Interlocutory injunction application - Mortgagee in possession - Application of general rule in Inglis' case - Injunction refused - Turns on own facts

First Plaintiff : Mr M J McCusker QC & Dr J J Edelman

Second Plaintiff : Mr M J McCusker QC & Dr J J Edelman

Third Plaintiff : Mr M J McCusker QC & Dr J J Edelman

Fourth Plaintiff : Mr M J McCusker QC & Dr J J Edelman

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380

Commonwealth Development Bank of Australia Ltd v Nertec [1999] WASCA 311

Mayfair Trading Pty Ltd v Dreyer [1958] HCA 55; (1958) 101 CLR 428

Nicholas John Holdings Pty Ltd v ANZ Banking Group [1992] VicRp 98; [1992] 2 VR 715

Waterside Workers Federation of Australia v J W Alexander Ltd [1918] HCA 56; (1918) 25 CLR 434

1 BARKER J: During September and October 2002, I heard and dismissed two applications for interlocutory and mandatory injunctions in these proceedings.

2 The first of these applications was the plaintiffs' motion dated 13 September 2002. That was dealt with by me in chambers on 13 September 2002 as a matter of urgency. On that day, having heard submissions by counsel on behalf of the parties, I dismissed the application and gave brief extempore reasons for so doing.

3 The second application was first heard by me on 11 October 2002. Having heard the submissions of counsel for the parties, I acceded to an application by Senior Counsel for the applicants that the application be adjourned sine die and made an order to that effect, with liberty to the parties to apply to relist the matter before me on short notice.

4 On 18 October 2002, the second application was relisted before me for hearing. On that occasion, the applicants proceeded by reference to the plaintiffs' amended chamber summons for interlocutory and mandatory injunctions dated 17 October 2002. After hearing counsel for the parties, I refused the application. When doing so, I indicated that I would provide written reasons for decision in due course. These are those reasons.

5 The application before me involves consideration of whether the oft-stated "general rule" in Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161 should be applied in favour of the defendant and against the commercial interests of the plaintiffs.

6 At the material time of dealing with this application, the defendant ("Macquarie") had served notice of default and made re-entry under a mortgage granted by the first plaintiff ("Linnpark") in respect of a commercial property known as the Midland property.

7 The validity of the notice of default and the re-entry is not in dispute on this application. Nor is the fact that a substantial portion of the amount due under the mortgage and other securities is due and payable to Macquarie.

8 Linnpark effectively acknowledges that it is indebted to Macquarie in the sum of $7,083,926.04. However, it disputes that it is liable to pay Macquarie a further sum of $589,809.22. In other words, of a total amount of $7,673,735.26 that Macquarie says Linnpark owes it as of 27 September 2002, only the sum of $590,000, in round figures, is disputed. The bases on which that amount is disputed are described below.

9 The plaintiffs say they have put in place refinance which will enable Linnpark to pay Macquarie the admitted sum of $7,083,926.04 within a short period of time. The plaintiffs seek the opportunity to dispute their obligation to pay the disputed sum of approximately $590,000. In order to satisfy the general rule in Inglis' case, the plaintiffs say that Macquarie is entitled to continue to hold a second mortgage over land described as the Anketell property. The plaintiffs say that the second mortgage security is more than enough to secure the position of Macquarie. The plaintiffs do not offer any payment into court of the disputed sum, or any other form of security, such as a bank guarantee.

"A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this not be in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into court.

....

In my opinion, the authorities which I have been able to examine establish that for the purposes of the application of the general rule to which I have referred, nothing short of actual payment is regarded as sufficient to extinguish a mortgage debt. If the debt has not been actually paid, the court will not, at any rate as a general rule, interfere to deprive the mortgagee of the benefit of his security, except upon terms that an equivalent safeguard is provided to him, by means of the plaintiff bringing in an amount sufficient to meet what is claimed by the mortgagee to be due.

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 the litigation of those claims had been completed."

