National Australia Bank Ltd v Allesandro Zollo and Iolanda Zollo No. SCGRG 93/1794 Judgment No. 4988 Number of Pages 10 Equity (1995) 64 Sasr 63

[1995] SASC 4988

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA KING CJ(2), MATHESON(1) and MILLHOUSE(3) JJ

CWDS
Equity - Interlocutory injunction - bank sues for money owed on loan accounts secured by mortgages - liability under mortgages disputed - Bank's claim soon to be heard with two other actions involving the parties - Bank appoints receiver of income pursuant to mortgages - whether orders suspending the appointment and restraining the Bank from revoking the suspension should have been made - Bank conceding that there was a serious question to be tried - balance of convenience in favour of orders made. Law of Property Act, 1936s 53(5). Inglis and Anor v Commonwealth Trading Bank of Australia (1972) 126 CLR
161; Glandore Pty Ltd and Ors v Elders Finance and Investment Co Ltd (1984) 4 FCR 130; Harvey v McWatters (1948) 49 SR (NSW) 173; Andreas and Angelatos and Ors v National Australia Bank (1994) ATPR 41-333; Mainbanner Pty Ltd and Ors v Dadincroft Pty Ltd and Ors (1988) ATPR 40-896; Graham and Ors v Commonwealth Bank of Australia (1988) ATPR 40-908; Canada Permanent Trust Co v Welton
(1973) 33 DLR (3d) 417; Argyle Art Centre v Argyle Bond and Free Stores (1976) 1 NSWLR 377; Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148; Meagher Gummow and Lehane 'Equity Doctrines and Remedies' 3rd Ed and Cayne v Global Natural Resources PLC (1984) 1 All ER 225, considered.

HRNG ADELAIDE, 8 April 1995 #DATE 2:3:1995 #ADD 1:5:1995

Counsel for appellant:     Mr N J T Swan with him
   Mr A J Crossman

Solicitors for appellant:    Finlaysons

Counsel for respondent     Mr W J N Wells QC Allesandro Zollo:             with him Mr G W Dart

Solicitors for respondent: Ward and Partners

Counsel for respondent     Mr R F A Wills Iolanda Zollo:

Solicitors for respondent    Moody Rossi and Co Iolanda Zollo:

ORDER
Appeal dismissed.

JUDGE1 MATHESON J In this action the appellant claims from the respondents monies said to be owing to it on an instalment loan account, on a personal loan account and on a current account. As at the date of the hearing before this court, the sum alleged to be owing was $800,000 (including interest) with further interest accruing at the rate of $221.73 per day. The respondents do not dispute the appellant's allegations that they have not made any payments since 3 August, 1990. In addition, and in the same action, the appellant claims possession of three properties owned by the respondents, and comprised in three certificates of title over which the appellant has registered mortgages. The respondents have filed separate defences and counterclaims, both alleging inter alia breach of fiduciary duty by the appellant, while the second respondent does not admit that she signed the mortgages, and pleads additional defences.

2. On 27 June, 1994, the respondent appointed Bruce James Carter pursuant to the mortgages "until such appointment is revoked by the mortgagee or otherwise terminated to be the receiver of the income of (the) mortgaged propert(ies) and exercise all or any of the powers conferred upon him by the terms of the said mortgage(s) or contained in the Real Property Act, 1886 and the Law of Property Act, 1936."

3. On 28 June, 1994, the respondents applied for an order setting aside the appointment of the receiver. On 7 July, 1994, Prior J made the following orders:
    "... the defendants (now the respondents) by their counsel
    undertaking to abide by any order the Court or Judge may make as
    to damages in the case the Court or a Judge should hereafter be
    of the opinion that the plaintiff (now the appellant) shall have
    sustained any by reason of this order which the defendants ought
    to pay IT IS ORDERED AND DIRECTED:-

1. That the plaintiff forthwith execute and serve upon the
    receiver, Bruce James Carter, an instrument having the effect of
    suspending the appointment by the plaintiff pursuant to the
    powers under registered Memoranda of Mortgage No. 5030265,
    4631949 and 5261440 of a Receiver of the income of the mortgaged
    property being the property comprised and described in
    Certificate of Title Register Book Volume 2563 Folio 198, Volume
    1820 Folio 100 and Volume 2008 Folio 183.

