also considered, in relation to the balance of convenience, the position of the builder and the mounting costs being incurred by the mortgagee which were becoming part of the loan, and therefore secured by virtue of the terms of the mortgage. His Honour concluded, and there was evidence upon which he could so conclude, that the accelerated payment then due under the mortgage, including costs and expenses incurred by the mortgagee, was $50,850.27. If the loan were fully advanced, there would only be $72,899.73 available from the total amount of $123,750 credit secured. That was $37,502.49 less than the funds needed to satisfy the builder’s debt. I will need to refer later to that calculation and it correctness, but for present purposes I assume it is correct.
The Judge considered that by preventing the sale the security of the builder would continue to be eroded. He said:
“The position of [the builder] 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.
……. The costs are continuing to accrue to the prejudice of the lien holder’s security.”
In my opinion this was another error of law made by the Judge at first instance which caused the exercise of his discretion on the balance of convenience to miscarry. His Honour treated the debt due to the builder as a secured debt, second in priority to that of the mortgagee, with the builder’s security continuing to be eroded as the mortgagee’s costs and expenses of enforcement increased. At the time when the matter was argued the builder disclaimed any security under the Worker’s Liens Act because no action had been taken within the required time to enforce the lien. The builder was therefore not a secured creditor and was in no better position than any other creditor of the appellant. To have regard to the interests of one creditor as though that creditor were secured when it was not, and to treat the builder’s supposed security as being diminished by the delay was therefore an error. Indeed, it was an error, in weighing the balance of convenience between the competing interests of the appellant and the mortgagee, to take into account the interests of another creditor. It was obviously a matter which carried substantial weight in the exercise of the Judge’s discretion.
The third error relates to what appears to have been the assumption of the Judge that, even if relief from the exercise of the power of sale were granted, the appellant would continue to remain liable to pay the accelerated payment.
Section 55A(3) of the Law of Property Act provides:
“(3)In any proceedings brought by a mortgagee for the recovery of a mortgage debt or for the enforcement of a mortgage, or in proceedings instituted by a mortgagor within twenty-one days after service of a notice under this section, a court may, upon such fair and equitable terms as it may determine, grant relief to a mortgagor against the enforcement of rights of a kind referred to in subsection (1) of this section, and may reinstate the position of the mortgagor in all respects as if no breach of a covenant or condition of the mortgage had occurred.”
It is true that the relief possible under that subsection is relief against “the enforcement of rights” of a kind referred to in subsection (1). Subsection (1) only refers to a “right of sale or foreclosure in respect of mortgaged land, a right to enter into possession of mortgaged land or a right to appoint a receiver in respect of mortgaged land”. The only right of that nature, the enforcement of which the appellant was seeking to prevent in this case, was the right of sale of the land by the mortgagee. However, subsection (3) goes further. If the Court is persuaded to prevent the enforcement of the right of sale it may also “reinstate the position of the mortgagor in all respects as if no breach of a covenant or condition of the mortgage had occurred”. That means that the Court must have the power to restore the mortgagor to a position where he is freed of an obligation to make (in this case) an accelerated payment which only arises as a result of his earlier breach of covenant. It would be a somewhat hollow victory if the mortgagor were able to call in aid the provisions of s 55A to prevent a sale of the property by the mortgagee whilst still remaining liable on the personal covenants for the whole amount of the outstanding debt which could then be sued for by the mortgagee. That would result in the almost inevitable bankruptcy of the mortgagor and the enforced sale of the property by a trustee in bankruptcy. By that means the whole object and purpose of s 55A could be defeated. If a reinstatement order were to be made under that section, it would almost always be made on terms that the mortgagor make some payment or continue to make regular payments determined by the court in the exercise of its power to impose “such fair and equitable terms as it may determine”.
However, in this case, the Judge appears to have assumed, at all points in weighing the balance of convenience, that there was a present and inevitable liability on the part of the appellant to the mortgagee for the whole amount of the accelerated payment, and that that liability could not be avoided by any order that the Court might make under s 55A.
