A recent Supreme Court of Victoria ruling considers how to restrain a mortgagor from another re-entry of property under possession of the mortgagee. Does the Court have power to issue a restraining order?

ANZ v Elias [2017] also analyses the Court’s power to file a fresh warrant after the execution of the first warrant of possession occurs but mortgagor re-enters in defiance of judgment.

Background

In October 2014 Elias (the Mortgagor) entered a loan agreement with ANZ (the Mortgagee). The security for the loan was a registered mortgage over 64 Railway Parade in Dandenong. In May 2016 default on the loan occurred.

Despite demands from the bank, the mortgagor did not remedy the default. Thereafter a writ was filed and in August 2016 the mortgagee obtained judgment for possession of the mortgaged property.

In April 2017 the Court issued a warrant of possession. And 3 months later the Sheriff executed the warrant. This involved changing the locks and securing the windows, gates and garage door.

Mortgagee possession of property hindered by mortgagor

However, shortly after the bank took possession it came to the mortgagee’s attention that the mortgagor and her husband had re-entered the property and fitted new chains and padlocks. This resulted in the bank’s contractor being unable to gain access to the property.

Therefore the bank set 19^th September 2017 as the deadline for the mortgagor to leave the property and surrender the keys. Failing this, the mortgagee would apply for another warrant of possession and restraining orders.

The mortgagor did not meet the deadline.

New warrant of possession

In addressing the need for a new warrant of possession, the Court considered it not favourable to create a new species of warrant. Rather it found the judgment for possession still valid. Therefore the original judgment formed the legal basis for issuing another warrant of possession.

Can the court issue a restraining to prevent a second re-entry?

The mortgagee sought to restrain the mortgagor from re-entering the property after the enforcement of the second warrant of possession. The Court needed to consider the legal basis of issuing a restraining order against the mortgagor and her husband.

In making a decision, the Court referred to the Supreme Court (General Civic Procedure) Rules 2015.

Rule 66.15 states “The Court may make such order as it thinks fit in aid of the enforcement of a warrant of execution”.

In conclusion, the Court decided the restraining order would operate as a deterrent.

With mortgage possession cases increasingly hindered by mortgagors, it is hoped this ruling will promote respect for the Court’s possession judgments.

Related articles

Lender Gets an Enforcement Warrant Despite Delay

Enforcement Warrants & Property in Queensland

Mortgagor Unlawfully Takes Possession of Security Property

This publication is for your general information and interest only. It is therefore not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek advice tailored to your specific circumstances. 

The post Mortgagee Possession Increasingly Hindered by Mortgagors appeared first on Elliott May.

Australian Securities Ltd v Borina Pty Ltd [2017] NSWSC 1073 considers whether a mortgagor’s claims are futile and doomed to failure.

Background

Australian Securities Ltd (ASL) made a loan of $2, 280, 000 to Borina Pty Ltd (Borina) on 14 November 2005. A mortgage over a motel at 513 Princes Highway, Blakehurst (the property) acted as security for the loan.

ASL rolled over the initial due date multiple times, with the relevant repayment date being 15 December 2014. Thereafter ASL claimed repayment was due. On 19 October 2015 ASL filed a statement of claim to take possession of the property.

Disputed due date

Borina, however, asserted that because of another roll over of the loan for a further two years, the due date was in fact the 15 December 2016. During 2016 the parties filed a number of defences and statements of claim. The trial date was set for 20 February 2017.

As the date loomed ASL pointed out to Borina that the loan payment, even with the alleged loan roll-over, was now without doubt due on 15 December 2016. Settlement negotiations started immediately.

As a result on 22 December 2016 Borina paid $ 2,752,712.99 to ASL. This included $459,187.49, on a without prejudice basis, in order for the discharge of the mortgage. Borina needed to refinance the loan with Baccus Investment Ltd.

The filing of the cross-claim

Thereafter Borina filed a cross-claim to which ASL did not consent. Borina claimed it had suffered loss and damages, in the form of interest, costs and interest on costs.

Borina then filed a second cross-claim which included the following claims of loss and damages due to:

1. a breach of contract when ASL failed to rollover the loan to 15 December 2016;
2. costs incurred in having to borrow a higher principal sum ($2.7m) from Baccus as ASL compelled Borina to repay $459,187.49 on top of the original $2.3m loan;
3. ASL charging Borina interest as if it was in default under the Facility Agreement;
4. unconscionable conduct by ASL in breach of section 21 of the Australian Consumer Law (ACL). Borina claimed ASL made unreasonable demands and unfairly forced it to repay the loan.

