Skosples v Perpetual Trustees Victoria Limited
[2004] VSC 422
•26 October 2004
n
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7642 of 2004
| JOSEPH SKOSPLES AND NADIA SKOSPLES | Plaintiffs |
| v | |
| PERPETUAL TRUSTEES VICTORIA LIMITED & ORS (ACCORDING TO THE SCHEDULE ATTACHED TO THE WRIT) | Defendants |
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JUDGE: | Williams J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 31 August 2004, 14 September 2004 | |
DATE OF JUDGMENT: | 26 October 2004 | |
CASE MAY BE CITED AS: | Joseph Skosples & Anor v Perpetual Trustees Victoria Limited & Ors | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 422 | |
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PRACTICE AND PROCEDURE – Injunctions – Whether interests of purchasers under terms contract of sale of land have priority over subsequently acquired interest of registered mortgagee – Whether purchasers under terms contract of sale are “tenants in possession” under s 42(2)(e) Transfer of Land Act 1958 - Whether mortgagee prevented from exercising its remedies under mortgage by operation of s 7(4)(c) Sale of Land Act 1962 – s 42(2)(e) Transfer of Land Act 1958 – s 6, s 7(4)(c), s 7(7) Sale of Land Act 1962.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms L Harrison | Robyn Calder |
| For the First Defendant | Ms M Loughnan | Corrs Chambers Westgarth |
| For the Second Defendant | Mr M Black | Ian Symonds & Associates |
HER HONOUR:
By their statement of claim filed on 18 August 2004 (“the statement of claim”) the plaintiffs (“the Skosples”) seek an order directing the third defendant, the Sheriff of Victoria, to stay execution of a warrant for possession (“the warrant”) relating to the property at 94 Railway Parade, Dandenong (“the property”). The warrant was issued by the first defendant mortgagee of the property (“Perpetual”) in proceeding no. 6285 of 2004 (“the mortgage proceeding”) after Perpetual had obtained judgment in default of appearance against the second defendant mortgagor (“Millaras”) on 29 June 2004. Perpetual’s claim for possession was based upon its alleged rights under a mortgage from Millaras registered on 17 December 2002 (“the mortgage”).
The Skosples have applied by summons dated 18 August 2004 for an order against the Sheriff staying execution of the warrant. The Sheriff has advised the Court that he will abide the outcome of the application.
The application came on for hearing before Justice Osborn in the Court on 25 August 2004 and interim injunctive orders were made against the Sheriff staying the execution of the warrant pending the determination of the summons or further order. As it was common ground that the application could not be dealt with in the limited time available in the Practice Court, his Honour also directed that it be referred to the Listing Master for further directions. The Listing Master referred the application to the Court for further hearing. The application was conducted before me as an application by the Skosples for an injunction restraining the Sheriff from executing the warrant, rather than as a stay application.
The Skosples allege in the statement of claim that they were at all relevant times purchasers of the property from Millaras under a written terms contract of sale dated 22 December 1998 (“the terms contract”). They seek specific performance of the terms contract and damages against Millaras. They also seek interim, interlocutory and permanent injunctive relief against Perpetual, restraining it from exercising any remedies under the mortgage and from seeking to obtain possession of the property. The Skosples rely upon the provisions of the Transfer of Land Act 1958(“the Transfer of Land Act”) and the Sale of Land Act 1962 (“the Sale of Land Act”) in relation to the relief sought against Perpetual. They seek declarations against Perpetual that :
(a) its interest as mortgagee was subject to theirs as purchasers under the terms contract;
(b) it was not entitled to exercise any remedies under the mortgage; and
(c) it was obliged to execute and obtain registration of a discharge of the mortgage.
The material before the Court
The Skosples relied upon affidavits sworn by the first plaintiff (“Mrs Skosples”) on 18 August 2004 and 7 September 2004, respectively.
