Maviglia Investments Pty Limited (as trustee for the Maviglia Family Trust) v BKSL Investments Pty Ltd (in liq)

[2017] NSWSC 490

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Maviglia Investments Pty Limited (as trustee for the Maviglia Family Trust) v BKSL Investments Pty Ltd (in liq) & Ors [2017] NSWSC 490

Hearing dates:

12 April 2017

Date of orders:

01 May 2017

Decision date:

01 May 2017

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Application for interlocutory relief dismissed. Directions given to prepare for the hearing as to final relief.

Catchwords:

MORTGAGE – Torrens title land – default by mortgagor – mortgagee in possession – mortgagee seeks to exercise power of sale – land alleged to be held in trust – new trustee appointed – new trustee seeks mortgagee’s agreement to new trustee becoming registered proprietor new trustee seeks to have control of the sale of the land.

Legislation Cited:

Conveyancing Act 1919, s 129
Payroll Tax Act 2007, ss 72, 74
Real Property Act 1900, ss 58, 60

Cases Cited:

Barton Thompson & Co Limited v Stapling Machines
Ltd [1966] Ch 499
Bayblu Holdings Pty Limited v Capital Finance
Australia Ltd (2011) 279 ALR 166
Clarke v Japan Machines (Australia) Pty Limited (No.
2) (1984) 1 Qd R 421
Dimos v Dikeakos Nominees Pty Limited (1996) 68
FCR 39
Forsyth v Blundell (1973) 129 CLR 477
Hallifax Property Corporation Pty Limited v GIFC
Limited (1987) 4 BPR 9708
Harvey v McWatters (1948) 49 SR NSW 173
Henry Roach (Petroleum) Pty Limited v Credit House
(Vic) Pty Limited [1976] VR 309
Hickson v Darlow (1883) 23 Ch D 690
Inglis v Commonwealth Trading Bank of Australia
(1972) 126 CLR 161
Macleod v Jones (1883) 24 Ch D 289
Morton v Suncorp Finance Ltd (1987) 8 NSWLR
325
Parist Holdings Pty Limited v Perpetual Nominees
Limited (2006) NSW ConvR 56 – 161
Shercliff v Engadine Acceptance Corp Pty Ltd [1978] 1 NSWLR 729
Shiloh Spinners Ltd v Harding [1973] AC 691
Tannock v North Queensland Securities [1932] St R Qd 285

Texts Cited:

E L G Tyler, P W Young and C E Croft, Fisher and Lightwood’s Law of Mortgages (LexisNexis Butterworths, 3rd Australian Edition, 2014)
JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis Butterworths, 5th ed, 2014)

Category:

Procedural and other rulings

Parties:

Plaintiff: Maviglia Investments Pty Limited ACN 603 362 063 (as trustee for the Maviglia Family Trust)
First Defendant: BKSL Investments Pty Ltd ACN 131 492 905 (in liquidation)
Second Defendant: Michael John Morris Smith (in his capacity as liquidator of the first defendant)
Third Defendant: Perpetual Limited trading as Perpetual Trustees Australia

Representation:

Counsel:

 

Plaintiff: P. Kirby
Third Defendant: M. Karam

 

Solicitor:

  Plaintiff: Vincent Michael Costs, LCI Legal
First and Second Defendants: Jeffrey Richard Brown, Matthews Folbigg Pty Ltd
Third Defendant: Gary Alistair Koning

File Number(s):

2017/81315

Publication restriction:

No

Judgment

1. The parties to these proceedings are in contest about which of them should control the sale of a rural property in Fairlight Road, Mulgoa New South Wales (“the Mulgoa property”). The parties disagree about many things, including: the market value of the property; its beneficial owner; and, even who is presently entitled to be its registered proprietor.

2. BKSL Investments Pty Ltd (“BKSL”) is the registered proprietor of the Mulgoa property. BKSL was the trustee of the Maviglia Family Trust (“the Trust”) from the date the Trust was settled on 6 June 2008 until February 2016. Ms Tracey Maviglia is the settlor and appointor of the Trust.

3. Perpetual Limited (“Perpetual”) advanced $1,750,000 to BKSL in 2015, which advance was secured by first mortgage over the Mulgoa property.

4. But BKSL went into liquidation on 15 February 2016. The liquidation was consequent upon BKSL’s non-payment to the Office of State Revenue (“OSR”) of a group payroll tax debt in the amount of $186,426.27, attributed to it under Payroll Tax Act 2007, ss 72 and 74. The debt was attributed to BKSL on the basis of the common directorship and shareholding of BKSL with other operating companies controlled by Mr Bruno Maviglia and Ms Tracey Maviglia.

5. Mr Michael Smith, a registered liquidator, was appointed as the liquidator to BKSL on 15 February 2016. He thereupon commenced administration of the liquidation. But the liquidator’s control over BKSL’s bank accounts contributed to it falling into default under the first registered mortgage to Perpetual.

6. Upon BKSL’s liquidation the settlor of the Trust decided to appoint a new trustee. On 16 February 2016 Ms Tracey Maviglia appointed Maviglia Investments Pty Ltd (“Maviglia”) as the new trustee of the Trust.

7. BKSL’s defaults led to the mortgagee, Perpetual entering into possession of the Mulgoa property, which had been left vacant. Perpetual entered under its powers both under the mortgage and under Real Property Act, 1900 s 60. Perpetual now seeks to exercise its powers of sale under the mortgage and under Real Property Act, s 58.

