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Mt Hagen Airport Hotel Pty Ltd v Gibbes [1976] PNGLR 216 (31 May 1976)

Papua New Guinea Law Reports - 1976

[1976] PNGLR 216 - Mt Hagen Airport Hotel Pty Ltd v Robert Henry Maxwell Gibbes and Mary Jean Christine Gibbes 

[1976] PNGLR 216

N46

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

MOUNT HAGEN AIRPORT HOTEL PTY LTD

V

GIBBES AND ANOTHER

Waigani

Frost CJ

8 March 1976

31 May 1976

PRACTICE AND PROCEDURE - Stay of proceedings - No reasonable cause of action - Principles applicable - Clear case - Caution in exercising.

PRACTICE AND PROCEDURE - Parties - Non joinder of necessary party - Property dispute - Legal title unrepresented - Opportunity to amend proceedings.

PRACTICE AND PROCEDURE - Interlocutory relief - Injunction - Principles applicable - Serious question to be tried - Balance of convenience - Appropriate terms - Injunction restraining mortgagee from exercising power of sale - Value of security to be brought into Court.

MORTGAGES - Remedies of mortgagor - Injunction to restrain sale - Interim injunction - Allegation of illegal security under s. 67 (1) of Companies Act 1963 - Serious question to be tried - Terms on which injunction granted - Value of security to be brought into Court - Set-off for damages claim not available.

By deed of sale Mr. and Mrs. Gibbes (hereinafter called “the defendants”) sold to Niugini Hotels Pty. Ltd. shares in three hotel companies including Mt. Hagen Airport Hotel Pty. Ltd. (hereinafter called “the plaintiff”). By a supplemental deed of sale the purchase price of $450,000 was payable by a deposit of $50,000, a further sum of $250,000 on settlement with the balance of $120,000 three years from the date of settlement and secured by a registered first mortgage to the defendants over the leasehold interest in the land upon which was erected the Airport Hotel, and which was held by the defendants as trustees for the plaintiff. The security was effected by execution and delivery by the defendants as trustees of the lease, of a transfer of the lease to the plaintiff, and then execution and delivery by the plaintiff to one Kool, the guarantor of the Deed, of a transfer of the lease, in exchange for which the guarantor on behalf of the plaintiff executed and delivered to the defendants a memorandum of mortgage over the leasehold interest in the land.

In an action seeking a declaration that the memorandum of mortgage was invalid and unenforceable as being an illegal security under s. 67 (1) of the Companies Act 1963, and claiming damages for breaches of warranty contained in the Deed, an interim injunction was granted restraining the defendants from advertising the sale of the property and from taking any steps in the exercise of the mortgagees’ power of sale under the memorandum of mortgage.

On motions seeking continuance of the injunction and an order dismissing or permanently staying the proceedings on the grounds inter alia that the proceedings disclosed no reasonable cause of action, and were defective for want of parties (viz. the guarantor):

Held

(1)      There being rights to the property in dispute the legal title must be represented before the action is finally determined. Harmer v. Armstrong, [1934] 1 Ch. 65 followed.

(2)      In view of the provisions of O.3. r. 11 of the Rules of Court whereby the Court may at any stage of the proceedings order the names of any persons whose presence before the Court may be necessary to enable the Court effectually and completely to adjudicate upon the questions involved in the cause, to be added as a party, the plaintiff should be given the opportunity of amending the proceedings by adding the guarantor Kool as a party.

(3)      In order to justify summary intervention by the Court permanently to stay proceedings on the ground that no reasonable cause of action is disclosed, the case must be very clear and the power will only be exercised with exceptional caution. General Steel Industries Inc. v. Commissioner for Railways (N.S.W.)[1964] HCA 69; , (1964) 112 C.L.R. 125 at pp. 128-130 applied.

(4)      The case of invalidity of the mortgage transaction under s. 67(1) of the Companies Act 1963 raised real questions of fact and law for determination, and was not so clearly untenable that it could not possibly succeed and the defendants’ motion seeking a permanent stay of the proceedings should be dismissed.

