Jones v Evans - [1999] WASC 249

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: JONES & ORS -v- EVANS & ANOR [1999] WASC 249

CORAM: SCOTT J

HEARD: 19 NOVEMBER 1999

DELIVERED : 19 NOVEMBER 1999

PUBLISHED : 7 DECEMBER 1999

FILE NO/S: CIV 2349 of 1998

BETWEEN: MARGARET JEAN JONES
JOHN GERALD JONES
MALCOLM WALTON HUMPHREYS
DONELLE GLENYS HUMPHREYS
JOHN ROBERT LYNN
BARBARA ELIZABETH LYNN
BRIAN JOHN GABBEDY
HELEN BEVERLEY GABBEDY
Plaintiffs
AND
GEORGE EVANS
KATHY EVANS
Defendants

Catchwords:

Property law - Application to discharge mortgages - Refusal by mortgagees to consent to sale of property - Sale proceeds insufficient to discharge mortgages

Legislation:

Property Law Act 1969, s 55(2)

Result:

Application to discharge mortgages dismissed

Representation:

Counsel:

Plaintiffs: Mr G Papamihail
Defendants: Mr T Mijatovic

Solicitors:

Plaintiffs: Papamihail
Defendants: Murie & Edward

Case(s) referred to in judgment(s):

Palk v Mortgage Services Funding PLC [1993] 2 WLR 415

Case(s) also cited:

American Cyanamid Co v Ethicon Ltd [1975] AC 396
Birch Investments Pty Ltd v Lim, unreported; SCt of WA; Library No 7396
Castlemaine Tooheys Ltd v State of South Australia (1986) 161 CLR 148
Chamberlain v Shirand Nominees Pty Ltd, unreported; SCt of WA; Library No 8332; 22 June 1990
Cheltenham and Gloucester PLC v Krausz [1997] 1 All ER 21
Commonwealth Bank of Australia v Garon Pty Ltd [1999] WASC 170
Cromwell Property Investment Co Pty Ltd v Western [1934] Ch 322
Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Douglas v Culverwell [1862] 45 ER 1089
Evans Marshall & Co Ltd v Bertola SA (1973) 1 WLR 349
Friend v Mayer [1982] VR 941; Smith v Smith [1891] 3 Ch 550
Lewkowski v Bergalin Pty Ltd, ureported; FCt SCt of WA; Library No 7675
Marquess of Northampton v Salt [1892] AC 1; Mason v Island Air Pty Ltd (1983) ANZ Conv R 136
Martin-Smith v Woodhead [1990] WAR 62
Perry v Rolfe [1948] VLR 297
State Transport Authority v Apex Quarries [1988] VR 187
Tracy v Mifield, unreported; SCt of WA (Templeman J) Library No 980260; 14 May 1998
Union Bank of London v Ingram [1882] 20 Ch D 463
Wenpac Pty Ltd v Westralian Finance Pty Ltd, unreported; SCt of WA (Parker J); Library No 950409; 9 August 1995
Whitehead v Pilgrim [1999] WASC 25

