Clairview Developments Pty Ltd v Law Mortgages Gold Coast Pty Ltd & Ors

MORTGAGES - MORTGAGES AND CHARGES GENERALLY - REMEDIES OF THE MORTGAGEE - SALE UNDER POWER - MODE OF EXERCISE OF POWER - GENERALLY - where the appellant alleged it was owed damages from the respondents in excess of the value of the mortgage - where the appellant was granted a caveat over the mortgaged land - where the respondents argued that a debt arose under the mortgages that exceeded the present value of the land - where the caveat was removed by court order and summary judgment was given against the respondents - where the respondents then purported to exercise the power of sale - whether the respondents were entitled to exercise the power of sale

Trade Practices Act 1974 (Cth), s 52

Land Title Act 1994 (Qld)

Property Law Act 1974 (Qld), s 84

Uniform Civil Procedure Rules 1999 (Qld), r 293

Clarke v Japan Machines (Australia) Pty Ltd (No 2) [1984] 1 Qd R 421, distinguished

Corello v Jordan [1935] St R Qd 294, distinguished

De Lisle v. Union Bank of Scotland [1914] 1 Ch 22, distinguished

Hill Corcoran Constructions Pty Ltd v Navarro [1992] QCA 17, considered

Inglis v Commonwealth Trading Bank of Australia (1971) 126 CLR 164, applied

Nioa v Bell [1901] ArgusLawRp 57; (1901) 27 VLR 82, distinguished

Parker v Jackson [1936] 2 All ER 281, distinguished

Samuel Keller Ltd v Martins Bank Ltd (1973) All ER 950, considered

Tessmann v Costello [1987] 1 Qd R 283, considered

**[1] McMURDO P: I agree with Jerrard JA that the appeal should be dismissed. Jerrard JA has set out the relevant issues and facts so that my reasons can be shortly stated.

[2] The appellant is the registered proprietor of land subject to registered mortgages, originally in favour of Law Mortgages Gold Coast Pty Ltd ("Law Mortgages"). Law Mortgages transferred the mortgages to the respondents without notice to the appellant. The respondents were then registered as transferees. They subsequently gave notices to the appellant under s 84 Property Law Act 1974 (Qld) alleging the appellant's default under the mortgages arising out of its failure to pay the principal, interest and rates. The debt alleged by the respondents as arising under the mortgages far exceeds the present value of the land. The appellant lodged caveats over the land claiming that it "has an interest in fee simple to prevent the improper exercise of the mortgagees' notice of power of sale ... as there are no moneys due and owing." The appellant then commenced proceedings in the Trial Division of this Court against Law Mortgages (the first defendant) and Pamela Joan Holyoak (the second defendant), a solicitor and a director of Law Mortgages. The respondents were also defendants to the appellant's claim. The claim asserted negligence, negligent mis-statement, breach of contract and breach of s 52 Trade Practices Act 1974 (Cth). It pleaded that Holyoak, on behalf of Law Mortgages, orally advised the appellant that she was an expert in money lending and town planning matters; she represented that Law Mortgages would advance the moneys secured over the land and procure a development agreement with Broadsound Shire Council and this would increase the value of the appellant's land from not more than $600,000 to $8.3 million; once the development agreement was granted the appellant would refinance and repay Law Mortgages. Central to this appeal was the appellant's pleaded claim that it was an oral term of the loans and mortgages that Holyoak would, because of her expertise in town planning and as Law Mortgages' servant or agent, obtain the development agreement from the Council on or before 22 August 1997 and repayment of the loans was conditional upon Law Mortgages obtaining the development agreement from the Council. In breach of those terms, Law Mortgages and Holyoak did not obtain the development agreement from the Council and as a result the appellant suffered loss and damage in the sum of $7.7 million which, as it was entitled to do, it set off against the amount owing to Law Mortgages so that there was no money due and owing by the appellant and secured by the mortgages at the time of their transfer to the respondents. The appellant sought against the respondents a declaration that there is no money due and owing by the appellant and secured by the mortgages, an injunction restraining them from exercising any power under the mortgages and an injunction requiring them to execute a release of the mortgages.

[3] The respondents brought an application in the Trial Division of this Court for the removal of the caveats lodged against the land and for judgment in their favour against the appellant in the appellant's action so that they could exercise their power of sale under the mortgages.

[4] The appellant claims the learned primary judge should not have ordered the removal of the appellant's caveats nor given summary judgment for the respondents. In essence, the appellant's contention is that, while it accepts the indefeasibility of the rights of registered transferees of registered mortgages to enforce the mortgages, the respondents' rights under the mortgages in this case are, at least arguably, hollow because of the appellant's reasonably arguable claim brought against Law Mortgages and Holyoak (not parties to this appeal). The appellant contends that this matter can only be resolved at a trial and it cannot be said that it has no real prospect of succeeding on all or part of its claim so that the respondents' application for summary judgment under Uniform Civil Procedure Rules 1999 (Qld) ("UCPR") r 293 should have been refused. It also contends that the balance of convenience does not justify an order removing the caveats because if the land is sold by the respondents it will not be able to be restored to the appellant in the event that the appellant is ultimately successful in its claim.

[5] It is common ground that upon the transfer of a mortgage, transferees like the respondents who do not give timely notice of the assignment to the mortgagee, are bound by the state of the accounts between the mortgagor and the mortgagee: see Noia v Bell,[1] Corello v Jordan[2] and Atlantic 3 - Financial (Aust) Pty Ltd v Deskhurst Pty Ltd.[3]

[6] The appellant's claim against the respondents seeks to restrain them from exercising their power of sale under the mortgages. The general rule in such an application is that it will not be granted unless the amount of the mortgage debt or the amount claimed by the mortgagee under the mortgage is paid into court: Inglis v Commonwealth Trading Bank of Australia.[4] There are sound commercial reasons for this. As Walsh J there explains:**

"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.