Perpetual relied upon affidavits of:
(a)Ian Robertson, the National Credit Manager of Interstar Securities (Australia) Pty Ltd, mortgage managers for Perpetual, sworn on 24 August 2004;
(b) Millaras, sworn on 30 August 2004 and 11 September 2004;
(c) George Millaras, Millaras’s brother, sworn on 10 September 2004;
(d) Louise Papadopoulos, sworn on 10 September 2004;
(c) Con Nicholls, sworn on 10 September 2004;
(e) Michael Djuric, sworn on 10 September 2004; and
(f) Zelda Herman, an employee of Westpac Bank, sworn on 11 September 2004.
Millaras appeared in person on the first day of the hearing before me and sought to be heard as a person affected by the application. The application was adjourned to enable him to seek legal advice and he was represented by counsel at the further hearing on 14 September 2004.
Background
The evidence indicated that the following facts were apparently not in dispute between the parties:
(a)on 3 March 1997 Millaras became registered proprietor of the property;
(b)on 28 August 1998 Westpac Banking Corporation became registered as mortgagee in relation to the property;
(c)in about October or November 1998 discussions took place between Millaras and the Skosples in relation to the sale of the property to the Skosples;
(d)on or about 12 November 1998 Millaras gave a handwritten note, signed by him, to the Skosples which was in the following terms:
“ Thursday 12-11-98
Finish property as agreed
Purchase price $110,000.00
Deposit $15,000.00
==========
Balance $95,000.00
Interest 8%
Payments $150.00 per week
Term10 years.”
(e)a handwritten document in the following form was drawn up by Millaras’s friend, Mrs Louise Papadopoulos, signed by Millaras and the Skosples on 22 December 1998 and witnessed by Mrs Louise Papadopoulos:
“Vendor Agreement
Property Address: 94 Railway Pde, Dandenong
DATED: 22/12/98.
I hereby agree to sell the above property to Mr and Mrs Skosples for the amount of one hundred and ten thousand dollars only (110,000.00), with the deposit of fifteen thousand dollars only (15,000.00) paid by bank cheque 22/12/98 balance payable of Ninety Five Thousand dollars only (95,000.00) on monthly instalments at 8% per annum during the fixed 3 year period when the … (indecipherable) fixed period falls due the interest rate will adjust to the going rate at that time. The balance to be payable in 5 years with the option to increase a further 5 years.”
(f)a deposit of $15,000.00 was paid by the plaintiffs to Millaras on some date in December 1998.
(g)the Skosples moved into the property with their family after 22 December 1998 and after payment of the deposit;
(h)between 1998 and August 2003, from time to time, payments of varying amounts were made by the Skosples into a bank account numbered 533556 with the Bank of Melbourne held in the name of Millaras (“the Bank of Melbourne account”);
(i) on or about 24 September 2002 Millaras applied in writing to Perpetual for a loan of $120,000 in order to refinance a Westpac loan and to provide $46,000 for investment purposes;
(j) Millaras’s written loan application dated 24 September 2002 showed the property as being subject to a lease for five years;
(k) the stated purpose of Millaras’s loan from Perpetual was “”wholly or predominantly for business or investment purposes”;
(l) on 27 September 2002 Peter Scollo, a property valuer of the firm Charter Keck Cramer, inspected the property and made a written valuation report to Perpetual;
(m) on about 27 November 2002 Perpetual advanced the sum of $120,000 to Millaras under a written loan agreement;
(n)on 17 December 2002 the mortgage was registered after the discharge of the Westpac mortgage;
(o)no payments had been made by the Skosples to Millaras since about 29 August 2003;
(p)after moving in to the property, the Skosples spent a disputed sum making improvements to it;
(q)by a letter dated 13 April 2004 the Skosples’ solicitor advised Perpetual that:
(i)they had entered an agreement to purchase the property on 22 October 1998;
(ii) in October 2003 they had been advised by Millaras that Perpetual would be repossessing the property and that they should cease paying interest under the contract of sale of $146.15 per week;
(iii) the Skosples had lodged a caveat in respect of the property in relation to their interests under the terms contract (“the caveat”);
(iv) the purpose of the letter was to advise Perpetual of the Skosples’ claim in relation to the property;
(v) the solicitors had advised the Skosples that their failure to protect their interest in the property by failing to lodge a caveat would result in Perpetual’s mortgage having “first claim” on the property;
(r)on 14 April 2004 the solicitors for the Skosples lodged the caveat;
(s) the mortgage proceeding was commenced by writ filed on 31 May 2004 (“the writ”);
(t) the affidavit of service sworn by the process server, George Petselis, on 24 August 2004, in relation to the service of the writ upon Millaras, contained the following paragraphs:
“3 At the time of service, I asked the person served ‘Are you Michael Millaras, the person referred to in these proceedings?’ The person replied in the affirmative.
