What you need to know

• The NSW Supreme Court has recently considered and reaffirmed the circumstances in which a mortgagee can be restrained from exercising its power of sale.
• In this case, in which DibbsBarker acted for the mortgagee, the Court confirmed that subject to limited exceptions, a mortgagor seeking to restrain a mortgagee’s power of sale will need to tender the amount due before it can obtain an injunction.
• The case reassures lenders that the principles set out in the 1972 case of Inglis v Commonwealth Trading Bank of Australia remain applicable today, and that a mortgagor cannot restrain a mortgagee’s power of sale on the assertion that the mortgagor can obtain a higher sale price or achieve a refinance.

The facts

The Maviglia case¹ involved property in New South Wales where the registered proprietor was a trustee company in liquidation. The mortgagee, Perpetual Limited, had taken possession of the property after exercising its right to self-help.

A new trustee was appointed to the mortgagor. The new trustee commenced proceedings against the liquidator and the mortgagee seeking interlocutory and final relief, including a restraint on the mortgagee’s power of sale so that the new trustee could be registered on title and sell the property. The new trustee argued, amongst other things, that a mortgagee sale would result in a diminished sale price.

The law – when a mortgagee will be restrained from exercising its power of sale

The Court acknowledged that a mortgagor may be able to obtain an injunction to restrain a sale in circumstances where the power of sale is not being properly exercised, for example, where:

1. the conditions for exercise of the power have not been satisfied,
2. the price is at an undervalue, or
3. the sale is improper in some other manner.

The Court also acknowledged authority, including the Inglis case², to the effect that unless the mortgagor can establish that an exception applies, the mortgagor must offer to redeem the mortgage as a condition of the grant of the injunction. That is, in the absence of an exception, an injunction will not be granted unless the mortgagor pays the amount due to the mortgagee or into Court.

The Court noted an apparent trend and ‘various expressions of judicial opinion’ towards a relaxation of the principle in Inglis, to permit injunctive relief where the plaintiff claims they can redeem the mortgage within a short time frame by way of refinance or where the plaintiff can demonstrate capacity to secure or refinance the debt.

The arguments

In this case, the new trustee argued that it was prepared to pay into Court the proceeds of sale of the security and that this was equivalent to offering to redeem the mortgage. The Court rejected this argument, confirming that ‘redeem’ means to repay the whole amount due. The Court held that offering to repay the mortgage after selling the land is not redeeming the mortgage for the purposes of Inglis and similar authorities.

The new trustee also asserted that under its management and without the publicity of a mortgagee sale, a better price would be obtained for the security. The Court agreed with the mortgagee’s argument that the Inglis principles applied and there is no general discretion available to restrain a power of sale on the basis that someone other than the mortgagee may be better placed to sell the property, not at least without the amount due under the mortgage being tendered to the mortgagee or to the Court.

The outcome

The Court confirmed that a widening of the Inglis principle had not yet been established beyond the current exceptions. The Court found that as none of those exceptions applied in this case, and the plaintiff had not tendered the amount due to the mortgagee, it had not made out the requirements for a restraint on the mortgagee’s power of sale.

The Court also confirmed that while the mortgagor remained in default of the mortgage, the mortgagor had no right to take control of the sale given the mortgagee’s express rights under the Real Property Act 1900 (NSW), in the absence of redeeming the mortgage.

The Court further held that even if it did have the power to put the sale in the hands of the plaintiff, it would likely refuse to do so on discretionary grounds. Those grounds included the evidence that the mortgagee had taken steps towards complying with its duties as mortgagee in possession and that, contrary to the mortgagor’s assertions, it was not clear that substantial equity remained in the security property.

Key takeaways

This case reassures lenders that the Inglis principle remains alive and well in the 21st century and that any exceptions to the principle remain restricted to those identified in well-established case law, being circumstances where the power of sale has not properly arisen, the proposed sale is at an undervalue or the sale is improper in some other manner.

Lenders will also welcome the case’s confirmation that:

a. a generalised complaint that a mortgagee sale is likely to be at an undervalue
b. a mortgagor seeking to control a sale to achieve a better price
c. a mortgagor’s claim to imminent refinance
d. a mortgagor’s capacity to secure or refinance the debt are not, on their own, valid bases for restraining a mortgagee’s power of sale.