2. That subject to paragraph 3 hereof until further order
    the plaintiff be, and is hereby restrained, whether by itself,
    its servants agents or otherwise, from revoking the suspension
    effected in accordance with paragraph 1 hereof.

3. That the plaintiff forthwith serve, or cause the said
    receiver to serve, upon each and every tenant to whom a Notice
    of Appointment has been sent, a further Notice in a form to be
    agreed between the parties, or in default of agreement to be
    settled by this court, advising the recipient of the terms and
    effect of this Order and in particular that until further order
    the defendants are the proper persons to whom to pay the rent
    reserved under their leases/tenancy agreements with the
    defendants.

4. That the plaintiff be restrained from exercising its
    power to further appointment of a Receiver of the income of
    the mortgaged properties.

5. That the question of costs be reserved.

AND further consideration of the application adjourned.

AND the parties may be at liberty to apply."

4. The appellant now seeks an order setting aside those orders, and seeks an order that the income from the mortgaged properties be paid into Court.

5. It is convenient to mention here that the respondents are involved in two other actions in this Court in which the appellant is also a party. In Action No. 1026 of 1993, the respondent Alessandro Zollo, (who is a builder and who suffered an injury on 4 June, 1990 allegedly rendering him permanently unfit and unable to work as a builder), claims he is entitled to the benefit of insurance under an insurance agreement and an agreement to procure insurance. In Action No. 2031 of 1990, the respondents are suing the appellant for damages for breach of an agreement to provide banking accommodation. In that Action, they already have a judgment in their favour, but damages have not yet been assessed.

6. It is also convenient to mention here that on 6 February, 1995 Bollen J made the following order:
    "1. That the insurance action 1026/93 be heard as the
    first action in March.

2. That the possession action 1794/93 be the next action
    to be heard in March.

3. That the breach of contract action 2031/90 be heard
    immediately following the other actions."

7. Mr. Swan, counsel for the appellant, referred to a number of cases starting with Inglis and Anor v Commonwealth Trading Bank of Australia (1972) 126 CLR l61, where the High Court upheld the refusal of Walsh J to grant an interlocutory injunction. At p169, Barwick CJ said (Menzies and Gibbs JJ concurring):
    "The case falls fairly, in my opinion, within the general
    rule applicable when it is sought to restrain the exercise
    by a mortgagee of his rights under the mortgage instrument.
    Failing payment into court of the amount sworn by the
    mortgagee as due and owing under the mortgage, no restraint
    should be placed by order upon the exercise of the
    respondent mortgagee's rights under the mortgage."

8. Mr. Swan then referred to the judgment of Morling J in Glandore Pty Ltd and Ors v Elders Finance and Investment Co Ltd (1984) 4 FCR 130. His Honour pointed out that Inglis' case was not a case in which the mortgagor sought to impugn the validity of the mortgage transaction itself. He then referred to the decision of Sugerman J in Harvey v McWatters (1948) 49 SR (NSW) 173 and said at p134:
    "It was held in Harvey v McWatters that where a mortgagor
    seeks an interlocutory injunction to restrain his mortgagee from
    selling, there is a distinction with respect to the terms that
    will be imposed as to payment into court between the case in
    which the power of sale is admittedly exercisable and the only
    dispute is as to the amount due or the mode in which the
    mortgagee proposes to exercise the power, and the case in which
    the very matter in dispute is whether the power of sale is
    exercisable at all. Sugerman J held that, in the first case,
    the general rule is that the mortgagor will be required to pay
    into court the amount demanded by the mortgagee, unless it
    appears from the terms of the mortgage that the amount claimed
    by the mortgagee is wrong. He further held that in the second
    class of case, the amount which would be ordered to be paid into
    court is not necessarily the whole amount claimed or appearing
    to be due under the terms of the mortgage, and in such a case
    the terms as to payment into court that are imposed upon the
    mortgagor may be moulded as to require payment in of so much
    only as will suffice to give adequate protection to the
    mortgagee."

