Galloway v National Australia Bank Limited

[2016] VSCA 330

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2016 0166

BRADLEY GALLOWAY	Applicant
v
Respondent
NATIONAL AUSTRALIA BANK LIMITED

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JUDGES:	OSBORN and SANTAMARIA JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	9 December 2016
DATE OF JUDGMENT:	9 December 2016
MEDIUM NEUTRAL CITATION:	[2016] VSCA 330

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REAL PROPERTY – Urgent application to restrain sale of mortgaged property – Judgment for possession in favour of mortgagee – Purported residential tenancy – Granted without mortgagee’s consent – Balance of convenience – Application dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr I G Hone, Solicitor
For the Respondent	Ms L H Kirwin	Allens Lawyers

OSBORN JA:

1. This is an urgent application and it is desirable not only that the Court give a decision this afternoon, but that it indicate to the parties the essential basis of that decision, in order that they understand today why it has been made. 

1. The affidavit material before the Court demonstrates that the history of the dealings between the parties has been somewhat tortuous and I will not purport to set out that history in any great detail.  

1. The essential matters appear to be that the applicant gave to the National Australia Bank Ltd (‘the Bank’) a mortgage to secure a loan in April 2008.  The mortgage was granted over 9 Henry Street, Fitzroy (‘the Henry Street property’) and a copy of it is exhibited to an affidavit which has been filed in Court.

1. The applicant defaulted in respect of the loan that he had received from the Bank, and the Bank obtained an order for possession in November 2013 by way of a judgment in default of defence.  The Court’s judgment of 7 November 2013 was that:

1.   The plaintiff recover possession of the land situated at and known as 9 Henry Street, Fitzroy in the State of Victoria, being lot 1 on Title Plan 817798G, and being the whole of the land more particularly described in certificate of title volume 02908 folio 574.[1]

[1]Other parts of the judgment were later amended by further order, but these amendments are not relevant to the present issue.

1. Thereafter, there were various negotiations between the parties concerning the Henry Street property and another property in Footscray.  In April 2015, the applicant purported to grant a residential tenancy to one Fagan in respect of the property.  A written residential tenancy agreement relating to that arrangement has been put in evidence by the applicant.  

1. Then, in September 2015, the Bank took possession of the Henry Street property.  Subsequently, after a series of attempted re-entries by the applicant, the applicant sought relief in the County Court, and, in particular, a restraining order against the Bank preventing it from selling the Henry Street property.  On 25 November 2016, his Honour Judge Cosgrave made a series of orders, and, most importantly for present purposes, dismissed the application for a restraining order. 

1. It is now proposed that the property will be sold tomorrow at public auction.  In consequence, the applicant has made application today for that sale to be stayed.  He has also filed an application for leave to appeal against Judge Cosgrave’s orders. 

1. It is not disputed that the applicant remains substantially in debt to the Bank, nor is it disputed that the Bank holds a valid order for possession of the Henry Street property.  The application for a stay is founded on an argument which is put by reference to the Residential Tenancies Act 1997.

1. Under that Act, s 216 provides that ‘despite any Act or law to the contrary, a tenancy agreement does not terminate and must not be terminated except in accordance with this Division or Part 7 or 8’.  Section 223 provides for termination of a tenancy agreement in the following circumstances:

A tenancy agreement terminates if a mortgagee in respect of rented premises gives a notice to vacate under section 268 and—

(a)the tenant vacates the rented premises on or after the termination date specified in the notice; or

(b)the tenancy agreement terminates in accordance with section 334.

1. Section 268(1) provides that:

If a mortgagee in respect of rental premises under a mortgage entered into before the tenancy agreement was entered into becomes entitled to possession of, or to exercise a power of sale in respect of, the premises under a mortgage, the mortgagee may give the tenant a notice a notice to vacate the premises.

1. Both before Judge Cosgrave and in this Court, the applicant relied upon evidence from Mr Fagan that he had not been given a notice in accordance with the provisions of the Residential Tenancies Act 1997.  It was further submitted that, unless such a notice was given, the tenancy agreement remained on foot and the Bank was not entitled to sell the land with vacant possession.

1. Ms Kirwan, who appeared for the Bank, ultimately submitted that there were three fundamental answers to the applicant’s case.  

