Casmif Pty Ltd v Farrow Mortgage Services Pty Ltd [1990] QSC 304

I, ,--, ( /~~!'_IN THE SUPREME COURT OF QUEENSLAND .,j,,_"? ' _COMMERCIAL CAUSES JURISDICTION 10 20 30 .lQ 50 60 No. 1136 of 1990 .BEFORE MR. JUSTICE BYRNE ,-FlrnSEDCOP'~~ 1cc-u-;:---n· 1 --'- • vu c ...... 1 . _BRISBANE, 31 AUGUST 1990 L~;~::.~.t: 0 17 ;;au • BETWEEN: ( Copyright in this transcript is ;~ted. in -~- the Crown. Copies thereof must not be made or sold without the written authority of the Chief Court Reporter,Court Reporting Bureau.) CASMIF PTY. LTD. -and- Applicant FARROW MORTGAGE SERVICES PTY. LTD. Respondent ORDER HIS HONOUR: I refuse the application for the adjournment. On 23.or 24 August· the respondent to this application was served with material which clearly indicated that a matter likely to be relied on in support of this application was that if the property proposed to be sold by the respondent were sold, the proceeds of sale would be dissipated. The dissipation would, as it must have been apparent to the legal advisers for the respondent, have entailed the severe prospect of prejudice to any claim for damages which might be made if the claim for specific performance were overtaken by a sale by the respondent exercising power of sale. It was, therefore, to be expected that the respondent would have defended this application by material tending to suggest that the prospect, creating anxiety in the applicant that there may be no funds in the respondent to meet a liability for damages were the plaintiff to succeed was unlikely to happen. Govt. Printer, Old 1 0/.3oSL- 10 20 30: · 40 50 60 \· ... :~ f•::. -- 1 of 9 -- 10 I adverted to the question whether Mr. Brabazon Q.C. for the respondent had instructions to make some proposal which would alleviate the anxiety before 1 p.m. Shortly before 1 p.m. today an adjournment was granted for other reasons. But this was an opportunity to the respondent's solicitors to obtain instructions to advance some proposal which would have either secured the proceeds of any sale, if the respondent were not enjoined from effecting a sale, or by some other means, so to arrange the respondent's financial affairs that there was at least a reasonable prospect that any damages the plaintiff were 10 20 awarded in the action against the defendant would be recovered. 20 There has now been an application for a further adjournment to consider whether it is not possible to obtain the instructions from the respondent along those lines. In my opinion, it would not be just to permit the respondent to conduct the case on one 30 basis until the end of it and then seek to have the matter 30 .· :adjourned- in the hope that instructions might yet be obtained along the lines that I have mentioned. Here, for a week or thereabouts, the respondent has been alerted to the need to consider the matter. For these reasons the application for an -JO adjournment is refused ... This is an application for an interlocutory injunction ,to restrain the defendant, Farrow Mortgage~ Services Pty. :Ltd., from the exercise of power of sale. The respondent is the mortgagee of land situated at Bundall on the Gold Coast. ! so 1 The applicant, the plaintiff in an action commenced by writ 5~' 60 No. 1135 of 1990, is the mortgagor. The litigation, which commenced on 24 July of this year, seeks specific performance of an agreement which, on the applicant's case, now obliges the respondent to discharge the mortgage. Govt. Printer, Old. 2 -- 2 of 9 -- By deed of loan made in December last year between the parties, it was agreed that in certain events the respondent would consent to the discharge of the security: that is to say, the mortgage in reliance on which the respondent . proposes to exercise power of sale. By clause 23 of the deed of loan, 10 however, the respondent's obligations as mortgagee in that respect were expressly made conditional upon the applicants not being "in default hereunder" and "there being no default pursuant to any security collateral hereto". The mortgage is such a collateral security. In short, the applicant has no 20 prospect of succeeding in the proceedings if there has been a relevant default under the mortgage, or the deed of loan. Moreover, if no triable issue is raised concerning whether the notice of exercise of power of sale is invalid, the respondent is prima facie entitled to proceed to sell the 30 land. The first question, then, is whether the applicant has shown that there is a serious question to be tried concerning the allegations of default relied on to sustain the notice of exercise of power of sale. The deed of loan provided for an advance of $5 million on 10 20 30 ,' .:+o the basis that it was an interest only loan. The way in which -io the account was administered involved periodic debiting and sometimes crediting to the account. The parties appear to have negotiated an arrangement collateral to the deed of loan under which the respondent would retain two "funds" , as they were 1 so described. The first was an interest and contingency fund, so 60 !which was agreed at $150,000. I The second was a construction fund for $660,000. The interest and contingency fund consisted of moneys included in the $5 million but separately set apart. The object