New South Wales Supreme Court CITATION : Yeshiva Properties No 1 Pty Ltd & Ors v Lubavitch Mazal Pty Ltd [2003] NSWSC 755 HEARING DATE(S) : 13/08/03 JUDGMENT DATE : 14 August 2003 JUDGMENT OF : Gzell J DECISION : Power of sale not effected by Side Deed. Impropriety not made out. Injunction refused. CATCHWORDS : CONVEYANCING - Land Titles under the Torrens System - Mortgages, Charges and Encumbrances - Whether Side Deed effected mortgagee's power of sale - Whether mortgagee's exercise of power of sale inpugned for impropriety - Whether injunction should issue LEGISLATION CITED : Real Property Act 1900 Barns v Queensland National Bank Ltd (1906) 3 CLR 925 Public Trustee v Morrison (1894) 12 NZLR 423 Sykes and Walker, The Law of Security, 5th Ed, Law Book Company, Sydney, 1993 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 CASES CITED : Silkstone Pty Ltd v Devreal Capital Pty Ltd (1990) 21 NSWLR 317 Inglis v Commonwealth Trading Bank of Australia (1971-1972) 126 CLR 161 Maguire v Makaronis (1996) 188 CLR 449 Forsyth v Blundell (1973) 129 CLR 447 Harvey v McWatters (1948) 49 SR (NSW) 173 Yeshiva Properties No 1 Pty Ltd - 1st Plaintiff Yeshiva Properties No 2 Pty Ltd - 2nd Plaintiff Yeshiva Properties No 3 Pty Ltd - 3rd Plaintiff PARTIES : Yeshiva Properties No 4 Pty Ltd - 4th Plaintiff Yeshiva Properties No 5 Pty Ltd - 5th Plaintiff Yeshiva Properties No 6 Pty Ltd - 6th Plaintiff Lubavitch Mazal Pty Ltd - Defendant FILE NUMBER(S) : SC 4342/03 COUNSEL : Mr S J Burchett - Plaintiffs Mr B R McClintock SC and Mr C R C Newlinds - Denfendant SOLICITORS : McCabe Terrill Lawyers - Plaintiffs Kemp Strang Lawyers - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J THURSDAY 14 AUGUST 2003 04342/03 YESHIVA PROPERTIES NO 1 PTY LTD & ORS v LUBAVITCH MAZAL PTY LTD JUDGMENT 1 On 14 August 2003, I dismissed the plaintiffs' application for an injunction to restrain the defendant from exercising any power of sale under mortgages held over the plaintiffs' properties and an application that the defendant be restrained from carrying to completion any contract for sale made in purported exercise of those powers of sale. I set out my reasons for those decisions. 2 On 16 July 2003, in an action between the same parties, Young CJ in Eq dismissed the plaintiffs' claim, gave judgment for the defendant on its cross claim for $14,664,972.74 inclusive of interest which his Honour stayed until 28 July 2003, ordered the cross claimant to have possession of the properties the subject of the mortgages which his Honour also stayed until 28 July 2003 and granted leave to the cross claimant to issue a writ of possession in relation to the properties which his Honour ordered should not be enforced before 11 August 2003 (Yeshiva Properties No 1 Pty Ltd v Lubavitch Mazal Pty Ltd [2003] NSWSC 615). 3 The bases for the applications were threefold. First, it was argued that the defendant was bound to exercise any power of sale over the properties in a prescribed order and it failed to do so. Secondly, it was argued that the defendant was obliged to give notice of its intention to sell, to have two valuers agreed by the parties appointed and to use reasonable endeavours to achieve a price consistent with the average of those valuations which was not done. Thirdly, it was alleged that the defendant failed to safeguard the interests of the plaintiffs as mortgagors in failing to exercise the power of sale with propriety. 4 On 4 August 2003, the defendant entered into a contract for sale of one of the mortgaged properties, 11A Flood Street, Bondi, Sydney for $2,200,000 and a contract for sale of another of the mortgaged properties, 36A Flood Street for $2,605,000. 5 By what was named a Side Deed of 29 December 1994, the parties together with Nelvet Pty Ltd established a regime with respect to the mortgages held by the defendant and the securities held by Nelvet. The plaintiffs relied upon cl 2.1(b) of the Side Deed which provided, so far as is here relevant, that notwithstanding any of the provisions of the defendant's mortgages, should the plaintiffs be in default of the payment of any amounts due and payable under the loan agreement with the defendant, the defendant should only be entitled to demand payment of the amounts not paid. The plaintiffs agreed that in circumstances where they did not satisfy that demand, the defendant should be entitled to recover the amounts not paid by selling the mortgaged properties in the order of priority set out in a schedule as agent for the plaintiffs. It was provided that in that case, cl 5.2 to cl 5.7 of the Side Deed would apply. 6 The order of priority in the schedule placed 11A Flood Street fourth and 36A Flood Street last in eleventh place. 