11 This general rule was confirmed on appeal. At 126 CLR 169, Barwick CJ observed that the case fell fairly within what he called:

" ... the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument. Failing payment into court of the amount sworn by the mortgagee as due and owing under the mortgage, no restraint should be placed by order upon the exercise of the respondent mortgagee's rights under the mortgage."

12 As observed in Meagher, Gummow and Lehane, "Equity: Doctrines and Remedies" (3rd ed) at page 78 [316]:

"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" (footnote omitted).

13 In Harvey v McWatters (1949) 49 SR (NSW) 173 at 178, Sugerman J recognised that there are circumstances where the general rule does not apply. His Honour said this:

"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."

14 Thus, it appears that the only exceptions to the general rule stated by Walsh J are

(a) where the amount claimed by the mortgagee is obviously wrong and

(b) possibly, when there is a question as to whether the mortgagee's power has become exercisable at all.

15 The general rule with these exceptions has been recognised in other cases: see, for example, Allfox Building Pty Ltd v Bank of Melbourne Ltd & Anor (1992) NSW ConvR 59,625 per Powell J. There are instances, however, where the exceptions to the general rule have either been applied flexibly or without close regard to their terms.

16 In Glandore Pty Ltd v Elders Finance and Investment Co Ltd [1984] FCA 407; (1984) 4 FCR 130, Morling J did not rigidly apply the general rule in Inglis' case, but allowed the mortgagee to provide a substitute security by way of a first mortgage over a farming property in respect of which the Court had no doubt as to the value of the security, especially given that the defendant's own valuers had verified the value. The plaintiff challenged the security by reference to provision of the Trade Practices Act 1974 (Cth). Morling J made express reference to the exceptions to the general rule described by Sugerman J in Harvey v McWatters. It seems proper to suggest that his Honour therefore declined to apply the general rule in Inglis' case because he saw the facts of the case before him as coming within the second exception referred to in Harvey v McWatters.

17 However, there are circumstances in which courts have found that, notwithstanding the general rule, a mortgagee's security will not be jeopardised by the non-payment in: see, for example, Clarke v Japan Machines (Australia) Pty Ltd (No 2) [1984] 1 Qd R 421; Turner v Deepinghurst Pty Ltd [1999] WASC 155 per McKechnie J.

18 In this case, counsel for the plaintiffs contends that the reasoning in Glandore Pty Ltd v Elders Finance and Investment Co Ltd should not be seen only as an application of the second class of exception referred to in the decision of Sugerman J in Harvey v McWatters, but as illustrative of an underlying principle in Inglis' case that an injunction should be granted if the mortgagee can be adequately protected.

19 It is contended that the reasoning in Glandore and underlying Inglis applies with far greater force in a case such as the present. The payment of the entire amount is not disputed, and the provision of a second mortgagor in the case of the disputed sum of $590,000 is said to secure "adequate protection" for the defendant and to provide "an equivalent safeguard" to the security that currently exists. It is said that, even on the basis of a forced sale, a conservative valuation estimates that the security provided to the defendant, as a second mortgagee, amounts to approximately $1.5 million, which is considerably more than double the value of the disputed debt.

20 The plaintiffs contend that, in "doing justice between the parties", the Court should consider that if an injunction is not awarded, the first plaintiff will suffer irreparable prejudice due to its inability to discharge the debt due to the defendant and acquire alternative finance. Refinancing, it is said, will save the first plaintiff $84,500 per month.

21 As to be expected, the first plaintiff has given an undertaking as to damages that may be awarded against it at a subsequent trial.

22 For my part, I would accept that the general rule describing Inglis' case is exactly that, a "general" rule. It should ordinarily be applied. However, it has been recognised on a number of occasions, as indicated above, that the rule is not an inflexible one and the Court has a discretion in an appropriate case to depart from the full stringency of the rule and to mould its order so as to require payment into court of only so much as will suffice to give adequate protection to the mortgagee. The question is whether, in a case such as the present, having regard to the matters in dispute, the defendant here, should effectively be required to accept a substitute second mortgage in the place of the first mortgage it currently holds over property in respect of the total debt it claims is due.

