Permanent Custodians Ltd v Ginos Holdings Pty Ltd No. SCGRG 93/57 Judgment No. 3954 Number of Pages 5 Mortgages

[1993] SASC 3954

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA BURLEY J

CWDS
Mortgages - Application by mortgagee for possession of mortgaged property - validity of mortgage not in dispute - mortgage debt unpaid - no offer to redeem - whether tender of performance by mortgagor - whether actionable loss incurred by mortgagor as a result of mortgagee's failure to settle - whether defendant mortgagor has established an arguable basis for deferral of possession order Adams v Bank of NSW (1984) NSWLR 285 and Tannock v North Qld Securities Ltd (1932) QSR 285, applied. Moonta Corporation v Rodgers (1980) 26 SASR 143, considered.

HRNG ADELAIDE, 19 April 1993 #DATE 13:5:1993
Counsel for appellant:     Mr R Whitington with
   Mr D Proudman
Solicitors for appellant:    Thomsons
Counsel for respondent:     Mr P Alexander
Solicitors for respondent: Low and Partners

ORDER
Defendants should be required to give up possession of the property.

JUDGE1 BURLEY J By summons issued pursuant to the provisions of Part XVII of the Real Property Act 1886 the plaintiff seeks an order for possession of land and premises at 11 Fitzroy Terrace Fitzroy. The plaintiff seeks the order pursuant to memorandum of mortgage number 6531472 (the mortgage). The plaintiff alleges that the defendant is in breach of the mortgage having failed to pay the amount of the secured debt by the due date. It is not in dispute that the defendant has not paid the amount of the secured debt to the plaintiff. The validity of the mortgage is not in dispute. However, the defendant contends that because of the action or inaction of the plaintiff, an actionable loss has been sustained by the defendant which must be offset against any amount due under the mortgage. Mr. Alexander, the defendant's counsel, contended that I should give a direction that pleadings be filed in this matter to enable those issues to be determined, after trial, in this action. The plaintiff contends that none of the affidavit material relied upon or submissions put by the defendant lead to the conclusion that the making of a possession order ought to be deferred. 2. The defendant contends that the order for possession ought to be deferred pending a direction that pleadings be filed on the summons in accordance with such cases as Moonta Corporation v. Rodgers (1980) 26 SASR 143 and (1981) 55 ALJR 910 on appeal to the High Court. The contention requires a consideration of a number of points: first, whether the plaintiff has established in a summary way that it is entitled to an order for possession; second, whether the defendant has established an arguable case that there is some ground of defence; and third, if the defendant has established an arguable ground, what directions need to be given or conditions imposed on the deferral of the order for possession. In that regard, in cases involving a right to possession under a mortgage, authorities such as Inglis v Commonwealth Bank (1972) 126 CLR 161 and Harvey v McWatters (1948) 49 SR (NSW) 173 may need to be considered. 3. As to the first matter, it was common ground that if the affidavit material of the plaintiff is taken in isolation, a proper basis for an order for possession had been established, namely that the plaintiff holds security for an unpaid debt, one of the terms of which is that, where the defendant is in breach of its obligation to repay its debt, the plaintiff is entitled to take possession and to proceed to a mortgagee sale. As I have said the validity of the mortgage is not in question nor does the defendant dispute that it has not repaid the amount due under the mortgage. The defendant's dispute is confined to the amount recoverable by the plaintiff under the mortgage in circumstances where the defendant acknowledges it would need to obtain further finance to discharge the mortgage debt and that that it would take some time to arrange such finance if indeed it were to become available. Accordingly I am satisfied that the plaintiff is entitled to an order for possession unless the defendant is able to satisfy me that it has an arguable basis for opposing the order sought. Factually the defendant's case is that in about May 1992 Mr. Zisis Ginos, a director of the defendant, entered into negotiations with the plaintiff in relation to the transfer of the mortgage from the plaintiff to a company called Kyros Holdings Pty. Ltd. On 29th May Mr. Ginos informed the defendant's solicitors that the plaintiff had agreed to such a transfer and requested them to prepare the necessary documentation. Settlement, according to the defendant, was scheduled for 26th June 1992 but it is asserted that the plaintiff failed to complete on that day. In July and August correspondence was exchanged between the respective solicitors for the parties with regard to fixing a further settlement time. The defendant stressed to the plaintiff that the finance required from Kyros Holdings Pty. Ltd. to effect the transfer of the mortgage was not available indefinitely and that if the plaintiff did not settle on the transfer of the mortgage the defendant would lose the opportunity of obtaining such