4 A brief discussion followed at which time Michael Millaras made the following statements to me:
‘…
I have been looking forward to receiving these papers. I have previously been to solicitors to try to find a way to evict the tenants (Nadia and Joe Skosples) but I have not been successful. This is because solicitors want too much money up front. This way Perpetual will do the job for me.’
‘They (Nadia and Joe Skosples) do not own the property …. They are tenants who refuse to move and are in a fantasy that they own the property which in fact they not (sic). They are tenants’;
(u)on 29 June 2004 Perpetual entered judgment in default of appearance against Millaras in the mortgage proceeding;
(v)on 30 June 2004 the warrant was issued in the mortgage proceeding; and
(w)on 6 July 2004 Perpetual gave written Notice to Vacate, demanding that the Skosples vacate the property by 9 August 2004.
The legislation
At all relevant times the Transfer of Land Act and the Sale of Land Act relevantly provided:
The Transfer of Land Act:
42. Estate of registered proprietor paramount
(1) Notwithstanding the existence in any other person of any estate or interest (whether derived by grant from Her Majesty or otherwise) which but for this Act might be held to be paramount or to have priority, the registered proprietor of land shall, except in case of fraud, hold such land subject to such encumbrances as are recorded on the relevant folio of the Register but absolutely free from all other encumbrances whatsoever, ….
(2) Notwithstanding anything in the foregoing the land which is included in any folio of the Register or registered instrument shall be subject to—
…
(e) the interest (but excluding any option to purchase) of a tenant in possession of the land;
The Sale of Land Act
2. Definitions
(1) In this Act unless inconsistent with the context or subject-matter—
…
"mortgage" includes any charge or lien on any land for securing money or money's worth but does not include any such charge or lien which attaches to any land by the operation of any enactment to secure an amount due for rates taxes or charges payable to any statutory body or any such charge or lien in favour of a service company to secure the performance by the proprietor of a stratum estate of his obligations to the service company under a service agreement or any floating charge on the whole or any part of the undertaking or property of a corporation and the verb "to mortgage" shall have a corresponding interpretation; "mortgage money" means money or money's worth secured by a mortgage; "mortgagor" includes any person from time to time deriving title under the original mortgagor or entitled to redeem a mortgage according to his estate interest or right in the mortgaged property; "mortgagee" includes any person at any time deriving title under the original mortgagee;
…
"terms contract" means an executory contract for the sale and purchase of any land under which the purchaser is—
(a) obliged to make two or more payments to the vendor after the execution of the contract and before he is entitled to a conveyance or transfer of the land; or
(b) entitled to possession or occupation of the land before he becomes entitled to a conveyance or transfer of the land;
…
6. Restrictions on sale of land subject to a mortgage
(1) Where land is subject to a mortgage the mortgagor shall not sell the land under a terms contract unless the mortgage relates only to that land and the contract provides that the consideration for the sale of the land shall be satisfied, to the extent of any mortgage money owing at the date upon which the purchaser is entitled to possession or receipt of the rents and profits of the land sold, by the purchaser assuming as from that date the obligations of the mortgagor under the mortgage.
(2) Where land is subject to a mortgage, the mortgagor shall not enter into a terms contract which relates to that land unless the contract expressly states that the land is subject to a mortgage or mortgages and gives the particulars specified in Schedule 1[i] of such mortgage or mortgages.
