Proposed Plaintiff v Proposed Defendant

2 The registered proprietor of the land is a company called PCP Investments Property No 1 Pty Ltd ("PCP Investments"). Mr Joiner is one of two shareholders in that company and was a director or the sole director of that company. He may still, technically, be a director or the sole director of the company, but the company has been under external administration since 23 June 2013. The land was bought as an investment. It is not Mr Joiner's home.

3 I will assume in Mr Joiner's favour that the external administrator of PCP Investments was appointed at the instance of the proposed defendant, Firstmac Finance Pty Ltd ("Firstmac Finance"). Firstmac Finance is a finance company and it is a mortgagee, perhaps the sole mortgagee, of the land at 88 Fitzroy Street, Kilmore.

4 The (very limited) material before me indicates that in about June of this year, if not before, PCP Investments fell into arrears in payment of the amounts due under the mortgage to Firstmac Finance; that Mr Joiner, in his capacity as director and shareholder of the company, sought to negotiate with the mortgagee, sought to obtain an extension of time to pay arrears and sought hardship relief, but was apparently unsuccessful in achieving those ends; and that since about 23 June 2013 the external administrator of the company has been in place.

5 In his affidavit, Mr Joiner asserts that he is unaware of any relevant notice of default under the mortgage. He also says that the land is subject to a contract of sale dated 10 July 2013 to one Norman Thompson for the sum of $150,000. In addition, he says that he is informed by Mr Thompson and believes that Firstmac Finance has not marketed or extensively advertised the property and that he (Mr Joiner) is concerned that the proposed auction will not realise the best price reasonably attainable for the land.

6 Mr Joiner's application for injunctive relief to restrain the auction scheduled for tomorrow is made in his capacity as a shareholder of PCP Investments. Initially I was concerned as to whether Mr Joiner could have any standing to bring an application of this kind in his capacity as a mere shareholder of PCP Investments, but, on reflection, I am prepared to assume (without deciding) that it might be open to a person in his position to bring an application of the present kind if it could be shown that the corporate registered proprietor (here, PCP Investments) was failing to take appropriate action in advancing the interests of the company and thereby unduly prejudicing the interests of the shareholders. That would be a derivative action which could, in some circumstances, be permitted by a court. So I will assume in Mr Joiner's favour that, as a shareholder, he might be permitted to bring a derivative action against Firstmac Finance in the present circumstances.

7 Generally speaking, to obtain an interim or interlocutory injunction, an applicant needs to show that there is a serious question to be tried and that the balance of convenience favours the grant of the relief sought. There are also discretionary matters that courts take into account in this regard.

8 In Bradto Pty Ltd v State of Victoria,[1] the Court of Appeal said that where an interlocutory injunction was sought the court should take whatever course appeared to carry the lower risk of injustice if it should turn out to have been wrong to grant or refuse the injunction. Recently, in Perfection Fresh Australia Pty Ltd v Melbourne Market Authority,[2] the Court of Appeal confirmed that that was the proper approach, referring to Bradto with approval. I am conscious of and will seek to apply those principles, but there is a further set of principles that are applicable where an application is sought to interfere with the exercise by a mortgagee of the mortgagee's power of sale and the moving party fails to bring into court the money that is owing to the mortgagee. That is this case.

9 Mr Joiner has not made any suggestion that he can bring into court the amount owing on the mortgage to which the land is subject. In his affidavit he says that the amount owing under the mortgage is approximately $90,000 as at today. In his oral evidence this afternoon, Mr Joiner acknowledged that the total value of his net assets at the moment amounts to only some $50,000, including any value in his shareholding in PCP Investments and including the net equity in his home in Eltham (held through shares in another company that is the registered proprietor of the home), and taking into account a $50,000 credit card debt at a high rate of interest. In order to realise that net sum, there would be a need for Mr Joiner, in effect, to sell his home. Presumably that could not be done readily or quickly. At present, Mr Joiner has no other resources. He has no substantial income at present. There is no suggestion that the necessary money has been or could be brought into court to cover the $90,000 that is owing to the finance company.

10 As the Court of Appeal of New South Wales has recently pointed out,[3] in Inglis v Commonwealth Trading Bank of Australia,[4] Walsh J, at first instance in the High Court, referred to what his Honour called a "general rule":

... 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 be not in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into court.

Walsh J explained the rationale for that general rule as follows:

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.[5]

On appeal in Inglis, Barwick CJ, with whom Menzies and Gibbs JJ agreed, referred to:

... 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 upon the exercise of the respondent mortgagee's rights under the mortgage.[6]

11 The recent decision of the Court of Appeal of New South Wales to which I have referred is Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd.[7] That case was quite similar to the present. The only difference of significance was that, in Bayblu, on any view, there was going to be a deficiency after the sale of the relevant property, even if the property were sold at a price that the mortgagor suggested was appropriate, being a price significantly in excess of the price which the defendant finance company was seeking. In the present case there would be no deficiency.

