Mortgage Ezy Australia Pty Ltd v Turco
[2014] WASC 172
•16 MAY 2014
MORTGAGE EZY AUSTRALIA PTY LTD -v- TURCO [2014] WASC 172
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WASC 172 | |
| Case No: | CIV:1636/2014 | 12 MAY 2014 | |
| Coram: | LE MIERE J | 16/05/14 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
| PDF Version |
| Parties: | MORTGAGE EZY AUSTRALIA PTY LTD MARIO TURCO SUELLEN TURCO |
Catchwords: | Application for interlocutory injunction Serious question to be tried Whether plaintiff has proprietary interest in the Property Proper construction of the Loan Agreement Unjust enrichment No prima facie case for final relief Balance of convenience Application for freezing order Whether plaintiff has good arguable case Whether appropriate |
Legislation: | The Supreme Court of Western Australia Consolidated Practice Directions, 9.6.1 [12] Transfer of Land Act 1893 (WA), s 123 |
Case References: | ABC v O'Neill (2006) 227 CLR 57 Avco Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679 Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 Henry v Henry (1996) 185 CLR 571 Industrial Acceptance Corporation Ltd v Tarulli [1974] WAR 125 Jackson v Stirling Industries Ltd (1987) 162 CLR 612 Re St George Bank [2011] NSWSC 730 Riley McKay Pty Ltd v McKay (1982) 1 NSWLR 264 State Bank of New South Wales v Berowra Waters Holdings Pty Ltd (1986) 4 NSWLR 398 Wambo Coal Pty Ltd v Ariff [2007] NSWSC 589; (2007) 63 ACSR 429 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
MARIO TURCO
First Defendant
SUELLEN TURCO
Second Defendant
Catchwords:
Application for interlocutory injunction - Serious question to be tried - Whether plaintiff has proprietary interest in the Property - Proper construction of the Loan Agreement - Unjust enrichment - No prima facie case for final relief - Balance of convenience
Application for freezing order - Whether plaintiff has good arguable case - Whether appropriate
Legislation:
The Supreme Court of Western Australia Consolidated Practice Directions 9.6.1 [12]
Transfer of Land Act 1893 (WA), s 123
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr J C Giles & Mr P Van Der Zanden
First Defendant : No appearance
Second Defendant : Mr G D Cobby
Solicitors:
Plaintiff : Hotchkin Hanly
First Defendant : No appearance
Second Defendant : Calverley Johnston Lawyers
Case(s) referred to in judgment(s):
ABC v O'Neill (2006) 227 CLR 57
Avco Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679
Cardile v LED Builders Pty Ltd (1999) 198 CLR 380
Henry v Henry (1996) 185 CLR 571
Industrial Acceptance Corporation Ltd v Tarulli [1974] WAR 125
Jackson v Stirling Industries Ltd (1987) 162 CLR 612
Re St George Bank [2011] NSWSC 730
Riley McKay Pty Ltd v McKay (1982) 1 NSWLR 264
State Bank of New South Wales v Berowra Waters Holdings Pty Ltd (1986) 4 NSWLR 398
Wambo Coal Pty Ltd v Ariff [2007] NSWSC 589; (2007) 63 ACSR 429
1 LE MIERE J: The plaintiff, a finance company, has applied for an interlocutory injunction to restrain the second named defendant, Ms Turco, from disposing of or dealing with the net proceeds from the sale of 6 Stratford Street, East Fremantle (the Property) other than to deposit them into an interest bearing bank account. Alternatively, the plaintiff seeks a freezing order to restrain Ms Turco from dealing with or diminishing the value of any of her assets in Australia up to the unencumbered value of $620,000, which is the amount Ms Turco expects to receive on the sale of the Property.
2 Settlement of the sale of the Property was due to take place on 13 May 2014. Hence, this application was heard urgently on 12 May 2014. After the conclusion of the hearing Ms Turco undertook to deposit the funds the subject of the plaintiff's application into an interest bearing account and not to use those funds prior to 5.00 pm on 19 May 2014 so as to allow me time to consider the evidence and the parties' submissions. I have determined that the plaintiff's application should be dismissed for the reasons which follow.
The Loan and the Mortgage
3 By a credit loan agreement (Loan Agreement) dated and executed 14 November 2003 between the plaintiff as lender, an associated company, Mortgage Ezy Pty Ltd, as originator/manager and the defendants (Ms Turco and her former husband, Mr Turco) as borrower, the plaintiff agreed to make the following advances to the defendants:
(a) a standard variable loan in the sum of $634,000; and
(b) a line of credit facility in the sum of $10,000 (together the Loan).