(3) Any terms contract entered into in contravention of any of the provisions of this section shall be voidable by the purchaser at any time before the completion of the contract and the vendor shall be guilty of an offence against this Act and liable to a penalty of not more than 10 penalty units.
(4) The provisions of this section shall not apply to the sale of land under a terms contract where the contract provides that—
(a) any mortgage affecting the land sold is to be discharged as to that land before the purchaser becomes or upon the purchaser becoming entitled to possession or to the receipt of the rents and profits under the contract; and
(b) the deposit and all other moneys payable under the contract (other than any money payable in excess of the amount required to so discharge the mortgage) are to be paid to a duly qualified legal practitioner or a person who is a licensed estate agent to be applied by him in or towards so discharging the mortgage—
but where the mortgage is not discharged as to that land within ninety days of the making of the contract and the purchaser is not in default under the contract the contract shall be voidable by the purchaser at any time before the mortgage is so discharged and the purchaser shall be entitled to recover all moneys paid under the contract.
7. Land subject to a terms contract not to be mortgaged by vendor
(1) The vendor under a terms contract shall not mortgage the land which is subject to the contract.
(2) A vendor may by notice in writing to the purchaser require the purchaser to take a transfer or conveyance of any land subject to a terms contract and (at the vendor's expense) execute such mortgage or mortgages in favour of the vendor and others as the vendor may require, but so that the obligations of the purchaser under such mortgage or mortgages shall be not more onerous to him than his obligations under the contract of sale.
…
(4) Where land is mortgaged in contravention of any of the provisions of this section—
(a) the terms contract shall be voidable by the purchaser at any time before the completion of the contract;
(b) the vendor shall be guilty of an offence against this Act and liable to a penalty of not more than 10 penalty units;
(c) if the mortgagee had actual or constructive notice of the interest of the purchaser under the terms contract—
(i) the mortgagee shall not be entitled to exercise his remedies under the mortgage;
(ii) the mortgagee shall be obliged to execute a proper discharge of the mortgage in respect of the land sold and to obtain registration of that discharge;
(iii) any amount paid by the mortgagee to the vendor may be recovered by the mortgagee from the vendor;
…
(7) For the purposes of this section a mortgagee shall be deemed not to have constructive notice of the interest of a purchaser under a terms contract unless notice of the interest of the purchaser under the terms contract would have come to his knowledge if he had made—
(a) a proper inspection of the relevant land;
(b) such inquiries as ought reasonably to be made by him of the mortgagor as to the rights of any person in possession of the relevant land;
(c) inquiries of the council of the municipality in which the relevant land is situated as to who is shown on the rate book as owner of the relevant land; and
(d) such searches inquiries and inspections in the Office of the Registrar of Titles and Registrar-General as reasonably ought to have been made by him.
(8) Nothing in sub-section (7) of this section shall limit or affect the operation of paragraph (e) of sub-section (2) of section forty-two of the Transfer of Land Act 1958.”
The parties’ contentions
It was submitted by counsel on behalf of the Skosples that the evidence disclosed serious questions to be tried as to whether their interests as purchasers under the terms contract had priority over Perpetual’s interest as mortgagee and as to whether Perpetual was prevented by the operation of s 7(4)(c) of the Sale of Land Act from exercising any remedy under the mortgage or obliged under the subsection to execute a discharge of the mortgage.
The Skosples relied upon their inclusion within the meaning of the expression “tenants in possession” under the exception to indefeasibility in s 42(2)(e) of the Transfer of Land Act to assert the priority of their interest. Counsel for the Skosples referred to the principle expressed in the 1895 case of Black v Poole[1] in which a’Beckett J followed Sandhurst Mutual Society v Gissing[2] and Robertson v Keith[3] to find that a purchaser of a property allowed into possession under a contract of sale became a tenant at will and the tenancy was subject to an equity pursuant to which it could not be determined except by its conversion to an estate in fee simple. Osborn J noted in his reasons for granting interim injunctive relief[4] that the relevant principles for which the Skosples contend were settled and had been stated by Gibbs ACJ in Barba v Gas and Fuel Corporation[5] where they were held to be applicable to the operation of s 42(2)(e) of the Transfer of Land Act.
