Parist Holdings Pty Ltd v Perpetual Nominees Ltd

[2006] NSWSC 599

Reported Decision: (2006) NSW ConvR 56-161

New South Wales

Supreme Court

CITATION:	Parist Holdings Pty Ltd v Perpetual Nominees Ltd [2006] NSWSC 599
HEARING DATE(S):	17 and 18 May 2006
JUDGMENT DATE :	18 May 2006
JURISDICTION:	Equity
JUDGMENT OF:	Hamilton J
DECISION:	Application for injunction to restrain exercise of power of sale under mortgage refused.
CATCHWORDS:	MORTGAGES [50] – Mortgages and charges generally – Remedies of mortgagee – In general – Injunction to restrain exercise of mortgagee’s powers – Necessity for offer of redemption and payment into court – Exceptions.
CASES CITED:	Australia and New Zealand Banking Group Limited v Bangadilly Pastoral Commercial Limited (1978) 139 CLR 195 Grose v St George Commercial Credit Union Limited (1991) NSW ConVR 55-586 Harvey v McWatters (1948) 49 SR (NSW) 173 Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 Notaras v Sly & Weigall [2005] NSWCA 235 Pendlebury v Colonial Mutual Life Assurance Society Limited (1912) 13 CLR 676 The Hon Justice John Bryson, Restraining Sales by Mortgagees and a Curial Myth (1993) 11 Aust Bar Rev 1 P W Butt, Note (1989) 63 ALJ 696 E L J Tyler, P W Young and Clyde Croft, Fisher and Lightwood’s Law of Mortgage (2nd Aust Ed, 2005) at [20.24] P W Young, A Mortgagor’s Right to Approach the Court (1993) 1 APLJ 61
PARTIES:	Parist Holdings Pty Limited (P) Perpetual Nominees Limited (D)
FILE NUMBER(S):	SC 2704/06
COUNSEL:	J S Drummond & H Woods (P) A J Sullivan QC & E C Muston (D)
SOLICITORS:	KB Legals Pty Ltd (P) Gray & Perkins (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

THURSDAY, 18 MAY 2006

2704/06 PARIST HOLDINGS PTY LIMITED v PERPETUAL NOMINEES LIMITED

JUDGMENT

1 HIS HONOUR: This has been a hard fought application by a mortgagor for injunctive relief to restrain the exercise of a power of sale under the mortgage by the mortgagee. The relevant facts may be shortly stated.

2 The land concerned is a substantial parcel or parcels of industrial land on the Kurnell peninsula.

3 The plaintiff is undoubtedly in default under the mortgage and owes a large sum, which is in excess of $20 million.

4 The plaintiff has been desperately trying to obtain a fresh loan, which would permit it to pay out the mortgage. The defendant has, in the meantime, been attempting to sell the property by a tender process and that process was still open when the matter was first before me. However, the situation is that the time for acceptance of the tenders has passed without the defendant accepting any of the tenders.

5 The tenders that were made are in evidence. They are a confidential exhibit. The disclosure of their contents is prohibited. Those contents are, however, known to counsel on both sides and to the Court.

6 As the matter has gone on, the possibility or immediacy of the plaintiff obtaining alternative finance has declined somewhat. The best that can now be said is that a decision as to whether BankWest, the proposed financier, is willing to make an offer of finance can now be expected in about 10 working days and that “the bank is not in a position to advise the likelihood of a positive outcome”.

7 There are disputes, arising from possible alternative bases as to the calculation of interest, as to what is owing under the mortgage. On the higher basis, what is owing is something over $22 million. On the lower basis, it is something over $20 million. The evidence is that, if a loan were obtained in the sum of $23,020,000.00 (apparently about a million dollars more than is now contemplated by BankWest), what would be available to refinance the existing debt would be $19,500,000 after a payment of 1,500,000 for civil works/consultants and $2,020,000 as a capitalised prepayment of interest.

8 Because of changing circumstances, which are to some degree reflected in what I have said above, the battle lines have swayed to and fro.

9 Two other facts that should be stated are that there is a valuation that indicates approximately $25 million as the value of the property, if sold in one line. There is evidence that if the property, which has been subdivided, is sold in more than one line, including perhaps sales of some individual lots, there could be a realisation of as much as $38 million. Furthermore, if more work were done, the ultimate realisation could go as high as $50 million.

10 The application for injunctive relief is pressed on me on three bases. The first is that, in so far as Harvey v McWatters (1948) 49 SR (NSW) 173 and Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 make payment of the amount outstanding under the mortgage a general requirement for injunctive relief to restrain an exercise of power of sale, that does not preclude relief where either there is “a demonstrable capacity to tender or secure or at least refinance” the amount undoubtedly due under the mortgage or the evidence shows that there have been reasonable efforts to obtain and a likelihood of obtaining funds which will permit the mortgage debt to be paid out in the reasonably near future.

11 Whether strict compliance with the rule in Harvey and Inglis is required is a matter of long standing and troubling doubt to Duty Judges in this Division of this Court, who in New South Wales are the judicial officers most likely to be called on to deal with injunction applications of this sort.

