COURT
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Pincus J.

CWDS
  Trade Practices - mortgage - misleading statements by mortgagee - mortgage
by co-owners as tenants in common - interlocutory relief.

HRNG
BRISBANE
#DATE 25:6:1986
  For the applicants Mr. Muir instructed by McCullough and Robertson.
  For the respondent Mr. R.V. Hanson Q.C. with Mr. Tim Matthews instructed by
Henderson Lahey Trout Bernays.

ORDER
  Upon the applicants giving the usual undertaking as to damages, order that
the respondent be restrained until trial of the principal proceeding or
further order from selling or offering for sale the land contained in
Certificate of Title Volume C538, Folio 242 and Certificate of Title Volume
C416 Folio 7 or any part thereof.
  The costs of and incidental to the application be costs in the proceedings
other than the costs of the application up to and including the 19 June 1986
which will be the applicants' costs in the proceedings.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal
Court Rules.

JUDGE1
  This is an application for an interlocutory injunction to restrain a sale by
a mortgagee.
2.  In December 1985, the applicants were, together with Sydney Francis
Dempster and Krystyna Emilia Dempster, the owners of property at East Street,
Rockhampton. The applicants and the Dempsters were each registered as joint
tenants inter se; the Dempsters and the applicants were tenants in common in
equal shares.
3.  The property was subject to a mortgage in favour of National Westminster
Finance Australia Limited.
4.  At that time, the Dempsters were substantially indebted to the respondent,
which is a finance company, the debt being apparently $675,000, or
thereabouts. They wished to obtain a further loan from the respondent.
Discussions took place between Mr. R.D. Stagg, an employee of the respondent,
on the one hand, and the Dempsters and their accountant, Mr. John Bryant on
the other.
5.  Mr. Bryant also acted for the applicants. It was proposed to use the East
Street property as security for the further advance, attributing to that
property a value of $500,000. Since the indebtedness to the first mortgagee
was said to be $316,000, the value left as security for a second mortgage was
$194,000.
6.  It seems clear that the proposed advance was in no way to benefit the
applicants. It was for the Dempsters who were experiencing financial
difficulties. They could, subject no doubt to the necessity of obtaining the
consent of the first mortgagee, have executed a mortgage in relation to their
interest only. Section 56 of the Real Property Act of 1861 (Q.) permits the
execution of a mortgage in respect of "any land or any estate or interest in
land under the provisions of this Act". I note that in Lyons v. Lyons (1967)
VR 169, in which there was discussion of the effect of a mortgage of one
co-owner's interest, the possibility of such a mortgage is assumed.
7.  I think a mortgage of one co-owner's interest is unusual. Assuming that
the respondent in this case was of the view that such a mortgage was possible,
one can still understand its being unattractive; not many lawyers, let alone
finance company managers, would be able confidently to expound the rights of a
second mortgagee of an interest as tenant in common, there being a first
mortgage of the whole interest.
8.  The applicant's case is that, having no financial interest in the loan
transaction, they executed a Bill of Mortgage together with the Dempsters in
favour of the respondent, on the assurance that their interest in the land
would be unaffected. As Mr. Hanson Q.C., who appeared with Mr. Tim Matthews
for the respondent, pointed out, it seems on the face of it improbable that
business people, as the applicants apparently are, would execute a mortgage of
property without appreciating that to do so necessarily affected their
interest in the property. Nevertheless, there are some aspects of the matter
referred to below which lend credence to the applicants' case.
9.  The applicants dealt with the respondent through their accountant, Mr.
Bryant. They claim that Mr. Bryant received an assurance from Mr. Stagg that
the mortgage would not affect the applicants' interest in the property, which
assurance was later repeated. They say that the respondent, through Mr. Stagg,
made misleading statements as to the effect of the mortgage and that such
statements are caught by s. 52 of the Trade Practices Act 1974. They also
propose to claim rectification.
10.  There is a sharp conflict of fact. Mr. Stagg completely denies the
conversatios sworn to by Mr. Bryant, in which the former is said to have given
the assurances I have mentioned.
11.  One approach to a case of this kind is to say that, prima facie, the
applicants cannot succeed in obtaining interlocutory relief because, assuming
a serious question to be tried, still the balance of convenience must favour
the mortgagee. It is proposed to sell the property in question next month.
Further, courts should, in my view, be in general quite reluctant to hold a
mortgagee up in an interlocutory way on the basis of assertions that the
documents do not reflect the true intention of the parties, that there was
some collateral agreement, or other allegations of similar kind.
12.  Here, however, there are some special features which have led me to the
conclusion that the applicants should, at this stage, be granted relief. One
is that on Mr. Stagg's account of the matter, it is almost inconceivable that
the mortgage as executed truly represented the parties' intention. Taking the
view most strongly against the applicants, on what Mr. Stagg says, one could
infer that the applicants intended to assist the Dempsters to obtain further
accommodation in the sum of $320,000. The mortgage which the applicants have
executed is, however, so drawn as to make them liable, not only for that sum,
but for all moneys due by the Dempsters to the respondent; I have mentioned
that, at the end of 1985, about $675,000 was due. Not only does the mortgage
on its face have that effect, but it makes the applicants primarily liable.
13.  It does not appear that Mr. Stagg himself believed that this is what the
documents achieved. In par. 14 of his affidavit he says:

