Smith v Kench and Foster
[2001] TASSC 75
•10 July 2001
[2001] TASSC 75
CITATION: Smith & Anor v Kench & Foster [2001] TASSC 75
PARTIES: SMITH, Geraldine
SMITH, Jennifer Maree
v
KENCH, Grant Edward
FOSTER, Michael Graeme
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: 404/1999
DELIVERED ON: 10 July 2001
DELIVERED AT: Hobart
HEARING DATE: 29 June 2001
JUDGMENT OF: Cox CJ
CATCHWORDS:
Mortgages - Mortgages and charges generally - Rights and liabilities of mortgagor and mortgagee - Sale under power - Mode of exercise of power - Remedies of the mortgagor - Injunctions to restrain sale - Whether mortgagor should be required to pay security into court.
Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Limited (1988) 20 FCR 540, applied.
Inglis v Commonwealth Trading Bank of Australia (1971 - 1972) 126 CLR 161; Mainbanner Pty Ltd & Ors v Dadincroft Pty Ltd & Ors (1988) ATPR 40-896, referred to.
Aust Dig Mortgages [60]
REPRESENTATION:
Counsel:
Applicants: D R Wallace
Respondents: G L Sealy
Solicitors:
Applicants: Wallace Wilkinson & Webster
Respondents: Piggott Wood & Baker
Judgment Number: [2001] TASSC 75
Number of paragraphs: 9
Serial No 75/2001
File No 404/1999
GERALDINE SMITH and JENNIFER MAREE SMITH
v GRANT EDWARD KENCH and MICHAEL GRAEME FOSTER
REASONS FOR JUDGMENT COX CJ
10 July 2001
This is an application to restrain the respondents from seeking possession of two properties belonging to each of the applicants and each of which is the subject of a mortgage to the respondents. The application further seeks to restrain the respondents from exercising any power of sale as mortgagee over either property. Each applicant is the owner of a residential suburban property and executed a mortgage in favour of the respondents as collateral security for the loan of $900,000 to Mr Vince Smith, the former husband of the applicant Jennifer Smith and the present estranged husband of the applicant Geraldine Smith. The liability of each applicant is, however, limited to $40,000, such limitation being expressed in documents signed by each on 26 October 1994 at the same time as the mortgages over their respective properties were signed by them. Mr Smith, it appears, has defaulted in meeting his obligations under the principal mortgage and each of the applicants has been served with a summons to show cause under the Land Titles Act 1980, s146, why their property should not be sold to meet the debt up to their limited liability of $40,000.
The applicants have filed affidavits in which they depose that prior to them signing their respective mortgages and the collateral document limiting their liability to $40,000, they were assured by Mr J T Turner, a partner in the firm of Piggott Wood & Baker of which the respondent mortgagees were likewise partners, that they would be released from their obligations under the mortgage upon the sale of part of Mr Smith's mortgaged property, or in the alternative, no later than six months after the execution of their mortgages. Mr Smith had borrowed money on the security of a property upon which he intended to erect several units and the arrangement was, so it was claimed, that upon the sale of the first, or at the latest, of the second such unit, which occurred as long ago as January 1996, the applicants would be released from their obligations or at the very least, not later than six months after the execution of the mortgages.
In the case of Mrs Geraldine Smith, although she had agreed with Mr Smith to guarantee $40,000 of his debt, her evidence was that she would not commit herself to do so without discussing the matter first with Mr Turner and she claims that his assurances induced her to sign the relevant documents. Mrs Jennifer Smith, however, deposed that she had, prior to the meeting with Mr Turner on 26 October 1994, agreed to guarantee $20,000 and that at the meeting, prior to realising that the guarantee was limited to $40,000 rather than $20,000, she had been prepared to give a guarantee for the latter sum. It was submitted for the respondents that in her case she had, at best, claimed that Mr Turner's assurance had induced her to commit herself to guaranteeing an extra $20,000 rather than the full sum of $40,000 and that there was no argument for restraining the respondents unless she made provision for securing the payment of $20,000. Counsel referred to Australia and New Zealand Banking Group Ltd v Heywood A52/1994 and Australia and New Zealand Banking Group Ltd v McGee A53/1994. In both these cases, however, although the mortgagors claimed to have been misled as to the amount they were guaranteeing, they were well aware that they were unconditionally guaranteeing not less than $50,000 and it was for that reason that securing or payment in of that sum was made a condition of the granting of any relief. In Mrs Jennifer Smith's case, she claims that before signing the securities and hence irrevocably committing herself to the guarantee of any sum, she was given the assurance about the duration of her exposure to risk. Notwithstanding therefore that had the amount not been increased, any question of its duration might not have arisen and she might have executed an unconditional guarantee for $20,000, her claim remains that the guarantee which she gave was conditional and supplanted any earlier indication of agreement to guarantee the lower sum.
Both applicants were cross-examined on their affidavits and a number of points were raised which affect the credibility of their claims, such as their failure to raise these allegations with the mortgagees' solicitors at an earlier stage. Counsel for the respondents concedes that ordinarily questions of credit and the strength or weakness of an applicant's claim would not fall to be decided in an interlocutory application of this kind. He contends, however, that the Court must at least enquire into the prospects of the applicants' case. In my view, it has certainly not been demonstrated to be unarguable. To use the words of Pincus J in Mainbanner Pty Ltd & Ors v Dadincroft Pty Ltd & Ors (1988) ATPR 40-896 at 49,663:
"… the allegations of misleading conduct are not overwhelmingly strong, but one could certainly not deny the possibility of their succeeding."
The first named applicant resides in the property in question and it has a government valuation of $88,000. The property is subject to a first mortgage with an outstanding balance in the order of $25,000 - $28,000. The second named applicant also resides in the property which she has mortgaged to the respondents. Its government valuation is $69,000 and the mortgage to the respondents is its only encumbrance. The liability of each applicant being limited to $40,000, this is not a case where accruing interest may erode the equity of the properties.
It was held in Inglis v Commonwealth Trading Bank of Australia (1971 - 1972) 126 CLR 161 at 164 that:
"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."
However, as the Full Court of the Federal Court pointed out in Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Limited (1988) 20 FCR 540 at 545:
"It does appear, however, that the requirements of the rule may be relaxed where the mortgagor's proceedings involve an attack upon the enforceability of the security documents. (See Harvey v. McWatters (1948) 49 SR (NSW) 173.)"
In Mainbanner Pty Ltd & Ors v Dadincroft Pty Ltd & Ors (supra) at 49,663, Pincus J, while acknowledging the existence of a discretion to relax the rule, 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 on 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."
He declined to exercise the discretion in that case because the applicants had frankly acknowledged that they had no prospect, in the immediately foreseeable future, of paying the debt.
In my view, subject to requiring the applicants to proceed expeditiously with their action for rescission of the mortgages, this is an appropriate case for restraining the respondents from attempting to enforce their securities. There is a prima facie case that the latter are not enforceable and having regard to the facts first that the amount recoverable in each case is capped at $40,000, second that there appears to be sufficient equity in both properties to safeguard the security of the respondents while the matter is litigated, and third that the issues fall within a relatively narrow compass not requiring lengthy preparation or hearing time, the applicants should be given the opportunity to litigate these issues without having to pay the money secured into Court.
I will hear the parties in respect of a timetable to ensure a prompt hearing of the action proper.
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