Re Langworth Pty Ltd and Lindsay James Thompson v Metway Bank Limited [1992] FCA 449 (11 September 1992)

FEDERAL COURT OF AUSTRALIA

Re: LANGWORTH PTY. LTD. and LINDSAY JAMES THOMPSON
And: METWAY BANK LIMITED
No. Q G114 of 1992
FED No. 782
Appeal and New Trial - Mortgages

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Drummond J.(1)

CATCHWORDS

Appeal and New Trial - application for leave to appeal order refusing interlocutory injunction - conditional leave granted.

Mortgages - interlocutory injunction restraining mortgagee's rights pending trial refused - leave to appeal granted on condition mortgagor pays mortgagee amount demanded less the amount of an equitable set-off claimed by mortgagor.

Mortgages - notice of demand issued under s. 84(1) of the Property Law Act 1974 (Qld) - no evidence to show service effected in accordance with method prescribed by the mortgage - whether receipt by mortgagor's solicitors and/or fact that knowledge of the notice came to mortgagor's attention sufficient for purposes of s. 84.

Mortgages - notice of demand issued under s. 84(1) Property Law Act 1974 (Qld) valid even though amount demanded not reduced by amount of possible set-off raised by mortgagor.

Words and Phrases - default ... in payment of the principal money or interest ... secured by the instrument of mortgage: (s. 84(1) Property Law Act 1974 (Qld)).

Federal Court of Australia Act 1976 (Cth) - s. 24 (1A)

Property Law Act 1974 (Qld) - s. 84

Trade Practices Act 1974 (Cth) - ss. 52, 82 and 87

Clarke v Japan Machines (Australia) Pty. Ltd. (1984) 1 Qd R 404

Cunningham v National Australia Bank (1987) 77 ALR 632

Fancourt v Mercantile Credits Ltd. [1983] HCA 25; (1983) 154 CLR 87

Glandore Pty. Ltd. v Elders Finance and Investment Co. Ltd. [1984] FCA 407; (1984) 57 ALR 186

Graham v Commonwealth Bank of Australia (1988) 10 ATPR 40-908

Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161

Irving v Commissioner of Titles (1963) AWR 67

Niemann v Electronic Industries Ltd. (1978) VR 431

Piggott v Williams [1821] EngR 276; (1821) 6 Madd 95

Sharp v Deputy Federal Commissioner of Taxation (1988) 88 ATC 4184

HEARING

BRISBANE
11:9:1992

Counsel for the applicants: K.B. Varley

Solicitors for the applicants: Smits Leslie Barwick

Counsel for the respondent: S.S.W. Couper

Solicitors for the respondent: Gadens Ridgeway

ORDER

THE COURT ORDERS THAT:
1. The first applicant have leave to appeal the judgment of Neaves J delivered on 14 August, 1992 limited to grounds that there was no proof of proper service of the respondent's notice of exercise of power of sale and whether the first applicant's claims to equitable set-offs should be brought into account in fixing the terms upon which any injunction to which it may be entitled should be granted.

2. The first applicant has leave to appeal on the condition that on or before 4.00 p.m. on Friday, 18 September, 1992 the first applicant pays to the respondent the sum of $531,646.00.

3. The respondent, its servants or agents, be restrained from taking any action or proceedings to enforce the notice of exercise of power of sale dated 6 April, 1992 until 4.00 p.m. on Friday, 18 September, 1992.

4. If the first applicant on or before 4.00 p.m. on Friday, 18 September, 1992 pays to the respondent the sum of $531,646.00 then the injunction is to continue until determination of the appeal or earlier order.

5. The second applicant's application for leave to appeal is dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

This is an application under s. 24(1A) of the Federal Court of Australia Act 1976 (Cth) by the applicants in the action for leave to appeal a judgment of Neaves J whereby he dismissed the first applicant's application for an interlocutory injunction to restrain the respondent bank "from taking any action or proceedings to enforce a purported notice of exercise of power of sale dated the sixth day of April, 1992 or selling certain property" of the first applicant and whereby he dismissed the second applicant's application for an interlocutory injunction restraining the respondent bank "from taking any action or proceeding to enforce a purported notice of demand made" on the second applicant under a deed of guarantee and indemnity entered into by him in respect of the first applicant's indebtedness to the respondent bank.

2. Niemann v Electronic Industries Ltd. (1978) VR 431 is authority for the proposition that leave to appeal from an interlocutory order should, in general, only be granted where the decision is attended with sufficient doubt to warrant its being reconsidered by the Full Court and where, in addition, substantial injustice would result if leave were refused and the decision subsequently shown to be wrong. See, e.g., Sharp v Deputy Federal Commissioner of Taxation (1988) 88 ATC 4184 at 4186. As to the first of these two requirements, whether the application is made to a single judge or to the Full Court, it is neither necessary nor appropriate that that Tribunal should examine the merits of the proposed appeal before making the decision whether to grant leave: in both cases, the question is whether the order is attended by sufficient doubt to warrant its being reconsidered on appeal: Sharp at page 4186 and Niemann at pages 433, 441-2. But it is also well-established that the two criteria are neither rigid nor exhaustive: for example, there are cases in which leave to appeal an interlocutory order has been granted simply because the order raises a matter of importance appropriate for determination by a Full Court. See Adam P. Brown Male Fashions Pty. Ltd. v Philip Morris Inc. [1981] HCA 39; (1981) 148 CLR 170 at 177; Decor Corporation Pty. Ltd. v Dart Industries Inc. [1991] FCA 655; (1991) 104 ALR 621 at 623.