23 Mr Rosario Ravi, the third plaintiff, is a also director of the first plaintiff ("Linnpark") and of the second plaintiff ("Well Holdings") and deposed to material matters on behalf of these entities in an affidavit read in support of this application.

24 In or about April 1998, Mr Ravi said he became aware that a property on Great Eastern Highway, Midland, (the Midland property) might be available for purchase and development.

25 The Midland site comprised eight parcels of land. Linnpark purchased seven of the eight from a vendor using finance obtained from the National Australia Bank upon the security of a first registered mortgage over those parcels of land. The remaining parcel was purchased from a separate vendor by Linnpark shortly thereafter, also using finance obtained from the National Australia Bank.

26 In November 2000, Linnpark obtained finance from Macquarie to assist with the development of the Midland site. Finance was for the purpose of refinancing the National Australia Bank mortgages and to finance the construction of commercial premises, apparently for retail and fast food outlets, to be leased out to tenants. Mr Ravi said the ultimate intention was for Linnpark to obtain "end finance" upon the completion of construction, by which time it was hoped to have a majority of the premises leased out. Linnpark aimed to own the Midland site indefinitely, according to Mr Ravi, as an income-producing asset and to use the rental stream derived therefrom to service the end finance mortgage.

27 To that end, the plaintiffs executed a number of loan, security and related documents with respect to finance granted by Macquarie to Linnpark for the Midland site project. The documents are as follows:

(a) a project facility and guarantee agreement (the facility agreement);

(c) a deed of charge by Linnpark in favour of Macquarie;

(d) a first mortgage by Linnpark in favour of Macquarie over the Midland site (the Midland mortgage);

(e) a second mortgage by Well Holdings in favour of Macquarie over a property of Anketell (the Anketell mortgage);

(f) a deed of covenant and indemnity in respect of the A and F Ravi Family Trust;

(g) a deed of covenant and indemnity in respect of the Linnpark Investments Trust; and

(h) a deed of priority (required because there was a first mortgage over the property at Anketell).

28 By the terms of the facility agreement, Mr Ravi provided a personal guarantee in respect of the obligations of Linnpark to Macquarie. The mortgages referred to were all duly registered under the Transfer of Land Act 1893 (WA).

29 The securities reflect the fact that the eight separate titles to the lots acquired were amalgamated into one title in respect of which a duplicate certificate of title issued on 6 November 2001.

30 Mr Ravi said that essentially the way the facility agreement was to work was as follows. The Midland site would be developed into two discrete parts. The first part relates to the land (the stage 1 land) on which a store is now constructed and leased by Spotlight Stores. The second part relates to the remainder of the land (the stage 2 land) comprising the Midland site upon which a number of stores have now been constructed and leased (eg, to Hungry Jacks, Nandos, Eagle Boys, Kings' Bedding and Furniture).

31 The facility was divided into three stages: stage 1, stage 2A and stage 2B. Stage 1 was a facility to allow for the notional "acquisition" of the stage 1 land, in the sense of attributing part of the refinance of the National Australia Bank mortgages to the value of the stage 1 land, and the construction of a store which Linnpark had agreed to lease to Spotlight Stores. Stage 2A of the facility was to allow for the "acquisition" of the stage 2 land, in the sense of attributing part of the refinance of the National Australia Bank mortgages to the value of the stage 2 land. Stage 2B of the facility was for the purpose of paying out the loan for stage 2A and providing further funds to complete the development of stage 2 land, according to Mr Ravi. Item 6 on page 2 of the facility agreement provides that the limit of the facility was $6.865 million, or such higher amount as Macquarie might agree to. Item 6 shows that the facility is broken up into stage 1, stage 2A and stage 2B. The facility limit in respect of stage 1 is $2.625 million. The facility level in respect of stage 2A is $2.35 million. The facility limit in respect of stage 2B is $4.24 million. When the stage 1 limit of $2.625 million is added to the stage 2B limit of $4.24 million, the total equals the overall facility limit of $6.865 million. Mr Ravi says the reason why the stage 2A limit of $2.35 million is not added to the equation is because the stage 2B limit of $4.24 million was designed to pay out the stage 2A limit and provide additional finance of $1.89 million, being $4.24 million less $2.35 million.