Further, Borina claimed for money had and received. It also sought an order that an account be taken.

Submissions made in response to filing of the cross-claim

ASL made the following submissions:

1. a damages claim, in any form, should not be permitted to go forward as in law such a claim was not available;
2. Borina could seek an account and make a claim for money had and received;
3. a claim of unconscionability, relying on the ACL, was an arguable claim but no loss flowed from any possible breach.

Conclusions

The Court rejected Borina’s claim of a breach of contract. It stated that the only right the mortgagor has after redemption of the mortgage, was taking of accounts between the two parties.

However, the Court did not find Borina’s argument of unconscionability to be hopeless or doomed to fail.

The Court concluded that Borina could file a cross-claim confined to:

1. taking an account;
2. the claim for money had and received; and
3. the claims seeking relief for breaches of section 21 of the ACL.

But, if Borina wanted to pursue its claim for the additional Baccus interest, it must provide ASL with $10,000 as extra security.

This publication is for your general information and interest only. It is therefore not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek advice tailored to your specific circumstances. 

The post Mortgagor Wins Right to File Cross-Claim Against Mortgagee appeared first on Elliott May.

In Geitonia Pty Ltd t/as Trustee for the Annandale Unit Trust v Westpac Banking Corporation [2015] NSWSC 419 the court was required to decide whether the 1st mortgagee was required to transfer its mortgage to the borrower or to the 2nd mortgagee.

Facts

Westpac and Huizhong held first and second ranking mortgages respectively over property registered in the name of Geitonia (“Borrower”). All three parties entered into a subordination and priority deed. This prevented Huizhong, as 2nd mortgagee, from taking any enforcement action without Westpac’s prior written consent. The Huizhong loan matured at which time the Borrower was required to pay Huizhong the sum of $5.4 million.

Westpac also declared events of default under its 1st registered mortgage. And thereafter the Bank demanded payment of all amounts due under its facility. The Borrower responded by claiming to exercise its rights under s 94(1) of the Conveyancing Act 1919 (“Act”). It required Westpac to transfer its mortgage first to the Borrower. And then to transfer it to a company known as Yellow Express Messengers Pty Ltd.

The 2nd mortgagee also gave Westpac notice under sections 94 and 95 of the Act. It required a transfer of Westpac’s mortgage to itself.

The Borrower sought a declaration from the court that it was entitled to require a transfer of Westpac’s mortgage to Yellow Express upon payment to Westpac of the balance owing to it. And it sought an injunction restraining Westpac and the Borrower from transferring Westpac’s mortgage to the Borrower.

Judgment

Justice Ball’s judgment turned on the interpretation of the following sections of the Act:

• Section 94 – Obligation on mortgagee to transfer instead of discharging

  • Where a mortgagor is entitled to redeem the mortgagor shall by virtue of this Act have power to require the mortgagee instead of discharging, and on the terms on which the mortgagee would be bound to discharge, to transfer the mortgage to any third person as the mortgagor directs; and the mortgagee shall by virtue of this Act be bound to transfer accordingly.

• Section 95 – Person entitled to require transfer

  • The right of the mortgagor under the last preceding section shall belong to and be capable of being enforced by each incumbrancee or by the mortgagor, notwithstanding any intermediate incumbrance; but a requisition of an incumbrancee shall prevail over a requisition of the mortgagor, and as between incumbrancees a requisition of a prior incumbrancee shall prevail over a requisition of a subsequent incumbrancee.

Conclusion

As mentioned earlier, the Borrower wished to have the Westpac mortgage transferred to itself. And thereafter to a nominated company. This brought into question the application of s 94(1), specifically the expression ‘any third person’.

It was held that ‘any person independent of the mortgagor’ was the meaning most consistent with the purpose of the provision. S 94 was part of broader reforms intended to improve the position of mortgagors. However, the reforms weren’t intended to provide a mechanism by which mortgagors could interfere with the rights of subsequent mortgagees. This would have been the effect if the Borrower could itself obtain an assignment of the first mortgage, which is what it proposed to do.

Justice Ball stated:

‘It makes no commercial sense, and it is inconsistent with the policy behind s 94, if the borrower has to enter into a new agreement and a fresh mortgage with [an existing lender] but could require the transfer of an existing mortgage to an entirely new lender’.

The Court concluded there was nothing to prevent Huizhong, as 2nd mortgagee, from requiring Westpac to transfer the Westpac’s mortgage to itself. This right in favour of the 2nd mortgagee took priority over any right the Borrower had.