8. Maviglia now wants to sell the Mulgoa property and has asked for Perpetual’s consent to a transfer into its name. But Perpetual insists on itself selling as first mortgagee. Mr Smith supports its right to do so.

9. Maviglia responded to this impasse by commencing these proceedings by Summons on 5 March 2017. BKSL is joined as the first defendant, Mr Smith, the liquidator as the second defendant and Perpetual as the third defendant. Leave for short service of the proceedings was granted in the Duty List. The proceedings were then listed for urgent hearing before me on 12 April 2017.

10. Maviglia propounds its case: the Trust owns the Mulgoa Road property; Maviglia is now entitled to call for the transfer of the Mulgoa Road property into its name, as it is the new trustee of the Trust; Maviglia is entitled to relief against forfeiture against Perpetual, and if necessary the liquidator and a stay on Perpeutal’s exercise of its powers of sale; and, Maviglia should have control of any sale that takes place.

11. The liquidator and Perpetual respond as one. The liquidator concedes Perpetual’s first right to deal with the Mulgoa Road property sale proceeds. Perpetual submits: that BKSL neither owned the Mulgoa Road property nor borrowed from it as a trustee of the Trust; and that Perpetual is entitled to enforce its rights as mortgagee against BKSL and the Mulgoa property without recognising the rights now being claimed on behalf of the Trust.

12. The proceedings were argued over half a day on 12 April 2017. Mr P. Kirby of counsel appeared for the plaintiff. Mr M. Karam of counsel appeared for the third defendant and Mr J. Brown, solicitor appeared for the first and second defendants.

The Plaintiff’s Summons

13. Maviglia’s Summons divides its claims into interlocutory relief and final relief. Maviglia made clear that the current hearing only concerned the claims for interlocutory relief in paragraphs 3 to 8 of the interlocutory relief sought in the Summons:

“3.   An order that the third defendant is restrained, until further order of the Court, from exercising its power of sale over the property located at *** Fairlight Road, Mulgoa NSW more particularly described as folio identifier [number not published] ("the Property").

4.   An order that the third defendant permit the plaintiff to re-enter possession of the Property.

5.   An order that the defendants do everything necessary to allow the plaintiff to register the application to record itself as the new registered proprietor in respect of the Property.

6.   Alternatively, an order that the plaintiff be allowed to manage the sale of the Property.

7.   An order that the Plaintiff sell the Property by 31 July 2017 and deal with the proceeds of sale in the following way:

a.   First, pay the costs of sale including conveyancing and agent's fees;

b.   Secondly, discharge the third defendant's mortgage;

c.   Thirdly, pay whatever sum the first and second defendants claim they are entitled to into Court or, alternatively, by the agreement of the relevant parties, into a controlled monies account pending the determination of the dispute between those parties;

d.   Fourthly, the balance to the plaintiff on trust for the Maviglia Family Trust.

8.   An order that the defendants be restrained, until further order, by itself, its employees or agents, from interfering with the plaintiff's sale of the Property.”

14. The final relief sought in the Summons differed only in minor ways from the interlocutory relief. A principal difference between the two was that the final relief sought a declaration that the Trust is the beneficial owner of the Mulgoa property. Paragraphs 1 to 6 of the final relief sought are as follows:

“1.   A declaration that the Maviglia Family Trust is the beneficial owner of the Property of which the plaintiff is the trustee.

2.   A declaration that the plaintiff is entitled to be refunded the money paid into the first defendant's Macquarie Bank offset account which was paid into that account on behalf of the plaintiff for the purpose of making repayments on the loan to the third defendant.

3.   An order that the first and second defendants refund the money paid into the first defendant's Macquarie Bank offset account.

4.   An order that the plaintiff be relieved against forfeiture of the Property by reason of the default under the loan between the first and third defendant and the mortgage which secures that loan.

5.   A declaration that the plaintiff is entitled to possession of the Property.

6..   Costs.”

15. These reasons first briefly outline more detailed facts. Set out below is a summary factual narrative of the events leading up to the interlocutory hearing. The narrative is mainly a record of uncontentious facts. As is usual in interlocutory hearings, the Court has not been required to make any findings on contested matters of fact in these reasons. This judgment highlights the matters which will be contested at any final hearing of these proceedings.

BKSL, Maviglia and the Mulgoa Property – 2007 to 2017

BKSL’s Incorporation and the Acquisition of the Mulgoa property

16. BKSL was incorporated in June 2008. At the same time it was appointed as trustee of the Trust.

17. BKSL acquired the Mulgoa property in 2013 supported by a loan facility from the Commonwealth Bank of Australia (“CBA”). In March 2015 Macquarie Bank Ltd (“Macquarie”), acting as the financing agent for Perpetual, refinanced the CBA’s facility.

18. Some features of these two transactions point to BKSL acquiring the property as trustee of the Trust. The CBA’s 20 August 2013 letter of approval of a $1.08 million facility to BKSL was to acquire the property “as trustee” of the Trust. BKSL’s mortgage application to Macquarie identifies BKSL as “as trustee for the Maviglia Family Trust”. A director of BKSL declared in a statutory declaration on 27 March 2015 that its $1.6 million loan from Macquarie of that day was to BKSL as “a trustee of the trust”.

