New South Wales Supreme Court CITATION : Raffaele Iaconis & Anor v Gregory David Pynt & Anor [2008] NSWSC 781 HEARING DATE(S) : 16 July 2008 JUDGMENT OF : McDougall J at 1 EX TEMPORE JUDGMENT DATE : 16 July 2008 DECISION : See paragraphs [30] and [31] of the judgment. CATCHWORDS : MORTGAGES – application to restrain completion of contract for sale – whether formal defects invalidate s52(2)(b) notice – non-monetary default – whether reckless disregard of interests – whether damages an adequate remedy – whether making of contract for sale of land bars equity of redemption. LEGISLATION CITED : Real Property Act 1900 CATEGORY : Procedural and other rulings AGC (Advances) Limited v Tweed Canal Estates Pty Limited (1988) 4 BPR 9404 Bunbury Foods Pty Limited v National Bank of Australasia Limited (1994) 153 CLR 491 CASES CITED : Forsyth v Blundell (1973) 129 CLR 477 Property and Bloodstock Ltd v Emerton [1968] 1 Ch 94 Waring (Lord) v London and Manchester Assurance Company Limited [1935] 1 Ch 310 Raffaele Iaconis (First Plaintiff) PARTIES : Angelina Iaconis (Second Plaintiff) Gregory David Pynt (First Defendant) Burbot Properties Pty Ltd (Second Defendant) FILE NUMBER(S) : SC 3664/08 A Rogers (Plaintiffs) COUNSEL : M W Young (First Defendant) T Bors (Second Defendant) SOLICITORS : Fitzpatrick Solicitors Pty Ltd (Plaintiffs) Nugent Wallman & Carter (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST McDOUGALL J 16 July 2008 ex tempore (revised - 17 July 2008) 3664/08 RAFFAELE IACONIS & ANOR v GREGORY DAVID PYNT & ANOR JUDGMENT 1 HIS HONOUR: The plaintiffs are the proprietors of the land and improvements at 106 Sunnyholt Road, Blacktown (the Blacktown property). That property is encumbered by, among other things, a first registered mortgage to Westpac Banking Corporation and a second registered mortgage to the first defendant. The first defendant asserts that the plaintiffs have made default under the mortgage by failing to pay interest due. He has exercised or, as the plaintiffs would have it, purported to exercise his power of sale. 2 On 13 June 2008 the first defendant, as mortgagee exercising power of sale, exchanged contracts for sale of the property with the second defendant. That contract is due to complete on 18 July 2008. The issues 3 By the summons filed on 8 July 2008 the plaintiffs seek an order restraining the defendants from completing the contract for sale. That relief is sought on an interlocutory basis. Thus, the Court is required to consider the well-known questions of whether there is a serious issue to be decided, where the balance of convenience lies (including, under this, the adequacy of damages as a remedy), and whether there are any relevant discretionary factors that impinge on the grant of relief if otherwise a case is made out for that grant. 4 The plaintiffs put their case for relief in two ways. Firstly, they submit, a notice served by the first defendant under s 57(2)(b) of the Real Property Act 1900 was defective. Thus, they submit, the first defendant was not entitled (and is not entitled) to exercise any power of sale. Secondly, the plaintiffs submit, there is a serious question to be tried that the first defendant, in exercising (or purporting to exercise) his power of sale, has acted not merely negligently, but recklessly, to the point where the Court would be justified in restraining completion of the contract for sale. Validity of the notice 5 The s57(2)(b) notice that is in evidence, is addressed to the plaintiffs. It states that they "are hereby required by Gregory David Pynt as first mortgagee to pay the interest sum specified hereinbelow of which [sic] you have failed to pay in default of your obligations contained in the mortgage referred to in the schedule below". The notice specified that unless its requirements were satisfied, the first defendant would exercise his power of sale in due course. 6 The schedule comprising part of the notice referred to two properties: one at Glenwood and the other being the Blacktown property. It identified each by its folio identifier. Against the address and folio identifier of the Glenwood property, the schedule identified the mortgage given by the plaintiffs to the defendant. There is no doubt that the mortgage in question was given over both the Glenwood property and the Blacktown property. It was not submitted that either property was misdescribed. 7 The first error alleged in the notice is the description of the first defendant "as first mortgagee". However, reading the notice as a whole, I think it is reasonably clear that it is alleging that the first defendant was the mortgagee under the mortgage specified in the notice. There is no doubt that he was. I do not think that anyone could have been misled by the erroneous description of him as a first mortgagee. Certainly, and in my view wisely, the plaintiffs did not attempt to suggest, either in evidence or in submissions, that they were so misled. 8 The second problem alleged relates to the identification of the mortgage. It is said that the schedule discloses the mortgage in question as relating to the Glenwood property, but not to the Blacktown property. I am not sure that this is the correct way to read the notice as a whole. I think, taking into account that the notice refers to defaults under the mortgage, and to the proposed exercise of power of sale "in respect of the below mentioned land the subject of the Mortgage specified below", it is clear that the notice was asserting that both parcels of land were encumbered by the mortgage. 9 It can hardly be suggested that the plaintiffs, as mortgagors, would have been unaware that the mortgage in question was granted by them over both parcels of land. Again, I note, the plaintiffs did not seek to suggest, either by evidence or in submissions, that they were misled by such infelicity as there may be in this aspect of the drafting of the notice. 