9. Later at pp135-136, Morling J said:
    "I do not think that the present case is a case of the kind
    to which the general principle in Inglis' case applies. It
    falls more easily into the second class of case discussed by
    Sugerman J in Harvey v McWatters. This being so I am not
    constrained by authority to require the applicants to pay into
    court the whole amount of the mortgage debt as a condition of
    obtaining interlocutory relief. Rather I think the proper
    approach is to mould an order so as to ensure adequate
    protection to the mortgagee and to otherwise do justice between
    the parties during the period pending the final hearing.

Having regard to the fact that the value of the security held by
    Elders (at Elders' own valuation) is more than double the amount
    of the mortgage debt it is difficult to see how any prejudice
    will be suffered by Elders by the granting of interlocutory
    relief, provided the final hearing is not unduly delayed.
    During the course of the argument it was agreed that the parties
    could be ready for a final hearing with three months. There is
    no suggestion that the secured property is falling in value and
    in those circumstances I do not think the applicants should be
    required to pay any part of the principal debt into court
    pending the final hearing.

However it is not right that Glandore should have the use of
    the respondent's money without paying interest on it. There is
    already an amount of $307,000 unpaid interest and expenses owing
    to Elders and this must be paid as a term of the grant of
    interlocutory relief. Moreover, the unpaid interest must be
    paid to Elders, and not into court. This will ensure that
    Elders has the use of the money pending the hearing, and will
    reduce the amount of its mortgage debt to about $1.5 million,
    for which it will have security in excess of $4 million.
    Because Elders does not appear to have any immediate plans for
    the sale of 'Oonavale' and as the applicants will want some time
    to raise the $307,000 to pay Elders I propose to give them until
    14 January 1985 to pay the unpaid interest and expenses."

10. Next Mr. Swan referred to Andreas and Angelatos and Ors v National Australia Bank (1994) ATPR 41-333. At p42-404, Branson J said:
    "As Hedigan J stated in Nicholas John Holdings Pty Ltd v ANZ
Banking Group (1992) 2 VR 715 the principle referred to in
    Inglis' Case 'has caused judicial uneasiness from time to time'.
    In Contractor Services Pty Ltd v Esanda Finance Corporation Ltd
(1990) ATPR 41-020 at p.51,355 French J stated:-

'The full impact of that (Inglis) condition has been
    mitigated in cases where the claim is said to go to the root of
    the mortgagee's title, including the case in which relief is
sought under s.87 of the Trade Practices Act 1974 to vary or set
    aside the mortgage.'

See also Graham v Commonwealth Bank of Australia (1988) ATPR
    40-908; Glandore v Elders Finance and Investment Co Ltd (1984) 4
FCR 130 and Harvey v McWalters(sic) (1948) 49 SR (NSW) 173.

I accept the submission made on behalf of the applicants
    that I have a discretion in the circumstances of this case not
    to insist upon payment of the amount of the alleged debt into
    court as a condition of any grant of any injunction in the terms
    sought. In my view the circumstances of the case render it
    appropriate for such payment not to be insisted upon. The
    amount of the debt is large but the respondent holds security
    not suggested to be inadequate for its payment. So far as the
    applicants are concerned, their case is that they may not be
    called upon to pay the debt until some time early next century.
    They invoke the jurisdiction of the Court to make orders to
    prevent or reduce the loss or damage suffered or likely to be
    suffered by them by the conduct of the respondent which they
    seek to characterise as misleading or deceptive. The capacity
    of the Court to do so should they make out the case pleaded by
    them is likely to be hampered should their circumstances have
    been significantly altered in the meantime as a consequence of
    the need to raise A$7,700,000 for payment into court.

It follows that I do not accept the submission that as a
    matter of law I am unable to grant the interlocutory relief
    claimed in this matter. I turn to consider the two submissions
    advanced on behalf of the respondent that in the exercise of my
    discretion I should refuse the relief sought."

11. In Mainbanner Pty Ltd and Ors v Dadincroft Pty Ltd and Ors (1988) ATPR
40-896 in the course of referring to the judicial tendency to relax the requirements of the rule that a mortgagee will not be restrained from exercising its security rights at the incidence of the mortgagor unless the amount, if it be disputed, is paid into court, Pincus J in the Federal Court agreed that he had some discretion to relax the requirements of the rule. However, at p49,663 he said:
    "In my opinion, it would, in general, not be correct to
    exercise that discretion in favour of an applicant in a case
    such as this, merely on its being shown that there is a
    prospect, however modest, of success of an allegation of oral
    misrepresentation. If that were so, the rule would be, in
    effect, reversed, and would be that where misrepresentation is
    alleged in such a way that one could not deny the seriousness of
    the question to be tried, and the applicant claims rescission,
    prima facie the contract the mortgagor and mortgagee have made
    must be suspended.

