New South Wales Supreme Court CITATION : Solid Holdings v IMFML Finance [2008] NSWSC 573 HEARING DATE(S) : 05/06/08 JUDGMENT DATE : 5 June 2008 JURISDICTION : Equity JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 5 June 2008 DECISION : Application to extend the injunction refused. CATCHWORDS : MORTGAGES – mortgagee's power of sale – injunction sought to restrain sale – injunction sought to protect the equity of redemption – where no challenge to the mortgagee's right to exercise its power of sale nor as to the mode of sale - necessity to pay amount owing into Court in the ordinary case – injunction refused LEGISLATION CITED : Real Property Act 1900 (NSW) Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 CASES CITED : Harvey v McWatters (1948) 49 SR (NSW) 173 Parist Holdings Pty Ltd v Perpetual Nominees Ltd [2006] NSWSC 599 Notaras v Sly & Weigall [2005] NSWCA 275 Solid Holdings Pty Ltd PARTIES : v IMFML Finance Pty Ltd & 2 Ors FILE NUMBER(S) : SC 2940/08 COUNSEL : Plaintiff: F Kunc SC Defendants: D R Stack SOLICITORS : Plaintiff: Gadens Lawyers Defendants: Deacons Lawyers IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST WHITE J Thursday, 5 June 2008 2940/08 Solid Holdings Pty Ltd v IMFML Finance Pty Ltd & 2 Ors JUDGMENT 1 HIS HONOUR: The plaintiff is the registered proprietor of land at 525 Illawarra Road, Marrickville. The first defendant is the mortgagee of the land. The second and third defendants are receivers and managers appointed to the plaintiff by the mortgagee. 2 On 23 May 2008, the plaintiff obtained ex parte an interim injunction to restrain the defendants from entering into any contract for the sale of the land. The injunction was continued on 26 May 2008 and again - and this time by consent - on 29 May 2008 until today. At least the last extension of the injunction was given on the basis of the plaintiff's proposal to discharge the mortgage debt by the close of business yesterday. 3 The defendants oppose the continuation of the injunction. 4 The initial loan facility provided by the first defendant was entered into on 9 November 2007. It was provided in order for the first defendant to refinance an existing mortgage secured over the land in Illawarra Road, Marrickville and was for a short time only. The loan was to expire on 28 December 2007. 5 On 27 December 2007, the agreement was varied. The loan facility was extended to 28 February 2008. It was a condition of the deed of 27 December 2007 that by 31 January 2008 the plaintiff supply to the first defendant a formal letter of offer from another institution that would provide sufficient funding to refinance the plaintiff's term of borrowings under their facilities with the plaintiff. That was not done. 6 On 20 February 2008, the solicitors for the first defendant gave notice that the plaintiff was in default of the condition and required the default to be remedied. 7 On 29 February 2008, Mr Jim George, a director of the plaintiff, wrote to the first defendant by email and advised, in substance, that the plaintiff had received a cheque which had been banked in an account in Hong Kong and was waiting for that cheque to be cleared in order to discharge the mortgage debt. The plaintiff provided to the first defendant a copy of a letter from Crown Management Holdings Ltd of Hong Kong, advising that it had approved the plaintiff's application for development funding for the erection of units and parking on the property in an amount of US$20 million. The refinance through that company did not proceed. Mr George confirmed in oral evidence that the funds did not clear and that the cheque was stopped. 8 Receivers and managers were appointed on 12 March 2008. 9 On 25 March 2008, Mr George advised the first defendant in substance that he had an approval letter from a funder and that it was only a matter of time before funds were released. 10 On 18 April 2008, the first defendant issued a notice under s 57(2)(b) of the Real Property Act 1900 (NSW). There is no issue that the first defendant is entitled to exercise its power of sale or that as at today the loan is still in default. 11 An affidavit was sworn by the plaintiff's solicitor on 23 May 2008. I infer it was sworn in support of the application made to the duty judge on that day for an interim injunction. In the affidavit the plaintiff's solicitor deposed that the plaintiff was finalising arrangements for the payout of the debt through a joint venture with two other parties; namely, a company called TT Global Invest Ltd and Ms Dewna Hope. He deposed that: " Approximately two weeks ago the JV parties agreed to completely fund both the payout of IMFML Finance and the complete development of the property. The complete funding has only been arranged in the last week, with confirmation being provided to me in the last few days. It is intended that the funding to be received from the JV parties (referred to below) would be used to pay out the debt and completely finance the construction of the development of the property. " 12 There was exhibited to the solicitor's affidavit a letter from Ms Hope dated 21 May 2008. She confirmed that she would be investing US$30 million into the Illawarra Road project and had instructed her bank in Hong Kong to terminate an existing term deposit and release that sum effective immediately, and transfer those moneys into the plaintiff's nominated account in Sydney. She said that her bank would have that transaction completed in seven working days. That transaction did not proceed. 