O CATCHWORDS Trade Practices - misleading and deceptive conduct - claim by mortgagor against mortgagee - application for interlocutory relier - whether applicant required to pay money into Court - whether unpaid interest should be paid to mortaagee as term of relief Trade Practices Act 1974. 38.52. 87 GLANDORE PTY. LIMITED (Receivers and Managers appointed): DAVID HENRY LEITCH; ALMA MARGARET LEITCH: GARY DAVID LEITCH - Applicants ELDERS FINANCE & INVESTMENT CO. LIMITED - Respondent No. QLD. G 101 of 1984 Morlindg J. 13 December 1994 sydney IN THE FEDERAL COURT OF AUSTRALTA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION BETWEEN : AND: AND: AND: JUDGE MAKING ORDER DATE OF ORDER WHERE MADE No. G 101 of 1984 ~~~ +r GLANDORE PTY. LIMITED (Receivers and Managers appointed) First Applicant DAVID HENRY LEITCH Second Applicant ALMA MARGARET LEITCH Third Applicant GARY DAVID LEITCH Fourth Applicant ELDERS FINANCE & INVESTMENT CO. LIMITED Respondent Ok DER Morling J. 19 December 1984 Sydney THE COURT ORDERS AS FOLLOWS: Upon the applicants giving the usual undertaking as to damages and further undertakina to use their best endeavours to expedite the hearing of the application I make the tollowing orders: tu That the respondent be restrained until 4 p.m. on 14 January 1985 from selling any of the property given by the applicants or anv of them as security for the making of advances by the respondent under the loan agreement made on 2 February 1982 between the applicants and the respondent. That if the applicants on or before 4 p.m. on 14 January 1985 pay to the respondent the sum of $307,000 on account of interest on moneys advanced by the respondent to the applicants or any of them. and also on account of expenses incurred by the respondent, the injunction referred to in para. 1 is to continue until the final hearing of the application or further order. The hearing of the application for final ATLLEL > Rearine is expedited. Costs of the application for interlocutory relief to be costs in the application for final relief. All parties are aiven liberty to apply on 2 davs notice. The application is to be listed for a directions hearing on a date to be arranged with the Reqistrar. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY No. G 101 of 1984 GENERAL DIVISTON BETWEEN : GLANDORE PTY. LIMITED 'Receivers and Managers appoinred) First Applicant AND: DAVID HENRY LETTCH Second Applicant AND: ALMA MARGARET LEITCH Third Applicant AND: GARY DAVID LEITCH Fourth Applicant AND: ELDERS FINANCE & INVESTMENT CO. LIMITED Respondent MORLING J. 19 December 1984 FEASONS FOR JUDGMENT This case raises an interesting question as to the conditions 1t is proper to impose pon a mortaagor who seeks interlocutory orders restraining a mortaagee from selling the mortgaged property. The applicants seek interlocutory relief in proceedings brouaht bv them against the respondent in which they claim that the respondent 1s liable to them in damages for alleged breaches of s$.52 of the Trade Practices Act. The applicants also rely upon claims based wpon the accrued jurisdiction of the Court, including claims in neqligence and for breach of contract. For the purposes of deciding the application for interlocutory relief it is necessary to qive only the briefest outline of the facts. The applicant company ("Glandore") owns a grazing property called "Oonavale" situated at Goondiwindi in the State of Queensland upon which it conducts a substantial farming and grazing business. In September and October 1981 Mr David Leitch, the second applicant and a director of Glandore, contacted a firm of finance brokers in Svydnev and sought its assistance to raise, on behalf of Glandore. an advance of $1,500,000. Glandore required the advance to finance the construction of a private hospital at Gympie and the grazing business conducted on "Gonavale". In December 1981 Leitch was contacted by Mr Twigg, who was then the corporate finance executive of the respondent (""Elders"). Discussions were held between Leitch and Twiag as to the possibility of Elders making a loan to Glandore. According to Leitch, he told Twiag that Glandore was not just interested ina loan for $1.5 million. He said that Glandore was "really looking for something in the nature of a line of credit, and that Glandore was seeking to establish a continuing financial relationship with a merchant bank", Twiag discussed the matter with the State manager of Elders and subsequently told Leitch that the manager had said that he couldn't see any problems or difficuities with such an a arrangement, and that it would be acceptable to Elders provided Glandore fulfilled its obligations pursuant to the initial advance of $1.5 million. According to Leitch. Twigg told him that because of Glandore's sound financial position and the nature of its application. it was reasonable to expect that Elders might make further advances to a higher ratio of advance to security value than was contemplated by its usual lending policy. On 2 February 1982 Elders aqreed to advance to Glandore the sum of $1.5 million upon terms and conditions contained ina document entitled "Loan Facility" ("the loan agreement"). The advance was secured by a first reqistered mortaage over land upon which an existing private hospital at Gympie was constructed, another mortgage over the "Gonavale" property, a floating charge over the assets and undertaking of Glandore and toint and several quarantees by David Leitch and his wife. According to Leitch, his belief that Elders was prepared to make further advances to Glandore in the future as and when required and that Elders was willing to pursue a continuing commercial relationship with Glandore were material factors taken into account by him and the other directors of Glandore in reaching the decision to commit the company to the loan agreement. He said that he considered it imperative that such a relationship should exist between Glandore and Elders as he could clearly toresee that further borrowings by Glandore in the future were likely. 