_ JUDGMENT No. 544.7.3-1. e CATCHWORDS Mortgages - Sale under power - Injunction to restrain sale - Terms of payment into Court - Claim by mortgagor for unliquidated damages. Injunctions - Interlocutory injunction - To restrain mortgagee from @éxercising power of sale - Terms of payment into Court - Claim by mortgagor for unliquidated damages. Trade Practices Act 1374 - 3.52, 5.87 and Part V Atkinson v. Hastings Deering (Queensland) Pty. Ltd. (1385) 6 F.C.R. 331 British Anzani (Felixstowe) Limited v. International Marine Management (UK) Limited C1980] 1 Q.B. 137 Eagle Star Nominees Limited v. Merriil £1382] V.R. 557 E. Ward and Co. v. McDougall £1972] V.R. 433 Glandore Pty. Ltd. v. Elders Finance and Investments Co. Ltd. (1984) 4 F.C.R. 130 Hanak v. Green £19583 2 @0.B. 9 Inglis v. Commonwealth Trading Bank of Australia (1972) 126 C.L.R. Meagher, Gummow and Lehane : Eguity : Doctrines and Remedies (2nd ed.) Ch. 37 Samuel Keller (Holdings) Limited v. Martins Bank Limited £1971] 1 W.L.R. 43 World Series Cricket Pty. Ltd. v. Parish (1977) 16 A.L.R. 181 ALPHONSE D. CUNNINGHAM, MARIE F. CUNNINGHAM BRIAN CUNNINGHAM ANTIONNETTE CUNNINGHAM, DANTEL CLEMENT CUNNINGHAM, BRIDGET MARGARET CUNNINGHAM v. NATIONAL AUSTRALIA BANK LTD. 500 Bourke Street, Melbourne IAN CONNOR BARRY DONNELLAN WESTPAC BANKING CORPORATION VG225 of 1987 Jenkinson J. ry Melbourne ' 17 September, 1987 19 OCT 1987 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY IN FEDERAL COURT OF AUSTRALIA ) VICTORIAN DISTRICT REGISTRY ) No. VG225 of 1987 GENERAL DIVISION )e BETWEEN: ALPHONSE D. CUNNINGHAM First-named Applicant MARIE _F.. CUNNINGHAM Second-named Applicant BRIAN CUNNINGHAM Third-named Applicant ANTIONNETTE CUNNINGHAM Fourth-named Applicant DANIEL CLEMENT CUNNINGHAM Fifth-named Applicant BRIDGET MARGARET CUNNINGHAM Sixth-named Applicant AND: NATIONAL AUSTRALIA BANK LTD. 500 Bourke Street, Melbourne First-named Respondent IAN CONNOR Second-named Respondent BARRY DONNELLAN Third-named Respondent WESTPAC BANK ING CORPORATION Fourth-named Respondent 2] ORAM: " LACE: [=] ATE : MINUTE _ OF ORDER e Jenkinson J. Melbourne 17 September, 1987 THE COURT ORDERS THAT: > uw The Applicants' claims for interlocutory relief be dismissed. The Respondents' costs of the hearing of the said claims be paid by the Applicants. The Applicants be at liberty to file and serve within 14 days a further amended Statement of Claim. Each Respondent file and serve its defence and any cross claim within 24 days. The directions hearing be adjourned until 16th October, 1987, Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) VICTORIAN DISTRICT REGISTRY ) No. VG225 of 1987 GENERAL DIVISION ye BETWEEN: ALPHONSE OD. CUNNINGHAM First-named Applicant MARIE F. CUNNINGHAM Second=named Applicant BRIAN CUNNINGHAM Third-named Applicant ANTIONNETTE CUNNINGHAM Fourth-named Applicant DANIEL CLEMENT CUNNINGHAM Fifth-named Applicant BRIDGET: MARGARET CUNNINGHAM Sixth-named Applicant AND: NATIONAL AUSTRALIA BANK LTD. 500 Bourke Street, Melbourne First-named Respondent IAN CONNOR Second-named Respondent BARRY DONNELLAN Third-named Respondent WESTPAC BANKING CORPORATION Fourth-named Respondent Jenkinson J. [s be i 17 September, 1987 REASONS FOR JUDGMENT The applicants are two brothers, the wife of each of them and their parents, who are the fifth and sixth-named applicants. At relevant times the brothers and their wives carried on in partnership a business of potato growing under the name "Cunningham Bros". On 6 January 1987 the firm contracted to sell the whole of the crop then being grown by the firm to a company called Hebdean Pty. Ltd. for a price likely to return the firm about $390,000. The National Australia Bank Limited was the banker of all four members of the firm, at the Warragul branch of that bank, which 15 the first respondent. On 5 January 1987 the applicant, Marie Cunningham, wife of the applicant Alphonse Cunningham, asked the accountant at that branch, the second-named respondent Ian Connor, to arrange for National Australia Bank Limited to get a credit check on Hebdean Pty. Ltd. She told him that Hebdean Pty. Ltd's bank was Westpac Banking Corporation in Brisbane. She told him that Hebdean Pty. Ltd. was offering to buy 1500 tons of the firm's potatoes at a price of $60 per tonne. She said that the credit check was needed