_ JUDGMEN: IN THE FEDERAL COURT OF AUSTRALIA VICTORIAN DISTRICT REGISTRY GENERAL DIVISION Judge Making Order: Date of Order: BETWEEN : Not considered appropriate for reporting - for limited mo, 600 /s2 ——~distribution No. VG 225 of 1987 ALPHONSE D. CUNNINGHAM (First Applicant) MARIE F. CUNNINGHAM (Second Applicant) BRIAN CUNNINGHAM (Third Applicant) ANTOINNETTE CUNNINGHAM (Fourth Applicant) DANIEL CLEMENT CUNNINGHAM (Fifth Applicant) BRIDGET MARGARET CUNNINGHAM (Sixth Applicant) NATIONAL AUSTRALIA BANK LTD (First Respondent) IAN CONNOR (Second Respondent) BARRY DONNELLAN (Third Respondent) WESTPAC BANKING CORPORATION (Fourth Respondent) MINUTES OF ORDER Ryan J. 9 November 1987 1 1 NOV 1987 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTAY The Court Orders That: l. The applicants' motion on notice dated 8 October 1987 be dismissed. 2. The applicants pay the firstnamed respondent's costs. ~ Note: 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 GENERAL DIVISION ween No. VG 225 of 1987 BETWEEN: ALPHONSE D. CUNNINGHAM (First Applicant) MARIE F. CUNNINGHAM (Second Applicant) BRIAN CUNNINGHAM (Third Applicant) ANTOINNETTE CUNNINGHAM (Fourth Applicant) DANIEL CLEMENT CUNNINGHAM (Fifth Applicant) BRIDGET MARGARET CUNNINGHAM (Sixth Applicant) AND: NATIONAL AUSTRALIA BANK LTD (First Respondent) IAN CONNOR (Second Respondent) BARRY DONNELLAN (Third Respondent ) WESTPAC BANKING CORPORATION (Fourth Respondent) Coram: Ryan J. Date: 9 November 1987 By motion on notice dated 8 October 1987 the applicants have sought leave to appeal to a Full Court from a judgment -2- given by Jenkinson J on 17 September 1987 refusing to grant an interlocutory injunction restraining the first respondent ("the National Bank") from exercising its powers as mortgagee of recovering possession of, or selling, three parcels of land owned respectively by the first and second applicants, the third and fourth applicants and the fifth and sixth applicants. The first four applicants at all relevant times carried on business in partnership as potato growers under the name "Cunningham Bros". The evidence before Jenkinson J indicated that early in January 1987 the partnership contemplated the sale of the whole of its current crop to Hebdeen Pty. Ltd. ("Hebdeen"). In that connexion, the second applicant, on 5 January 1987, called at the Warragul Branch of the National Bank, which was the banker to the partnership, and asked the accountant to procure a "credit check" on Hebdeen which, she said, was needed urgently. She told the accountant, the second respondent Mr Connor, that an offer of $60 a tonne for about 1500 tonnes of potatoes had been received from Hebdeen and that its bank was the Westpac Banking Corporation ("Westpac") in Brisbane. On the following day, Mr Connor allegedly told Mrs Cunningham that Westpac had advised that Hebdeen "had a satisfactory account and met all its commitments" to which Mr Connor added the comment "that is as good a report as you will get". In reliance on that information, Cunningham Bros resolved to accept Hebdeen's offer and shortly afterwards borrowed $65,000, of which about $45,000 was lent by the National Bank, to finance the purchase of plant and equipment needed to handle the crop in the way specified by Hebdeen. It further appeared before Jenkinson J that in late January 1987 Hebdeen made some default in performing its obligations under the contract with the partnership, but requested the partnership to continue to perform its part. The first applicant, Alphonse Cunningham, told the third respondent who was the manager of the Warragul Branch of the National Bank that he, Cunningham, doubted Hebdeen''s financial soundness. He thereupon asked Mr Donnellan to investigate further Hebdeen's financial soundness, and was later told by the third respondent that the report was just as it was before. In the light of that advice, the partnership decided to keep the contract with Hebdeen on foot. However, that company later made some definitive default, and in March 1987 was ordered by the Supreme Court of Queensland to be wound up. It is insolvent, and, as Jenkinson J found, "there is evidence to justify an inferred finding that it had become insolvent before 1987". The applicants have alleged that the statements by Mr Connor and Mr Donnellan constituted deceptive or misleading conduct on the part of the National Bank in contravention of s.52 of the Trade Practices Act 1974 ("the Act"). It is also alleged that the respective statements were made negligently and that the National Bank is vicariously liable for the negligence of its officers who made then. Jenkinson J held, in effect, that there was no serious question to be tried between the applicants and the National Bank because neither the statement attributed to Mr Connor, nor that attributed to Mr Donnellan, could be found to amount to deceptive or misleading conduct. In his Honour's view, the statements represented no more than that the National Bank was passing on advice received from Westpac. His Honour went on to observe: "The comment by the respondent Connor, that what Westpac Banking Corporation had said was as good @ 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." Mr Thomson Q.C., who appeared with Mr Houlihan for the