32 Mr Ravi says the $2.625 million limit on stage 1 on the facility was not drawn down at once. Rather, $650,000 was advanced by Macquarie to Linnpark at about the time of registration of the Midland mortgage and the Anketell mortgage, around 20 November 2000, for the "acquisition" of the stage 1 land. The remaining $1.975 million of the stage 1 facility limit was to be drawn down progressively in respect of construction and other project costs.

33 Under the terms of the facility agreement, the stage 1 advance of $2.625 million had to be repaid by about October 2001. Shortly before that expiry date, the stage 1 facility was converted into an investment facility. That conversion was constituted by a document entered into between Linnpark and others and Macquarie dated 8 October 2001 ("the investment facility"). By terms of the investment facility, Mr Ravi provided a personal guarantee to Macquarie.

34 The facility agreement provided for the stage 2A facility to be advanced at about the same time as the advance of $650,000 under the stage 1 facility. The whole of the stage 2A facility was drawn down at that time in respect of the "acquisition" of the stage 2 land.

35 At the same time as the execution of the investment facility, Linnpark and others and Macquarie entered into a variation of the facility agreement whereby Macquarie would advance $390,000 less than it had originally promised to advance under the facility agreement and also required additional security (the variation agreement). Additional security was required by the variation agreement and was provided.

36 Mr Ravi says that he wishes to challenge the validity of the variation agreement. However, for the purposes of the application now before the Court, he is prepared to assume that the document takes effect according to its terms.

37 In December 2001, Macquarie offered a $400,000 "increase", according to Mr Ravi, in a limit of the stage 2B facility. In effect, this only put the limit of the stage 2B facility back to the $4.25 million as it had been prior to the variation agreement. Mr Ravi says the purpose of this $400,000 was to allow Linnpark to make a "landlord contribution" to the construction costs of Hungry Jacks.

38 Linnpark was not providing any of its own funds for the development of the Midland site. Macquarie was providing 100 per cent of the funding.

39 Item 21 of the facility agreement provided for some of the interest payments to be capitalised as follows:

(a) in respect of stage 1 of the facility, the interest was to be capitalised during the term of the stage 1 facility; and

(b) in respect of stage 2B of the facility, the interest payments were to be capitalised during the term of that part of the facility.

40 The interest payments in respect of stage 2 of the facility, according to Mr Ravi, were not to be capitalised, but would be paid monthly during the period of that part of the facility. Mr Ravi claims that was for that reason it was critically important to him that the facility would be "rolled over" from stage 2A to stage 2B as soon as possible.

41 Linnpark agreed to pay Macquarie significant fees in addition to ordinary fees in respect of a loan of this nature. The details of those additional fees are set out in a fixed fee agreement.

42 Mr Ravi drew attention to cl 4(c) of the fixed fee agreement. That clause provided for additional late payment fees if the fixed fees were paid late. The variation agreement:

(a) reduced the amount of the fixed fee on stage 2B from $230,000 to $190,000;

(b) deleted the proviso to cl 4(a)(i) of the fixed fee agreement thereby requiring the stage 1 fixed fee to be paid by about October 2001; and

(c) increased the additional late payment fee on the stage 2B fixed fee from $26,500 to $31,000.

43 For the purposes of the application before me, the applicants identify a number of disputes that Linnpark has with Macquarie with respect to the facility agreement, the investment facility, the variation agreement and the fixed fee agreement. For the purposes of the application, Linnpark only relies upon certain of these disputes. First, the applicants refer to cl 4(a) of the fixed fee agreement which says that the fixed fee agreement is given in consideration of Macquarie providing "the Facility" to Linnpark. They also refer to the definition of "project costs" in cl 1 of the facility agreement and the annexures to the facility agreement as well as cl 4.2(d) thereof.

