Donkin, C.J. and Anor v AGC (Advances) Ltd

[1990] FCA 413

Re: COLIN JOHN DONKIN and HEATHER KAYE DONKIN
And: AGC (ADVANCES) LIMITED
No. QLD G107 of 1989
FED No. 413
Mortgages

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Pincus J.(1)

CATCHWORDS

Mortgages - leave to appeal from interlocutory order refusing to restrain mortgagee's power of sale - interlocutory injunction sought pending appeal - factors to consider when interlocutory relief sought against mortgagee.

HEARING

BRISBANE

#DATE 10:8:1990

Counsel for the applicants: Mr T.C. Somers

Solicitors for the applicants: John Murphy and Co.

Counsel for the respondent: Mr P.H. Morrison QC and Mr J.D. McKenna

Solicitors for the respondent: Feez Ruthning

ORDER

The application made by notice of motion filed on 25 July 1990 is dismissed.

The costs will be the respondent's costs in any event.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an application for leave to appeal from an interlocutory judgment of Spender J. delivered on 19 June 1990 and for what is described in the notice of motion as a "stay of proceedings". The application for leave to appeal is out of time and an enlargement of time is sought.

1. The principal proceedings relate to two loans advanced on certain securities by the respondent, amounting in the first instance to about $2 million; they have not been repaid. About $1.5 million was advanced in the equivalent amount of Swiss francs and the rest in Australian currency. The applicants say that an agent of the respondent misrepresented the nature of the transaction and that the respondent was guilty of negligence. A claim is made under the Trade Practices Act 1974 and also under the general law, for damages and other relief.

2. The statement of claim makes detailed allegations as to overcharging of interest, part of the applicants' case on this topic being that the documents executed did not truly reflect the party's agreement. It does not appear to me possible to make any estimate of the parties' respective prospects of success.

3. The principal proceedings have not progressed very far. The last significant step taken was that a defence was delivered in June 1990.

4. On 4 April 1990, the applicants applied to me for an interlocutory injunction to restrain enforcement of securities for the debts due, but that application was adjourned by consent on the basis of cross-undertakings. The respondent promised not to enforce its securities until 4 June and the applicants promised (in effect) to pay the amounts claimed by the respondent to be due. In explaining the agreement to me, counsel for the applicants said that he thought the amount due was about $2.5 million.

5. What prompted that agreement was that the applicants expected to be able to borrow $2.5 million or thereabouts from the National Australia Bank. They intended, after discharging the respondent's debt, to pursue their suit for damages. The amount which was in due course asserted to be due by the respondent was, however, greater than $2.5 million, being about $2.8 million and (partly for that reason) the National Australia Bank has refused to advance the moneys required. On 14 June, the applicants made another application for interlocutory relief, seeking an order restraining the respondent from exercising its rights under securities held by it and that came before Spender J. His Honour refused the application, and it is from that order that the applicant wishes to appeal. Although the notice of motion refers to a "stay of proceedings", a stay could not assist the applicants and their counsel applied orally for an injunction pending appeal.

6. The questions of leave to appeal and of injunction pending appeal are interrelated because, if leave to appeal is to be given, then it would seem that prima facie an injunction pending appeal might follow, to avoid the appeal being rendered nugatory. There may not be much point in granting one without the other.

7. In his reasons for refusing interlocutory relief, Spender J. said that it was "submitted that the Court ought to restrain the lender from exercising its powers of sale under mortgage documents by ordering that the lender release the securities on payment to it of a sum of slightly more than $2.3 million, and in respect of the balance sum in dispute, A.G.C. accepts second and third mortgage security over other assets offered by the borrower". The order which was sought appears to be a very unusual one. The reason for seeking it was that, as the applicants claimed, only about $2.3 million was due. The applicants expected to be able to raise that sum and suggested that if any balance turned out to be due to the respondent, that could be secured by mortgages which the applicants offered to give.

