Matarol v Owenlaw Mortgage Managers Ltd
[2005] VSC 140
•22 February 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 4593 of 2005
| MATAROL | Plaintiff |
| v | |
| OWENLAW MORTGAGE MANAGERS LTD | Defendant |
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JUDGE: | KAYE J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 22 February 2005 | |
DATE OF JUDGMENT: | 22 February 2005 | |
CASE MAY BE CITED AS: | Matarol v Owenlaw Mortgage Managers Ltd | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 140 | |
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INTERLOCUTORY INJUNCTION – Restrain mortgagee’s auction.
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APPEARANCES: | Counsel |
| For the Plaintiff | Mr J. Searle |
| For the Defendant | Mr S. Gardiner |
HIS HONOUR:
This is an application by the plaintiff for an interlocutory injunction to restrain a mortgagee’s auction which is scheduled for 24 February next. The plaintiff is the proprietor of a property at 2-6 Murphy Street, South Yarra. It entered into a loan facility agreement with the defendant dated 16 July 2004 for the loan to it of a sum of $3.78 million. Currently the amount owing under that agreement exceeds $3.9 million. The date for repayment of the facility is set out in Item 3 of the schedule to the agreement which states: “Date for Repayment: The period selected by the borrower from the following options:
1.Three months; or
2.Four months; or
3.Five months; or
4.Six months.”
A central issue in the case, if not the main issue, is whether there has been a selection by the plaintiff of any date for repayment of the loan under Item 3. The plaintiff submits that there has been no such selection and that accordingly the loan did not fall due for repayment until 16 January 2005. On the other hand, the defendant alleges that the plaintiff selected a date of repayment of four months from the date of the loan and thus that it fell due on 16 November 2004.
On 18 November 2004 the defendant served a notice of default on the plaintiff. The amount owing under the notice of default in the loan facility agreement remains outstanding and the defendant has therefore proceeded to exercise its rights under the mortgage which secures the loan facility agreement.
At a meeting which took place either on 16 or 17 December, representatives of the plaintiff, including Mr Wesley Malcolm Culley, its director, and Mr Michael Kyriakou, a senior law clerk in the employment of its solicitors, spoke to representatives of the defendant. Mr Kyriakou’s affidavit states that in the course of that meeting, and in the course of a debate about what was to ensue consequent upon the service of the notice of default, he stated that the plaintiff needed until 31 January 2005, by which time the facility would be refinanced. He told the defendant that its security was not being prejudiced or diminished as there was sufficient equity in the property to cover any further costs or interest. Mr Kyriakou states that Mr Owen of the defendant responded that the money was there and that therefore there was no need to go into possession, and that he then said, “If you provide an offer that has been accepted by the plaintiff in the name of the solicitors that were instructed to prepare mortgage documents, then I will not enter into possession.”
The defendant, in its affidavit sworn by Mr Owen, takes issue with that version of events and states that no commitment or representation was made by the defendant to waive the rights of the defendant or to give an extension of time.
In January 2005 the plaintiff continued its efforts to seek refinance of the loan facility. On 12 January it received an unconditional offer from Capital Finance. Consequent upon receiving that offer, various documents began to be prepared to put the new facility into operation. An issue in the case is also an allegation that in that period Mr Kyriakou made a number of efforts to obtain from the defendant the payout figure of the loan, but that figure was not forthcoming until, according to Mr Kyriakou, late 31 January 2005.
In the meantime, the defendant took steps to place the property on the market. It engaged agents and on 29 January 2005 advertised the property for sale in the Melbourne Age newspaper. The auction sale was scheduled for 24 February. It is alleged by the plaintiff that the advertisement caused Capital to withdraw its refinance offer which it had made to the plaintiff. The defendant contests that contention and points to a letter from Capital which indicates that Capital withdrew its offer because there had been unsatisfactory responses by the plaintiff to Capital for requests for information.
Before me it was put that the plaintiff has a serious issue to be tried in respect of two potential causes of action. Firstly it is put that the date for repayment of the loan secured by the mortgage was 16 January 2005. The notice of default was served in November 2004 and was therefore premature. No notice of default has been served since 16 January 2005 and therefore, by the terms of ss.76 and 77 of the Transfer of Land Act, the defendant is not entitled to proceed to sell the mortgaged property. Secondly, the plaintiff relies on what it alleges was said to it at the meeting of 17 December 2004 to found an estoppel shutting out the defendant from exercising its rights to sell the property.
It is, of course, trite law that in order to establish a right to an interlocutory injunction the plaintiff must satisfy two prerequisites. First it must show that there is a serious issue to be tried in relation to the causes of action put forward by it. Secondly it must show that the balance of convenience favours the grant of such an injunction.