(5)      In order to obtain interlocutory relief pending the trial of an action the Court must first be satisfied that there is a serious question to be tried and then consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief sought. American Cyanamid Co. v. Ethicon Ltd.[1975] UKHL 1; , [1975] A.C. 396 and Mairi v. Alkon Tololo and Ors. (No. 1) [1976] P.N.G.L.R. 59 followed. Beecham Group Ltd. v. Bristol Laboratories Pty. Ltd. [1968] HCA 1; (1968) 118 C.L.R. 618; Commercial and General Acceptance Ltd. v. Papuan Airlines Pty. Ltd. and Ors. [1967-68] P.N.G.L.R. 490, and Ashburton Oil N.L. v. Alpha Minerals N.L. [1971] HCA 5; (1971) 123 C.L.R. 614 not followed.

(6)      The circumstances of the case raising a serious question for trial viz. the validity of the mortgage transaction qua. s. 67 (1) of the Companies Act 1963, and other matters being evenly balanced, an injunction subject to appropriate terms should be granted to preserve the status quo pending the trial of the action.

(7)      An interlocutory injunction restraining a mortgagee from exercising his power of sale will not generally be granted except on condition that the mortgagor pay into Court the sum sworn to be due. Forsyth v. Blundell [1973] HCA 20; (1973) 47 A.L.J.R. 448 and Inglis & Anor v. Commonwealth Trading Bank of Australia (1972) 46 A.L.J.R. 48 followed.

(8)      The value of the security should be taken as $120,000 as stated in the Deed (no set-off for damages claimed by the plaintiff being available. Inglis & Anor v. Commonwealth Trading Bank of Australia (1972) 46 A.L.J.R. 48 applied), and the payment into Court of the sum should be made a condition for the granting of the injunction.

Motions

The matters before the Court in this case were two motions in an action seeking a declaration that a memorandum of mortgage between the defendants as mortgagees and a third party Kool (not joined in the action) who was the guarantor of the plaintiff’s obligations under a transaction out of which the mortgage arose, was invalid and unenforceable as being an illegal security under s. 67 (1) of the Companies Act 1963, and claiming damages for breach of warranty. An interim injunction having been granted restraining the defendants from advertising the sale of the property and taking any steps in the exercise of the mortgagee’s power of sale under the mortgage the plaintiff’s motion before the Court was for continuance of the injunction and the defendants sought by way of motion, orders dismissing or permanently staying the proceedings on the grounds of want of prosecution, that the proceedings were vexatious and oppressive and disclosed no reasonable cause of action, and were defective for want of parties.

Counsel

JA Griffin for the plaintiff

RV Gyles QC and GB Evans for the defendants

Cur. adv. vult.

31 May 1976

FROST CJ:  The motions before the Court arise out of a transaction for the sale for $450,000.00 to Niugini Hotels Pty. Limited, then known as Sak Sak Pty. Limited, by the defendants of shares in three companies, Mala Trading Co. Pty. Limited, Hotels-Motels Pty. Limited, and the plaintiff company, which respectively conduct hotels well known in the Highlands, the Mt. Hagen Park Motel, Mount Hagen, the Bird of Paradise Hotel, Goroka, and the Airport Hotel, Mount Hagen.

By a supplemental deed to the Deed of Sale the purchase price of $450,000 was to be payable by a deposit of $50,000 and a further sum of $250,000 on settlement, with the balance of $150,000 to be paid in a lump sum on the expiration of three years from the date of settlement. The payment of that balance was to be secured by registered first mortgage to the defendants over the leasehold interest in the land upon which is erected the Airport Hotel. At the date of the Deed the lease was in fact registered in the name of the defendants and was acknowledged to be held by them upon trust for the plaintiff. The manner in which the security was arranged was for the execution and delivery by the defendants as trustees of the lease of a transfer of the lease to the plaintiff and thereafter for the plaintiff to deliver to Cornelius Kool, the guarantor of the Deed, a transfer of the lease, and then in turn for the guarantor on behalf of the plaintiff to execute and deliver to the defendants a memorandum of mortgage over the leasehold interest in that land.

Under the Deed proper the guarantor also acknowledged that the defendants had entered into the agreement at the request of the guarantor, and in consideration thereof the guarantor unconditionally guaranteed to the vendors the due and punctual performance by the purchaser of the obligations of the purchaser under the Deed (para. 12).

The relief sought in the action is for a declaration that the memorandum of mortgage is invalid and unenforceable, and the ground relied upon is that the security is illegal pursuant to s. 67 of the Companies Act 1963.