7 Clause 5.2 of the Side Deed contained an acknowledgment by the plaintiffs that the defendant was entitled to sell any of the properties the subject of its securities to recover all and any moneys payable by the plaintiffs under the terms of the loan agreement as varied under the terms of the deed. 8 Clause 5.3 provided that if the defendant wished to exercise its rights under cl 5.2 the plaintiffs agreed that such sales might be effected by the defendant as agent of the plaintiffs. The plaintiffs waived any obligations or duties otherwise applied to the defendant in respect of such sales and acknowledged that the defendant should not be answerable or accountable for any loss which occurred in connection with the exercise of the rights of sale under cl 5.2. 9 Clause 5.3 contained a proviso that in all cases the defendant should use reasonable endeavours to achieve a price consistent with the then "current market value" of the property to be sold. That term was defined in cl 1.1 to mean the average of the market price of a property to be sold as determined by two registered valuers acceptable to the plaintiffs and the defendant, such valuation to occur within 21 days of the notice of such sale being provided by the plaintiffs to the defendant under the terms of the deed. 10 It was common ground that no notice was given in terms of the definition nor were two persons appointed to provide valuations. 11 The Real Property Act 1900, s 60 provides that a mortgagee upon default may bring proceedings in the Supreme Court for possession either before or after any sale effected under the power of sale given or implied in the mortgage in the same manner as if the moneys were secured to the mortgagee by a conveyance of the legal estate in the land. 12 The plaintiffs submitted that any power of sale was effected by the Side Deed (Barns v Queensland National Bank Ltd (1906) 3 CLR 925 at 938-939, Public Trustee v Morrison (1894) 12 NZLR 423). That proposition is not free from controversy. Sykes and Walker, The Law of Securities, 5th ed, Law Book Company, Sydney, 1993 at 279-280 are critical of the latter decision. 13 It was unnecessary for me to resolve this issue. For the purposes of the applications I assumed that the defendant's power of sale was circumscribed by the Side Deed. 14 The defendant pointed out that cl 2.1(b) of the Side Deed referred to the situation in which there was partial default. Its purpose was to prevent acceleration of the entire debt. I agreed with that submission. 15 The clause specifically invoked the provisions of cl 5.2. Clause 5.3 defined the power of sale under cl 5.2 as a sale by the plaintiffs through the agency of the defendant. That was an additional power to the power of sale under the mortgages. In that context it was understandable that an order of priority of properties to be sold was established. It was in that context that the definition of "current market value" came into play. Significantly, it was invoked upon notice from the plaintiffs to the defendant and not, as the plaintiffs contended, upon notice by the defendant to the plaintiffs. 16 In reply, the plaintiffs submitted that the provision for notice in the definition was only machinery, its requirement being uneffected by any lack of notice. 17 In my view, however, a clear distinction was drawn in the Side Deed between the additional power of sale as agent in a case of partial default prevented from giving rise to acceleration by cl 2.1(b) and the exercise of a power of sale under the mortgages consequent upon an action for possession under the Real Property Act 1900, s 60. 18 Clause 5.1 of the Side Deed contained a covenant by the plaintiffs that the defendant's securities stood as security for all moneys that might be owing by the plaintiffs to the defendant under the loan agreement notwithstanding any of the provisions of the deed. 19 Clause 2.1(b) of the Side Deed limited the power of sale to which it referred to the power in cl 5.2 more particularly defined in the following provisions. It said nothing about cl 5.1. 20 On the one hand, the Side Deed limited the consequence of partial default under the loan agreement, providing therefor a mechanism for agency sales in accordance with a priority of effected properties. On the other hand, the Side Deed acknowledged the security of the properties for all moneys owed under the loan agreement. In the event of a default other than a partial one, I formed the view that the Side Deed did not effect the mortgagee's power of sale. 21 So far as the conduct of the sales was concerned, the defendant advertised in the Wentworth Courier on 23 July 2003 calling for expressions of interest by 25 July 2003. For the properties in question, it received three inquires for 36A Flood Street and five inquiries for 11A Flood Street. The agents for sale recorded 26 other undifferentiated inquires during the marketing period. 