3. In February 1991, the first applicant entered into an agreement with the respondent whereby it borrowed $620,000.00 from the respondent secured by a mortgage over the first applicant's land at Darra. The purpose of the loan was to fund construction for the first applicant of a commercial building which it intended to let to tenants. A total of $564,000.00 of this loan of $620,000.00 was to be advanced progressively to meet progress claims by the builder. In July 1991, when about 80% of this sum of $564,000.00 had been paid by the respondent to him, the original builder failed and the first applicant had to engage a second builder to complete the project. However, the first applicant needed about $233,500.00 more than it had originally anticipated to achieve this and in October 1991, it entered into an agreement with the respondent whereby the respondent increased the amount of the original loan by $140,000.00 to assist the first applicant to fund the completion of the building.

4. The documentation in respect of the original advance required repayment of the $620,000.00 principal sum on the expiration of twelve months from the date of the first draw-down (which took place on 11 April, 1991), with interest at a concessional rate of 18.5%. The documentation relating to the October 1991 extension of the facility also required repayment of principal by the same date originally stipulated - 11 April, 1992 - with interest at a concessional rate of 16%. The second applicant guaranteed performance by the first applicant of its obligations under the loan facility.

5. By its statement of claim, the first applicant alleged that it was induced to enter into the original facility by representations made by an officer of the respondent in contravention of s. 52 of the Trade Practices Act 1974 (Cth) that if the first applicant would accept the loan on the terms contained in its letter of offer, the respondent would, upon completion of construction of the building reduce the interest rate payable by the first applicant in respect of the loan to "the then commercial rate as published from time to time by the respondent for non-specialist developments"; the respondent is then said to have wrongly refused to reduce the interest rate. It was also alleged that the respondent undertook to assume sole responsibility for valuing, approving and paying the builder's progress claims out of the moneys available to the first applicant under the loan facility and that one of the respondent's officers represented that the person the first applicant initially engaged as its builder was a competent builder known to the respondent and who, in effect, the respondent recommended to the first applicant; it is alleged that, at the time, that builder was heavily indebted to the respondent who knew him then to be "in parlous financial circumstances". It is also alleged that the respondent negligently overvalued the first builder's progress claims so that he received substantially more for the work he did up to the time he collapsed than that work was worth, with the further consequence being that it has cost the first applicant $233,500.00 more than it should have cost. The first applicant also alleges that it had to obtain the $140,000.00 extension to the facility to assist in funding this cost overrun.

6. In addition to the $233,500.00 claimed as damages (which claim includes the $140,000.00 I have referred to), there is a claim for loss of rent of $17,499.00 due to late completion and an unparticularised claim for loss of value of the premises due to the quality of the premises having to be downgraded following the failure of the first builder to enable the first applicant, within the means available to it, to complete them: $100,000.00 is claimed here.

7. The allegations in the statement of claim were supported by the evidence of the second applicant, his solicitor and his replacement builder. Importantly, although one affidavit was read before Neaves J on behalf of the respondent, it did not attempt to challenge any of the applicants' evidence.

8. The sums claimed by the first applicant are claimed as damages pursuant to ss. 82 and 87 of the Trade Practices Act suffered by reason of the contravention by the respondent of s. 52 of that Act. Other relief sought includes an order pursuant to s. 87 declaring void ab initio the agreement of October 1991 extending the loan facility by the further amount of $140,000.00 and an order in effect varying the interest rate fixed by the documentation relating to the initial advance of $620,000.00 from the concessional rate of 18.5% therein stipulated, to the reduced rate which the first applicant alleges the respondent's officer represented would be payable once the building was complete: a rate of 9.75% from 1 August, 1991 is asserted to be the appropriate rate.

9. On 6 April, 1992 the respondent bank issued to the first applicant a notice of exercise of power of sale in form 7 in compliance with s. 84 of the Property Law Act 1974 (Queensland). This provision prevents a mortgagee exercising its power of sale unless and until there has been default made in payment of some part of the principal money or interest secured by the mortgage and a notice requiring payment of the default amount has been served on the mortgagor and the mortgagor does not, within 30 days of service of the notice, remedy the default in question.

10. The notice alleges non-payment of interest due on 29 February and 31 March, 1992, the exercise by the respondent of its entitlement to call up payment of the whole of the principal moneys and contains a demand for payment of $784,646.00, which comprises all moneys due in respect of principal and interest as at 6 April, 1992.

11. Various matters were canvassed before me which were said to show that Neaves J was in error in a number of respects in refusing interlocutory relief to the applicants.

