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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS. NO. 1701 OF 2001
BETWEEN:
GOLOBADANA NO. 35 LTD
Plaintiff
AND:
BANK OF SOUTH PACIFIC LIMITED
(formerly Papua New Guinea Banking Corporation)
WAIGANI: KANDAKASI, J.
2002: 25th October
11th November
PRACTICE AND PROCEDURE – Application for interlocutory injunction – Applicant under an obligation to disclose all relevant facts and information before grant of injunction – A failure to disclose all relevant facts and or information may result in a lifting of an injunction or a refusal of an application for a continuity of injunctive orders obtained ex parte.
INTERLOCUTORY INJUNCTION – Continuity of Interlocutory injunction obtained ex parte – Principles governing grant or continuity of interim injunction considered – Not certain whether a serious question of law or fact to be determined raised in the proceedings – The balance of convenience not favouring continuity of injunctive orders – Failure to disclose all relevant facts detrimental to continuity of interlocutory injunction.
MORTGAGES – Mortgagee exercising right of possession – Entering into a lease and management agreement of property secured by mortgage – Issue over termination of management agreement made subject to mortgagee ceasing to exercise its powers under the mortgage – Mortgagee subsequently entering into deed of release, releasing secured property back to mortgagor without full recovery of amounts due under mortgage – Whether mortgagee entitled to give up possession to mortgagor prior to a full recovery of all amounts due and owing to it from the mortgagor – Whether a lease agreement or any other agreement between a mortgagee and a third party an impediment to a mortgagee giving up possession earlier – The relationship between a mortgagor and mortgagee takes precedence over any relationship between a third party particularly when the mortgagee has the right of redemption or earlier settlement of debts due and owing to the mortgagee – A third party having a valid agreement with a mortgagee may have a claim in damages for any breach of contract.
Papua New Guinea Cases Cited:
AGK Pacific (NG) Ltd v. William Brad Anderson Karson Construction (PNG) Ltd & Downer Construction (PNG) Ltd (Unreported judgement
delivered on 04/12/99 or 00) N2062.
Markeal Limited & Robert Needham v. Mineral Resources Development Co. Pty Ltd (Unreported judgement delivered on 05/09/96) N1472.
Mt. Hagen Airport v. Gibbs [1976] PNGLR 216.
Public Employees Association v. Public Service Commission [1988-89] PNGLR 585.
Ning’s Trading Pty Ltd v. ANZ Banking Group (PNG) Ltd (Unreported judgement delivered on 23/03/98) N1700.
National Housing Corporation v. Yama Security Services Pty Ltd (Unreported judgement delivered 25/08/00) N1985.
Overseas Cases Cited:
American Cyanamid Company v. Ethicon Limited [1975] UKHL 1; (1975) 1 All E.R. 504.
Smith v. Inner London Education Authority (1978) 1 All E.R. 411 at 419.
Nokes & Core Ltd v. Rice [1902] A.C. 24, at p. 30.
Seton v. Played (1902) 7 verse Jun. 265, at 273; E.R. 108, at 111.
Marquess of Northhampton v. Salt [1891] UKLawRpAC 47; [1892] A.C. 1.
Fairclough v. Swan Brewery Co. Ltd [1912] A.C. 565, at. pp. 570.
Reeve v. Lesly [1902] UKLawRpAC 35; [1902] A.C. 461.
Kreglinger v. New Patagonia Meat & Cold Storage Stores Co. Ltd. [1914] A.C. 25, at pp. 53-53.
Knightsbridge Estates Trust Ltd v. Byrne [1939] Ch. 441.
Booth v. The Salvation Army Building Association (Limited) (1897) 14 T.L.R. 3.
Wanner v. Caruana [1974] 2 N.S.W.L.R. 301, at pp. 306.
Fitzgerald’s Trustee v. Mellersh [1892] UKLawRpCh 13; [1892] 1 Ch. 385 at pp. 389-390.
Crickmore v. Freestone [1870] 40 L.J. Ch. 137.
Four—Mates Ltd v. Dudley Marshall (Properties) Ltd [1957] Ch. 317, at p. 32.
Noiyes v. Pollock [1886] UKLawRpCh 33; (1886) 32 Ch. D. 53.
Parkinson v. Hanbury [1844] EngR 95; (1867) L.R. 2 H.L. 1, at p.15.