22 Had that evidence stood alone, I would have been concerned that the interests of the plaintiffs were not duly considered. But the properties were the subject of significant advertising from October 2002 until an interlocutory injunction was granted by Bergin J in December 2002. The proceedings before Young CJ in Eq generated a deal of publicity and the advertisements placed in the Wentworth Courier in July 2003 were headed re-advertisements. They engendered an interest in the properties. 23 The plaintiffs obtained a valuation of 11A Flood Street at 30 June 2003 at $1,500,000. It sold for more. There was no separate valuation of 36A Flood Street before me. It was valued together with 24-36 Flood Street at $10,500,000. The plaintiffs put in evidence an expression of interest of 25 July 2003 for a number of properties at $15,000,000 including 36A Flood Street at $2,500,000. The property was sold for more. 24 That expression of interest put a figure of $2,400,000 on 11A Flood Street. There was no evidence, however, that the enquirer was prepared to purchase 11A Flood Street in the absence of the other properties, nor whether the inquiry matured into an offer. 25 The contract for sale of 11A Flood Street specified a completion date 14 days after execution, that is, 18 August 2003. The completion date for 36A Flood Street is 20 August 2003. In each case time is of the essence. 26 These unusually short periods for completion would also cause me concern if they stood alone. But the defendant has been thwarted in its attempts to exercise a power of sale for some considerable time and prospective purchasers might well have been keen to obtain possession of premises bid for as soon as possible. 27 In all the circumstances, I held the view that a sufficient case was not made out by the plaintiffs to restrain completion of the contracts on the basis that the power of sale had been exercised without propriety. If the plaintiffs can establish that the purchase price for 11A Flood Street was below market value (contrary to their valuation evidence) that deficiency will not be great on the evidence before me and damages were, in my view, a sufficient remedy. 28 In any event, there were countervailing reasons why I would not have exercised my discretion to grant injunctive relief. 29 The plaintiffs were aware from the advertisements that were placed on 23 July 2003 that a two day period for an expression of interest was stated. They had an opportunity then to raise the complaint that was not raised until 13 August 2003. Had they done so and had injunctive relief been granted, the defendants would not have entered into the contracts of sale in question. In the context of these proceedings, where the plaintiffs have taken many challenges to the Courts, their delay in raising the argument that the power of sale was being exercised with impropriety tells against my exercise of discretion in their favour. 30 It was submitted that the operation of the Side Deed ought to have been raised in the proceedings before Young CJ in Eq and should not now be entertained (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589). In view of my construction of the Side Deed, it is unnecessary for me to consider this issue. 31 It was urged upon me that, in the exercise of my discretion, I should take account of the interests of the purchasers under the contracts, who had not been joined in the proceedings, on the basis that the rights of bona fide purchasers for value without notice were involved. However, the impact of an interlocutory order upon an innocent third party's purchase is relevant only on the question whether the balance of convenience favours the granting of an injunction (Silktone Pty Ltd v Devreal Capital Pty Ltd (1990) 21 NSWLR 317). 32 On that basis, however, the intervention of the purchases adds weight to my view that the plaintiffs' delay in bringing the proceedings challenging the exercise of the power of sale for want of propriety outweighs the call for injunctive relief with respect to the contracts in question. 33 There was some discussion before me as to whether the general rule applied in this case that an injunction will not be granted restraining a mortgagee from exercising powers conferred by the mortgage unless the amount of the mortgage debt is paid or, if disputed, the amount claimed by the mortgagee is paid into court (Inglis v Commonwealth Trading Bank of Australia (1971-1972) 126 CLR 161, Maguire v Makaronis (1996) 188 CLR 449). It was submitted that in circumstances where the propriety of the exercise of the power is in question, a court will not require payment of the mortgage debt (Forsyth v Blundell (1973) 129 CLR 477, Harvey v McWatters (1948) 49 SR (NSW) 173). In light of my conclusion that injunctive relief should not be granted, I did not have to determine this issue. 34 It was for these reasons that I dismissed the applications for interlocutory relief contained in par 1 and par 2 of the summons. ********** Last Modified: 08/18/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.