12. It was submitted that his Honour fell into error when he held that the general rule in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 that an injunction restraining the exercise by a mortgagee of his power of sale will not be granted unless the mortgagor brings into court the amount claimed by the mortgagee as due under the mortgage, was not excluded where the mortgagor had a claim in damages for a contravention of s. 52 of the Trade Practices Act against the mortgagee. It was conceded before Neaves J that the first applicant was unable to bring into court the $784,646.00 claimed to be due under the mortgage. His Honour said of this submission:

"The circumstance that the mortgagor claims to be entitled
as against the mortgagee to set off against the amount due
under the mortgage damages, including damages for a
contravention of s. 52 of the Trade Practices Act, is not
sufficient to displace the general rule ... The rule is,
however, not an inflexible one and the court has a
discretion to depart from the full stringency of the rule
and to mould its order so as to require payment into court
of so much only as will suffice to give adequate protection
to the mortgagee ... The ordinary rule will more readily be
departed from where the amount claimed by the mortgagee is
obviously wrong ..., where there is a serious question
whether the mortgagee's power has become exercisable at all
... or where the mortgagor seeks to impugn the validity of
the mortgage transaction itself."

13. It appears from what his Honour said about the first and third limbs of the applicants' case at pp 13 - 15 of his reasons that he took the view that there would only be an impugning or impeachment of the mortgage transaction, so as to require consideration to be given to whether the mortgagor should be relieved from the full rigour of the rule in Inglis, where the mortgagor's claim attacked the validity of the mortgage itself.

14. There is, I think, reason to doubt whether the circumstances in which a mortgagor who seeks to restrain his mortgagee from enforcing the security can obtain injunctive relief without having to bring the amount claimed as owing by the mortgagee into court are as limited as this.

15. The general rule is that a claim for damages by a mortgagor against a mortgagee (including a claim for damages arising from a contravention of s. 52 of the Trade Practices Act) will not provide any reason for relieving the mortgagor from the rule in Inglis where he is seeking to restrain the mortgagee from enforcing his security. See Inglis at page 165 and Glandore Pty. Ltd. v Elders Finance and Investment Co. Ltd. [1984] FCA 407; (1984) 4 FCR 130 at 135. There is also authority that this is so even if the mortgagor's damages claim would amount to an equitable set-off against the claim by the mortgagee for payment of moneys owing under the mortgage: see Altarama Ltd. v Camp (1980) 5 ACLR 513, 518.

16. However, there is authority to the contrary. This suggests that, while a claim sounding in damages by the mortgagor against the mortgagee will not generally provide a ground for relieving a mortgagor who seeks to restrain a mortgagee from exercising his powers under the mortgage from the obligation to bring into court the amount claimed as due by the mortgagee, if the mortgagor's damages claim is so closely connected with either the circumstances in which the mortgage was granted or with the demand for payment made by the mortgagee so as to amount to an equitable set-off against the mortgagee's demand for payment, then the mortgagor might be entitled to the injunction sought without having to bring the amount claimed by the mortgagee into court or to otherwise secure it to the mortgagee.

17. In Cunningham v National Australia Bank (1987) 77 ALR 632 at 638, Jenkinson J said:

"If the claim for damages were so connected with the
mortgages or any of them as to impeach the mortgagee's
title, in the sense in which that concept is expounded in
relation to equitable set-off, then it may be that the
relief sought could be granted free of the condition that
the amount secured be paid into court."

18. In Graham v Commonwealth Bank of Australia (1988) ATPR 40-908, French J granted an interlocutory injunction restraining a mortgagee from exercising its power of sale in a case in which the mortgagor was claiming damages in respect of misleading conduct by the mortgagee that induced the mortgagor to enter into the loan transaction, as well as an order setting aside the loan agreement; his Honour adopted a broad view of the discretionary jurisdiction he was there exercising (see page 49,758) and, even though not prepared to say that the applicant had demonstrated a strong case, he granted the injunction on condition that the applicant brought into court about $34,000.00 in respect of arrears of interest out of a total of nearly $400,000.00 claimed as owing by the mortgagee under the security.

19. If the approach reflected in Cunningham and Graham is correct, an equitable set-off in respect of an amount less than that claimed by the mortgagee as owing gives rise to a different kind of dispute from a mere dispute between mortgagor and mortgagee as to what is the amount due under the mortgage: the latter is, according to Harvey v McWatters (1948) 49 SR (N.S.W.) 173 at 174, "the ordinary case" in which the rule referred to in Inglis applies. Where an equitable set-off is raised, the mortgagor does not merely dispute the proper amount due under the mortgage, rather does he set up the existence of an "equitable ground for being protected against the (mortgagee's) demand": Rawson v Samuel (1841) Cr and Ph 161 at 179.

20. I think Neaves J's view that the existence of jurisdiction to restrain a mortgagee from exercising his default powers without requiring the mortgagor to bring into court the amount claimed by the mortgagee as due under the mortgage is limited to cases in which the mortgagor sets up a claim which attacks the validity of the mortgage itself is open to doubt.

21. I therefore think that if the applicant here made out a strong enough case to show that there was a serious question to be tried as to whether it had a good equitable set-off that exceeded in amount the respondent's claim for payment, it may well have been open to the court to have granted the applicant an interlocutory injunction, without requiring it to bring the moneys claimed by the mortgagee into court. If, on the other hand, the applicant made out a good case of an equitable set-off but for an amount less than the respondent's claim for payment, it may have been appropriate, to adopt the words of Morling J in Glandore Pty. Ltd. v Elders Finance and Investment Co. Ltd. [1984] FCA 407; (1984) 57 ALR 186, at 191-2, "to mould an order so as to ensure adequate protection to the mortgagee and to otherwise do justice between the parties during the period pending the final hearing" by granting an interlocutory injunction, but on terms that the applicant brought into court the difference between the respondent-mortgagee's claim for payment and the amount of the first applicant's set-off.