National Bank of Australia v. The United Hand in Hand & Band of Hope Cor. (1879) 4 APP. CAS. 391, at p.409.
Lord Kensington v. Bouverie [1855] EngR 501; (1855) 7 De G.M. & G. 134, at p. 157; [1855] EngR 501; 44 E.R. 53, at p.62.
Fyfe v. Smith (1975) 2 N.S.W.L.R. 408.
Sandon v. Hooper [1843] EngR 450; (1843) 6 Beav. 246; 49 E.R. 820.
Richards v. Morgan (1853) 4 Y & C.Dx 570; [1846] EngR 113; 160 E.R. 1136.
Texts Cited:
E.A. Francis & K.J. Thomas, Mortgages and Securities, 3rd Edition, Sydney, 1986, pp. 88-149.
E.L.G. Tyler, Law of Mortgage, 10th Edition, Butterworth London, 1988.
Supreme Court Registrar to Alexander Dawson Inc. [1976] 1 N.Z.L.R. 612 at p.627.
Counsel:
Mr. I. Molloy & Ms. A. Tupou for the Plaintiff
Mr. S. Nutley for the Defendant
11TH NOVEMBER 2002
KANDAKASI J: This is an application by notice of motion by the plaintiff for the continuation of an interlocutory injunction (injunction) granted by me ex parte the defendant (the Bank) on 18th October 2002 with the Bank applying to have the injunction lifted. The plaintiff also applied for leave to amend the name of the defendant and to amend its statement of claim in the light of events occurring after the filing and serving of the statement of claim. The application to amend was granted on 25th October 2002, which is the date on which the injunction was made returnable.
The application for continuation of the injunction was part heard on 25th October 2002, and adjourned to 4th November 2002, to enable counsel for the plaintiff to seek further instructions in relation to a lease agreement between the plaintiff and the Bank. The hearing then continued and completed on 4th November 2002. I then reserved a judgement.
These proceedings arise out of a management agreement between the plaintiff and the Bank, which exercised its power under a mortgage between itself and the Port Moresby Rugby League (POMRL). The Bank purported to terminate the management agreement following a deed of release in favour of the POMRL effectively giving back possession even though the amount owed to the Bank were not fully recovered.
The plaintiff argues that the Bank cannot just simply work out of the management agreement after having entered into it. It therefore argues that there is a serious question of law or fact to be determined in the substantive proceedings and that the balance of convenience favours a continuity of the injunction. It also argues that if the injunction is not allowed to continue, it will cause irreparable damage in terms of substantial monetary loss to the plaintiff and about 8 people the plaintiff now employs losing their jobs and the game of rugby league may suffer a set back as it (the plaintiff) is better placed to promote and secure sponsorships for the game.
The Bank does not take any serious issue on the question of a serious question of law or fact being raised in the substantive proceedings, which may have to be determined after a trial. However it argues that the balance of convenience does not favour the continuity of the injunction. In so arguing, it submits that the damages, if any, the plaintiff will suffer is purely monetary loss which can adequately be compensation by an order for damages. In relation to the likelihood of the employees of the plaintiff losing their jobs, the Bank argues that those persons if they are good could be retained by POMRL or they could take up alternative employment elsewhere. It also argues that the POMRL does have the capability to secure sponsorships and promote the game of rugby league. Further, it argues that the relationship between the Bank and POMRL takes precedent over the relationship between itself and the plaintiff. Furthermore, it argues that, if indeed the Bank is found to have unlawfully terminated his contractual relationship with the plaintiff, which could be adequately compensated for by an order for damages.
Finally, it argues that the plaintiff has failed to disclose all of the relevant facts particularly in relation to the precise premises, the subject of the management agreement.
These arguments give rise to a number of issues for determination by this Court. These issues as far as I could see are as follows:
Facts
In order to appreciate the background from which these issues arise, it is necessary for me to have regard to the relevant facts. The relevant facts can be gathered from the affidavits that have been filed for the parties in this matter. These includes the following affidavits by:
From these affidavits, the relevant facts for the application before me are these. The Bank has a mortgagee under a mortgage granted by POMRL (the mortgagor) dated 10th July 1984 over land described as Allotment 1, section 97, Boroko on which is the Port Moresby Rugby League Grounds (PRL grounds). The POMRL defaulted under the mortgage in the consequence of which, the Bank exercised its powers under the mortgage by entering into possession over the property. Then in exercise of its powers under the mortgage, the Bank leased the property to the plaintiff pursuant to a lease for a term of 20 years commencing 1st July 1999. Also on the same day, the Bank entered into a management agreement with the plaintiff, granting management of the club house, tucker-shop and guest car pack area. Clause 2.2 of the management agreement provides as to the term or period of the agreement to be 10 years "or until such date as the PNGBC [now BSP] ceases to exercise its powers pursuant to the mortgage, whichever date shall first occur."