1. The first is that the touchstone of a tenancy is the provision by the landlord of exclusive possession of the premises.  At the date of the purported tenancy agreement, the Court had ordered the applicant to provide possession of the premises to the Bank.  As a matter of basic principle, it follows that, although the applicant remained in bare possession of the Henry Street property, he was not able to grant a right of exclusive possession to the tenant as he purported to do for a term of three years.[2]  

   [2]See Commonwealth Bank of Australia v Figgins Holdings Pty Ltd [1994] 2 VR 505, 510–11; Balanced Securities Ltd v Bianco (2010) 27 VR 599.

1. Secondly, the mortgage itself is subject to the Memorandum of Common Provisions retained by the Registrar of Titles pursuant to s 91A of the Transfer of Land Act 1958.  Clause 5 of those provisions governs dealings by the mortgagor with the land, and provides that, without the Bank's consent, the mortgagor may not grant a licence or lease concerning the land.  The mortgage having been registered, the mortgagor could not grant a lease which purported to convey any interest inconsistent with the limitation of interest created by the mortgage itself.  The applicant now seeks to rely on his own breach of that mortgage.

1. Thirdly, and although I come to it last, this matter was put at the forefront of Ms Kirwan’s submissions, s 87C of the Transfer of Land Act 1958 provides for the consequences which flow from a failure to obtain the consent of the mortgagee to the purported lease of mortgaged land.  

1. Section 87C of the Transfer of Land Act 1958 provides:

Mortgagee or annuitant consent required for lease, easement or restrictive covenant

The creation, variation or surrender of a lease or the creation or variation of an easement or restrictive covenant, in respect of land subject to a mortgage or charge, is not valid or binding against a mortgagee or annuitant unless the mortgagee or annuitant has consented in writing to (as the case requires)—

(a)       the creation, variation or surrender of the lease; or

(b)the creation or variation of the easement or restrictive covenant.

1. The provision provides in substance that a lease is not valid or binding against the mortgagee unless the mortgagee has consented in writing to the creating of the lease. It is in deliberately broader terms than the former s 66(2) of the Transfer of Land Act 1958.[3]  Because it is common ground that the mortgagee did not consent to the creation of the lease, it follows that the purported lease is not valid or binding against the Bank.

   [3]As to which, see Commonwealth Bank of Australia v Baranyay [1993] 1 VR 589, 598–9 (Hayne J).

1. The solicitor for the applicant submitted that the provisions of the Residential Tenancies Act 1997 overlay the provisions of the Transfer of Land Act 1958.  I do not see that this can be so.  If the lease is not valid against the mortgagee, then there is no lease upon which the notice provisions can operate.  Similar reasoning applies to the arguments to which I first referred relating to the capacity of the applicant to grant a lease when the land was subject to an order for possession made by the County Court, and subject to a mortgage containing the limitations upon which the Bank relies.

1. It follows that I am not persuaded that the fundamental point of law on which the applicant relies is seriously arguable or has any real prospects of success.  In addition, the point taken is one which goes essentially not to the interest of the applicant, but to the interest of the tenant Fagan.  Fagan is not before the court.  He has not sought to restrain the sale, and he has not sought himself to institute any challenge to the taking of possession by the Bank in September 2015.  He has not been in possession of the Henry Street property for an extended period of time and his whereabouts are uncertain.

1. On the face of it, such complaints as Fagan may have sound in damages, and the  balance  of  convenience  favours the  sale proceeding  tomorrow.   If  it does  not

proceed, substantial costs will be thrown away and the interest payable under the mortgage will continue to accrue. 

1. I accept that, as Mr Hone submits, the property is one which has some apparent special value to the applicant because of its heritage characteristics, but this is not sufficient to outweigh the matters to which I have already referred.  I also accept that, if the sale is not restrained, then in practical terms, the appeal may be rendered substantially nugatory, but, again, in the circumstances that I have described, this is not sufficient in my view to justify restraining the sale. 

1. The application for an order restraining the sale of the Henry Street property will be dismissed.

SANTAMARIA JA:

1. I agree.

OSBORN JA:

1. We will order that the applicant pay the respondent’s costs of the application. 

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