Plaintiff v Defendant

2 The proceeding was commenced on very short notice. The plaintiff's solicitor sought an urgent hearing late in the evening on Friday 7 September 2018. The subject property was scheduled to be auctioned at 11:00am the following day. The Court commenced to hear the plaintiff's application for interlocutory relief at 9:30am on Saturday 8 September 2018.

3 The evidence before the Court was contained in an affidavit sworn by Scott Darren Crow dated 7 September 2018. Mr Crow is the sole director and secretary of the plaintiff.

4 The plaintiff is the registered proprietor of land located at 6 Bruce Street, Toorak, Victoria, more particularly identified as that in Certificate of Title Volume 6156 Folio 080 ('the property'). The plaintiff proposes to develop a complex of 7 apartments on the property. This is one of a number of property developments in which Mr Crow, the plaintiff and other companies controlled by Mr Crow are involved.

5 The acquisition of the property was originally financed by a facility from La Trobe Financial Jadig Finance Pty Ltd. That facility was refinanced with a loan from the defendant on 18 December 2017 for a principal sum of $4,800,000 ('the loan agreement'). The loan agreement is secured by, amongst other things, a first registered mortgage over the property in favour of the defendant ('the mortgage').

6 On 21 August 2018, the solicitors for the defendant served on the plaintiff a Notice to Pay dated 16 August 2018 pursuant to s 76 of the Transfer of Land Act 1958. The Notice stated that the plaintiff had defaulted in payments under the loan agreement. It identified the account balance on the loan agreement as being $5,319,000.05.

7 The defendant subsequently took possession of the property as mortgagee in possession and made arrangements for it to go to auction at 11:00am on Saturday 8 September 2018.

8 Mr Crow has deposed that he has secured unconditional funding from an entity called Huge Assets Hong Kong SAR China ('the incoming financier') which has agreed to provide him with a funding package of $36,500,000 to be allocated to his various development projects, including the full payout of the loan agreement with the defendant the subject of this proceeding. This funding was arranged through Mr Mark Barlow, an off-shore facilitator and representative of the incoming financier, with whom Mr Crow had been contact since July 2018.

9 Mr Barlow has informed Mr Crow that the incoming financier would be in a position to advance the funds necessary to pay out the loan agreement in full, that the incoming financier was making the final preparations to imminently settle the payment of the amount owing under the loan agreement and that settlement of that payment would occur within 30 days. This was confirmed in a letter addressed to the plaintiff dated 6 September 2018 signed by Mr Barlow on the letterhead of the incoming financier and which apparently bore its company seal ('the 6 September letter'). The letter stated as follows:

Huge Assets Hong Kong SAR China, confirm its unconditional finance approval to Six Bruce Pty Ltd for finance in the sum of $36.5m, including the sum of $8,537,391.05, to pay out all encumbrances on the property at 6 Bruce Street Toorak, Vic, Aust, 3142 which will include the sum of $5.6m to be drawn down for the purposes of paying out Jadig Finance Pty Ltd, the first Mortgagee.

Settlement of the above funding will occur within 30 days, and all funds have been accumulated and are ready to be drawn down, subject to the usual regulatory processes to be completed, and the execution of the associated loan agreement and security documents.

Kind regards

10 The 6 September letter was provided to the plaintiff in the evening of 7 September 2018.

11 The principles which guide the Court in considering an application for an interlocutory injunction were set out by the High Court in Australian Broadcasting Corporation v O'Neill.[1] They may be summarised as follows:

(a) First, an applicant for an interlocutory injunction must demonstrate a prima facie case. This requirement is to be understood as being whether there is a serious question to be tried as to the plaintiff's entitlement to relief, not whether it is more probable than not that the plaintiff will succeed at trial. The sense in which the test is understood is that the plaintiff must prove, prima facie, a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending trial. In context, it must show that it has a putative legal or equitable right in respect of which final relief is sought which will justify the restraint sought. The requisite strength of the probability of ultimate success depends on the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.

(b) Secondly, the balance of convenience must favour the granting of an injunction. The balance of convenience requires a consideration of matters favouring or militating against the granting of an injunction and will necessarily involve a consideration of the strength of the plaintiff's claim, assuming that a serious issue has been identified. In determining whether to grant an interlocutory injunction, the Court must 'take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.'[2]

(c) Thirdly, the injury which the plaintiff is likely to suffer must be one for which damages will not provide an adequate remedy.

12 I have applied these principles having regard to the nature and circumstances of the present case.[3]

13 The central issue in the hearing of the application for an interlocutory injunction was whether the plaintiff had established a prima facie case. The plaintiff contended that an interlocutory injunction was justified to preserve its equitable right of redemption against the mortgage. Armed with the incoming financier's unconditional approval to refinance Mr Crow's various developments, including the payout of the mortgage in respect of the property, the plaintiff intended to exercise its right of redemption as against the mortgage. If the property was sold, the plaintiff would lose that right of redemption. An injunction was accordingly needed to avoid irreparable harm, being the loss of that right.