[1]16 ALT 155.
[2]15 VLR 329 .
[3]1 VLR (Eq) 11.
[4]Skosples & Ors v Perpetual Trustees Victoria Ltd v Ors [2004] VSC 336 at [12].
[5](1976) 136 CLR 120 at 140.
Counsel for the Skosples also submitted that nothing relied upon by Perpetual or Millaras tipped the balance of convenience in favour of Perpetual, so that the relief sought should be denied.
Counsel for Perpetual made a number of arguments in relation to the issue as to whether the Skosples had established that there were serious questions to be tried. She contended that the Court should be satisfied by the evidence that the terms contract had ended before Perpetual took the mortgage on 17 December 2002. By that date, she submitted, a tenancy had been created by agreement between the parties to the terminated terms contract. Alternatively, she argued that the Skosples took their interests with notice of and subject to the existing mortgage to Westpac and therefore could not complain if Millaras encumbered the property to the extent to which it was encumbered under the Westpac mortgage. She further argued, on the basis of the principles of subrogation, that, because Perpetual had advanced money to pay out the Westpac mortgage, it stood in the position of Westpac vis a vis the interests of the Skosples and its interest had priority. She finally contended that, by virtue of s 7(7) of the Sale of Land Act, Perpetual was deemed not to have had the requisite constructive notice of the Skosples’ interests to prevent them from exercising its remedies as mortgagee under s 7(4)(c).
In relation to the balance of convenience, counsel for Perpetual submitted that it favoured Perpetual in all the circumstances. She referred to evidence of the Skosples being impecunious, to their failure to lodge a caveat before 2004 and to the effects upon Perpetual and Millaras of delaying the sale of the property until after trial.
Counsel for Millaras adopted the submissions of counsel for Perpetual. He contended that the Court should accept Millaras’s account of the terms contract having been replaced by a lease, whilst acknowledging that the account was disputed. Counsel for Millaras however argued that the Skosples’ case was not strong and that their undertaking as to damages was worthless. Accordingly, he submitted, the balance of convenience should favour the refusal of the injunctive relief sought.
Serious questions to be tried
Had the terms contract been terminated?
Perpetual first argued that the evidence should satisfy the Court that the terms contract had been terminated before Perpetual took its interest under the mortgage in December 2002. Had this been the case, then there would be no serious question raised as to the priority of the Skosples’ interests as purchasers by virtue of s 42(2) (e) of the Transfer of Land Act. Nor would there have been any live issue in relation to the operation of s 7(4)(c) of the Sale of Land Act.
The facts were strenuously disputed and the parties and other deponents often gave apparently contradictory accounts of events. The objectively ascertainable facts did not satisfy me that either party’s version should be accepted without the benefit of the oral examination of the witnesses who provided evidence in the application on affidavit.
To take one example: according to the 30 August 2004 Millaras affidavit, the Skosples had suggested that they could afford to pay $200 per week by way of “rent”, and they had agreed to pay that amount, fortnightly, from about November 2002. Millaras relied upon bank statements relating to the Bank of Melbourne account exhibited to the affidavit. Those bank statements show payments of $600 from the Skosples on 4 November, 27 November and 30 December 2002 as well as 5 February 2003. However Mrs Skosples’ 7 September 2004 affidavit responded to the allegations that “rent” had been the subject of agreement by alleging that the Skosples continued to make “interest payments” into the Millaras account. Mrs Skosples alleged that there were omissions from the exhibited bank statements affidavit and exhibited to her affidavit copy stamped Bank of Melbourne pay-in slips relating to alleged payments into the Bank of Melbourne account in the amounts of $600 on 27 December 2002, 5 February, 12 March, 27 March, 30 April and 31 May 2003, respectively, and the sum of $450 on what appears to be 27 June 2003.
The matter is further complicated by the contents of the handwritten summary of payments alleged to have been made by the Skosples exhibited to the same Millaras affidavit which refers to “rent $220 P/W” being paid by amounts of $600 and $450 between 30 December 2002 and 28 August 2003.