19. But other features of the transactions point to BKSL acquiring the property beneficially. Macquarie’s loan approval of 20 March 2015 does not mention the Trust. Macquarie’s loan agreement refers to BKSL as the borrower without mention of the Trust. A statutory declaration 27 March 2015 given to Macquarie on behalf of BKSL declares in one place the “company is not the trustee of any trusts”, although it gives contradictory information elsewhere. The Trust’s tax return does not clearly identify the property as an asset. Trust resolutions to acquire the property and at the time of the refinancing are presently absent from the evidence.

BKSL’s Liquidation

20. By February 2017 BKSL had incurred a liability to the OSR for payroll tax in the amount of $186,426.27 (“the OSR debt”). The OSR petitioned for BKSL’s winding up.

21. The OSR debt was on account of a payroll tax debt incurred by BKSL pursuant to the Payroll Tax Act 2007 and the Taxation Administration Act 1996 because of its association with two other companies, which had incurred payroll tax liabilities. Ms Kristy Maviglia who held 50% of the shares in BKSL, was the sole director and shareholder of PC Crane Services Pty Limited (“PC Crane”). And BKSL’s other director, Mr Bruno Maviglia, was the sole director of Ping Cranes Pty Limited (“Ping”).

22. In April 2015 the OSR grouped together PC Crane and Ping for payroll tax purposes pursuant to the liability grouping provisions in Payroll Tax Act ss 72 and 74 on the basis of their common controlling interests and directorships. As a result of the grouping provisions, BKSL, PC Crane and Ping were deemed jointly and severally liable for the payroll tax incurred by PC Crane and Ping, by virtue of Payroll Tax Act s 81.

23. BKSL failed to comply with a statutory demand served by the OSR on BKSL in relation to the OSR debt. A winding up order was made against BKSL on 15 February 2016. Consequent upon that winding up order, on 16 February 2016 Ms Kristy Maviglia, the appointor under the trust deed of the Trust, replaced BKSL with Maviglia, as trustee of the Trust.

Default under Perpetual’s mortgage

24. BKSL’s liquidation quickly led to default under Perpetual’s mortgage. As Perpetual’s agent, Macquarie swept funds from an offset account held in BKSL’s name in order to pay the monthly interest due to Perpetual. But the liquidator declined to allow any credit balance in that account to be swept out on 2 March 2017 so as to satisfy BKSL’s monthly loan repayments to Perpetual. As a result, BKSL’s obligations to Perpetual fell into default. One of the directors of Maviglia noticed on 5 March 2017 that a “mortgagee in possession” sign had been erected at the front gate of the property. Maviglia contends that there are now sufficient funds in the offset account to satisfy the March and April monthly loan repayments to Macquarie.

25. Mr Vincent Costa, the solicitor at LCI Legal, the firm acting for Maviglia, declares on affidavit that Maviglia “has funds available to meet the arrears owing on the loan” and “is ready willing and able to pay that amount”. But it emerged in submissions that this statement did not mean that the full amount of the principal due could now just be paid into Court. Rather, what was meant was that Maviglia could continue to make monthly payments to Perpetual, and the principal sum due could ultimately be satisfied from the proceeds of any sale of the property.

From BKSL’s liquidation to the interlocutory hearing on 12 April 2017

26. The liquidator’s examination of the affairs of BKSL shows that apart from the secured debt owed to Perpetual, the subject of a first registered mortgage under the Real Property Act, BKSL’s only other remaining secured or unsecured liability is the OSR debt.

27. Correspondence has passed between LCI Legal (the solicitors for Maviglia and the Trust) the solicitors for the liquidator (“Matthews Folbigg”), and the solicitors for Perpetual (“Dibbs Barker”), about the beneficial ownership of the Mulgoa property. The features of its acquisition described earlier in these reasons, were canvassed in that correspondence and need not be repeated in these reasons. All that can be said is that whether BKSL itself or the Trust is the beneficial owner of the Mulgoa property is an open question for later determination.

28. The liquidator has reached the preliminary view that there was insufficient information to satisfy him that the Mulgoa property was purchased on behalf of the Trust. By November 2016 he had informed LCI Legal of that view. By March 2017, Dibbs Barker had confirmed to the liquidator that Perpetual did not hold any information to support the contention that the Mulgoa property was held by the company in a trustee capacity.

29. That being said, there is some basis to conclude that the property was purchased in trustee capacity and that that was known to Perpetual. But as the analysis below shows, that makes little difference to Perpetual’s exercise of its legal rights against BKSL. It may perhaps make a difference to the distribution of the surplus proceeds of sale after Perpetual has exercised its legal rights.

30. The liquidator has concluded that BKSL has no readily realisable assets for payment of a dividend to creditors, unless it is established that it beneficially owns the Mulgoa property. It therefore seems likely that subject to the exercise of Perpetual’s rights there will be a contest at the final hearing between the liquidator and the Trust about the beneficial ownership of the property.

31. In that contest the liquidator says that even if BKSL incurred its payroll tax liabilities as trustee of the Trust, it is entitled to an indemnity out of trust assets notwithstanding any recent change in the identity of the trustee: Dimos v Dikeakos Nominees Pty Limited (1996) 68 FCR 39. But Maviglia responds to this argument by saying that the payroll tax liability was not assumed by BKSL in the course of the discharge of its duties as trustee and that the indemnity principle does not apply to that liability.

