Injunctions To Restrain The Exercise Of A Power Of Sale By A Mortgagee: When Will They Be Granted?

Key Points: Imminent refinancing or repayment, which had been a key factor in earlier cases where there was no dispute as to the amount owing, may no longer be a necessary pre-requisite for the grant of an injunction to restrain the exercise of a power of sale by a mortgagee.

In Australian Barter Currency Exchange Pty Ltd v Uniting Church (NSW) Trust Association Limited [2009] NSWSC 607, Justice Hoeben considered an application for an injunction to restrain the exercise of a power of sale by a mortgagee.

Although, in appropriate circumstances, courts will act to restrict the exercise of a power of sale by a mortgagee, this case extends the circumstances in which a court will do so. Here, an injunction was granted primarily because the value of the mortgaged property exceeded the amount owing. The injunction was granted notwithstanding that there was no dispute as to the amount owing, the default in the repayment of interest and principal had continued for approximately three years and previous attempts to refinance the loans had proved unsuccessful. The decision in this case is unfortunate in that it supports restricting the rights of mortgagees to exercise their powers even where the remedy of the relevant default is not imminent.

Background

In 2004, David Cassaniti, a director of the plaintiff companies, borrowed approximately $14 million from the defendant (Uniting Church (NSW) Trust Association Limited (Association)) under four loan agreements. Mortgages were granted over 29 properties owned by various companies (including the plaintiffs) controlled by Mr Cassaniti.

The loans were not repaid in 2006, when they were due. Notwithstanding that repayment did not occur, rental payments from the mortgaged properties were applied towards interest due under the loan agreements (though the amounts paid did not satisfy the interest obligations in full).

Then, in July 2008, each of the plaintiff companies went into provisional liquidation and the interest payments ceased. At that time the Association served notices on the mortgagor companies pursuant to section57(2)(b) of the Real Property Act 1900 (NSW), stating that if the payment defaults were not remedied in the prescribed period the power of sale would be exercised. The defaults were not remedied.

Mr Cassaniti unsuccessfully sought to refinance the loans and put a number of refinancing proposals to the Association which were not accepted. The Association then determined to proceed with the...