urgently. It is alleged that on 6 January 1987 the accountant, Mr. Connor, told Marie Cunningham he had made inquiry of Hebdean Pty. Ltd's banker, Westpac Banking Corporation, and that the advice he had received from that banker was that Hebdean Pty. Ltd. had a satisfactory account and that it met all its commitments. Mr. Connor added his comment that "that is as good a report as you will get". The 3. members of the firm relied on what Mr. Connor had said in deciding to enter into the contract. Shortly after making the contract the firm borrowed about $65,000, about $45,000 29f that sum from National Australia Bank Limited, to enable the firm to acquire certain plant needed for the handling of the potato crop in the particular way which the contract required. The members of the firm relied on what Mr. Connor had said in decading to borrow that sum. In late January 1987 Hebdean Pty. Ltd. failed in performance of the contract. Hebdean Pty. Ltd. requested the firm to continue in performance. The applicant Alphonse Cunningham told the manager of the Warragul branch of National Australia Bank Limited, the third-named respondent Barry Donnellan, that he doubted the financial soundness of Hebdean Pty. Ltd., and he asked Donnellan to further investigate that company's financial soundness. Donnellan later told Alphonse Cunningham that the report was just as 1t was before. The members of the firm relied on Donnellan's statement in deciding at that time to continue in performance of the contract. Hebdean Pty. Ltd. failed in performance of the contract. In March 1987 an order that it be wound up was made by the Supreme Court of Queensland. It is insolvent. There 15 evidence to justify an inferred finding that it had become insolvent before 1987. The firm claims to have suffered damages exceeding $100,000 in consequence of having entered into the contract. It may be inferred that it also suffered damages, but less in amount, in consequence of having continued in performance 4. of the contract after learning of Mr. Donnellan's statement about Hebdean Pty. Ltd. in late January. The members of the firm allege that the statements by the respondents Connor and Donnellan constituted misleading conduct in breach of s.52 of the Trade Practices Act 1974, and they claim damages against National Australia Bank Limited in respect of each of those breaches. They claim also that the statements constituted acts of negligence for which National Australia Bank Limited is vicariously liable to them in damages. The firm was before 6 January 1987 and still is indebted to National Australia Bank Limited in the sum of about $58,000. That indebtedness was at material times and still 1s secured by a mortgage of freehold land owned by Alphonse and Marie Cunningham. The firm was before 6 January 1987 and still 1s indebted to National Australia Bank Limited in the sum of about $40,000, which indebtedness was at material times and still 1s secured by a Mortgage of freehold land owned by the fifth and sixth-named applicants. The loan of about $45,000 by National Australia Bank Limited to the firm immediately after the making of the contract was and remains secured by a mortgage of freehold land owned by Brian and Antoinette Cunningham, the third and fourth-named applicants. It is alleged that all the obligations to the creditor bank arising out of these debts and certain other debts were known by the creditor to be intended to be discharged, at least in part, by the application of funds expected to be derived from sale of the crop which in the result was contracted ta he sold to Hebdean Pty. Ltd. Notices by the creditor bank demanding payment in full of each indebtedness were given at the end of July 1987. Application is made for orders to restrain sale and "a foreclosure and recovery of possession under the mortgages until trial of this proceeding. In Glandore Pty. Ltd. wv. Elders Finance and Investment Co. Ltd. (1984) 4 F.C.R. 130, a mortgagee of freehold land was restrained until trial of a proceeding in this Court from selling the land in exercise of a power of sale which had become exercisable. The applicant mortgagor alleged that it had been induced to borrow from the respondent mortgagee the money secured by the mortgage by the mortgagee's misleading conduct done in breach of 5.52 of