It seems to me that the adoption of any such principle would
    be, in the long run, pernicious, because it would tend to
    destroy or weaken people's confidence in such bargains and in
    the rights of holders of security."

12. The last of the cases referred to by Mr. Swan that I wish to mention is Graham and Ors v Commonwealth Bank of Australia (1988) ATPR 40-908. At p49,758, French J said:
    "The Court is concerned here, of course, with the exercise
    of a discretion and it is always a dangerous course to extract
    from earlier decisions exercising that discretion on particular
    facts any general principles purporting to fetter its exercise.
    That is not to say, and should not be taken to imply, that the
    observations of Pincus J. on the importance of confidence in
    bargains does not expose a significant and relevant factor which
    will in most cases be given considerable weight. But in the
    end, each case is to be judged on its own facts."

13. Mr. Swan conceded that in none of the cases to which he referred was it shown that a party would be unable to continue the litigation unless the order sought was made.

14. In the course of his reasons in the case under appeal, Prior J said:
    " A basis for the application now being sought was that this
    Court should not permit the plaintiff to take action outside of
    the Court inconsistent with adjudication by the Court of matters
    at issue before it.

Counsel for the defendants relied upon an extempore judgment
    in the Ontario High Court: Canada Permanent Trust Co v Welton
(1973) 33 DLR (3d) 417. In an action for possession of
    mortgaged lands and for payment due under a covenant, the
    plaintiffs elected to proceed under a power of sale under the
    mortgage. The defendant sought an order restraining the
    plaintiffs from proceeding with the sale under the mortgage.
    Zeber J said that whether the default under the mortgage
    occurred or whether relief against forfeiture should be granted
    were matters for the trial, the question for him being whether
    the plaintiffs should be allowed to proceed with a power of sale
    outside the ambit of the action. It was his view that they
    should not. He said, at 418:-

"The plaintiffs come to this Court seeking certain relief,
    the possession of land and the payment of the funds. Clearly if
    the funds were paid in response to this writ they would have to
    then surrender the security back to the defendant. At the same
    time, the plaintiffs are seeking to sell the mortgage premises
    which, to my mind, almost negatives what they are doing in the
    action. They were then clearly, having sold the land, in a
    position where they could not restore the security of the
    defendant. In my view, the plaintiffs, having submitted their
    rights to this Court, should not be allowed to then step outside
    the ambit of this action and attempt to enforce their rights in
    a different way, especially in view of the fact that there
    appears to be a triable issue here.'

An injunction issued upon the Judge's view that it was not
    fair and equitable to allow the plaintiffs to exercise a power
    concurrently with an attempt to enforce rights by way of action
    in the Court. Counsel also referred to Argyle Art Centre v
Argyle Bond and Free Stores (1976) 1 NSWLR 377 at 383, 384 and
    386. It was contended that in this case the appointment of the
    receiver of income was calculated to interfere with the course
    of justice in these proceedings. It was put that the Bank had
    made an election to pursue a court remedy by way of an action
    for possession and in the alternative, for the appointment of a
    receiver. Whilst the action is pending in this Court, it is
    submitted that the exercise of powers outside the Court,
    calculated to interfere with the determination of the issues in
    the case, is open to restraint by proper order of the Court. It
    is also put that a further factor of aggravation in this case
    justifying the grant of some order in restraint is that the
    Bank's action is likely to render extremely difficult the
    abilities of the defendants to respond to the proceedings."