Differences have now arisen between the plaintiff and the Bank. The Bank contends that the management agreement has been terminated as a consequence of its entering into a deed of release with the POMRL on 11th October 2002. The plaintiff disputes that the management agreement has been terminated and seeks a declaration that it subsists. The plaintiff is also seeking a permanent injunction to prevent the defendant from breaching the agreement. Pending a determination of the substantive issues or further order, the plaintiff seeks an order continuing the injunction.
Mr. Justine Karcher for the plaintiff deposes in his affidavit of 24th October 2002 that, when the plaintiff took over the management of the PRL Grounds the POMRL went into receivership. The PRL Grounds including the clubhouse were in a substandard condition including the condition of the pitch itself. However, due to intense dialogue with the municipal authorities, water and electricity were reconnected. The plaintiff employs one expatriate staff and seven national staff to take care of the PRL Grounds including the pitch.
He goes on to say that, intense staff training on the job to care for the pitch greenery and the grounds and the day to day operations are conducted by the plaintiff on daily basis. This has resulted in major improvements to the condition of the grounds to make it attractive enough to meet international standards. The management of the grounds by the plaintiff resulted in international tournaments been held annually in the last three years. Further he says that, if the management agreement is terminated, its current employees will lose their jobs and that the plaintiff will suffer immeasurable damage after having spent time and effort to train the national staff which will affect the maintenance of the PRL grounds.
Furthermore, he goes on to say that the plaintiff pays its general manager of the PRL Grounds at a sum of about K160,000.00 per annum and a further K50,000.00 is expanded annually to employ the national staff.
He then provides a list of sponsors the plaintiff has secured for the game of rugby league during the currency of its management agreement. The total of such sponsorship stands at K131,000.00. Without providing any proof, Mr. Karcher goes on to say that nearly all of the sponsors have indicated that they will not be able to continue their sponsorship unless it is proven that the current standard of management by the plaintiff is maintained.
Further still, Mr. Karcher says, the Bank owes the plaintiff a sum of K113,992.81 despite attempts being made to have that amount of money recovered from them. He then deposes to a number of events that have been planned for the next few months at the PRL Grounds. Finally, Mr. Karcher deposes to an anticipate income of K75,000.00 in the next three months, which he says, will be lost if the management agreement is terminated. That is in essence the evidence for the plaintiff.
The defendant’s evidence is from Richard Busby per his affidavit of the 25th of October 2002. At paragraph 7 of his affidavit Mr. Busby deposes to the Bank having decided not to exercise its powers pursuant to the mortgage although it still has the ability to do so pursuant to the powers available to it in the mortgage. He goes on to say, that it was not the defendant’s intention to keep the plaintiff in as manager pursuant to the management agreement "until such time as all monies owing to the Bank are repaid in full" as the plaintiff claims in paragraph 5 of the statement of claim. Further he says that, the management agreement was expected to yield a return to reduce the POMRL’s debt but the management agreement has not benefited the POMRL or the defendant. The plaintiff has not returned any money to the defendant as was the Bank’s intention but has in fact only claimed more and more money from the Bank.
Furthermore, Mr. Busby says, the Bank now has faith in POMRL managing the subject property more effectively for the betterment of the interest of POMRL and the Bank than as the plaintiff under the management agreement that exist between the parties in this action.
Mr. Busby’s evidence is supported by the affidavit of Mr. Solomon Ravu sworn on 29th October 2002. Mr. Ravu deposes to the plaintiff having no interest in prompting the sport and says the plaintiff has denied frequently requests to run games at the PRL particularly for junior games. He also says the plaintiff has not contributed anything to the benefit of rugby league in Port Moresby.