32. BKSL is now in default under the mortgage: it has committed more than one breach of the terms of the mortgage. As Perpetual pointed out in its submissions, at least one of these breaches would have occurred even if Maviglia were found to have transacted with Perpetual, purely in a trustee capacity. The default clause in the mortgage (clause 5) provides that “[i]f any one or more of the following events occurs then the mortgagee may decide default has occurred”, namely (5 (a)) “you fail to pay the debt on time”; (5(j)(iii))) “if you are a company… receiver, manager… or liquidator is appointed to your assets”; and (5(k)) “if you are a trustee and without the prior written consent of the mortgagee thereof occurs… the appointment of a new or additional trustee”. Each of 5 (a), (j) and (k) have been breached here, entitling Perpetual to exercise its power of sale. I accept that even if it is established that BKSL was acting as a trustee that in that capacity it has defaulted on Perpetual’s mortgage.

33. Perpetual went into possession in the first week of March. Maviglia does not challenge its entry into possession. The property was then vacant and Perpetual did not get a court order before going into possession. The parties did not debate any legal question questions associated with Maviglia’s taking of possession: see Real Property Act s 60 and E L G Tyler, P W Young and C E Croft, Fisher and Lightwood’s Law of Mortgages (LexisNexis Butterworths, 3rd Australian Edition, 2014) (Fisher and Lightwood) [19.6]. Maviglia’s present application was conducted on the basis that Perpetual was a mortgagee in possession.

The Market Value of the Mulgoa property

34. The parties contest the current market value of the Mulgoa property. Maviglia relies upon a formal valuation of the property by Herron Todd White (“HTW”) on behalf of agents for Perpetual as mortgagee in possession, which puts its market value in the range $2.75 million to $3.15 million, with an expected sale price of $2.9 million. Even this HTW valuation acknowledges that substantial repairs and cleaning up are required prior to the marketing of the property and that the home and the immediate surroundings of the dwelling and access handle should be cleared and tidied. HTW also recommends that furniture, household items and personal effects within the dwelling be removed, together with general rubbish and unregistered cars that have been left in th egrounds. HTW do not assess the cost to conduct this clean-up.

35. But other property appraisals suggest a lower market value. These other appraisals, and indeed some of the information in the HTW valuation, challenge Maviglia’s submission that there is ample equity in this property above Maviglia’s current mortgage liability of $1.764 million. The photographs in the HTW valuation showed the property is thoroughly disordered. The appraisals indicate that there is drug paraphernalia on the premises, the police have previously attended the premises, there is a hydroponic setup for the growing of illegal drugs, and there is illegal electrical wiring at the site.

34. Real estate agents, Stanton and Taylor in an appraisal dated 30 March 2017 state the market value of the property “as is” in the range $2 million to $2.2 million. On 17 March 2017, Ray White real estate agents appraised the market value of the property “as is” in the range $2.1 to $2.3 million. On 26 March, Wilcox Real Estate appraised the market value of the property “as is” in the range $2.1 to $2.25 million and “if completed” in the range $2.2 million to $2.35 million. This appraisal suggests that even expending the cost of cleaning up the property may not add greatly to its value. Another agent, The Agency Property and Finance, did not recommend any attempt to sell the property “as is” but appraised the property “if completed” in a range similar to the HTW valuation, at $2.75 to $3.1 million.

35. The HTW valuation of the property is generally likely to be of greater weight than these other appraisals, unless they were firmed up as valuations by the time of trial. But the appraisals do make detailed observations about the physical state of the property that are not included in the HTW valuation. And they attain reliability because they focus on the financial return from an “as is” sale. They do cast considerable doubt on Maviglia’s assumption that the Trust has an equity of approximately $1 million in this property (being proceeds of $2.9 million less $1.764 million, and less sale costs).

36. This factual narrative is sufficient for the Court now to consider Maviglia’s arguments and the other parties’ responses.

The Parties’ Arguments

Maviglia seeks relief against forfeiture

39. Maviglia framed its written and oral submissions as seeking relief against forfeiture. But Maviglia also proposes a restraint on Perpetual’s exercise of its power of sale over the Mulgoa property. Maviglia recognised it must satisfy equity’s requirements for restraints on the exercise of powers of sale.

40. Maviglia argues that it is entitled to relief against forfeiture within the two main categories of such relief that equity recognises.

41. The two categories Maviglia relies on are fully described in JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis Butterworths, 5th ed, 2014) at [18-250] and [18-255] (“Meagher, Gummow & Lehane”). The first basis of the jurisdiction to relieve against forfeiture applies if the forfeiture is meant to secure the performance of a primary stipulation; then prima facie that is a forfeiture against which equity will relieve. Provided that adequate compensation can be made to the party otherwise entitled to the benefit of the forfeiture, then relief will generally follow. For example, a lessor’s right to re-enter upon a lessee’s failure to pay rent is typically meant as a security in this sense. Both in equity and now for example under Conveyancing Act 1919, s 129 relief was routinely awarded where the lessee was ready, willing and able to pay the arrears of rent and the lessor’s costs: Barton Thompson & Co Limited v Stapling Machines Ltd [1966] Ch 499.

42. The second basis for relief against forfeiture is constituted by the special heads of fraud, accident, mistake and surprise: Shiloh Spinners Ltd v Harding [1973] AC 691 at 723. These circumstances may ground relief regardless of the fact that a given stipulation for forfeiture is not meant to secure performance of a primary stipulation. But as Meagher, Gummow & Lehane point out (at [18-250]), a complaint of fraud, accident, mistake or surprise “demands the Court to examine under what circumstances the forfeiture occurred, rather than the parties’ intentions in entering into the relevant arrangement”.

