Supreme Court of WA|2000-12-11|Before: Mr P, Steytler J

Fletcher & Anor v Ould Pty Ltd [2000] WASC 322 (11 December 2000)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : FLETCHER & ANOR -v- OULD PTY LTD [2000] WASC 322

Mortgages and securities - Power of sale - Interlocutory injunction - Application to restrain mortgagee from proceeding with sale - Balance of convenience - Turns on own facts

1 STEYTLER J: This is an application brought by way of a motion for an interlocutory injunction. The plaintiff seeks orders that the defendant be restrained from selling, transferring, pledging or in any way disposing of certain land situated at 77 Wheatley Crescent, Bullcreek pursuant to powers which the defendant asserts as mortgagee of that land.

2 While the motion also seeks orders restraining Knight Frank Real Estate Agents and Auctioneers from doing certain things, that firm is not a party to these proceedings and consequently no order can be granted against it although it is, of course, the defendant's agent in these proceedings and the orders sought seek to restrain the defendant from doing the things to which I have referred whether by its agents or otherwise.

3 The plaintiff, in an affidavit sworn by him on 6 December 2000, has said that he is the registered proprietor of the commercial building and land situated at 77 Wheatley Crescent ("the property"). He says that he presently leases the property to a company known as Tonesports Pty Ltd, which company operates a chain of health clubs in the Perth metropolitan area known as BC The Body Club. The property is utilised as a health club. He has said that the term of the present lease expires in 2010 and that the lease generates an income of approximately $24,500 per month, which rental is his sole source of income.

4 The plaintiff says, in his affidavit, that on about 4 July 1995 he entered into a mortgage with the defendant as mortgagee whereby the property was mortgaged to secure a principal sum of $50,000. He has also said that, contemporaneously with his execution of that mortgage, a company, Baysilk Holdings Pty Ltd ("Baysilk"), of which he was then a director, entered into a debenture with the defendant as mortgagee whereby the prospective principal sum of $100,000 was secured. Mr Fletcher says that he was a party to that document in the capacity of guarantor and that the debenture operated as a collateral security to the mortgage.

5 Then, in July this year, the defendant, by its solicitors, issued a notice of demand upon Baysilk as mortgagor and upon the plaintiff as guarantor pursuant to the debenture. The notice of demand claimed a principal sum then said to be due of $100,000 plus interest in the sum of $24,988.80. A demand was also made pursuant to the mortgage in which there was claimed a principal sum of $50,000 plus interest in the sum of $38,945.24.

6 The plaintiff has deposed, in his affidavit, to the fact that all of the outstanding moneys claimed pursuant to the mortgage and indeed all other moneys claimed by the defendant have been repaid, together with interest, some time ago. He has supported his contentions in this respect by reference to documents which are exhibited to his affidavit.

7 The plaintiff goes on to say that the property has been advertised for auction, which is scheduled to take place on 13 December 2000. He says, as I have previously mentioned, that the income which he receives for the rental of the property is his only present source of income and that, from that income, he meets interest payments on a facility of $2,500,000 owed by him to St George Bank. He says that the loss of this income will lead to his defaulting on his loan facility and that this will result in mortgagee sales of other real property which he owns.

8 The plaintiff has said, in a supplementary affidavit filed on 4 December 2000, that St George Bank has a mortgage over the property which takes priority over that in favour of the defendant and which secures all of his indebtedness to the bank. He also there deals with his delay in bringing these proceedings and says that he is told by his solicitor that, in a discussion which his solicitor had with the auctioneers in August of this year, his solicitor was told that a mortgagee sale would not take place while the claimed debts remained in dispute.

9 The principles which are to be applied in applications of this case are not in doubt. They have been referred to in a number of cases, examples of which are Australian Coarse Grain Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 57 ALJR 425 and Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) 58 ALJR 283. Those cases and others have held that the task of the court is, first, to inquire whether there is a serious question to be tried and only then to consider where the balance of convenience lies.

10 In this case it is not disputed that there is a serious question to be tried. The defendant asserts that the full amount claimed by it is still owed to it and it disputes the plaintiff's contentions that this amount has been paid in full. However, counsel for the defendant very properly acknowledged that it is difficult to contend, at least on the papers before me, that there is not a serious question to be tried in that respect.

11 However, the defendant contends that the balance of convenience weighs in its favour and also that no injunction should be ordered in the absence of a payment into court of the amount claimed by it.

12 I have in this respect been referred to a number of authorities with respect to the court's discretion in that regard. These are conveniently summarised in Meagher Gummow and Lehane, Equity Doctrines and Remedies, 3rd ed at par 316. The learned authors there refer to the general principle that 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 to the mortgagee or else pays that amount into court. The learned authors there refer to the cases of Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) ALR 591 and Parry v Grace [1981] 2 NZLR 273 at 279 - 280. However, the learned authors also record that there are exceptions to this general principle. They say that these are (a) where the amount claimed on the mortgagee is obviously wrong or, possibly, (b) when there is a question as to whether the mortgagee's power has become exercisable at all. They refer in this respect to the decision of Sugarman J in Harvey v McWatters (1949) 49 SR (NSW) 173 at 178 as follows:

"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 a 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. The terms may be moulded so as to require payment in of so much only as suffices to give adequate protection to the mortgagee."