In my view, payments in the amounts of $600 and $450 are more consistent with the Skosples’ account of events, as they represent multiples of the sum of $150 referred to as the amount of the instalments of purchase monies in the handwritten note given to the Skosples by Millaras dated 12 November 1998, rather than multiples of $220. Even though the sum of $600 could possibly be regarded payment for three weeks at $200 a week, the intervals of approximately one month between $600 payments after 4 November 2002 appear to support the Skosples’ account rather than that of Millaras.
Counsel for Perpetual also sought to rely upon the non-payment of outgoings by the Skosples from mid 2002, in support of the alleged substitution of a tenancy agreement for the relationship of vendor and purchasers under the terms contract. However I find the evidence as to the payment of outgoings to be somewhat equivocal and it does not persuade me to draw the conclusion for which Perpetual contends. I note in this regard the letter from South East Water dated 9 September 2004 (exhibited to Millaras’s 11 September 2004 affidavit) which states that all accounts and correspondence had been sent to the property before the address was changed on 20 May 2004.
Counsel for Perpetual also referred to the affidavit sworn by Con Nicholls who deposed that, in August 2003, he had attended the property in the company of Millaras and two separate sets of purchasers. He deposed to an alleged statement by him to the Skosples to the effect that “as tenants if they wished to purchase the property we would give them priority”. He said that he had left a business card and had discussed the matter of access with them. He alleged that he felt that the situation was “too difficult” and that his firm had not continued to be involved in any sale of the property. Counsel for the Skosples submitted that the discussion was premised upon there not being an extant contract of sale. She contended that this was a fact which, when taken into account with a number of others, should militate against the grant of injunctive relief, being one of a number of difficulties which would face the Skosples when attempting to make out their claim for priority against Perpetual. I was not persuaded one way or another by Mr Nicholls’ affidavit.
I note that the affidavit of Michael Djuric adds to the uncertainty by alleging that he was present on an unspecified date upon which Millaras told Mrs Skosples that he was not proceeding with the sale of the property. He deposes to Mrs Skosples having become “quite distraught” and having pleaded with Millaras to sell to the Skopsles. According to Mr Djuric, Millaras “reneged and agreed to sell the property”, at that time.
Taking into account all the evidence, I was not persuaded by Perpetual’s argument that the Skosples had not established that there were serious questions to be tried in relation to the continuing existence of the terms contract as at the date of the mortgage.
Implied reservation of right to offer the property as security
Counsel for Perpetual further submitted that because Millaras had advised the Skosples of the Westpac mortgage, if the terms contract was still on foot, they had impliedly reserved to Millaras the right to offer the property as security for at least the amount secured by the Westpac mortgage. Alternatively, she submitted, the Skosples had constructive notice of the Westpac mortgage and the same consequences flowed.
There was debate in the materials as to when Millaras had told the Skosples about the Westpac mortgage. In my view, the accuracy of the various allegations could only be properly assessed at trial. The relevant evidence did not satisfy me that the Skosples had not raised serious questions to be tried as to the priority of their interests.
In any event, there was no reference to the enforcement of a sum in the amount of the sum secured by the Westpac mortgage in the statement of claim in the mortgage proceeding upon which judgment had been obtained.
Subrogation
Counsel for Perpetual relied upon the equitable principles of subrogation in support of the proposition that Perpetual took an interest in the land unaffected by that of the Skosples, at least to the extent that funds lent by it to Millaras were used to pay out the earlier Westpac mortgage over the land. She referred to what was said by Warrington J in Butler v Rice[6] at 282:
“The statement of claim proceeds on the well-known equitable doctrine that if a stranger pays off a mortgage on an estate he presumably does not intend to discharge that mortgage, but to keep it alive for his own benefit.”
[6][1910] 2 Ch 277.