43. But there are limits on the operation of this second basis of relief against forfeiture: Meagher, Gummow & Lehane described those limitations as follows (at [18-255]) (footnoted case references are omitted from this text):

“Fraud and surprise only apply where the party legally entitled to benefit from the forfeiture has caused or contributed to a significant degree to the plaintiff's non-performance of a covenant, or non-fulfilment of a condition, such that the plaintiff's proprietary rights become liable to determination. Mistake may come about with or without such conduct by the party who would benefit from the forfeiture. In contrast, a complaint of accident will not lie for results of things done by or on behalf one of the parties.’ Pomeroy said:

Accident is an unforeseen and unexpected event, occurring external to the party affected by it, and of which his own agency is not the proximate cause, whereby, contrary to his own intention and wish, he loses some legal right or becomes subjected to some legal liability, and another person acquires a corresponding legal right, which it would be a violation of good conscience for the latter person, under the circumstances, to retain.

Relief against an accident will be declined where the situation that has occurred 'is one for which an express exculpatory provision might have been made, but was not sought or was not agreed to, and where to relieve against its consequences after it has occurred would deprive the other party to the contract of an essential right'. None of the four heads will be met where the plaintiff's default is wilful or merely inadvertent.”

44. As will be seen below, not only does Maviglia’s relief against forfeiture claim fail to meet the requirements of these two categories, but when correctly characterised, this is really just an application to restrain the exercise of Perpetual’s power of sale, a claim to which special principles apply. It is useful to identify those principles after analysing Maviglia’s relief against forfeiture case.

Consideration of the relief against Forfeiture Case

45. Maviglia does not complain about Perpetual’s exercise of its right of re-entry. No relief against that particular forfeiture is sought. Maviglia accepts that property must be sold. It does not seek to be let back into possession. The exercise of a power of sale is assumed in Maviglia’s favour to be a forfeiture for the purposes of analysis here.

46. Maviglia would not make out the grounds for the first basis for relief against forfeiture. To obtain such relief Maviglia would ordinarily be put on terms to pay (or show by clear proof that it was ready willing and able to pay) the principal amount now due on the mortgage, before that restraint were imposed by the Court. It has not offered to do so.

47. But equally, Maviglia would be unlikely to make out the second basis for relief of fraud, accident, mistake or surprise.

48. Relief on the grounds of fraud or surprise are not available. They only apply when the party entitled to benefit from the forfeiture has caused or contributed to a significant degree to the plaintiff’s non-performance of a covenant. Perpeutal has not contributed in any way to Maviglia’s non-performance of its mortgage covenants.

49. Nor does mistake apply here. Mistake may come about with or without conduct by the party who would benefit from the forfeiture. But here Maviglia cannot rely upon mistake. The payroll tax liability was imposed on Maviglia and it then defaulted under the mortgage. None of these events obviously involve any mistake.

50. Finally, as Pomeroy explained in the above extract from Meagher, Gummow and Lehane “a complaint of an accident will not lie for results of things done by on or behalf of one of the parties”. Here the imposition of liability under the Payroll Tax Act and the freezing of the money in the liquidator’s account preventing payment of the mortgage and all the other relevant events are not in that sense “accidents”. They are all occasioned by the conduct of one or other of the parties.

51. No other potential basis for relief against forfeiture has been invoked here. Nor does any appear to be applicable in the present case: Meagher, Gummow and Lehane at [18-260] and [18-265].

Exercise of a mortgagee’s power of sale and Redemption - Some legal Principles

52. In substance, Maviglia really proposes a restraint on Perpetual exercising its power of sale over the Mulgoa property. Maviglia contends that Perpetual should not be permitted to sell the Mulgoa property on its own in accordance with the terms of the mortgage or under Real Property Act, s 58. The deficiencies in Maviglia’s application for relief against forfeiture have already been analysed. But quite apart from those deficiencies, Maviglia now needs to satisfy the special principles that apply to mortgagors attempting to restrain their mortgagees from exercising a power of sale.

53. Those principles may be shortly stated. A mortgagee will be restrained from exercising its power of sale, if the mortgagor tenders to the mortgagee, or pays into the Court, the amount claimed to be due: Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 (“Inglis”) and Morton v Suncorp Finance Ltd (1987) 8 NSWLR 325 at 335. The amount due is the amount claimed by the mortgagee to be due for principal, interest and costs: Hickson v Darlow (1883) 23 Ch D 690 and Macleod v Jones (1883) 24 Ch D 289.

54. A power of sale is exercised when there is a binding contract for sale. After contract and before completion the mortgagor may be able to obtain an injunction to restrain the sale, if the mortgagor can show arguably the power of sale has not being properly exercised or the conditions for its exercise have not being satisfied, or because the price is at an undervalue or because in some other way the sale is improper: Forsyth v Blundell (1973) 129 CLR 477 and Shercliff v Engadine Acceptance Corp Pty Ltd [1978] 1 NSWLR 729. An injunction is an available remedy in all instances where the power of sale is not bing properly exercised: Henry Roach (Petroleum) Pty Limited v Credit House (Vic) Pty Limited [1976] VR 309.