13 Mr George said in evidence that Ms Hope had kept the funds in Hong Kong for other joint venture purposes and that although he had not been told by her that she had revoked her instructions to her bank, he assumed she had done so. 14 In his affidavit of 23 May 2008 the plaintiff's solicitor deposed that the other joint venture party, TT Global Invest Ltd, had confirmed that it would invest €50 million for the development of the property and to pay out the debt. He deposed that that company was ready, willing and able to deliver a certificate of cash deposit issued by Barclays Bank plc, "subject to available credit line". There was exhibited to his affidavit a letter from TT Global Invest Ltd dated 16 May 2008 to that effect. It appears that arrangements were made with the plaintiff's bank, the St George Bank in Sydney, for the receipt of those funds. No such funds have been transferred by TT Global Invest Ltd to the plaintiff. 15 Mr George gave evidence to the effect that at an earlier interlocutory hearing, evidence was given that a bank cheque for €50 million was to be couriered to TT Global Invest in Hong Kong from London and that when the cheque arrived in Hong Kong it would be brought to Australia in order for it to be deposited into an Australian bank account. That did not happen. 16 On 28 May 2008, the plaintiff's solicitors advised the solicitors for the first defendant that the plaintiff had received an amount of US$20 million into its Hong Kong bank account. The plaintiff's solicitors advised that the plaintiff would like to arrange for settlement. 17 There was corroborative evidence of those funds having been paid into the plaintiff's account in Hong Kong. As I understand it, arrangements were then made for settlement to occur on Wednesday, 4 June 2008, the intention being that the mortgage debt would be discharged and the first defendant would release its security. 18 It was against that background that the first defendant consented on 29 May 2008 to the continuation of the injunction until today. Those funds have not been transferred from the plaintiff's bank in Hong Kong to Australia. Instead, it appears that other arrangements have been made involving what are described as joint venture partners of the plaintiff to provide finance. 19 The plaintiff's solicitor has deposed that the plaintiff and TT Global Invest Ltd have agreed to enter into a joint venture, for which purpose a new company, Atlantic Legend Pty Ltd, has been incorporated to undertake and finance the development of the property. Mr George is one of three directors of that company, another being Mr Ghani of TT Global Invest Ltd. It appears that another company is involved, being either China Chiu Sing Petroleum Holding Ltd or a company associated with it. It is proposed that €50 million of funding be provided to Atlantic Legend Pty Ltd in two tranches: of €20 million and €30 million. Atlantic Legend opened an account with the Bank of Queensland. 20 The plaintiff's solicitor deposed that the transfer of funds was scheduled to occur in three stages. The first was for €50 million to be transferred from an account of China Chiu Sing Petroleum Holding Ltd in London to its account with the Bank of China in Hong Kong; secondly, there would be an immediate transfer of €50 million from that company's account with the Bank of China to its account at the Royal Bank of Canada in Canada; and thirdly that there would be a transfer of €20 million from the Royal Bank of Canada to the Bank of Queensland. 21 Due to an administrative error of the London branch of China Chiu Sing Petroleum Holding Ltd' bank, the transfer which had been intended to be made on 29 May 2008 was not made until 2 June 2008. 22 On 4 June 2008 - that is, yesterday - the Bank of Queensland confirmed that it had received a telegraphic transfer from the Royal Bank of Canada in the amount of €20 million. It advised that: " Upon the clearance of the €20 million transferred into the account of our client Atlantic Legend Pty Ltd, and once cleared by Bank of Queensland, instructions have been forwarded to us to proceed a transfer of funds [sic]. We have instructions from the directors of Atlantic Legend Pty Ltd, Mr Jim George and Mr Nazari Ghani, to immediately arrange for the payment to IMFML of Solid Holdings Pty Ltd's loan, being $15,024,211.46 (plus adjustments) from the funds held in the Atlantic Legend account. We expect a clearance of the funds will occur within the guidelines as set by international transfers and compliance. On average the clearance of funds may take up to 10 days from receipt of the transferred funds... " 23 The plaintiff seeks an extension of the injunction until 20 June 2008, which would allow for the period of 10 business days referred to in this correspondence from the Bank of Queensland. 