Chocolate Factory Apartments Limited v Westpoint Finance Pty Ltd S308/2002 [2002] HCATrans 637 (13 December 2002)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S308 of 2002

B e t w e e n -

CHOCOLATE FACTORY APARTMENTS LIMITED

Applicant

and

WESTPOINT FINANCE PTY LTD

Respondent

Application for special leave to appeal

McHUGH J

HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 13 DECEMBER 2002, AT 2.37 PM

Copyright in the High Court of Australia

MR B.W. WALKER, SC: May it please your Honours, I appear with my learned friend, MR A.S. BELL, for the applicant. (instructed by Frank G. Kalyk)

MR D.E. GRIEVE, QC: May it please your Honours, I appear for the respondent. (instructed by RBHM Lawyers)

McHUGH J: Yes, Mr Walker.

MR WALKER: Your Honours, the issue in this case which we submit makes it apt for a grant of special leave is the promulgation by a bench of three, unanimously, of what we submit is clearly a spurious rule, a rule which would limit both the desirable and otherwise or hitherto established flexibility in New South Wales of equitable remedies, including at the interlocutory level in the oft-disputed matter of accounts between mortgagors and mortgagees.

It has transcended importance past the interests of the present parties because it concerns a kind of dealing, namely, a dispute about amounts owing, whether there be any owing or, if there be any owing, how much is owing, in relation to mortgages concerning commercial development properties.

In our submission, the spurious rule can be seen to have emerged clearly from the repeated reference by Justice Young, who gave the reasons with which Justice Handley and Justice Foster agreed, by which all capacity of equity to grant relief in such cases was denied, as a matter of capacity, not as a matter of a particular discretionary element of the case before his Honour.

The critical point was reached at page 24 of the application book - I do not say this is the only one - at paragraph 32, where, having started with what might be described as the obvious and pervading character of the dispute, namely as between a mortgagor and a mortgagee, his Honour concludes in that paragraph by reference to what we submit is this clearly spurious rule. It is not the case that Harvey v McWatters, the well-known and often-cited judgment of Mr Justice Sugerman at first instance, constitutes any authority whatever for the proposition that the existence of:

A dispute as to the quantum of the mortgage debt where there is no dispute as to whether there has been a default does not entitle a mortgagor to an injunction.

That is, upon that existence being shown, all possibility of being granted an injunction disappears. In fact, of course, Harvey v McWatters was an exercise of power of sale case. This was no such thing, though the difference - - -

HAYNE J: Well, what was the dispute here? It seems to have been very carefully obscured throughout the whole of the process.

MR WALKER: Your Honour, I do not suggest for a moment that it appears with blinding clarity. The approach which was taken at first instance can best be seen if I were to take your Honours to the nature of the primary relief claimed on a final basis in the summons, page 47 of the application book.

Now, here the issue can be seen in the primary claim, prayers 1 and 2 excerpted in paragraph 9 there, as being the proposition that the mortgage did not secure any outstanding liability at all because, on its proper interpretation, it was in the nature of a facility agreement for advances under the loan agreement - there was the express reference that your Honour has seen to the loan agreement in the charging clause - and there had not been any conduct and of a kind stipulated in the loan agreement to constitute an advance. That much was common ground, subject to the conventional estoppel to which I will briefly come later.

Now, in those circumstances, the answer to your Honour Justice Hayne's question is, perhaps an excessive use of Alexander's sword was used, namely a declaration that there had been no money advanced, and then leaping straight into prayer 2, an order for delivery up of the mortgage, wording which might be thought more to indicate something vitiating about entry into the mortgage. Nonetheless, the issue was fought, as can be seen from the reasons of Justice Hamilton at first instance and in the Court of Appeal, on the basis that, on behalf of my client it was alleged, no advances have been made secured by the mortgage and, on the other side, it was said, yes, there have been advances made, a matter we demonstrate, at least according to Justice Young, by the conventional estoppel.

HAYNE J: I understand there is that dispute lurking around in the matter, perhaps at the foreground, perhaps at the background, but immediately there seems to be a question about partial discharges and there seems to be a question about disposition of sale proceeds from sales of units within the built block.

MR WALKER: Yes and yes. As to the first, it went away as an issue between the parties because, after all, it is a development project. Everyone was happy to get the money from the eager public. So there were discharges and, in fact, now there is no mortgage at all; there is a discharge entirely. It is the interim arrangement in the court which now provides an admirably secure, indeed excessive, security for the respondent.

So, as to the first question, yes, there would have been a question of hostage of a kind with which your Honour would be familiar, whereby the development financier holds hostage, in effect, all settlements unless what might be proved on the taking of accounts an excessive demand is met upfront. That did not happen in this case by a happy exercise of self-interest on both sides. That second matter - - -

HAYNE J: Right, I am with you so far. Where then do we get to the real killing ground in the case?