55. The requirement for payment into court as a condition of the grant of an injunction to restrain a sale by mortgagee is generally regarded as an aspect of the general equitable rule that a mortgagor must offer to redeem before the mortgagor can bring the mortgagee before the court. This is said to be an example of an application of the maxim that he who seeks equity must do equity: Clarke v Japan Machines (Australia) Pty Limited (No. 2) (1984) 1 Qd R 421 and Hallifax Property Corporation Pty Limited v GIFC Limited (1987) 4 BPR 9708, at 9710 (“Hallifax”). The discretion to require payment into court, or otherwise to give security for payment of the mortgage debt as a condition of the grant of an injunction also extends to situations involving alleged breach of statute such as the Competition and Consumer Act 2010 (Cth): see Hallifax. The rule operates to supplement the ordinary requirement for an undertaking as to damages on an interlocutory application.

56. Payment into court is generally required where the mortgagor seeks to restrain the mortgagee from selling, prior to any contract of sale having been made, where the mortgagees acted properly. But the mortgagor need not offer to redeem and therefore need not pay into court where it is alleged that the power of sale is not exercisable: Inglis, particularly at 164 – 165 (per Walsh J). Examples of this appear below.

57. Although the ultimate correctness of this decision has been questioned, Hamilton J summarised a trend towards the widening of the Inglis principles in recent years, in Parist Holdings Pty Limited v Perpetual Nominees Limited (2006) NSW ConvR 56 – 161 (at 59,925), [16] – [23]:

“16   Over the last 15 years, there have been various expressions of judicial opinion which are to the effect that the requirement in Inglis should be widened. For this to be done, it will need to be found either that there should be an additional exception to the general rule or that the time has come when the general rule should itself be revised and restated.

17   Those proposed modifications include a relaxation of the rule to permit injunctive relief:

(1)   where the plaintiff claims that he can redeem the mortgage within a fairly short time by carrying out an on its face reasonable refinancing proposal;

(2)   where the plaintiff has a demonstrable capacity to secure or at least refinance the mortgage debt.

18   As to proposition (1), this is derived from the judgment of Bryson J, as his Honour then was, in Grose v St George Commercial Credit Union Limited (1991) NSW ConVR 55-586 at 59,300 – 59,301. His Honour there suggested that the rule in Harvey, if literally applied, could wreak hardship. His Honour suggested that it should not be taken to be intended to prevent injunctive relief where there was a realistic prospect of refinancing. No doubt the evidence would need to establish that the mortgagor claimed to be able to redeem the matter within a fairly short time and that the refinancing proposal was rather likely to be fulfilled.

19. The matter has also been the subject of discussion in learned writing including by Bryson J and the present Chief Judge in Equity writing extracurially: The Hon Justice John Bryson, Restraining Sales by Mortgagees and a Curial Myth (1993) 11 Aust Bar Rev 1; P W Young, A Mortgagor’s Right to Approach the Court (1993) 1 APLJ 61. And see note by P W Butt in (1989) 63 ALJ 696.

20. The second of the formulas which I have set out above comes from the recent decision of the Court of Appeal in Notaras v Sly & Weigall [2005] NSWCA 235 at [133]. In indicating that proposition (2) above was an appropriate formula or test to apply, the Court of Appeal did not consider the matter in detail and did not analyse in detail what had been said in Harvey or in Inglis or, indeed, in any subsequent discussions. That was because the Court of Appeal was not dealing with the question in the form in which it arises in applications such as the present, but was dealing with an appeal in an action for negligence against two firms of solicitors in relation to advice given to a mortgagor who was a prospective applicant for injunctive relief to restrain a mortgagee sale.

21.   Whilst a Judge of this Court must always pay adequate attention and give adequate respect to statements of the Court of Appeal, I have some doubt as to whether what is said in Notaras is an adequate basis to depart from a principle, which, although it may in some ways be regarded as harsh, has had long acceptance in Courts of Equity.

22.   It should be added that, in so far as it may be thought to operate harshly in some circumstances against mortgagors who have immediate and real prospects of re-financing, on the other hand it must be borne in mind that there is a very considerable public interest in not fettering in any undue way the rights and manner of exercise of a mortgagor’s power of sale, because of the effect that this might have of unsettling the finance market and discouraging persons, natural and corporate, from lending in that market, which is critical to the conduct of business in this as in other countries.

23.   As I have said, this is, as I perceive it, an ongoing and unresolved controversy. Part of the reason for that is that it usually arises in injunction applications from which there are not often appeals and in which urgency precludes the giving of fully reasoned judgments.”

58. There are established limited exceptions to Inglis. If the mortgagor is alleging that the power of sale has not arisen or is alleging a lack of good faith there may be no need for any payment into court, but if the mortgagor is seeking to stop the sale for any other reason, payment into court is necessary: Harvey v McWatters (1948) 49 SR NSW 173, at 177 (“McWatters”). Other examples of these exceptions are where the validity of the mortgage is in issue, or where there is a question of whether or not there has been a breach of the terms of the mortgage, or where the issue is whether notice of breach has been effective.