44 On 28 September 2001, Linnpark received drawdown notices from Macquarie which allocated moneys to fees to Macquarie on a fixed fee agreement. One of those drawdown notices, according to Mr Ravi, required Linnpark to approve a drawdown in respect of stage 1 authorising Macquarie to pay itself a lump sum fee of $179,712.82 out of the investment facility (which relates to stage 1) and $10,297.19 out of the stage 2B facility in circumstances where:

(1) the lump sum fee of $190,000 has not fallen due for payment; and

(2) those facilities did not provide for the payment of that fee with the result that Linnpark received less than the full amount of the facilities, which should have been available to meet projects costs.

45 Mr Ravi says that he protested the payment and requested that the drawdown notice be amended by removing a $190,000 fee as it was not due until March 2002. He says that Mr Tremain of Macquarie refused to do this and told him that he had to sign the drawdown notices if he wished to receive any money at all. For that reason, Mr Ravi says, he signed the drawdown notices to Macquarie with a fax coversheet dated 3 October 2002, noting thereon that the drawdown notices had been signed "for expediency" and that he would seek further clarification on the distribution of the funds.

46 Mr Ravi now says that the fees payable under the fixed fee agreement do not form part of the project costs and by Macquarie taking the fixed fee on stage 1 out of the funds to be advanced under the facility agreement, Linnpark did not receive the full amount of the promised funds. He says, therefore, that Macquarie has not given consideration for the fixed fee agreement referred to in cl 4(a) thereof. He considers Macquarie has charged the late payment fees referred to in cl 4(c) of the fixed fee agreement to Linnpark's account. If the fixed fee is not payable on the stage 1 facility, it follows that the late payment fees thereon are also not payable.

47 Accordingly, on Mr Ravi's calculations made prior to entering into the facility agreement, stage 2A should have been "rolled over" into stage 2B by January 2001 at the latest. On that basis, Linnpark would only have to pay monthly interest on the stage 2A facility limit of $2.35 million for a period of two months.

48 Mr Ravi notes that Macquarie contends that condition precedent (ii) to item 26 of the facility agreement, which deals with "rollover" from stage 2A to stage 2B, was not satisfied. In December 2000, Macquarie insisted on a further valuation of stage 2 for the purpose of this provision. During 2001, Macquarie asserted that its valuations were not sufficient to permit the "rollover" from stage 2A to stage 2B.

49 Mr Ravi alleges that from January 2001 to October 2001, Macquarie delayed the "rollover" of stage 2A to stage 2B on the basis of allegedly insufficient valuation. Mr Ravi says that prior to the commencement of the facility, Macquarie had carried out its own valuations on the basis of the project as completed. In essence, Mr Ravi claimed there was no need for Macquarie to obtain fresh valuations. Mr Ravi says that, as a result of this delay, he was eventually forced to agree to the variation agreement which involved the reduction of the total facility limit by $400,000, the provision of further security and the adjustment of fees payable under the fixed fee agreement.

50 Under the terms of the fixed fee agreement, Linnpark was obliged to pay Macquarie $15,000 for each month of the life of the stage 2A facility. Accordingly, if the stage 2A facility was "rolled over" into the stage 2B facility after only two months, Macquarie would only receive $30,000, $15,000 per month; but if that rollover did not take place for nine months, then Macquarie would receive $135,000, $15,000 for nine months. Mr Ravi contends that Macquarie is in breach of the facility agreement in that it did not "roll over" the stage 2A facility into the stage 2B facility in January 2001, despite his request that it do so and instead delayed it until October 2001. As a result, Mr Ravi says that Linnpark has wrongly been charged by Macquarie a fee of $105,000 and has wrongly charged interest thereon.

51 Mr Ravi calculates that, by reason of this breach, Linnpark has been charged an extra $138,447.18 in interest during the nine-month period.

52 In about December 2001, Mr Ravi authorised the drawdown of the sum of $400,000 from the stage 2B facility, to be paid to Hungry Jacks as a contribution by Linnpark towards the costs of Hungry Jacks in constructing a fast food outlet on the Midland site, which Hungry Jacks agreed to lease from Linnpark. He says Linnpark has been charged interest on that amount by Macquarie since 19 December 2001. In early March 2002, he received a telephone call from a person on behalf of Hungry Jacks informing him that Hungry Jacks had not yet received the $400,000 from Macquarie. It appears that a few days later, Mr Flavel of Macquarie advised that Hungry Jacks had not cashed the cheque which had in fact been sent by Macquarie on 24 December 2001, but that a replacement cheque would be provided.