Mr. Karcher tries to discredit Mr. Ravu in his affidavit of 1st November 2002, by referring to a termination of a contract between Mr. Ravu’s company called Sambo Limited on 26th October 2002. He also deposes to the POMRL owing a number of people sums of money totalling K144,023.56. However he provides no basis from which this claim is made. He does not say how he has become aware of these debts and how those debts were incurred by POMRL.
Finally, in the context of submissions by the defendant in response to that of the plaintiff, I ask whether there was any change in the circumstances since the issue of the injunction. The injunction was granted on the basis that the international rugby league match between the Papua New Guinea Presidents XIII and the Junior Australian Kangaroos was scheduled on 20th October 2002 and that the termination of the management agreement might jeopardise that game. The Bank indicated that, that game was played and so was other subsequent fixtures. But it is not aware of any other future fixtures.
The plaintiff’s counsels informed that there are a number of international fixtures up to 30th November 2002. It is not clear as to who was responsible for the arranging and securing of these fixtures. None of these are disclosed in either of the party’s affidavit evidences, so I will have little or no regard to this aspect.
The Relevant Law
The principles upon which a Court could grant an interlocutory injunction are well settled. The Deputy Chief Justice discussed the proper principles governing the grant or otherwise of interlocutory injunctions going by the leading English case of American Cyanide Company v. Ethicon Limited [1975] UKHL 1; (1975) 1 All E.R. 504, a decision of the House of Lords. The Deputy Chief Justice correctly summarised the principles as follows:
"1. Is the action not frivolous or vexatious? Is there a serious question to be tried? Is there a real prospect that the applicant will succeed in the claim for an injunction at the trial? All these questions laid down the same test. See: Smith v. Inner London Education Authority (1978) 1 All E.R. 411 at 419;
My brother Justice Injia cited with approval the judgment of the Deputy Chief Justice in the Employer’s Federation case in his judgement in AGK Pacific (NG) Ltd v. William Brad Anderson Karson Construction (PNG) Ltd & Downer Construction (PNG) Ltd (Unreported judgement delivered on 04/12/99 or 00) N2062, held that an applicant for interlocutory injunction must in essence satisfy two basic requirements. They are:
"1. That there is a serious question to be determined;
Her Honour, Justice Doherty in Markeal Limited & Robert Needham v. Mineral Resources Development Co. Pty Ltd (Unreported judgement delivered on 05/09/96) N1472 summarised the requirements in the following terms:
"1. There is a strong case which, on the evidence presented, would support a permanent injunction;
There are of course other cases like that of Mt. Hagen Airport v. Gibbs [1976] PNGLR 216 and Public Employees Association v. Public Service Commission [1988-89] PNGLR 585.
A reading of this authorities show consistency or agreement in all of the authorities that the grant of an injunctive relief is an equitable remedy and it is a discretionary matter. The authorities also agree that before there can be a grant of such a relief, the Court must be satisfied that there is a serious question to be determined on the substantive proceedings. This is to ensure that such a relief is granted only in cases where the Court is satisfied that there is a serious question of law or fact raised in the substantive claim. The authorities also agree that the balance of convenience must favour a grant or continuity of such a relief to maintain the status quo. Further, the authorities agree that, if damages could adequately compensate the applicant, then an injunctive order should not be granted.
The Present Case
(i) The Serious Question of Law or Fact to be Determined
The plaintiff points to clause 2.2 of the Management Agreement, which reads:
"Golobana’s engagement by the PNGBC will commence on the commencement date. Subject to termination by the PNGBC or Golobadana under and in accordance with another of the provisions of this agreement, Golobadana’s engagement will continue for the initial term of ten (10) years or under such date as the PNGBC ceases to exercise its powers pursuant to the mortgage, whichever date shall first occur."
(Emphasis supplied)
It then argues that, there is a serious question of law or fact to be determined in the substantive proceedings. That question is whether the parties intended that the management agreement should cease upon the defendant ceasing to exercise the powers under the mortgage in terms of fully recovering all of the debts due and owing from it from the POMRL as mortgagor, or did they intend that the management agreement will cease whenever the defendant decides not to exercise its powers under the mortgage.
