Graham, J. v Commonwealth Bank of Australia

[1988] FCA 546

C A T C H W O R D S 54b

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INJUNCTIONS - interlocutory inyunction - action impugning validity

of loan agreement secured by mortgage - interlocutory injunction

restraining mortgagee from selling mortgaged property - relevant

principles - conditions proper to impose upon grant of injunction.

MORTGAGE - exercise of mortgagee's powers - claim by mortgagor for

damages and other relief affecting validity	of	loan agreements
secured by mortgage - interlocutory	injunction	restralning

mortgagee from sale of mortgaged property	- condltions proper to
lmpose upon grant of Injunction.
Trade Practices Act 1974 s.87
Federal Court of Australia Act	5.23

Jacobs' - Law of Trusts in Australla 5th Edition para.2303

Shar e v San Paulo Railway Co. [l8731 8 Ch.App. 5;)

d k v The Federated Furnishing Trades Society of Australasia

m	(1g85) 5 FCR 464
Inglfs v Commonwealth Trading Bank of Australia (1972) 126 CLR	161
Cunnin ham v National Australia Bank Lt	15 FCR 495

d l b r o o k Pty Ltd v Deutsche ia~!t:~?:Bia) AG (1988) 121

NSWLR 16 ~~~ -.

Harvey v McWatters (1948) 49 SR(NSw) 173

Brutan Investments Pty Ltd v Underwriting and Insurance Ltd (	1980)
58 FLR 289
Glandore Pty Ltd v Elders Flnance and Investment Co. Ltd (198	4) 4
FCR 130

Atkinson v Hastings Deering (Queensland) Pty Ltd (1985) 6 FCR 331

Hallifax Property Corp Pty Ltd	v	GIFC Ltd	(	unrep. NSW Sup.	ct.
19/11/87)

Mainbanner Pty Ltd v Dadincroft Pty Ltd (Fed. Ct., unrep.	8/3/88,
Pincus J. )

JAMES GRAHAM, HARY ESTHER MURIEL G R A M , ALLAN RUSSELL G R A M and

4 OCTOBER 1988

SUSAN ANN G R A M V COMMONWEALTH BANK OF AUSTRALIA

COMMONWEALTH BANK OF AUSTRALIA V JAHES GRAHAM, MARY ESTHER MURIEL

G R A M , ALLAN RUSSELL G R A M and SUSAN ANN	G R A M
No. WAG 93 of 1987
FRENCH J.
PERTH
IN THE FEDERAL COURT	)
OF AUSTRALIA	)
WESTERN AUSTRALIA	)
DISTRICT REGISTRY	1

GENERAL DIVISION ) No. WAG 95 of 1987

B E T W E E N :  GRAHAM JAMES

First Applicant

NARY ESTHER MURIEL G R A M

Second Applicant
ALLAN RUSSELL GRAHAM

Third Applicant

SUSAN ANN G R A M

Feuzt!: "pp1icsr.t

and

COMMONWEALTH BANK OF AUSTRALIA

Respondent

COMMONWEALTH BANK OF AUSTRALIA

Cross-Claimant

and

JAMES G R A M

First Cross-Res ponde nt

MARY ESTHER MURIEL G R A M

Second Cross-Respondent

ALLAN RUSSELL GRAHAH

Third Cross-Respondent

SUSAN ANN GRAHAM

Fourth Cross-Respondent

CORAM: FRENCH J.

4 OCTOBER 1988

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REASONS FOR JUDGMENT ON NOTION

TO RESTRAIN MORTGAGEE FROM EXERCISING POWER OF SALE

The applicants in these proceedings were party to two

foreign currency loan agreements with the respondent bank. By the

first, made late in February 1 9 8 4 , the first and second

applicants borrowed the equivalent of $A300,000 in Swiss francs. By the second, made in June 1 9 8 4 , the third and fourth applicants

borrowed $ A 4 5 0 , 0 0 0 . They now say that they have suffered

substantial losses as a result of reductions In the value of the

Australian dollar against that of the Swiss franc during the

c ~ r r e ~ c y S: t h r agcaeriienis. The bla~ac: iur the? iuases they iay ac

the door of the respondent, saying they were induced to enter the
agreements by misleading or deceptive conduct, negligent
mis-statement, undue influence and unconscionable conduct on lts
part. They allege breach of implied terms of the contracts and
negligence in the supervision and monitoring of the loans and in

the failure to give proper advice of measures necessary to

minimise the losses. Various forms of relief are claimed

including damages totalling $ 4 3 4 , 5 3 0 on the part of the first and

second applicants, and $ 1 , 1 2 4 , 5 8 5 on the part of the third and

fourth applicants.	Unspecified orders are sought under s.87 of
have been avoided by the applicants and orders setting them aslde	the Trade Practices Act 1974. A declaration that the agreements
are also claimed.