53 Linnpark claims that it should not have had to pay interest on the $400,000 from 19 December and interest should only run from about 12 March. Linnpark claims it has been charged $7685.47 more than it should have been charged.

54 Further, Linnpark claims that Macquarie is not entitled to charge penalty interest under the facility agreement, the variation agreement and the investment facility and should only have charged it the normal rate.

55 On or about 8 April 2002, Mr Ravi received a letter from Macquarie requesting that Linnpark pay an amount of $28,791.85 in respect of interest. The letter stated that $15,317.75 would be drawn down on the stage 2B facility, but the remaining $13,464.10 of interest would have to be paid (ie, not capitalised), allegedly on the basis, according to Mr Ravi, that the facility had reached its limit. Macquarie served a default notice on Linnpark dated 16 May 2002. The notice alleges that Linnpark is in default because it did not pay interest under the stage 2B facility of $13,464.10, due on 8 April 2002 and $28,059.05, due on 8 May 2002. The notice also alleges that Linnpark is more than 60 days behind the feasibilities referred to in the original facility agreement. The notice relies on cl 14.1 of the facility agreement. It goes on to state that Macquarie reserves all of its rights under cl 4.2 of the facility agreement, which gives Macquarie the power to declare that all moneys are immediately due and payable. At the time of that notice, all construction was complete save for three tenant fit-outs, according to Mr Ravi. Mr Ravi says that, if Macquarie had not wrongfully drawn down fixed fees against the stage 2B facility, Linnpark would not have been asked to pay this interest and thus its failure to do so cannot be a default.

56 On 16 September 2002, following my refusal to grant an interlocutory injunction on 13 September 2002, Macquarie served a notice of entry into possession of the Midland site on Linnpark.

57 Macquarie alleges that, as of 27 September 2002, Linnpark owes Macquarie the sum of $7,673,735.26 under the facility agreement and the investment facility and that that amount is increasing at the rate of $4090.23 per day. Macquarie also claims additional legal costs of approximately $57,693.10 and other costs.

58 Mr Ravi says that, when the disputes set out above are brought to account and the operation facility is recalculated in accordance with the terms of the facility agreement, the variation agreement, the investment facility and the fixed fee agreement, then Linnpark does not owe Macquarie any more than $7,083,926.04.

59 In his affidavit in support of the application for interlocutory injunction sworn 9 October 2002, Mr Ravi said that the plaintiffs can raise the sum of $7,083,926.04 through financing provided by four separate entities, including Gayswood Pty Ltd as trustee for the R P Ravi Family Trust.

60 The applicants put forward a redemption proposal they say Macquarie should be obliged to accept. The applicants propose that Macquarie at a refinancing settlement be paid out the sum of $7,083,926.04 and, so far as the disputed balance of $589,809.22 is concerned, continue to be protected by the Anketell second mortgage. It is submitted that the Anketell mortgage provides adequate security, even though a first mortgage is held by the Commonwealth Bank of Australia over the subject land.

61 The applicants contend that, if orders are not made requiring Macquarie to accept the sum of $7,083,926.04 in exchange for a release of all its securities, save for the Anketell mortgage, the plaintiffs will suffer irreparable harm, for these reasons:

(1) there will be a continued accrual of penalty interest and costs under the existing securities to Macquarie.

(2) three of the entities that would provide the refinancing funding "may well withdraw the funding" which they have until now indicated that they will provide.

(3) Linnpark will lose access to net rental income in the sum of $730,000 per annum, plus future net rental income stream from rent reviews on the Hungry Jacks' lease, due to be reviewed in November 2002, and the Nandos lease, due to be reviewed in February 2003. If Linnpark is allowed to effect the refinance on the basis set out above, then it would have access to rental income of up to $60,000 per month.