22. However, leave to appeal is from a judgment, in the sense of the operative judicial act (here, the refusal to grant the interlocutory injunction), not from the reasons for judgment: Driclad Pty. Ltd. v Federal Commissioner of Taxation [1968] HCA 91; (1968) 121 CLR 45, 64, although the reasons are, of course, important as throwing light on whether the judgment is attended by error.

23. While there is doubt about whether Neaves J was correct in focussing his attention only on the question whether the damages claims made by the first applicant impeached the mortgage transaction itself in the sense of attacking the validity of the transaction, there are two difficulties for the applicant in raising a doubt as to the correctness of the decision refusing injunctive relief, given that the applicant did not offer to pay to the respondent or to bring into court anything in respect of the amount claimed by the respondent in its notice.

24. Firstly, subject only to the question whether the respondent complied with s. 84 of the Property Law Act, the applicant did not come near showing that there was a serious question to be tried about whether the respondent was entitled to exercise its default powers under the mortgage by 6 April, 1992. The applicant did not dispute that it was in default in meeting interest payments by 6 April, 1992 and that, in consequence, the respondent was entitled to demand by the notice not only arrears of interest, but the full amount of the principal moneys as well.

25. Secondly, the applicant's uncontradicted claim for damages and for variation of the loan agreement did not impeach the whole of the respondent's demand for payment contained in the notice.

26. For the reasons which follow, I do not think that the first applicant succeeded in raising claims that impeached to any extent at all the respondent's demand in the notice in respect of interest. So far as the respondent's demand with respect to principal is concerned, the most that the first applicant's claims impeached was the demand for the $140,000.00 principal sum and so much of the demand for the $620,000.00 by way of original principal as equalled the amount of the respondent's negligent over-certification of the first builder's progress claims.

27. The old case of Piggott v Williams [1821] EngR 276; (1821) 6 Madd 95, referred to by Walsh J in Inglis (at p 167), provides an example of the nexus that must exist between a mortgagor's damages claim and his mortgagee's claim if the former is to impeach the latter and so give rise to an equitable set-off. That was a case in which a solicitor filed a bill for foreclosure of an estate pledged as security for his costs; the defendant, his former client, filed a cross-bill alleging that work done in respect of which the costs were demanded would not have had to be performed but for the negligence of the solicitor and that therefore nothing was due. The court held that, assuming the facts alleged in the cross-bill were proved, it was "a clear case of equitable set-off" and a demurrer to the cross-bill was overruled.

28. The first applicant's claim was that the respondent undertook sole responsibility for valuing, approving and paying the builder's progress claims on the first applicant; as Neaves J held, its uncontradicted evidence substantiated the allegations that the respondent negligently over-valued the progress claims that it paid on behalf of the first applicant from the loan moneys, so that the first applicant had to borrow the $140,000.00 to fund completion when, but for the respondent's negligence in over-valuing the builder's claims, that borrowing would have been unnecessary. The first applicant thus raised a claim of equitable set-off that impeached the respondent's demand for payment of this $140,000.00.

29. Of the $620,000.00 original principal, $564,000.00 was earmarked for construction costs. The first applicant made out a strong case that the respondent negligently over-valued the first builder's work, and then paid away on behalf of the first applicant part of this $564,000.00 for which the applicant did not get any of the benefits it was relying on the respondent to ensure it would receive. The respondent did not dispute the evidence of the applicant's witness, Derrick, that the respondent approved progress claims by the first builder to a value of approximately 80% of the allocated construction costs when a maximum of only between 50% or 60% of the actual construction work had been completed. The applicant's evidence was sufficient to raise an equitable set-off that impeached the respondent's demand for payment that included this $620,000.00, at least to the extent of about $113,000.00, i.e., 20% of $564,000.00.

30. It is true that rights of set-off can be excluded by express agreement, but it was not submitted that any provision of this mortgage had that effect.

31. The first applicant's claims did not, however, impeach the demand for repayment of any other part of that original principal sum of $620,000.00. That applicant did not attempt to prove the likely value of its claim for diminished value. There is no sufficient nexus between the applicant's other claim for damages in respect of lost rent and the respondent's demand for the $620,000.00 to give it the character of an equitable set-off against the latter demand.

32. For the reasons given, I think there is sufficient doubt to justify reconsideration by the Full Court of his Honour's conclusion that the applicant's claims, not disputed by the respondent, did not provide any ground for relief from the rule in Inglis because they did not impeach the mortgage transaction itself. But even if the correct view is that Neaves J failed to take into account the significance of the nexus between the first applicant's claims in respect of the respondent's negligent over-valuation and over-payment of the first builder's work which claims amounted to $253,000.00 and the making by the respondent of its demand for repayment, the first applicant would not have been entitled to the interlocutory relief it sought unless it were prepared to properly secure to the respondent the amount claimed by it less this $253,000.00.

