Longreach Family Living Pty Ltd v South Eastern Secured Investments Ltd

[2009] VSC 499

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

PRACTICE COURT

No. 9776 of 2009

LONGREACH FAMILY LIVING PTY LTD	Plaintiff
v
SOUTH EASTERN SECURED INVESTMENTS LTD	Defendant

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JUDGE:	KAYE J
WHERE HELD:	Melbourne
DATE OF HEARING:	5 November 2009
DATE OF JUDGMENT:	5 November 2009
CASE MAY BE CITED AS:	Longreach Family Living Pty Ltd v South Eastern Secured Investments Ltd
MEDIUM NEUTRAL CITATION:	[2009] VSC 499

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PRACTICE – Interlocutory injunction – Claim by mortgagor – Whether serious issue to be tried – Whether mortgagee’s power of sale to be restrained – Whether plaintiffs to be required to pay mortgage debt into court.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R. Cook	Fong & Co Lawyers
For the Defendant	Mr M. McKenzie	Sullivan Brahm Solicitors

HIS HONOUR:

1. The second‑named plaintiff, Woondella Pty Ltd (“Woondella”), is the registered proprietor of a property called Woondella Park Maffra Road, Sale.  The first plaintiff, Longreach Family Living Vic Pty Ltd (“Longreach”), is an associated company with Woondella and is involved in the development of that land.

1. On 21 December 2007, Woondella entered into a mortgage with the defendant whereby it mortgaged the property as security for an advance by the defendant to Longreach in the sum of $3,300,000.  It was a term of the loan, inter alia, that both plaintiffs would provide fixed and floating charges over their assets as further security for it. 

1. In April 2009 the defendant, South Eastern Secured Investments Limited (“South Eastern”), commenced proceeding number 141 of 2009 against Woondella seeking possession of the mortgage property. 

1. In response, Woondella defended those proceedings on the basis that as part of the loan agreement, South Eastern agreed to make a further additional advance of $1.4 million to Longreach as the development works on the property progressed, but in breach of that agreement it failed to make that advance.

1. In due course in those other proceedings, South Eastern, applied for summary judgment.  That application was resisted by Woondella, and on 4 September 2007, Associate Justice Mukhtar, by consent, gave Woondella leave to defend in those proceedings.

1. Notwithstanding that Woondella had an arguable defence to the claim by the mortgagee for possession of the property, nevertheless one week later, on 11 September 2007, the defendant saw fit to take possession of the property exercising or purporting to exercise its rights under the mortgage.

1. In these proceedings, the two plaintiffs have sought both damages against the defendant South Eastern, and in addition, Woondella has sought an order setting aside the mortgage.

1. The present application before me is brought by the summons by the plaintiffs seeking an interlocutory injunction restraining the defendant from seizing possession of the property and, as I understand it, from proceeding with the sale of it.

1. The parties in both two proceedings have filed competing affidavits as to whether or not it was part of the loan agreement that the additional advance of $1.4 million would be made by South Eastern to Longreach in the course of the development. 

1. In his affidavit in the first proceeding, Mr Benjamin, who is a director of both plaintiffs, swore that in negotiations with Mr Smith of South Eastern in November or December 2007, he sought a loan of $4.7 million.  However, initially because the property was valued at $6 million, South Eastern was only in a position then to advance $3.3 million by way of loan.  However in the course of those discussions, Mr Smith had told Mr Benjamin that when the project had advanced, a further valuation could be obtained so that the balance of the funds required for finishing the first stage of the project, namely $1.4 million, would be available.

1. In his affidavit in the first proceeding, Mr Smith put that matter in issue.  He has sworn that when the valuation of $6 million of the property was obtained, the plaintiff agreed to advance 55 per cent of that value, totalling $3,300,000.  He said he discussed the valuation with Mr Benjamin, who said he was confident he could complete stage one with the $3,300,000.

1. In the present proceeding, the plaintiffs base their claim on two causes of action.  Firstly, it is claimed that it was part of the loan agreement that there be the further advance of $1.4 million made to enable completion of stage one of the project, and that in breach of that agreement, the defendant failed to make the further advance.  Further or in the alternative it is put that in representing that the defendant could and would make the further advance of $1.4 million, Mr Smith, on behalf of the defendant, engaged in conduct that was misleading under s 52 of the Trade Practices Act 1974 (Commonwealth).  In both causes of action the plaintiffs claim damages against the defendant.  Additionally, the second plaintiff, Woondella, claims relief under s 87A of the Trade Practices Act to have the mortgage set aside.