the Trade Practices Act 1974. The conduct alleged to have contravened that section consisted of representations as to the mortgagee's willingness to lend in the future substantially more than was then being borrowed. The grant of injunctive relief was conditioned on payment by the mortgagor of interest then due on the loan secured by the mortgage. Morling J. observed (4 F.C.R. at 135): "It is clear on the authorities that if the present case be regarded as one in which the mortgagor's real claim against the mortgagee is for damages only, interlocutory relief should be granted only upon terms that the amount of the mortgage debt is paid into court. The general rule referred to in Inglis' case would apply in such a case. But if it be mot regarded as such a case, it is open to the court to grant the relief sought upon such terms other than payment of the full amount of the mortgage debt into court as the court thinks appropriate. In their statement of claim the applicants claim damages for the alleged misleading and deceptive conduct and for breach of contract and negligence. However, it is of 6. , significance that they also seek an order varying the terms of the loan agreement in such manner as the court thinks fit. The form of variation sought by the applicants has not yet been particularised. The court's power to order a variation of the agreement is extensive (vide 5.87(2)(b) of the Trade Practices Act 1974 (Cth)). 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 1s not adhering to those arrangements. In these circumstances 1t may well be that the orders which the applicants will seek on the trial will include an order varying the terms of the loan agreement so as to engraft upon it the essential terms of the alleged collateral agreements." That to which Morling J. refers as "the loan agreement" was the agreement in writing for, inter alia, grant of the mortgage. I have referred first to Glandore Pty. Ltd. v. Elders Finance and Investment Co. Ltd. because in the case now before me the power conferred by s.87 of the Trade Practices Act 1974 to vary an agreement is not invoked, and the Glandore Case may be distinguished on that ground, but also hecause in the passage from the Glandore Case which I have quoted the general rule concerning interlocutory restraint of a mortgagee's exercise of his power of sale 15 accepted as applicable in relation to a claim for damages for breach of 5.52 of that Act. In Inglis v. Commonwealth Trading Bank of Australia (1972) 126 C.L.R. 161 at 164-165 Walsh J. stated the general rule that a Court - "will mot .... interfere to deprive the Later his 7. 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, The benefit of having a security for a debt would be greatly diminished if the fact that a debtor 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 heen 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 they have heen determined, the exercise by a mortgagee of the remedies given to him by the mortgage." Honour observed (126 C.L.R. at 166): "In Morgan & Son Ltd. v. 5. Martin Johnson & Co. Ltd. £19453 1 K.B. 107, a passage was cited from the judgment of Lord Cottenham in Rawson v. Samuel (1841) Cr. & Ph. 161, at p.179; C41 E.R. 4513, at p.458, and in which Lord Cottenham referred to some earlier cases which he described as being cases where - I quote his words - 'the equity of the bill impeached the title to the legal demand . One of those early cases was Piggott v. Williams (1821) 6 Madd. 95; 56 E.R. 1027. In that case a solicitor filed a bill for foreclosure of an estate pledged as a security for costs and there was a cross bill alleging that the costs demanded were occasioned by the negligence and want of skill of the solicitor, and that therefore nothing was due. A demurrer to the cross bill was overruled. The plaintiffs in the present case have sought to Place some reliance upon Morgan & Son Ltd. v. S. Martin Johnson & Co. Ltd. £1949] 1 K.B. 107 and upon the citation therein of the earlier authorities, to some of which I have referred. I have looked at the case of Rawson v. Samuel (1841) Cr. & Ph. 161; (41 E.R. 4513 and I do not find in it any support for the argument of the plaintiffs in the present case, nor do I think that the decision in Piggott v. Williams (1821) 6 Madd. 95; C56 E.R. 1027] assists