33. I think that if leave to appeal is granted it should only be on condition that the applicant pays this sum to the respondent. The applicant is not entitled to be in any better position as a result of the grant of leave to appeal than it would have been in if it had achieved the fullest success it was entitled to at the initial hearing: substantial injustice would only result to this applicant from a refusal of leave to appeal that was conditional upon it securing to the respondent the amount I have referred to.

34. If leave to appeal on these terms is not granted, the respondent will be free to move now to sell the first applicant's property. If leave is granted on these terms, and the applicant meets them, and, in addition, pays all interest accruing after 6 April as it falls due, the respondent will effectively be prevented from enforcing the mortgage in respect of the $253,000.00 until there has been a trial of the issue concerning the applicant's entitlement to the set-offs I have referred to. But the applicant has raised a strong claim to a set-off to the extent of $253,000.00 and there is no evidence to suggest that the value of the security is declining rapidly and so is unlikely to remain good security for this sum until the matter has been determined. No injustice will be done to the respondent if leave is granted on the condition I have referred to.

35. It is doubtful whether the first applicant can meet such a condition. But there was no discussion in argument before me as to the possibility that if it were prepared to bring into court the amount of $531,646.00, the difference between the $784,646.00 demanded and the total of the equitable set-offs of $253,000.00, the applicant might have obtained the relief it sought. It is entitled to this opportunity.

36. I would therefore be prepared to grant leave to appeal, but only on condition that, within seven days, the first applicant pays to the respondent the sum of $531,646.00. I do not see any ground for requiring payment of this sum into court, rather than to the mortgagee. Since the respondent is free to issue a new notice based on non-payment of interest that fell due after 6 April, 1992 I do not think it is appropriate to make leave to appeal the decision here in question also conditional upon payment of such arrears of interest.

37. The applicant also argued before Neaves J that there was a serious question to be tried as to whether, notwithstanding the stipulations in the loan documentation for repayment of all principal moneys by April 1992, the principal sum which was included in the amount demanded in the notice did not in truth become repayable until October 1992. It was said that Neaves J's reasons for rejecting this argument reveal error. His Honour gave two reasons:

"In the first place, I am satisfied that there is no serious
question to be tried concerning the date upon which the
principal sum became payable. The documents clearly
establish that the date was 10 or 11 April, 1992, twelve
months after the date of the first advance of loan moneys.
The statement in the second applicant's affidavit (para 28),
even if accepted, that Mr Brown had said in October 1991
that 'the repayment date of the facility would be in October
1992' could not alter the plain meaning of the document. In
any event, there has been no payment of interest by the
first applicant since 29 February, 1992 and that
circumstance entitled the respondent to call up the whole of
the principal sum, as it has in fact done." (pp 15-16)

38. As to the first reason, the only evidence touching upon the question whether the date for repayment of principal was October rather than April 1992, was an isolated comment by the second applicant in his affidavit. After referring to the provisions in the loan documentation for repayment, he added:

"Brown (the respondent's officer) told me that the repayment
date of the facility would be in October 1992 ..."

39. This bald statement, although not contradicted by the respondent, was not accompanied by any information which might throw light on why Brown may have said it. Even if it could be regarded as some sort of representation, there is no evidence to indicate that the statement was made prior to the applicants committing themselves to take the further advance. Nor is there any evidence to suggest that the applicants placed the slightest reliance upon it in deciding to borrow from the respondent. There is no evidence at all to suggest that the statement was made in circumstances that imposed legal liability for it on the respondent.

40. Even if it is accepted that the statement was made, it seems to me that, far from their being doubt about the correctness of his Honour's conclusion, he was plainly right in saying that the second applicant's evidence here could not provide any reason for doubting that the time for repayment of principal was unaffected by what Brown may have said and always remained fixed by the loan documentation as a date in April 1992.

41. As to his Honour's second reason, the applicant conceded that it was true that it had not paid interest after February 1992 and that the loan documentation provides for acceleration of the time for payment of principal, at the respondent's election, should the first applicant default in payment of interest. But the applicant submitted that up to February 1992, it had paid interest at the higher rate fixed by the loan documentation when, so it said, it was only obliged to pay interest from August 1991 at a significantly lower rate. The applicant then suggested that if the calculations were made, it might turn out that the payments on account of interest that the first applicant had made up to February 1992 at the higher rate exceeded or at least equated to all the interest that would be payable, even up till now, if the correct rate from August 1991 was the lower one contended for by the applicants. However, the evidence the applicant relied on to show that 9.75% was the appropriate lower rate which should have applied from August 1991 was wholly lacking in cogency: the position is likely to be that a range of changing rates, each significantly higher than 9.75%, would be applicable if the representation the applicants rely on is ultimately proved to have been made. In any event, it made no attempt to establish the correctness of its proposition by appropriate evidence in the proceedings before Neaves J, even assuming its suggested rate of 9.75% was the correct rate. Once again, it seems to me that his Honour was plainly right when he rejected on this ground the argument that there was a serious question to be tried as to whether the time for payment of principal had arrived before the notice of demand was issued on 6 April, 1992.