12 In Bayblu, after setting out the passages from Inglis quoted above, Campbell JA, with whom Tobias and Macfarlan JJA agreed, said:[8]

57. It is not altogether clear what is meant by saying that there is a "general rule" of the type adverted to in Inglis. Does it mean that as a matter of law it is impossible to obtain an injunction to restrain exercise of a power of sale without bringing the money into court - that the rule is "general" in the sense of universally applicable? Or does "general" have the force of "applying usually but not always"? Is the structure of the law in this area that a positive rule of law creates a prohibition on obtaining an injunction without bringing the money into court, but that that positive rule of law is itself subject, as a matter of law, to a number of exceptions? Or does "general rule" simply mean that, as an empirical generalisation, one can say that usually a court will not grant an injunction to restrain a power of sale without bringing the money into court. If "general rule" is meant as an empirical generalisation, that conclusion would arise because the court takes into account the balance of convenience in deciding whether to grant such an injunction, and in the vast majority of cases failure to bring the money into court will be a very powerful factor, maybe often an overwhelming factor, in deciding where the balance of convenience lies . The remark of Walsh J at 164-165, quoted at [55] above, seems to provide some support for the latter view but it is not necessary to reach a concluded opinion about that.

58. An exception to this "general rule" has long been recognised when there is an issue about whether the power of sale has arisen at all ... . In [Allfox Building Pty Ltd v Bank of Melbourne Ltd,[9]] Powell J ... recognised, obiter, another exception when the validity of the mortgage was in issue. Clarke v Japan Machines (Australia) Pty Ltd (No 2)[10] recognised another exception where the amount claimed by the mortgagee is obviously wrong. First instance decisions have also recognised some other exceptions where the plaintiff claims that he can redeem the mortgage within a fairly short time by carrying out a refinancing proposal that is reasonable on its face, or where the plaintiff has a demonstrable capacity to secure or, at the least, refinance the mortgage debt: [two cases cited]. I express no view about the correctness of those two last mentioned decisions beyond saying that I do not regard the decision of this Court in Notaras v Sly & Weigall[11] as necessarily providing support for the last mentioned exception. In Notaras at [133], Mason P identified four difficulties that stood in the way of a mortgagor succeeding in an action for negligence against its solicitors on the basis that the solicitors had not sought an interlocutory injunction to restrain exercise of a power of sale. Mason P noted that one of these difficulties was "the futility of approaching the court without a demonstrable capacity to tender or secure or at least refinance the $4 million undoubtedly due under the mortgage". That is not saying that the injunction would definitely have been obtained if the mortgagor had such a demonstrable capacity.

59. However, in the present case, there is no dispute about the validity of the mortgage; there has been an undoubted default; there is no dispute that the power of sale has become exercisable; there is no suggestion that the amount the Respondent claims is wrong; and the sole dispute is about the manner in which the Respondent has exercised the power of sale. It is not contended that the facts fall within any of the exceptions that previous first instance decisions have recognised.

13 Likewise here, the principal ground on which Mr Joiner relies is the suggestion that the mortgagee has not marketed or extensively advertised the land, leading to a suggested concern on the part of Mr Joiner that the proposed auction will not realise the best price reasonably obtainable for the land.

14 Before coming to that complaint, I will deal with the notice of default point.

15 Mr Joiner, when he gave oral evidence before me today, referred to demands that had been made, at least by telephone, by Firstmac Finance in or about June 2013, and to his unsuccessful attempts to negotiate, to which I referred earlier. Mr Joiner has not been in control of the company since June 2013. Hence he would not be entitled to receive any notice of default that had been issued or any demand that had been made since that time. Mr Hone, the solicitor who appeared on his behalf today, very fairly acknowledged that there has been a sufficient period since the time when Mr Joiner lost control of the company and the present time for a formal demand or notice to have been issued by the finance company and for the same to have expired without payment. So it seems to me that there is no real or sufficient basis for a suggestion that there is a serious question to be tried as to whether, to quote para 8 of Mr Joiner's affidavit:

The defendant's occupation and proposed sale of the land is wrongful.

16 In my view there is no serious question to be tried in that regard on the material before me.

17 Turning to the principal ground relied upon, Bayblu Holdings is authority for the proposition that where the amount claimed has not been paid into court, an allegation of sale at an undervalue is not, except perhaps in the most extreme of cases, a basis for interfering with the exercise of the mortgagee's power of sale.

18 In Bayblu,[12] Campbell JA referred to one possible extreme example. He said that an injunction might sometimes be granted if a mortgagee was about to sell the property by private treaty to his wife for a price that was quite clearly a fraction of its true value. It has not been suggested that the present case involves a situation anywhere near that kind.

19 Indeed there is nothing but bare assertion to suggest that there has been a lack of proper marketing or advertising of the land. There is nothing but a hearsay report by Mr Joiner of something said by Mr Norman Thompson to the effect that the proposed defendant has not marketed or extensively advertised the land. How Mr Thompson would know this is not revealed. Mr Thompson is someone to whom the land was purportedly sold by the company through Mr Joiner in July 2013. However, this occurred only after Mr Joiner lost his ability in law to effectuate any sale on behalf of the company to Mr Thompson or to anybody else. As I have indicated, the company was under external administration at that time.