then. That case was concerned with the question whether, against a plaintiff who had 8. come to the court to enforce a security, the defendant could assert by a cross bill that nothing was due under the*security, hecause the debt which it was intended to secure had never been incurred at all. That 15 not the situation in the present case. In my opinion none of those early cases affects the principles enunciated in the recent case of Samuel Keller (Holdings) Ltd. v. Martins Bank Ltd. £19713 1 W.L.R. 43; C19703 3 All E.R. 350, in which the court considered the case of Morgan & Son Ltd. v. S. Martin Johnson & Co. Ltd. £19493 1 K.B. 107. The result then is that [I consider that the well-established rule to which I referred earlier as the general rule, 15 not displaced un the present case by the circumstance that the plaintiffs have raised claims for damages and other claims against the defendant in an action brought by the plaintiffs ain this Court." In the action with which Walsh J. was concerned the plaintiffs claimed damages against the defendant "for breaches of contract, for defamation, for fraud, and for conspiracy." His Honour refused an interlocutory injunction to restrain the defendant mortgagee of the plaintiff's land from enforcing the security. His decision was upheld on appeal. The reasons for his Honour's judgment did not suggest that there was any connection between the circumstances out of which the claims for damages arose and the circumstances surrounding the grant of the mortgage. In Glandore Pty. Ltd. v. Elders Finance and Investment Co. Limited, on the other hand, the misleading conduct alleged not only induced the grant of the mortgage, 1t misled the mortgagor, so it was alleged, as to the mortgagee's attitude to the future of the relationship of debtor and creditor constituted by the loan secured. In Atkinson v. Hastings Deering (Queensland) Pty. Ltd. (1985) 6 F.C.R. 331 it was the existence of a procedural obstacle 3. to the exercise of the mortgagee's power of sale which Pincus J. seems to have regarded as releasing him from the constraint which the rule expounded by Walsh J.would otherwise have imposed on him to require payment into Court of the debt secured as a condition of interlocutory restraint of the mortgagee. It was urged on behalf of the applicants that what was described as the inextricable causal nexus between the conduct of National Australia Bank Limited done in contravention of 5.52 of the Trade Practices Act 1974 and the defaults which enlivened the bank's powers to enforce its securities enabled the Court to restrain the exercise of those powers without requiring that the amounts secured he paid into Court. The conduct of the bank aunduced the mortgagors to take one of the three secured loans by inducing the making of the contract for due performance of which that loan was required, it was said. The conduct of the bank had deprived the applicants of the capacity to meet the obligations as to payment in respect of all three loans, it was said, by inducing the making of the contract which had caused the applicants to fail to gain the very funds which, as the bank knew, would be applied in satisfaction of those obligations. It is true that if the bank were to claim curial remedy in respect of the loans or the mortgages by which they are secured, the question whether a claim sounding in unliquidated damages by the mortgagors against the bank could be set off against the bank's claims might be answered by inquiring whether the nexus between the claim and the cross-claim was such that the cross-claim could be said to "impeach" the title of the plaintiff. 10. (See Meagher, Gummow and Lehane : Equity : Doctrines and Remedies (2nd ed.) Ch.37 and cases there cited; Eagle Star Nominees Limited v. Merrill £1982] V.R. 557.) It 1s true also that the formation of the doctrine of what is called equitable set-off is historically linked to the grant of injunctive relief (E. Ward and Co. v. McDougall €19721 V.R. 433 at 435-436; Hanak v. Green (1958) 2 Q.8. 