1. In argument before me today, Mr Cook submitted that there was a serious issue to be tried in respect of three matters. Firstly, he submitted that it had not been established that a notice to pay had been served under s 76 of the Transfer of Land Act and therefore that the mortgagee did not have any right to take possession of the property and to sell it.  Secondly, he submitted that there was an arguable issue that in respect of the two plaintiffs' claims for damages, both a breach of contract, and s 52 of the Trade Practices Act, that those damages could be set off against the debt secured by the mortgage and that accordingly, it was arguable that there was either no debt owing or no debt at present payable under the mortgage.  Thirdly, he submitted there was a serious issue to be tried as to whether the mortgage might be set aside pursuant to s 87 of the Trade Practices Act.

1. I turn to the first matter raised by Mr Cook. In the first proceeding, Woondella, in its defence, made a denial that it had received the notice to pay under s 76 of the Transfer of Land Act. However, in this case it is Woondella and also Longreach which seek injunctive relief against the mortgagee. The onus of proof lies on the plaintiffs in this proceeding to put forward sufficient proofs to establish an arguable case that the defendant failed to comply with its obligation to give a notice under s 76 of the Transfer of Land Act. 

1. There is nothing in the claim in this case which would have put the mortgagee on notice that the issue relating to the service of the s 76 notice had been raised. No such matter had been raised in the pleadings or in the affidavits.

1. Accordingly, the onus lay on the plaintiffs to establish the failure to serve that notice. No such proof is forthcoming and therefore there is no arguable case made out that the defendant has failed to take possession of the property in accordance with s 76 of the Transfer of Land Act.

1. I turn then to the claims made by the two plaintiffs under the Trade Practices Act in the contract.  In light of the conflict between the affidavit of Mr Benjamin and the affidavit sworn by Mr Smith, there is clearly a serious issue to be tried as to whether there was, as part of the original loan agreement or a collateral agreement, a term that the defendant, South Eastern, loan a further $1.4 million to Longreach.  There is also, in my view, a serious issue to be tried whether, in so representing that matter to the plaintiffs, the defendant engaged in conduct that was misleading and deceptive under s 52 of the Trade Practices Act. 

1. However, that of course is not the end of the matter in respect of this part of the claim for an interlocutory injunction.

1. It is clear that, on the view put forward by Mr Benjamin in his affidavit, that if there was any obligation to advance a further $1.4 million or alternatively if Mr Smith represented that such a further advance would be made, that in turn was conditional upon the provision of a further valuation justifying the additional advance. 

1. It is common ground that it was understood between the parties that the defendant was lending on a loan to value ratio of 55 per cent.  Thus it was a precondition of the agreement asserted by the plaintiffs, alternatively the misrepresentation relied on by the plaintiffs, that in order to qualify for the further advance, the plaintiffs would need to produce to the defendant, a valuation that the land was worth $8.5 million as redeveloped to that stage.  That condition had not been met and thus the plaintiff has not established a prime facie case of any entitlement in terms of the agreement alleged or, indeed, in terms the representation alleged.

1. Further, it would seem from the material that, in any event, by the stage at which the plaintiffs, on their view of the facts, qualified for the further advance, they had already fallen in arrears in payment of the interest.  I agree with Mr McKenzie that it would implicit in any agreement or representation made, that the further advance would only be made if the plaintiffs were complying with their obligations under the loan.  In my view, the implication of such a term would be inevitable in light of the commercial reality of the case.  At the time at which the plaintiffs on their view of the facts qualified for the further $1.4 million, it would seem that already they had fallen in arrears in payment of interest.

1. I also agree with Mr McKenzie that it appears that the plaintiffs, having become apprised of the fact there would be no further advance made from the middle of 2008, have done nothing to mitigate their loss and that impacts on the cross‑claim asserted by them for damages.  No evidence has been put forward by Mr Benjamin on behalf of the plaintiffs of any attempt to refinance the loan in order to progress the development and thus mitigate the losses claimed.

1. Finally, I agree with Mr McKenzie that it would seem that the plaintiffs have not put forward appropriate proofs, even at this interlocutory stage, as to the damages sustained by them.  In his affidavit, Mr Benjamin purports to verify, in one line, a table of loss and damage which was intended to be appended to the statement of claim, but which was not.  Mr Cook, in his helpful outline of submissions, provided a table.  Strictly speaking, that has not been verified, but even if it were, it is a table which, to say the least, is in skeletal form, unsupported by any form of costings or calculations and is of little weight, even in this interlocutory application.

