Manno v Monte Paschi Australia Ltd No. SCGRG 96/2361 Judgment No. 6095 Number of Pages 6 Equity Equitable Remedies Injunctions

[1997] SASC 6095

IN THE SUPREME COURT OF SOUTH AUSTRALIA

LANDER, J

Equity - equitable remedies - injunctions - application for an interlocutory injunction by a plaintiff to restrain a defendant from exercising a power of sale in relation to a commercial property held by the defendant as security for an advance of $300,000 - plaintiff claims that but for a number of misrepresentations made by agents of the defendant he would not have entered into the transaction - whether damages would be an adequate remedy should the plaintiff ultimately suceed - whether the balance of convenience favours the plaintiff - application for interlocutory injunction refused. Law of Property Act 1936s55A, referred to. Castlemaine Tooheys Limited v South Australia (1986) 161 CLR 148, applied.

ADELAIDE, 4-5 March 1997 (hearing), 5 March 1997 (decision)

#DATE 5:3:1997

#ADD 28:4:1997

Plaintiff Ilario Manno:

Counsel: Mr R Sallis

Solicitors: Andersons

Defendant Monte Paschi Australia Ltd:

Counsel: Mr N Swan

Solicitors: Loretta Polson

Order: application refused.

LANDER J

1. This is an application for an interlocutory injunction by a plaintiff to restrain a defendant from exercising a power of sale in relation to a commercial property at Port Adelaide. The defendant is in the business of money lending and on 21 November 1991 lent to the plaintiff and his wife, who is now deceased, the sum of $300,000 for the purpose of purchasing from Palace Realm Pty Ltd, a commercial property at Port Adelaide. Palace Realm Pty Ltd was under the control of the brothers-in-law of the plaintiff.

2. As security for the amount advanced a mortgage was taken over the Port Adelaide property and security was also taken over a residential property, which was then occupied by the plaintiff and his wife. At the time of the purchase of the Port Adelaide property that property was occupied by a business, also operated by the plaintiff's brothers-in-law, known as South Australian Clubhouse Hotel. That business continued to occupy the premises, but only until January 1992 when those tenants transferred their interest in the lease to Alan and Jean Christopher.

3. Those tenants occupied the premises, I think, until about 1993 when an inspection of the property was carried out to determine its structural adequacy. Consulting engineers advised that the property was in a dilapidated state and major repairs were necessary to the building.

4. On 29 September 1993 the Corporation of the City of Port Adelaide served upon the plaintiff a notice pursuant to s.35 of the Building Act directing him to vacate the premises and undertake certain repair and renovation work. The then tenants, Mr and Mrs Christopher, were in default and were subsequently evicted. No business has been carried on on those premises since that time.

5. On 18 January 1996 the defendant issued proceedings in this Court seeking delivery up to the defendant of the residential property which was part of the security in relation to the advance. On 28 February 1996 an order for possession of that property was made by Judge Bowen Pain. That order was made in the absence of any objection by the plaintiff. On 15 October 1996 Judge Burley refused an application by the plaintiff to set aside the order for possession of the residential property. On 4 December 1996, on appeal from his Honour's refusal, Prior J ordered that the order for possession of the residential property be set aside. When he made that order his Honour directed that the plaintiff bring whatever proceedings the plaintiff was advised in relation to any claim that the plaintiff might have against the defendant in relation to the initial advance of $300,000.

6. On 17 December 1996 these proceedings were commenced. In these proceedings, briefly, the plaintiff claims that he was induced to enter into the transaction to borrow $300,000 by reason of a number of misrepresentations made by his brothers-in-law, who he claims were acting as agents for the lender, the defendant. Moreover, he claims that certain representations were made by the defendant's manager to the effect that the security over the residential property was only to the extent of $65,000.

7. He claims that but for the various misrepresentations, which I need not expand upon, he would not have entered into this transaction. He claims, as relief, damages under the Trade Practices Act, Fair Trading Act and consequential relief, or alternative relief, under both of those Acts including orders pursuant to s.87 of the Trade Practices Act and s84 of the Fair Trading Act.

8. The current application arises by reason of the defendant giving notice on 25 October 1996 to sell the Port Adelaide property. There is no doubt that notice was served upon the plaintiff at or about that date. Indeed, it has been conceded that a further notice was given by the defendant to the plaintiff on 31 January 1997, and the receipt of that notice by the plaintiff is also acknowledged. I will come back to both of those notices.