applicants, urged that another view was seriously open of the effect, in the context in which they were made, of the respective statements of Mr Connor and Mr Donnellan. That was that the National Bank had itself formed the opinion that Hebdeen was a solvent entity to which credit could safely be extended, and that it was safe or prudent for the partnership to enter into the proposed agreement with it. There are several features of the context in which the statements by the officers of the National Bank were made which render that interpretation much less readily available than that favoured by Jenkinson J. Not the least of those features is the apparent lack of any indication to either Mr Connor or Mr Donnellan of any details of the proposed transaction with Hebdeen, or the extent to which it required the partnership to grant credit to that company. To give leave to appeal from Jenkinson d's interlocutory judgment, I would have to be persuaded that his Honour's conclusion that the alternative view just outlined is not seriously arguable is attended with sufficient doubt, or that the case satisfies one of the other tests distilled from the authorities by Murphy J in Niemann v_ Electronic Industries Ltd £1978] V.R. 431, and approved by this Court in Brambles Holdings Ltd v Trade Practices Commission (1979) 28 A.L.R. 191 and Aspar_ Autobarn Co-operative Society v_ Dovala Pty Ltd unreported (Federal Court of Australia; Sweeney, Northrop and Keely JJ 21 November 1986). Even assuming the requisite sufficiency of doubt as to the absence of a serious question to be tried, I would nevertheless refuse leave to appeal because of the application to this case of principles which have long governed the grant of an interlocutory injunction restraining forfeiture or the exercise of a power of sale by a mortgagee. -6- The general rule was succinctly restated by Walsh J in Inglis v Commonwealth Trading Bank of Australia (1971) 126 C.L.R. 161 at 164 as follows:- "A general rule has long been established, 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." That general rule may be displaced where the applicant for interlocutory relief puts in issue in the proceedings in which that relief is claimed, the validity or enforceability of the mortgage itself. Thus, in Glandore Pty Ltd v_ Elders Finance and Investment Co Ltd (1984) 4 F.C.R. 130, Morling J suggested that there is a second class of case identified in Harvey v McWatters (1948) 49 8.R. (NSW) 173 to which the general rule in Inglis _v Commonwealth Trading Bank does not apply. His Honour observed at 134-135:- "It was held in Harvey v McWatters that where a mortgagor seeks an interlocutory injunction to restrain his mortgagee from selling, there is a distinction with respect to the terms that will be imposed as to payment into court between the case in which the power of sale is admittedly exercisable and the only dispute is as to the amount due or the mode in which the mortgagee proposes to exercise the power, and the case in which the very matter in dispute is whether the power of sale is exercisable at all. Sugerman J held that, in the first case, the general rule is that the mortgagor will be required to pay into court the amount demanded by the mortgagee, unless it appears from the terms of the mortgage that the amount claimed by the mortgagee is wrong. He further held that in the second class of case, the amount which would be ordered to be paid into court is not 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 so0 much only as will suffice to give adequate protection to the mortgagee. Harvey v_McWatters was cited with approval by Sheppard J in Brutan Investments Pty Ltd v Underwriting and Insurances Ltd (1981) 39 ACTR 47; see also Clarke v Japan Machines (Australia) Pty Ltd (No 2) €1984] 1 Qd R421 at 423 per Williams A-J. A useful discussion of the principles upon which interlocutory relief will be granted in cases of the present kind is to be found in Meagher Gummow and Lehane, Equity Doctrines and Precedents (2nd ed, 1984), par 316. 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 not regarded as such acase, 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 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 s 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 is not adhering to those arrangements. In these circumstances it 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. The case therefore differs considerably from igeisie Vv General Credits Ltd unreported (Federal Court of Australia, Northrop J, 26 October 1984) where the mortgagee had already obtained judgment against 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 s_ 87 of the Trade Practices Act 1974 (Cth). Northrop J said in that case that in reality the applicants were attempting to defeat a judgment properly obtained in the Supreme Court. That is not the situation in the present case. I do not think that the present case is a case of the kind to which the general principle in Inglis' case applies. It falls more easily into the second class of case discussed by Sugerman J in Harvey v_McWatters. This being so I am not constrained by authority to require the applicants to pay into court the whole amount of the mortgage debt as a condition of obtaining interlocutory