finance. It is apparent from the affidavit of Mr. Ginos that the defendant wished to settle by no later than 6th August. However, the plaintiff did not settle on that day. Approximately two weeks later the plaintiff advised that it would settle on the transfer of the mortgage but by then the defendant had lost the opportunity of obtaining the necessary finance from Kyros Holdings Pty. Ltd. 4. There has been no tender of performance by the defendant in respect of discharge of the mortgage since that time. The defendant is now unable to discharge the mortgage, either by tender of the amount due on 6th August 1992 or the amount presently claimed by the plaintiff. Counsel for the defendant during the hearing informed me that the defendant would need three or four months to arrange the necessary finance if the same were made available to it. It is not clear from the defendant's submissions that the defendant relies upon the events of August 1992 as constituting an actual tender of the amounts due under the mortgage. In any event, that an effective tender was made is disputed by the plaintiff. On the facts put to me from the bar table, without opposition, by Mr. Whitington counsel for the plaintiff, I am not satisfied that the defendant has demonstrated an arguable case that there was an effective tender. Mr. Whitington informed me that by letter from the defendant's solicitors to the plaintiff, the transfer of the mortgage to Kyros Holdings Pty. Ltd. was subject to conditions, one of which included a release of the defendant from obligations as a guarantor in respect of moneys advanced to a company called Archer-Boulton Pty. Ltd. The defendant has not answered this aspect of the plaintiff's case and accordingly I cannot be satisfied that an arguable case has been established by the defendant that there has been an effective tender. In any event, even if there had been an effective tender, that fact alone does not preclude the plaintiff from enforcing the mortgage by exercising a power of sale, although it may be relevant to the question of amount required to satisfy the mortgage debt upon a mortgagee sale or the amount to be paid by the defendant to redeem the mortgage prior to a mortgagee sale. 5. The defendant contended that as a result of the plaintiff's failure to settle on the proposed transfer of the mortgage to Kyros Holdings Pty. Ltd. it suffered an actionable loss which ought to be offset against the mortgage debt. It was argued that that was a matter which should be determined at trial before an order was made entitling the plaintiff to take possession of the mortgage property. In essence Mr. Alexander argued that since 6th August 1992, had the plaintiff settled as requested, the defendant would have been liable for a lesser interest rate to Kyros Holdings on the amount of the security and that costs had been incurred in attempting to obtain finance from Kyros Holdings Pty. Ltd. which, in light of the plaintiff's failure to settle as requested had been wasted. In addition Mr. Alexander drew my attention to the fact that part of the proposed transfer of the mortgage to Kyros Holdings Pty. Ltd. involved Kyros Holdings taking a second mortgage on a property owned by the defendant at Lonsdale. The first mortgage on that property was held by Elders Finance Pty. Ltd. It appears that Elders exercised its rights under the security it held and proceeded to a mortgagee sale of the Lonsdale Property. There was a surplus on the mortgagee sale which Elders appropriated, not in relation to debts owed to it by the defendant but in respect of debts owed to Elders by a company or companies associated with the defendant. Mr. Alexander argued that, had the proposed transfer of the mortgage the subject of these proceedings been implemented, there would have been registered prior to the mortgagee sale of the Lonsdale property a second mortgage in favour of Kyros Holdings whereby the indebtedness of the defendants to Kyros Holdings Pty. Ltd. would have been reduced to the extent that the mortgagee sale of the Lonsdale property realised a surplus after payment of Elders. 6. It follows from Mr. Alexander's submissions the losses allegedly sustained by the defendant as a result of the plaintiff's failure to settle in August 1992 fall broadly into two categories: first, interest and finance expenses and second, the loss to the defendant arising from the disbursement of the proceeds of sale by Elders Finance after the mortgagee sale of that property. As to the first category of loss, I consider that the defendant has established an arguable case that it may be able to offset against the amount claimed by the plaintiff the difference between the interest payable by the defendant to the plaintiff under the mortgage and the interest that would have been payable had the defendant been able to avail itself of the finance offered by Kyros Holding Pty. Ltd. In addition, it seems arguable that at least some of the costs associated with obtaining finance from Kyros Holdings may be able to be offset against the plaintiff's claimed debt. Whilst the defendant's position in this regard is arguable, it is by no means clear. It may well be that at the end of the day the plaintiff is able to establish that none of its actions (or inaction) gives the defendant the right in law or in equity to offset the amounts claimed by the defendant against the mortgage debt. It is not my function on a summary application for an order for possession to determine this point. 