4 The Loan Agreement included the following term:
Security
You acknowledge that the following security extends to and secures any money due under this loan agreement.
I. First Registered Mortgage from MARIO TURCO, and SUELLEN TURCO in favour of the Lender in respect of [the Property].
('the Security clause')
- On 23 October 2003, prior to executing the Loan Agreement, the defendants executed a mortgage of the Property in favour of the plaintiff to secure the sum of $644,000 (the Mortgage).
Discharge of the Mortgage
5 On 2 December 2003, Mr Turco's brother, Vitorio Turco, and Deborah Lee Turco executed a mortgage of 95 View Terrace, Bicton (Bicton Property) in favour of the plaintiff to secure the sum of $816,000 (Bicton Mortgage).
6 On 2 March 2005 the defendants signed a discharge intention form informing the plaintiff that they intended to fully discharge the Loan and the Mortgage and requesting that the plaintiff inform them of the amount required to discharge the Mortgage. On the same date Vitorio and Deborah Turco executed a discharge intention form making the same requests in relation to the Bicton Mortgage. It appears from the discharge intention forms and other documents that the defendants and Vitorio and Deborah Turco intended that BankWest would refinance the Loan and the amount secured by the Bicton Mortgage. A settlement took place on 15 March 2005. At settlement the plaintiff received $818,119.96 which was sufficient to discharge the Bicton Mortgage and delivered a discharge of the Bicton Mortgage. The plaintiff delivered a discharge of the Mortgage and the Mortgage was duly discharged but the plaintiff did not receive any payment to repay the Loan in whole or in part. It is common ground that the plaintiff discharged the Mortgage without receiving repayment of the Loan by mistake, but the evidence does not presently establish how the mistake occurred.
BankWest Mortgage
7 The defendants executed a mortgage over the Property to BankWest (the BankWest Mortgage) to secure a new loan. Subsequently the defendants continued making repayments of interest and small amounts of principal to the plaintiff in accordance with the terms of the Loan. The plaintiff regularly sent statements to the defendants addressed to the Property. Ms Turco says that she first became aware that the Loan and Mortgage had not been paid out in August 2009.
8 In September 2013 the defendants defaulted on making repayments of the Loan. The plaintiff then became aware that the Mortgage had been discharged by error. The plaintiff says that as at 7 May 2014 the defendants owed $633,044.57 plus costs to the plaintiff.
Family Court proceedings
9 Ms Turco and Mr Turco separated on 15 April 2004, that is before the settlement at which the Mortgage was discharged. They were divorced on 16 March 2007. Ms Turco has commenced proceedings in the Family Court of Western Australia in which she seeks financial, that is property and maintenance, orders. On 5 March 2014 the Family Court assessed as filed an amended initiating application by Ms Turco. Ms Turco seeks, amongst other things, orders that Mr Turco and Vitorio Turco satisfy any debt that might be owed by Ms Turco to the plaintiff so as to effect a release of Ms Turco from any such continuing debt and in the absence of doing so Mr Turco be substituted in place of the defendants in relation to the debt. On 24 March 2014 the Family Court made an order that the plaintiff be joined as a party to the Family Court proceedings.
Mortgagee sale of Property
10 On 22 February 2012 BankWest commenced proceeding CIV 1302 of 2012 in this court against the defendants. The defendants filed a defence. There is evidence that the Commonwealth Bank trading as BankWest (which I will refer to as BankWest), the defendants, Vitorio Turco and Turco & Co Pty Ltd entered into a deed of release in or about June 2013 (the Deed of Release). An undated, partly executed copy of the Deed of Release is an annexure to the affidavit of the plaintiff's solicitor. The deed provides that BankWest is entitled to sell the Property pursuant to its power of sale under the BankWest Mortgage. It further provides that upon settlement of the sale of the Property, after payment of all conveyancing costs, agent's commission and any statutory charges, 50% of the net proceeds of sale shall be paid to the bank and 50% to Ms Turco. The Deed of Release provides that subject to the conditions, which include the payment referred to, the bank and Ms Turco release and discharge each other from all claims.
