Allfox Building Pty Ltd v Bank of Melbourne Ltd

1 This is an application by a mortgagor for an interlocutory injunction restraining a mortgagee from exercising a power of sale. 2 The Plaintiff is the registered proprietor of a commercial site on Parramatta Road, Granville ("the Property"). The Plaintiff purchased the Property from the Defendant in December 2001 for $1,928,000. The purchase price was payable as to $1,000 by the Plaintiff on completion and the balance was left as a debt due to the Defendant secured by a registered first mortgage over the Property. 3 The mortgage provided that the principal sum, $1,927,000, was to be repaid by monthly instalments of $17,000 save that the last instalment was $1,791,000 and was payable on 31 December 2002. 4 Clause 7 of the mortgage provided that in certain circumstances the Plaintiff was entitled to an extension of time to pay the final instalment, but if the Plaintiff exercised this entitlement then the Plaintiff was obliged to pay interest on the sum outstanding monthly in advance at a stipulated rate. 5 There is no dispute that the time for repayment of the final instalment of $1,791,000 was extended, first to 30 June 2003 and then to 31 December 2003, upon condition that the Plaintiff was to pay interest on that sum monthly in advance. 6 There is no dispute that the Plaintiff failed to repay the final instalment of principal on 31 December 2003 and that the Plaintiff has failed to make any payment since that time either in respect of principal or in respect of interest. 7 The Defendant's solicitor sent a notice under s.57(2)(b) Real Property Act 1900 (NSW) on or about 12 January 2004. There is no dispute that that notice was validly given. 8 On 3 March 2004 the Defendant's solicitors sent by post a notice pursuant to s.92 of the Conveyancing Act 1919 (NSW). The Defendant's solicitors obviously were not aware that s.92 had been amended in 1997. The giving of a notice under s.92(1) is now not required as a precondition to a mortgagee's entitlement to exercise a power of sale unless, after expiry of the term of the mortgage, the mortgagee has accepted interest on the principal sum for a period of not less than three months after default in repayment of the principal. It is common ground that the term of the mortgage expired on 31 December 2003 and that the principal was repayable on that date. However, as I have said, it is also common ground that no interest at all has been paid by the Plaintiff at any time after 31 December 2003. Accordingly, the giving of a notice under s.92(1) was not required. 9 In March 2004, the Defendant agreed to the Plaintiff's request to postpone the sale of the Property for a period of three months to allow the Plaintiff time to find a buyer. No sale of the Property was achieved by the Plaintiff during that time. 10 On 8 June 2004, the Property was sold at auction in exercise of the Defendant's power of sale. The purchase price was $2.2M. The contract provided for completion on 8 October 2004 but time was not made of the essence. 11 There is no doubt that the Plaintiff was aware of the sale at the time that it was made. The Plaintiff's director obtained a copy of the contract prior to the auction and it seems that a representative of the Plaintiff attended the auction. 12 The Plaintiff apparently was of the view that the Property had been sold at an under-value and that the Defendant was in breach of its duties as mortgagee in the manner in which it had set about exercising the power of sale. On 28 June 2004 the Plaintiff lodged a caveat against any dealing with the Property. 13 On 9 September 2004, the Plaintiff was served with a lapsing notice. The Plaintiff took no steps to apply to the Court to extend the caveat and the caveat lapsed on 30 September 2004. 14 On 1 October 2004 the Plaintiff filed in Court an Originating Process seeking a declaration that the sale of the Property had been made for a sum less than its market value and in contravention of s.420A(1) of the Corporations Act 2001 (Cth). The Originating Process sought an order under s.1324 Corporations Act restraining the Defendant from completing the contract for sale which had been entered into on 8 June 2004. An Interlocutory Process filed at the same time sought an interim injunction restraining completion of the contract until determination of the claim for final relief. 15 No claim under the general law for an injunction or for an equitable accounting is made in the Originating Process as an alternative to the claim for an injunction under s.1324 Corporations Act . 16 The Plaintiff was given leave to serve the Process on short notice and the matter was stood over to the Duty Judge's list on 7 October. When the matter was called on for hearing that day, Mr Lee appeared for the Plaintiff and Mr Bartos for the Defendant. The Plaintiff sought, and the Defendant opposed, the grant of an interim injunction restraining the contract for sale and the matter proceeded as a contested interlocutory hearing. The Defendant's solicitor gave evidence that the settlement of the contract of sale had been arranged for the following day, the last day for completion stated in the contract, and that both parties to the contract were ready, willing and able to settle. 17 The hearing of the matter lasted until well after 4:00pm and it was not possible for me to give judgment at that time. In those circumstances, the Defendant proffered an undertaking not to complete the contract until 4:00pm today. The Plaintiff proffered the usual undertaking as to damages in consideration of the Defendant's undertaking. 18 The Plaintiff has not brought into Court, or offered to provide security for, payment of any part of the outstanding principal and interest due under the mortgage since 31 December 2003 as a condition of the grant of an interlocutory injunction restraining completion of the contract. 19 The Plaintiff submits that:

• the Defendant's purported exercise of the power of sale is invalid because the requirements of s.92(1) Conveyancing Act have not been complied with in that the Defendant entered into a contract for sale two days before expiry of the period of three months from the deemed date of service on the Plaintiff of the s.92 notice;

• the Defendant, as mortgagee of the property of the Plaintiff corporation, is a "controller" for the purposes of s.420A Corporations Act ;

• there is sufficient evidence to demonstrate a prima facie or arguable case that the Defendant has not taken all reasonable care to sell the Property for not less than market price, in contravention of s.420A(1) Corporations Act ;