Mr. Molloy of counsel for the plaintiff relied on the book by E.A. Francis & K.J. Thomas, Mortgages and Securities, 3rd Edition, Sydney, 1986, pp. 88-149 and the book by E.L.G. Tyler, Law of Mortgage, 10th Edition, Butterworth London, 1988, and submits that a mortgagee does have the power to enter into possession and lease a property secured by a mortgage. It also has the power to manage the property. Counsel goes on to argue that once a mortgagee has entered into a management and or lease agreement of such a property, it cannot terminate such an agreement except in accordance with the agreement and in any case not before the mortgagee has fully recovered what was due and owing to it under the mortgage from its mortgagor.
Mr. Nutley of counsel for the defendant on the other hand argues that, a mortgagee does have the right not to exercise its powers under the mortgage at anytime whether or not it has entered into an agreement for the management of the property the subject of the mortgage or a lease of it.
These arguments were raised on my enquiry as to the application of the principle of the right of redemption vested in a mortgagor. If I understand Mr. Molloy’s argument correctly, his submission essentially on that principle is that that is a right a mortgagor has in the context of a mortgagee seeking to exercise its right of sale. There is no application of this principle in a case where a mortgagee decides to exercise his right of possession and enters into a management and or a lease agreement of the secured property as in this case.
The right of a mortgagor to redeem his property is a fundamental characteristic of all mortgagees. As Lord Macnaghten said in Nokes & Core Ltd v. Rice [1902] A.C. 24, at p. 30: "Redemption is of the very nature and essence of a mortgage, as mortgages are regarded in equity. It is inherent in the thing itself." For equity guards jealously the right of the mortgagor to redeem and whenever it is faced with the challenge "will not permit any devise or contrivance designed or calculate to prevent or impede redemption." (Ibid) This accords well with the age-old principle in the law of mortgages that: "Once a mortgage always a mortgage:" See Seton v. Played (1902) 7 verse Jun. 265, at 273; E.R. 108, at 111.
Two principles arise from this. First, is whether a transaction is a mortgage is to be determined as a matter of substance and not form. Secondly, is the principle that the equitable right of redemption in a mortgagor is not to be "clogged" or "fettered." These concepts or principles have developed and come into existence in response to the old position at common law which treated mortgages as taking the form of an absolute conveyance of the subject property by the mortgagor to the mortgagee. That meant that upon failure of a mortgagor to pay on the date specified for payment, the common law regarded the rights of the mortgagor as at an end and the mortgagee’s interest in the property as absolute and indefeasible. That defeated the whole nature of mortgages, which was merely a security for the repayment of monies lent and secured by the mortgage. This intervention therefore made it possible for a mortgagor to redeem after the due date for payment had passed. That right has become known as the "equitable right to redeem." That has come about on the basis that once the mortgagee had been paid all principal and interest and being compensated for any loss suffered by reason of late payment, the lender had received all that he had bargained for and it would be against any good conscious for him to retain the property as well. That is why it is generally accepted that equity looks at the substances of the transaction rather than to its form, to determine whether it is intended to be a mortgage or an absolute conveyance and if despite its form, it is in substance a mortgage, the mortgagor is entitled to redeem on repayment: Marquess of Northhampton v. Salt [1891] UKLawRpAC 47; [1892] A.C. 1
There are numerous authorities dealing with alleged clogs or fetters on the equity of redemption. A quick perusal of these authorities reveal a number of principles. Firstly, a mortgage cannot be made irredeemable, and equity will not permit any devise or contrivance being part of the mortgage transaction or contemporaneous with it calculated to prevent or impede redemption: Fairclough v. Swan Brewery Co. Ltd [1912] A.C. 565, at. pp. 570. However, there is nothing preventing the mortgagor from giving to the mortgagee by a separate transaction and independent from the granting of the mortgage an option to purchase the property: Reeve v. Lesly [1902] UKLawRpAC 35; [1902] A.C. 461; Kreglinger v. New Patagonia Meat & Cold Storage Stores Co. Ltd. [1914] A.C. 25, at pp. 53-53. Of course, whether the grant of the option is part and partial of the mortgage transaction is to be determined as a matter of substance rather than form. As the mere separation of the documents will not of itself affect the existence of a "clog" on the equity of redemption: Re. Supreme Court Registrar to Alexander Dawson Inc. [1976] 1 N.Z.L.R. 612 at p.627.