15. Prior J did not state whether or not he accepted the argument based on the Canada Permanent Trust Co and Argyle Art Centre cases. Because of what I say later in these reasons, it is not strictly necessary for me to comment on the argument, but at present I am inclined to the view that the cases upon which the argument is based are distinguishable. This is not a case like Canada Permanent Trust Co where the appellant is seeking to exercise its power of sale under the mortgages. And the Argyle Art Centre case was a landlord and tenant case in which the head-tenant had given notice to quit to a sub-tenant and issued a summons for ejectment. During an adjournment of the court hearing on the summons, the head-tenant broke into the premises and was engaged in clearing the sub-tenant's property out of them. In those circumstances I can understand the decision of Needham J to hold that an election to proceed curially excluded the right to proceed physically. Further, it was not correct of counsel for the respondents to put to Prior J (if he did) that "the bank had made an election to pursue a court remedy by way of an action for possession and in the alternative, for the appointment of a receiver".

16. I am not sure about the precise reason for his Honour's orders. Perhaps it is to be contained in this passage towards the end of his judgment. He says:

    "With respect to a further submission that the plaintiff's
    action is not inconsistent with the issues before the Court I
    incline to the view that, in fact, to permit the Receiver to
    take and retain monies is to assume issues in favour of the
    plaintiffs. On that ground I think some order must now be
    made."

17. In an affidavit filed on behalf of the respondents and sworn on 28 June, 1994, James Michael Cudmore deposed inter alia:
    "4. The land comprised in Certificate of Title Register
    Book Volume 2563 Folio 198 known as 3 Ravendale Road Port
    Lincoln (being one of the three properties, supra) is a property
    on which is situated 10 rental flats each of which are tenanted
    for a rental of between $85.00 and $100.00 per week each. I am
    informed by Mr Zollo and verily believe that this is his
    principal source of income.

5. I am informed by Mr Zollo and verily believe that it
    will be impossible to defend the within proceedings and also to
    prosecute his proceedings against the Bank in action number 1026
    of 1993 if the income from his rental properties are not
    available to him."

18. In his reasons, Prior J said:
    " In support of the application the defendants refer to the
    fact that income on ten rental flats amounts to a sum between
    $850 and $1,000 per week, that sum being required to defend
    these proceedings and prosecute the third matter which seeks an
    indemnity from the Bank pursuant to a contract of mortgage
    insurance. There is evidence before the Court of the
    impecuniosity of the defendants. An affidavit from the
    solicitor for the first defendant says that he believes it will
    be impossible to defend these proceedings and also to prosecute
    the other if the income from the rental properties is not
    available to the defendant."

19. Although his Honour did not actually state whether he took into account the respondent's alleged impecuniosity, it was referred to by him in his reasons, (as I have indicated), and it was certainly referred to frequently in the course of the argument before him. Counsel before this Court took different stances on its relevance, and after hearing argument, the court admitted two further affidavits of Anthony John Crossman, a solicitor employed by Finlaysons, solicitors for the appellant, one sworn on 5 December, 1994 and the other sworn on 7 February, 1995. The affidavits were admitted on the basis that they contained fresh evidence as to the financial position of the respondents as a result of discovery taking place after the judgment under appeal. The court also admitted an affidavit of the respondent Alessandro Zollo sworn on 20 December, 1994. The financial position of the respondents as revealed by the additional affidavit material is not entirely clear because discovery was incomplete, but it appears that the respondent is receiving $541.26 net per week from Workcover. However, he supports a wife and three children aged between twelve and sixteen years of age all living at home and attending secondary school. He also deposed:
    "I have had my accountant Mr Cunningham prepare a summary of
    income from the rental flats, rental homes and the rental shops
    for the 1993/94 financial year. It shows rental income of
    $31,097.00 and expenses of $30,738.00. It is to the best of my
    information and belief a true and accurate summary of the income
    and expenses from the rental properties ..."

20. Later he deposed:
    "There are currently three Supreme Court Actions between
    myself and the bank. I am informed by my solicitors and verily
    believe that each of the actions will proceed to trial early in
    1995. If the income from rental flats and rental homes is paid
    into Court I will not have funds to defend the within
    proceedings or to prosecute actions No. 2031 of 1990 and 1026 of
    1993 in which I am a plaintiff."

21. It is necessary to remind oneself of the principles governing the grant or refusal of interlocutory injunctions. In Castlemaine Tooheys Limited v South Australia (1986) 161 CLR 148, Mason ACJ (as he then was) said at p153:
    "In order to secure such an injunction the plaintiff must
    show (1) that there is a serious question to be tried ... (2)
    that he will suffer irreparable injury for which damages will
    not be an adequate compensation unless an injunction is granted;
    and (3) that the balance of convenience favours the granting of
    an injunction."