9. The defendant is in possession of the Port Adelaide property as a mortgagee in possession and has remained in possession since October 1996. I am advised that the property is due to be auctioned tomorrow, 6 March.

10. I have assumed for the purpose of this interlocutory application that there is a serious question to be tried, that is, that the plaintiff's action against the defendant raises a serious question. I have made that assumption because time does not allow an investigation into the various allegations made in the plaintiff's statement of claim to determine whether or not there is such a serious question. Mr Swan, who appeared for the defendant, was prepared to acquiesce in that procedure, although he made it entirely clear that in the event this matter has to be considered elsewhere, he would still wish to argue that there was no such serious question at all. He agreed, however, that the timing of the plaintiff's application precluded a consideration of that aspect; i.e. the aspect of a serious question to be tried.

11. There is, of course, apart from the question of a serious question to be tried, two other matters to be considered. The plaintiff must still establish that he will suffer irreparable injury for which damages are not an adequate remedy and that the balance of convenience favours the granting of an injunction:- Castlemaine Tooheys Limited v South Australia (1986) 161 CLR 148 per Mason ACJ at 153.

12. His Honour said: "The principles governing the grant or refusal of interlocutory injunctions in private law litigation have been applied in public law cases, including constitutional cases, notwithstanding that different factors arise for consideration. In order to secure such an injunction the plaintiff must show (1) that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction."

13. The plaintiff's case is simply that but for the misrepresentations, he would not have entered into this transaction. If the plaintiff makes out that case, then he will be entitled to any damages which flow by reason of the reliance upon those representations, or misrepresentations. Those damages might include the entry into the loan transaction, the incurring of the $300,000 debt and the payment of any interest on that amount. Mr Sallis argued, however, that not only would the plaintiff be entitled to those damages, but it might be that a court would allow him to keep the property purchased with the assistance of the $300,000 advance. That is to say, Mr Sallis argued that the plaintiff would wish to keep the property he purchased on the $300,000 advanced and be absolved from any requirement to repay the $300,000, and be recompensed further for any interest he paid on the $300,000 in the meantime. He made no mention as to whether or not the plaintiff would ever have to account for the rent that he received during the period he received rent until September 1993.

14. I cannot accept that the plaintiff could recover in those terms. To allow the plaintiff to recover damages of that kind would be to over-compensate the plaintiff. The plaintiff can expect, if he succeeds, to perhaps be absolved from the whole or part of the debt outstanding to the defendant; to be released from the whole or part of the mortgage obligations; to recover the interest paid on the mortgage and any consequential loss, but I cannot understand on the case, as framed in the Statement of Claim, how the plaintiff could expect to keep all of the rent paid on the property purchased and the property itself. That being the case, in my opinion, there is nothing special about the Port Adelaide property. It is not lived in nor is it producing income. It stands in a quite different position to the residential property. As it is not producing income the loan generated for its acquisition is not able to be serviced by the plaintiff. The interest outstanding on the loan is continuing to grow.

15. There is no doubt that the defendant can meet any claim for damages. So much was acknowledged by Mr Sallis. If the plaintiff succeeds in due course, the plaintiff will be able to recover all of the damages, which the plaintiff has suffered by reason of the breaches of the various causes of action raised in the statement of claim. In those circumstances it is very difficult to understand why damages would not be an adequate remedy. In my opinion the plaintiff has not succeeded in establishing that damages would not be an adequate remedy.

16. As I have already mentioned, the Port Adelaide property produces no income and is not capable of producing income whilst the council order remains. That order must remain because the plaintiff is not in a position to provide the capital necessary to upgrade the property to allow the order to be uplifted. Moreover, the plaintiff is unable, out of his own resources, to pay the interest on the advance.

17. If the property was sold, the plaintiff would be immediately relieved of any liability for the interest on the amount of sale. He would also be relieved of his obligation to repay that much of the principal. That will be in the plaintiff's interest if he succeeds or if he fails.

18. If, however, the plaintiff does not succeed, the defendant will not be able to recover the principal or the interest unpaid upon that principal. That is because the Port Adelaide property has depreciated in value and is no longer capable of satisfying the amount outstanding.