relief. Rather I think the proper 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." It may be, as Mr Thomson Q.C. for the applicants argued, that their failure to claim in the application or in the prayer for relief in the statement of claim some variation of the mortgages granted to the National Bank does not preclude them from seeking that relief, or the court from granting it, at the trial of the application. However, in my view, what clearly takes this case out of the second category identified by Morling J is the fact that the making of the alleged representations by the National Bank had no more than a fortuitous connexion with the grant to it of the mortgages, two of which were in existence well before 6 January 1987. Although it could be said that the mortgage granted by the third and fourth respondents to the National Bank would not have been created had the Bank advised against the transaction with Hebdeen, that would not justify this Court in postponing the exercise of powers of sale under the mortgage. Thus in Samuel Keller (Holdings Ltd) v_ Martins Bank Ltd £19701 3 All E.R. 950 Russell L.J, with whom the other members of the Court of Appeal agreed, observed at 952:- "It was not contended that a court could in any way step in to prevent a claim such as that of Keller's against the bank if the Lawton counterclaim had no connection at all with the creation of the mortgage; but it was said that when the mortgage was created as a result of a contract which gave rise to the very claim for unliquidated damages for a breach thereof there should in equity be a power in the court to postpone the exercise by the mortgagee of his otherwise undoubted rights until that issue was decided, although it was, onthe other hand, accepted that even in such a case the court would not step in to prevent the exercise by the mortgagee of his power of sale. It was nevertheless argued that it would step in to prevent any present exercise of the mortgagee's subsequent remedies against the proceeds of sale. Put as a matter of equity in terms of fairness it was explicitly, or implicitly perhaps, argued that when the mortgage was part of the purchase price which would not have been paid at all had the matters of complaint (if established) been known at the time of the contract, some check should be put on the full exercise of the mortgagee's rights until the issue has been determined. Authority for such a proposition is undoubtedly lacking and, if I may say so, reference to cases which showed that an assignee of a mortgage debt takes subject to the state of accounts between the mortgagor and the transferor of the mortgage does not seem to me to afford any guidance. No more do cases such as the case to which I have already referred. But lack of authority, of course, ought not to deter us if in principle it seemed to us right and there appeared to be no countervailing detriment. However, speaking for myself, it seems to me clear that where the parties use a system of payment under a contract which involves in fact notional payment in full and a lending on mortgage of a sum, it could lead to abuse if the mortgagee was to be kept out of his undoubted - 10 - rights, expressly provided for, by allegations of some connected cross-claim which may prove to be without foundation." Counsel for the applicants also referred to the recent judgment of Pincus J in Kennard vA.G.C. (Advances) Ltd (1986) 12 F.C.R. 6 where his Honour granted an injunction, free of any condition as to payment into court, restraining a second mortgagee from selling certain land. However, in that case the misrepresentation relied onas giving this Court jurisdiction under s.52 of the Trade Practices Act was that the applicants' interest in the land as tenants in common with two other mortgagees would be unaffected by the grant of the second mortgage. In that sense, the claim under the Act went to the very existence of the mortgage as an encumbrance on the applicants' interest in the land. Nor do I find any assistance in Piggqot v Williams (1821) 6 Madd 95; 56 E.R. 1027 which was one of the cases cited by Walsh J in [Inglis v Commonwealth Trading Bank (supra). In Piggott v Williams a solicitor filed a bill for foreclosure of a copyhold estate pledged as security for his costs. The defendant filed a cross-bill alleging that the costs claimed had arisen from the negligence and lack of care of the solicitor. The solicitor's demurrer to the cross-bill was overruled on the ground that the facts pleaded disclosed a clear case of equitable set-off. As explained in Rawson v Samuel (1839) Cr. & Ph. 161 at 179; 41 E.R. 451 at 459, the complaint in Piqgott v Williams "against the solicitor for negligence went directly to impeach the demand - li - he was attempting to enforce". However, in the present case, the National Bank has no need to resort to this or any other court to enforce its rights under the mortgage, which, in any event, are not impeachable by the present claims under s.52 of the Act or for damages for negligent advice. Accordingly, the application for leave to appeal must be refused with costs. I certify that this and the ten (10) preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Ryan. POY Faier Associate Dated: 9 Abvenser 1997