Related articles

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This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Transfer of Mortgage: 2nd Mortgagee vs Borrower? appeared first on Elliott May.

The Facts

Before the registered owner of the mortgaged security property went bankrupt, he entered into a contract to sell the land to the plaintiffs, George and Francesca Koovousis. There was a mortgage registered over the land in favour of Monaco Solicitors Pty Ltd. The mortgage secured all monies lent by it to the owner.

The owner of the property was declared bankrupt. Thereafter, the plaintiffs sought an order for specific performance of the contract against his trustee in bankruptcy (being the first defendant in these proceedings). Or alternatively a declaration that they were entitled to a return of the deposit. The plaintiffs joined to the proceedings all parties who claimed a security interest in the land. This included Elliott May’s client as mortgagee (being the fifth defendant in the proceedings). The fifth defendant as mortgagee applied for an order that the plaintiff’s proceedings be summarily dismissed.

Judgment

What rights did the plaintiffs have against the land as purchasers under the contract?

The Court considered the various and competing interests the parties had to the land. From the plaintiff’s perspective, the contract of sale gave rise to a personal right against the registered proprietor of the land. To enforce the contract, the plaintiffs called upon the court’s equitable jurisdiction to enforce this right by an order of specific performance.

The plaintiffs never contended that they had a cause of action or any equity enforceable against the mortgagee. This meant that any rights they had under the contract were enforceable only against the first defendant (i.e. the trustee in bankruptcy). But they could not defeat the registered legal interest of the mortgagee. The plaintiffs’ interest was subordinate in every way to the legal interest of the registered mortgagee.

The Court’s Discretionary Jurisdiction under the Real Property Act 1900 NSW

In exceptional circumstances, the Court has a discretionary jurisdiction in equity to make an order for judicial sale of land despite the objection of the registered mortgagee. This jurisdiction is enlivened “when conduct of a mortgagee, in prospective enforcement of its rights under a mortgage, would operate inequitably to the prejudice of the mortgagor”.

According to the facts, Justice Lindsay found no basis upon which the discretionary jurisdiction could be exercised. It was also noted that the mortgagee had taken steps to enforce its security by taking possession of the property. In relation to this point, Justice Lindsay stated:

“The Court will not ordinarily make an order for a judicial sale on an application by a mortgagor (still less, a purchaser from a mortgagor) where there is a negative equity and the mortgagee actively wishes to enforce its security”.

Orders

The plaintiffs’ proceedings against the mortgagee were summarily dismissed. Justice Lindsay found that any rights the plaintiffs had against the bankruptcy trustee were subject to those of the registered mortgagee. Therefore this enabled Elliott May’s client to re-agitate a claim for possession of the land to enforce its security. The Court ordered the plaintiff to pay costs for the proceedings.

Related articles

This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Judicial Sale of a Mortgaged Property appeared first on Elliott May.

In the decision of Sun North Investments Pty Ltd as trustee v Dale & Anor [2013] QSC 44 the Supreme Court of Queensland provides a useful analysis of a mortgagor’s fundamental right of redemption.

Background

The Borrower, Sun North Investments Pty Ltd, granted a call option to the lender under which the lender had the right to acquire certain shares owned by the borrower. This call option was entered into as part of a commercial arrangement for a loan of $500,000. The loan was not repaid on time due to difficulties experienced by the borrower following the global financial crisis. Therefore the lender exercised the call option. Following this, the loan was repaid in full five days later.

However, the lender maintained an entitlement to proceed with the purchase of the shares under the call option. At the time, the shares were worth about $5 million at an option purchase price under the deed of $2 million. Accordingly, it was extremely beneficial for the lender to exercise the call option.

Arguments

The borrower argued that the option to purchase the shares was void as a ‘clog on the equity of redemption’. Alternatively, the borrower said that the court should refuse to enforce the option because it constituted a penalty giving rise to a windfall gain disproportionate to any likely loss flowing from the late payment of the loan (also, the loan had been repaid in full).

The lender argued that the option was a separate transaction from the loan agreement. And therefore it could not be considered a clog on the equity of redemption or a penalty. The lender further argued that the modern approach of Australian courts is to hold that collateral advantages like the option should not be read down in the absence of unconscionability.

What is a clog on the equity of redemption?

It is a fundamental principle of mortgage law that a mortgagor has a right to discharge the mortgage in payment of the debt or performance of the obligations for which security was given. The right of redemption can also arise under contract provided the mortgagor is not in default.