Extensive amendments to the statement of claim raislng

the questions of undue influence, unconscionable conduct and

breach of the implied contractual terms, were allowed over objection from the respondent and after argument.

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Discovery has

been given, but further discovery may be required as a result of the amendments. The question of interrogatories has not yet been addressed. In the meantime the respondent is taklng steps to

exercise its power of sale under mortgages granted by the first

and second applicants and their family trustee company, to secure the advance made under the impugned transaction. As at 15 August 1 9 8 8 , the amount said to be due was S A 3 7 0 . 0 0 0 . The first and

second applicants now move to restrain the exercise of that power

pending the hearing and determination of these proceedings. The

respondenr: opposes t n e restraint unless it be on condltion that the full amount due under the mortgage is paid into court and alternatively, an amount no less than the interest due up to date.

The Mortgaged Land

There are two pieces of land the sub~ect of mortgages in

respect of which interlocutory restralnts are sought. The flrst

is the first and second applicants' family home located at Mt.

Pleasant and described on the certificate of title as Portion of

Swan Location 61 being Lot 1 7 on Diagram 2 9 3 8 6 and being the whole

of the land contained in Certificate of Title Volume 1 2 9 7 Folio

2 0 0 . The mortgage, No. C 7 2 3 0 5 7 , granted over this land, is dated

2 1 February 1904 and secures the loan agreement dated 2 0 February.

A second securrty, given when the agreement was made, was by way

of a flrst mortgage over a service station/restaurant/motel

complex at the corner of Stubb Street and South Road, Lake Grace.

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In August 1986 that property was sold and by way of substituted

securlty a mortgage, No. D342475, was granted over land at

Booragoon registered in the name of Russell Nominees Pty Ltd as trustee of the James Graham Family Trust. Mr and Mrs Graham are the sole beneflciaries of that trust. This mortgage was dated 2 October 1986. In January 1987 that company granted a second mortgage, D420116, to the respondent to secure advances to the

third and fourth applicants.

In addltion to these securitles, the respondent holds

rnree otner mortgages securlng	tne ioans to the thlrd and fourth
applicants, they being:

(i)  registered mortgage over a roadhouse and terminal, North West Highway, Karratha;

(ii) mortgage over townhouse unlts at Narrogln;

(ii1)mortgage over two farm properties at Narrogin.

Notices of demand have been issued and served in respect

of the mortgages over the	Mt. Pleasant and Booragoon land.
Notlces have also been issued in relation to	the mortgages
securlng the advances to the thlrd and	fourth applicants. The
respondent alleges that the	amount owlng by the first and second

applicants at 20 September 1988 was $A392,260.72. The amount of unpaid interest to 8 September 1988 together with costs incurred

..	in changing from three monthly to one monthly rollovers, totals
$34,465.74. That unpaid interest is included in the principal sum
said to be owing as at 20 September. As at 8 September the amount owing by the third and fourth applicants was said to be
$790,214.31, including interest and rollover conversion fees
totalling $55,937.29 at the same date. The respondent says that its valuations of the Mt. Pleasant and Booragoon properties are
$288,000 and $380,000 respectively. While it is conceded that
those values are presently sufficient to cover the amount owing on the first and second applicants' foreign currency loan, flr Vernon Hall a bank officer with responsibility for the relevant accounts, has sworn an affidavit in opposition to the motion saying that:

"...that position could change to the prejudice of the

Respondent by reason of the time before which the action comes to trial and any adverse exchange rate fluctuation."

The further point was made that the Booragoon property also

secures, under second mortgage, the loan to the third and fourth

applicants. The first appllcant has sworn an affidavit in which he says that the Mt. Pleasant property was recently "valued by a

Booragoon property, he says, originally comprised 9 home villas, firm of property valuers in Perth at about $450,000'. The	each with its own strata title. In April 1987 one of these unlts
was sold for $80,500 to discharge an overdraft for which the flrst
and second applicant were llable to the respondent. Another was
sold on 8 June 1987 for $77,000 and the proceeds used to discharge the third and fourth applicants' overdraft debt to the respondent.