An interim injunction has been granted restraining the defendants from advertising the sale of the property and from taking any steps in exercise of a power of sale as mortgagee of the said property. The first motion before the Court now seeks the continuance of that injunction until the hearing of the suit.

Following the issue of the writ in the present proceedings the plaintiff company issued a second writ claiming damages for breaches of warranty contained in the Deed of Sale of the shares, the claims amounting to not less than K76,644.00, and these claims are also relied upon to support the motion for the continuance of the interim injunction.

The second motion before the Court is a motion on behalf of the defendants that the plaintiff’s proceedings should be dismissed or permanently stayed on the grounds of want of prosecution, that the proceedings are vexatious and oppressive and disclose no reasonable cause of action and also that the proceedings are defective for want of parties. The motion was brought under O. 22, r. 31, or alternatively O. 60, r. 2, and can be supported also by invoking the inherent jurisdiction of the Court.

Under the statement of claim it is alleged that the defendants transferred the lease to the plaintiff, “the title thereto being taken in the name of ... Cornelius Kool to be held by him upon trust for the plaintiff” (para. 5), and further that “pursuant to the said Supplemental Deed the said Cornelius Kool at the request of and as trustee for the plaintiff executed and delivered to the defendants the memorandum of mortgage”, which is the subject of the present action. The cause of action is set out in para. 8 which is as follows:

“8.      The granting of the said mortgage by the said Cornelius Kool (at the request of and as trustee for the plaintiff) constituted the giving of financial assistance by the plaintiff to Niugini Hotels Pty. Limited (then called Sak Sak Pty. Limited) for the purpose of or in connection with a purchase made or to be made by the said Niugini Hotels Pty. Limited of shares in the plaintiff whereby the said mortgage is invalid and unenforceable being in contravention of the provisions of section 67 of the Companies Act 1963 or as amended to date.”

Further clarification of the dealings in relation to the land the subject of the lease is provided by various documents in the form of certified copies, which were tendered by defendants’ counsel and admitted in evidence without objection. The documents are as follows: first, the lease upon which are noted the successive transfers of the lease to the defendants, that is to say, by the defendants to the plaintiff, by the plaintiff to Cornelius Kool, and also the mortgage to the defendants; secondly, the transfer of the defendants’ interest in the lease to the plaintiff for the nominal consideration of $1.00; thirdly, the transfer by the plaintiff of that interest to Cornelius Kool for a consideration of $120,000; and, finally, the memorandum of mortgage dated 26th October, 1972 of Kool’s interest in the lease to the defendants. In the memorandum of mortgage the recitals refer to the Deed of Sale, the unconditional guarantee contained therein to the defendants of the due and punctual performance by the purchaser of the covenants, obligations and conditions contained in the Deed on the part of the purchaser to be observed and performed, and the indebtedness of the purchaser to the defendants of the balance of money owing under the Deed, viz. $120,000. It is also recited that for the purpose of securing to the defendants payment by the purchaser of the said sum and interest thereon and for the purpose of securing to the defendants performance by the mortgagor, Cornelius Kool, of the guarantee contained in the said Deed and on the part of the mortgagor to be performed, the mortgagor had agreed to execute the mortgage.

It is important to note that the form the transaction took was for the defendants to receive security for the payment of the purchase money not by a mortgage directly from the plaintiff, but from Cornelius Kool as transferor of the lease from the plaintiff, and as guarantor of the purchaser’s obligations. The plaintiff’s interest in the proceedings is made clear in the statement of claim already referred to, the claim being made as equitable owner of the land, the legal estate being held by Kool.

I should at this stage refer to the point which was taken by defendants’ counsel that the action was not properly constituted in that Cornelius Kool was not joined as a party, and that the plaintiff had accordingly no locus standi to set aside the mortgage between Kool and defendants. It is true that where rights to property are in dispute the legal title must before the action is finally determined be represented, Harmer v. Armstrong[ccxlii]¹. But in view of the provisions contained in O. 3. r. 11, that the Court, at any stage of the proceedings, may order that the names of any persons whose presence before the Court may be necessary in order to enable the Court effectually and completely to adjudicate upon the questions involved in the cause, be added as a party, in my opinion the plaintiff’s motion should not be determined upon this point, but the plaintiff should be given the usual opportunity of amending the proceedings by adding Cornelius Kool as a party.