... the fact that such claims have been brought provides no valid reason for the granting of an injunction to restrain until they have been determined, the exercise by a mortgagee of the remedies given to him by the mortgage."[5]

**[7] There is no evidence that the appellants have paid the disputed sum into court. The exceptions to the Inglis principle referred to by G N Williams A-J (as his Honour then was) in Clarke v Japan Machines (Australia) Pty Ltd (No 2)[6] have no application to this case.

[8] Unless and until the mortgage is discharged by the payment and acceptance of the sum due under it, the mortgage remains a mortgage for the amount due under it. The mortgage debt cannot be reduced or removed by the appropriation of an unliquidated claim: Samuel Keller Ltd v Martins Bank Ltd.[7] The respondents' interest under the transferred mortgages is an interest in land: Reeves v Pope[8] and cf Edlington Properties v JH Fenner.[9] The indefeasibility provisions of the Land Title Act 1994 (Qld) apply to the respondents' interest under the mortgages: Tessmann v Costello,[10] overturning the statement by Macnaughton AJ in Conroy v Knox[11] that a mortgagee under the Torrens System is not the holder of an estate or interest in land. A mere claim to a right to damages, such as that alleged by the appellant against the original mortgagee, Law Mortgages, is not an interest in land and cannot be set off against the mortgage debt once owing to Law Mortgages and now owing to the respondents. It cannot be said, even if the appellant were successful in its claim against Law Mortgages and Holyoak, that there was no money due and owing by the appellant to Law Mortgages secured by the mortgages at the time of the transfers to the respondents.

[9] The primary judge was right to conclude that the respondents were entitled to rely on the indefeasibility of the mortgages transferred to them and to enforce their rights under them against the appellant. It follows that her Honour correctly ordered the removal of the appellant's caveats lodged against the land. The only remedies sought by the appellant against the respondents were a declaration that there was no money due and owing by the appellant and secured by the mortgages and injunctions restraining the respondents from exercising their powers under the mortgage and requiring them to release the mortgages. For the reasons I have given, the appellant had no real prospect of succeeding on all or part of its claim against the respondents and there was no need for a trial of the appellant's claim. The judge rightly gave judgment in favour of the respondents under UCPR r 293.

[10] JERRARD JA: This is an appeal from a judgment delivered on 29 August 2006 in the Trial Division, in which the learned judge granted an application by the respondents to remove caveats lodged by the appellant. The judge also gave judgment for the respondents under Uniform Civil Procedure Rules 1999 (Qld) r 293 on their defence filed 22 June 2005 to the claims made against them by the appellant plaintiff, in its claim and statement of claim filed in the Brisbane Registry on 20 April 2005. In this appeal the appellant's counsel contends that the argument the appellant had intended to present to the learned trial judge was not considered on its merits, and that the learned judge considered a different argument.

[11] The appellant is the registered proprietor of various lots described in the appeal record as the first and second parcels of land; each parcel is the subject of a separate mortgage, and the first and second respondents are the registered mortgagees of the first and second parcels respectively. The first parcel was purchased by the appellant in or about August 1996, and it granted a mortgage to the entity who was the first defendant (not a party to this appeal) in the proceedings the appellant began in the Trial Division on 20 April 2005. That mortgage, registered on 18 March 1997, was transferred, to and registered in favour of, the first respondent to this appeal (the third defendant in the appellant's proceedings) on 6 September 2004.

[12] A second mortgage, granted over the second parcel of land, was also originally granted in favour of the first defendant to the appellant's proceedings, and registered on or about 16 October 1996. It was subsequently transferred to and registered in favour of the second respondent (the fourth defendant to the plaintiff's proceedings) on 6 September 2004.

[13] The first mortgage secured a total loan to the plaintiff of $650,000, made by the first defendant from funds it obtained from the first respondent and other contributories. By the written terms of that registered mortgage, the appellant promised to repay the full loan amount on 22 August 1997, and to pay monthly interest. The appellant made monthly interest payments until about 1 April 1997, when payments ceased, and it has not repaid any part of the principal loan.

[14] The second mortgage secured a total loan of $400,000 by the first defendant to the plaintiff, and that money too was an aggregate of contributions from others, in this case the second respondents. The written terms of that registered mortgage promised that the appellant would pay monthly interest and repay the full principal on 22 August 1997. Interest payments were made until March 1997 but none since, and the principal loan, like the first mortgage debt, remains entirely unpaid.

[15] On 24 February 2005 the first defendant as assignor executed a deed of assignment, for a consideration of $1, with each of the respondents, assigning to those respondents the first defendant's rights, title, interest, powers, privileges and liabilities conveyed by the respective mortgage earlier transferred to the respondent. The deed also assigned the first defendant's legal right to enforce any existing or future chose in action conveyed by the terms and covenants of the mortgage.

[16] The second respondents contended to the trial judge that an amount of $1,522,751.66 was due and owing under the second mortgage, consisting of principal, interest, and rates due and payable by the appellant, as at the date of the issue by the second respondent of a notice of exercise of the power of sale of the second parcel. The first respondents contended that an amount of $2,439,408.14 was due and owing under the first mortgage, as at the date of notice of exercise by them as mortgagees of the power of sale regarding the first parcel.