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On 15 February 1988 units 4 and 5 were sold for $87,500 and the proceeds were applied to reduce the principal sum said to be owing by the first and second applicants under their foreign currency loan agreement with the respondent, although this was evidently done without prejudice to their contention that they have no

liability under that agreement. There are 5 units in the

Booragoon property which remain unsold, three of which are presently tenanted. Another two have recently become unoccupied,

but tenants are expected for them shortly. Although he has not

had these units valued recently, MC Graham says that based on his

axperie1rL.c: Q S L u i i i i e L a i r 4 w r i h k ~ - ~ ~ w l e G y e af the e i c a , cilciL

total value is $480,000. He says that the maximum liablllty to

which he and his wife will be exposed If unsuccessful in these

proceedings, is $370,000 (that figure is some $22,000 less than the bank figure to 20 September). If the respondent were to

exercise a power of sale over the Mt. Pleasant property it would

force he and his wife from their family residence. If the Booragoon units were sold there would be a substantial liability by way of capital gains tax on an assumed profit of $150,000. There are, he says, no cash reserves to meet such a liability and if the Mt. Pleasant home were sold for more than the amount due

under the loan, the balance would be held by the Bank to reduce

their liability under the Booragoon second mortgage. Deprived of

any equity in the Mt. Pleasant house and of income from the

Booragoon units, MC Graham says they would have no way of meeting the liability to capital gains tax.

I am unable on the material and submissions before me, to say whether or not the consequences of an immediate sale would be as slgnificant as MC Graham maintains. Nor can I, on the unverified material from both the Bank and the applicants, safely form any view, provisional or otherwise, about the competing "valuatlons" of the subject properties. There can be little doubt, however, that a forced sale of both properties is likely to be disastrous for both the first and second applicants. On the

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other hand, provlded that the Bank's entitlement to its interest

is secured, there is no evidence from which I can infer that it faces an acute risk of devaluation of the securities pending

trial. MC Hall's evidence on this point does not go beyond the

proposition that unfavourable currency exchange rate fluctuations

are possible.

The Question of Standing

The respondent contends as a preliminary point that the

first and second applicants have no standing to seek interlocutory injunctive relief in relation to the exercise of a power of sale under the mortgage over the Booragoon property. The land, it is said, 1s owned by Russell Nominees Pty Ltd which holds it on trust

for the first and second applicants. In this submisslon rellance

was placed upon Sharpe v San Paulo Railway Co. [l8731 8 Ch. App. 597 at 609 and Jacobs' - Law of Trusts In Australra 5th Edition at para.2303 where It 1s said:

"...where a trustee refuses to institute proceedings

against a debtor or to recover trust property, the beneficiary may wish to institute proceedings himself, either in his own name or in the name of the trustee.

The rule here 1s that a beneficiary may sue in his own name only where the relief sought is in the equitable jurisdiction of the court and even then only where the circumstances are exceptional. If they are not exceptional or if the proposed action is to be commenced in the common law jurisdiction, the beneficiary's remedy is to sue the trustee for the execution of the trust and then apply for the appointment of a receiver and for

leave to sue in the name	of the trustee or of the
receiver."

Whatever may be the position when it comes to the grant of final rellef, I am satisfied that the first and second applicants have a sufficlently direct interest in the Booragoon property to enable them to seek interlocutory relief in relation to it. Nor do I

consider that the power of the Court under s.23 of the Federal

Court of Australia Act to make lnterlocutory orders is so limited that the restraining order proposed would exceed it. At worst the problem may be one of non-~oinder of a relevant party, belng the

trustee company. That company has an obvious enough interest in

the fate of the agreement which underpins the mortgage granted

over the Booragoon land. Given that he first and second

applicants effectively control the trustee and have instructed

their counsel to apply for its joinder if necessary, the problem

1s of no practical significance. In any event, in my opinion,

the Court has the power on an lnterlocutory basls to grant the

relief sought.

A Serious Case to Be Tried

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Discretion to grant interlocutory relief is regulated by the familiar requirements that the applicant for relief show a

serious question to be tried and that the balance of convenience

favours the order sought. The two factors are, as the Full Court observed in Bullock v The Federated Furnishing Trades Society of

Australasia (No. 1 ) (1985) 5 FCR 4 6 4 at 4 7 2 , interdependent:

"...an apparently strong claim may lead a court more readily to grant an in]unction when the balance of convenience is fairly even. A more doubtful claim (which nevertheless raises "a serious question to be

tried") may still attract interlocutory relief if there

1s a marked balance of convenience in favour of it."

In support of the applicants' contention that there is a

serious question to be tried, Mr James Graham has sworn a supplementary affidavit in which he deposes to the truth of the

facts pleaded in the statement of claim in support of the first

and second applicants' claim for relief. The affidavit goes into further detail setting out the history of dealings between the first and second applicants and the respondent in relation to the

foreign currency loan agreement.