MR WALKER: That is right. The second question was, in that case, is this not an ordinary case of disputed accounts in the sense of one party saying, "I am owed 1.194 or 1.294 or whatever", the other side saying, "I own nothing", and his Honour coming in with a finding that there was a genuinely disputed amount, $775,000, another amount, which he said, by reason of what appears to be a species of appellate interlocutory final finding of a conventional estoppel, to which I will come in a moment - - -

McHUGH J: Well, that cannot be right, can it? I mean, it - - -

MR WALKER: No. There was no conventional estoppel available at all on the facts.

McHUGH J: Well, I think that is certainly arguable in the case. The estoppel is not identified with any precision.

MR WALKER: Or at all. Your Honours, I think, have been supplied with the way in which the argument was put in writing below, said by his Honour Justice Young to have been overlooked by his Honour Justice Hamilton. Of course, what happened was that Justice Young in the Court of Appeal uphold as correct Justice Hamilton's reasoning on the issues decided by his Honour, but say he overlooked the issue, which your Honours will find in the document supplemented and supplied to the members of the Court, headed "Analysis of Plaintiff's Liabilities", the written submissions to which Justice Young was referring.

At the foot of page 4, paragraph (4), my learned friend who was in the court below starts the written submission by distinguishing between estoppel by deed, upon which he relied, as it happens, at first instance and in the Court of Appeal, but unsuccessfully, and estoppel by convention, which is an argument attributed to my learned predecessor in brief at first instance. And it is only in the Parthian shot in the last sentence of that paragraph, a throwaway line if there ever was one in a written submission, that estoppel by convention for the then defendant was raised at all and the entirety of the argument is contained thus:

If that (latter) doctrine -

namely, estoppel by convention -

has any application in this case it operates in favour of Finance.

McHUGH J: But, Mr Walker, your real problem with this is this case concerns a question of practice and procedure, it concerns the setting aside of an interlocutory injunction by an intermediate court and, given the interlocutory nature of the proceedings and the facts, which are anything but clear, why is this a suitable vehicle to take up this Court's time?

MR WALKER: It is a suitable vehicle and it is certainly more than practice and procedure for the following reason. The facts which are uncontested show that there was a substantial amount, $775,000, which was held to be in dispute. The facts were that there had been paid into court $1.7 million, more than could ever have been owed under the loan agreement. It was not practice and procedure; it was a question of the capacity of equity to grant a remedy which is pronounced against by Justice Young, nothing to do with any procedural defect in the plaintiff's case, but a substantive defect, namely, you have to show that you owe nothing or you cannot get interim relief pending the taking of a final account.

His Honour held against us, as it were, but, implicitly, that we were somehow seeking to abrogate the rule against interim accounts. To the very contrary; we were saying we want one account at the end, one accounting only, but, in the meantime, we say we owe you nothing under the mortgage, you say you owe us 1.294, the court finds clearly a dispute as to $775,000 of it, therefore much more than is necessary is paid into court - much more than is necessary.

It is not practice and procedure for us to observe that it is a spurious rule and a complete misreading, an opposite misreading, of Harvey v McWatters to deny equity of the capacity to frame a remedy so as to permit in that case the total or extra security to be given to the former mortgagee, for the mortgagor, in this case - and this is my most important particular answer to your Honour Justice McHugh - in this case, for us to be spared the irrevocable damage of money being handed over which is in dispute which will then be the subject of an account to a mortgagee who, on the evidence before Justice Hamilton, not challenged as to this finding in the Court of Appeal, is of suspect solvency for the making good of the disgorgement obligation which would follow if upon accounts we are proved correct.

Now, your Honours, that is particularly piquant when one considers had there been an exercise of a power of sale, any surplus emerging on an account would, of course, be subject to a trust. There has been no exercise of power of sale here; rather there has been ordered to be paid out by the court an amount which the court holds to be in dispute.

McHUGH J: Yes, but the facts of the case are anything but clear.

MR WALKER: But, your Honour, precisely because they are not capable of adjudication at the interlocutory level, and nor should they be.

McHUGH J: But you want us to grant special leave to appeal and then, I assume, you will be asking us to grant an interlocutory injunction, and then you want us to hear an appeal.

MR WALKER: Your Honour, what is clear in this case is that there was dispute. That is very clear and that is all that matters for the purpose of the point for which we seek special leave. That there was a dispute was held by his Honour, perversely, we submit, to be a reason why equity could not intervene. Now, Mr Justice Sugerman, with respect, would spin in his grave to hear that, because the whole of Harvey v McWatters is to this point: if you pay into court the disputed amount, you may get the injunction. That is the quote from Harvey v McWatters which Justice Young has, with respect, utterly overlooked and has cited that well-known judgment for an opposite outcome.

This is now, in New South Wales, the latest and leading decision on what happens when a mortgagor and mortgagee disagree as to the amount - not an uncommon occurrence - and now the Court of Appeal has spoken with one voice in a way that says that there is a rule that unless you show you owe nothing at the interlocutory level, you cannot get interlocutory relief, even where, on the very obvious facts of our case, you have paid in something like half a million dollars more than could possibly have been sought.