1. It would seem that, at its highest point, the plaintiffs' claim at this interlocutory stage would be, if it were made out, one for loss and damage by way of cross‑claim or set‑off.  In my view, it has not established there is a serious issue to be tried in relation to any such set‑off or cross‑claim for the reasons I have already stated.  But even if that were so, the plaintiffs would face the problem which is posed by the line of authority that ordinarily where it is sought to hold a mortgagee out of its rights, a mortgagor must bring into court the amount of the mortgage debt which is outstanding.  That principle is stated in the locus classicus Inglis & Anor v Commonwealth Trading Bank of Australia[1].

   [1](1972) 126 CLR 161, especially at 164‑5, Walsh J, and on appeal, 169, Barwick CJ.

1. It is true that that principle has, to some extent, been modified in other authorities in which it has been considered.  In particular, the authorities, it would seem to me, now provide that if the issue raised by the mortgagor goes only to the amount due, then ordinarily the mortgagor will need to bring into court the amount of the mortgage debt, in order to be able to hold the mortgagee out of its rights to its securities.  However, if the issue which is raised, goes to the enforceability of the mortgage itself, then the court, in the exercise of its discretion, may decide not to require the mortgagor to bring the debt into court.  See, for example, Harvey v McWatters[2]; Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd[3]; MCP Muswellbrook Pty Ltd & Ors v Deutsche Bank Asia AG & Ors[4].

   [2](1948) 49 SR(NSW) 173, especially at 178, Sugarman J.

   [3][1976] VR 309, at 319 to 20 Lush J.

   [4][1998] 12 NSWLR 16, at 32 Powell J.

1. In the context of cross‑claims for damages under s 52 of the Trade Practices Act, the courts have also, in some cases, moulded the relief by way of injunction so as to require payment of outstanding interest only as a condition of the injunctive relief sought.  However, in each of those cases, the court had concluded that the mortgagor did have an arguable case either to recast the loan agreement, or alternatively to have the security set aside at trial.  See Glandore Receivers & Managers Appointed v Elders Finance & Investment Co Limited[5]; Graham v Commonwealth Bank of Australia[6].

   [5][1984] ATPR 40‑517.

   [6](1988) ATPR 40‑908.

1. In the present case, it would seem to me that even if, notwithstanding my findings to the contrary, there were a serious issue to be tried relating to the agreement or the claim under s 52 of the Trade Practices Act, it would be extraordinarily unlikely that, at trial, a court would be moved to set aside the whole of the mortgage.  At most, an arguable case may perhaps be raised that the loan agreement might be moulded in some way to cater for the agreement asserted by the plaintiffs.  However, no such claim has been made to mould the loan agreement, but rather the bolder claim has been made by the plaintiffs, both in their statement of claim and persisted in before me, that the mortgage be set aside.  Secondly, it would seem that the plaintiffs do not offer or stand ready to pay outstanding interest payments as a condition of an injunction.

1. In those circumstances, I have come to the conclusion that there is no serious issue to be tried.  If there were such a serious issue to be tried I would have required that the plaintiffs bring into court the whole of the mortgage debt. 

1. Before departing from the matter I should, however, mention matters I raised with both counsel.  I am concerned about the way this case has come to this court.  In the first set of proceedings, the mortgagee, South Eastern Secured, issued proceedings seeking possession of the mortgaged property.  That claim was resisted on the very grounds, which are now relied on by the mortgagers before me.  Based on those grounds, it would seem that the mortgagee accepted that there was a serious issue to be tried, or, to put it more accurately, that there was an arguable defence available to the mortgagor and therefore consented to leave to defend being granted.  Notwithstanding its concession in the other case, the mortgagee nevertheless saw fit to take possession of the property in this case.

1. If I had come to the conclusion that there had been a serious issue to be tried, or if indeed I had come to the conclusion that there was such an issue to be tried as to justify at least contemplating granting an injunction, that matter would have gone to the exercise of the discretion.  I must say that I am concerned that a mortgagee would behave in that way.  Nothing put by Mr McKenzie in argument has explained to me why the mortgagee, having made the concession which it did in the first proceeding, nonetheless proceeded to take possession of the property.  The mere denial in the defence of the mortgagors in the first proceeding that they were in possession of the property, did not carry the inference that there was any concession that the mortgagee should have a right to possession of it.

1. However, standing alone, that discretionary factor does not overcome the other hurdles which are insuperable, in my view, to the grant of an interlocutory injunction in favour of the plaintiffs in this case.  For those reasons the application for an interlocutory injunction must fail and, accordingly, the summons of the plaintiffs should be dismissed and that the costs of the summons be costs in the cause.