Secondly, the right to redeem cannot be rendered nugatory or illusory. In Fairclough v. Swan Brewery Co. Ltd (Supra) the Privy Counsel held a provision for redemption and the mortgage before it was nugatory and that the mortgagor was entitled to redeem in advance of the final payment. That was in a case in which the mortgagor who had an interest in a leasehold property having approximately 17 years to run agreed to repay a loan by monthly instalments with the latest to be paid 6 weeks before the expiration of the lease. The mortgage also provided that the loan could not be repaid except by stipulated instalments.
There is however, no objection to a provision in a mortgage merely postponing the contractual right of redemption to some future date, unless it is oppressive or unconscionable: Knightsbridge Estates Trust Ltd v. Byrne [1939] Ch. 441.
The third principle is in the area of "collateral advantages," the authorities do allow for collateral advantages to be given by a mortgagor to a mortgagee in consideration for a loan to him or her. Such collaterals could be upheld only if they are "not either (1) unfair and unconscionable, or (2) in the nature of the penalty clogging the equity of redemption or (3) inconsistent with or repugnant to the contractual and equitable right to redeem," per Lord Parker Waddington in Kreglinger v. New Patagonia Meat & Cold Storage Co. Ltd (Supra at p.61).
Finally, there are cases that could be classified as miscellaneous areas. In these areas some authorities have shown a reluctance to uphold a covenant that seeks to clog or unnecessarily fetter a mortgagor’s right of redemption. These include covenants for a repayment of a greater amount than that advanced: Booth v. The Salvation Army Building Association (Limited) (1897) 14 T.L.R. 3. Similar positions have been taken in cases containing covenants requiring a payment of a higher rate of interest upon default which may be seen as a penalty: Wanner v. Caruana [1974] 2 N.S.W.L.R. 301, at pp. 306, per Street CJ. Other cases have indicated a preparedness to strike down covenants in mortgages that seemed to impose unreasonable time periods for late redemption: Fitzgerald’s Trustee v. Mellersh [1892] UKLawRpCh 13; [1892] 1 Ch. 385 at pp. 389-390. Furthermore, some authorities have indicated a preparedness to strike down covenants which seek to prevent a mortgagor from redeeming his property on the contractual date for repayment: Crickmore v. Freestone [1870] 40 L.J. Ch. 137, and as earlier noted after the contractual date for repayment.
What all of these in my view reveals is that, the right of redemption exists throughout the currency of a mortgage. It is a fundamental feature of mortgages and it cannot be "clogged" or "fettered" in any way except within recognised exceptions to that rule. These principles do not make any distinction between a mortgagee’s right of sale or right of possession or any of its other rights.
There is already authority in our jurisdiction that recognises a mortgagor’s right of redemption which exists until a contract of sale has been signed between a mortgagee and a third party in the case of a mortgagee exercising his right of sale: Ning’s Trading Pty Ltd v. ANZ Banking Group (PNG) Ltd (Unreported judgement delivered on 23/03/98) N1700.
In the case of a mortgagee exercising its right of possession, the law governing the exercise of that right is also clear. Previously, a mortgagee’s right of possession, was not dependent upon prior default by the mortgagor. Therefore the mortgagee could go into possession "before the ink is dry on the mortgage unless there is something in the contract, express or by implication whereby he has contracted himself out of that." Four—Mates Ltd v. Dudley Marshall (Properties) Ltd [1957] Ch. 317, at p. 320. This has however all changed by legislation a replica of which is s.74 of our Land Registration Act (Ch. p. 191). The legislative change saw a removal of a mortgagee’s right of immediate possession to make it dependent upon their being first a default in payment.
The law presently is as s.74 of the Land Registration Act states. That right may be exercised either by entering into occupation of the mortgage premises or taking over the control or management of the premises for the collection of rents and profits by the mortgagee. Noiyes v. Pollock [1886] UKLawRpCh 33; (1886) 32 Ch. D. 53.