It is convenient to deal first with the defendants’ motion that the proceedings be permanently stayed because no reasonable cause of action is disclosed.

The test to be applied is set out in the judgment of Barwick, C.J. in General Steel Industries Inc. v. Commissioner for Railways (N.S.W.)[ccxliii]², which was usefully cited by defendants’ counsel. I shall set out the relevant passage from the judgment in full:

“At the outset the plaintiff submits that whatever conclusion I might reach upon the legal questions involved, I ought not to deal summarily with the action but should allow it to proceed, leaving the defendants to raise their points in opposition to the plaintiff’s claim in proceedings on demurrer or by points of law taken on the pleadings and dealt with under Order 26, r. 16, or perhaps by special case under Order 35.

The plaintiff rightly points out that the jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion. I have examined the case law on the subject, to some of which I was referred in argument and to which I append a list of references. There is no need for me to discuss in any detail the various decisions, some of which were given in cases in which the inherent jurisdiction of a court was invoked and others in cases in which counterpart rules to Order 26, r. 18, were the suggested sources of authority to deal summarily with the claim in question. It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action — if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal — is clearly demonstrated. The test to be applied has been variously expressed; ‘so obviously untenable that it cannot possibly succeed’; ‘manifestly groundless’; ‘so manifestly faulty that it does not admit of argument’; ‘discloses a case which the Court is satisfied cannot succeed’; ‘under no possibility can there be a good cause of action’; ‘be manifest that to allow them’ (the pleadings) ‘to stand would involve useless expense’.

At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or ‘so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument’; ‘so to speak apparent at a glance’.

As I have said, some of these expressions occur in cases in which the inherent jurisdiction was invoked and others in cases founded on statutory rules of court but although the material available to the court in either type of case may be different the need for exceptional caution in exercising the power whether it be inherent or under statutory rules is the same. Dixon J. (as he then was) sums up a number of authorities in Dey v. Victorian Railways Commissioners ( (1949) 78 C.L.R. 62) where he says ( (1949) 78 C.L.R. at p. 91): ‘A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process.’ Although I can agree with Latham C.J. in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings ( (1949) 78 C.L.R., at p. 84), in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand, I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff’s claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.”

The salient points that emerge are the need for exceptional caution in exercising the power, and that the case must be very clear indeed to justify the summary intervention of the Court.

Section 67 of the Companies Act 1963, which is relied on as the ground of invalidity, so far as is relevant, is as follows:

“67(1) Except as is otherwise expressly provided by this Act, no company shall give, whether directly or indirectly and whether by means of a loan, guarantee or the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or, where the company is a subsidiary, in its holding company, or (except in the case of borrowing shares of a building society) in any way purchase, deal in or lend money on its own shares.

...

Penalty: One thousand kina or imprisonment for three months.

The plaintiff’s case is that from the very nature of the transaction there is to be inferred that the mortgage by Kool as trustee for the plaintiff consisted, at least indirectly, of the giving of financial assistance by the company for the purpose of or in connection with the purchase by Niugini Hotels Pty. Limited of shares in the company and that the transaction would not have gone forward unless the mortgage has been granted on behalf of the plaintiff.

The first ground relied on by the defendants’ counsel was that the transfer of the lease by the plaintiff to Kool was for value, being in the sum of $120,000, which was the approved value of the property set forth in para. 4 of the Deed, and it was argued that in no case under s. 67 or the equivalent sections of the Australian and English legislation had a transaction, grounded upon a transfer by the company for full value, been held to be the giving of assistance within the meaning of the section. The plaintiff’s answer is that Kool had acted as trustee expressly or impliedly and at the request of the purchaser, that at the trial it would seek to go behind the statement of consideration contained in the transfer alleged, and that the tender of the transfer was only part of the evidence bearing upon this issue.

On the whole I have come to the conclusion that upon this point there are real questions of both fact and law which it would be wrong to prevent the plaintiff submitting for determination by the Court.

