Donkin, C.J. v A.G.C. (Advances) Ltd

[1990] FCA 345

JUDGMENT No. 3% .... :l...&

C A T C H W O R D S

INTERLOCUTORY INJUNCTION - mortgagor seeking to restrain

mortgagee from exercising powers of sale - dispute, inter

alia, as to amount of mortgage debt - general principles

COLIN JOHN DONKIN & ANOR. V. A.G.C. (ADVANCES) LIMITED

NO. Q G107 of 1989

SPENDER J.

BRISBANE

19 June 1990
FEDERAL COURT OF AUSTRALIA	1
IJUEENSLANU DISTRICT REGISTRY }	>
1
GENERAL DIVISION	1

BETWEEN:

I

Colin John DONKIN and Heather KaYe DONKIN

Applicants

AND :

A.G.C. (ADVANCES) LIMITED

Respondent

I MINUTES OF ORDER

JUDGE MAKING ORDER:	SPENDER J.
DATE OF ORDER:	19 June 1990
WHERE MADE:	BRISBANE
THE COURT ORDERS THAT:

(1) The Notice of Motion be dismissed. (2) The applicants on the motion should pay the

respondent's costs on the motion, including the

costs of 4 June 1990, to be taxed if not agreed.

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

Counsel f o r t h e a p p l i c a n t s : Mr . T. Somers

i n s t r u c t e d b y :  John Murphy & Co.

Counsel f o r t h e r e s p o n d e n t : M r . P . Morrison Q.C. and Hr.

McKenna .

i n s t r u c t e d by:  F e e z Ruthning

Date o f Hearing:	14-15 June 1990
Date o f Judgment:	19 June 1990

FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION

BETWEEN:

Colin John DONKIN and Heather Kave DONKIN

Applicants

AND :

A.G.C. (ADVANCES) LIMITED

Respondent

SPENDER J
BRISBANE

19 June 1990

EX TEMPORE REASONS FOR JUDGMENT

This is an application for an interlocutory

injunction to restrain the respondent, AGC (Advances) Ltd

( "AGC" ) , from exercising its powers of sale under various

the parties is as to the tens on which such restraint should	security documents. As will appear, the real question between
be ordered.
In brief, the contention for the lender, AGC, is that it ought not be restrained from exercising its powers under the various security documents, except on payment into court of the amount claimed by it, which is an amount slightly in excess of $2.8 million.
For the applicants, 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, AGC accept second and third mortgage security over other assets offered by the borrower.
Having regard to the nature of the relief claimed, what in general terms has to be demonstrated is that there is a serious question or serious questions to be tried, and that the balance of convenience favours the grant of relief sought by the applicants on the motion: E~itoma v. Australasian Meat Industry Emplovees Union (1984) 3 FCR 55.

In Inqlis and Commonwealth Tradino Bank of Australia

(1971) 126 CLR 161, Walsh J. reiterated the general rule in

these terms at page 164:

A general rule has long been established, in

relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid or unless, if the amount be disputed, the amount claimed bv the mortaaaee be aid into - - -

court.
The rule, as it affects the exercise by a
mortgagee of the power of sale, is stated in
the following terms in Halsburv's Lawe of
Enqland, 3rd ed., vol. 27, p. 301:

' The mortgagee will not be restrained from exercising his power of sale

because the amount due is in dispute, or because the mortgagor has commenced a redemption action, or because the mortgagor objects to the manner in which the sale is being arranged. He will be restrained, however, if the mortgagor pays the amount claimed into court, that is, the amount which the mortgagee swears to be due to him, unless, on the terms of the mortgage,

the claim is excessive. ' "

In that case, as his Honour noted at page 164, there has been no offer by the plaintiffs to pay off the amount which the defendant claimed to be due under the mortgage, or any of it, or to pay any sum into court whether that sum be the amount so claimed or any other amount. In this particular case there is the offer to pay into court the amount which the applicants say is the amount due, or at least is no more than the amount due.