14 The defendant accepted that the plaintiff had a right of redemption and that that right would cease to exist or be dissipated in the event that the property was sold. However, it was submitted that the plaintiff had no inherent right to preserve its equitable right of redemption by delaying the execution of the defendant's statutory rights through the sale of the property. This was not a case where a mortgagor was in a position to exercise a right of redemption before sale, in which circumstance equity would intervene. The equitable right of redemption did not give the plaintiff any right to delay the processes of the sale of the property so that it might, in the future, exercise that right. Nor was this a case where the plaintiff had otherwise sought to impugn the validity of the mortgage or the exercise of the defendant's rights of sale so as to ground a cause of action. The plaintiff's claim was no more than a last gasp attempt to obtain a commercial indulgence in relation to the sale of the property.

15 The nature of the equitable right of redemption was summarised in the following way by Henry J in Sun North Investments Pty Ltd (as trustee) v Dale & Anor:[4]

It is an essential feature of every mortgage that the mortgagor has a right to discharge the mortgage in payment of the debt or performance of the obligation for which security was given. That right, the "right of redemption" or the "right to redeem", can arise contractually, so long as the mortgagor is not in default. But even if the mortgagor does not repay a loan in time and thus loses the contractual right to redeem, there exists an equitable right to redeem.[5] The equity of redemption may be enforced, notwithstanding a failure to redeem by the repayment date, until the point in time when the mortgagee's power of sale has been exercised or a court has made an order for foreclosure.[6]

16 His Honour continued as follows (emphasis added):[7]

The equity of redemption is an inherent incident of the mortgage transaction.[8] In Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors Muir J explained:

"[T]he equity of redemption is not a right or concept attached to or inherent in the secured property itself: it is an incident of the mortgage transaction. ... As a general proposition, conduct which has the effect of hampering redemption after the contractual date for redemption has passed is not permitted and equity will grant relief by allowing redemption. The remedy, which operates in personam, has as its foundation the prevention of unconscionable conduct. In cases such as this, unconscionability is to be found in the lender's exercising rights which constituted, in substance, a penalty or a forfeiture".[9]

The principle is thus founded upon the unconscionability inherent in the transaction otherwise allowing the lender to exercise rights amounting to a penalty or forfeiture. It is the nature of the transaction, if allowed, which is unconscionable.

17 Whether a claim for equity to intervene to protect an equity of redemption might amount to a serious question to be tried in any particular case was considered by Austin J in Harvey v Perpetual Nominees Ltd.[10] Although the facts differed from those presently under consideration in a number of respects,[11] one way in which the plaintiff asserted for the existence of a serious question to be tried was on the basis that equity should intervene to protect the equity of redemption, notwithstanding that a substantial part of the mortgage debt was outstanding and the mortgagee was entitled to exercise the power of sale.[12]

18 Austin J found that the evidence before the Court fell short 'of the kind of offer to redeem that would be sufficient to satisfy a court of equity to intervene to protect the equity of redemption.'[13] In that case, the offer to refinance was conditional and based in part on various conversations in a context where the property had already been sold and completion was imminent. His Honour stated, however, that:

It may be that something less than payment into court of the amount claimed or acknowledged to be due will suffice to permit equity to intervene to protect the equity of redemption in an appropriate case. For example, it may be sufficient, though it is unnecessary for me to decide, for the mortgagor to tender an absolute and unconditional offer to provide immediate refinance should the mortgagee withdraw the sale. At any rate, that might suffice if bona fide third parties' rights have not intervened. But here, even putting aside the problem presented by the bona fide purchaser, the evidence falls considerably short of the kind of absolute and unqualified offer to refinance that I have envisaged, for the reasons explained above.[14]

19 By contrast, in the present matter, the plaintiff has adduced evidence that it has secured unconditional approval to refinance its arrangements including in respect of the loan agreement. Evidence of that approval is in writing in the form of the 6 September letter which appears to be under the seal of the incoming financier. That approval is only qualified by the completion of 'usual regulatory processes' and the execution of associated loan agreement and security documents. I accept the plaintiff's submissions that the second of these qualifications is unremarkable and of the type that one would reasonably expect in correspondence confirming the provision of unconditional finance approval, as distinct from the completion of formal contract documentation. While the qualification of the approval as being subject to 'usual regulatory processes' is not entirely clear and raises some uncertainty, there is no evidence before the Court which would enable me to find that that qualification materially alters the unconditional character of the finance approval conveyed by the 6 September letter.

20 Having regard to the observations of Henry J in Sun North referred to in paragraph 16 and the observations of Austin J in Harvey referred to in paragraph 18 above, I consider that, with the unconditional finance approval obtained by the plaintiff, there exists a serious question to be tried as to whether, by proceeding to exercise its power of sale, the defendant would be acting unconscionably so as to warrant the grant of equitable relief.