For these reasons, the exercise of the Judge’s discretion miscarried. This Court must now exercise afresh the discretion as to whether the balance of convenience lies in favour of granting the interlocutory injunction.
If the sale were to proceed without the appellant’s application being heard, he would lose the $14,000 first home buyer’s grant to which he is entitled, subject to fulfilment of whatever outstanding conditions remain upon its payment. To lose that opportunity would be severely detrimental to the appellant and also, one would have thought, to the mortgagee, if the appellant were reinstated under the mortgage.
It would appear that all that remains to be completed of the building is some landscaping, the installation of a hot water service and some concrete paths and driveways. If they were completed, they would no doubt enhance the prospects of sale at a reasonable price. As long as the builder remains unpaid it is unlikely that it would be interested in completing that work. One cannot overlook the possibility that the Court might order deferment of sale pending completion of that work by or at the ultimate expense of the appellant, in the interests of all parties. That opportunity would be lost if the sale proceeded immediately.
If the sale proceeded forthwith, the appellant would lose the opportunity he now has to move into and reside in the house which he has intended to make his permanent home.
On the other hand, the mortgagee has now incurred selling expenses associated with two attempts to sell the property together with legal expenses in seeking to enforce its rights under the mortgage. Those expenses will be added to the appellant’s liability to the mortgagee. However, by virtue of the terms of the mortgage, they will also be added to the amount of the loan secured by the mortgage. What is not clear, however, is whether those expenses now limit the amount which the appellant can draw down under the contract of loan (assuming he is reinstated), or whether he is entitled to draw down the full amount of the loan for the purpose of paying the builder with the mortgagee’s expenses being added to the amount of available credit, albeit being secured by the mortgage. That uncertainty is because the loan contract signed by the appellant incorporates a number of general conditions, including the definition of many essential terms used in the contract, which general conditions are referred to as being contained in a booklet containing a particular reference number. The two documents are required to be read together. However, what purports to be the general conditions (Exhibit MAH 3 to the affidavit of Melissa Anne Huish sworn 13 December 2002) contains no such definitions, and would appear to relate to some other form of loan contract. At the moment, the position is unclear. Where the full amount of the loan has not been drawn down, this question may assume some importance in determining the appellant’s ability to comply with any conditions that might be imposed. That lack of clarity has been brought about by the mortgagee.
If an interlocutory injunction preventing the sale is ordered, it should only be required to be in place for a relatively short time, as applications of this nature must be dealt with expeditiously and with some urgency.
When these matters are weighed, in my opinion the balance of convenience in favour of an interlocutory injunction of relatively short duration lies with the appellant, and I would grant the interlocutory injunction. However, I would do so on terms that require the parties, and the applicant in particular, to ensure that the application is disposed of expeditiously.
I express some concern at the procedures which have been followed in this case. Section 55A is intended to provide quick and summary relief where that relief is justified. It should have been dealt with within days or perhaps a week or two of the filing of the appellant’s inter partes summons. Procedural delays in the case have frustrated the object and purpose of s 55A. There has not even been a determination yet as to whether the appellant should have an extension of time in which to bring the application. What has occurred instead is a costly procedural tangle to the benefit of no one. The fact of the matter is that the parties, at great expense, have been merely preparing the pitch on which the main game is to be played without much consideration being given to the main game itself. If the appellant’s application is to proceed, it is time for the parties to face the real issues that they have to address under s 55A and to do so urgently and expeditiously.
I would propose that the making of further orders be referred forthwith to a member of this bench. Those orders should include strict time limits by which the parties are to file any further affidavits on which they propose to rely, and a referral of the matter for hearing thereafter before the Chamber Judge as a matter of urgency. The mortgagee would have liberty to apply to dissolve the injunction if the appellant fails to comply with any such directions.
I turn to the appellant’s appeal against the order for costs. I am prepared to treat the notice of appeal dated 14 March 2003 as an appeal against the order of the Judge made on 1 May 2003, and in respect of which leave to appeal was given by the Judge on that date.