    "Both Mr. and Mrs. Dempster indicated that this time
    they were worried about the third party mortgage
    and what the Kennards had to do with the loan. I
    said to the Dempsters words to the effect that the
    loan was the Dempsters as far as making payments
    were concerned but that A.G.C. had a mortgage over
    the whole of the property."

That seems to mean that Mr. Stagg thought that the mortgage was not to make
the applicants liable to make payments, but the Dempsters only were to be so
liable. The mortgage says nothing of the kind.
14.  Another aspect of the matter which gives rise to an inference that the
mortgage did not achieve what the parties had agreed is that, according to
par. 20 of Mr. Stagg's affidavit, he was told by another employee of the
respondent that "he advised Mr. Bryant that A.G.C. would release his mortgage
for the sum of approximately $99,000 on the basis of a sale having taken place
and there being no default by the Dempsters". The sum of $99,000 is fairly
close to one half of the total "equity" in the property of $194,000 mentioned
above; perhaps the difference is explained by a reduction in the size of the
first mortgage from the initial figure of $316,000. However that may be, it
seems a little unlikely that if the respondent, at the stage when Mr. Bryant
was given the information just mentioned, thought it had a security in respect
of the applicants' interest as well as the Dempsters', it would have been
contemplating a release of the property on payment of only $99,000.
15.  The last and most general feature of the case which has influenced my
decision is that although the mortgage did not make them so, even on the
respondent's version of events, the applicants' position was akin to that of
guarantors. There is reference in Mr. Stagg's affidavit to a "third party
mortgage" and there is also his statement quoted above, implying that they
were not liable under the personal convenants. There is a tendency to treat
guarantors and those in analogous positions with a degree of tenderness. For
example, it has been held that the creditor must inform a proposed guarantor
of unusual matters in the principal transaction, particularly those affecting
the nature and degree of the surety's responsibility: Commercial Bank of
Australia Ltd. v. Amadio (1983) 57 ALJR 358 at 361 It must be at least
arguable that such a duty extends to informing proposed guarantors that the
principal transaction was so framed as to make them primarily liable, and not
only for the loan which their participation was intended to induce, but all
past loans. At the least, one would think there must be a duty under the
general law not to mislead proposed guarantors about that point.
16.  Even on the applicants' case, it must be said that they behaved with a
degree of imprudence. They apparently took their advice as to the effects of
the important documents they were signing, not from any qualified person, but
secondhand from an employee of the mortgagee. They did not bother to read the
documents they signed. Nevertheless, they have in my view advanced a
sufficiently strong prima facie case to make it right to hold the respondent
up for the time being. Mr. Hanson Q.C. points out that there is evidence that,
if the relief sought is granted, still the property will be sold by the first
mortgagee. It does not appear to me that I should take that into account.
17.  Mr. Muir, for the applicants, argued that no condition as to payment into
Court should be imposed, because if the applicants' case is accepted, there is
likely to be held to have been no security interest granted by them at all. On
consideration, I have decided not to impose any such term.
18.  It remains to be added only that it does not appear that the fact that I
am dealing with a registered document makes any difference. The Real Property
Act does not prevent the assertion of equities said to arise between the
original parties to a registered dealing.
19.  Subject to anything counsel may say as to the form of order upon the
applicants giving the usual undertaking as to damages, it will be ordered that
the respondent be restrained until trial of the principal proceedings or
further order from selling, or offering for sale, the land contained in
certificate of title volume C538 folio 242 and certificate of title volume
C416 folio 7 or any part thereof. The costs will be costs in the proceedings.