20 It seems that underlying this proceeding is a desire that the purported contract of sale to Mr Thompson be somehow preserved or protected. It is to that end, I gather, that Mr Joiner makes this application for injunctive relief to restrain the auction tomorrow. That seemed to come through in Mr Joiner's evidence. Of course, such a purpose or desire is no basis whatever for restraining the auction tomorrow. The sale to Mr Thompson is very likely of no validity at all. It seems certain that it was purportedly carried out without the consent of the mortgagee and in any event at a time when Mr Joiner had no lawful right to direct the activities of the company because of the external administration which had been put in place previously in June 2013.

21 Returning to the suggestion of an entitlement to an injunction as a result of inadequate marketing or advertising, I could not give effect to that basis for the application having regard to the principles referred to in Bayblu and to the material before me which I have dealt with.

22 Other matters that tend strongly against the grant of the injunction include the extreme lateness of the application and the failure to give notice to the finance company at a reasonable time of the intention to make the application.

23 Mr Joiner has known of the default by PCP Investments since at least June. He says, in the evidence he gave orally, that he received little communication from the finance company and little joy from his attempts to deal with them. Nevertheless he knew, at least from early August 2013, that PCP Investments had earlier been placed under external administration and that he was no longer in control of it. If he wanted to preclude the mortgagee from exercising its power of sale, it was incumbent on him to approach solicitors and take appropriate steps, on notice to Firstmac Finance, much earlier than today. He seems to have made an abortive application in person at VCAT yesterday. It is not clear whether he notified Firstmac Finance of that application or not. He has approached his solicitor, Mr Hone, for the fist time today. The only notice given was an email sent at 4.15 this afternoon to Gadens Lawyers, solicitors, of an intention to put on an application for an interim injunction. Gadens Lawyers had previously acted for the finance company in relation to a caveat placed by Mr Thompson. I am told from the Bar table that the response to that email was that it was simply too late for the relevant solicitor at Gadens to get instructions to come to court and be heard on the matter this evening.

24 Now, it is a very important principle that courts do not, generally speaking, grant relief to a party in the absence of the other side having had a reasonable opportunity to be heard in response to the relief that is sought. Truly urgent situations may be an exception. However, in the present case, any urgency is of Mr Joiner's own making. He told me in evidence that he deliberately refrained from giving timely notice to the finance company because he considered that it had been remiss in providing information to him. Mr Joiner is quite mistaken in his belief that those circumstances justify a lack of proper notice of this application.

25 Mr Joiner knew about the scheduled auction at least a week ago. He has been aware, at least since early August, that the finance company had taken control of the company which is the registered proprietor of the land. He is not unsophisticated in relation to matters of investment, real estate and finance. He is a former mortgage broker. Courts are very reluctant to intervene at the instance of someone of that background who comes along at the eleventh hour and does not provide reasonable notice to the proposed defendant in circumstances like the present.

26 In summary, I am not satisfied that there is a serious question to be tried. I am not satisfied that the balance of convenience favours the plaintiff. Indeed it is strongly against the plaintiff. If in due course Mr Joiner can establish his standing and make out a case of sale at an undervalue through an inappropriate exercise of the power of sale, he will be able to sue for damages and be compensated accordingly.

27 There is very little risk - indeed, practically no risk - that Mr Joiner will suffer irreparable harm if the injunction is refused, whereas there is a virtual certainty that the defendant will at least initially suffer damage if the injunction is granted and the auction is restrained. Any third parties who have become involved and taken steps to interest themselves in the property would also be inconvenienced.

28 An undertaking as to damages has been proffered, but I am not satisfied that Mr Joiner would be well placed to satisfy it if it were accepted and later called upon in a significant amount. It is plain that he could not do so without steps being taken to liquidate his shares in the company which owns the house in Eltham in which he lives. That is not a very satisfactory basis for confidence that the undertaking as to damages could be readily met.

29 Even if the proffered undertaking as to damages were completely reliable and well resourced, I would still be of the view that the balance of convenience is strongly in favour of refusing the application for the injunction.

30 In any event, as already indicated, I am not satisfied that there is a serious question to be tried.

31 Further, as I have already indicated, discretionary considerations weigh heavily against the grant of the injunction sought.

32 The greater risk of injustice would lie in granting the injunction rather than in refusing it.

33 For these reasons the application will be refused.

34 The undertaking given by the plaintiff to commence an appropriate proceeding stands. The application for an interim injunction is refused. I will reserve the costs.

[1] [2006] VSCA 89; (2006) 15 VR 65 at [25]- [35].

[2] [2013] VSCA 254 at [75].

[3] Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39; (2011) 279 ALR 166 at [54]- [56].

[7] [2011] NSWCA 39; (2011) 279 ALR 166.

[8] At [57]-[59] (certain citations omitted).

[9] (1992) NSW Conv R 55-634 at 59,627.

[10] [1984] 1 Qd R 421.

[11] [2005] NSWCA 275 at [133].

[12] [2011] NSWCA 39; (2011) 279 ALR 166 at [41].