In Butler v Rice[7], unbeknownst to the defendant proprietor of a property,the plaintiff had advanced money with the intent that it be used for the repayment of a loan secured by a previous mortgage and that a further mortgage and guarantee should secure its advance. The defendant had refused to give a mortgage to the plaintiff, but had sought to hold the property free of the discharged security. Warrington J held that the plaintiff was entitled to a declaration that he had a right to a charge over the land for the amount secured by the earlier mortgage at the date of its discharge, together with interest at the rate at which it had been payable under the earlier mortgage.
[7][1910] 2 Ch 277.
Counsel for Perpetual also referred to the application of the same principles in Ghana Commercial Bank v Chandirum[8] and Rogers v RESI Statewide Corp (No 2)[9]. In Rogers v RESI Statewide[10] Von Doussa J in the Federal Court held that the applicable rate of interest was the lower of the rates under the terms of the two loans in question.
[8][1960] 2 All ER 865.
[9](1991) 32 FCR 344.
[10](1991) 32 FCR 344.
I note at this point that the injunction sought by the Skosples relates to the enforcement of a claim for possession to which Perpetual had claimed to be entitled under the loan agreement and the mortgage. The statement of claim in the mortgage proceeding exhibited to the 24 August 2004 Robertson affidavit makes no reference to the terms of the previous Westpac mortgage or to any rights under that previous mortgage acquired by Perpetual by operation of the principles of subrogation. The amount claimed was apparently calculated with reference to the full amount of $120,000 borrowed from Perpetual by Millaras, rather than the sum of some $74,000 which had been outstanding under the Westpac loan and paid out using monies borrowed from Perpetual. There was no reference to the rate of interest under the Westpac loan.
In all the circumstances, whilst Perpetual might be able to mount an argument based on the principles of subrogation at trial, I was not persuaded that the injunction should not be granted because the argument, either alone or in conjunction with others, reduced the strength of the Skosples’ case that there was a serious question to be tried as to the priority of their interests.
S 7(7) of the Sale of Land Act
Counsel for Perpetual argued in the alternative that, even if the terms contract had been on foot when the mortgage was obtained by Perpetual, the Skosples did not have a strong case for entitlement to orders under s 7(4)(c) of the Sale of Land Act, because Perpetual did not have the requisite actual or constructive notice required under s 7(4)(c) of the Sale of Land Act as a pre condition to it being so affected. She maintained that the evidence disclosed that Perpetual had taken the steps referred to in s 7(7)(a)-(d) of the Sale of Land Act and had not discovered the Skosples’ alleged interest under the terms contract.
Counsel for Perpetual submitted that a “proper inspection” of the property of the type referred to in s 7(7)(a) of the Sale of Land Act had been made. She argued that Perpetual had made “such enquiries as ought reasonably to be made by him of the mortgagor as to the rights of any person in possession of the relevant land”, referred to in s 7 (7)(b), and that there was no express requirement to question the inhabitants of the property themselves in the subsection. She conceded that there was no evidence that any enquiries of the relevant municipality, of the type referred to in s 7(7)(c), had been made to ascertain who was shown as the owner of the land in the rate book. However, she submitted that the evidence from Mrs Skosples disclosed that Millaras was receiving the rates notices, so that the Skosples’ interests would not have been revealed by a search of municipal records.
I am however not persuaded that the evidence does establish that Perpetual would not be held to have constructive notice under s 7(7) of the Sale of Land Act. In my view there is a serious question in this regard raised by the material as contended by counsel for the Skosples.
The balance of convenience
Whilst the Skosples argued that the balance of convenience favoured the grant of the injunction sought, Perpetual and Millaras both argued against such an outcome,on the basis that the balance of convenience supported its refusal.
Counsel for the Skosples argued that the Skosples would lose their family home without having had the opportunity to ventilate their claim before the Court if Perpetual was permitted to obtain possession. She also submitted that the Court should take into account that their solicitor had written to Perpetual advising of their claimed interest before the commencement of the mortgage proceeding. Had the Skosples been notified of the mortgage proceeding, she submitted, they would probably have applied to be joined as a party so that their claim against Perpetual and Millaras could have been heard together with that of Perpetual under the mortgage. In those circumstances, there would have been no need for them to have commenced the proceeding before the Court seeking the stay of the warrant obtained by virtue of the default judgement entered against Millaras.