10 In Bunbury Foods Pty Limited v National Bank of Australasia Limited (1994) 153 CLR 491, the High Court of Australia considered the adequacy of a demand made in respect of a debt payable on demand. That case did not concern a notice given under a statutory provision such as s 57(2)(b) of the Real Property Act. 11 The decision of the Court is adequately stated in the head note. Their Honours held: A debtor required to pay a debt payable on demand must be allowed a reasonable opportunity to meet the demand before the creditor can enforce his security. Although it is not essential to the validity of a notice calling up a debt that it correctly states the amount of the debt, in determining whether the debtor has had such an opportunity it will be relevant to take account of the debtor's knowledge, lack of knowledge and means of knowledge of the amount due and of the information which the creditor has provided in that respect, including the response which he has made to any inquiry by the debtor. 12 As will be seen from the head note, the demand in question did not correctly state the amount of the debt. However, the court (consisting of Mason, Murphy, Wilson, Brennan and Dawson JJ) analysed the matter by reference to the question of what was required for the adequate protection of the interests of the parties. Their Honours' reasoning on this point is summarised as follows at 504: … the interests of the parties will be more adequately protected by the principle that the debtor must be allowed a reasonable opportunity to comply with the demand before the creditor can enforce or realize the security than by the adoption of the suggested proposition that the notice of demand must specify the amount of the debt. In determining whether the debtor has had such an opportunity it will be relevant to take account of the debtor's knowledge, lack of knowledge and means of knowledge of the amount due and of the information which the creditor has provided in that respect, including the response which he has made to any inquiry by the debtor. 13 As I have said, that decision did not involve a statutory notice of the kind presently under consideration. However, in AGC (Advances) Limited v Tweed Canal Estates Pty Limited (1988) 4 BPR 9404, Needham J stated, specifically in relation to a notice under s 57(2)(b) that was alleged to be defective in form, that the question was to be analysed by reference to the decision of the High Court in Bunbury Foods. His Honour said at 9406: It seems to me that this question is concluded by what the High Court said in Bunbury Foods Pty Ltd v National Bank of Australasia Ltd at 503-4. There, their Honours say it is of some materiality to note that it is not essential to the validity of a notice calling up the debt that it correctly states the amount of the debt. Even a notice given to the mortgagor by the mortgagee as a condition precedent of a power of sale is not rendered invalid because it demands payment of more than is due. 14 In my view, that is the approach to be taken to the present question. Having regard to what I have said as to the character of the defects and their inability to mislead, let alone to cause any prejudice to, the plaintiffs, I am of the view that there is no serious question to be tried based on the formal defects in the notice in question. Non-monetary default 15 It is therefore unnecessary to consider in detail the alternative case for the first defendant based on the existence of a non-monetary default. That non-monetary default was a breach of clause 26 of the memorandum forming part of the mortgage. By that clause, registration upon the title of a writ of execution was deemed to constitute a default. A writ of execution, based on a judgment debt, was registered on a date that is unclear but that appears to be about 18 October 2007. It was based on a judgment recovered in the District Court of New South Wales. However, the judgment in respect of which that debt was recovered was set aside on 6 December 2007, well before the exercise (or purported exercise) of the power of sale. It is no doubt arguable that the breach constituted by the registration of the writ remained available, at least as a matter of construction of the mortgage: particularly where registration of the writ has not been undone. Nonetheless, there might be significant discretionary considerations if that were the only case available to the first defendant. But as I have said, it is unnecessary to go into those matters. Reckless disregard 16 As to the allegation of reckless disregard, the submission for the plaintiffs was that the evidence disclosed that the sale price negotiated between the first and second defendants, some $3.1 million, was less than what might be the value of the Blacktown property, so that (it was submitted) the first defendant should have gone to auction to see what the market might do. Reliance was placed on a valuation report valuing the property as at 1 July 2008 at $3.2 million. 17 I am by no means sure that a discrepancy of the order suggested would of itself lead to the conclusion that a sale at the lower figure indicated some reckless disregard of the plaintiffs' interests. In this context, it is relevant to bear in mind that valuation is not a precise science. 18 However, there were other valuations in evidence. For the first defendant, reliance was placed on a valuation made in June 2008, shortly before the contracts for sale were exchanged. That valuation put a figure of $2.6 million on the Blacktown property. The valuer arrived at that figure by capitalising what he said was the net rental (gross rent minus estimated outgoings) of the property. He used a capitalisation rate of 7.15 per cent, whereas the plaintiffs' valuer used a capitalisation rate of 6 per cent. No submission was put as to the discrepancy in those rates, and in circumstances where the issue has not been analysed it is simply impossible for the Court to say one rather than the other should be preferred on some a priori basis. 