At page 166, his Honour said:

" As I have stated, it is not in dispute that there was an indebtedness under the mortgage, that is to say, that there were advances of money which were not repaid. Neither the existence of disputes as to the correct amount of that indebtedness nor the claim already mentioned that, whatever it was, it had been counter-balanced by the claim of the plaintiffs for damages is a ground, in my	opinion, for preventing the mortgagee from
exercising its rights under the mortgage
instrument. "

The counter-balancing claim he there referred to was contained in an amended statement of claim which sought damages and which alleged that the defendant was in wilful default for failing to give proper statements of accounts to the plaintiff, and that in various other ways the defendant had acted wrongfully.

An appeal was brought to the Full Court of the High Court and was shortly refused. The Chief Justice, Sir Garfield Barwick, said at 168:

" I have not heard anything, nor been referred to any authority, which cauaes me in the least to doubt the correctness of the refusal of Walsh J. to grant the interlocutory injunction sought by the appellant or the reasons which he gave for that refusal. "

Menzies and Gibbs JJ agreed with the Chief Justice

Inalis (supra) was distinguished in Glandore Pty Ltd v. Elders Finance and Investment CO Ltd (1984) 4 FCR 130. In that case Morling J held that a mortgagor who seeks an interlocutory injunction restraining his mortgagee from selling the mortgaged property pending determination of a dispute between them going to the validity of the mortgage transaction itself, should not be required to pay into court

' the whole amount of the mortgage debt as a condition of obtaining interlocutory relief, rather the court should mould an order which ensures adequate protection for the mortgagee and otherwise does justice between %he parties during the

period prior to the final hearing.

In Town and Countrv Sport Resorts (Holdinus1 Ptv Ltd v. Partnershiv Pacific Limited (1988) ATPR 40-911 the Full Court of the Federal Court consisting of Davies, Gummow and Lee JJ summarised the position at page 49-787:

The applicants were mortgagors seeking to restrain the exercise of a mortgagee's powers under the documents of security. The applicants could have been required to make provision, to the satisfaction of the Court, for the securing of payment of the mortgage debt before the Court could be moved to restrain the mortgagee. (See Inalis & Anor. v. Commonwealth Trading Bank of Australia (1971) 126 C.L.R. 161). The history of that rule and its roots in the equity of redemption are described in detail by Fox J. in flundell & Anor. v. Associated Securities Ltd. & Ors. (19711 19 F.L.R. 17 at DD. 45-48. The Gationale for the rule may {<us be thought to have less relevance to a mortgage of land which is included in a Torrens system of title registration where the mortgage operates as a mere charge on the land and not as a conveyance to the mortgagee of the mortgagor's legal interest in the property.

The rule, however, has generally been considered as applicable to equitable mortgages and charges as much as to legal mortgages, there being in all these securities an equity of redemption, whether of legal or equitable estate, and the same reasoning may have application to mortgages of Torrens title land. In any event the rule may be seen, at a more general level, as an application of the precept that he who seeks equity must do equity.

It does appear, however, that the requirements of the rule may be relaxed where the mortaaaor's ~roceedinas involve an attack uoon the &nforce<bility o f the security documenks. (See Harvev v. McWatters ((1948) 49 S.R. (N.S.W.) 173.)

The source of the injunctive power of the Court in the present case is not that of a court of equity involved in the Court's accrued jurisdiction, but that supplied by sec. 80 of the Act. That expresses the injunctive power in wide terms and is not necessarily confined by principles observed in courts of equity in their traditional jurisdiction. (see- World Series Cricket Pty