4. On the date of entry into the loan agreement and until June 1983 all interest which became due and payable pursuant to the agreement was paid by the due dates. In duly 1982 Glandare had entered into a contract for the construction of a propased new private hospital at Gympie. By September 1982 14 had become apparent to Glandore that it would require a further advance from Elders. Accordinaly in September 1982 David Leitch had meetings with Mr David Barnett, Elders' State manager. Leitch told Barnett that there was a strong possibility that Glandore would require a further advance from Elders in the foreseeable future. Barnett told Leitch that he did not foresee any difficulties with a further advance. The discussion terminated on the basis that Glandore would formally request a further advance when 1ts requirements became known. No mention was made of any change in Elders' lending policy. After September 1982 Glandore's liquidity position deterlorated. This was partly brought about bv drought conditions on "Oonavale" and the consequent failure cf the wheat crop. Although additional carry-on finance for "Oonavale was sought and obtained from the ANZ Bank it became clear to Glandore that it would require a further advance in the order of $500.000 from Elders. On 25 November 1982 Glandore formally wrote to Elders requesting a further advance of $500,600. According to Mr Garv Leitch, who 1s also a director of Glandore. he had discussions with Mr John McCluskev, who by that time was the corporate finance executive of Elders. He a) said that Mr McCluskey told him that he could not foresee any difficulties with the request for the further advance. He also claimed that McCluskey said that Glandore could expect that the application would be approved by Elders' head office and that only minor matters remained to be tidied up before the advance would be approved. According to Garv Leitch, McCluskey said that the application had been "virtually approved", and that the additional moneys sought from Elders "would be advanced". There ig much other evidence to Which it is unnecessary to refer for present purposes. The account of the facts which I have qiven 1s the only version of the facts presently before the Court, since the applicants' witnesses were not cross-examined and the respondent has not as vet filed any evidence on the matters to which I have so far referred. Glandore has been unable to meet its obligations under the loan agreement. As at the date of the hearing of the interlocutory application it had failed to repay $800,000 which had fallen due to Elders, and had also failed to pay interest of about $300,000 on the advance. Elders has threatened to exercise the rights qiven to it under the security documents. In particular, it intends to sell "Oonavale" if a buver at an appropriate price can be found for 1t. Elders have appointed a receiver and manager of Glandore and he 18 conducting "Oonavale" and the private 6. hospital at Gympie as going concerns. The grazing property is running at a loss. but the hospital is profitable. Proviections have been made of the likely profit and loss figures for both "Oonavale" and the private hospital for the period ending 31 March 1985. Tt seems clear that the farming and grazing operations will make a substantial loss over that period, but that the loss will be more than exceeded by a substantial profit which the private hospital will make over the same period. Glandore's total indebtedness to Elders is approxim- ately $1.8 million. It will be about $1.9 million as at 31 March 1985 if no interest is paid in the meantime. There is a conflict of evidence as to the value of the securities that Elders holds. But accepting the evidence filed by Elders, it would seem that the combined value of "Qonavale" and the private hospital at Gympie 1s of the order of $4.5 million. There 13 also plant and equipment (said by Glandore to be worth $500,000) which is charged to Elders. On the other hand, the ANZ Bank has a first charge over "Oonavale" for about $340,000. Glandore has borrowed about $1.7 million from other lenders, but their rights are postponed to Elders' rights under the securities it has taken under the loan agreement. I turn now to consider whether the applicants have made out a case for interlocutory relief. The principles generally applicable to claims for interlocutory relief are 7. referred to in Australian Coarse Grain Pool Ptv. Limited v Barley Marketing Board of Queensland (1982) 57 A.L.J.R. 425 and Tableland Peanuts Ptv. Limited v The Peanut Marketing Board (1984) 58 A.L.J.R. 283 and need not be discussed. In accord- ance with the decisions in those cases. the task of the Court ig first to enquire whether there 1s a serious question to be tried. If the Court is satisfied that there is such a question, then it must determine where the balance of convenience lies. After giving much consideration to the first question, I have come to the conclusion that there 1s a serious question to be tried. In reaching this conclusion I am not unmindful of the persuasive arquments put forward by counsel for the respondent. It may well be the case, as T[ put to counsel during the course of araument, that the applicants will have difficulty in persuading the trial judge that the statements alleged to have been made by officers of Elders were such as to entitle Glandore to act upon them and to rely upon them as the basis for claims under s.52 of the Trade Practices Act, and claims for breach of contract and negligence. Nevertheless, as the evidence presently stands, it would not be proper to describe the applicants' claims as being insubstantial. In this respect I refer in particular to the statements attributed to Mr McCluskey, and not at this stage denied, that the application for the further advance had been virtually approved and that the additional monevs "would be advanced" bv Elders. 