So the security is adequate. There is no explanation given by his Honour Justice Young for why or where one finds this rule that at the interlocutory level unless you show - presumably as a seriously arguable matter, though his Honour does not analyse that, he speaks in terms of finality - that you owe nothing, then equity will not help you, notwithstanding the money is about to go to an insolvent or near insolvent mortgagee.

In our submission, that is such a startling result for equity jurisprudence and such a startlingly inconvenient result for the interlocutory dealings, which, as your Honours know, are very often the final litigious dealing between mortgagor and mortgagee, that, in our submission, it cries out for special leave, on the basis that, without special leave, this represents the latest pronouncement by the court which will bind all trial courts, this being pre-eminently a trial matter, that is, a pre-trial matter, interlocutory matter, and that - - -

McHUGH J: It is an interlocutory judgment. It has no precedent force. Since when did interlocutory judgments become precedents? I mean, they may have some persuasive value.

MR WALKER: It is positively binding where a Court of Appeal pronounces that there is a rule against the grant of interlocutory relief in a certain circumstance. No subtlety of stare decisis in New South Wales, if there be any such thing, could possibly help us, at first instance, when the Court of Appeal, with such definitive language, admits of no qualification. The paragraph to which I took your Honours says unless you can show you owe nothing, we will give you no assistance.

Now, in our submission, one cannot get that from Mr Justice Sugarman, one cannot get that from basic equitable principle and, for those reasons, your Honours cannot be confident that this decision will not do a great deal of mischief when it comes to the appropriate doctrinal approach of equity moulding its relief to the exigencies of the case, of course requiring, according to what Mr Justice Sugerman calls the ordinary rule or even the rule for extraordinary cases, proper regard to be paid to the claim of the mortgagee. The claim of the mortgagee here was met, as Mr Justice Sugerman said it could be and should be in the ordinary case, by payment in, as it turns out, by a fluke of fact, which makes this an admirable vehicle factually, paid in well and truly over what was necessary.

The other thing that factually makes this an admirable vehicle for the point is precisely what your Honours, particular your Honour Justice McHugh has raised against me, that is the question of the unknown factual position. That is the dispute, that is the future case, the taking of the accounts, the argument about whether there had ever been an advance under the loan agreement, that, in itself, is a very simple discrete fact in itself, never to be gone into by the High Court, simply to be found that there is a lively dispute between these parties. That is what enlivens equity's jurisprudence where it looks forward to the taking of accounts between mortgagor and mortgagee, an occasion, of course, which bespeaks dispute or lack of agreement, because otherwise there is no need to take accounts at all.

It is in those circumstances that this case provides a particularly neat vehicle to test the question whether the rule, so clearly pronounced by Justice Young, has any jurisprudential basis at all. This Court has not pronounced on that matter, perhaps for two reasons: one, it is a matter in commercial law which is notoriously dealt with at interlocutory level and rarely going further; second, perhaps no one hitherto has dreamed of the - - -

McHUGH J: But it would not resolve anything. Even if we were in favour of you on that point, then the question arises as to whether discretion ought to be exercised in your favour.

MR WALKER: No, your Honour, because it was very stripped down by reason of the nature of the appeal and the nature of the appellate findings. There was no balance of convenience argument that found any favour at first instance or was the subject of anything like a successful challenge, if any challenge at all, in the Court of Appeal. This was the first issue of seriously arguable case, which became, in fact, whether there was capacity for equity, given this supposed or mythical rule. So that there was no discretionary matter raised in this case, unusually, but very neatly.

The Court of Appeal goes out of its way to observe that of the three issues, balance of convenience and discretion were simply not issues that it had to decide. It was decided on a threshold point. There was no argument about balance of convenience at all. In particular, it was not argued that the defendant would be put to financial embarrassment by being kept out of the money it claimed against dispute, just as there was no challenge to the finding, at first instance, that we would be subject to major jeopardy if money which we say was ours was given to this corporate vehicle of dubious solvency, formally our mortgagee.

If the appeal were allowed, then Justice Hamilton's orders would revive and provide the entirely adequate regime, subject to the agreed amount change that your Honours have observed, pending the taking of accounts. In our submission, if special leave were to be granted, then, in accordance with the stay granted by Justice Gaudron pending this application, that is obviously the regime that should inure, with no discretionary detriment being threatened on any of the evidence before Justice Hamilton or the Court of Appeal. May it please your Honours.

McHUGH J: Yes, we need not hear you, Mr Grieve.

This case concerns the setting aside of an interlocutory injunction by the Court of Appeal of New South Wales. The judgment of the Court of Appeal contains statements concerning the rights of a mortgagor to obtain an injunction against a mortgagee that have given us some concern. The finding that there was an estoppel by convention also seems to be arguably wrong. But given the interlocutory nature of the proceedings and the facts which are anything but clear, this is not a suitable vehicle for the grant of special leave by this Court. Accordingly, the application is dismissed and must be dismissed with costs.

AT 2.59 PM THE MATTER WAS CONCLUDED