42. It was also submitted that Neaves J was in error when, in dealing with the applicant's claim that the respondent represented it would reduce the interest rates fixed by the loan documentation, he said that such a claim would only sound in damages and that: "The mortgage transaction itself would not be impeached. Indeed, there is no claim for an order under s. 87 of the Trade Practices Act in respect of the transaction of 25 February, 1991."

43. By its statement of claim, the applicant did seek an order under s. 87 varying the transaction of 25 February, 1991, but only to provide for the interest reduction contended for. For the reasons given, the applicant failed to raise even a colourable claim to such relief. If his Honour was in error in this regard, it did not in any way affect the correctness of his decision to refuse interlocutory relief.

44. It was next submitted that his Honour was in error in failing to find that there was a serious question to be tried as to whether the respondent had ever served the statutory notice dated 6 April, 1992 on the first applicant. His Honour, in reliance on what the second applicant had to say about the applicants' solicitors having obtained a copy of the notice from the solicitors for the respondent, which they then showed to the second applicant on 15 June, 1992, said:

"It is clear, however, that the first applicant received a
copy of the notice on or about 15 June, 1992."

45. Although his Honour did not expressly so hold, it is clear that he proceeded on the basis that, this being so, there was no real doubt as to the first applicant having been effectively served with the notice.

46. The notice was addressed to "The Manager, Langworth Pty. Ltd., P.O. Box 264, Bankstown NSW 2200". The respondent's State Manager swore that he personally caused this notice to be served on the first applicant by having it posted by pre-paid post to this address "which address is the address of the first applicant specified in the registered bill of mortgage". He also said that the notice has not been returned in the post to the respondent. The second applicant's evidence was that he was informed by his solicitors of the respondent's claim to have served the first applicant with the notice and that on 15 June, 1992 he was shown a copy of this notice by his solicitors which they, in turn, had obtained from the respondent's solicitors; the second applicant added: "I say that prior to 15 June, 1992, I have never seen a copy of this purported notice." The second applicant, however, acknowledged that on or about 16 April, 1992 the respondent served its notice of demand upon him as guarantor dated that day: it was addressed to him personally at P.O. Box 265, Bankstown.

47. There is no other evidence on this question of service and, in particular, no evidence whether the Bankstown P.O. Box number shown as the first applicant's address in the mortgage was the postal address for either its usual place of business or its registered office or that inquiries were made on behalf of the first applicant in an attempt to find out what became of the original notice of sale. More importantly, the only evidence from the applicants concerning what is said to be the absence of service on the first applicant is the evidence of the second applicant that he did not himself see this notice prior to 15 June, 1992: there is no evidence that the other director, Levi, or any other officer of the first applicant did not receive the notice.

48. The mortgagee's "right of sale is a very drastic remedy, and it is essential for the due protection of borrowers that the conditions of its exercise should be strictly complied with." Hunter v Hunter (1936) AC 222 at 247; Manton v Parabolic Pty. Ltd. (1985) 2 NSWLR 361 at 376-7. Consistently with this view of the nature of the mortgagee's power of sale, s. 84 imposes a restriction on its exercise, a restriction which, moreover, the mortgagee cannot contract out of: see s. 84(3).

49. Clause 16.6 of the registered memorandum incorporated in the respondent's mortgage prescribes how service of, among other things, a notice issued to the first applicant under s. 84 of the Property Law Act can be made. It provides:

"Any notice to be given to ... the mortgagor ... by or on
behalf of the mortgagee ... shall be deemed to be duly given
... if it is in writing and is signed by or on behalf of the
mortgagee ... and if it is ... sent through the post in a
pre-paid envelope ... addressed to the mortgagor ... at the
usual place of abode or business or registered office of the
mortgagor ... as the case may be last known as such to the
person signing such notice ... Any such notice of (sic)
demand if sent through the post as aforesaid shall be deemed
to have been received by the mortgagor ... at the time when
the envelope ... containing such notice or demand would in
the ordinary course of post have reached the address to
which it was posted and notwithstanding that it may never do
so ..."

50. This clause concludes: "The provisions of this clause shall not preclude any other lawful mode of service."

51. In Fancourt v Mercantile Credits Ltd. [1983] HCA 25; (1983) 154 CLR 87, the provision governing service of notices there considered was s. 42 of the Hire Purchase Act of 1959 (Qld). Section 42(1)(b) and (c) differentiated between a person's place of abode or business (at which the leaving of a notice was effective service on the person) and that person's last known place of abode or business (to which a notice could be posted by way of effective service). The Court there held that the posting of the notices to the hirers at the post office box which they gave as their address in the hire purchase agreement was good service on them by reason of the operation of s. 42(1)(c) of the Act. Of s. 42(1)(c), which governed service by post, the High Court at page 94 said:

"The point is a narrow one. It is not whether it was
established that the Post Office at Sapphire was the
appellants' last known place of abode. It may be conceded
that it was not. But the address which is referred to in s.
42(1)(c) is clearly intended to be a postal address and the
postal address of a person's abode does not necessarily
coincide with the physical location of that abode ... A
letter addressed to "Blackacre" care of a post office or a
post office box is none the less addressed to Blackacre if
that is the postal address which Blackacre has,
notwithstanding that the physical location of the property
and of the post office are different."