[17] Counsel for the appellant told this Court that after its default in 1997 the first defendant entered into possession of the mortgaged land, but had not taken any steps in seven years either to enforce its rights as mortgagee or to recover the money lent to the appellant. The respondents now sought to exercise the rights given by the mortgage and the appellant had lodged caveats, which the respondents applied to have the court remove.

[18] The appellant claimed for a declaration that there was no money owing by it to the first defendant and secured by either mortgage, and alternatively for damages or compensation from the first defendant, and from the second defendant, a solicitor and a director of the first defendant. The appellant pleaded that those defendants had represented that the second defendant was an expert in money lending and town planning matters; that the first defendants would advance $650,000 secured over the land and procure a development agreement with the Broadsound Shire Council within 12 months; and that once the approval was granted, the appellant would be able to refinance and repay the first defendant. Acting on those statements and induced thereby, the appellant entered into the loan with the first defendant, acquired and mortgaged the land, and authorised the second defendant to conduct the development agreement negotiations with the Broadsound Shire Council.

"10. It was a term of the loans and mortgages that:-

(a) the second defendant would, because of her expertise in town planning and as the first defendant's servant or agent, obtain the development agreement from the Broadsound Shire Council on or before 22 August 1997;

(b) repayment of the loans was conditional upon the second defendant, as the first defendant's servant or agent, obtaining the development agreement from the Broadsound Shire Council."

**[20] The appellant contends in this Court that the learned trial judge incorrectly understood that the appellant principally relied on the argument that the pleaded clause 10(b) was an express oral term of both loans and both mortgage agreements, whereas in truth the appellant had intended to rely before the learned judge on the argument that it pleaded a breach of the oral term described in clause 10(a). The appellants did plead that the first and second defendants did not obtain the required development agreement on or before 22 August 1997 or at all, and pleaded that conduct was in breach of the terms of the loans and mortgages. It further pleaded that those defendants did not expend on that project amounts secured by fixed and floating charges over the appellant's assets, granted to secure the fees associated with performing the pleaded term.

[21] The appellant pleaded that in consequence of the breaches it suffered loss and damage in the sum of $7.7 million, that being the difference between the value of the mortgaged land, and the value it would have had with the desired development approval. The appellant pleaded that:**

"As it was entitled to do, the plaintiff set off its loss and damage against the amount owing to the first defendant pursuant to the mortgages."

[22] That pleading was the essence of the appellant's argument on this appeal, and the argument it said it had intended to make to the trial judge. That argument in this Court readily conceded that the respondents, as the first mortgagees of the properties the subject of the mortgages, had indefeasible title in respect of the written terms that appeared in each mortgage. But Mr Hackett, counsel for the appellant, submitted that before the assignment of each mortgage the appellant had a right of set off against the first defendant of an amount in excess of the mortgaged debt, such that as at the date of the transfer, there was no debt secured. He argued that the appellant pleaded an oral term of each mortgage, the breach of which entitled the appellant to set off the resulting loss and damage against the mortgage debt owed to the first defendant; the result was, in the submission for the appellant, the respondents were "just stuck with the state of the accounts (between the mortgagor and mortgagee) as they stood at the time" the respondent took the transfer of the mortgage and the debt.

[23] The submission deftly avoided the indefeasible title of the mortgagee to the mortgaged debt, by calling in aid the principle that where a mortgagor does not join in the assignment of a mortgage by the mortgagee, the transferee is bound by the state of accounts between the mortgagor and the transferor. The argument depended on the further proposition that the appellant's claimed right of action for damages for breach of the oral term pleaded in 10(a) (and an amended claim the appellant will make, namely of breach of its duty by the first defendant as mortgagee in possession) properly fell to be considered in that state of accounts. The result, Mr Hackett submitted, was that the unliquidated claim was available as a set off.

[24] The set off described by Mr Hackett - of a claim for unliquidated damages against the mortgage debt - is the variety described as an equitable set off. In Hill Corcoran Constructions Pty Ltd v Navarro [1992] QCA 17 this Court wrote:**

"The usual starting point of any discussion of the doctrine of equitable set off is the judgment of Lord Cottenham LC in Rawson v Samuel (1841) 1 Cr. & Ph. 161, 41 E.R. 451, and, though his Lordship's statement that the equity of the defendant's claim must impeach the title the plaintiff's legal demand is unfamiliar to the modern lawyer, the examples which he gave where that has been the case give some guidance here. Dicta since Rawson v Samuel have explained that it is the closeness of the connection between the defendant's claim and the subject matter of the plaintiff's claim which may make it unfair for the plaintiff's claim to proceed without allowance being made for the defendant's claim. See for example Government of Newfoundland v Newfoundland Railway Co (1888) 13 App. Cas. 199 at 213, Morgan & Son Ltd v Martin Johnson & Co Ltd [1949] 1 K.B. 107 at 108, Hanak v Green [1958] 2 Q.B. 9 at 31 and Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] 1 Q.B. 927 at 975. And as Woodward J pointed out in D Galambos & Son Pty Ltd v McIntyre (1974) 5 A.C.T.R. 10 at 26, the conduct of the parties may also be a relevant factor.

It is unnecessary in the present case to consider the criticism by Spry: Equitable Remedies 4th ed. p. 176 and Meagher, Gummow & Lehane: Equity Doctrines and Remedies 2nd ed. para. 3710 of the decisions in Morgan and Hanak."

