CATCHWORDS TRADE PRACTICES - mortgage - misleading statements by mortgagee - mortgage by co-owners as tenants in common - interlocutory relief. Christopher Campbell Kennard & Anor. v. A.G.C. (Advances) Limited QLD G67 of 1986 PINCUS J. BRISBANE 25 June 1986 IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G67 of 86 GENERAL DIVISION ) BETWEEN: CHRISTOPHER CAMPBELL KENNARD and MARGARET BETH KENNARD Applicants AND: A.G.C (ADVANCES) LIMITED Respondents MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 25 June 1986 WHERE MADE: BRISBANE THE COURT QRDERS THAT; l. Upon the applicants giving the usual undertaking as to damages, order that the respondent be restrained until trial of the principal proceeding or further order from selling or offering for sale the land contained in Certificate of Title Volume C5398, Folio 242 and Certificate of Title Volume C416 Folio 7 or any part thereof. 2. The costs of and incidental to the application be costs in the proceedings other than the costs of the application up to and including the 19 June 1986 which will be the applicants' costs in the proceedings. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G67 of 86 GENERAL DIVISION ) BETWEEN: CHRISTOPHER CAMPBELL KENNARD and MARGARET BETH KENNARD Applicants AND: A.G.C (ADVANCES) LIMITED Respondents PINCUS J. 25 JUNE 1986 REASONS FOR JUDGMENT This 1s an application for an interlocutory injunction to restrain a sale by a mortgagee. In December 1985, the applicants were, together with Sydney Francis Dempster and Krystyna Emilia Dempster, the owners of property at East Street, Rockhampton. The applicants and the Dempsters were each registered as joint tenants inter se; the Dempsters and the applicants were tenants in common in equal shares. The property was subject to a mortgage in favour of National Westminster Finance Australia Limited. At that time, the Dempsters were substantially indebted to the respondent, which is a finance company, the debt being 2. apparently $675,000, or thereabouts. They wished to obtaina further loan from the respondent. Discussions took place between Mr. R.D. Stagg, an employee of the respondent, on the one hand, and the Dempsters and their accountant, Mr. John Bryant on the other. Mr. Bryant also acted for the applicants. It was proposed to use the East Street property as security for the further advance, attributing to that property a value of $500,000. Since the indebtedness to the first mortgagee was said to he $316,000, the. value left as security for a second mortgage was 3194 ,000. It seems clear that the proposed advance was in no way to benefit the applicants. It was for the Dempsters who were experiencing financial difficulties, They could, subject no doubt to the necessity of obtaining the consent of the first mortgagee, have executed a mortgage in relation to their interest only. Section 56 of the Real Property Act of 1861 (Q.) permits the execution of a mortgage in respect of "any land or any estate or interest in land under the provisions of this Act". I note that in Lyons v. Lyons (1967) V.R. 169, 1n which there was discussion of the effect of a mortgage of one co-owner's interest, the possibility of such a mortgage is assumed. I think a mortgage of one co-owner's interest is unusual. Assuming that the respondent in this case was of the view that such a mortgage was possible, one can still understand its being unattractive; not many lawyers, let alone finance 3. company managers, would be able confidently to expound the rights of a second mortgagee of an interest as tenant in common, there being a first mortgage of the whole interest. The applicant's case is that, having no financial interest 1n the loan transaction, they executed a Bill of Mortgage together with the Dempsters in favour of the respondent, on the assurance that their interest in the land would be unaffected. As Mr. Hanson Q.C., who appeared with Mr. Tim Matthews for the respondent, pointed out, 1t seems on the face of it improbable that business people, as the applicants apparently are, would execute a mortgage of property without appreciating that to do so necessarily affected their interest in the property. Nevertheless, there are some aspects of the matter referred to below which lend credence to the applicants' case. The applicants dealt with the respondent through their accountant, Mr. Bryant. They claim that Mr. Bryant received an assurance from Mr. Stagg that the mortgage would not affect the applicants' interest in the property, which assurance was later repeated. They say that the respondent, through Mr. Stagg, made misleading statements as to the effect of the mortgage and that such statements are caught by s.52 of the Trade Practices Act 1974. They also propose to claim rectification. There is a sharp conflict of fact. Mr. Stagg completely denies the conversations sworn to by Mr. Bryant, in which the former is said to have given the assurances I have mentioned. 