19. I am told that the amount outstanding under the mortgage is in the order of $330,000, whilst the value of the two properties is in the order of $255,000. Therefore a combination of both the Port Adelaide property and the residential property is not sufficient in value to satisfy the amount outstanding under the mortgage, and therefore interest is accruing, which cannot be recovered in the event that the defendant is successful.

20. The balance of convenience in those circumstances does not favour the plaintiff. If the plaintiff is successful, he will be no better off by reason of the retention of the property. If he is unsuccessful the defendant will incur greater losses if the property is retained. In those circumstances, the balance of convenience favours rejection of the application.

21. Mr Sallis accepted that any undertaking given by the plaintiff would offer the defendant no greater protection than the security which the defendant already has. An undertaking as to damages by the plaintiff is therefore worthless.

22. After the argument in relation to the grant of the interlocutory injunction had concluded, I allowed Mr Sallis an adjournment from 4 March until today to present an argument as to the adequacy of the notices given by the defendant to the plaintiff on 25 October 1996 and 31 January 1997.

23. When the matter resumed this morning Mr Sallis presented argument on those matters. He argued that the notice given on 25 October 1996 failed to comply with the requirements of s55A of the Law of Property Act and, in those circumstances, I ought to enjoin the defendant from exercising a right of sale and, indeed, from remaining in possession of the mortgaged land.

24. The argument went this way: He argued that s55A applies to a mortgage of land where the mortgagor is a natural person and the land is appropriated for domestic or agricultural use: (see s55A (5) of the Law of Property Act). He, however, argued that this land was deemed to be appropriated for domestic or agricultural use because his client, the mortgagor, had not made a statutory declaration that during the currency of the mortgage no part of the land is to be used as a place of dwelling for the mortgagor's own personal occupation and because no such declaration had been made, it shall be conclusively presumed that the land was appropriated for domestic or agricultural use. (See s55A (6) of the Law of Property Act).

25. His argument, therefore, was that because of the absence of a statutory declaration by his client, his client was entitled to rely upon a fiction that the Port Adelaide commercial property was land appropriated for domestic or agricultural use.

26. He next argued that, in those circumstances, ss55A (1) and (2) would apply. He pointed out that the loan agreement between the plaintiff and the defendant provided for repayments of principal of $25,000 on 21 November 1993, and on 21 November of each year following until 21 November 1996 when the whole of the amount became due and payable.

27. Clause 7(a) of the loan agreement provides: "The principal sum and any interest thereon shall become immediately repayable upon the happening of any of the following events:

(a) If the Borrowers fail to repay interest on the Principal Sum advanced or pay any monies payable to the Lender hereunder on the date for payment."

28. Whilst he acknowledged that his client was in breach of the loan agreement, not having paid the amount of principal which had to be repaid on 21 November 1994, he submitted that the notice, which had been given on 25 October 1996, was defective in that it claimed that default had been made in payment of instalments of principal totalling $270,000, and interest totalling $49,367.03.

29. The plaintiff argued that s.55A (2) applied. That section provides: "Where a mortgage to which this section applies contains a provision by virtue of which a liability to repay moneys under the mortgage falls due in the event of a breach of a covenant or condition of the mortgage at an earlier date than if there were no such breach, that provision shall be inoperative unless a notice has been served upon the mortgagor in conformity with the provisions of subsection (1) of this section and where requirements are made of the mortgagor in the notice, he has failed to comply with those requirements."

30. The notice, it was submitted, failed to comply with s55A (1), in that it failed to allege any particular breach of covenant on the part of the plaintiff; those particular breaches of covenants being the failure to pay the amount of principal on 21 November 1994 and 21 November 1995. Inasmuch as the notice dated 25 October 1996 contained an assertion that the whole amount was due as at that date, the notice, it was claimed, was defective.

31. He may be right in that argument but the matter is of no consequence because it was conceded, after he put his argument, that in fact a further notice had been given by the defendant to the plaintiff on 31 January 1997 and that that notice, even if s55A applied, that is to say, assuming the fiction that this is land appropriated for domestic use, complied with the provisions of s.55A. In those circumstances it is not necessary to address the argument put by the plaintiff. It was also conceded that the notice given on 31 Janaury 1997 was served upon the plaintiff.

32. In those circumstances, in my opinion, the application for an interlocutory injunction ought to be refused and I so order.