**[25] In Morgan & Son Ltd v S Martin Johnson & Co Ltd Tucker LJ had remarked that often an order would be made giving a plaintiff judgment on a claim, but staying execution of it pending the trial of a defendant's counter claim; and explaining that whether a plaintiff should be given judgment on the plaintiff's claim depended on whether a court of equity would have granted relief by way of equitable set off, in proceedings where both the claim and what for convenience His Lordship described as a counterclaim were pending before that court (in the Chancery division). Tucker LJ referred to the judgment of Lord Alverstone CJ in Bankes v Jarvis [1903] 1 KB 549 at 551, and to the question whether grounds existed which formerly would have entitled a defendant to file a bill in Chancery to restrain the plaintiff from proceeding with his action. If so, the defendant was entitled since the enactment of the Judicature Act to rely on those grounds as a defence to the action. A little later in the judgment in Morgan & Son v S Martin Johnson & Co Tucker LJ, describing an equitable set off, referred to the statement by Lord Cottenham LC in Rawson v Samuel namely whether the "equity of the (defendant's bill) impeached the title to the (plaintiff's) legal demand."[12]

[26] In a passage quoted in Morgan & Son v S Martin Johnson & Co by Tucker LJ, Lord Cottenham LC gave (in Rawson v Samuel), as an example of an equitable set off, the decision in Piggott v Williams, where a complaint against a solicitor for negligence "went directly to impeach the demand he was attempting to enforce"[13] (for his fees). The facts in Morgan & Son v S Martin Johnson & Co provide another example; the plaintiff was owed a sum for storage of vehicles, and the defendant alleged the plaintiff had not returned one vehicle having either negligently let it be stolen or misdelivered it. Both Tucker LJ and Cohen LJ were satisfied that a court of equity would have given relief in those circumstances by way of equitable set off.

[27] Mr P Morrow, counsel for the respondent, did not contend that Mr Hackett lacked an arguable claim for an equitable set off. He submitted that that variety of set off was insufficient, and that the cases on which Mr Hackett relied to describe the principle that a transferee of a mortgage takes subject to the state of the accounts between the mortgagor and mortgagee at the date of the transfer, and subject to any rights of set off which the mortgagor had against the assignor, referred to liquidated claims or legal set offs, not equitable or unliquidated ones.

[28] Mr Morrow made that submission good by reference to those cases. One was Nioa v Bell [1901] ArgusLawRp 57; (1901) 27 VLR 82, where Holroyd J at 85 applied what His Honour described as the old doctrine of equity that payments made by a mortgagor, who has no notice of the transfer of the mortgage, to the original mortgagee subsequently to the transfer, are to be deemed as payments made to the transferee. That decision does not assist Mr Hackett; and nor does the decision in Carello v Jordan [1935] St R Qd 294, where Henchman J referred with approval to Nioa v Bell. Mr Hackett also relied on De Lisle v Union Bank of Scotland [1914] 1 Ch 22, where Swinfen Eady LJ wrote (at 31) that it was "well established that the transferee of a mortgage took subject to the state of the accounts between the mortgagor and the mortgagee at the date of the transfer." Although Mr Hackett relied heavily on that general principle, the decision itself does not suggest that the state of the accounts is affected by any equitable set off. On the facts there the mortgagee was held bound to account to the mortgagor for the value of debenture stock of the mortgagor converted to the use of the mortgagee.

[29] Accordingly, the assignee of the mortgagee was likewise bound; and while Cozens-Hardy MR described the situation as one raising an equity by which the assignee was bound[14], Swinfen Eady LJ simply held (at 31) that the assignee was not entitled to assume that the whole sum remained owing and should have inquired of the mortgagor; the mortgagee's liability to account to the mortgagor for the value of the debenture stock (converted by the mortgagee to his use) reduced the amount owing by the mortgagor to the mortgagee, and the bank as transferee of the mortgagee could only claim what was due from the mortgagor to the mortgagee when the mortgagor first received notice of the transfer. His Lordship was describing an actual liability to the mortgagor for a specific amount - the value of the converted debentures - and not an equitable set off.

[30] Lord Phillimore LJ wrote that the debit of the plaintiff as mortgagor to the mortgagee, starting on the footing of an original advance, was to be reduced by the value of the stock converted by the mortgagee to his own use at a date subsequent to the creation of the mortgage; His Lordship considered the mortgagor was entitled to affirm the transaction and treat the mortgagee as liable to him for the proceeds of the converted debenture stock, as money had and received to the mortgagor's use. It appears that the majority proceeded on the basis of the specific sum the mortgagor could claim from the mortgagee, reducing the debt owed by the mortgagor, and thus the secured debt assigned.

[31] Mr Hackett also relied on Norrish v Marshall [1821] EngR 201; (1821) 5 Madd 475; 56 ER 977 and the statement by the Vice Chancellor, Sir John Leach, describing a general principle that an assignee of a mortgage, without notice to the mortgagor, is bound by the equities between the mortgagor and the original mortgagee. That learned judge wrote:**

"The principle is that as against an assignee without notice, the mortgagor has the same rights as he has against the mortgagee, and whatever he can claim in the way of set off, or mutual credit, as against the mortgagee, he can claim equally against the assignee."

**However, in that case the facts were that the mortgagor had in fact repaid the mortgagee the money lent, by way of money and wine; the mortgagee had assigned without notice to the mortgagor. On those facts the references by Sir John Leach to the "equities" between mortgagor and original mortgagee binding an assignee of the mortgagee do not go far enough to assist Mr Hackett's argument. Norrish v Marshall was a case where no debt remained by the date of the assignment, and De Lisle v Union Bank was one where the mortgagee was indebted to the mortgagor for a separate, specified amount.