13 This case is unquestionably a case of the second type referred to by Sugarman J in Harvey v McWatters, above. The plaintiff contends that there is nothing payable and consequently no call for the exercise by the mortgagee of the powers which are afforded to it under the mortgage. He also points, in this respect, to conflicts in the evidence relied upon by the defendant in advancing its claim and contends that even if, which he disputes, any amount was payable this evidence discloses that it could not possibly be the amount claimed.

14 It is difficult, at this stage of the proceedings, to make any assessment of the strength of the plaintiff's claims in this regard. However, it does appear from the evidence on both sides, at least as that evidence presently stands, that there are missing documents and that the relevant accounting records are consequently deficient.

15 The defendant points, in support of its contention as regards the need for a payment into court, to what it submits is the poor financial situation of the plaintiff. It relies in this respect upon the fact that the plaintiff was until 1992 an undischarged bankrupt. That in itself does not, in my opinion, establish anything as regards the plaintiff's present financial status. His situation may, in the ensuing period, have altered significantly. Indeed, it is apparent from what he says that it has.

16 The defendant also points to the fact that proceedings have been commenced against Baysilk, including proceedings by way of an application to wind that company up. However, those proceedings are contested and it is not apparent to me, at least on the papers as they stand, what will be the likely outcome of them.

17 The defendant also contends that the sale itself may be prejudiced if the auction is not held on the scheduled date. In an affidavit prepared today, but which has yet to be sworn, the defendant's solicitor deposes to the fact that he has been told by the auctioneers that if the sale of the property is delayed beyond 13 December 2000 the earliest the property could reasonably be relisted for auction is mid to late February 2001. He has also said that the auctioneer has received three expressions of interest regarding the purchase of the property and that, if the mortgagee sale does not proceed, the auctioneer does not expect those potential purchasers to maintain their interest in the property until mid to late February 2001. He has also said that the auctioneer is concerned that if the auction should be deferred potential purchasers are unlikely to submit offers close to the declared reserve price of $1,900,000. I should say that I am not prepared to place much weight on those assertions as they are unsupported by any evidence and nor is any reasoning offered in support of the conclusions expressed by the auctioneer.

18 The defendant's solicitor has also deposed to the fact that the defendant has incurred advertising and auctioneer's costs of approximately $4,550. He says that those costs will have to be incurred again if the auction is deferred beyond 13 December 2000. While that may be so it would seem to me that the auctioneer's costs, so far as they relate to advertising at least, will not have been entirely wasted.

19 There is one other particularly important item of evidence as it bears on the question of the balance of convenience. That is that there is some prospect at least that, if the auction should be held, the defendant, as second mortgagee, will recover nothing. The plaintiff points, in this respect, to the fact that the amount owing to St George Bank greatly exceeds the amount of the reserve price which has been put on the property by the auctioneers. That fact must be looked at in the light of the fact that the plaintiff has other assets than merely the property sought to be auctioned. The affidavit evidence discloses that the solicitors for the St George Bank have said, in a letter dated 1 December 2000 addressed to the solicitors for the defendant, that their client has not yet finally determined whether or not it will allow the defendant to receive some of the sale proceeds. The letter goes on to say that this issue will depend upon an assessment at the time of the sale of the property and also on such matters as the residual debt at the time, the contract price and the bank's assessment of the value of it's other security.

20 It seems to me, in the light of all of these circumstances, that the balance of convenience favours the plaintiff. This is so both because of the need which the plaintiff has for the rental income which he earns from these premises (which, he says, is higher than that which is likely to be achieved in the open market on other, similar, premises) and also taking into account the fact that the defendant may receive nothing if the auction should proceed on the date appointed.

21 However, it does seem to me that there should be conditions imposed upon the grant of interlocutory relief. While it may be that the plaintiff will ultimately succeed in establishing its contention that there is nothing payable under the mortgage there is at least the prospect that it will be found to be indebted to the defendant in some amount at least. It consequently seems to me that I should impose, as a condition of the grant of interlocutory relief, that the plaintiff should pay into court an amount of $75,000. I have been told in this respect that the plaintiff is unable to raise any money until the end of January 2001 and I am somewhat reluctantly prepared to allow the plaintiff until that time to pay the sum of $75,000 into court. However, if that sum should not be paid in by the end of January 2001, an auction could, I am told, proceed in mid to late February.

22 I consequently propose to allow the application for an interlocutory injunction and to grant an injunction in the terms sought but subject to that condition.

Fletcher & Anor v Ould Pty Ltd [2000] WASC 322

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Judgment (27 paragraphs)

Fletcher & Anor v Ould Pty Ltd [2000] WASC 322 (11 December 2000)

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Cases Cited (2)