22. It is true that these principles do not apply in relation to paragraph 1 of the order (supra), but paragraph 1 would not be of any real worth without the injunction in paragraph 2. Prior J did not in terms refer to the principles, but he did not have to do so, and I am not persuaded that he overlooked them.

23. Mr. Swan conceded there was "a serious question to be tried" and that there was jurisdiction to make the orders. It is clear that if the respondents are unable to defend or prosecute the respective actions, they will lose absolutely everything and will have no claim for damages.

24. The phrase "balance of convenience" is not a very apt one. In the 3rd Edition of "Equity Doctrines and Remedies" by Meagher, Gummow and Lehane, the learned authors say at p597:
    "What is meant by saying that the court must take into
    account the balance of convenience and the question of hardship
    is that it must consider carefully what effects the granting of
    an injunction will have on both parties, and in particular
    whether to grant one would cause hardship to the defendant or to
    refuse one would cause hardship to the plaintiff. It is not
    difficult to imagine circumstances in which the granting of an
    interlocutory injunction would cause a defendant no hardship
    whatever, eg an injunction restraining a defendant from
    whistling in the street in such a manner as to constitute a
    nuisance to the plaintiff. On the other hand, in some
    circumstances an injunction could cause grave hardship: it
    could involve the suspension of a defendant's business. The
    greater the hardship to the defendant, the greater the
    reluctance of the court to grant the injunction; but, the more
    it is apparent that an equal of further hardship would be caused
    to the plaintiff by refusing an injunction, or the stronger a
    plaintiff's case appears, the more that reluctance will be
    dissipated: Beese v Woodhouse (1970) l All ER 769."

25. I also refer to the judgment of May LJ in Cayne v Global Natural Resources plc (1984) l All ER 225. At p237, his Lordship said:
    "It is only thereafter, if damages after a trial are thought
    to be inadequate, that one is then enjoined to look at what is
    described as the 'balance of convenience'. That is the phrase
    which, of course, is always used in this type of application.
    It is, if I may say so, a useful shorthand, but in truth, and as
    Lord Diplock himself made clear in the NWL case, the balance
    that one is seeking to make is more fundamental, more weighty,
    than mere 'convenience'. I think that it is quite clear from
    both cases that, although the phrase may well be substantially
    less elegant, the 'balance of the risk of doing an injustice'
    better describes the process involved. Again, I need only refer
    to a very brief passage from the speech of Lord Diplock in the
NWL case (1979) 3 All ER 614 at 625, (1979) l WLR 1294 at
    1306."

26. Mr. Swan strongly relied on the respondents' failure to make any payments at all since 3 August, 1990, and on what he called the inadequacy of the appellant's security. The mortgage debt now exceeds $800,000. There was affidavit evidence that the total value of the three properties in September 1990 was only $600,000. Mr. Carter inspected them on 27 June, 1994, and said they were not being properly maintained and were run down. The Valuer General valued them at 27 May, 1994 at $530,000. Mr. Swan also argued that the respondents' undertaking as to damages was of little or no value.

27. Whilst I acknowledge the strength of these arguments, I have reached the conclusion that they are outweighed by the respondents' argument that they would not be able to litigate if the order was not made, an argument that gains strength when one considers that the rents payable between the date of the order and the date of the forthcoming trial would amount to a relatively insignificant sum in relation to the alleged debt. It is true that the appellant now wants the rents to be paid into court, but such payments would have the same practical effect as payments to the appellant. It must also be remembered that the respondent Alessandro Zollo has been on Workers Compensation since 4 June, 1990.

28. Section 53(5) of the Law of Property Act, 1936 states:
    "(5) The receiver may be removed, and a new receiver may be
    appointed, from time to time by the mortgagee by writing
    under his hand."

29. It may be that the learned Judge's use of the words "suspending" and "suspension" was inappropriate. The mortgages are not before us. I would dismiss the appeal, but I would hear counsel as to whether some minor amendments should be made to the wording of the orders.

JUDGE2 KING CJ I concur.

JUDGE3 MILLHOUSE J I agree.