21 The defendant properly conceded that, in the circumstances now before the Court, the balance of convenience would usually favour the grant of interlocutory relief because the equity of redemption would be destroyed upon the sale of the property. It was submitted however that various factors weighed the balance against the grant of interlocutory relief. The principal matters relied on by the defendant were:

(a) The lack of an arguable case to be tried;

(b) The very late stage at which the application for interlocutory relief was brought;

(c) The 'lack of value' in the undertaking for damages proffered by the plaintiff, given that the plaintiff had not made any repayments on the property since the loan was entered into;

(d) That delay in the conduct of the auction would likely damage market confidence in the property which has already had some 'difficulties in the market,' therefore negatively affecting the future sale price;

(e) The absence of any confidence that the refinancing would crystalize because of claims being made by other persons on the property in circumstances where the plaintiff had been trying to refinance for some time, making it unclear how the plaintiff would provide clear title to the incoming financier; and

(f) the failure of the plaintiff to offer to pay into Court an amount equal to the mortgage.

22 I do not accept that these considerations are sufficient to alter the balance of convenience in favour of the grant of interlocutory relief. Contrary to the submission, for the reasons already given and notwithstanding the absence of an offer from the plaintiff to pay into Court an amount equal to the mortgage, the plaintiff has established a prima facie case. The very late time at which the application for interlocutory relief was brought simply reflects the point in time when unconditional financial approval was obtained.

23 There is insufficient evidence before me to accept the defendant's submission as to the 'lack of value' in the proffered undertaking as to damages. Although the plaintiff has not made any repayments on the loan agreement entered into in December 2017, it was 3 months in advance of its repayments at that time. There is no other evidence before the Court about the plaintiff's financial position. Further, I note that the defendant did not dispute the plaintiff's submission that, after the outstanding loans on the property, there was equity in the property of approximately $2,000,000.

24 Although I accept that, in general terms, the late withdrawal of a property from auction has the potential to jeopardise market confidence in that property, there is insufficient material before the Court to enable me to be satisfied that there is a real risk that the sale price of the property here in question will be negatively affected by the grant of interlocutory relief. In that regard, it is relevant that the interlocutory relief sought would only prevent the property from proceeding to auction for a period of 30 days.

25 The defendant's concerns about the capacity of the plaintiff to provide clear title to the incoming financier need to be seen in the context of the assurance provided by incoming financier in the 6 September letter. Not only does that letter record the giving of unconditional approval for payment of the loan amount, that approval extends to paying out all the encumbrances on the property to the amount of $8,537,391.05.

26 Finally, I accept the submissions of the plaintiff that the destruction of the equity of redemption which would occur upon the sale of the property has the consequence that damages would not be an adequate remedy in the event that the plaintiff succeeded at trial.

27 I also note that counsel for the plaintiff informed the Court that, in addition to giving the usual undertaking, his client was willing to submit to an order that it pay the defendant's costs of the application.

28 For the forgoing reasons and upon the plaintiff giving the usual undertaking, on 8 September 2018 the Court made the following orders:

1. The Defendant be restrained, for a period of 30 days from the date of this Order, in proceeding with the auction of the property known as all that piece of land contained in Certificate of Title Volume 6156 Folio 080, being the property located at 6 Bruce Street, Toorak in the State of Victoria.
2. The Plaintiff pay the Defendant's costs of and incidental to this application.

[1] [2006] HCA 46; (2006) 227 CLR 57 [19] (Gleeson CJ and Crennan J) and [65]-[83] (Gummow and Hayne JJ).

[2] Tymbook Pty Ltd v State of Victoria; Bradto Pty Ltd v State of Victoria [2006] VSCA 89; (2006) 15 VR 65 [35].

[3] Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 [19] (Gleeson CJ and Crennan J).

[4] [2013] QSC 44 [74] ('Sun North').

[5] Beaconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd [2008] FCA 594; (2008) 246 ALR 361, 372; Sandgate Corporation Pty Ltd v Ionnou Nominees Pty Ltd [2000] WASC 91; (2000) 22 WAR 172, 182.

[6] Latec Investments Ltd v Hotel Terrigal Pty Ltd [1965] HCA 17; (1965) 113 CLR 265, 274-275; Tanwar Enterprises Pty Ltd v Cauchi & Ors [2003] HCA 57; (2003) 217 CLR 315, 331.

[7] Sun North [2013] QSC 44[77]-[78].

1. [8] Noakes & Co Ltd v Rice [1901] UKHL 3; (1902) AC 24, [30]; Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors [2007] QSC 32 [57].

[9] [2007] QSC 32 [57]-[58] citations omitted.

[10] [2009] NSWSC 1379 ('Harvey').

[11] Including the fact that it concerned an application for an interlocutory injunction restraining a mortgagee from completing a sale of a property following an auction.

[12] Harvey [2009] NSWSC 1379 [10].