The main cause of action put forward by Mr Searle, who appeared on behalf of the plaintiff, was based on the proposition that the loan period was to expire on 16 January 2005 and that therefore the notice of default that was served in November 2004 was premature. Mr Searle contended that there was no evidence of any selection by the plaintiff of a period of time, under Item 3 of the loan facility agreement, and thus, according to Item 3, the loan was for a six-month period.
On the other hand, Mr Gardiner, who appeared for the defendant, pointed to a number of items of evidence which, he put, either individually or collectively, established that the plaintiff had selected a period of four months for the loan to be repaid. That evidence, in summary, is as follows. First, according to Mr Owen, on 8 July 2004 he had a telephone conversation with Mr Brian Culley, who was one of the proposed guarantors of the loan and the father of the director of the plaintiff. According to Mr Owen, Mr Brian Culley specified that the loan was to be for a term of four months. The plaintiff does not deny that that conversation occurred. Nor, as I understand its affidavits, does it deny that Mr Culley had authority to speak to Mr Owen in the terms in which he did. It is pointed out, however, that Mr Brian Culley was not a director and - a matter which I will return to in a moment - it is also pointed out that the conversation relied on by the defendant occurred before the loan facility agreement was executed.
The second matter relied on by Mr Gardiner was that, when the loan was advanced on 16 July 2004, the plaintiff prepaid four months’ interest. Clause 2.2(a) of the facility agreement requires, in effect, for the borrower to pay interest in advance, which covered the whole of the proposed term of the agreement.
Thirdly, Mr Gardiner pointed to a mortgage summary dated 21 July 2004 which was sent by the defendant to the plaintiff, specifying that the date for repayment of the loan was 16 November 2004. Fourth, he points to a letter sent by the defendant to the plaintiff dated 16 September 2004, reminding the plaintiff that the loan was repayable on 16 November 2004 and that it was not possible to grant an extension or variation of the repayment date. Fifth, the defendant relies on a further letter dated 8 November 2004 which it sent to the plaintiff to remind it that the loan was repayable on 16 November 2004. Sixth, it relies on the notice of default served on 18 November 2004 which recited that the plaintiff, as at 16 November 2004, had been in default in failing to repay the loan. Finally, it relies on the meeting to which I have referred which took place on 17 December 2004, and in particular on there being no evidence that at that meeting the plaintiff took issue with the proposition that the loan had already fallen due for repayment on 16 November 2004.
It is not for me, of course, to decide this as a matter of fact, but simply to decide whether, on the facts which I have referred to, there is a serious issue to be tried in relation to this matter.
Turning to the first matter, that is, the discussion with Mr Brian Culley, if that were the only evidence that was proffered by the defendant I would not hesitate to find that there was a serious issue to be tried, and thus that the plaintiff had satisfied the first prerequisite of the grant of an interlocutory injunction. The conversation took place with a person who was not a director of the plaintiff and, more importantly, it took place before the execution of the loan facility agreement on 16 July. In those circumstances, the plaintiff has a good argument, the validity of which I need not decide, that the conversation itself did not constitute a selection for the purposes of Item 3 of the loan facility agreement.
However, the matter does not end there. The first matter which is of some significance constitutes the prepayment of interest by the plaintiff pursuant to the terms of clause 2.2 of the loan facility agreement, which was the equivalent to four months’ interest paid in advance. That factor of its own is strong evidence indicating a selection by the plaintiff of a four-month term of the loan. However, added to that are, of course, the series of documents to which I have referred and which were sent by the defendant to the plaintiff, each of which indicated that the date for loan repayment was 16 November 2004. There is no evidence at all that the plaintiff made any response to any of those documents, taking issue with the proposition that the loan was repayable on 16 November 2004. The culmination of that series of documents is, of course, the notice of default dated 18 November 2004. Whatever oversight might have occurred before then, it is incomprehensible that the plaintiff not have taken issue with the date set out in that notice, that is, 16 November 2004, if it in fact had selected a date later than that for completion of the loan. It is again relevant that at the meeting of 17 December 2004 it appears that the plaintiff did not take issue with the proposition that the loan was due for payment.
It is, as I say, not for me to determine now the factual issue which may need to be decided at trial. However, it is for me to determine whether there is a serious issue to be tried.
Given the outline of facts which I have set out above, I do not assess the issue as being a serious issue to be tried. At best, on the evidence which has been put before me, the plaintiff has a tenuous case that the date for repayment was not 16 November 2004 but rather 16 January 2005. I would therefore not find that the plaintiff has shown, on this part of its claim, a serious issue to be tried.