[32] Mr Hackett took comfort from Parker & Anor v Jackson [1936] 2 All ER 281, and the statement by Farwell J (at 291) that:**

"... I am unable to escape from the conclusion that the assignee, taking without the concurrence of the mortgagor and without notice, takes subject to any rights of set off or otherwise which the mortgagor had against the assignor; and, as in this case the mortgagors had an undoubted right of set off against the assignor Jackson, under those circumstances the defendant Miss Davies is in no better position than Jackson would have been; that is to say, the burden of the plaintiff cannot be increased by any step taken by the mortgagee without notice to the mortgagor. The mortgagors cannot be deprived, by an assignment made without notice to them, of any rights which they had as against the original mortgagee by an assignment by him to some third person. The person who takes an assignment of a mortgage without the concurrence of the mortgagor runs a very serious risk and may find himself, as this lady unfortunately finds herself, in the position of having parted with her money and getting nothing whatever for it."

**[33] As in Norrish v Marshall, the reference to a right of "set off" against the assignor assists Mr Hackett, but those statements were made in the context of rather different facts. In that case they were complex, but simplifying them a little, the mortgagee had had in the mortgagee's possession a larger sum of money to which the mortgagor was beneficially entitled, and the mortgagee could have exercised a right of set off, against the sum due from the mortgagee to the mortgagor, of the (smaller) debt owed by the mortgagor to the mortgagee; as it happened, the mortgagee did not exercise the set off open to it. The mortgagee assigned, and Farwell J wrote that the assignee took subject to any accounts as between the mortgagors and the transferor (there had been no notice to the mortgagor of the assignment). He held that if the mortgagor had sought to redeem the mortgage, the mortgagee (who held an amount payable to the mortgagor very much in excess of anything due to the mortgagee under the mortgage) would have been bound to hand over the title deeds and release the property from the mortgage without the payment of any sum to the mortgagee; but of course thereby reducing the amount of the mortgagee's indebtedness to the mortgagor. When all that is understood, that case does not assist Mr Hackett's contentions, because there the mortgagee had to give over or account for a larger amount of money and had a capacity for an immediate set off, reducing the mortgage debt to nothing.

[34] I add that Farwell J held that had the necessary accounts been taken at an earlier time, the mortgagor would have been entitled to have the benefit of the redemption without the payment of any actual money, and accordingly the assignee of the mortgagee - who was entitled to an account of the money due, the principal, the interest and the costs - would find that the balance was all in favour of the mortgagor and was obliged to have the property redeemed without the payment of any money to the assignee. The learned judge acknowledged that no directions had been given by the mortgagor to the mortgagee, to make the set off available to the mortgagee, but considered the case had to be decided as if the mortgagor had sought to redeem the mortgage from the mortgagee. That case was not about an equitable set off, but about money actually held by the mortgagee and owing to the mortgagor.

[35] Mr Morrow referred to a number of authorities which he contended established that an equitable set off played no role in the taking of accounts between mortgagor and mortgagee, and that one could not be relied on to prevent a mortgagee exercising rights under the mortgage. Mr Hackett's argument emphasised that he accepted much which appeared in those authorities, but he contended that his set off reduced the mortgagor's debt. But the thrust of those cases is against a capacity to rely on an equitable set off to reduce the debt. In Samuel Keller (Holdings) Ltd v Martins Bank Ltd [1970] 3 All ER 950 Russell LJ, with whom Edmond Davies LJ and Cross LJ agreed, wrote as follows:**

"... but it was said that when the mortgage was created as a result of a contract which gave rise to the very claim for unliquidated damages for a breach thereof there should in equity be a power in the court to postpone the exercise by the mortgagee of his otherwise undoubted rights until that issue was decided, although it was, on the other hand, accepted that even in such a case the court would not step in to prevent the exercise by the mortgagee of his power of sale. It was nevertheless argued that it would step in to prevent any present exercise of the mortgagee's subsequent remedies against the proceeds of sale. Put as a matter of equity in terms of fairness it was explicitly, or implicitly perhaps, argued that when the mortgage was part of the purchase price which would not have been paid at all had the matters of complaint (if established) been known at the time of the contract, some check should be put on the full exercise of the mortgagee's rights until the issue has been determined. Authority for such a proposition is undoubtedly lacking and, if I may say so, reference to cases which showed that an assignee of a mortgage debt takes subject to the state of accounts between the mortgagor and the transferor of the mortgage do not seem to me to afford any guidance."[15]

**[36] Then, of course, there is the decision of the High Court in Inglis v Commonwealth Trading Bank of Australia (1971) 126 CLR 161. The plaintiffs had sought an interim injunction restraining the defendants from exercising their rights as mortgagees; the plaintiffs sought damages against the defendant for breaches of contract, defamation, for fraud, and conspiracy, and disputed that any debt was owed, contending that any debt that did exist was more than counter-balanced by the damages to which the plaintiffs claimed to be entitled. In a well known passage, Walsh J held that a general rule had 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 would not be granted unless the amount of the mortgage debt, if that was not in dispute, be paid, or unless, if the amount be disputed, the amount claimed by the mortgagee be paid to court.

[37] His Honour was referred to Samuel Keller (Holdings) Ltd v Martins Bank Ltd, and discussed that case and Morgan & Son Ltd v S Martin Johnson & Co Ltd, Piggott v Williams, and other cases. He considered that none of those earlier cases affected the principles enunciated in the decision in Samuel Keller (Holdings) Ltd v Martins Bank; His Honour had remarked earlier that courts would not as a general rule interfere to deprive a mortgagee of the benefit of a security, except on terms that an equivalent safeguard was provided to the mortgagee. He added:**

"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."

**He added that the fact that such claims had been brought provided no valid reason for the granting of an injunction to restrain the mortgagee. That judgment by Walsh J was upheld on appeal to the Full High Court, without separate or further reasons being provided.

