Imminent refinancing or repayment, which had been a key factor in earlier cases where there was no dispute as to the amount owing, may no longer be a necessary pre-requisite for the grant of an injunction to restrain the exercise of a power of sale by a mortgagee.
In Australian Barter Currency Exchange Pty Ltd v Uniting Church (NSW) Trust Association Limited  NSWSC 607, Justice Hoeben considered an application for an injunction to restrain the exercise of a power of sale by a mortgagee.
Although, in appropriate circumstances, courts will act to restrict the exercise of a power of sale by a mortgagee, this case extends the circumstances in which a court will do so. Here, an injunction was granted primarily because the value of the mortgaged property exceeded the amount owing. The injunction was granted notwithstanding that there was no dispute as to the amount owing, the default in the repayment of interest and principal had continued for approximately three years and previous attempts to refinance the loans had proved unsuccessful. The decision in this case is unfortunate in that it supports restricting the rights of mortgagees to exercise their powers even where the remedy of the relevant default is not imminent.
In 2004, David Cassaniti, a director of the plaintiff companies, borrowed approximately $14 million from the defendant (Uniting Church (NSW) Trust Association Limited (Association)) under four loan agreements. Mortgages were granted over 29 properties owned by various companies (including the plaintiffs) controlled by Mr Cassaniti.
The loans were not repaid in 2006, when they were due. Notwithstanding that repayment did not occur, rental payments from the mortgaged properties were applied towards interest due under the loan agreements (though the amounts paid did not satisfy the interest obligations in full).
Then, in July 2008, each of the plaintiff companies went into provisional liquidation and the interest payments ceased. At that time the Association served notices on the mortgagor companies pursuant to section57(2)(b) of the Real Property Act 1900 (NSW), stating that if the payment defaults were not remedied in the prescribed period the power of sale would be exercised. The defaults were not remedied.
Mr Cassaniti unsuccessfully sought to refinance the loans and put a number of refinancing proposals to the Association which were not accepted. The Association then determined to proceed with the exercise of its power of sale and arranged for a public auction of five of the properties to occur on 2 and 8 April 2009.
On 31 March 2009, the plaintiffs filed an application to restrain the Association from selling the five properties on 2 and 8 April 2009. Justice RA Hulme, finding that there was no realistic prospect of refinancing in the short term, refused the application. The five properties were sold and the debt reduced to approximately $7 million with a surplus of at least $500,000 held by the Association which could ultimately have been applied to reduce the debt further. The value of the remaining mortgaged properties was higher than the amount owing to the Association (possibly as much as 100 percent higher). Rent from these remaining properties was applied to meet interest obligations to the Association (though the rent was insufficient to meet the full amount of the interest payments).
On 24May 2009 MrCassaniti received notice from the solicitors for the Association advising of an intention to sell several of the remaining properties at public auction on 11June 2009. Mr Cassaniti, without any prior warning to the Association, then applied to restrain this sale on 9 June 2009 (that is, approximately two weeks after he was notified of the proposed sale and two days before the auction was to occur).
Notwithstanding the longstanding unremedied defaults, the unexplained lateness of the plaintiffs' application, the fact that there was no unconditional proposal for refinancing (and previous refinancing offers had not come to fruition) and that if the auctions did not proceed they would not be able to be rescheduled for at least another three months, Justice Hoeben granted the injunction.
Evidence has been presented that alternative financing would be available "subject to satisfactory valuations" within six weeks. Justice Hoeben viewed this as meaning that the refinancing proposal was very likely to be fulfilled, notwithstanding that the Association had (due to the lateness of the application) little opportunity to investigate the truth of this evidence.
However, the main reason given by Justice Hoeben for the granting of the injunction was the fact that the value of the properties was approximately double the value of the loans outstanding. On that basis, Justice Hoeben took the view that there was little real likelihood of loss being suffered by the Association from the injunction being granted. This is evidenced by the following comment at paragraph :
"… the financial position of the defendant is full protected because of the very substantial value of the mortgaged properties which significantly exceeds the amount of the loans. Even if the refinancing of the loans did not take place within six weeks, or did not take place at all, the defendant would not suffer financial loss."
Extension of previous authority
A number of cases demonstrate the reluctance of courts to depart from the general rule that a mortgagor in default who is unable to immediately repay the money secured will not be entitled to an injunction to restrain the mortgagee's exercise of its power of sale. Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 is authority for the proposition that, for an injunction to be granted, the undisputed amount of the mortgage debt must be paid into court (or, where there is a dispute as to the amount payable, generally the amount claimed by the mortgagee is required to be paid into court). See also Solid Holdings Pty Ltd v Imfml Finance  NSWSC 573, which supported the reasoning in Inglis. The lateness of an application also often provides a basis for judicial refusal to grant injunctive relief: Boubaris v Bluestone Group Pty Limited  NTSC 48.
These cases reflect a policy concern to allow a mortgagee to exercise its power of sale. To restrict this right would discourage secured lending. However courts do not always deny relief and there have been some departures from the "general rule" in Inglis. For example, in Grose v St George Commercial Credit UnionLtd (1991) NSW ConVR 55-586 the court considered that an injunction to prevent the exercise of a power of sale under a mortgage could be granted based on the fact that there was a realistic prospect of refinancing.
In Notaras v Sly & Weigall  NSWCA 275 at paragraph 133, though the mortgagee's power of sale was not the central issue, the Court of Appeal referred to "a demonstrable capacity to tender or secure or at least re-finance" the relevant debt as a relevant consideration in determining whether to grant an injunction (though the question was raised in Parist Holdings Pty Ltd v Perpetual Nominees Ltd  NSWSC 599 as to whether this test in Notaras might be too liberal).
Another basis for courts departing from the general rule is the existence of a counterclaim by the mortgagor, for example under the Trade Practices Act. Several cases emphasise that a closely connected counterclaim ought to be sufficient to free the court from requiring compliance with the rule in Inglis. For example, see Cunningham v National Australia Bank Ltd (1987) 15 FCR 495, Eltran Pty Limited v Westpac Banking Corporation (1988) 32 FCR 195 and Rams Mortgage Corporation Ltd v Skipworth  WASC 24. However, on the facts considered by Justice Hoeben, there was no such counterclaim.
Justice Hoeben's judgment indicates that imminent refinancing or repayment, which had been a key factor in earlier cases where there was no dispute as to the amount owing, may no longer be a necessary pre-requisite for the grant of an injunction. It will, it seems, be sufficient grounds to obtain an injunction where there is no dispute as to the amount owing if the value of the mortgaged property exceeds the mortgaged debt.
This detracts from the terms of the bargain that the parties to a secured finance transaction have made. That bargain is not that the loan will be repaid at some time or another, but that the loan will be repaid at a specific time. If it is not repaid at that time and the court is not completely satisfied that repayment of the undisputed secured amount is imminent, it should not matter that the value of the mortgaged property is such that the mortgagee is likely to be repaid at a future time. In those circumstances, the mortgagee should be allowed to exercise its rights.