Ltd. v. Parish (1977) ATPR V40-040 at D. 17,426; (1977) 16 A.L.R. 181 per Bowen C.J. at	p. 185.) As a matter of power rather than as
an exercise of discretion in a particular case, the Court may grant interlocutory or final injunctive relief that does not correspond with what would follow from application of the traditional rules. This is not to say that in cases such as the present the rules devised in equity for application in disputes between mortgagor and mortgagee may not provide ready guidance for what is appropriate. But as we have observed, the traditional rule was apparently relaxed where the mortgagor attacked the enforceability of the security. The powers of this Court under sec. 87 of the Act enable the mortgagor to obtain in an appropriate case orders varying the terms of agreements or to declare them void as a consequence of the contravention of the provisions of the Act by the mortgagee. This may strengthen the ' inclination of the
Court in an appropriate case to refrain from requiring the applicant to provide adequate security for its indebtedness before reatraining a mortgagee from exercising its powers. (see e land ore Ptv Ltd v. Elders Finance and Investment CO Ltd (1984) 4 F.C.R.
130 per Horling J. at pp. 133-136; Cunninqham
& Ors. v. National Australia Bank Ltd. & Ors.
(1987) ATPR (140-826; (1987) 77 A.L.R. 632: cf. Hainbanner ~ t v ~ t d 'v. badincroft ~ t v . Ltd unreported (Federal Court of Australia, Pincus
J., g March .l908). )
As a matter of discretion the relaxation of such a requirement in this Court usually would be restricted to cases where the allegations which ground the plea for the use of the Court's powers under sec. 87 are clearly arguable and not merely colourable and to cases which show an obvious nexus between the allegations of misleading or deceptive conduct in contravention of sec. 52 of the Act and the formation of security documents sought to be varied or rendered unenforceable bv the exercise of those powers.

Two cases were particularly relied on by counsel

for the applicants in this present case. The first is Hickson

v. Darlow [l8831 23 Ch. D. 690, where the Court of Appeal held

that the general rule that an interlocutory injunction will not be granted unless the mortgagor pays into court the amount claimed by the mortgagee, does not apply where the court can see on the terms of the deed that the amount claimed by the

mortgagee cannot be due on the security.

Jessell M.R. at 694 referred to the ordinary practice that, if the mortgagee swears that an amount is due to him, and that amount is consistent with the terms of the mortoase, then that is the amount which the mortgagor must

bring into court. He then said that:

"

Here, I think that only £25 with interest is due, and that the Plaintiff ought only to be required to bring £30 into Court. I do not

see anything in the deed which entitles the

mortgagee to be paid the instalments by	I..
anticipation. "	1.: r

I

Lindley L.J. agreed and commented at 694-5:	I:.
... the Court is not bound to attend to his
[that is, the mortgagee's affidavit if he swears that a sum is due which, according to the terms of his security, cannot be due upon it. "

Lord Justice Bowen agreed.

It was said in this case, that when one had regard to the various documents, the amounts claimed by the mortgagee could not, on the terms of those documents, be due.

The second case relied upon by the applicants' counsel was Harvey v. McWatters (1949) 49 S.R. (N.S.W.) 173, where Sugerman J. refers to a distinction between cases where the only dispute is as to the amount due or the mode in which the mortgagee proposes to exercise the power and not whether the power of sale is exercisable, and cases in which the very matter in dispute is whether the power of sale is exercisable

at all. He indicated that different terms would be imposed as

to payment into court depending upon which of these two cases

the court was dealing with. The "ordinary rule" was to apply in cases of the first type; viz. that the mortgagor would be required to pay into court the amount demanded by the mortgagee and that the court would accept the mortgagee's oath as to the amount due unless it appeared from the terms of the mortgage instrument that the amount sworn to is wrong and that only a lesser amount is due. However, this rule did not apply in cases of the second type, as he identified the case before him to be. He said at p. 178:

"

What is called the ordinary rule applies to cases of the first clasa, and to those caees only. This flows from the principles and reasoning on which that rule depends. Caees of the second class are, as regatds interlocutory applications, governed by a rule of a similar type. But it is a rule resting on different principles and reasoning. These permit of a greater flexibility. They do not require that in every case the whole amount claimed or sworn to by the mortgagee or seen from the terms of the instrument to be the greatest amount that could be due should be paid in. The terms may be moulded so as to require payment in of so much only as suffices to give adequate protection to the mortgagee."

