This was an application by a borrower for an interlocutory injunction restraining a lender from exercising a power of sale.
The Plaintiff was the registered proprietor of a commercial site at Granville (“the Property”). The Plaintiff purchased the Property from the Defendant in December 2001 for $1,928,000. The purchase price was payable as to $1,000 by the Plaintiff on completion and the balance was left as a debt due to the Defendant secured by a registered first mortgage over the Property.
The mortgage provided that the principal sum, $1,927,000, was to be repaid by monthly installments of $17,000 save that the last installment was $1,791,000 and was payable on 31 December 2002. There was an extension clause for the final installment with interest and this was exercised twice to 31 December 2003. The Plaintiff failed to repay the final installment of principal on 31 December 2003 and subsequently failed to make any payment since that time either in principal or interest.
The Defendant’s solicitor sent a notice under s.57(2)(b) Real Property Act 1900 (NSW) on or about 12 January 2004. There was no dispute that that notice was validly given.
On 3 March 2004 the Defendant’s solicitors sent by post a notice pursuant to s.92 of the Conveyancing Act 1919 (NSW). The Defendant’s solicitors obviously were not aware that s.92 had been amended in 1997. The giving of a notice under s.92(1) is now not required as a precondition to a lender’s entitlement to exercise a power of sale unless, after expiry of the term of the mortgage, the lender has accepted interest on the principal sum for a period of not less than three months after default in repayment of the principal. It was common ground that the term of the mortgage expired on 31 December 2003 and that the principal was repayable on that date. However, it was also common ground that no interest at all was paid by the Plaintiff at any time after 31 December 2003. Accordingly, the giving of a notice under s.92(1) was not required.
In June 2004, the Property was sold at auction in exercise of the Defendant’s power of sale. The purchase price was $2.2M. The contract provided for completion in October 2004 but time was not made of the essence. The Plaintiff knew of the sale at the time that it was made. The Plaintiff was of the view that the Property had been sold at an under-value and that the Defendant was in breach of its duties as lender in the manner in which it had set about exercising the power of sale. On 28 June 2004 the Plaintiff lodged a caveat against any dealing with the Property, which lapsed on 30 September 2004.
On 1 October 2004 the Plaintiff filed in Court an Originating Process seeking a declaration that the sale of the Property had been made for a sum less than its market value and in contravention of s.420A(1) of the Corporations Act 2001 (Cth). The Originating Process sought an order under s.1324 Corporations Act restraining the Defendant from completing the contract for sale which had been entered into on 8 June 2004. An Interlocutory Process filed at the same time sought an interim injunction restraining completion of the contract until determination of the claim for final relief.
The Plaintiff submitted that:
- The Defendant’s purported exercise of the power of sale was invalid because the requirements of s.92(1) Conveyancing Act had not been complied with in that the Defendant entered into a contract for sale two days before expiry of the period of three months from the deemed date of service on the Plaintiff of the s.92 notice;
- The Defendant, lender of the property of the Plaintiff corporation, was a “controller” for the purposes of s.420A Corporations Act;
- There was sufficient evidence to demonstrate a prima facie or arguable case that the Defendant has not taken all reasonable care to sell the Property for not less than market price, in contravention of s.420A(1) Corporations Act;
- The balance of convenience favored the grant of an interim injunction under s.1324(4) Corporations Act or under s.66(4) of the Supreme Court Act 1970 (NSW) because, if the injunction was not granted, the Plaintiff would be left without any remedy, since the Corporations Act does not provide expressly for compensation to an injured party for a breach of s.420A.
Whether the injunction was sought in exercise of the Court’s statutory jurisdiction (as above) or in exercising its general jurisdiction under s.66(4) Supreme Court Act, the equitable principles upon which the Court ordinarily acts in granting interlocutory injunctions, including the usual discretionary considerations, were to be applied.
This was an action by a borrower to restrain the exercise of a lender’s power of sale over a parcel of suburban land and nothing had been shown which would require special consideration of the law governing the regulation of corporations or the way in which corporations do business. However, it so happens that the borrower was a corporation so that the Defendant may be a “controller” within the definition of s.420A Corporations Act.
In those circumstances the approach taken by the Court to the grant of interim orders under s.1324(4) Corporations Act will be virtually the same as that taken in respect of the grant of interlocutory injunctions in Equity.
The plaintiff failed to demonstrate an arguable case that the Defendant’s exercise of the power of sale was invalid for non-compliance with s.92 Conveyancing Act. The Defendant was not bound to give a s.92 notice at all.
There was some scant evidence which could have supported the assertion that the Defendant had not taken all reasonable steps to sell the Property for at least market value, however, the balance of convenience and the usual discretionary considerations applicable to the grant of interlocutory injunctions went against the grant of the injunction sought by the Plaintiff for the following reasons:
- This was a case in which the Defendant’s power of sale was properly exercisable, default in repayment of principal and interest being conceded and s.92 Conveyancing Act being inapplicable. Yet the Plaintiff had not sought to do equity by bringing money into Court and seeking to redeem the mortgage as a condition of an interlocutory injunction restraining completion of the contract on the basis of an alleged improper exercise of a presently enforceable power of sale.
- An exercise of the power of sale has already been postponed for three months at the request of the Plaintiff in order to enable it to find a way out of its difficulties. The Defendant has been kept out of his money, which represents a large proportion of the purchase price, for a considerable time.
- The Plaintiff has offered no payment in reduction of principal or interest since default on 31 December 2003.
- The Plaintiff has been aware of the present contract for sale since its exchange on 8 June 2004. It took no steps to challenge the validity of the contract or the exercise of the power of sale other than to lodge a caveat which it then allowed to lapse. Equity requires those seeking to invoke its remedies to act promptly. Lodging the caveat and merely leaving it there is not enough. The caveator must promptly institute proceedings to vindicate the interest claimed.
- The institution by the Plaintiff of proceedings seeking an injunction restraining the completion of the contract a week before it is due to settle placed the Defendant in an extremely difficult position. He will be in breach of the contract if he does not settle by the stipulated date because of the grant of an injunction. In brief, there is a high risk that if the injunction is granted the purchaser under the contract will be entitled to give a notice to complete and will be able thereafter either to rescind or sue the Defendant for substantial damages. The Defendant’s predicament could have been avoided if the Plaintiff had moved quickly to commence its proceedings after exchange of the contract for sale.
- If the injunction is refused and the contract proceeds to completion, the Plaintiff will not be left without a remedy should the Defendant have exercised the power of sale improperly. The Plaintiff can amend its proceedings to add a claim for an equitable accounting under the general law.
The Plaintiff’s application for an interlocutory injunction was refused.