It is also settled law that a mortgagee who takes possession of the mortgaged premises must account to the mortgagor not only for all rents and profits received but also for all he could have received but for his wilful default: Parkinson v. Hanbury [1844] EngR 95; (1867) L.R. 2 H.L. 1, at p.15; National Bank of Australia v. The United Hand in Hand & Band of Hope Cor. (1879) 4 APP. CAS. 391, at p.409. The reason for this is simple. A mortgagee who takes possession does so for the purposes of protecting his right to a repayment of the principle and interest under the mortgage. This follows on from the true nature of mortgages which is one of security for repayment only. The law "requires him to be diligent in realising the amount which is due, in order that he may restore the estate to the mortgagor who, ... is entitled to it:" Lord Kensington v. Bouverie [1855] EngR 501; (1855) 7 De G.M. & G. 134, at p. 157; [1855] EngR 501; 44 E.R. 53, at p.62. This is why the law allows for a mortgagee in possession to be charged occupation rent unless the part occupied has no rental value: Fyfe v. Smith (1975) 2 N.S.W.L.R. 408. The law also obliges him to effect all necessary repairs but only to the extent which the income of the property, after deduction of interest due under mortgage permits: Sandon v. Hooper [1843] EngR 450; (1843) 6 Beav. 246; 49 E.R. 820; Richards v. Morgan (1853) 4 Y & C.Dx 570; [1846] EngR 113; 160 E.R. 1136. At the same time, a mortgagee is entitled to take all necessary steps to perfect, protect and maintain its security. This includes the right to be reimbursed by the mortgagor of expenditure required to put the mortgaged property into a saleable position, even if it involves the making of lasting improvements: See: Sandon v. Hooper (Supra).
At common law, a mortgagee could grant leases but equity did not consider the lease as binding upon the mortgagor upon redemption. A practice therefore developed which saw mortgages containing express provisions allowing for mortgagors by mortgagees to continue to bind the mortgagor by redemption. However, legislative reform changed all of that allowing for mortgages not to exceed a specified term of years. For example section 106 of the Australian Conveyancing Act 1919 allowed a mortgagee to grant leases up to 5 years.
It should be apparent from all of the above, that in the event that a mortgagee exercises his right of possession, the law recognises that the property remains in the mortgagor and inherent in that is the right of redemption.
(ii) Present Case
Having regard to all of the above principles, I am not too sure whether there is in fact a serious question of law and or fact to be determined in this case. I say this, because the law seems clear to me that a mortgagor has the right of redemption throughout until the signing of the contract of sale with a third party in the event that a mortgagee decides to exercise its power of sale. If however, a mortgagee decides to exercise its right of possession, then that is subject to a mortgagor’s right of redemption. This is because, the whole purpose and intent behind a mortgage is to secure a repayment of the loan by a mortgagee to a mortgagor. I know of no law that compels an unwilling mortgagee to exercise its powers or rights under a mortgage. For very good reasons or for no good reasons at all, a mortgagee might not want to exercise its rights and given the true nature of mortgages, no Court would be in its right mind to order an unwilling mortgagee to exercise its rights under a mortgage.
This is very important because the plaintiff’s argument in this case is in effect asking the Bank to exercise its rights and or powers under the mortgage when it made a deliberate decision not to do so. It is also important because, if the injunction was allowed to continue, it will in effect prevent the POMRL who is the mortgagor from regaining possession which it is entitled to do when the Bank has decided not to exercise its powers under the mortgage. This will in my view be unnecessarily clogging or fettering the POMRL’s right to redeem its property or repossession in this case.
Both the relief of redemption or repossession and interlocutory injunction being reliefs available at equity and fortified by numerous cases on point, one needs to determine which of the two takes precedent over the other. It is a well accepted principle in equity that he who is first in time has the strongest claim. In this case, the interest of POMRL as mortgagor and owner of the PRL grounds remains first in time, even before the mortgage. The management agreement and hence the relationship between the plaintiff and the Bank came after and only because of the relationship between the Bank and POMRL. Besides interest in land and the risk of loosing it should take precedence over any management or lease agreement subsequent to that interest. Given that, I am of the view that the interest of the mortgagor takes precedence over that of the plaintiff.
For these reasons I have expressed the view that, there may not be a serious question to be determined in the substantive proceedings. Of course, this is only an interlocutory application looking at the issues discussed. The parties are still at liberty to raise these issues for proper and detailed argument, consideration and judgement by the Court. For the present purposes, I express the view as I have. This now leads me to the issue of whether the balance of convenience favours a continuity of the injunction.
Balance of Convenience
The question of whether or not the balance of convenience favours the grant or continuity of an interlocutory injunction incorporates the question of irreparable damage which an injunctive order or relief is sought to prevent. I will therefore, consider the issue of irreparable damage in the context of whether the balance of convenience favours a continuity of the injunctive orders.