I must say that having read the affidavit evidence, I am

not persuaded that the applicants have demonstrated any real

strength in their case to the extent that It relles upon

allegations of undue influence or unconscionable conduct on the part of the respondent. That is not to say that a serious question is not made out on the claims based upon s.52 negligent

.'	mis-statement and contract. Indeed, notwithstanding the criticism of the applicants' case from counsel for the respondent, I am satisfied that a serious question is disclosed. As to that, I note that MC Hall's affidavit in opposition to the motion took
issue generally with the factual allegations made by fir Graharn, then went on:

"As any refutation of MC Graham's evidence would simply give rise to a conflict of evidence the Respondent does not propose to depose to those matters in this Application but reserves the right to do so at trial."

As to the second mortgage over the Booragoon property, that is a

matter to be dealt wlth as and when it arises. I am also satisfied on the evidence that the balance of convenience favours the appllcants' claim for interlocutory relief, subyect to

appropriate protection of the mortgagee's interest. It is the

question of what	protectlon is appropriate that must now be
addressed.

Payment into Court as a Condrtron of Interlocutory Relief

Commonwealth Trading Bank of Australia (1972) 126 CLR 161, that The respondent submits In reliance upon Inglis v	the general rule is that an injunction will not be granted to
restrain a mortgagee from exercising its power of sale under a
mortgage unless the amount of the mortgage debt is pald lnto
court. As that decision indicates, it is not sufflcient to
justify a departure from the rule, that the mortgagor claims an entitlement to set off damages against the amount due under the mortgage - see also the discussion of the rule by Jenkinson J. in

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Cunningham v National Australia Bank Ltd (1987) 15 FCR 495, and its more recent reiteration in MCP Muswellbrook Pty Ltd v Deutsche Bank (Asia) AG (1988) 12 NSWLR 16, 32 (POWell J.). However in Harvey v McWatters (1948) 49 SR(NSW) 173, Sugerman J. observed that the rule applied inflexibly could give rise to the "manifest possibility of hardship and consequential injustice". There a distinction was drawn between the case in which the power of sale

is admittedly exerciseable and the only dispute 1s as to the

amqunt due or the way in which the power is to be exercised, and

that in which the very existence of the power is in dispute. The

need for flexibility and possible unfairness arl-ing from the operation of the rule was echoed in Brutan Investments Pty Ltd v Underwriting and Insurance Ltd (1980) 58 FLR 289 at 299 when Sheppard J. observed:

"If a mortgagor makes out a case for interlocutory relief by showing that he has a probable chance of success...lt would seem extremely hard to order as an inflexlble rule payment into court of the entlrety of the mortgage debt, particularly i f , as was here the case, the matter could be heard finally within a very short time of the grant

of interlocutory relief ."

In Glandore Pty Ltd v Elders Finance and Investment Co.

- Ltd (1984) 4 FCR 130, Morling J. applied by analogy the

distinction drawn in Harvey v McWatters (supra) to the case where
the applicant for interlocutory relief claimed as final rellef an

order under s.87 of the Trade Practices Act 1974 varying the terms

of the loan agreement secured by the mortgage there in question.

In that case his HonOuC considered he was free to "mould an order

\. so as to ensure adequate protection to the mortgagee and to

otherwlse do justice between the partles durrng the period pending
the final hearing". The restraint there granted was upon
condltlon that the applicants pay to the respondent the sum of
unpaid interest and expenses on account of Interest on the moneys
advanced by the respondent. The hearing of the application was
expedited and the usual undertaking required of the applicant.
Like flexibllity in the exercise of the discretion was
demonstrated by Pincus J. in Atkinson v Hastings Deerlnq
(Queensland) Pty Ltd (1985) 6 FCR 331 when his Honour granted
rellef without the imposition of any condition, although in doing
so he affirmed the general rule. There, however, he found that it
seemed likely that no proper notice of default had been given

under the Property Law Act 1984 (Qldl. That fact, comblned with
the strength of the applicants' case and the absence of any
suggestlon that the property would deterlocate significantly
pending trial, together with a balance of convenience which
favoured the appllcants, was sufficient to justify the course he
took. See also the general discussion by Young J. in Hallifax

Property Corp Pty Ltd v GIFC Ltd (unrep. NSW Sup. Ct. 19/11/87) in

which the flexibility adverted to in Glandore appears to be

accepted.