8. Where there is, as here, a dispute between mortgagor and mortgagee as to the amount due, the mortgagor's position may be a difficult one. The mortgagee will no doubt refuse to discharge the mortgage until paid the sum it says is due and that may render it impossible for the mortgagor to re-finance the debt by obtaining a loan from another source. Assuming that the Court has power to do what was asked here, namely to require the mortgagee to release its securities under an interlocutory order, it would seem to me that such relief could be granted only where the mortgagor appeared to have a very strong case as to the proper amount due and the adequacy of the substitute security offered to cover the disputed balance. In my opinion these conditions are not satisfied in the present case. The applicants' chances of upsetting the judgment of Spender J. on that point appear to me too slim to justify the grant of leave to appeal. Further, there is no concrete proposal, at present, to pay out the respondent, in view of the National Australia Bank's attitude.

9. Mr Somers, for the applicants, pointed out that the notice of motion heard by Spender J. asked, in a general way, for an order restraining exercise of the mortgagee's powers pendente lite and said that application was never abandoned. Although Spender J. treated the case as argued before him as based on the narrower ground just discussed, it would be open to the applicants, if given leave to appeal, to seek wider relief than was the principal subject of argument before Spender J. However, the test (first branch) in Niemann v. Electronic Industries Ltd (1978) VR 431 is difficult to apply in such a case.

10. Interlocutory orders have sometimes a purely procedural effect - for example, a grant or refusal of an order for particulars of a pleading. Other interlocutory applications, of which the present is an example, are of a different kind, being likely to affect substantive rights. In Eltran Pty Ltd v. Westpac Banking Corporation (unreported, 15 November 1988), Spender J., with whom Gallop J. agreed, referred to the refusal of an injunction of the kind being discussed as giving the mortgagee "in substance, the benefit of a judgment in its favour before the day of judgment". That may be said of any case of the present kind in which the question is whether the mortgagee should be allowed to sell before the disposal of the principal proceedings. The case for leave to appeal where the grant or refusal of interlocutory relief is likely to affect substantive rights is inherently stronger than where merely procedural questions arise; see National Mutual Holdings Pty Ltd v. Sentry Corporation (1988) 83 ALR 434 at 440, 441.

11. Mr Morrison QC, who led Mr McKenna for the respondent, submitted that Australian courts have fairly consistently followed Niemann v. Electronic Industries Ltd. The principles set out in that case are that leave to appeal from an interlocutory order should be granted only where the decision is attended with sufficient doubt to justify granting leave and in addition substantial injustice would be caused if the order were left unreversed. As was pointed out during the hearing before me, the second requirement needs some elaboration: what must be meant is that, assuming in favour of the applicant for leave that the decision attacked was wrongly made, then it would cause substantial injustice not to reverse it. Any order refusing interlocutory relief in a case of this sort - i.e. an application for interlocutory injunction to restrain sale by a mortgagee - may be argued to fulfil the second criterion, for it may be unjust to permit the mortgagee to sell where, if the matter were fully fought out, it would be held to have no entitlement to do so. Applying the Niemann test, refusal of an arguable application for such interlocutory relief might routinely warrant leave to appeal.

12. In my opinion, however, the Court should not ordinarily give leave to appeal in cases of this kind, unless there appears to be some strong indication of error of principle in the judgment below. The leading authority on the question of such interlocutory relief against a mortgagee still is that of the High Court in Inglis v. Commonwealth Trading Bank of Australia (1971) 126 CLR 161; it supports the general rule that interlocutory relief cannot be granted unless the amount the mortgagee claims is paid into Court. In Town and Country Sport Resorts (Holdings) Pty Ltd v. Partnership Pacific Limited (1988) 20 FCR 540, the Full Court held that the power to grant injunctions in such cases is, where the Trade Practices Act is relied on, not necessarily confined to the principles traditionally observed; but as the Court there recognised, the rules under the general law may "... provide ready guidance for what is appropriate" (545). The present case prima facie falls squarely within the general Inglis rule. There is a dispute as to the amount due, of such a kind that one cannot predict its likely outcome, the applicants cannot pay into Court and there is no dispute that the respondent is owed a very large sum, although its quantum is in issue. It is my opinion that the Inglis rule provides guidance, not only as to injunctions pending trial, but as to injunctions pending appeal; the latter may, of course, last for quite some time.

13. It is my opinion that, for the reasons I have given, both leave to appeal and an injunction pending appeal should be refused. It is unnecessary, therefore, to deal with the application to enlarge time to apply for leave.

14. The application made by notice of motion filed on 25 July 1990 is dismissed and the costs will be the respondent's costs in any event.