7. As to the defendant's contention that the sum of $200,000 should be offset against the mortgage debt because, in the events that occurred, the defendant was unable to register a second mortgage in favour of Kyros Holdings Pty. Ltd. on the Londsdale Property, I am not satisfied that the defendant has established an arguable ground in this regard. It is clear from the submissions put by Mr. Alexander on behalf of the defendant, that the appropriation of the balance of the proceeds from the mortgagee sale in respect of the Lonsdale property to the debts of entities other than the defendant, is a matter between this defendant and Elders Finance. If Elders Finance was wrong in appropriating the funds to the indebtedness of other defendants, then the cause of any loss to the defendant is the wrongful misappropriation of funds by Elders Finance. The fact that, had the plaintiff settled in August 1992 as requested there may have been a mortgage in favour of Kyros Holdings Pty. Ltd. on the Lonsdale Property prior to the mortgagee sale of that property does not give rise to an actionable loss to the plaintiff. Elders Finance was either right or wrong in appropriating the surplus as it did. If it was correct in its appropriation of the surplus then the defendant cannot be heard to complain. If Elders Finance acted wrongly in appropriating the surplus as it did then the defendant has a remedy against Elders Finance which it may pursue. Accordingly I am not satisfied that the defendant has demonstrated an arguable ground for a deferral of the order for possession in respect of any loss sustained by it as a result of the mortgagee sale of the Lonsdale Property. 8. In light of the above conclusion I need to consider whether the losses relating to the interest rate and the payment of finance expenses are such that there needs to be determined, before the plaintiff proceeds to enforce its mortgage, whether the defendant has a claim for actionable loss against the plaintiff, such loss to be offset against the mortgage debt. In posing the question in such a manner, the answer is thereby provided. The nature of the defendant's alleged loss is something which, if it is recoverable by the defendant, may be offset against the mortgage debt. However, in the absence of an ability on the part of the defendant to redeem the mortgage, any dispute relating to the amount required to discharge the mortgage debt from the proceeds of the mortgagee sale is a matter which is dealt with after the mortgagee sale, either by agreement between the parties or by proceedings brought for that purpose: cf Adams v Bank of N.S.W. (1984) NSWLR 285. The defendant cannot, prior to the exercise of a power of sale complain, about the actions of a mortgagee without first offering to redeem the mortgage: cf Tannock v. North Queensland Securities Ltd (1932) Qd St R 285. 9. For the above reasons I am of the view that the defendant has failed to establish any basis for the deferral of the order for possession. Accordingly, I refuse the defendant's application that directions be given for the filing of pleadings with the matter proceeding in due course to trial. I therefore do not need to consider the third matter for consideration referred to above, namely what directions need to be given or conditions imposed in relation to the deferral of the order for possession. 10. It was argued by Mr. Alexander, on behalf of the defendant that if I concluded that the plaintiff is presently entitled to an order for possession, I should defer the operation of that order for some four months in order to give the defendant the opportunity to attempt to raise finance so that the mortgage debt might be paid out. Whilst I accept that there is an ad misericordiam discretion, of the nature referred to by Bright J in Peck v Peck (1965) SASR 293 at 300 (where is Honour dealt with an application for partition or sale) to defer the operation of the order for possession, I do not consider that the discretion extends to affording the defendant in this matter a considerable period of time during which it might take steps to obtain alternative finance in order to discharge the mortgage. Rather, the discretion is to be confined to a consideration of the relative convenience of the parties with regard to, on the one hand, the plaintiff taking possession of the property and, on the other hand, the defendant giving up possession of the property. I am told that the property is a residential property occupied by Mr. Ginos and his family. They will need to seek alternative accommodation as a result of the order that I intend to make. In the circumstances I consider that the defendants should be required to give up possession of the property within the period of 28 days from service of a sealed copy for an order for possession upon the defendant. Minutes of order should be brought in by the plaintiff. I adjourn the summons to 18th May 1993 at 9.20 am at which time I will hear the parties as to costs.