52. Clause 16.6 of the registered memorandum permits the respondent to serve a notice of the kind here in question either by leaving it at or posting it to a particular location provided that location answers the description of "the usual place of abode or business or registered office of the mortgagor ... last known as such to the person signing such notice" on behalf of the respondent. In contrast to the way s. 42(1) of the Queensland statute differentiates between a person's place of abode or business for the purposes of delivery of a notice and his place of abode or business for the purpose of service of a notice on him by post, the mortgagor's "usual place of abode or business or registered office" is, for the purposes of clause 16.6, the same location whether service be effected by leaving a notice at that location or by posting it to that location. The post office box number given by the first applicant in the mortgage document as its address was plainly not the address of its place of abode or business or registered office at which a notice could be physically left by way of service on the first applicant. Neither, for the reasons given, was it an address at which clause 16.6 allowed the respondent to serve a notice on the first applicant by post. There is no evidence at all to show that the notice was served on the first applicant by a method permitted by clause 16.6.

53. The respondent did not point to any evidence which would indicate that the notice was served by some other lawful mode of service, other than to submit that the obtaining of the notice by the solicitors acting in these proceedings for the first and second applicants, which were commenced on 31 July, 1992, constituted effective service of it on the first applicant. However, there was no evidence at all here that those solicitors were authorised back in June to receive on behalf of the first applicant a notice issued by the respondent in respect of the mortgage; the evidence rather points to the solicitors obtaining a copy of the notice for the second applicant's own purposes. Whatever may be the position under the general law so far as service on a person's solicitor being effective service on him, I do not think, in the absence of evidence that the solicitors had authority to receive the notice, that proof that a mortgagee's notice of exercise of power of sale has been received even by the solicitors shown to be acting for the mortgagor at the time of receipt of the notice is sufficient compliance with s. 84(1). See Irving v Commissioner of Titles (1963) AWR 67 at 68 and Kay's Leasing Corporation Pty. Ltd. v CSR Provident Fund Nominees Pty. Ltd. (1962) VR 429 at 434-5.

54. The respondent also submitted that the evidence showed clearly that the notice came to the attention of the first applicant and that that was all that was necessary for the respondent to be free to exercise its power of sale. I do not think this would suffice as service, given the nature of the power, to the exercise of which service of a notice is a precondition.

55. In any event, I do not think the evidence shows what the respondent contends it does. I do not think the second applicant's careful statement that he personally did not see the notice directed to the first applicant until his solicitor showed it to him in mid-June last can be construed as an admission against the first applicant that the notice was, at some time, served on it; in any event, it is not at all plain that the second applicant in paragraph 39 of his affidavit was saying anything which could be regarded as probative of anything against the first applicant. Rather in that paragraph he appears to be dealing with his own personal liability on the guarantee and to be seeking to lay a foundation for the proposition that is now put forward as a ground on which he wants leave to appeal the refusal of his own application for an injunction to restrain the respondent enforcing the guarantee against him, namely, that an invalid notice of default having been given to the first applicant, the demand made on the guarantee against the second applicant is also invalid. I do not think that the fact that the notice of default came to the attention of the second applicant in these circumstances provides evidence that it thereby also came to the attention of the first applicant, notwithstanding the fact that the second applicant is one of the directors of the first applicant.

56. Although there can be a degree of scepticism about the assertion that the first applicant did not in fact receive the notice, there is sufficient doubt as to whether there was enough evidence to enable a finding to be made that service of the notice on the first applicant was ever effected to warrant leave to appeal, if justice requires it to be granted.

57. If leave to appeal were not to be granted, but it should turn out that the decision of Neaves J was wrong insofar as it was founded on a conclusion that the first applicant had failed to raise a serious question as to whether there was proper service of the notice on it, the injustice that the first applicant would suffer may be substantial since the respondent would be free immediately to proceed to sell its property; if, on the other hand, leave were granted in circumstances in which it turns out that the decision of Neaves J is correct, it is difficult to see that the respondent would suffer any injustice: there is no evidence to suggest that the value of its security is rapidly declining. The respondent is in a position immediately to issue and serve another notice based upon the first applicant's admitted non-payment of interest since February last (if that is not immediately remedied) and non-payment of the principal moneys of $760,000.00, which fell due for repayment on 11 April last even if there was no acceleration of the repayment date: this would entitle the respondent, after the expiration of a period of 30 days, to proceed to exercise its power of sale.

58. I do not think that, because the right of the respondent to issue a default notice will not be resolved once and for all in the present litigation and that the practical effect of the grant of leave to appeal will be to buy the first applicant a little more time only, that is sufficient reason to justify the refusal of the grant of leave.