4. One approach to acase of this kind is to say that, prima facie, the applicants cannot succeed in obtaining interlocutory relief because, assuming a serious question to be tried, still the balance of convenience must favour the mortgagee. It is proposed to sell the property in question next month. Further, courts should, in my view, be in general quite reluctant to hold a mortgagee up in an interlocutory way on the basis of assertions that the documents do not reflect the true intention of the parties, that there was some collateral agreement, or other allegations of similar kind. Here, however, there are some special features which have led me to the conclusion that the applicants should, at this stage, be granted relief. One is that on Mr. Stagg's account of the matter, 1t 1S almost inconceivable that the mortgage as executed truly represented the parties' intention. Taking the view most strongly against the applicants, on what Mr. Stagg says, one could infer that the applicants intended to assist the Dempsters to obtain further accommodation in the sum of $320,000. The mortgage which the applicants have executed is, however, so drawn as to make them liable, not only for that sum, but for all moneys due by the Dempsters to the respondent; I have mentioned that, at the end of 1985, about $675,000 was due. Not only does the mortgage on its face have that effect, but it makes the applicants primarily liable. It does not appear that Mr. Stagg himself believed that this is what the documents achieved. In par.14 of his affidavit he says: e "Both Mr. and Mrs. Dempster indicated that this time they were worried about the third party mortgage and what the Kennards had to do with the loan. I said to the Dempsters words to the effect that the loan was the Dempsters as far as making payments were concerned but that A.G.C. had a mortgage over the whole of the property." That seems to mean that Mr. Stagg thought that the mortgage was not to make the applicants liable to make payments, but the Dempsters only were to be so liable. The mortgage says nothing of the kind. Another aspect of the matter which gives rise to an inference that the mortgage did not achieve what the parties had agreed 1s that, according to par.20 of Mr. Stagg's affidavit, he was told by another employee of the respondent that "he advised Mr. Bryant that A.G.C. would release his mortgage for the sum of approximately $99,000 on the basis of a sale having taken place and there being no default by the Dempsters"". The sum of $99,000 is fairly close to one half of the total "equity" in the property of $194,000 mentioned above; perhaps the difference is explained by a reduction in the size of the first mortgage from the initial figure of $316,000. However that may be, it seems a little unlikely that if the respondent, at the stage when Mr. Bryant was given the information just mentioned, thought it had a security in respect of the applicants' interest as well as the Dempsters', it would have been contemplating a release of the property on payment of only $99,000. The last and most general feature of the case which has u 6. influenced my decision is that although the mortgage did not make them so, even on the respondent's version of events, the applicants' position was akin to that of guarantors. There is reference in Mr. Stagg's affidavit to a "third party mortgage" and there is also his statement quoted above, implying that they were not liable under the personal convenants. There is a tendency to treat guarantors and those in analogous positions with a degree of tenderness. For example, it has been held that the creditor must inform a proposed guarantor of unusual matters in the principal transaction, particularly those affecting the nature and degree of the surety's responsibility: Commercial Bank of Australia Ltd. v. Amadio (1983) 57 A.L.J.R. 358 at 361. It must be at least arguable that such a duty extends to informing proposed quarantocs that the principal transaction was so framed as to make them primarily liable, and not only for the loan which their participation was intended to induce, but all past loans. At the least, one would think there must be a duty under the general law not to mislead proposed guarantors about that point. Even on the applicants' case, 1t must be said that they behaved with a degree of imprudence. They apparently took their advice as to the effects of the important documents they were signing, not from any qualified person, but secondhand from an employee of the mortgagee. They did not bother to read the documents they signed. Nevertheless, they have in my view advanced a sufficiently strong prima facie case to make it right to hold the respondent up for the time being. Mr. Hanson Q.C. points out that there 1s evidence that, if the relief sought is granted, still the property will be sold by the first mortgagee. 7. It does not appear to me that I should take that into account. Mr. Muir, for the applicants, argued that no condition as to payment into Court should be imposed, because if the applicants' case 1s accepted, there is likely to be held to have been no security interest granted by them at all. on consideration, I have decided not to impose any such term. It remains to be added only that it does not appear that the fact that I am dealing with a registered document makes any difference. The Real Property Act does not prevent the assertion of equities said to arise between the original parties to a registered dealing. Subject to anything counsel may say as to the form of order upon the applicants giving the usual undertaking as to damages, it will be ordered that the respondent be restrained until trial of the principal proceedings or further order from selling, or offering for sale, the land contained in certificate of title volume C538 folio 242 and certificate of title volume C416 folio 7 or any part thereof. The costs will be costs in the proceedings. ¥ certify ihat this and the preceding pages are a iris ccc of the reesens for judgrrent havein of His crour Mr Jusrice Pincus Yo Ait wt, ow uy 7 f Dated as gine, 1986