None of the affidavit material filed for the plaintiff discloses the likelihood of any irreparable damage being done which a continuity of the injunctive orders seeks to prevent. The plaintiff’s evidence only reveals its claim of having incurred substantial expenditure in the pursuance of the management agreement to improve the PRL grounds and facilities, which includes employment and training of appropriated staff. But as the law as discussed above says, these expenses had to be incurred by the Bank as a Mortgagee in possession. However by the reason of the management agreement the plaintiff became the agent for the Bank. As such it had to incur those expense anyway.
Their evidence also discloses some debts being owed by the Bank to them and the POMRL being indebted to other people. Be that as it may, I cannot see how these could amount to irreparable damage or even relevant other than for an action in damages against the Bank for what might be owed to the plaintiff.
The only thing that might be treated as having the potential of irreparable damage being done is the disclosure by counsel in its submissions, following my enquiry of a number of international matches being fixed up to the end of this month. But as I noted in the summation of the facts or the evidence in the earlier part of this judgement, it is not clear who is responsible for those fixtures and how the lifting of the injunction will affect those fixtures. Even if they were to be affected, I am of the view that any such risk could be protected by appropriate orders compelling either or both of the parties to ensure these matches proceed as planned.
What all these means in the end is that, I am left with no evidence disclosing any damage that could be forced upon the plaintiff that could not be adequately compensated by an order for damages. The defendant is not just any other person in society. Instead it is a Bank and in the absence of any evidence to the contrary, I am of the view that it is capable of meeting any claims for damages by the plaintiff against it if eventually, it is established that the Bank breached the management agreement between itself and the plaintiff. Further, as noted, the relationship between the plaintiff and the Bank came about only on account of the Bank’s mortgage relationship with the POMRL. As I said earlier, that relationship takes precedence over the relationship between the plaintiff and the Bank. Again as I said earlier, if the injunction is allowed to continue it will in effect be requiring and forcing the Bank to exercise its powers under the mortgage when it has deliberately made a choice not to exercise that power as against it mortgagor (POMRL). The law vests the right in a mortgagor to redeem his property on the agreed date of repayment and in the event of falling into arrears and a mortgagee going into to mortgagee sale before any contract of sale is signed.
In the case of a lease agreement, a mortgagee merely decides to take possession of the secured premises with a view to recovering its principal and interest under the mortgage. If he decides to enter into a lease agreement, than the law requires a mortgagee to ensure the arrangement will go towards a reduction of any arrears with a view to returning the property back to the mortgagor who always has the right of redemption.
In this case, the evidence from the Bank through Mr. Busby’s affidavit is that the arrangement between the Bank and the plaintiff has been of no benefit to the Bank and more importantly has been of no benefit to the POMRL who is entitled to a reduction on his arrears and a timely meeting of the instalments payments when due. This evidence is not rebutted in any way and I consider that critically important in this context.
Having regard to all of these factors, I find that the balance of convenience does not favour a continuity of the injunction. I would therefore, order a lifting of the injunction initially ordered on 18th October 2002 as extended.
There is however a further reason why the injunction should be lifted. When the application was initially make for the injunction, it proceeded on the basis that the whole of the PRL grounds including the clubhouse were the subject of the agreements between the plaintiff and the defendant. That situation however changed almost half way through the plaintiff’s arguments on 25th October 2002, when counsel for the defendant pointed out that the management agreement only covered the club house and a portion of the PRL grounds. The hearing was therefore adjourned to 4th November 2002, to enable counsel for the plaintiff to seek further instructions. When the instructions were finally received, it confirmed the point taken by counsel for the Bank. If counsel for the Bank did not raise this point, it would never have been clarified or raised. This in my view would amount to a failure to fully disclose all the relevant and necessary information that might affect the grant or not of an interlocutory injunction. This is a requirement that must be met in equity given that the grant or not of an interlocutory injunction is an exercise of the Court’s power or discretion in equity. A failure to meet this requirement can result in a lifting of an interlocutory injunction previously granted. There are numerous authorities on that but for example see: National Housing Corporation v. Yama Security Services Pty Ltd (Unreported judgement delivered 25/08/00) N1985.
In summary, I answer the issues raised in this application as follows:
For all of these reasons, I order that the interlocutory injunction granted on the 18th of October 2002 be lifted. I also order costs
to follow that event.
______________________________________________________________________
Lawyers for the Plaintiff: Henaos
Lawyers for the Defendant: Gadens
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