I agree with Besanko J that that appeal may not have been properly addressed. I think that we should now hear the parties as to the costs of the original application for the interlocutory injunction and as to the costs of this appeal in the light of the orders now proposed to be made.
BESANKO J: The facts relevant to this appeal are set out in the reasons for judgment of Bleby J and I gratefully adopt his statement of facts.
The Judge was hearing an application for an interlocutory injunction. The appellant (Mr Barker) sought the injunction to preserve the status quo pending the hearing of his application under s 55A(3) of the Law of Property Act 1936 (“LPA”). The Judge was not hearing the application under s 55A(3). That subsection provides:
“(3)In any proceedings brought by a mortgagee for the recovery of a mortgage debt or for the enforcement of a mortgage, or in proceedings instituted by a mortgagor within twenty-one days after service of a notice under this section, a Court may, upon such fair and equitable terms as it may determine, grant relief to a mortgagor against the enforcement of rights of a kind referred to in subsection (1) of this section, and may reinstate the position of the mortgagor in all respects as if no breach of a covenant or condition of the mortgage had occurred.”
Rights of the kind referred to in s 55A(1) are a right of sale, a right of foreclosure in respect of mortgaged land, a right to enter into possession of mortgaged land or a right to appoint a receiver in respect of mortgaged land. The particular right in issue in this case is the right of sale.
The right given to a mortgagor in s 55A(3) is a statutory right to apply to the Court under the subsection for certain orders. The Court has a discretion as to whether it will grant relief. A number of matters will be relevant to the question of whether a mortgagor will be granted relief under s 55A(3). These matters include the nature of the mortgagor’s default, the reasons for the mortgagor’s default, the effects on the mortgagor and the mortgagee of making or not making an order under the subsection, the identification of fair and equitable terms, the ability of the mortgagor to comply with the terms so identified, and the ability of the mortgagor to comply with the terms and conditions of the mortgage in future. Some of these matters are likely to require a careful scrutiny of the mortgagor’s financial position. It is not necessary for a mortgagor to have an underlying private law right, such as a claim for damages, before orders are made under the subsection. The mortgagor may or may not have such a right. Despite the breadth of the matters which a Court might be required to consider under s 55A(3), it is to be expected that in the ordinary case there will not be a lengthy delay between the issuing of an application under that subsection and its determination. If an interlocutory injunction is needed to preserve the status quo, it should only be in place for a short period of time.
An applicant for an interlocutory injunction must establish a number of matters before a Court will make such an order. In Castlemaine Tooheys Ltd & Ors v The State of South Australia (1986) 161 CLR 148, Mason ACJ said (at 153):
“The principles governing the grant or refusal of interlocutory injunctions in private law litigation have been applied in public law cases, including constitutional cases, notwithstanding that different factors arise for consideration. In order to secure such an injunction the plaintiff must show (1) that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction.”
Before the Judge, and before this Court, the debate centred on the first and third elements, namely, whether there is a serious question to be tried and whether the balance of convenience favours the granting of an injunction. No reference was made to the second element, namely, whether the appellant will suffer irreparable injury for which damages will not be adequate compensation unless an injunction is granted. In the circumstances of this case that is understandable. As I have said, it is not necessary that an applicant under s 55A(3) has a right to damages. In this case the appellant does not claim damages in his Statement of Claim. It is difficult to see how there could be any claim for damages on the evidence before the Judge. There is a suggestion that there might be an estoppel against the first respondent (Perpetual Trustees Australia Limited) by reason of its letter received by the appellant on 10 December 2002, but it is difficult to see how an estoppel could be made out, let alone a claim for damages, in the absence of evidence that the appellant relied on the statements in the letter to his detriment. Although the letter may not give rise to a cause of action or defence, it may be a relevant matter in the application under s 55A(3). I think the second element can be put to one side except to the extent that it includes hardship to the appellant if the injunction is not granted, a matter I will consider in the context of the balance of convenience.