12 Whilst, as will appear from what follows, this is not the place to go into this matter in deep detail, I shall shortly outline the principal opposing contentions. To do this, I think it is useful to go back to what was actually said in Inglis, which is particularly significant since it is, in effect, the last word of the High Court on the subject matter.

13 That was a case where the Judge dealing with the injunction application was Walsh J, sitting as a single Justice of the High Court. His Honour said at 164 - 165:

“A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into court.

The rule, as it affects the exercise by a mortgagee of the power of sale, is stated in the following terms in Halsbury’s Laws of England, 3rd ed, vol 27, p 301:

‘The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor has commenced a redemption action, or because the mortgagor objects to the manner in which the sale is being arranged. He will be restrained, however, if the mortgagor pays the amount claimed into court, that is, the amount which the mortgagee swears to be due to him, unless, on the terms of the mortgage, the claim is excessive.’


………

In my opinion, the authorities which I have been able to examine establish that for the purposes of the application of the general rule to which I have referred, nothing short of actual payment is regarded as sufficient to extinguish a mortgage debt. If the debt has not been actually paid, the Court will not, at any rate as a general rule, interfere to deprive the mortgagee of the benefit of his security, except upon terms that an equivalent safeguard is provided to him, by means of the plaintiff bringing in an amount sufficient to meet what is claimed by the mortgagee to be due.

The benefit of having a security for a debt would be greatly diminished if the fact that a debtor has raised claims for damages against the mortgagee were allowed to prevent any enforcement of the security until after the litigation of those claims had been completed.”

14 His Honour’s decision became the subject of an appeal, which was heard by Barwick CJ, Menzies and Gibbs JJ. The very succinct view of that Full Court was expressed in the short judgment of Barwick CJ at 168 – 169, where his Honour, in effect, said that there was no reason to doubt the correctness of Walsh J’s decision or the reasons given by his Honour.

15 The generally recognised exceptions or modifications to the ordinary rule were more fully set out by Sugerman J in Harvey at 174, 176 as follows:

“… he concedes that the rule may not apply where the amount sworn to is obviously wrong, as in Hickson v Darlow (1883) 23 Ch D 690, or in a special case where some other principle cuts across it, as in Macleod v Jones (1883) 24 Ch D 289, but otherwise he submits that it is inflexible and that the present case, which he says is a mere dispute about the amount owing under the mortgage, is within it.

……

The rule in question, or at any rate a somewhat similar rule, is often referred to as ‘the ordinary rule’. The designation is particularly apt as it seems to me to be a rule which may be said to apply only in the ordinary case. And the ordinary case is, I think, one in which there is no question that default has been made and the power of sale is exercisable, but the only dispute is about the amount due under the mortgage, or the mortgagor desires to challenge the mode in which the mortgagee proposed to exercise his power.

……

The present does not appear to me to be such a case. The real dispute here is whether the power of sale is presently exercisable at all. The plaintiff’s claim is that she has already paid more than sufficient to satisfy the instalments which have already become due, upon the terms that it is to be set off in discharge of those instalments as they become due and that there is therefore no default. This claim is disputed and the £1,500 is said by the defendant to have been paid on another account. However, the real nature of the dispute is not what amount is payable, there being an undisputed default, but whether a case for the exercise of the power of sale has arisen at all.”

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.

24 As it turns out, I do not have to give my resolution of this dilemma in the present case. The reason for that is that, even if the more liberal test is adopted, there are two deficiencies in the evidence which the plaintiff has brought forward. The first is a lack of sufficient certainty as to whether or not Bank West is even going to make a refinancing offer. The second is that, whether it be thought that offer might, if and when it comes, will be in the sum of $23 million or $22 million, it will not, on the evidence, provide enough money to pay out the mortgage, even on the lower interest calculation which has been put forward.

25 In those circumstances, there could not be a restraint of the exercise of the power of sale on the ground of the likelihood of early redemption.

26 I turn then to the second head for injunctive relief. The second basis on which injunctive relief was claimed was that, whatever the general rule as to tender of the payment of the outstanding amount, it did not have application in circumstances where there was an allegation of breach of the mortgagee’s duty not to act unconscionably toward the mortgagor. In this regard it was said that, in this particular case, it should be established that a sale at an undervalue may amount to a breach of the mortgagee’s duty.

27 Before considering the application of the legal principles appropriate to the alleged breach of the mortgagee’s duty of this case, I should say something about the duty under which a mortgagee must approach the exercise of its power of sale. One statement of those principles made by a master of equitable jurisdiction was that by Jacobs J in Australia and New Zealand Banking Group Limited v Bangadilly Pastoral Commercial Limited (1978) 139 CLR 195 at 201.

28 To understand this and a later quotation from Bangadilly, it is important to note that it was conceded by counsel for the mortgagee that, because of the relationship between the mortgagee and the purchaser under the sale which had already been effected, the onus was on those supporting the sale to justify the exercise of the power of sale (at 197). Normally, if the bona fides of the mortgagee were challenged, the mortgagor would bear the onus of establishing the lack of bona fides.