appears to have been to permit the respondent to ·- ______ ,, __________ Govt. Printer, Old. 3 -- 3 of 9 -- 10 debit that fund periodically with interest accruing in accordance with the terms of the deed of loan. The purpose for which the construction fund was created is not so easy to ascertain. In an affidavit of Mr. Mcil veen ( filed by leave today) it is deposed in paragraph 12 that the construction funds were not merely "available for construction purpose" ... "but were to be fully drawn down as aforesaid". The affidavit of Mr. Mcilveen does not establish, nor is there other evidence ltending to show, that the respondent agreed that it would debit accruals of interest not only to the interest and contingency 20 fund but also to the construction fund. I mention this matter because interest accrued at a very substantial rate - more than $50,000 a month - so that, within three months, the interest and contingency fund had been exhausted. The respondent alleges against the applicant default in 30 compliance with its obligations under the deed of loan, in particular, a failure to pay interest when due. One response on the part of the applicant is that the construction fund was, or at least could have been, debited with the interest which was neither able to be charged to the interest and contingency 10 20 30 40 fund nor otherwise paid by the applicant, the non-payment of 4c which is said to constitute a basis for inferring a default on 'the part of the applicant. I am not persuaded that the evidence establishes a serious !question to be tried that the applicant was entitled to insist 5Cl that the construction fund be debited with the amount of 5G 60 accrued but otherwise unpaid interest. The exercise reflected in Exhibit L to the affidavit of Mr. Mcilveen, filed on 22 August 1990, which shows a calculation revealing, if correct, that there was no default, proceeds upon the basis Govt. Pnnter, Old 4 -- 4 of 9 -- 10 that the constructi.on fund was or might properly have been debited with $54,229.71 and, if that had happened, then there was no liability in respect of unpaid interest on the footing that it had all been paid. The exercise is of purely academic interest i.n the absence of evidence showing that the applicant was entitled to insist that the construction fund be resorted to for the purpose of debiting interest or that the respondent, with the applicant's consent, agreed that the construction fund might be resorted to for that purpose. So far, then, the material tends to present a case of default in the payment of 20 interest due. A statement of the account has been placed before me. It shows debits having been made periodically for interest. In each case, the debit was made td the account before the time when in accordance with the · terms of the deed of loan the 10 20 30 interest fell periodically due to payment. As the case was 30 · argued, it became common ground that the interest liability accrued each month on the 22nd day of that month. However, al though the account has been administered in the way which ! involved premature debits, it seems from affidavits of 40 Mr. Perrin filed by leave today, that, at least until a time in July of 1990, there were no adverse financial consequences for the applicant associated with the early debit. That came about because the interest was calculated subsequently as if the debits of interest had been made periodically on the correct so date. 60 Nevertheless, the result of the system of accounts that prevailed ·· is such that in my opinion a serious question to be tried arises in relation to whether there was any default by the applicant prior to 23 July 1990. The way in which the Govt. Printer, Oid. 5 50 60 ,, ;~ . ·:, -- 5 of 9 -- 10 account was administered suggests that, on one view, it was not until the liability for the further interest payment accrued on 22 July that more than $5 million was taken to have been advanced. In the way in which the account was actually administered, as distinct from the letter of the requirements of the deed of loan, the result, in my opinion, is that it is at least a question fit for trial whether the applicant was actually in default of its obligations under the deed of loan before 23 July 1990. The significance of that date is this: in late June this 10 20 year, the applicant's solici tars called on the respondent to 20 discharge the mortgage in respect of the property to facilitate wider transactions to which the applicant, the respondent and a company, which I shall call IBM, entered into concerning land swaps. The applicant, asserting an entitlement to do so, by 30 its solicitor's correspondence on 29 June and 13 July, alleged 30 that the respondent was obliged to discharge the mortgage in accordance with obligations which it had assumed under the deed of loan. It would seem that if the respondent was otherwise obliged to do so, it ought on 19 July at the latest, have 40 satisfied its obligation to discharge the mortgage. It is 40 I 'd 1sa1 , however, that the obligation was conditional upon the I !absence of a default and, indeed, that is correct. But, as I ihave said, it is at least fairly arguable that the applicant : lwas not in default of its obligations to pay interest until I ! so 123 July; and, if that is right, then it is at least distinctly ! I arguable it is not necessary to say more for present I I !purposes - that the respondent should, as I have said, have discharged the mortgage on the 19th. Although it seems to me unlikely that the applicant will 60 GovL Printer, Old. 6 50 -- 6 of 9 -- , . 