8. Accepting for present purposes that these statements were made by McCluskey, I think it can fairly be said that there isa serious question to be tried on the issue of a possible breach of 8.52 of the Trade Practices Act. The position may well be otherwise in respect of the claims in neaqligence and breach of contract, but it is unnecessary to further consider whether there is any substance in those allegations. It is sufficient that there is a serious question to be tried in the s,52 claim. Before turning to consider the question of the balance of convenience, I should refer to the well settled principle that as a general rule an ainjunction will not be granted restraining a mortgagee from exercising powers conferred by a mortgage, and in particular, a power of sale, unless the amount of the mortaqage debt is paid into court. See Inglis v Commonwealth Trading Bank of Australia (1972) 126 C.L.R. 161 NO per Walsh J., which decision was affirmed on appeal - 1 C.L.R. 161-167. As that case shows, the qeneral rule will not be departed from merely because the mortaaqor claims to be entitled to set-off an amount of damages claimed against the mortaqagee, Inalis' Case was one in Which interlocutorv relief wags sought by a mortgagor who claimed damages against his mortaqagee. The mortaagor contended that there should be an injunction until all the issues in the action had been finallv determined, in order to protect his interest in the mortgaged property. At p, 164-5, Walsh J. said: sD "A qeneral rule has long been established, in relation to applications to restrain the exercise by a mortaqagee of powers given by a mortaage and in particular the exercise of a power of sale, that such an injunction will not be aranted 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 mortaagee 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 mortaade debt. If the debt has not been actually paid, the Court will not, at any rate as a qeneral rule, interfere to deprive the mortaagee of the benefit of his security, except upon terms that an equivalent safequard 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 gebtor has raised claims for damages against the mortgagee were allowed to prevent any enforcement of the security until after the litigation of those claims had been completed. In my opinion the fact that such claims have been brought provides no valid reason for the granting of an injunction to restrain, until thev have been determined, the exercise by a mortgagee of the remedies given to him by the mortgage." see also, Samuel Keller (Holdings) Limited wv Martins Bank Limited (1971) 1 W.L.R. 43. These authorities were much relied upon by counsel for the respondent in the present case. Inaglis' Case was not a case in which the mortgagor sought to impugn the validitv of the mortaqage transaction itself. Counsel for the applicant 10. argued that the qeneral rule referred to by Walsh J had no application to a case, such as the present, where the mortaagor's real complaint was that the written agreement for loan and security documents did not reflect the entirety of the agreement made between the mortaagor and mortqaqgee. Nor, so it. was argued, did the qeneral rule have any application where the basis of the mortgage claim for relief was an allegation that the mortgagee had enaaged in misleading conduct in breach of 8.52 of the Trade Practices Act. He contended that other authorities, of which the decision of Sugerman J. in Harvey v McWatters (1948) 49 S.R. (N.S.W.) 173 18 one, were of more relevance to a case where misleading conduct was alleged against a mortgagee. It was held in Harvev v McWatters that where a Mortgagor seeks an interlocutory injunction to restrain his mortqagee from selling, there 1s a distinction with respect to the terms that will be imposed as to payment into Court between the cage in which the power of sale 1s admittedlv exercisable and the only dispute 1s as to the amount due or the mode in which the mortaagee proposes to exercise the power, and the case in which the very matter in dispute 1s whether the power of sale 1s exercisable at all. Sugerman J. held that, in the first case, the aqeneral rule is that the mortaagor will be required to pay into Court the amount demanded by the mortaagee, unless it appears from the terms of the mortgage that the amount claimed by the mortaagee 1s wrong. He further ll. held that in the second class of case. the amount which would be ordered to be paid into Court 1s mot necessarily the whole amount claimed or appearing to be due under the terms of the mortgage, and in such a case the terms as to payment into Court that are imposed upon the mortgagor may be moulded so as to require payment in of so much only as will suffice to give adequate protection to the mortgagee. Harvev v McWatters was cited with approval by Sheppard J in Brutan Investments Pty Limited v Underwriting and Insurances Limited (1981) 39 A.C.T.R. 47: see also Clarke v Japan Machines (Australia) Pty Limited (No. 2) (1984) 1 Qd.R. 421 at 423 per G.N. Williams A-J. A useful discussion of the principles upon which interlocutory relief will be qaranted in cases of the present kind is to be found in Equity Doctrines and Precedents, by Meaagher Gummow & Lehane. 