More recently In Malnbanner Pty Ltd v Dadincroft Pty Ltd

(unrep. 8/3/88, Pincus J.), Pincus J. In refusing a clarm for

lnterlocutory rellef asserted the general rule with rather more

emphasis than prevlously when he sald, after referring to

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submissions invoking the Glandore decision:

"The fundamental prlnclple, however, is that the mortgagee will not be restrained from exercising its security rights at the instance of the mortgagor unless the amount, if lt be disputed, is paid into court. Here, there is no possibility of that being done, on the evidence of MC Lubke.

I have noted that not only in the Glandore case, but in other decisions, such as that of the Full Court of the supreme Court of Queensland in Clarke v Japan Machines (Australia) Pty. Ltd. (No.2) [l- Qd.R. 421 , there has been some tendency to relax the requlrements of the rule I have mentloned, and I am prepared to assume the

dlscretion to do so. In my opinion, it would, in	correctness of the contentlon ... that I have some
general, not be correct to exercise that discretion in favour of an appiicanr: In a case such as r;his, meceiy 011 its being shown that there is a prospect, however modest, of success on an allegatron of oral misrepresentatlon. If that were s o , the rule would be, in effect, reversed, and would be that where misrepresentation is alleged in such a way that one could not deny the serlousness of the question to be
tried, and the applicant claims rescission, prima facie the contract the mortgagor and mortgagee have made must be suspended.
It seems to me that the adoption of any such principle would be, in the long run, pernlcious, because It would tend to destroy or weaken people's confidence in such bargains and in the rights of holders of security."

That was a case	in which the appllcant sought damages for breaches
of 5.52 of the Trade Practlces Act in relatlon to the purchase	of
a motor cycle business, together with other rellef lncluding a
declaration that certaln documents relating to the	transactlon

were void and an order for repayment of the purchase money. A

bill of sale had been	given to secure the unpaid balance of the
purchase prlce. The	applicant, seeking to restrain the respondent

from exercising a power of sale under the bill of sale, relied

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upon the decision in Glandore (supra). His HOnOUr's approach to

that authority and to the appllcant's arguments indicates that a

mere possibility of success in a case of oral misrepresentatlon

may not be enough to justify a departure from the general rule

requiring payment into court of the whole amount due as a

condition of the grant of lnterlocutory relief. The court 1s

concerned here, of course, with the exercise of a dlscretion and

it is always a dangerous course to extract from earller decisions

exqrcising that discretion on particular facts any general

principles purporting to fetter its exercise. That is not to say,

and should not be taken to Imply, that the observations of Plncus
J. on the importance of confidence in bargains does not expose a
significant and relevant factor which will in most cases be given
conslderable weight. But in the end, each case is to be judged on

Its own facts.

In the circumstances of this application, I am not

prepared to say that the applicants have demonstrated a strong

case, but at least a serious case to be tried and sub~ect to

appropriate conditions governing the grant of interlocutory

relief, a marked balance of convenience in their favour. In	my
opinion however, they should as a condition of the grant of relief

sought pay to the respondent the unpaid interest and expenses due

as at 8 September. In broad terms the order	I propose to make
is as follows:

On the appllcants giving the usual undertaking as to damages

and further undertaking to use their best endeavours to
expedite the hearing of the application IT IS ORDERED THAT:

1.    The respondent be restrained until 4 pm on 18 October 1988 from selling any of the property given by the first and second applicants or any of them as security for the making of advances by the respondent under the loan agreement made on 20 February 1984 between the first and second applicants and the respondent.

2 .    That if the applicants on or before 4 pm on 18 October

1988 pay to the respondent the sum of $34,465.74 on

account of interest on moneys advanced by the respondent to the first and second applicants and also on account of expenses incurred by the respondent, the injunction

referred to in paragraph 1 is to continue until the

final hearing of the application or further order.

3.   The hearing of the application for flnal hearing 1s expedited.

4.   Costs of the application for interlocutory relief be reserved.

5.    There be liberty to apply to vary or discharge the terms of the injunction on 48 hours notice.

I will however hear from the parties on any practlcal

problems of implementation which may affect the verbiage of these
Orders.

I certify that the preceding

flfteen (15) pages are a true copy of the
Reasons for Judgment of hls Honour

Justice French.

Associate:	%>,,
Date :	4. 10. F r .

Counsel for the Applicants: MC S. Owen-Conway and Mr J. Fiocco

Sollcltors for the AppllCantS: Kay h Lafferty

Counsel for the Respondent: Ms. C. McLure

Solicitors for the Respondent:  Keall Brinsden

Date of Hearing: 23 September 1988

Date of Judgment: 4 October 1988