59. The learned authors of Meagher, Gummow & Lehane at [3-085], in summary and omitting much of the authority which the authors rely upon, state and synthesize all the relevant law in the following terms. Where a mortgagor in default seeks an interim injunction to restrain the improper sale of the mortgaged property by the mortgagee, the mortgagor is required either to repay all the principal and interest claimed, or to pay it into court. A mortgagor in default who is unable to repay the money secured is almost invariably denied equitable relief and relegated to a pecuniary claim. But an exception exists where the mortgagee is exercising its powers “in a manner which is not a proper exercise of them and which does infringe the rights of the mortgagor”: Inglis. Other exceptions are where the amount claimed by the mortgagee is obviously wrong, and where the there is a question as to whether the mortgagee’s power has become exercisable at all: McWatters. The learned authors agreed with Campbell JA’s conclusion in Bayblu Holdings Pty Limited v Capital Finance Australia Ltd (2011) 279 ALR 166 that it was right to reserve opinion on the correctness of decisions, including Parist, where an interim injunction was awarded to a plaintiff who claimed it would be able to refinance the mortgage and thus redeem in a reasonable time.

60. A footnote on redeeming of mortgages is required. Maviglia submitted that it was prepared to undertake to pay into Court the proceeds of the exercise of the Perpetual’s power of sale and that as a result it should be given control of the sale. Maviglia stated that for it to give this undertaking was the equivalent of offering to redeem the mortgage over the Mulgoa property.

61. But this submission misstates what is involved in redeeming a mortgage. At general law a mortgage will usually confer an express right to redeem by a proviso or condition in the mortgage to the effect that if the mortgagor pays to the mortgagee the principal sum and any interest due on a certain day, the mortgagee will, at the cost of the person redeeming, re-convey to him or her, or as he or she shall direct. The equitable right to redeem only arises after the contractual date for redemption is passed. This is supplemented in New South Wales by an express right in the mortgagor to redeem before the time for redemption is reached: Conveyancing Act 1919 s 93. The learned authors of Fisher and Lightwood at [32.1], collect the cases that explain the use of the expressions “redeem” and “redemption” in the context of the Torrens system. But as is the case at general law, redemption under the Torrens system involves repaying the whole of the amount due as a condition of, and then requiring, the mortgagee to discharge the mortgage. A mortgagor seeking to redeem, must do equity by, if necessary, submitting to the taking of accounts, and repaying the sum found due: Tannock v North Queensland Securities [1932] St R Qd 285, at 295 – 297, and 300.

62. Upon the debt being paid off, the mortgagor is entitled to have the mortgaged property restored to him freed from the mortgagee’s security; and in the redemption process the repayment of the debt is made against the re-conveyance of the property and the handing back of the deeds and strictly these should be simultaneous transactions: Fisher and Lightwood at [32.55]. The exercise of the right to redeem is put to an end upon the valid exercise of the mortgagee’s power of sale Fisher and Lightwood [20.4].

Perpetual’s and the Liquidator’s other arguments

63. Perpetual put the following additional arguments. After Maviglia’s concession that there was no challenge to Perpetual’s right to exercise the power of sale, Mr Karam on behalf of Perpetual argued on the basis that the principles of Inglis applied. He submitted that there was no legal support for the proposition that Maviglia was advancing: that there was in effect an exception to Inglis that that if the Court thought that everyone would be better off if the mortgagee were restrained so that the mortgagor could have the opportunity to sell the property itself, then it was within the Court’s power to so order. For the reasons already indicated, the Court agrees with this submission. The Court does not have a general discretion of this kind, absent the payment into court of the principal sum, accrued interest, and costs, absent any direct attack on the mortgagee’s exercise of its power of sale.

63. The liquidator’s position may be shortly stated. Mr Brown on behalf of the liquidator, submitted that at final hearing there would be a genuine contest as to whether the Mulgoa property was owned by the trust or by BKSL beneficially. The liquidator was not aware of any specific issues which would adversely influence the value that would be obtained on a mortgagee sale in this case. But the liquidator accepted that once a mortgagee sale had taken place and assuming there were surplus proceeds from that sale, there would be a contest between the liquidator and Maviglia about the entitlement to those proceeds.

Consideration

65. Maviglia has not offered to pay mortgage monies due to Perpeutal (together with costs and interest) into Court. It has therefore not made out the requirements for the grant of a restraint on Perpetual’s exercise of its power of sale. Nor has Maviglia brought itself within any of the recognised exceptions to Inglis, identified in McWatters. Counsel for Maviglia very candidly disclaimed in submissions, that any challenge was being made to Perpetual’s right to exercise its power of sale. Maviglia seems to have a generalised complaint (and without specific evidence of any sacrificing of Maviglia’s interests) that under its management and without the publicity of a mortgage sale a better price is likely to be obtained for the Mulgoa property in its interests. But this alone is not a sufficient basis to restrain the sale or allow the sale only to proceed under Maviglia’s control.

66. But Maviglia’s submissions seem to be based on a misconception that it has a continuing right to redeem Perpetual’s mortgage simply by paying off the balance of the amount due to the mortgagee after it has sold the land. In my view this submission misunderstands the nature of the mortgagor’s rights.

67. Maviglia undoubtedly has a right to redeem. The mortgage provides for it. But as earlier indicated the right of the redemption ordinarily involves fully paying out the mortgage and then seeking the discharge of the mortgage. Whilst the mortgagor continues in default, as is the case here with Maviglia, its right to redeem does not displace the mortgagee’s continuing right to exercise its power of sale.

