Garnock v Black [2005] NSWCA 475 | Case summary

21 December 2005 BRYCE LACHLAN GARNOCK & ORS v STUART ALEXANDER BLACK & ORS Judgment 1 BASTEN JA: The appellants in these proceedings, and the claimants on the motion, are purchasers for value of a property in southern New South Wales, near Bombala. The First-Third Respondents are judgment creditors of the vendor of the property, who is the Fifth Respondent. The Fourth Respondent is the Sheriff of New South Wales. 2 The First-Third Respondents obtained a writ for levy of property issued by the District Court and registered under the Real Property Act about two hours before settlement of the purchase took place on 24 August 2005. 3 The writ was delivered to the Sheriff on 26 August, the day on which the transfer was lodged with the Registrar General for registration. Because the writ was received earlier in time, the Registrar General declined to register the transfer. 4 The Appellants then commenced proceedings in the Equity Division seeking to restrain the Respondents from disposing of the property pursuant to the writ. Those proceedings were heard by Lloyd AJ on 21 and 22 November, a final judgment being given on 2 December 2005. His Honour dismissed the summons. 5 On 12 December 2005, the Appellants lodged a notice of appeal and, on the same day, a notice of motion seeking an interlocutory injunction against the First-Fourth Respondents, pending determination of these proceedings. 6 Such an interlocutory injunction had been given by Campbell J in the Equity Division, prior to the hearing of the summons. That order ceased upon the determination of those proceedings. The Appellants seek a further order in this Court in similar terms. 7 The Appellants presented their submissions by reference to the principles identified in Jesasu Pty Ltd v Minister for Mineral Resources (1987) 11 NSWLR 110, esp at 117C-G (Kirby P). The other member of the majority in that case, Priestley JA, did not expressly adopt those principles nor is there such adoption in the judgment of the third member of the Court, Mahoney JA, who was in dissent. However, the principles have been applied subsequently, including their adoption by Mason P in Archer v Archer [1999] NSWCA 286 at [9], but noting that the summary given by Kirby P in Jesasu should "not be read as a legislative code" and that the judgments contained a more detailed discussion of the relevant principles. 8 One point is clear, and was not in contention in this case, namely that the Court had power to grant injunctive relief. Nor was it suggested that the powers of the Court could not be exercised by a single judge: see Supreme Court Act 1970, s 46(2)(b). 9 The first matter addressed by counsel for the Appellants was that the point of law sought to be agitated on the appeal was by no means unarguable. At the very least, it was put that the arguments presented below, albeit rejected by Lloyd AJ, could not be described as "futile, frivolous or manifestly doomed to fail" adopting the language of Kirby P in Jesasu at 115F-G. Perhaps more important than the language used to describe such a test are the two factors which identify the purpose of the power and the nature of the application. So far as the purpose of the power is concerned, the power is invoked in order to preserve the subject matter of the litigation, pending determination of the proceedings. That factor suggests that the first question should be whether there is a real and substantial risk that the subject matter will be lost, absent the grant of an injunction. 10 In some cases that risk may be demonstrated merely by the fact of resistance to the order sought: see, eg, Jesasu at 124A-B (Priestley JA). In the present case, more than that can be said, as will be noted below. 11 Secondly, in relation to the nature of the application, an assessment of the grounds should make it apparent that the grounds are unarguable without lengthy debate, lest the application for an interlocutory injunction become a preliminary hearing of the appeal. 12 Before Lloyd AJ, a preliminary question was determined first, namely whether the Appellants had "title" to the land for the purposes of s 112(2) of the Civil Procedure Act 2005 (NSW). The reason for determining that matter as a separate question was that, on a finding adverse to the Appellants, there would be no need to consider whether the Appellants acquired the land "in good faith and for valuable consideration". As the Respondents were successful on that argument, contested factual issues were not addressed by his Honour in his judgment of 2 December 2005. 13 On 7 October 2005 the Appellants (then the plaintiffs) made an application for an interlocutory injunction, pending determination of the proceedings in the Equity Division, which application was granted by Campbell J: see Garnock v Black [2005] NSWSC 1052. In the course of that judgment, his Honour set out the contending positions of each party at [14]-[29]. His Honour concluded that there were serious questions to be tried, both in relation to the application of s 112(2) of the Civil Procedure Act and in relation to what has been described as "the priority of interests argument". 14 Since his Honour formed those views, there have, of course, been the two judgments of Lloyd AJ on 21 November 2005 - Garnock v Black [2005] NSWSC 1217 - and on 2 December 2005 - Garnock v Black [2005] NSWSC 1218. Although Lloyd AJ reached a decision favourable to the Respondents in each case, I do not think it can be said that his Honour's reasoning demonstrates that the Appellants' case is manifestly unarguable. 15 The second question to be addressed is compendiously described as the balance of convenience. It requires the assessment of potential prejudice on either side of the record, resulting from the grant or refusal to grant the injunction sought. That question cannot usefully be answered without considering the terms of an order which might, by way of conditions or undertakings, be crafted so as to ameliorate or avoid prejudice which might otherwise arise. 16 The present case appears to involve a stark choice: if an injunction is granted, one party will lose its rights, whereas if no injunction is granted, the other party will lose its rights. The Respondents, having obtained registration of the writ on 24 August 2004, obtained the protection conferred by ss 105A and 105B of the Real Property Act 1900 (NSW). That protection is limited, however, to what is described as "the protected period", being defined in s 105A(9) as the period beginning when the writ is recorded in the Register and ending at the expiration of six months from that date. Thus the Respondents can ensure that a purchaser obtains a good title by registration, only if the sale is effected within that period. The Appellants, having purchased the land, have lodged the necessary transfer and accompanying documents to give effect to their title. Those documents cannot be registered while a record of the writ remains on the Register or a sale is effected, but can be registered once the protected period has expired without the writ being executed by sale of the land: see s 105A(6). 