9 at 18-19), and Walsh J. considered several cases concerning the doctrine in Inglis v. Commonwealth Trading Bank of Australia. But the connections to which counsel for the applicants were able to point in this case are not, in my opinion, of a kind which have been conceived, or which ought to be conceived, as Justifying the conclusion that the bank's title to any of these mortgages or to any rights of enforcement is impeached by any of the applicants' claims. It cannot be - and was not - alleged that the bank's conduct induced the making of the contract of loan which followed the making of the contract for sale of the potato crop, except in the sense that the loan was needed to enable the applicants to perform the contract for sale of the crop. It was not suggested that the subject of the loan was raised between the applicants and the bank before the contract of the sale of the crop had been made. Pincus J. noted in Atkinson v. Hastings Deering (Queensland) Pty. Ltd. (1985) 6 F.C.R. 331 at 333: "The general rule is that a mortgagee will not be restrained from exercising his rights at the instance of the mortgagor, at least where the validity of the security is not in question, except on a condition that the debt be paid into court. Instances may be found in which courts have expressed some lack of enthusiasm for the rule: see the remarks of ll. , Sheppard J. in Brutan Investments Pty. Ltd. v. Underwriting Insurance Ltd. (1980) 58 F.L.R. 289 at 299; 39 A.C.T.R. 47 at 56." é It is, however, to be observed that the cases in which misgiving about the operation of the rule has been expressed were all cases in which what was sought to be called in question by the mortgagor concerned only the mortgage and what had been done under tne mortgage. In any event, Walsh J., whose reasons for judgment were approved by the Full High Court on appeal in Inglis ve Commonwealth Trading Bank of Australia, considered and approved the application of the rule to a case in which the party seeking interlocutory relief is claiming unliquidated damages against the mortgagee, and although the plaintiffs appeared before Walsh J. and the Full Court in person, his Honour gave careful consideration and approval to a decision of Megarry J. and of the Court of Appeal (Samuel Keller (Holdings) Limited v. Martins Bank Limited £19713 1 W.L.R. 43), in which the same questions had been agitated by counsel on both sides. In those circumstances I consider myself obliged to exercise the discretionary power to grant an interlocutory injunction of the kind now sought in accordance with that rule. (See World Series Cricket Pty. Ltd. v. Parish (1977) 16 A.L.R. 181 at 1985.) If the claim for damages were so connected with the mortgages or any of them as to impeach the mortgagee's title, in the sense in which that concept is expounded in relation to equitable set-off, then 1t may be that the relief sought could be granted free of the condition that the amount secured be paid into Court. It may be, also, that a claim for variation, pursuant to s.87 of the Trade Practices Act 1974, of the contract of which the mortgage is part, or with which the mortgage is closely connected (see British Anzani (Felixstowe) Limited v. International Marine Management (UK) Limited £19807 1 Q.B. 137), is one which ought, in some circumstances, to free the Court from compliance with the rule. Neither exception to the rule is disclosed in this case, in my opinion. There is another obstacle to the grant of interlocutory relief. In my opinion the conduct alleged to have been done by persons for whose acts and omissions National Australia Bank Limited is vicariously liable is not shown to have constituted a contravention of Part VY of the Trade Practices Act 1974. The allegations of misleading comduct against the first three respondents do not, in my opinion, raise any serious question to be tried. Iothink that the statements by Connor and Donnellan (other than Connor's reference to "as good a report as you will get") are to be understood to represent that Westpac Banking Corporation had said, of its customer Hebdean Pty. Limited, when asked by an officer of National Australia Bank Limited for a credit report on the customer, that it had a satisfactory account, and that it met all its commitments. It 15 not suggested that Westpac Banking Corporation did not so respond to such an inquiry, nor is it suggested that Westpac Banking Corporation made any further response. So far as presently appears, or is alleged, that representation was true. It was submitted on behalf of the applicants that in all the