• the balance of convenience favours the grant of an interim injunction under s.1324(4) Corporations Act or under s.66(4) of the Supreme Court Act 1970 (NSW) because, if the injunction is not granted, the Plaintiff will be left without any remedy, since the Corporations Act does not provide expressly for compensation to an injured party for a breach of s.420A. 20 Despite the skilful arguments of Mr Lee on behalf of the Plaintiff, I am of the view that the Plaintiff has not made out a case for the grant of an interim injunction. My reasons, which are substantially those advanced by Mr Bartos, are as follows. 21 Whether the injunction is sought in exercise of the Court's statutory jurisdiction under s.1324(4) Corporations Act or in exercising its general jurisdiction under s.66(4) Supreme Court Act , the equitable principles upon which the Court ordinarily acts in granting interlocutory injunctions, including the usual discretionary considerations, will apply in the circumstances of the present case. This is not an application by ASIC to restrain an alleged breach of the Corporations Act for the protection of the public or to vindicate the public interest. Nor is there anything to suggest that the grant of an interim injunction under s.1324(4) would have some utility or serve some particular purpose within the contemplation of the corporations legislation. This is an action by a mortgagor to restrain the exercise of a mortgagee's power of sale over a parcel of suburban land and nothing has been shown which would require special consideration of the law governing the regulation of corporations or the way in which corporations do business. However, it so happens that the mortgagor is a corporation so that the Defendant may be a "controller" within the definition of s.420A Corporations Act . 22 In those circumstances the approach taken by the Court to the grant of interim orders under s.1324(4) Corporations Act will be virtually the same as that taken in respect of the grant of interlocutory injunctions in Equity: see the discussion in ASIC v Mauer-Suisse Securities Ltd (2002) 42 ACSR 605; ASIC v Triton Underwriting Insurance Agency Pty Ltd (2003) 48 ACSR 249. 23 I do not think that the Plaintiff has demonstrated an arguable case that the Defendant's exercise of the power of sale is invalid for non-compliance with s.92 Conveyancing Act . For the reasons I have explained earlier, the Defendant was not bound to give a s.92 notice at all. No estoppel arising from the giving of such notice has been alleged by the Plaintiff because the evidence shows clearly that the Plaintiff's solicitor himself believed that the three month period referred to in the s.92 notice given by the Defendant had expired five days before the Defendant entered into the contract for sale. 24 I am prepared to accept that the Plaintiff has shown an arguable case that the Defendant is a "controller" for the purposes of s.420A Corporations Act . Whether a mortgagee of a single item of the property of a company is a "controller" within the section is still open to debate: see e.g. Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd (2002) 10 BPR 19,565 , at 124. It would be inappropriate to resolve that debate at the interlocutory stage of these proceedings. 25 There is some, if exiguous, evidence which could support the assertion that the Defendant has not taken all reasonable steps to sell the Property for at least market value. There is evidence that the real estate agent engaged by the Defendant to sell the Property initially suggested a more extensive advertising campaign than was finally undertaken. There is evidence that, subject to certain conditions, a real estate developer would be prepared to pay $700,000 more for the Property now than the price stipulated in the contract for sale entered into four months ago. There is no evidence of the financial substance of this developer. The Defendant's evidence meets these contentions but the resolution of the issues is not appropriate at this interlocutory stage. 26 In my view, the balance of convenience and the usual discretionary considerations applicable to the grant of interlocutory injunctions militate against the grant of the injunction sought by the Plaintiff. My reasons are as follows. 27 First, this is a case in which the Defendant's power of sale is properly exercisable, default in repayment of principal and interest being conceded and s.92 Conveyancing Act being inapplicable. Yet the Plaintiff has not sought to do equity by bringing money into Court and seeking to redeem the mortgage as a condition of an interlocutory injunction restraining completion of the contract on the basis of an alleged improper exercise of a presently enforceable power of sale: see Allfox Building Pty Ltd v Bank of Melbourne Ltd (1992) NSW ConvR 55,634 ; Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161. 28 Second, an exercise of the power of sale has already been postponed for three months at the request of the Plaintiff in order to enable it to find a way out of its difficulties. The Defendant has been kept out of his money, which represents a large proportion of the purchase price, for a considerable time. 29 Third, the Plaintiff has offered no payment in reduction of principal or interest since default on 31 December 2003. 30 Fourth, the Plaintiff has been aware of the present contract for sale since its exchange on 8 June 2004. It took no steps to challenge the validity of the contract or the exercise of the power of sale other than to lodge a caveat which it then allowed to lapse. Equity requires those seeking to invoke its remedies to act promptly. Lodging the caveat and merely leaving it there is not enough. The caveator must promptly institute proceedings to vindicate the interest claimed. 31 Fifth, the institution by the Plaintiff of proceedings seeking an injunction restraining the completion of the contract a week before it is due to settle places the Defendant in an extremely difficult position. He will be in breach of the contract if he does not settle by the stipulated date because of the grant of an injunction. There is no guarantee that time can be found in the Court lists for the case to be heard on a final basis in the short term future, even if it can be prepared for hearing pursuant to an abbreviated timetable. There is no guarantee that even if a decision by the Court is given shortly, the case will not go on appeal. In brief, there is a high risk that if the injunction is granted the purchaser under the contract will be entitled to give a notice to complete and will be able thereafter either to rescind or sue the Defendant for substantial damages. The Defendant's predicament could have been avoided if the Plaintiff had moved quickly to commence its proceedings after exchange of the contract for sale. 32 Sixth, if the injunction is refused and the contract proceeds to completion, the Plaintiff will not be left without a remedy should the Defendant have exercised the power of sale improperly. The Plaintiff can amend its proceedings to add a claim for an equitable accounting under the general law. 33 For these reasons, I refuse the Plaintiff's application for an interlocutory injunction. The Interlocutory Process is dismissed. I will hear argument as to costs. - oOo -

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