10 ultimately succeed at a trial in establishing that its obligation to pay interest on 22 July was dependent upon the respondent's satisfying its obligations under the mortgage and deed of loan by 19 July, it is not right, I think, for me to decide on this interlocutory application that there is no 10 prospect at all of that contention's ultimately prevailing. 10 The result, therefore, is that there is a serious question to be tried whether the default alleged to have occurred on 23 July is a default upon which the respondent was entitled to rely in giving (four days later) notice of exercise of power of 20 sale. The notice claimed a substantial sum of money. There is 20 a serious question to be tried concerning its validity, that is to say, there is a triable issue whether the entitlement which the respondent asserts to exercise power of sale has arisen at all. In these circumstances, it is necessary to give 30 consideration to where the balance of convenience lies. The future for the property would seem to be sale. That is so whether the respondent sells the property as mortgagee or the applicant disposes of it ( if the mortgagee is held not entitled to do so). There is material tending to suggest that 30 · 40 in the absence of a prompt sale, the respondent will be 40 prejudiced. Valuation evidence placed before me suggests that the current value of the land is significantly less than the amount of the debt. The debt, which the respondent claims to have accelerated, now exceeds $5 million. The value of the SD land in question is significantly less. It is, therefore, a so 60 real prospect that a delayed sale of the property will seriously prejudice the financial interests of the respondent. The material before me does not suggest that the applicant has any assets other than those the subject of the mortgage. Govt. Printer. Old. 7 60 -- 7 of 9 -- So delay which would inevitably follow the grant of interlocutory relief tends to favour refusal of the application. So does another consideration. It is related to a fact which I have just mentioned, viz. that, almost certainly, the undertaking as to damages offered on behalf of 10 the applicant is without value. That, in any case, is a matter of significance. It assumes particular importance in the context of an application to restrain a secured creditor from exercising rights under the security. Those two main !considerations would ordinarily, in the circumstances as I I d 1 10 20 have mentioned them, in particular because sale seems 20 inevitable whether the injunction was granted or not, suggest that interlocutory relief ought to be refused. But in this case there is another factor which seems to me of significance. It is that the overwhelming probability is 30 that, if the land is sold, the respondent will not retain the 30 proceeds, but instead dispose of them to an intermediate or ultimate holding company. The respondent's ultimate holding I !company is in financial difficulties, to say the least. If, therefore, the interlocutory injunction is refused and the land ~o is sold, the applicant will necessarily have to accept that it 40 can no longer pursue a claim for specific performance of the I agreement to discharge the mortgage. a claim for money compensation. It will be reduced to It is impossible now to estimate what the value of the I 'maximum amount to which the applicant might establish an entitlement could be. However, whatever the amount, the inevitable prospect on the material before me is that the applicant, if it succeeds in the action, will recover nothing ~·-· __ 60 jfrom the re:pondent. Govt Printer, Qld This is not the ordinary state of affairs 8 i SC -- 8 of 9 -- 10 where a financial institution seeks to exercise power of sale. There, typically, if the sale is permitted to proceed and ultimately it is shown that there was no entitlement in the mortgagee to exercise the power of sale, there is every prospect that the applicant, who fails in obtaining the relief, will actually recover an established entitlement to monetary compensation. Here, however, if the interlocutory relief is refused, as I have said, all the indications are that the remedy at law will be without any practical utility. That is a factor which is, it seems to me, right in principle to take 10 20 into account in considering where the balance of convenience 20 lies. In the circumstances as they are established before me, in my view the balance of convenience ultimately is in favour of granting interlocutory relief. There will, therefore, be an 30 injunction until trial or earlier order restraining the respondent, whether by its employees, its agents or otherwise howsoever from selling the land referred to in the notice of motion in purported reliance on the notice of exercise of power of sale dated 27 July 1990. 40 The costs will be reserved. 50 60 Govt. Printer, Old. 9 30 40 50 C,O -- 9 of 9 --