circumstances what was said by Connor and Donnellan, considered in the light of what was not said, amounted to a representation that Hebdean Pty. Limited was financially sound. In my opinion such a contention cannot be sustained. Mrs. Marie Cunningham asked for a credit report, 13. naming Hebdean Pty. Ltd's bank. What she got could have been reasonably understood by her only as a statement as to what that bank had given in response to the request of National Australia Bank Limited for such a report, and nothing more. It 1s alleged that Westpac Banking Corporation was acting as the servant or agent of National Australia Bank Limited. There is nothing to justify that allegation. It was suggested that the natural tendency of the report was to excite confidence in the financial soundness of Hebdean Pty. Ltd. and that, since Hebdean Pty. Ltd. was not, at that time, financially sound, what was said tended to induce the mistaken belief that Hebdean was financially sound. But no reasonable person would think that what was said amounted to a representation by National Australia Bank Limited, or by any of its officers, that Hebdean Pty. Ltd. was financially sound, or that it met its commitments, or that 1t had a satisfactory account. The actual words were a representation as to what Westpac Banking Corporation had said, and any confidence as to Hebdean Pty. Ltd's financial soundness which those words might reasonably have engendered was engendered by the representations of Westpac Banking Corporation. The comment by the respondent Connor, that what Westpac Banking Corporation had said was as good a report as you will get, may be thought ambiguous. It may be thought to mean that Westpac Banking Corporation uses no language more encomiastic than that in reports of the kind in question, or that banks generally use no language more encomiastic in such reports. Other meanings may be open. Whatever it meant, there is nothing to suggest that the comment was inaccurate or misleading. 14. Tt is alleged that in making the statements attributed to Connor and Donnellan persons for whom National Australia Bank Limited is vicariously liable were negligent and damage is alleged to have been caused by that negligence. No particular of the negligence alleged has been given. It may be possible to suppose that, although Mrs. Marie Cunningham may be taken to have asked only for a report by Westpac Banking Corporation, National Australia Bank Limited's understanding of the business in which the firm was engaged, and that bank's knowledge, communicated by Mrs. Marie Cunningham, of the price and tonnage proposed as terms of the contract to be made with Hebdean Pty. Ltd., ought to have given the bank warning that failure by Hebdean Pty. Ltd. in performance of such a contract might cause great economic harm to the firm. If that were so, 1t is possible that in all the circumstances a duty arose to give advice as to the usefulness of a report of the kind being sought in estimating the financial soundness of a trader. It is unnecessary 0 pursue these Speculations. The applicants profess themselves unable to satisfy the conditions, subject to which any interlocutory injunctive relief would be granted. For the foregoing reasons, I order that the applicants' claims for interlocutory relief be dismissed, and that the respondents' costs of the hearing of the said claims be paid by the applicants. There will also be an order that the applicants be at liberty to file and serve, within 14 days, a further amended statement of claim, andan order that each respondent file and serve its defence and any cross-claim within 24 days. It is ordered that the directions hearing be adjourned until 16 October, 1987. Counsel for the Applicants Solicitor for the Applicants Counsel for the First, Second and Third-named Respondents Solicitors for the First, Second and Third-named Respondents Counsel for the Fourth-named Respondent Solicitors for the Fourth-named Respondents Dates of Hearing oe we I certify that this and the 14 preceding pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Jenkinson. ro Associate Dated: 13 October, 1987 Me. B.K.C. Thomson QC and Mr. M.W. Houlihan Peter D. Stacklock Mr. G.A.A. Nettle Mallesons Stephen Jacques Mr. J.D. Loewenstein Madden Butler Elder & Graham 11, 15 and 16 September, 1987