, Unfortunately, the tens of the orders made by his

Honour do not appear, but earlier on that page he said:

"

In the present case I think that there should be a payment into Court by the mortgagor, but that the amount of such payment should be governed by the principles which I have stated. For the purposes of ascertaining it I should require some evidence of the value of the security and of the possible loss which the mortgagee may incur along the lines which I have suggested. It may well be that the parties can agree upon an amount, but if they are unable to do so they should bring before me such evidence as they can and I shall make such determination as I can upon the question, always having in mind that in case of doubt the security of the mortgagee is to be

sought. "

In the course of his judgment his Honour referred to Hickson v. Darlow (supra) and to the difficulty of determining if the question was whether the power of sale was presently exercisable at all or merely a question as to the amount due.
He then referred to	v. Kirkwood, [l8801 28 W.R. 358, and

said at 177 that in that case:

... the Court of Appeal did deal with a case in

which the question was whether the bill of sale was valid as between grantor and grantee, and therefore whether the power was exercisable at all, and it imposed a term of payment into Court as a condition of interlocutory relief. Cotton L.J. said [at p. 3591: 'It seems to me that the regular rule is this, that where the court interferes as between mortgagor and mortgagee at the instance of the mortgagor, the mortgagee, unless the court is in a position to decide absolutely that he has no right, must be put in safety, and the ordinary terms which are imposed on an interlocutory application are payment into court by the mortgagor of the amount which the mortgagee swears is due to him upon his security.'

The submissions by the applicant on the motion in the present case essentially were, first, that the amount claimed by the mortgagee is demonstrably excessive, and secondly, that on a proper analysis of the material and the events that have occurred, no default has occurred, and therefore, the mortgagee was not entitled to issue a notice of default on 25 September 1989. As such, the applicant argues that this case falls within the second class contemplated by Sugerman J. in Harvev v. McWatters.

I turn now to a brief summary of the events that occurred. The applicants are borrowers from AGC on two loans:	an offshore loan in Swiss francs, which originally amounted to
SA1.5 million, and an onshore loan, originally around
$500,000.00. In respect of those loans, various security documents were executed, which are the subject of the present application.
In an affidavit sworn on 13 June 1990 Paul Charles Dashwood, who is an officer of AGC, swears that the amounts
owing by the applicants to the respondent were, in respect of the onshore loan, $640,358.16, and in respect of the offshore loan, $2,141,768.12, making a total of $2,782,126.28. In addition, legal costs applicable to the enforcement of security and the recovery of money totalled $41,302.81, made up of costs of litigation and enforcement of the security of $40,182.81, and the estimated costs of the release of the security of $1,200.00. He also certifies that the amounts of the loans are accruing interest at the rate of 22 per cent per annum from 5 June 1990 until payment, and he exhibits to his affidavit the calculations in respect of the amount said to be owing for the onshore loan and the offshore loan.
The applicants have submitted that the amount properly due to the respondent is at the most $2,338,323.00. It seeks orders that the respondent release its first mortgage security in exchange for that amount, and that simultaneously with that release, the applicants provide to the respondent, pending the trial of the action, second and third mortgage security over the Flamingo Night Club and the Heritage Tavern
the difference between the amount sought by the respondent and in Rockhampton to secure the sum of $463,323.00. This sum is
the amount which, for present purposes, the applicants say is properly due to the respondent. Further, it offers that, pending the trial of the action, the applicants pay to the respondent monthly instalments of an amount equivalent to 17.5 per cent per annum of $463,323.00.
The amount calculated by the applicants requires some analysis, and as a result of that analysis there are real difficulties concerning the confidence one may place in the accuracy of those figures. In respect of the amount of that figure which is attributable to the onshore amount, there are submissions that the interest rates properly applicable would have the effect of an indebtedness in that respect of $551,116. This is to be compared with the claim by the mortgagee of $640,358.16. So the question of the relevant interest rates is significant.
The balance of the amount which the applicant indicates they are prepared to pay to the respondent for the release of the first mortgage security, is calculated by taking the figure claimed in the default notice of 25 September 1989, namely an amount of $1,592,105.30, and adding interest calculated at 17 per cent for the period since
25 September 1989 to the calculation date. That is to say, the amount that is said to be owing under the off-shore loan is calculated by reference to the amount said by the mortgagee to be owing in the default notice as at 25 September 1989, and applying the low rate, in the present climate, of 17 per cent
to that amount as being a proper estimation of the amount due under the offshore loan.
Thus, in both major components of the amount which the applicant says is the amount properly due to the respondent, there are at the least questionable assumptions.
The order sought by the applicant is novel and no case was referred to me where an order of a similar kind has been made. Of course, novelty of the order sought is not a necessary bar. After all, everything has to be done for the first time once but the nature of the order sought emphasises the need for prudence and caution before such an order ought properly be made.
On 4 April 1990, Mr Justice Pincus, after some discussion with counsel for the parties, made orders by consent. The order as taken out commences in this way:

Upon the applicants and the respondent giving the following undertakings to each other, namely: -

1.   On the part of the respondent:-

(a)	To take no steps to enforce its securities in any way including either by appointment of Receiver or by exercise of power of sale until 5.00 p.m. on 4th June 1990;
(b)	To furnish to the applicants all documents which relate to the calculation of the pay out figure, being documents of the nature of those referred to in paragraph 2 of a letter from the applicants' solicitors to the respondent's solicitors of 12th March 1990, so far as the same are in the possession or power of the respondent, and save for documents the subject of legal professional privilege.
2. On the part of the applicants:-
(a)	To pay to the respondent all monies owing under the securities by 4th June 1990;
(b)	To pay such amount as is demanded by the respondent but without prejudice to the applicants' right to claim as damages any amount which was not properly payable pursuant to the securities; and without prejudice to the applicant's (sic) claim against the respondent in this action;

And then with various other undertakings on the part of the applicants it was ordered by consent that, inter alia:

"	1. The application be adjourned to a date to
be mutually agreed by the parties and obtained from the Registry and not before 4th June
1990.
2. The amount of $39,719.46 paid into court by the applicants be paid out forthwith to the respondent's solicitor (together with accretions thereon) and applied by the respondent towards interest on the off-shore loan.

Before making those orders, his Honour inquired of counsel for the applicants, Mr. Somers, whether the orders sought were proposed to be a settlement of the whole matter. Counsel indicated that it was not a settlement, and there would be a trial as to the applicants' claim for damages under the amended statement of claim, as the payment was to be without prejudice to the action on foot. His Honour asked:

" So you are paying out AGC and you want to
pursue your claim against them for damages? "

Mr. Somers indicated that this was correct.

His Honour then canvassed with both Mr Somers and

Mr Sheahan, who then appeared as counsel for AGC, whether the parties intended the undertakings to be undertakings to the

court, with the consequence that if the applicants did not pay	the money, then they would be guilty of contempt, or whether
they were to be undertakings to each other. His Honour asked
M r Sheahan:

" What was the spirit of the agreement, do you know? Was it referred to that AGC insisted on the right to send these people to prison if they did not pay? "

Mr. Sheahan responded that it was a "two-sided thing" where his clients undertook to give the applicants various documents and that imposed an obligation on them as well. The later exchange also took place:

His Honour: Perhaps you could just cover it by saying following undertakings to each other. Would that cover it?

Mr. Sheahan: That would achieve the results I was thinking of, yes.

Mr. Somers: Yes. So the preamble would now read upon the applicants and the respondent giving the following undertakings to each other.

His Honour: Yes. Well, that would make it clear that it is not an undertaking to the court.

That transcript makes it plain that the undertakings were to each other and were understood to be mutual undertakings. It is accepted that no payment was made in accordance with the undertaking referred to in paragraph 2 (a) of that order, but the complaint was made that the material referred to in paragraph 1 (b) of these undertakings was not supplied despite repeated requests.

It does seem to me that on the material presently available that AGC has on occasions acted in quite a high-handed or arrogant way, but that observation does not have a present relevance in relation to the issues that I have to resolve. On analysis, in my opinion, the applicant's claim does not attack the foundation of the right to enforce the security subject to the question of default.