19 The plaintiffs' attack on the first defendant's valuer's valuation was based on his understatement of the gross income. The property is the subject of a lease. The base rent under that lease was indeed the figure of $216,000 per annum, or $18,000 a month to which the first defendant's valuer referred. However, there was a rental increase clause in the lease the effect of which was that rent should increase by the greater of CPI changes or 3 per cent per annum. Thus, it was put, the first defendant and his valuer should have known that the rent was some higher figure. 20 There is some evidence that the first defendant has received the rents of the property for the month of June and July 2008. There is no evidence that he received those rents before the valuation in question was made, or for that matter before contracts for sale were exchanged. Thus, whilst I can appreciate that a close analysis of the valuation and the lease might have led to some questioning of the stated gross income, I do not think that the failure to carry out that analysis indicates any want of proper regard for the interests of the plaintiffs. In this context, I bear in mind what appeared to be common ground namely that if the correct figures for rental and outgoings were substituted, the application of the first defendant's valuer's rationale would have led to a valuation no greater than $2.9 million. 21 In addition, the second defendant procured its own valuation. That valuation suggested a figure of $2.6 million. It was prepared on a different basis again, because the valuer worked from the ground up and sought to ascertain the value on the basis that the property would be sold with vacant possession and not (as in effect although not in form happened) to the lessee or parties associated with it. 22 Further, on the day contracts were exchanged, the valuer retained by the first defendant wrote to the first defendant's solicitor. He referred to the offer of $3.1 million (I repeat, the sale price in the exchanged contracts). He said that, "We are strongly of the view that this offer is regarded as a premium for the site..." and "That this sum was considered to be an extremely attractive offer and...above current market value". 23 No doubt fortified by those expressions of opinion, the first defendant proceeded to exchange of contracts. 24 In the circumstances, I am not satisfied at the level of fact that there is a serious question to be tried that the contracts that have been exchanged sacrifice the plaintiffs' interests to the point where the Court might be justified in intervening. 25 Thus, for those reasons alone, I would decline to grant the relief sought. No offer to redeem or payment in 26 There are other matters that support the same conclusion. Chief among those is that the plaintiffs do not offer to redeem, and do not bring into Court the amount secured by the mortgage to the first defendant. In circumstances where the case of sacrifice of their interests is weak, I do not see why the Court should act at the last moment to deprive the first defendant of the fruits of his security. Whilst I accept that the first defendant would be protected at the level of theory by his mortgage and by the plaintiffs' undertaking as to damages, the evidence suggests that the Blacktown property has been mortgaged to the hilt. There is no evidence as to the equity (if any) available in respect of the other property that was the subject of the mortgage to the first defendant. Other matters 27 In those circumstances, it seems to me, if one got to consider the balance of convenience and the adequacy of damages as a remedy, the inevitable outcome of that consideration would be that in this case damages are an adequate remedy for the matters of which complaint is made and that the balance of convenience does not favour intervening at the last moment to restrain the completion of the sale. 28 It is I think worth noting that the plaintiffs have not offered any explanation of their delay in moving the Court. Contracts were exchanged on 13 June 2008. These proceedings were not commenced until 8 July 2008. There may have been some explanation for this delay; but if there were, the Court has not been favoured with it. Equity of redemption barred? 29 In the circumstances, it is unnecessary to consider the argument for the first defendant that in any event the exercise of the power of sale has effectively barred the equity of redemption. That submission was based on the decision of Crossman J in Waring (Lord) v London and Manchester Assurance Company Limited [1935] 1 Ch 310 at 317, and on a decision of the Court of Appeal approving it, Property and Bloodstock Ltd v Emerton [1968] 1 Ch 94. Whilst I intend no disrespect to what their Lordships say, and certainly should not be taken to be questioning its correctness in the English context, it is at least questionable whether what their Lordships said can be applied without considerable effort to the situation obtaining where the mortgage operates as a statutory charge, and where the question of an equity of redemption is more a matter of a figure of speech than a precise description of the legal rights of a proprietor who has charged his land by way of security for the mortgage debt. In this respect, I refer to the observations of Walsh J in Forsyth v Blundell (1973) 129 CLR 477 at 497-498. It appears that his Honour was at least doubtful that, in the context of registered title, the matter was to be regarded as one of competition between equitable interests. But as I have said, it is unnecessary to give further attention to this question. Orders 30 The result is that the application for interlocutory relief is dismissed. I will hear the parties on costs and on what, if anything, is to happen in the future with these proceedings. 31 I order the plaintiffs to pay the defendants' costs of the application. ********** 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.