ACN 113 137 397 v Winterbottom [2010] NSWSC 421

The loan went into default and a receiver appointed by the lender served an eviction notice on the lessee. The lessee approached the court and sought an injunction. The receiver resisted the injunction raising s 53(4) of the Real Property Act which reads:

A lease of land which is subject to a mortgage, charge or covenant charge is not valid or binding on the mortgagee, chargee or covenant chargee unless the mortgagee, chargee or covenant chargee has consented to the lease before it is registered

The court however noted that a receiver is agent of the borrower and therefore is standing in the borrowers shoes exercising the borrowers powers. In this regard Justice Palmer in Antar v Fairchild Development [2008] NSWSC 638, pointed out at that even if s 53(4) operated as between a lessee under an unregistered lease and a prior registered mortgagee, that had no impact on the rights and obligations between the lessor and the lessee themselves. While the lessee could not prevent the lender from evicting so as to exercise its power of sale with vacant possession the lease would still be enforceable against the lessor and against any one else other than the mortgagee.

The court found against the receiver on this issue noting that if the bank had itself gone into possession, or had gone into possession through the receiver, and if the receiver had purported to exercise the bank’s rights to possession, there could be no case for injunctive relief. However the receivers chose to act, not as the bank in possession, but as agent of the borrower. As the borrower could not evict the lessee, then its agents, the receivers, acting in that capacity, could not do so. Accordingly the notice to vacate was not effective in law as between the borrower (or the defendants in their capacity as its agents) and the lessee.

The receivers argued they had not only their powers as agents of the borrower but also their powers as representatives of the lender, and that their powers under the former head could be exercised in aid of their powers under the latter head. Authority was citied in support of this and His Honour distinguished it on facts but unfortunately not on principle.

The lessee also argued its case on the grounds that the bank had consented to the lease and was so estopped from proceeding with the eviction. The judge rejected this noting:

In my view, the case that the bank has given consent is at best weak; I would be inclined to say, very weak. I do not think that the documents on which reliance was placed could properly be read as indicating that the bank had given consent.

The court noted that the lender could rectify the position by going into possession itself, either directly or by appointing the receiver to receive the rents and profits of the property. However the court did not see this as a grounds for refusing relief.

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