In relation to the off-shore loan, the applicants claim the benefit of a contractual right to have a loan for five years at interest of 8 percent on six-monthly roll-over periods from the date of the loan.

In respect of the onshore loan, the allegations in the statement of claim relate to an alleged overcharging of interest on the basis of interest rates set out in a deed of variation dated 8 August 1988. Paragraph 29 of the statement of claim is the only claim for relief that in any way seeks to rely on section 87 of the Trade Practices Act to vary the terms of the document. That relief does not seek to alter in any way any of the security documents save it seeks to extend the loan term and reduce the rate of interest.

The respondent claims that the onshore loan was due for repayment on 14 May 1989, it was not repaid, and that the applicants consequently are in default , which default continues. The response to this claim appears to me to be dubious. It was said on behalf of the applicants that the	applicants had requested an extension of time for repayment of
that loan and that "such request was never denied". In my
opinion, this can be of no effect. Simply put, in the absence of an extension being granted, the making of the request cannot affect when the loan was due for payment. It was further said on behalf of the applicant in relation to this question that:

" By its conduct in continuing to send monthly debit notes for interest the respondent is estopped from now contending that such loan is repayable. "

In my view this submission also is without merit.

Essentially the claims advanced by the applicants

are as follows:

First, that the interest rates on the on-shore loan have been wrongly charged. Secondly, that there has been a lack of communication in respect of the relevant SIBOR/LIBOR rates. That aspect, while no doubt a matter of some exasperation, is not a matter grounding relief in the absence of evidence to suggest that the rates charged were, in fact, not the applicable rates. Thirdly, complaint is made that the lender altered impermissibly the interest period in respect of the overseas loan on one occasion from six months to three months. Finally, it is said that as a consequence of the various miscalculations and wrongful demands, as at 25 September 1 9 8 9 when the default notice was given, the lenders

were not in default, and as such the default notice is	invalid.
Many of the submissions are based on a letter dated 27 March 1 9 8 6 from AGC to the natural applicants. This
letter commences:

" AGC is pleased to confirm its approval to provide you with a foreign currency loan facility on the following terms and conditions: "

It then speaks of a foreign currency loan facility of an amount of 1.5 million "or such other amount as is from time to time agreed between the Lender and the Borrower."

By way of security the letter refers to a Financial Facility Deed supported by various securities there specified. The term is said to be five years with six-monthly roll overs and AGC reserves the right to vary fees after two years. The rate is described as SIBOR/LIBOR, plus a margin of 4 per cent per annum.

In respect of documentation this appears:

" The securities are to be drawn by our

solicitors, Messrs. Clayton Utz, and are to be
in a form satisfactory to AGC.

You will be responsible for all AGC's legal costs and diaburaements, valuation fees and other expenses, whether or not the Facility proceeds to drawdown. "

Acceptance of these terms by the applicants is indicated at the end of the letter by an endorsement signed 27 March 1986.

On 28 April 1986 the applicants executed what is termed a Financial Facility Deed, which is the type of security document referred to in the letter of 27 March 1986. Following is a number of clauses of that document which have a bearing on submissions made on behalf of the applicant.

. . .

17. The Borrower shall by notice in writing to the Lender given not later than five (5) Banking Days (or such shorter period as the Lender may agree) prior to the commencement of each Interest Period relative to a Foreign Currency Advance propose the Interest Period and the Foreign Currency or

Foreign Currencies in which it wishes such Foreign Currency Advance to be denominated for such Interest Period. The Interest Period shall then be fixed by agreement with the Lender and failing agreement, shall be determined by the Lender.

. . .