(4) the applicants submit that, Linnpark will lose the future capital appreciation on the Midland site.

62 By the application before me, the applicants seek orders that effectively require Macquarie to accept this redemption proposal.

63 At the earlier hearing of the application on 11 October 2002, amongst other things, the adequacy of the Anketell mortgage and a valuation filed to support its adequacy were questioned. It was partly for that reason that Senior Counsel for the applicants sought an adjournment to allow the applicants to have an opportunity to put further materials before the Court.

64 In a further affidavit of Mr Ravi sworn 17 October 2002 in support of the application read before me, the full valuation in respect of the Anketell land carried out by Egan National Valuers dated 27 June 2002 was filed, together with a further valuation specifying a valuation said by counsel to be "at the bottom end of the range on a conservative basis for the purposes of this application, on the basis of the forced sale value".

65 In that affidavit, Mr Ravi also sought to deal with another issue previously identified at the hearing on 11 October, concerning the non-satisfaction of condition precedent (ii) of item 26 of the facility agreement.

66 In his affidavit, Mr Ravi frankly noted that the applicants were not in a position to pay or secure by bank guarantee the disputed sum of $589,809.22 and could only offer as security the Anketell second mortgage.

67 A number of the factual matters alleged by Mr Ravi concerning the disputed amounts were not accepted by Macquarie. Mr Nicholas Geoffrey Flavel's affidavit sworn 18 October 2002 and read in the hearing dealt with a number of these issues.

68 First, Mr Flavel disputes Mr Ravi's statement in his affidavit of 9 October 2002 that the stage 1 fixed fee of $190,000 had not fallen due for payment and that the stage 1 investment loan facility and stage 2B facility did not provide for the payment of that fee. Mr Flavel says that, pursuant to cl 4(a) of the facility agreement, the stage 1 fixed fee was to be paid on the earlier of the stage 1 termination date and the date on which all stage 1 advances and interest on stage 1 advances had been repaid. On 5 October 2001, stage 1 was rolled over to an investment loan, repaying stage 1 advances and interest and the stage 1 fixed fee thereupon became payable.

69 Mr Flavel further says that cl 3 of the investment facility regulates the drawdown of the stage 1 investment loan, which requires it to be available for drawdown "in a series of advances for purposes approved by the lender". By drawdown notice dated 3 October 2001, the first plaintiff provided an executed drawdown notice in accordance with cl 4.2.

70 The project facility agreement regulates drawdown of the stage 2B facility, as varied by the so-called variation agreement (supplemental deed). Subclause 3.2 of the facility agreement regulates drawdown of the stage 2B facility and provides that the stage 2B facility will be available for drawdown "in a series of advances ... otherwise approved by the lender".

71 By drawdown notice dated 3 October, the first plaintiff requested drawdown of the stage 2B facility.

72 In addition, cl 3.2 of the variation agreement replaces item 6 par 6(iii) of the schedule providing that:

"In respect of stage 23B, $3,850,00 on the basis that with effect from the date of this amended facility limit applying, the stage 1 facility and stage 2A facility have been repaid from advances under the stage 2B facility or the investment facility and guarantee agreement."

73 Mr Flavel says that accordingly the drawdown of the stage 2B facility was linked to the repayment of the stage 1 facility and stage 2A facility from either of the stage 2B facility or the stage 1 investment facility. This triggered the stage 1 fixed fee becoming payable under cl 4(a) of the facility agreement.

74 Mr Flavel also rejects the proposition of Mr Ravi that the first plaintiff "had no option but the sign the drawdown notices". He notes that Mr Ravi allegedly paid "for expediency", but says that, having regard to the context of other dealings with Mr Ravi, this reason is to be equated with a payment under protest.

75 As to Mr Ravi's statement that, by Macquarie taking the fixed fee on stage 1 out of the funds to be advanced under the facility agreement, Linnpark did not receive the full amount of the promised funds, Mr Flavel points out that had Macquarie not drawn down the stage 1 fixed fee in part from the stage 1 investment loan and the stage 2B facility as instructed, the $190,000 fee would have had to have been paid by the first plaintiff from other sources. It just suited Linnpark to pay in this way. By capitalising the stage 1 fee in this way, Linnpark left its own funds untouched, funds it would otherwise have been required to use for the payment of this fee.