SCOTT J: The plaintiffs in this action are mortgagees of land known as 5 Bower Place, Noranda in the State of Western Australia, title particulars of which are set out in the indorsed claim ("the land").
The first mortgage is pleaded in the statement of claim as being granted on 1 November 1996 securing repayment of a principal sum of $340,000 together with interest.
The statement of claim pleads that by notice dated 8 October 1998, the plaintiffs, by their solicitors, caused a notice of default and demand to be issued and served upon the defendants demanding that default under the mortgage (caused by the failure of the mortgagors to meet the mortgage repayments) should be remedied within seven days of the date of the notice. It is common ground that the defendants failed to comply with the notice. As such arrears of both principal and interest are now outstanding under the mortgage.
The defendants in the statement of claim seek delivery up of the land to the plaintiffs.
The defendants challenge both the plaintiffs' mortgage and a second mortgage granted by them over the same land on several grounds, including the fact that it is said that both the plaintiffs' mortgage and the second mortgage were obtained by unconscionable and unfair conduct by the mortgagees. Without descending into particulars, the defendants allege that the moneys advanced under the mortgages were advanced to their son so that they received no benefit from the mortgages. As previously stated, they allege that the mortgages were obtained from them in circumstances constituting unconscionable conduct.
A ruling has already been made that the issues between the plaintiffs and the defendants should go to trial.
Notwithstanding the state of the action, the defendants have purported to sell the land pursuant to an offer and acceptance for the sum of $420,000, which, it is common ground, would be insufficient to discharge even the first mortgage, including interest, let alone the second mortgage.
The plaintiffs have refused to consent to the sale of the property on a number of grounds. In an affidavit sworn by the plaintiffs' solicitor, it is suggested that the property is being sold for less than its true market value.
In an affidavit of George Papamihail, sworn 16 November 1999, Mr Papamihail, the plaintiffs' solicitor, exhibits a valuation from Ron O'Connor & Associates dated 18 October 1996, which indicates that at that date the market value of the land (for the purpose of mortgage finance) was $520,000.
The defendants have applied to the court for orders directing a Registrar of this Court to sign a discharge of each of the mortgages concerned. The summons seeks orders that the proceeds of that sale should be paid into an interest bearing account. The solicitors for the plaintiffs and defendants are proposed to be joint signatories to the account.
However, and significantly, in a minute of proposed orders dated 17 November 1999, the defendants seek the following orders, which it is to be noted are at variance with those sought in the summons, namely:
"1The settlement proceeds of the sale of the land of $408,973.85 or any other sum equivalent to the sum of the plaintiffs' claim and interest in the sale proceeds of the land be paid into court.
2The conveyance specified in annexure 'JP2' in the affidavit of Jim Pavlos sworn 10 November 1999 be settled and any required portion of the funds from the settlement proceeds of the sale of the land be paid to the vendors being Ricciarello Nominees Pty Ltd to thereby effect settlement of the purchase of the property known as Unit 3, 64 Raymond Street, Yokine specified in annexure 'JP2' to the affidavit of Jim Pavlos on or before 23 November 1999.
3Alternatively, the balance of the settlement proceeds for the sale of the land minus the settlement proceeds paid to the vendors specified in the above order be paid into court.
4Alternatively, the mortgagees of the mortgages registered over the land be ordered to thereby register mortgages over the property known as Unit 3, 64 Raymond Street, Yokine with the balance of the proceeds paid in to court.
5There be liberty to apply by either of the parties upon 24 hours notice."
From that minute of proposed orders it is apparent that what the defendants seek to do is to sell the land and, with the proceeds, buy a unit at Unit 5, 64 Raymond Street, Yokine. It is proposed that the balance of funds would be paid into court or into some other agreed account. The mortgages would then be registered against this land. As I understand the proposition advanced by counsel for the defendants, the defendants, having been dispossessed of the land wish to move into a unit and occupy that unit whilst the issues between the parties are resolved at trial. The plaintiffs oppose that course.
Counsel for the defendants seeks to rely upon the powers contained in s 55 of the Property Law Act 1969 to authorise the court to make the orders sought. That section relevantly provides:
"55(2)In an action, whether for foreclosure, or for redemption, or for sale or for the raising and payment in any manner of mortgage money, the court, on the request of the mortgagee, or of any person interested either in the mortgage money or in the right of redemption, and, notwithstanding that -
(a)any other person dissents; or
(b)the mortgagee or any person so interested does not appear in the action,
and without allowing any time for the redemption or for payment of any mortgage money, may, if it thinks fit, direct a sale of the mortgage property, on such terms, subject to subsection (3), as it thinks fit, including the deposit in court of a reasonable sum fixed by the court to meet the expenses of sale and to secure performance of the terms."