However, even if the mortgagor does not repay a loan on time and therefore loses the contractual right to redeem the mortgage, there remains an equitable right of redemption. This equity of redemption can be enforced despite a failure to redeem by the repayment date. The mortgagor has until the point when the mortgagee’s power of sale has been exercised. Or until a court has made an order for foreclosure. Generally speaking, conduct which hampers redemption after the contractual date for redemption has passed is not permitted. Instead equity will grant relief to the mortgagor by allowing redemption.

Held

The Supreme Court found that the call option was void under the principles of equitable redemption discussed above.

The court did not accept that the mortgage and option agreements were independent transactions. Instead the Court assessed both as a matter of substance rather than form. In doing so, the court looked to the underlying nature of the transactions to determine whether they were part of the one transaction.

It was plain from the evidence that the parties had intended for both documents to be executed contemporaneously. Also, the fact that the loan was conditional upon the provision of the option supported the conclusion that the option deed was part of one all-encompassing transaction.

The Supreme Court followed traditional lines of case authority. And so the fundamental rule remains that equity will grant relief so as to allow redemption. This overrides any conduct that has the effect of hampering redemption after the contractual date for redemption has passed.

This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Analysis of a Mortgagor’s Fundamental Right to Redeem appeared first on Elliott May.

In J P Morgan Trust Australia Limited v Anthony Robert Bridge [2013] NSWSC 668, the Court was required to consider the rights and standing of a mortgagor who re-enters possession of a property after execution of a writ by the sheriff.

Background

J P Morgan lent Mr Bridge and his partner the sum of $225,150 pursuant to an agreement made in February 2007. A mortgage over their property secured the loan. There was no dispute that the borrowers defaulted under the agreement by failing to make payments when due. The lender commenced proceedings by statement of claim filed on 13 September 2012. Mr Bridge filed no defence to the statement of claim. The lender obtained judgment by default for possession of the security property and a money judgment for $335,363.69. The Court issued a writ of possession. And on 30 April 2013 the sheriff executed the writ and the lender took possession of the security property. After the execution of the writ, Mr Bridge re-entered the property and remained in possession.

Arguments

By a notice of motion filed on 14 May 2013, the lender sought leave to apply for the issue of a writ of restitution. This in order to restore to the lender possession of land where a defendant has wrongfully regained possession. Mr Bridge opposed the issue of a writ of restitution on the following grounds:

• Mr Bridge argued that the loan was predatory and should be set aside. He said that the lender advanced the loan without any concern as to whether or not he had the capacity or the ability to meet repayments due under the agreement on a monthly basis;
• The lender was tardy in implementing a direct debit system for the repayments that he was required to make;
• Mr Bridge did not achieve success when he complained to the banking and financial services ombudsmen;
• Mr Bridge could not afford legal advice and had no success obtaining pro bono assistance.

Based upon the facts and in light of authority dealing with writs of restitution, the lender argued that Mr Bridge did not have a case. In reliance upon the Supreme Court’s decision in Perpetual Limited v Kelso [2008], the lender contended that the execution of a writ of possession meant that it was too late for Mr Bridge to revisit the issues or to seek to set aside the judgment giving rise to the writ. Any attempt to oppose a writ of restitution would be ‘hopeless’ as it was necessarily based upon the same judgment.

Judgment

The associated concepts of certainty and finality of judgments and orders of the courts underpinned the Court’s judgment. Whilst the court has an inherent power to stay the execution of a judgment, even once a writ for enforcement of the judgment has been issued, Justice Harrison held:

“Once the writ has been executed…and practical effect has been given to the order of the Court, the force of the writ has been spent and the rights of the parties correspondingly subsist only in their respective legal and physical positions as the party in possession of the property on the one hand and the party who has been legally ejected on the other, together with all of, but only, the usual rights and obligations that come with those positions”

Accordingly, once the sheriff executed the writ of possession, Mr Bridge became a ‘legal stranger’ to the land. Once he re-entered the property he became in status nothing more that a trespasser. He had no right to retake possession of the property, or any standing to make the arguments he did.  Therefore, Mr Bridge’s only remaining rights were that the lender conduct the sale of the property in a proper manner. And to account to him in accordance with its obligations as a mortgagee exercising its power of sale.

The Court granted the lender the relief it sought, being leave to apply for the issue of a writ of restitution.

Related articles

Mortgagee Possession Increasingly Hindered by Mortgagors

Execution of a Writ of Possession Stayed by Supreme Court

This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Mortgagor Unlawfully Takes Possession of Security Property appeared first on Elliott May.