Plaintiff's contentions
11 The plaintiff says that Ms Turco is indebted to the plaintiff in the sum of $633,000 payable subject to any notice required under the Consumer Credit Code. The plaintiff applies for an injunction or a freezing order on two separate bases. The first basis is that the plaintiff claims a proprietary interest in the fund to be paid by BankWest to Ms Turco. The second basis is that the plaintiff has a prima facie case against Ms Turco under the repayment covenant in the Loan Agreement and the conditions for making a freezing order are met.
Proprietary claim
12 The plaintiff says that there is a serious question to be tried that it has a proprietary interest in the Property and in the proceeds of sale of the Property. On registration of the discharge of mortgage, the Mortgage and the interest created by the Mortgage ceased to exist: Transfer of Land Act 1893 (WA) (TLA) s 123. However, the debt remained payable: Industrial Acceptance Corporation Ltd v Tarulli [1974] WAR 125. It is common ground that the discharge of the Mortgage did not extinguish any debt owing to the plaintiff under the Loan Agreement.
13 The plaintiff says that on the discharge of the Mortgage, at least once the mistake was known to Ms Turco, the benefit gained by Ms Turco was subject to a constructive trust or an equitable charge in the nature of a security. The plaintiff says that is so for two reasons. The first reason is based on the proper construction of the Loan Agreement. The second reason is based on unjust enrichment.
The proper construction argument
14 The plaintiff's argument is as follows. On the proper construction of the Security clause of the Loan Agreement, which I have set out earlier in these reasons, the defendants promised that the Loan would be secured by the Mortgage. That obligation created by the Loan Agreement, and not the Mortgage, is not affected by TLA s 123. A promise to grant (and maintain) a mortgage as security for a loan creates an equitable mortgage or charge: Tyler, Young and Croft, Fisher & Lightwood's Law of Mortgage (3rd ed, Aust) [2.7] and an equitable charge attaches to the proceeds of sale of the Property: Avco Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679, 682 (Young J). The question is whether the mistaken discharge of the mortgage destroys that charge or creates a new charge. That is a question of construction of TLA s 123 and the Loan Agreement. The prima facie construction of the Loan Agreement is that the Loan was to be secured by mortgage over the Property and the mistaken discharge, for no consideration, does not affect that prima facie construction. There is a serious question to be tried that the proceeds of the Property remain subject of a charge.
15 The meaning of the Loan Agreement must be ascertained from the language the parties have used, considered in the light of the surrounding circumstances and the object of the agreement, insofar as that has been agreed or proved. The courts will endeavour to give a commercial contract like the Loan Agreement a business like interpretation.
16 The plaintiff says that a promise to grant (and maintain) a mortgage as security for a loan creates an equitable mortgage or charge. The plaintiff's case is that the Security clause in the Loan Agreement, on its proper construction, is a promise to grant (and maintain) a mortgage as security for the Loan. That is not the natural and ordinary meaning of the Security clause. The natural and ordinary meaning is that the parties agreed that the Mortgage, which was in existence at the time the Loan Agreement was executed, extended to and secured any money due under the Loan Agreement.
17 Appeals to business common sense or the commercial purpose of the Security clause do not assist the plaintiff. The clause has a sensible commercial purpose if the words of the clause are given their ordinary and natural meaning. That purpose is to ensure that the Mortgage is to secure any money due under the Loan Agreement whenever it was advanced, including any money advanced after the execution of the Loan Agreement and after the execution of the Mortgage.
18 The construction advanced by the plaintiff has little to commend it on the grounds of commercial efficacy or common sense. The plaintiff's construction is, or has the effect that, the defendants have agreed to grant or maintain a mortgage over the Property even in circumstances where the parties agree to discharge, and do discharge, the Mortgage. That is inconsistent or implausible. Furthermore, the Security clause, on the plaintiff's construction, is a promise to maintain a 'first registered' mortgage. The defendants may have granted a second registered mortgage to another lender. It does not make sense for the parties to have agreed that if they discharge the Mortgage by agreement then the defendants promise to grant or maintain a first registered mortgage notwithstanding that there may then be a registered mortgage in favour of another lender which is earlier in time.
19 The plaintiff's argument that it has a proprietary interest in the proceeds of the sale of the Property by reason of the Security clause in the Loan Agreement falls at the first hurdle.