46. The Lender may at any time and from time to time deliver

to the Borrower a Variation Notice varying the Specified Rate and/or the Prescribed Rate and/or the Foreign Currency Margin as from the date specified in such Notice (not being earlier than thirty-two (32) days from the date of posting the Notice if the same is served by post or thirty (30) days later than the date of delivery of the Notice if the same is served by hand) and such variation shall take effect on the date so specified or, in the case of the Foreign Currency Loan Facility, on the first day of the next interest Period PROVIDED THAT the Borrower may at any time prior to the date so specified repay to the Lender the whole of the Principal Sum together with all other moneys (including interest) secured by this Deed or by the Securities to the date of repayment only. All references herein or in the Securities to the Specified Rate, the Prescribed Rate, the Foreign Currency Margin or the rate agreed as aforesaid shall include any variation thereof pursuant to such a Notice.

...

THE SCHEDULE

PART A

. . .

20.    "the Prescribed Rate": such rate as the Borrower and the Lender may from time to time agree upon in writing and in the absence of any such agreement then $18.50 per centum per annum calculated on daily balances.

.,.

26.

"the Specified Rate": such rate as the Borrower and the Lender may from time to time agree upon in writing and in the absence of any such agreement then $20.50 per centum per annum calculated on daily balances and -

(a)	insofar as clause 2 of this Deed is concerned commencing from the time each part of the Total A$ Advance is flrst advanced and continuing until such part shall have been fully paid and satisfied; and
(b)	for all other purposes of this Deed or the

Securities, commencing from the date the moneys

in question are outlaid by the Lender or the date demand therefor is made by the Lender (whichever shall first occur) and continuing until the date of repayment in full to the Lender.

. . .

31.    "Variation Notice": a notice given by the Lender to the borrower varying, as from the future date specified in that Notice, the Specified Rate and/or the Prescribed Rate and/or the Foreign Currency Margin and/or any other agreed interest rate and/or correspondingly varying the amount of any instalment of interest or combined principal and interest.

It was said on behalf of the applicants that there was a unilateral change in the roll over period from six months to three months in contravention of the letter of 27 March 1986. It was argued that that letter constituted a concluded agreement between the parties, and was not properly subject to variation by the Finance Facility Deed.

This claim no doubt is directed to the argument by

the lender based on clause 17 of the finance facility deed.
But the submissions on behalf of the applicants in this
respect seem to me to be at odds with the prayer for relief
numbered 11 in the application filed on 24 October 1989, which
is in these terms:

' A declaration that the Finance Facility Deed
executed by the parties and dated 25th (sic)
day of April, 1986 and the collateral
securities referred to therein are and each of
them is a mortgage within the statutory
definition of mortgage under the Property Law
Act 1974 is amended. "

In my opinion, it is a matter for argument as to whether the lender was entitled to vary the interest period. It seems to me there may be some factual difficulties in the events that occurred, and in particular, with the demand which

occurred in March 1989 in relation to the claimed variations	by the lender of the interest period from six months to three
months. But I am unable to conclude that the terms of the security necessarily have to be resolved in favour of the borrower in this respect.
Another submission was advanced on behalf of the applicants alleging an overcharging of on-shore interest rates as a result of A.G.C. purporting to vary the interest rate from its agreed rate of 17 per cent to rates up to 22 per cent. There is also a claim that there was an improper or illegal charging of interest withholding tax which resulted
in overpayments of some $23,000.
As to the applicable on-shore interest rates, (a matter of significant effect on the amount of the onshore loan), the borrowers' case, as said from the bar table, is that there was an oral agreement to vary the term from that referred to in the letter and in the facility deed, namely
18.5 per cent, to 17.5 per cent.
There are real difficulties confronting this factual claim in the light of the correspondence in March 1986, the finance facility deed dated 28 April 1986, and the fact that payments that were made in respect of the on-shore loan seemed to be calculated at 18.5 per cent.
The borrowers claim that the only variations permissible to the interest rate of either 18.5 per cent or
For the lenders it was contended that the Finance Facility 17.5 per cent were those referred to in a deed of variation.
Deed, particularly clause 46, permitted the lender to vary the applicable interest rate, which was done by a series of variation notices, and the interest rates as varied accord with the method of calculation leading to its claimed amount for the on-shore loan.

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Once again, the question is a serious one to be tried but it does not appear on the face of the documents that the answer must inevitably be in favour of the borrower. In any event, it seems to me there is much to be said in respect of the submissions as to the applicable interest rates advanced by the lender.