2nd ed., para. 316. It ais clear on the authorities that 1f the present case be regarded aS one in which the mortgagor's real claim against the mortaagee 1s for damages only, interlocutorv relief should be aqranted only upon terms that the amount of the mortgage debt 1s paid into Court. The general rule referred to in Inglis' Case would apply in such a case. But if ut be not reqarded as such a case, 1t 18 open to the Court to qrant the relief sought upon such terms other than payment of the full amount of the mortqage debt into Court as the Court thinks appropriate. 12. In their statement of claim the applicants claim damages for the alleged misleading and deceptive conduct and for breach of contract and negligence. However, 1t is of significance that thev also seek an order varving the terms of the loan agreement in such manner as the Court thinks fit. The form of variation sought by the applicants has not vet been Particularised. The Court's power to order a variation of the agreement is extensive (vide s.87(2)(b) of the Trade Practices Act. As I apprehended the case made by the applicants in substance it is collateral arrangements were made between Glandore and Elders both at the time of the making of the loan agreement and subsequently and that Elders is not adhering to those arrangements, In these circumstances 1 may well be that the orders which the applicants will seek on the trial will include an order varying the terms of the loan aqreement so as to engraft upon 1t the essential terms of the alleged collateral agreements. The case therefore differs considerably from Indrisie & Ors. v General Credits Limited (Northrop J. - 26 October 1984) where the mortgagee had already obtained judament aaainst the mortgagor in the Supreme Court. and the only claim made by the mortgagor in the Federal Court proceedings was for damages. No relief was claimed under 8.87 of the Trade Practices Act. Northrop J. said in that case that in realitv the applicants were attempting to defeat a judament properly obtained in the Supreme Court. That is not the situation in the present case. 13. I do not think that the present case 1s a case of the kind to which the aeneral principle in inalis' Case applies. It falls more easily into the second class of case discussed by Sugerman J. in Harvey v McWatters. This being so T am not constrained by authority to require the applicants to pay into Court the whole amount of the mortaage debt as a condition of obtaining interlocutorv relief. Rather I think the prover approach is to mould an order so as to ensure adequate protection to the mortgagee and to otherwise do justice between the parties during the period pending the final hearing. Having reqard to the fact that the value of the security held by Elders (at Elders' own valuation) 15 more than double the amount of the mortaage debt 1t 1s difficult to see how any prejudice will be suffered by Elders by the granting of interlocutory relief, provided the final hearing 15 not unduly delayed. During the course of arqument it was agreed that the parties could be readv for a final hearing within three months. There is no suggestion that the secured property 1s falling in value and in those circumstances I do not think the applicants should be required to pay any part of the principal debt into Court pending the final hearina. However it is not right that Glandore should have the use of the respondent's money without paying interest on ut. There is already an amount of $307,000 unpaid interest and expenses owina to Elders and this must be paid as a term of the 14, grant of interlocutory relief. Moreover, the unpaid interest must be paid to Elders, and not into Court. This will ensure that Elders has the use of the money pending the hearing, and will reduce the amount of its mortgage debt to about $1.5 million, for which 1t will have security in excess of 84 million. Because Elders does not appear to have any immediate plans for the sale of "Oonavale" andas the applicants will want some time to raise the $307,000 to pay Elders I propose to give them until 14 January 1985 to pay the unpaid interest and expenses. Upon the applicants giving the usual undertaking as to damages and further undertaking to use their best endeavours to expedite the hearing of the application I make the following orders: 1. That the respondent be restrained until 4 p.em. on 14 January 1985 from selling any of the property given by the applicants or any of them as security for the makina of advances by the respondent under the loan agreement made on 2 February 1982 between the applicants and the respondent. 2 That if the applicants on or before 4 p.m. on 14 January 1985 pay to the respondent the sum of $307,000 on account of interest on moneys advanced bv the respondent to the applicants or anv of them, and also on account of expenses incurred fv the respondent, the invunction referred ta in para. 1 1s to continue until the tinal hearing of the application or further order. lal The hearing of the application fer final hearing 1s expedited. ob 15. Costs of the application for interlocutory relief to be costs in the application for final relief. All parties are given liberty to apply on 2 days notice. The application is to be listed for a directions hearing on a date to be arranged with the Registrar.