76 As to the expectation expressed by Mr Ravi that Linnpark would only be required to make two payments of monthly interest on stage 2A once the preconditions for the drawdown of the stage 2B facility had been satisfied, Macquarie says that Linnpark did not satisfy the preconditions for approximately nine months.

77 Macquarie rejects the valuation allegations put forward on behalf of Linnpark. Mr Flavel says Macquarie persisted throughout the relevant time in instructing its valuer to revisit the valuation of stage 2 based on new information which might come to hand in the form of new leasing activity or advice. Notwithstanding the repeated valuations, item 26(ii) of the facility agreement remained unsatisfied and as a result stage 2B could not be commenced. He denies that Macquarie deliberately delayed the commencement of stage 2.

78 Thus Mr Flavel rejects the proposition that Macquarie can in any way be responsible for the additional interest or fees that accrued as a result of this delay.

79 As to the problems with the bank cheque to be negotiated by Hungry Jacks, Mr Flavel says that a bank cheque for $400,000 was sent to the appropriate person at Competitive Foods Pty Ltd under cover of a letter dated 24 December 2002. In short, the fact that this cheque was not negotiated is said by Mr Flavel to be not fault of Macquarie. Interest that Macquarie would have earned would have been foregone by it if it had not charged Linnpark for interest.

80 Mr Flavel made it quite clear on behalf of Macquarie in his affidavit that Macquarie was not prepared to accept the refinancing proposal put forward by the applicants. In effect, he claimed that the effect of the orders sought by the applicants in their amended chamber summons dated 17 October are that Macquarie would be forced to accept less than the value of its debt, release its primary security, and accept a second mortgage over vacant land for the balance of its debt of approximately $700,000, against which the Commonwealth Bank has a secured $2.8 million first mortgage.

81 He emphasised that, under Macquarie's lending guidelines, it can only lend up to a maximum of 50 per cent against a first mortgage over an englobo parcel of land of this nature, meaning that, if it were the primary lender, it would lend only $2.45 million against the Anketell property, if all other lending criteria was satisfied. The Commonwealth Bank, however, has already lent the first plaintiff $2.8 million against the land.

82 In essence, Macquarie puts its lending practice forward as evidence of the fact that a prudent lender would be cautious in taking a second mortgage security such as the Anketell mortgage.

83 In this case, if the Court were to accede to the applicants' application, Macquarie would be obliged to give up the securities it initially bargained for and to accept as a replacement, albeit only in respect of the disputed amount of some $590,000, a second mortgage over the Anketell property.

84 The applicants' redemption proposal is properly analysed by Senior Counsel for Macquarie as being deficient for the following reasons:

(a) the value of the Anketell mortgage does not fit the defendant's normal lending practice, which is generally to lend no more than 50 per cent of the market value of a property such as Anketell, where the defendant would be the first registered mortgage;

(b) standard lending guidelines would require some indication of an income stream to service an initial setup fee and ongoing interest charges;

(c) the defendant would be a second registered mortgagee;

(d) the realisable value of the property on a mortgagee's sale is uncertain and is likely to be significantly less than any valuations provided to date considering, in particular, that zoning for urban development has not been approved and any approval date for urban rezoning is unclear.

85 The general rule described in Inglis' case should be applied in a case such as this. There is nothing in the circumstances of this case that allows the exceptions to the general rule, as discussed by Sugerman J in Harvey v McWatters, or applied in a case such as Glandore, to be applied here.

86 Further, in my view, to the extent that it may be said that the applicants have identified serious issued to be tried in respect of the disputed sum, they are at the weaker end of a scale of seriousness.

87 In all those circumstances, this is not a proper occasion in respect of which equitable relief of the type sought in the amended application, should be acceded to. For these reasons, I rejected the amended application on 18 October 2002.