Counsel for Perpetual submitted that the Court should infer that the Skosples were impecunious. She referred to their failure to pay either instalments under their alleged agreement or rent. She submitted that there had been no explanation for their failure to do so. She relied upon the decision of the Full Court of the Supreme Court of Queensland in Active Leisure Sports v Sportsman’s Australia[11] as authority for the proposition that the availability or sufficiency of the undertaking was to be considered as part of the totality of the assessment of the balance of convenience, although not as an anterior step[12]. Counsel for Millaras adopted her submissions.
[11](1991) 1 Qd R 301.
[12](1991) 1 Qd R 301 at 311 per Cooper J.
Counsel for Perpetual also referred to the Skosples’ failure to lodge the caveat to protect their alleged interests before 14 April 2004 and the absence of any explanation for the delay of some five years. She urged the Court to take into account that Millaras had no home and would be adversely affected by the grant of the injunction staying the warrant by the consequential reduction of the surplus payable to him upon the sale of the property after satisfaction of Perpetual’s claims.
However, I note in this regard that it would appear from the account of Millaras’s response to the process server that he had considered commencing proceedings seeking possession of the property from the Skosples, but had decided to allow Perpetual to take the necessary action. Had he commenced proceedings alleging that the Skosples were tenants, it would seem likely that they would have been defended and that Millaras would not have recovered possession as quickly as Perpetual seeks to do as a result of his failure to defend the mortgage proceeding.
Conclusion
I am satisfied that the Skosples have raised serious questions to be tried as to the priority of their interest over that of Perpetual under s 42(2)(e) of the Transfer of Land Act and the effects upon Perpetual’s rights as mortgagee of the operation of s 7(4)(c) of the Sale of Land Act.
I am also satisfied, in all the circumstances, that the balance of convenience favours the grant of the injunctive relief sought. Failure to stay the execution of the warrant would deprive the Skosples of the opportunity of obtaining an order for specific performance of the terms contract, whereas Perpetual would only suffer the postponement of any rights to possession of the property as a result of delay. Had Millaras brought his own proceedings against the Skosples or had they been notified of the mortgage proceeding before default judgment was entered against Millaras, the Skosples would have had an opportunity to put their case without being prevented from doing so by a process which effectively bypassed them.
Further, like Osborn J, I consider the fact situation in Nicholas John Holdings v ANZ Banking Group[13] to be distinguishable and the general rule as to the reluctance of a court to intervene to deprive a secured creditor of the benefit of its security, described by Hedigan J in that case[14], not to be decisive.
[13][1992] 2 VR 715
[14]ibid at 727
Security
Counsel for Millaras referred to the Skosples’ failure to make payments under the terms contract after 28 August 2003 and urged the Court that they should be obliged to provide security in the form of payments of some kind, perhaps into Court. It was suggested that the amount paid by the Skosples might be calculated with reference to the amount outstanding under the terms contract. Counsel for Millaras joined with counsel for Perpetual in submitting that the appropriate amount of security would be the sum of $20,000.
However, having taken into account the various submissions of counsel for Perpetual and Millaras in this regard, I am not persuaded that the Skosples should be required to provide any security in addition to their undertaking as to damages. I agree with the approach of Osborn J[15] who took into account the municipal assessment of the capital improved value of the property of $225,000 which in his view represented “a sum which comfortably exceeds the amount of [Perpetual’s] claim and must be regarded as providing adequate security in relation to the undertaking proffered by the [Skosples].” I am not dissuaded from this conclusion by the submissions of counsel for Perpetual to the effect that the municipal valuation was perhaps inflated, bearing in mind that Charter Keck Cramer valued the property on 27 September 2002 at $170,00.00.
[15]Skosples & Ors v Perpetual Trustees Victoria Ltd & Ors [2004] VSC 336 at [17].
Orders
I will make interlocutory orders continuing the injunction granted by Osborn J on 25 August 2004. I will hear the parties as to the form of any orders sought and in relation to costs.
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