[38] Mr Hackett sought to distinguish it, emphasising that he had not sought any injunctive order against the respondent in the application determined by the learned trial judge. His pleadings did seek such injunctions against the respondents in the statement of claim, and the caveats which his client had lodged effectively handicapped the respondents in exercising their rights under the mortgage. That decision in Inglis, which is binding, describes a well settled principle which this appeal necessarily challenges. That is because the appellant opposes the mortgagee's exercise of its powers as a secured creditor for a specified debt, until the determination of the mortgagor's claim for damages against the original mortgagee. The principle in Inglis would have prevented the mortgagor restraining the first defendant, the original mortgagee, from exercising its rights as a secured creditor, and no good reason appears as to why the mortgagor should be in a better position against the mortgagee's assignee. Mr Hackett contended that the claimed damages gave rise to a right of set off recognised in the decisions he relied on, but I consider those distinguishable.

[39] The principle in Inglis is not absolute, and in Glandore Pty Ltd v Elders Finance & Investment Co Ltd [1984] FCA 407; [1985] ATPR 40-517 Morling J was prepared to grant an interlocutory injunction to a mortgagor, on the condition the mortgagor paid the outstanding interest, until the hearing; that mortgagor had claimed for relief under s 87 of the Trade Practices Act (Cth), asking for a variation of the terms of the loan agreement. Morling J thought that if the mortgagor's real claim against the mortgagee was for damages only, interlocutory relief should be granted only on terms that the amount of the mortgage was paid into court and the general rule referred to in the Inglis case would apply; if it were not such a case, it was open to the court to grant relief sought upon terms other than payment of the full amount of the mortgage. In Mainbanner Pty Ltd & Ors v Dadincroft Pty & Ors [1988] ATPR 40-896 Pincus J (as His Honour then was) considered there may have been some tendency to relax the requirements of the rule described in Inglis, and was prepared to assume the correctness of the contention that he had a discretion; His Honour considered it would be generally incorrect to exercise that discretion in favour of an applicant relying on prospects of success on an alleged oral misrepresentation. To do otherwise would tend to destroy or weaken people's confidence in securities they had taken. Those observations are relevant here.

[40] Mr Hackett accepted that the respondents took a registered title to an estate or interest in land, and an indefeasible title to the personal liability of the mortgagor for the mortgage debt.[16] The title the respondents took on registration of their mortgage was subject to the terms of the instrument.[17] The security the respondents obtained by a registered mortgage would be nugatory if the mortgagor could in various ways delay their exercise of their rights under that security until the mortgagor had concluded litigation about unregistered oral terms of the agreement between himself and the mortgagee.

[41] Mr Hackett did refer the court to one case where an equitable set off for damages was allowed against an amount secured by a mortgage, and where the court held a sub-mortgagee - who gave notice after the mortgagee had gone into liquidation and after the mortgagor's right to damages against the mortgagee had arisen - took subject to the plaintiff mortgagor's equitable right of set off. That was a case of Popular Homes Ltd v Circuit Developments Ltd [1979] 2 NZLR 642 in which Barker J found for the plaintiff mortgagor. The case was referred to, without any critical comment, in Hill Corcoran Constructions v Navarro. In that case a builder had bought land, building plans, specifications, engineering and survey work for $75,000, and the first defendant mortgagee undertook to provide the plaintiff builder with development finance of $100,000, and make monthly progress payments aggregating to 75 per cent of the cost of the work. That defendant defaulted, and the plaintiff was unable to complete the project and repay the mortgage. The first defendant had sub-mortgaged its interest, and went into liquidation. The plaintiff claimed damages for breach of contract, and a right to set off any damages awarded against the amount secured by the mortgage. Barker J held, applying inter alia Morgan & Son Ltd v S Martin Johnson & Co, that the plaintiff mortgagor fell within the necessary criteria for an equitable set off (in accordance with what His Honour considered to be the English view of equitable set off), namely that the claims arose directly under and affected the contract on which the mortgagee relied. That learned judge also thought the plaintiff's case satisfied what the judge described as the "Australian view", namely that there needed to be an equity which impeached the validity of the plaintiff's claim.

[42] Barker J held that the third defendant, the sub-mortgagee, must take subject to the plaintiff's rights of set off against the head mortgagee, observing that it was clear from such cases as De Lisle v Union Bank of Scotland and Parker v Jackson that a sub-mortgagee takes an assignment subject to legal rights of set off which exist between mortgagor and mortgagee. I respectfully agree, but Barker J then held that that rule also "applies to equities", holding that because notice of the sub-mortgage was not given to the plaintiff until after the first defendant had gone into the liquidation, and because the plaintiff's damages flowed out of and were inseparably connected with the dealings and transactions which gave right to the assigned debt, the sub-mortgagee took subject to the rights of equitable set off. That conclusion goes further than the decision in Inglis and the cases on legal set off. The judge gave judgment for the plaintiff in an amount fixed by the judge, together with costs, and declared that the plaintiff could set off that judgment amount against the sum owing by the plaintiff under the mortgage to the first defendant. I respectfully observe that what was set off was a liquidated sum, calculated by the judge.

[43] Barker J quoted as authority, for extending the right of legal set off "to equities", a passage in Meagher, Gummow and Lehane: Equity Doctrines and Remedies (Butterworths 1975 Ed) at para 699. That part of that text dealt with the rights and liabilities of equitable assignees. (In the 4th Ed, the topic is dealt with at [6-490] et seq). In this matter the respondents, as registered mortgagees, are in a much stronger position than equitable assignees of a chose in action. They are entitled to exercise their rights as secured creditors for the debt in the written mortgage and documents, and the weight of authority gives them that right irrespective of the appellant's unliquidated claims against the first and second defendants. Those claims are not available as a set off reducing the debt owed under the mortgage.