The unjust enrichment argument
20 The plaintiff's argument is by analogy to unjust enrichment arising from a payment by mistake. The plaintiff's argument is as follows. A mistaken payment made for no consideration, at least once the mistake is known to the recipient, is or can be subject to a constructive trust: Wambo Coal Pty Ltd v Ariff [2007] NSWSC 589; (2007) 63 ACSR 429 [38] - [44] (White J). The discharge of Mortgage was registered by mistake and without consideration. It altered Mr and Mrs Turco's interest in the Property, in that the Property ceased to be subject to a registered mortgage securing a loan of in excess of $640,000. The Property has now been sold and Ms Turco is to receive the balance of the equity in the Property. That fund exists only because of the mistaken discharge of the plaintiff's mortgage. To that extent Ms Turco has been enriched by the receipt (albeit subject to the covenant to repay). An alternative analysis to the same effect is that, in the circumstances, it is unconscionable for Ms Turco to contend that the proceeds of sale are not subject to a charge: Re St George Bank [2011] NSWSC 730 [21] (Black J). There is a serious question to be tried that the fund to be paid to Ms Turco is subject to a constructive trust or charge securing the loan made by the plaintiff.
21 I am not persuaded that Ms Turco was enriched by the discharge of the Mortgage or that in the circumstances a principled ground of recovery exists which makes it unjust or unconscionable that Ms Turco should retain the enrichment. Furthermore, Ms Turco has an arguable defence of change of position.
22 The discharge of an obligation or the saving of an expense may be a relevant enrichment. However, Ms Turco has not been discharged from any obligation or saved any expense. The discharge of the Mortgage did not discharge Ms Turco's obligation to repay the Loan. The discharge of the Mortgage is an economic disadvantage to the plaintiff in that it removed the plaintiff's security over the Property. However, there was no relevant enrichment to Ms Turco.
23 If the elements of unjust enrichment are made out then Ms Turco has a defence on the ground of change of position. Upon the plaintiff discharging the Mortgage, Ms Turco executed a guarantee in favour of BankWest of Turco & Co Pty Ltd's debts and executed the BankWest Mortgage over the Property securing Turco & Co Pty Ltd's debts. A demand was subsequently made on Ms Turco by BankWest and proceedings were subsequently issued by BankWest. Those proceedings were subsequently compromised by the Deed of Release. Ms Turco acknowledged the BankWest Mortgage and the default, confirmed that the power of sale be exercised by BankWest and on settlement of the sale of the Property she would be paid a sum of money by BankWest, being half of the price obtained by BankWest less some provisions for costs.
24 In any event, upon registration of the discharge of the Mortgage the Property ceased to be charged with the money secured by the Mortgage: TLA s 123. This is the case where the registration of the discharge occurs through a mistake or inadvertence on the part of the registered mortgagee: State Bank of New South Wales v Berowra Waters Holdings Pty Ltd (1986) 4 NSWLR 398.
25 The proceeds of the sale will pass or have passed to BankWest free of any encumbrance or charge. Even if the Property was subject to a charge in favour of the plaintiff, when Ms Turco became aware that the Mortgage was discharged by mistake, that charge or encumbrance was discharged upon BankWest exercising its power of sale. The money which is to be paid by BankWest to Ms Turco pursuant to the Deed of Release is not a surplus resulting from the sale. Clause 3.2(2) of the Deed of Release provides that BankWest is entitled to sell the Property pursuant to its power of sale under the BankWest Mortgage. Clauses 3.2(3) to (10) and 3.3 of the deed provide that BankWest is to sell the Property pursuant to its power of sale. On its proper construction cl 3.2(11) provides that BankWest is to pay to Ms Turco 50% of the net proceeds of sale out of the net proceeds of sale received by BankWest. The money to be paid by Ms Turco is a payment to be made by BankWest in compromise of Ms Turco's claims against the bank. On the sale of the Property, pursuant to BankWest's power of sale, BankWest received or will receive the whole of the net proceeds of sale. The funds in the hands of BankWest were not subject to any charge or constructive trust in favour of the plaintiff.
26 On an application for an interlocutory injunction the court addresses itself to two main enquiries. The first is whether 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. The requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought: ABC v O'Neill (2006) 227 CLR 57 [65], [71] (Gummow & Hayne JJ).
27 The relief claimed by the plaintiff in this action is declaratory relief. The plaintiff has not commenced action to enforce the debt which it says Ms Turco owes to it under the Loan Agreement and in respect of which it claims a charge over part of the proceeds of the sale of the Property. I am not satisfied that the plaintiff has made out a case with the requisite strength of probability of ultimate success and hence the plaintiff has not made out a prima facie case that it has a proprietary claim to the money to be received by Ms Turco from BankWest on the sale of the Property.