59. However, there remains the question whether leave should be granted only upon condition that the first applicant bring into court or otherwise secure to the respondent the amount demanded by the respondent in the notice as due and owing to it under the mortgage. This is not a case like Clarke v Japan Machines (Australia) Pty. Ltd. (1984) 1 Qd R 404 or Atkinson v Hastings Deering (Qld) Pty. Ltd. [1985] FCA 135; (1985) 6 FCR 331 where interlocutory injunctions were granted where defective notices were relied on by the mortgagees without the mortgagors having to bring the moneys claimed as owing by the mortgagees into court. In both these cases the evidence was that the mortgagee was not in a position to issue a valid notice because the amount owing by the mortgagor was neither known nor capable of reasonable estimation. For the reasons I have already given, I do not think there is any doubt about the correctness of Neaves J's conclusions that the first applicant failed to put into dispute the assertion of the respondent that the amount made up both of principal and interest claimed to be due in terms of the mortgage was in fact due. If Neaves J had granted the interlocutory injunction sought by the first applicant because there was a serious question to be tried about the adequacy of service of the notice, I think that such an injunction would have issued only upon condition that the first applicant properly secure the amount demanded by the mortgagee. I also take into account the statement in Manton v Parabolic Pty. Ltd. (1985) 2 NSWLR 361 at 377 and the observations of Pincus J in Mainbanner Pty. Ltd. v Dadincroft Pty. Ltd. (1988) ATPR 40-896 referred to in Graham v Commonwealth Bank of Australia (1988) ATPR 40-908 at page 49,757-758 and conclude that leave should only be granted on terms that, with one qualification, the amount demanded by the respondent is properly secured to the respondent.

60. The qualification is this: I have said that I think that the evidence before Neaves J was sufficient to raise a serious question whether the first applicant had a good equitable set-off to the extent of $253,000.00 against the demand for payment of the mortgage moneys made by the respondent and which is set out in its notice. Since I think the first applicant is entitled to leave to appeal arising out of this issue of service, but subject to its promptly paying to the respondent the amount claimed as due by it in its notice less the sum of $253,000.00, I think that is the only condition that should be placed upon the grant of leave.

61. The applicant also submitted that the notice issued by the respondent under s. 84 of the Property Law Act was invalid because it claimed a lot more - at least $140,000.00 more - than the respondent was entitled to call for and that the refusal of the injunction was erroneous for this reason.

62. Section 84 conditions the exercise of the mortgagee's default powers upon service of a valid notice of demand. It was submitted on behalf of the respondent that it does not matter that the notice claims more than may properly be due to the mortgagee if, as here, there is no real doubt that something is due, so that the mortgagor's non-compliance with the notice by failing to pay what may truly be due, will still entitle the mortgagee to exercise its powers under the mortgage.

63. The first applicant disputes this proposition and refers to Clarke v Japan Machines (Australia) Pty. Ltd. (1984) 1 Qd R 404. At page 413, Thomas J (with whom Campbell C.J. and Andrews SP.J agreed) said:

"Accordingly, the position may be summarised as follows.
Where a default in the payment of principal and interest (or
both) is relied on, s. 84(1) requires an amount to be
specified. An error in specification of the appropriate sum
will not be the end of the matter. A question of fact and
degree is involved in every case. The most relevant factors
determining validity will be the extent of the error, and
the capacity of the notice to give the mortgagor a
reasonable opportunity to do what he is obliged to do."

64. In that case, the mortgagee's notice was held invalid because there was uncertainty as to whether there had been an acceleration of the time for payment of principal and there was an error with an "enormous scope" in the amount claimed with the result that the mortgagor was not given any clear lead on the nature of the obligation which the mortgagee was asserting, or any clear apprehension of what it would achieve by paying a sum that bore no direct relationship to the sum it owed the mortgagee.

65. If a mortgagee issues a notice that demands payment of more than is owing under the mortgage, Clarke is authority that that may, depending on the circumstances, be enough to invalidate the notice.

66. But a notice will not, in my view, be invalidated where it claims the correct amount that would be payable in respect of principal and interest, but for the existence of an equitable set-off that either over tops that amount or is for an amount less than that claimed in the notice. Notwithstanding the existence of such a set-off, it can still be said that there has been "default ... in payment of the principal money or interest ... secured by the instrument of mortgage" within s. 84(1) of the Property Law Act. In order to issue a valid notice under the section, a mortgagee does not have to do more than calculate the amount due in respect of the principal moneys and interest that are identifiable from the provisions of the mortgage as the moneys secured by it to the mortgagee: he does not have to assess both the validity of a possible set-off and its value and bring all that into account in determining the default amount which he specifies in his notice.
I would not grant leave to appeal on this ground.

67. Although each applicant sought interlocutory relief on their own separate accounts, argument before me was limited to the refusal by Neaves J of an injunction in favour of the first applicant's application. However, in an affidavit sworn by the second applicant's solicitor, leave to appeal this refusal was said to be sought on his behalf on the ground that since the notice of default given to the first applicant was invalid, the demand made on the second applicant on the guarantee was also invalid. I do not think that there is any reason to doubt the correctness of his Honour's decision to refuse relief to the second applicant: all that is required to make the second applicant liable to pay to the respondent on the guarantee is a default by the first applicant in paying what is due by it under the mortgage.

68. The result is that the first applicant will have leave to appeal the judgment of Neaves J insofar as it involves the question of service of the respondent's notice and the question whether the first applicant's claims to equitable set-offs should be brought into account in fixing the terms upon which any injunction to which it may be entitled should be granted. The grant of leave will be conditional upon the first applicant paying to the respondent the sum of $531,646.00 within seven days. The second applicant's application for leave to appeal is dismissed.