[44] The learned trial judge hearing the matter understood that Mr Hackett was contending that no debt was owed because of the pleading numbered 10(b). In this Court Mr Hackett explained that that particular pleading was not relied on, and indeed could have been omitted. He did not complain about the outcome below based on 10(b). In my respectful opinion, had Mr Hackett pursued the argument made on this appeal before the learned judge, based on 10(a), the result would have been the same. The learned judge would, and should, have concluded that the caveats lodged by the appellant should be removed, because there was no serious question to be tried which would justify leaving the caveat undisturbed. The appellant does not argue that the decision below was in error in any way on the grounds on which it was given, arguing only that it has a real prospect of succeeding on its claim against the respondents, refashioned in argument as described. But even on that refashioning the appellant has no real prospect of succeeding in the relief claimed against the respondents, namely restraining them from exercising any powers pursuant to the mortgages and for orders requiring them to execute releases of those.

[45] I would dismiss the appeal, and order the appellant pay the respondents' costs of the appeal.

[46] HELMAN J: I have had the advantage of reading the reasons prepared by the President and Jerrard J.A. and agree with their analyses of the facts of, and the issues arising in, this case.

[47] The appellant, the mortgagor, did not join in the transfers of the mortgages to the respondents. It is well established that in those circumstances a transferee is bound by the state of accounts between the mortgagor and the transferor:

De Lisle v. Union Bank of Scotland [1914] 1 Ch 22; Parker v. Jackson [1936]

2 All ER 281; and Nioa v. Bell [1901] ArgusLawRp 57; (1901) 27 VLR 82; and see Fisher and Lightwood's Law of Mortgage (Aust. ed., 1995) para. 14.1, p. 301. If that prudent course is not followed it may result in the transferee's acquiring a valueless security, as it is contended on behalf of the appellant is so in this case.

[48] The appellant relied on that rule in pursuing its claim against the respondents, asserting that it entitled to injunctions restraining them from exercising any power conferred on them by the mortgages and requiring them to execute releases of the mortgages. The learned primary judge was, in my view, correct in deciding that the respondents should have the interlocutory relief they sought, that the appellant should be ordered to remove the caveats it had lodged. That result must follow from an application to this case of the rule explained in Inglis v. Commonwealth Trading Bank of Australia (1971) 126 CLR 161.

[49] Inglis v. Commonwealth Trading Bank of Australia was a case in which an interlocutory injunction was sought by a mortgagor restraining the mortgagee from exercising powers conferred by the mortgage because the mortgagor claimed to be entitled to set off against any debt existing under the mortgage damages for breaches of contract, defamation, fraud, and conspiracy claimed against the mortgagee that the mortgagor claimed would exceed the mortgage debt. It was held that as a general rule an injunction will not be granted restraining a mortgagee in such circumstances from exercising powers unless the amount of the mortgage debt, if this is not in dispute, is paid, or, unless, if the amount is disputed, the amount claimed by the mortgagee is paid into court.

[50] As explained in Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2002), Inglis v. Commonwealth Trading Bank of Australia is an example of the application of the maxim 'He who seek equity must do equity':**

[3-080] Another important application comes from the law of mortgages: a mortgagor in default cannot obtain an injunction to restrain his mortgagee's breach of duty unless he either repays all principal and interest claimed - not admittedly owing - to the mortgagee or else pays them into court: Inglis v Commonwealth Trading Bank of Australia (1971) 126 CLR 161; [1972] ALR 591; Parry v Grace [1981] 2 NZLR 273 at 279-80 (where there is a citation of the first edition of this work). See also Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VicRp 26; [1976] VR 309; Altarama Ltd v Camp (1980) 5 ACLR 513. Two recent examples of this principle are Nicholas John Holdings Pty Ltd v ANZ Banking Group Ltd [1992] VicRp 98; [1992] 2 V.R. 715; Allfox Building Pty Ltd v. Bank of Melburne Ltd (1992) NSW Conv R 55-634; BC9201895. This is a rule which can, obviously, operate somewhat harshly if, for example, the mortgagee is exercising his power of sale in an improper manner. Yet, so far, the rule has been applied almost inflexibly: a mortgagor in default who is unable to repay the moneys secured is almost invariably denied equitable relief and relegated to his pecuniary claim. It is true that in ; at 504; ; at 87-8, Walsh J held that the court, when imposing the condition as to payment into court as a price of injunctive relief, can order that on the taking of any account the mortgagee shall not be entitled to interest after the payment in. This was asserted as one instance of use of the imposition of conditions to achieve the 'objective of doing justice between the parties'. But Walsh J made it clear that there was no challenge to the general rule as to payment. To this the only established exceptions are (a) where the amount claimed by the mortgagee is obviously wrong, or (b) possibly, when there is a question as to whether the mortgagee's power has become exercisable at all.

As to the latter Sugerman J said in Harvey v McWatters [1948] NSWStRp 58; (1948) 49 SR (NSW) 173 at 178:

There is a distinction between what I have called the ordinary case and the case in which the existence of the power of sale or the question whether it is exercisable at all is in question. The present case is of the second class. What is called the ordinary rule applies to cases of the first class, and to those cases only. This flows from the principles and reasoning on which that rule depends. Cases of the second class are, as regards interlocutory applications, governed by a rule of similar type. But it is a rule resting on different principles and reasoning. These permit of a greater flexibility. They do not require that in every case the whole amount claimed or sworn to by the mortgagee or seen from the terms of the instrument to be the greatest amount that could be due should be paid in. The terms may be moulded so as to require payment in of so much only as suffices to give adequate protection to the mortgagee.