The second ground is that, assuming that the mortgage amounted to the giving by the company of financial assistance within the meaning of s. 67, the plaintiff as the company giving the assistance is not a party which is entitled to relief under that section. This type of provision has been the subject of judicial interpretation. It is established that any agreement or security made in breach of s. 67 is “not only illegal, so that it exposes the company and the officer of the company who are in default to penalties, but is also void.” Re Ferguson; Ex parte E. N. Thorne & Co. Pty. Ltd. (In Liq.)[ccxliv]³, and the cases therein cited (Gibbs J.); In re J. & H. Pinkster & Co. Pty. Ltd. (In Liquidation)[ccxlv]⁴. It has also been held that the company is not a person for whose protection the illegality had been created by statute, and the company being in an equal degree of fault with those to whom the financial assistance is given, it is precluded from setting up the illegality of the agreement or security. Victor Battery Co. Ltd. v. Curry’s Ltd.[ccxlvi]⁵ (see the second ground of the judgment of Roxburgh J.); Re Ferguson; Ex parte E. N. Thorne & Co. Pty. Ltd. (In Liq.)[ccxlvii]⁶, per Gibbs J. at pp. 316-317. Counsel also referred generally to Sajan Singh v. Sardara Ali[ccxlviii]⁷; Kiriri Cotion Co. Ltd. v. Ranchhoddas Keshavji Dewani[ccxlix]⁸ and Chettiar v. Chettiar[ccl]⁹. This is indeed a cogent argument, but the view that the corresponding English section was enacted not for the company’s protection but for its creditors has been departed from by the Court of Appeal in Wallersteiner v. Moir[ccli]¹⁰, per Denning M.R. pp. 1014-1015, per Buckley L.J. at p. 1026, and Scarman J. at pp. 1032-1033. Lord Denning expressly stated that he thought “the section was passed so as to protect the company from having its assets misused” (op. cit). The correct conclusion, as argued by defendants’ counsel, may be that those recent statements of the law are to be restricted to the situation as between the company and its directors, but again this raises, in my opinion, a question of law as to the limits of the rule laid down in the earlier authorities and upon which it is not possible, in the words of Barwick C.J. I have already quoted, “to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed”.

The third main ground relied on by the defendants is that upon registration of the mortgage the defendants obtained an indefeasible title, under the provisions of the Lands Registration Act 1924, ss. 57, 68 and 69, and the defendants’ rights under the mortgage prevailed over any rights which the plaintiff may have under s. 67 (1). Defendants’ counsel relied on The Administration of the Territory of Papua and New Guinea v. Blasius Tirupia & Ors.[cclii]¹¹, a decision of the former Full Court of the Supreme Court of Papua New Guinea. It is sufficient on this ground to refer to a learned article written several years ago by defendants’ counsel in which referring to that case it was submitted that “the reason given for the decision is incorrect and misunderstands the concept of ‘indefeasibility’.” (“Indefeasibility and Actions in Personam”, by R. V. Gyles, Australian Law Journal, Vol. 46, p. 644 at 648). That article explores the implications of the decisions of the High Court of Australia in Breskvar v. Wall[ccliii]¹² and of the Privy Council in Frazer v. Walker[ccliv]¹³, from which it appears that claims in personam, founded in law and equity, such as would provide a ground for relief in the present case might possibly still be brought despite the so-called indefeasibility of title of the registered proprietor. Again I consider that the plaintiff’s claim that he is entitled to equitable relief, despite the registration of the mortgage, is a question of law which is not so clearly untenable that it cannot possibly succeed.

Generally, I would say as to the defendants’ motion that it was brought on for hearing after unopposed motions were disposed of, and the hearing was completed within the day. The plaintiff was certainly given no formal notice of the grounds to be relied on by the defendants nor of the evidence which the defendants’ counsel would seek to elicit. Having regard to the complex issues raised by defendants’ counsel, this seems to be a clear instance of a proceeding, to use the words already quoted of Barwick C.J., in which the Court could not be “satisfied that it has the requisite material and the necessary assistance for the parties to reach a definite and certain conclusion”, and one quite unsuited to be determined finally in the present proceedings.

For the above reasons I would dismiss the defendants’ motion.