68. Before its right to redeem is extinguished by a valid mortgagee sale, Maviglia may comply with the requirements of Inglis, and pay the mortgage money into court. This is how its right of redemption can be preserved in the face of Perpetual’s power of sale. But otherwise, whilst BKSL remains in default, the Mavilgia has no right to take control of the sale and just undertake pay the mortgagee out of the proceeds. The rights expressly conferred on mortgagees by Real Property Act ss 57 and 58 would have to be varied before this could be an available course.

69. Maviglia has the choice of paying the full amount due into court as a condition of restraining Perpetual from exercising its power of sale. But Maviglia has not so offered and is not now entitled to any restraint against Perpetual’s exercise of its power of sale.

70. But Maviglia’s arguments at final hearing are probably unpersuasive in any event. Maviglia seems focused on establishing at final hearing that Perpetual contracted with BKSL as a trustee of the Maviglia Family Trust. If it can establish this, Maviglia appears to wish to argue at final hearing that when BKSL, defaults, the appointor is now entitled to replace that trustee and have the property transferred into the name of a new trustee, Maviglia, free of its mortgage obligation to Perpetual.

71. This argument will come up against a number of obstacles at final hearing. The starting point is that BKSL as registered proprietor holds the Mulgoa property subject to the legal obligations it owes to Perpetual as mortgagee of the first registered mortgage under the Real Property Act. Even if it were to be established that BKSL transacted with Perpetual as a trustee, Maviglia’s rather startling argument is quite inconsistent with the form of Perpetual’s first registered mortgage. Clause 5(k) of the mortgage defines the changing of the trustees of the Trust, without Perpetual’s prior consent as an event of default. The form of Perpetual’s mortgage is inconsistent with the contention that, even if Perpetual were on notice of an equitable interest in the property associated with the Trust, that such equitable interest could somehow defeat Perpetual’s exercise of its power of sale as registered first mortgagee. Nothing in the mortgage and loan documents that the Court has seen supports the idea that even if BKSL did contract as trustee that BKSL could completely defeat Perpetual’s security interest over the Mulgoa property by the remarkably simple expedient of changing trustees.

72. Even if, contrary to the reasoning above, the Court were to conclude that it had the power to put representatives of Maviglia, rather than Perpetual, in charge of the sale, the Court would probably refuse to do so on discretionary grounds, for two main reasons. First, other than Maviglia’s general submission that marketing the property as a mortgagee sale may not, by that fact alone, mean that the property will be sold to its best advantage, there is no evidence that Perpetual either is not adopting best sale practices or is otherwise sacrificing Maviglia’s economic interests in the Mulgoa property.

73. Indeed, the evidence is to the contrary: Perpetual’s commissioning of the HTW valuation shows its attention to the objective of attempting to obtain market value at the sale of the property; Perpetual acknowledges that as a mortgagee in possession it should be held to the sale standards set by Corporations Act (Cth) s 420A; and as both Perpetual and Maviglia want to sell the property, Perpetual has clearly indicated that it would be prepared to accept any funds offered from Maviglia to prepare the property to present it for sale to its best advantage.

74. And secondly, the valuation and appraisal evidence is sufficiently controversial to cast doubt on an important assumption behind Maviglia’s argument to take control of the sale: that it has substantial equity in the property. It is more prudent to infer on the evidence that upon sale there may well be only a limited surplus available after the mortgage liability to Perpetual of $1.764 million is fully paid out and after that Perpetual’s sale costs are met. In these circumstances, there is every reason to leave Perpetual, not Maviglia in charge of the sale.

75. For these reasons, the plaintiffs’ claim for interlocutory relief fails.

Further Management of the proceedings

76. What will happen to the rest of the proceedings? Perhaps the only issue now left for contest at a final hearing is whether or not the Trust owns the Mulgoa property. The outcome of this question will determine whether the Trust or whether the liquidator of BKSL receives the any surplus proceeds of sale.

77. But that can be decided without Perpetual’s involvement. Once the sale has taken place Perpetual may choose to resolve any residual issues about whether it pays any sale surplus to the liquidator of BKSL, or to Maviglia, by paying the funds into court. The Court can receive the funds and manage their disposition pursuant to Trustee Act 1925 Part 4. The funds may then be paid out of court to the party that successfully proves entitlement pursuant to Uniform Civil Procedure Rule (UCPR) 55.11.

Conclusions and Orders

78. For the reasons given the Court declines to grant the interlocutory relief Maviglia seeks. Perpetual may continue to exercise its power of sale over the Mulgoa property.

79. Although the hearing was interlocutory and not final, the application was arguably about a discrete part of the proceeding and this may well be a case where costs should follow the event, in accordance with UCPR 42.1. But the parties should be given a short opportunity to agree about costs.

80. The Court will therefore order:

1. The plaintiff’s application for interlocutory relief is dismissed;

2. If the parties cannot agree about who should bear the costs of the present interlocutory application, then the proceedings may be listed for costs argument by agreement with my Associate at a mutually convenient date in May 2017;

3. Direct that proceedings be listed before the Registrar at 9 am on 23 May 2017 for the giving of further directions in relation to the final hearing of these proceedings; and

4. Grant liberty to apply.

**********

Amendments

01 May 2017 - [18]. "of" instead of for/of

20 June 2017 - [43] delete part of quotation

[61] change ""mortagee discharging the mortgage" to "mortgagee to discharge the mortgage".

[63] first line, correct spelling of "Perpetual" and change "and costs absent" to "and costs, absent".

Decision last updated: 20 June 2017