Harvey v McWatters was applied in Fletcher v Ould Pty Ltd BC 200008296; [2000] WASC 322. (pp.93-94).

**[51] Harvey v. McWatters was a case in which the mortgagor under a bill of sale sought an injunction restraining the mortgagee from selling certain motor meat vans mortgaged in purported exercise of a power of sale under the bill of sale. It was common ground that £1,500 in notes had been paid by the mortgagor to the mortgagee, but there was a dispute as to the time when, and the terms on which, it was paid, and as to what the transaction was. The mortgagor gave in evidence an account of the transaction the effect of which was, if her account was believed, that there had been no default under the bill of sale. The mortgagee in his statement of defence gave an account of the transaction and of the payment of the £1,500 which, if correct, established default by the mortgagor to the extent of £2,337.2.11. Although, as Sugerman J. observed at p. 175 the mortgagor was setting up an equitable (not contractual) right to redeem against the exercise of an undoubted legal power, it should be noted that the claimed payment was of course a liquidated sum asserted to have been made in reduction of the mortgage debt. That case is therefore distinguishable from Inglis v. Commonwealth Trading Bank of Australia and this case, where unliquidated demands are sought to be brought to account now. Walsh J., at first instance in Inglis v. Commonwealth Trading Bank of Australia, referred with approval to a statement by Megarry J. in Samuel Keller (Holdings) Ltd v. Martins Bank Ltd [1971] 1 WLR 43 to the effect that a doctrine of the discharge of a mortgage debt by the existence or unilateral appropriation of an unliquidated claim was not to be countenanced. This case is therefore governed by the general rule and not by the exception recognized in Harvey v. McWatters.

[52] In this case the effect of the caveats lodged by the appellant is the same as that of an injunction: there is no material difference between the respondents' position and that of a mortgagee against whom an injunction is sought. There has been no offer by the appellant to pay the sums claimed by the respondents into court, so that the respondents are entitled to exercise the rights conferred on them by the mortgages. The appellant is therefore now relegated to any pecuniary claims it might seek to pursue. Those claims are at present not capable of preventing the exercise of the rights of the respondents under the mortgages.

[53] The respondents, as registered transferees of the mortgages, hold indefeasible titles to their interests. In R. Derham, The Law of Set-Off (3rd ed., 2003) it is pointed out, on the authority of Long Leys Co Pty Ltd v. Silkdale Pty Ltd (1991) 5 BPR 11,512 at 11,519-11,520, however, that the principle of indefeasibility of title is separate from, and does not affect, the principle that the transferee of a Torrens system debt takes subject to set-offs available to the transferor, and that therefore, where an equitable set-off would have provided a defence to the mortgagor to an action for possession by the original mortgagee, the defence should be equally available as against a transferee of the mortgage : para. 17.72, p.831. It was not in issue before us that the indefeasibility of the respondents' titles was a matter separate from the question of the state of the accounts between the appellant and the original mortgagee. As to the second proposition, however, the rights of the appellant are of course to be determined subject to the rule applied in Inglis v. Commonwealth Trading Bank of Australia. But that rule relates only to interlocutory relief and it does not follow that the claimed set-offs cannot be pursued. They may be; and, when adjudicated upon, may become liquidated sums available to be set off against the mortgage debts: see Derham, para. 4.99, pp. 139-140 where Newman v. Cook [1963] VicRp 91; [1963] VR 659 is referred to; see also Popular Homes Ltd v. Circuit Developments Ltd [1979] 2 NZLR 642.

[54] I therefore conclude that her Honour was correct in granting the interlocutory relief sought by the respondents, but I respectfully disagree with the conclusion of the other members of the court that her Honour was correct in disposing summarily with the appellant's pecuniary claims against the respondents which take the form of a claim to a declaration that there is no money due and owing by the appellant and secured by the mortgages. That claim is yet to be determined in accordance with the rule I mentioned first; and if the proceeds of sales are not sufficient to satisfy the mortgage debts, as appears likely, the state of the accounts will for that reason, if for no other reason, remain a live issue, because the mortgage debts will not have been discharged by the sale and the respondents will be entitled to pursue the appellant for the deficiencies: Fisher & Lightwood, op. cit., para. 20.34 at p. 474.

[55] I conclude then that her Honour's orders concerning the interlocutory relief sought by the respondents should not be disturbed, but the order that judgment be entered for the respondents should be set aside.**

[1] [1901] ArgusLawRp 57; (1901) 27 VLR 82.

[2] [1935] St R Qd 294, 318.

[3] [2004] QSC 130; [2005] 1 Qd R 1,7-8.

[6] [1984] 1 Qd R 421, 422-423.

[7] (1970) 3 All ER 950, 952-953, Russell LJ affirming the view of Megarry J below.

[8] [1914] 2 KB 284, 287-288_._

[9] [2006] EWCA Civ 403; [2006] 3 All ER 1200, 1204-1205, 1211, 1216, para 9-10, 42, 64.

[10] [1987] 1 Qd R 283, 294-298

[12] At [1949] 1 KB 107 at 112.

[13] At [1949] 1 KB 107 at 113.

[14] At [1914] 1 Ch 22 at 28.

[15] At [1970] 3 All ER 950 at 952.

[16] Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 434 per Dixon J and Evatt J; Tessman v Costello [1987] 1 Qd R 283 at 296 per Williams J as His Honour then was.

[17] See Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11,512, cited by Giles J in PT Ltd v Maradona (1992) 25 NSWLR 643 at 676).