This is, of course, an application for an interlocutory injunction to restrain a secured creditor from exercising its rights under the security instrument in accordance with its terms. Ordinarily on such an application, even if a serious issue to be tried has been made out, it is a usual condition of any interlocutory relief that the plaintiff pay the whole of the debt into court: see Inglis v. Commonwealth Trading Bank of Australia (1971) 126 CLR 161. The court does retain a discretion and, as correctly pointed out by Mr Searle, there are cases where the plaintiff has made out a serious issue as to whether default has taken place under the loan. In some of those cases the court in exercise of its discretion may not require the payment into court of the whole of the debt, but may either require no payment into court or alternatively may require a payment into court of an amount equivalent to a pre-estimate of the damages which might be sustained by the defendant by reason of the grant of the interlocutory injunction: see, e.g., Eltran Pty Ltd and Ors v Westpac Banking Corporation and Ors,[1] Harvey v McWatters.[2]
[1](1988) 32 FCR 195.
[2](1948) 49 SR (NSW) 173, especially at 174-177.
However, on the assessment of the case which I have just made, this is no such case. At best - and I emphasise this is on the material which is provided on affidavit - the plaintiff’s case on this issue is so weak that I do not assess it to be a serious issue to be tried. If I am wrong in that assessment, it is only just a serious issue to be tried, and, if I had reached a conclusion contrary to the one which I have reached, I would have required the plaintiff to pay the whole of the mortgage debt into court as a condition of the grant of an interlocutory injunction. I understand that the plaintiff is not in a position to do so.
The second basis upon which the plaintiff claims that there is a serious issue to be tried arises from the conversation which I have recited of 17 December 2004. For the purposes of the interlocutory injunction, I accept that the plaintiff’s version is the one on which I must rely, although I should not ignore the fact that the terms of that conversation are denied by the defendant. However, as correctly pointed out by Mr Gardiner, the representation, if there was one, made and attested to by the plaintiff’s witnesses, is only to the effect that an auction would not occur until 31 January. The defendant has not purported to auction the property before that date and therefore has not departed from any representation which might have been made. Indeed, whatever representation was made in that meeting is particularly vague and I have some doubt as to whether it has enough certainty to found a promissory estoppel in any event.
Mr Searle sought to bolster the claim for a promissory estoppel on the basis of conduct attributed to the defendant in January. In particular he stated that by advertising the property for auction as it did, the defendant undercut the utility of the representation because it resulted in the plaintiff losing the offer from Capital Finance. There are two difficulties with that proposition. Firstly, as I say, the advertising for auction was not a departure from any representation allegedly made by the defendant; but, secondly, the evidence proffered by the plaintiff in support of the proposition simply does not support it. The letter from Maddocks, the solicitors for Capital Finance, dated 28 January, does not in my view establish, even arguably, that the loan facility offer was withdrawn by Capital because the property was advertised for auction. In those circumstances I do not consider that there is a serious issue to be tried on the matter of a promissory estoppel.
Although it is strictly speaking not necessary for me to do so, I shall turn to the matters of balance of convenience. They were argued before me, and, if I may say so, with considerable competence by both counsel. The plaintiff submits that it is in a position to refinance the loan in the very near future. It relies on letters which it has received from Quality Finance Services Pty Ltd, indicating that that company is either prepared itself, or has clients which are prepared, to refinance the loan. However, it appears that the terms of those loans are not unconditional, and secondly, as pointed out by Mr Gardiner, there is a cause for concern about the nature of the offer since it involves the plaintiff paying interest at the rate of 42% per annum. Those two matters do not invest in me any real confidence that if an injunction were to be granted the plaintiff would be in a position to speedily refinance with a degree of certainty.
On the other side of the equation lies the potential damage to the defendant. As I have stated, the amount of loan outstanding is nearing $4 million. The plaintiff has proffered a valuation of the property of $6,035,000. However, the defendant’s agent has indicated that at present potential purchasers have only indicated an interest in acquiring the property for a purchase price of $4 million. If an injunction were to be granted, the defendant would suffer prejudice. Firstly, of course, costs and interest would accumulate. Secondly, as pointed out by the defendant’s agent, there is a prospect of a future interest rate increase which could adversely affect the selling price if the auction were delayed. Thirdly, there is a concern that a delay in the auction may diminish the existing buyer interest in the property. Whilst I accept from Mr Searle that there is an element of conjecture about some of these items of prejudice, nevertheless they are not unreal or fanciful.
In those circumstances, even if I were to find that there were a serious issue to be tried, which I do not, I would be disinclined to grant an injunction, and certainly would decline to do so save on condition that the plaintiff paid into court the whole of the mortgage debt to secure the rights of the defendant under its mortgage.
In those circumstances, I have come to the conclusion that the plaintiff has not made out a case for an interlocutory injunction as sought by it. I therefore dismiss the plaintiff’s summons.
(Discussion ensued re costs.)
I will make orders as follows:
1.The plaintiff’s summons dated 15 February 2005 is dismissed.
2.The plaintiff pay the defendant’s costs of the summons including reserved costs.
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