Counsel for the defendants argues that this section is sufficiently wide to enable this Court to order the proposed sale of the land. The sale would be on terms contained in the minute of proposed orders set out earlier in these reasons.
In my view of this case, there are many and fundamental deficiencies in the defendants' application. Firstly, the second mortgagees of the land are not parties to the action. In my opinion the application is fundamentally misconceived without the defendants joining the second mortgagees in the action and permitting them to be heard in relation to the defendants' proposal.
Secondly, for reasons which I have already expressed, the valuation obtained by the plaintiffs in relation to the land indicates that it is worth more than the proposed sale price. Understandably therefore, the plaintiffs are reluctant to consent to the proposal by the defendants in relation to the sale.
Counsel for the defendants sought to rely upon the authority of Palk v Mortgage Services Funding PLC [1993] 2 WLR 415. That judgment was a Judgment of the Court of Appeal comprising Sir Donald Nicholls V-C, Butler-Sloss LJ and Sir Michael Kerr.
Palk's case was very different to the present case in that, critical to that case was the fact that the property in question was reducing in value so that the mortgagee's proposal to lease the property would have caused detriment to the mortgagor in that the lease payments would have been less than the mortgage instalments. In Palk's case the mortgagees were seeking to postpone the sale of property in the hope that the value of the property would eventually rise faster than the interest payable under the mortgage, after allowing for the proposed rental, so that the mortgagees would ultimately recover the full amount of the debt.
In the judgment of Sir Donald Nicholls V-C, which was agreed to by other members of the court, his Honour said at 419:
"Take the present case: the security is inadequate, but Mortgage Services is not seeking to foreclose, nor is it seeking to sell at once. It is seeking to hold on to the house, preferably without becoming accountable as a mortgagee in possession, with a view to exercising its own power of sale at some future date. It is seeking to do this despite the income shortfall mentioned above."
Sir Donald Nicholls V-C went on to say at 420:
"As Lord Templeman noted in the China and South Sea Bank Ltd v Tan Soon Gin (alias George Tan) [1990] 1 AC 536 case at 545, a mortgagee can sit back and do nothing. He is not obliged to take steps to realise his security. But if he does take steps to exercise his rights over his security, common law and equity alike have set bounds to the extent to which he can look after himself and ignore the mortgagor's interests. In the exercise of his rights over his security the mortgagee must act fairly towards the mortgagor. His interest in the property has priority over the interest of the mortgagor and he is entitled to proceed on that footing. He can protect his own interest, but he is not entitled to conduct himself in a way which unfairly prejudices the mortgagor. If he takes possession he might prefer to do nothing and bide his time, waiting indefinitely for an improvement in the market, with the property empty meanwhile. That he cannot do. He is accountable for his actual receipts from the property. He is also accountable to the mortgagor for what he would have received but for his default. So he must take reasonable care to maximise his return from the property. He must also take reasonable care of the property. Similarly if he sells the property: he cannot sell hastily at a knock-down price sufficient to pay off his debt. The mortgagor also has an interest in the property and is under a personal liability for the shortfall. The mortgagee must keep that in mind. He must exercise reasonable care to sell only at the proper market value. As Lord Moulton said in McHugh v Union Bank of Canada [1913] AC 299 311:
'It is well settled law that it is the duty of a mortgagee when realising the mortgaged property by sale to behave in conducting such realisation as a reasonable man would behave in the realisation of his own property, so that the mortgagor may receive credit for the fair value of the property sold'."
In Palk's case the problem was that the mortgagee was prepared to take the risk of delaying a sale of the property in the hope that property prices would ultimately improve so that the whole of the debt could be discharged by a subsequent sale. The Court of Appeal would not permit that to occur and in my opinion, rightly so. However, that case is very different to this.
Here it is not the mortgagees who are seeking to sell the property to recover the mortgage debt but rather the mortgagors who are seeking to effect a sale so that other premises can be purchased with the sale proceeds and the balance paid into court.
In my opinion the defendants' application is totally misconceived. A judicial officer has decided that the action must go to trial and a determination will ultimately be made as to whether the mortgages are permitted to stand. That issue can only be determined at trial after evidence has been fully tested.
In my opinion the defendants have acted precipitately in seeking to sell this property without the approval of the plaintiffs and the second mortgagees. It would be quite improper for this Court to order a Registrar to discharge the mortgage on the basis sought by the defendants.
For these reasons, on 19 November 1999, I made orders dismissing the defendants' application and consequential orders.