Does an application under s 99(2) Property Law Act 1974 create an equitable interest in the land?
In the matter of Asset Core Pty Ltd & Anor v Jarrett 1 Enterprises Pty Ltd & Anor  QSC 270 the court refused to make an order for the sale of a mortgaged property despite an application under section 99(2) of the Property Law Act 1974 (Qld)
Jarrett 1 Enterprises (Jarrett) owned property subject to two mortgages held by Permanent Mortgages Pty Ltd (Permanent Mortgages) and Core (Qld) Pty Ltd (Core) respectively. Jarrett defaulted in payment of the loan from Core. Core subsequently obtained judgement by default in District Court proceedings. Jarrett also defaulted in respect of the first mortgage. As a result Permanent Mortgages was in the process of taking steps to enforce its rights over the property.
On 30 July 2015, Asset Core Pty Ltd (Asset Core), a related entity of Core, entered into a contract of sale with Jarrett. Settlement was set to occur on 31 August 2015. And a transfer document necessary to effect settlement of the contract was executed. However, Jarrett failed to settle on the settlement date.
Core applied for an interlocutory injunction against Permanent Mortgages to restrain it from exercising its rights to sell the property. Core submitted that it would suffer monetary loss if Permanent Mortgages exercised its rights under the first mortgage. Further, Core stated its judgment debt would not be satisfied due to the increased costs, interest and expenses resulting from Permanent Mortgage’s exercise of its powers as first mortgagee.
Court directed sale sought
(2) In any action, whether for foreclosure, or for redemption, or for sale, or for the raising and payment in any manner of mortgage money, the court, on the request of the mortgagee, or of any person interested either in the mortgage money or in the right of redemption, and, even though—
(a) any other person dissents; or
(b) the mortgagee or any person so interested does not appear in the action;
and without allowing any time for redemption or for payment of any mortgaged money, may direct a sale of the mortgaged property, on such terms, subject to subsection (3), as it thinks fit, including the deposit in court of a reasonable sum fixed by the court to meet the expenses of sale and to secure performance of the terms.
Issue for Determination
The Court was required to consider whether Core’s application under s 99(2) created an equitable interest in its favour. This would justify the granting of an injunction. Core had to establish a valid claim against Permanent Mortgages to justify the making of an injunction.
A plaintiff needs to demonstrate that there will be a sufficiently plausible ground for the granting of final relief. However, if it fails to do so then it is likely there is no basis for interlocutory relief. Unable to challenge the enforceability of the first mortgage, Core failed to identify the existence of any cause of action against Permanent Mortgages.
Therefore Core argued that the statutory power under s 99(2) could affect the rights of Permanent Mortgages as the first mortgagee. Thus it was “just and convenient” to restrain Permanent Mortgages from exercising its rights in order to maintain the status quo.
Application for injunction denied
However, Justice Flanagan rejected this argument. The Court may have the power to grant an interlocutory injunction if it considers it “just or convenient”. But this does not create a “free-standing” right to injunctive relief. Maintaining the status quo through an injunction would restrain Permanent Mortgages from doing something which Core had no right to prevent.
The Court’s power to direct a sale pursuant to s 99(2) is discretionary. At paragraph , Justice Flanagan stated:
The mere fact that a statute gives a wide discretion to the Court to order a sale which may directly affect a first mortgagee’s rights and interest does not create an equity in the party requesting the sale which would support an interlocutory injunction.
The proper reading of the judicial power to order a sale is that it only gives an interested party the right to request an exercise of discretion by the Court to direct a sale of the mortgaged property on such terms as the Court thinks fit. It did not create any rights in favour of Core against Permanent Mortgages.
Without any challenge to the enforceability or validity of the first mortgage held by Permanent Mortgages, the mere fact that Core had requested the Court to direct a sale of the property did not create any equity capable of being protected by the granting of an injunction.
Therefore the application for an injunction was refused.
Balance of Convenience
Even if the analysis of s 99(2) was wrong, his Honour would have rejected the application based on balance of convenience considerations. Core sought to protect the position of Asset Core as purchasers. Further Core wanted to ensure it received the amount owed under the relevant loan agreement supported by its second mortgage. However, if Permanent Mortgages exercised its powers under its first mortgage this would reduce the amount Core could recover. But this was merely a consequence of the priority position of Core as second mortgagee.
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