The first respondent argued the appeal on the basis that the Judge held that the appellant had established a serious question to be tried, but found against the appellant on the balance of convenience. I think that is probably right. During the course of his reasons, the Judge said:
“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.”
Later in his reasons, the Judge said:
“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 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.”
These remarks suggest that the Judge decided the application against the appellant on the balance of convenience. However, there is another thread to the Judge’s reasons which suggests that he considered there may not have been a serious question to be tried or that the weaknesses in the appellant’s case were matters he could take into account on the balance of convenience. The latter approach would not necessarily involve error. However, in this case, I think that the Judge erred in his approach to the assessment of the strength of the appellant’s case.
On one view of the Judge’s reasons, he held that the appellant is unlikely to obtain relief under s 55A(3) because he could not comply with the terms a Court is likely to impose as a condition of the granting of relief. One such condition is likely to be the payment to the mortgagor of all outstanding amounts. Outstanding amounts would include amounts then due and owing to the mortgagee. It seems that the Judge considered that that amount would include not only the monthly arrears but also the accelerated payment. In my respectful opinion such an approach is erroneous. To require an applicant under s 55A(3) to pay all amounts under the mortgage, namely, the periodic repayments and the principal amount advanced as a condition of obtaining relief under the subsection would be to deprive the subsection of much of its beneficial effect. In a more extreme case than this case where, for example, all the loan monies had been drawn down and there was an accelerated payment clause, it would be to deprive the subsection of any effect. In other words, such an approach would mean that as a condition of obtaining relief the mortgagor would be required to repay the principal and interest advanced under the mortgage. That would be a surprising result.

The approach taken by the Judge is not an approach dictated by the terms of the section. One of the powers the Court is given by the subsection is to “reinstate the position of the mortgagor in all respects as if no breach of a covenant or condition of the mortgage had occurred”. Acting under that power, a Court could, upon payment by the mortgagor of the periodic repayments and other costs, reinstate the mortgagor in the position he was before the accelerated payment clause was triggered. In fact, an order in those terms would achieve the result contemplated by the words of the subsection.
I return to what I think is probably the main basis of the Judge’s decision. The Judge referred to the second respondent (Pioneer Homes Australia Pty Ltd) as a “lien holder” and said that it had security over the property. The Judge considered the position if the property was sold immediately and the proceeds distributed first to the first respondent, and then the balance to the second respondent. He compared the position of the second respondent in that situation with the position of the second respondent should the sale of the property be deferred and expenses continue to accrue. He considered that the position of second respondent would deteriorate. The essence of his reasoning is perhaps encapsulated in the following passage:
“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.”
There then follows the passage in his reasons wherein the Judge said that he had formed the tentative view that the plaintiff should be expected to find $10,000 as a condition of any further order. As I understand it, the Judge is saying that if that amount was paid in Court it would provide protection (or some protection) to those interested in the property against a deterioration in the security provided by the property.
As Bleby J has pointed out in his reasons, the second respondent was not a secured creditor after it failed to institute proceedings within 14 days of the registration of its lien (s 15 Workers Liens Act 1893). Quite apart from that fact, I think the Judge erred in placing so much weight on the position of the second respondent. I think he was entitled to take the position of the second respondent into account (Equitable Remedies, 6^th ed, Spry, pp 470 – 475), but he erred in treating it as a crucial consideration. The primary focus should have been on the balance of convenience as between the mortgagor and the mortgagee.
The errors which I have identified justify the intervention of this Court (Mutual Life and Citizens’ Assurance Co Ltd v Balfours Pty Ltd (1979) 23 SASR 82; Francesco Cinzano & CIA (Australia) Pty Ltd v Ruggiero & Ors (No. 1) (1979) 25 SASR 321; Clinton Credits Pty Ltd (in liq) & Anor v John McLeay Pty Ltd (1983) 32 SASR 389). It is now incumbent upon this Court to consider whether an interlocutory injunction should be granted. In my opinion, the evidence establishes that there is a serious question to be tried. I think it is arguable that the appellant is entitled to relief under s 55A(3). The evidence establishes that the appellant may be able to prove that the default(s) occurred in circumstances in which a Court would be disposed to exercise its powers under s 55A(3). There is reason to think that the appellant is able to make good the monthly arrears and the expenses associated with the aborted auction. Whether the appellant will be able to meet his ongoing obligations under the mortgage is more problematic, but I do not think that that conclusion means that there is not a serious question to be tried. It must be remembered that on an application for an interlocutory injunction that is what the applicant must establish. He is not required to establish his entitlement to relief.