Both of these questions, that is the applicable rollover period and the applicable interest rates, do not, in my view, attack the right to enforce the security. They are not claims in the nature of an equitable set-off which was the case in Westvac v. Eltran Ptv Ltd (1987) 9 ATPR 40-802.

As to the question of default, I have already referred to the question of non-repayment of the on-shore loan. Dealing more particularly with the submissions advanced as to the validity of the notice of default given on 25 September 1989, Mr Somers sought to argue that the applicants were not in default on that occasion at that time. I hope I do justice to his submissions by saying that what was advanced

April 1989 which had been wrongly demanded by the lender two	was this: there had been an amount of some $42,000 paid in
months prior to the due date. The applicant submitted that the interest should have been calculated over the full period of six months at a rate of 3 percent plus the margin. The
3 percent interest rate seems to me to be based on a letter from AGC's former solicitors dated 13 June 1989. It was said by the lender to be an erroneous rate in that letter.
But even accepting for the moment the correctness of the interest rate involved in that calculation, it was then said that there was a short payment of $13,900 but credit had to be given for the amount paid early and interest on that amount, which might properly be calculated at 20 percent and amount to some $2028.00. Effectively, there would be in respect of a claimed shortfall of some $13,900.00, an allowance of $12,700.00 to be taken into account. Even on the generous assumptions contained in that calculation, the analysis does not lead to the conclusion that there was no default on the part of the borrower as at 25 September 1989.
But, in any event, it seems to me that that is but one aspect of default on which the lenders might properly rely.
For the reasons which I have set out before it seems to me that this is not a true case of an equitable set- off. The s. 87 relief, which is referred to by the Full Court
particular proceeding, is that specified in paragraphs 29 and in the Town and Countrv Case (supra), that is relevant in this 29A of the statement of claim which are in these terms:

" 29....the Applicants seek a declaration that the Notices referred to in paragraph 20 and 21 hereof are invalid by virtue of the claims for Damages referred to in paragraphs llB and 14 hereof and further aeek a declaration that the term of the loan shall continue until 2nd June, 1991 at 8% per annurn on 6 monthly payments in arrears.

29A....the Applicants seek an order pursuant to section 87(2)(c) of the Trade Practices Act for a refund of such monies as have been overpaid to the respondent. "

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The declaration as to the term of the loan and the applicable interest rate is a reflection of the damages claimed as a consequence of representations said to have been made as to the term of the loan and the maximum interest rate, or the applicable interest rate, for its term.

In respect of the matters relied on by the applicants, the court simply is not in a position to decide absolutely that the mortgagee has no right to enforce the security as it claims. This is not a case of the type referred to by Cotton L.J. in v. Kirkwood (supra), namely where the court, on inspection of the security documents, is satisfied that the amount claimed is not properly due so as to call for a qualification to the general rule.

The final matter is this: the proposed order essentially requires the borrower to forego the first mortgage security which it presently has and accept in its place second or third mortgage security. It is said on behalf of the applicants that this will provide sufficient security for the

November 1989, there is a substantial excess of security over	lender because, on the basis of a valuation performed in
the disputed amount of some $460,000.00. If it be the case that there is this buffer, it seems to me that the lenders can utilise that circumstance for the purpose of raising the sum to pay out the first mortgage security. All the cases speak of the need to have regard to putting the mortgagee in a secure position. It seems to be inconsistent with that

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objective to require the respondent to take a second or third mortgage over the property regardless of how secure it is said by the borrowers to be.

For those reasons I decline to grant any relief on the terms as suggested, or on any other terms, except on payment in of the amount claimed by the mortgagee to be due on the securities.

Of course, nothing that I have said in relation to these issues before me are in any way determinative of those questions and nothing that I have said ought to be taken by any party as affecting the claim for damages or the other claims which the applicants in the principal proceedings wish to pursue.

The applicants on the motion should pay the respondent's costs on the motion, including the costs of 4 June, to be taxed if not agreed.