24 The receivers have offered the property for sale by tender. They have received 10 offers for the purchase of the property. The terms of those offers are confidential. It was a term of the tender that the offers should remain open for acceptance up to 6 June 2008. Whilst the range of prices offered is confidential, the offers received are substantially below the existing debt. 25 It was submitted for the plaintiff that there are two bases upon which the plaintiff has an equity to restrain the first defendant from exercising its power of sale as mortgagee. The first, it was said, was simply that equity would intervene to protect the mortgagor's equity of redemption and that there was jurisdiction so to intervene, even though there was no dispute that the mortgage debt was outstanding and that the mortgagee was entitled to exercise its power of sale, and even though there was no dispute as to the manner in which the mortgagee had, or proposed to exercise, its power of sale. It was sufficient, it was said, that the plaintiff offered to redeem, and was in a position to redeem, the mortgage in a fairly short space of time. 26 The second basis of the plaintiff's claim is that there is a serious question to be tried whether, if the first defendant were to accept any of the offers for the property, it would be acting in good faith, where it knows both that acceptance of any of the offers would leave a significant shortfall and where it knows that the plaintiff will be in receipt of funds very shortly to enable it to pay out the debt. 27 Mr George proffered an undertaking for himself and the plaintiff, and it was submitted that he proffered an undertaking on behalf of Atlantic Legend, to give an irrevocable direction to the Bank of Queensland that upon the funds which had been transferred to Atlantic Legend's account being cleared, they would be used to pay the amount of $14,946,041.23 (which was the payout amount as at 4 June 2008) and such further adjustments as may be advised in order to clear the debt. 28 The immediate difficulty the plaintiff faces are the various statements of principle as to the basis upon which equity will restrain the exercise of a mortgagee's power of sale; in particular, statements in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 164 and 169 and Harvey v McWatters (1948) 49 SR (NSW) 173. In Harvey v McWatters, Sugerman J said that in the ordinary case, if the mortgagor is to restrain the exercise of the mortgagee's power of sale, the mortgagor must pay into court the amount sworn to by the mortgagee as the amount owing, or a lesser amount if it appears from the terms of the mortgage instrument that the lesser amount is due. An "ordinary case" is one where there is a dispute as to the amount due under the mortgage or where there is a challenge as to the way that the mortgagee is exercising the power of sale. A fortiori one would think that an ordinary case would extend to one where there was no challenge to the way the mortgagee was exercising the power of sale and no dispute about the amount due under the mortgage. 29 What the plaintiff seeks to do is to redeem the mortgage in the future, and in the interim, to restrain the mortgagee from exercising its power of sale, notwithstanding that at law it is entitled to exercise its power of sale, in order to allow it to effect that redemption. 30 Mr Kunc SC, who appeared for the plaintiff, referred to the observations of Hamilton J in Parist Holdings Pty Ltd v Perpetual Nominees Ltd [2006] NSWSC 599, whilst accepting that he could point to no reported case in which a mortgagee had been restrained from exercising its power of sale akin to the present. In Parist Holdings Hamilton J said: " [16] Over the last 15 years, there have been various expressions of judicial opinion which are to the effect that the requirement in Inglis should be widened. For this to be done, it will need to be found either that there should be an additional exception to the general rule or that the time has come when the general rule should itself be revised and restated. [17] Those proposed modifications include a relaxation of the rule to permit injunctive relief: (1) where the plaintiff claims that he can redeem the mortgage within a fairly short time by carrying out an on its face reasonable refinancing proposal; (2) where the plaintiff has a demonstrable capacity to secure or at least refinance the mortgage debt. [18] As to proposition (1), this is derived from the judgment of Bryson J, as his Honour then was, in Grose v St George Commercial Credit Union Ltd (1991) NSW ConvR 55-586 at 59,300–59,301. His Honour there suggested that the rule in Harvey , if literally applied, could wreak hardship. His Honour suggested that it should not be taken to be intended to prevent injunctive relief where there was a realistic prospect of refinancing. No doubt the evidence would need to establish that the mortgagor claimed to be able to redeem the matter within a fairly short time and that the refinancing proposal was rather likely to be fulfilled. [19] The matter has also been the subject of discussion in learned writing including by Bryson J and the present Chief Judge in Equity writing extracurially: The Hon Justice John Bryson, Restraining Sales by Mortgagees and a Curial Myth (1993) 11 Aust Bar Rev 1; P W Young, A Mortgagor's Right to Approach the Court (1993) 1 APLJ 61. And see note by P W Butt in (1989) 63 ALJ 696. [20] The second of the formulas which I have set out above comes from the recent decision of the Court of Appeal in Notaras v Sly & Weigall [2005] NSWCA 235 at [133]. In indicating that proposition (2) above was an appropriate formula or test to apply, the Court of Appeal did not consider the matter in detail and did not analyse in detail what had been said in Harvey or in Inglis or, indeed, in any subsequent discussions. That was because the Court of Appeal was not dealing with the question in the form in which it arises in applications such as the present, but was dealing with an appeal in an action for negligence against two firms of solicitors in relation to advice given to a mortgagor who was a prospective applicant for injunctive relief to restrain a mortgagee sale. [21] Whilst a Judge of this Court must always pay adequate attention and give adequate respect to statements of the Court of Appeal, I have