17 In his judgment of 7 October 2005, Campbell J noted at [5] that the original judgment debt of September 2004 was $228,000. By 23 August 2005, including interest and other costs, the debt exceeded $243,000. According to the written submissions for the Respondents, dated 16 December 2005, the debt has since been reduced to approximately $165,000, according to counsel for the Respondents, by the appropriation of part of the deposit paid to the agent for the vendor on the execution of the contract of sale by the Appellants. Interest will continue to accrue on that outstanding balance. 18 The potential prejudice to the Respondents flows from the asserted fact that if the Sheriff is not able to sell the property prior to 24 February 2006, they will lose their right to recover the judgment debt through the writ. 19 On the other hand, if the Sheriff does sell the property, so as to pass a good title to the purchaser, the Appellants will have paid $1,000,000 and acquired nothing. 20 There are two curious aspects of this mutual prejudice. The first is that neither party was able to suggest a legal mechanism by which the writ could be renewed or reissued, with the result that a further "protected period" would arise, without there being a point in time during which the Appellants' transfer would be registered. Secondly, there has been no satisfactory explanation as to how the judgment creditors were able to obtain at least part of the deposit in diminution of the debt, but no part of the balance of the $1,000,000 purchase price. It was suggested from the bar table, though without evidential support, that the balance of the purchase price had gone to pay off secured creditors. However, if that were correct, it would seem unlikely that the Respondents would have received sufficient from a sale of the property by the Sheriff to allow for repayment of their debt, unless the sale to the Appellants was at a price well below that which the Sheriff could obtain by auction, or the secured creditors had been otherwise satisfied. 21 The remaining consideration referred to by the parties was an exchange of letters of 7 and 8 December 2005. The earlier letter, from the Appellants' solicitors, sought an undertaking from the Respondents not to execute the writ, pending determination of an appeal. The Respondents' replied the following day, stating that they were not prepared to give the undertaking and continuing: "Please note that in relation to any injunction sought by your clients, our clients will be seeking from your clients the usual undertaking as to damages. In this regard, should the sale of Wanaka be jeopardised by an injunction obtained by your clients and your clients fail in the appeal, we anticipate that the damages will include at least the amount still owing to our clients by the judgment debtors, plus interest." 22 By way of an alternative, the Respondents offered to agree to allow the transfer of the property to the Appellants, subject to the Appellants giving the Respondents a registered security over the property. 23 This "practical alternative" may have become something of a distraction. Since all that the Appellants sought was a transfer of the property into their names, it is difficult to understand the precise mechanism by which the Respondents could allow that to happen, and yet keep on foot the appeal in order to determine whether they were entitled to a registered security (said at the hearing to be a first mortgage), so that the mortgage could be discharged if the Appellants were successful on the appeal. 24 Both the practical alternative, and a special undertaking (referred to below) sought in the submissions, carry at least a hint that the Respondents were seeking to improve their position from that which obtained prior to the sale to the Appellants. At that stage they appear to have had a power to execute against a heavily encumbered property; thereafter, they enjoyed a power to execute against a property which appears to have been unencumbered, at least if the purchaser price was used to discharge the debts of the secured creditors. 25 The Respondents sought, in addition to the usual undertaking referred to in their letter, a special undertaking, entitling them to claim the amount of the outstanding debt without having to demonstrate, in a possibly contested hearing, that absent the injunction they would have been able to sell the property and obtain the benefit of the proceeds of sale. 26 It was accepted by counsel for the Appellants that the proposition set out in the Respondents' letter of 8 December, and set out above, fairly summarised the effect of the usual undertaking to be found in rule 25.8. However, the Appellants proffered no evidence that they had indicated a willingness to give such an undertaking prior to the hearing of the application, by which time the Respondents had taken the position that some additional form of undertaking was required. 27 In my view the usual undertaking, as proffered, should be a condition of the grant of an interlocutory injunction. I am not persuaded that any different or additional order should be made. 28 Once the effect of such an undertaking is appreciated, the position of the Respondents is, in my view, sufficiently protected, so that the balance of convenience favours the grant of an interlocutory injunction to prevent a sale by the Sheriff, pending determination of the appeal. 29 The remaining question concerns the costs of this application. It was, as the Appellants note, a contested application in which they have been successful. Nevertheless, for reasons given above, there has been some confusion as to the precise position of each of the parties pending this hearing. The Appellants are partly responsible for that confusion. In seeking an undertaking in place of an interlocutory injunction, the Appellants did not proffer the usual undertaking on their part as consideration for an undertaking by the Respondents. Nor did they respond to the suggestion that any injunction should be conditioned upon the giving of the usual undertaking. In my view the appropriate course is to make the costs of this application the Appellants costs of the appeal. 30 The orders of the Court, as given orally, at the completion of the hearing, are as follows:

Garnock v Black

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Judgment (12 paragraphs)

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