Bleby J has identified a number of matters which, considered alone, might lead to the inference that the appellant’s application is no more than a last minute attempt to avoid the inevitable. I think the matters he has identified are relevant to the issue of the strength of the appellant’s case and therefore the issue of a serious question to be tried, rather than the balance of convenience. I do not think there is anything wrong in the Court taking these matters into account on the issue of a serious question to be tried providing the Court does not fall into the error of, in effect, determining the merits of the appellant’s application under s 55A(3). As I have said, I think there is a serious question to be tried in this case. The matters identified by Bleby J will be relevant matters on the hearing of the application and, depending on the evidence put before the Judge, they may be highly relevant to the case that the application for relief should be refused.
In my opinion, the balance of convenience favours the granting of an interlocutory injunction. If an injunction is not granted, the appellant will suffer significant hardship. He will lose the opportunity to own and occupy a house in which he intends to live. Furthermore, he will lose the benefit of the First Home Owner’s Grant of $14,000. I think relief in the nature of an interlocutory injunction should have been granted and should now be granted on terms requiring the appellant to do all things necessary to ensure an urgent hearing of his application under s 55A(3). Such a condition would mean that the hardship to the first respondent caused by the granting of an interlocutory injunction will not be anywhere near as significant as the hardship to the appellant. The first respondent and, insofar as its position is relevant, the second respondent are likely to be affected by a relatively short delay in the sale of the property, but I do not think that the hardship to them outweighs the hardship to the appellant.
I turn now to the appeal against the order as to costs. The Notice of Appeal is dated 14 March 2003. It purports to appeal against various orders of the Judge made on 6 February 2003 including:
“2.The mortgagee’s costs of and incidental to the application and costs of action be taxed as between solicitor and client.”
The Judge made no such order on 6 February 2003. Nor did he make such an order on 5 March 2003 when the matter next came before him. In fact, it was not until 1 May 2003 that the Judge made the following orders:
“1.Order that the plaintiff pay to the defendant Perpetual Trustee its taxed costs of and incidental to the application for an interlocutory injunction (including this order) such costs to be taxed as between solicitor and own client.
2.Order that the plaintiff have leave to appeal to the Full Court against the order contained in paragraph 1.”
The Notice of Appeal dated 14 March 2003 seems to have anticipated that an order similar to that eventually made would be made.
I would hear the parties as to the appropriate order as to costs in view of my conclusion that an interlocutory injunction should have been granted. Even if I had been of the view that the Judge was right to refuse the application, I would be disposed to hear the parties further on the appeal as to the costs order. I say that because I am not convinced that the appellant has had an adequate opportunity to address the appeal against the costs order.
The appellant’s Outline of Submissions was prepared by his then counsel and is dated 1 May 2003. The reasons for judgment of the Judge in relation to costs are dated 1 May 2003. It is by no means clear to me that the appellant’s Outline addresses the Judge’s reasons. Although counsel who prepared the Outline appeared at the outset of the hearing of the appeal and answered certain questions asked by members of the Court he did so in the course of seeking leave to withdraw and thereafter the appellant appeared in person. He did not address the Court on the appeal against the costs order.
For these reasons, I would allow the appeal. I would grant an interlocutory injunction. I would hear the parties as to whether any terms (consistent with these reasons) should be imposed on the granting of the injunction. I would make orders putting in place a timetable for the urgent hearing of the appellant’s application under s 55A(3) of the LPA. I would hear the parties on the costs order made by the Judge and the costs of the appeal.

[2003] SASC 148

23 May 2003