29 Jacobs J said at 201 – 202:

“In my opinion the trial judge placed too much emphasis on a need for conscious planning, deceptiveness, collusion and underhand exercise of the power before he felt himself able to find that the sale lacked bona fides. It is true that bona fides in this connexion is not concerned with the motive for exercising the power of sale but, once the decision to sell has been made, it is concerned with a genuine primary desire to obtain for the mortgaged property the best price obtainable consistently with the right of a mortgagee to realize his security. At the same time the mortgagee is concerned with his own interests and not with the interests of the mortgagor or subsequent incumbrancers, and therefore a wide latitude has been allowed to him in his manner of exercising his power of sale. However, when there is a possible conflict between that desire and a desire that an associate should obtain the best possible bargain the facts must show that the desire to obtain the best price was given absolute preference over any desire that an associate should obtain a good bargain.”

30 It has been pressed upon me that the duty was more correctly expressed by Isaacs J in Pendlebury v Colonial Mutual Life Assurance Society Limited (1912) 13 CLR 676 at 701 -702. However, I do not think there is, for present purposes, any significant difference between the statements.

31 Mr Drummond, of counsel for the mortgagor, was specifically challenged by Mr Sullivan, of Queen’s Counsel for the mortgagee, at the end of the argument to state whether and in what way the mortgagee was acting in breach of its duties towards the mortgagor relating to the exercise of the power of sale. Thus challenged, after consideration, Mr Drummond specifically said that it was not alleged that the mortgagee was at present engaged in any conduct which would be a breach of its duty.

32 It has appeared to me that the plaintiff has differed from time to time during the course of the argument in the submissions it was putting in this regard. It is not entirely surprising, in view of the fact that, as I have already said, the matter has swayed to and fro and the factual substratum has changed during the conduct of the application.

33 I should add, however, that, on all the material available to me, I could not find that the mortgagee was threatening at the present time to sell the property at an undervalue. In this regard I should say at once, bearing in mind what was said by Jacobs J as quoted above, that the mortgagee was not under any duty to undergo additional risks and delay in selling the property otherwise than in one line, in order to maximise price, particularly if that involved, as it would in some of the circumstances advocated by the mortgagor, expenditure of considerable moneys by the mortgagee to carry out that process.

34 It is clear that no injunctive relief is justified under the second head.

35 That leads me to the third head of the submissions put on behalf of the plaintiff. Those were to the effect that there was an obligation on the mortgagee to provide to the mortgagor information concerning a proposed sale as a corollary of a right of the mortgagor to bring proceedings to restrain that sale, if it appeared that it would be in breach of the mortgagee’s duty.

36 This raises the question of whether or not the mortgagee is, generally or in this case, under a duty to reveal to the mortgagor the terms on which it proposes to enter into a sale of the property by private treaty. Concerning that matter, in general terms, it was said by Aickin J in Bangadilly supra at 229:

“It is no doubt true that a mortgagee is not normally under a specific obligation to inform the mortgagor, or those known to be claiming under him, of a proposed sale, apart from the general notice of default which is a prerequisite to exercise of the power of sale. Nonetheless failure to inform the mortgagor and persons known to be claiming under him may be a relevant matter. Personal irritation on the part of the mortgagee’s agent or being on bad terms with it and its solicitors is not an adequate explanation for such failure. All these are relevant factors in considering whether the onus of proving bona fides in the relevant sense has been discharged.”

37 The same subject matter was discussed in E L J Tyler, P W Young and Clyde Croft, Fisher and Lightwood’s Law of Mortgage (2nd Aust Ed, 2005) at [20.24].

38 Aickin J’s proposition is that, in general terms or ordinary circumstances, there is no obligation on a mortgagee to give a mortgagor notice of the terms of a particular proposed sale. That may be different in a case where, in the circumstances, the withholding of that information by itself or with other facts can be characterised as showing unconscionable conduct on the part of the mortgagee, perhaps, as in Bangadilly, in a case where evidence establishes that the mortgagee is colluding in some improper way with a prospective purchaser.

39 In my view there is no evidence in this case to deflect the general principle. It must also be borne in mind that the fact that a contract for sale has been entered into will, if the transaction be an improper one, not impede the mortgagor from seeking to have that transaction set aside by a Court of Equity.

40 That leads me to the last consideration. If there were any suggestion that the non communication of the fact and terms of a sale might, whether intentionally or not, impede a mortgagor in making an application to set aside a sale entered into or delay that application for a time disadvantageous to the mortgagor, then it may be that there should be injunctive relief to compel the prompt revelation of the contract.

41 In this case, the mortgagee has both dispelled the fear of any such thing occurring and precluded the need for further consideration of whether any injunctive relief would be merited, by undertaking to the Court that, upon the plaintiff’s application being otherwise dismissed, it will undertake to the Court that it will communicate to the mortgagor a copy of any contract entered into forthwith after the entry into of the contract.

42 Upon that basis, the conclusion that I reach upon this application is that the application should be dismissed.

43 As to costs, the usual result in the case of an unsuccessful interlocutory injunction application must follow, namely, that the plaintiff must pay the defendant’s costs of the application.

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