some doubt as to whether what is said in Notaras is an adequate basis to depart from a principle, which, although it may in some ways be regarded as harsh, has had long acceptance in Courts of Equity. [22] It should be added that, in so far as it may be thought to operate harshly in some circumstances against mortgagors who have immediate and real prospects of re-financing, on the other hand it must be borne in mind that there is a very considerable public interest in not fettering in any undue way the rights and manner of exercise of a mortgagor's power of sale, because of the effect that this might have of unsettling the finance market and discouraging persons, natural and corporate, from lending in that market, which is critical to the conduct of business in this as in other countries. [23] As I have said, this is, as I perceive it, an ongoing and unresolved controversy. Part of the reason for that is that it usually arises in injunction applications from which there are not often appeals and in which urgency precludes the giving of fully reasoned judgments. " 31 His Honour said that the controversy was unresolved. I do not understand his Honour's description of the suggested "proposed modifications" to the principles expressed in Inglis as being an endorsement by his Honour of such suggested modifications. Nor do I consider that the Court of Appeal's decision in Notaras v Sly & Weigall [2005] NSWCA 275 gives any substantial support for any such widening of the principles in Inglis, as the questions being considered by the Court of Appeal in that case were quite different. 32 It is true that in Inglis and in a number of the other authorities the principle is expressed as being a "general rule", implying thereby that it may be subject to exceptions. Nonetheless, the principle has been stated in emphatic terms by the High Court in Inglis. Thus, Walsh J said at 164-165: " 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 mortgage debt. If the debt has not been actually paid, the Court will not, at any rate as a general rule, interfere to deprive the 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 mortgage to be due. " 33 Barwick CJ, with whom Menzies and Gibbs JJ agreed, was even more emphatic. His Honour said: " The case falls fairly, in my opinion, within the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument. Failing payment into court of the amount sworn by the mortgagee as due and owing under the mortgage, no restraint should be placed by order upon the exercise of the respondent mortgagee's rights under the mortgage. " 34 Even if there is a discretion to depart from the general rule, I do not think that this is a case in which the discretion should be exercised. Essentially what is involved is an assessment by the mortgagee of, on the one hand, the risk - which would appear to be a certainty - it faces, that if it accepts one of the offers, there will be a substantial shortfall between its debt and the amount received, such that it would have to have recourse to other securities; and on the other hand, the risk that, notwithstanding the receipt of funds into the account of Atlantic Legend, those funds might not be cleared or might otherwise not be available; with a third competing risk that offers which have already been made might be withdrawn if not accepted by 6 June. 35 The parties by their contract have given the first defendant the right to exercise the power of sale in the events which have happened. The weighing up of those various risks appears to me to be a matter of commercial judgment for the first defendant. Whilst of course the first defendant must exercise its powers in good faith and without sacrificing the interests of the mortgagor, it is entitled to give first priority to its own position. I do not think there is a serious question to be tried, on the evidence before me, that it would necessarily have failed to act in good faith if it were to exercise the power of sale before the plaintiff was in a position to tender the amount due. 36 The plaintiff has had a substantial time in which to clear what was always intended to be only a short-term debt. It has held out various different ways in which the debt would be discharged, which have not come to fruition. On one previous occasion, funds which have been transferred into the plaintiff's account have been stopped. It cannot be said that there is no risk that the funds transferred to the account of Atlantic Legend might not also be stopped. I do not understand the evidence to show that the only circumstance in which those funds might not be available to Atlantic Legend would be if the bank detected any concern as to money laundering or the like. 37 I would accept that if there were a basis to challenge the first defendant's exercise of its power of sale, the balance of convenience would favour granting the interim relief sought. There is no doubt that if the funds are cleared and are made available to the plaintiff, that would be to the advantage of everybody, most particularly the plaintiff and indeed the guarantors of the debt. However, there is no such basis for challenging the exercise of the power of sale, and I think it would substantially weaken the security which a mortgagee takes if the court were to assume for itself the task of weighing the respective risks of, on the one hand, the funds not being cleared against, on the other, the possibility of an offer being lost. 38 For these reasons, I decline to extend the injunction. ****** 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.