Balance of convenience
28 The plaintiff's claim is ultimately a claim to a sum of money. The plaintiff may pursue its claim for any amount owing to it by Ms Turco under the Loan Agreement. The evidence is that Ms Turco intends to apply the money she receives from BankWest following the sale of the Property to pay outstanding legal fees, some small debts and to pay the balance into a bank account pending the purchase by her of a new house for herself and her daughter. There is no evidence of the amount of the outstanding legal fees or other small debts. If the defendant purchased another house, that would be an asset against which the plaintiff could execute any judgment it obtained in respect of the amount it says is owing to it by Ms Turco under the Loan Agreement. I am not persuaded that the balance of convenience is so strongly in favour of granting an injunction that it overcomes the relative lack of strength of the probability of the plaintiff ultimately succeeding in this action.
Freezing order
29 In the alternative to its claim for an interlocutory injunction based on its proprietary claim, the plaintiff claims a freezing order. The plaintiff says that it has a good arguable case because the Loan remains outstanding and the covenant to repay is unaffected by the discharge of the Mortgage.
30 I am not satisfied that the plaintiff has made out a good arguable case based on the covenant to repay in the Loan Agreement. The plaintiff has not commenced proceedings to enforce the covenant to repay in the Loan Agreement. In its written submissions the plaintiff said that Ms Turco is indebted to the plaintiff in a sum in excess of $633,000 payable subject to any notice required under the Consumer Credit Code. In oral submissions counsel for the plaintiff said that the plaintiff has not commenced proceedings to recover the debt because it has not issued notice required under the Consumer Credit Code. The plaintiff offered no explanation as to why notice under the Consumer Credit Code has not been given. Counsel did not identify the provisions of the Consumer Credit Code which require notice to be given, the conditions for giving the notice and whether or not there are any impediments to giving the notice. In those circumstances, I am not satisfied that the plaintiff has made out a good arguable case based on the covenant to repay in the Loan Agreement.
31 In any event it is not appropriate to grant a freezing order in the circumstances of this case. A freezing order may be obtained against a defendant to an action if there is no evidence of a positive intention to frustrate any judgment: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, 394. However, the jurisdiction cannot be invoked for the purpose of providing security to plaintiffs: Jackson v Stirling Industries Ltd (1987) 162 CLR 612, 619, 625. The purpose of the order is not to prevent a defendant paying his or her debts, living a normal life or defending himself or herself against the litigation: Riley McKay Pty Ltd v McKay (1982) 1 NSWLR 264, 276; Consolidated Practice Directions 9.6.1 [12].
32 In the absence of any proprietary claim, the plaintiff's claim for a freezing order is, in the circumstances of this case, nothing more than a means of providing security to the plaintiff. The power to make a freezing order is not exercised for that purpose. Furthermore, the evidence is that unless restrained from doing so Ms Turco will apply the money she received from BankWest following the sale of the Property to pay outstanding legal fees and other small debts and deposit the balance in a bank account pending the purchase of the new house for herself and her daughter. The purpose of a freezing order is not to prevent a defendant from paying her debts or using money in the ordinary course of her life and affairs.
Abuse of process
33 There are property settlement proceedings before the Family Court. The plaintiff was joined as a party to those proceedings by order of the Family Court upon Ms Turco's application on the basis that the plaintiff had claimed to be entitled to repayment of the loans it had advanced to the defendants. The plaintiff was represented in the Family Court when those orders were made.
34 Ms Turco says that it is vexatious and oppressive to commence a second action if an action is already pending with respect to the matter in issue: Henry v Henry (1996) 185 CLR 571, 590. Ms Turco further says that the plaintiff is forum shopping and that is evidenced by the fact that the plaintiff seeks only declaratory relief in these proceedings.
35 The plaintiff says that it has brought this application in this court because there is doubt whether the Family Court has jurisdiction to make the order sought in this action. That, counsel submits, depends upon whether it is part of 'the matter' before the Family Court. Counsel for the plaintiff submits that even if the plaintiff is wrong and the Family Court has jurisdiction to make the orders sought on this application, the fact that there is doubt, which is not spurious or contrived, prevents the application from being vexatious or oppressive.
36 I find it unnecessary to determine this point because I have found that the plaintiff's application should in any event be dismissed.
Conclusion
37 The plaintiff's application for an interlocutory injunction, or alternatively a freezing order, will be dismissed.
0
10
2