Turning to the plaintiff’s motion, there is an initial question whether I should apply the test laid down in the recent decision of the House of Lords in American Cyanamid Co. v. Ethicon Ltd.[cclv]¹⁴ that the Court must first be satisfied that there is a serious question to be tried, and should then go on and consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought. See also Norah Mairi v. Alkan Tololo & Ors. (No. 1)[cclvi]¹⁵. In a later case the Court of Appeal, whilst recognizing that it was bound to follow and apply the Cyanamid case[cclvii]¹⁶ stated that the approach of the House of Lords to an application for an interlocutory injunction represented a departure from generally accepted practice —Fellowes & Son v. Fisher[cclviii]¹⁷. Defendants’ counsel submitted that I should apply the generally accepted test that to obtain interlocutory relief pending the trial of an action a plaintiff must establish a prima facie case. This test has previously been applied in this Court following the decision of the High Court of Australia in Beecham Group Ltd. v. Bristol Laboratories Pty. Ltd.[cclix]¹⁸. See Commercial and General Acceptance Ltd. v. Papuan Airlines Pty. Ltd. & Ors.[cclx]¹⁹. Beecham’s case[cclxi]²⁰ has since been applied by the High Court in Ashburton Oil N.L. v. Alpha Minerals N.L.[cclxii]²¹. However, the recent ruling of the House of Lords, in my opinion, has the merit of simplicity and less difficulty in application, and I see no reason why, subject to the qualifications referred to in Fellowes & Son v. Fisher[cclxiii]²², it should not be applied and enforced by this Court as the relevant rule of common law and equity in force in England before Independence Day. Constitution, Sch. 2. 2. (1).

One useful rule laid down by Lord Diplock in the Cyanamid case[cclxiv]²³ is that “where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo” (or the present position), at p. 323.

In my opinion the circumstances of this case do raise a serious question to be tried, as the plaintiff’s counsel submitted, that the company had given at least indirectly by means of the mortgage financial assistance for the purpose of or in connection with the purchase by Niugini Hotels Pty. Limited of shares in the company, and that the interposition of Kool as trustee was only a device to circumvent s. 67 (1). In my opinion therefore the Court should grant upon appropriate terms the injunction sought to preserve the status quo pending the trial of the action.

This brings me to the final argument of defendants’ counsel that the plaintiff is entitled to the relief sought only upon bringing into Court the value of the security, viz. $120,000. He relied on Forsyth v. Blundell[cclxv]²⁴ and Inglis & Anor. v. Commonwealth Trading Bank of Australia[cclxvi]²⁵. Those cases clearly establish that the ordinary rule is that the Court will not grant an interlocutory injunction restraining a mortgagee from exercising the power of sale, except on condition that the mortgagor pay into Court the sum sworn to be due. Defendants’ counsel referred to Longland v. Handover[cclxvii]²⁶, Kasumu v. Baba Egbe[cclxviii]²⁷ and Mayfair Trading Co. Pty. Ltd. v. Dreyer[cclxix]²⁸, and submitted that the present case is distinguishable from the cases under the moneylenders’ legislation.

The plaintiff’s counsel did not dispute this requirement, and stated that $50,000 was immediately available to the plaintiff, and a further sum of $26,000 within 14 days. Plaintiff’s counsel then submitted that payment into Court of these sums was sufficient to satisfy the rule. Again it is well-established that the plaintiff’s action against the defendants for damages arising out of breaches of warranties contained in the Deed of Sale of the shares amounting to $76,644.65, cannot avail the plaintiff as a set-off against the indebtedness under the mortgage. See Inglis & Anor. v. Commonwealth Trading Bank of Australia[cclxx]²⁹. In my opinion the defendant is correct in asserting that the value of the security should be taken as $120,000 as stated in the Deed, and that payment into Court of that sum should be made a condition for the grant of the injunction. The plaintiff cannot assert that as the equitable owner only of the equity of redemption in the land it is entitled to obtain relief under s. 67 (1) without assuming or procuring the obligations of the mortgagee in accordance with this rule.

For the above reasons I would grant the interlocutory injunction sought, upon the usual undertaking as to damages, the payment into Court within 14 days of K120,000, and upon condition in the meantime that the plaintiff amend, pursuant to leave, the proceedings to include Cornelius Kool as a party.

I would direct counsels’ attention as to whether there also should be made a further order as in the case of Forsyth v. Blundell[cclxxi]³⁰ that, in the taking of any account, as from payment of the said sum into Court the mortgagee should not be entitled to interest upon the said sum of K120,000, but the mortgagee is to be entitled to the interest produced by that sum since that date.

10 JUNE 1976

Orders made as follows:

Defendants’ motion dismissed, costs in the cause. Order that the defendants be restrained in the terms of the plaintiff’s notice of motion pending the trial of the action, upon the usual undertaking as to damages, and upon condition that in the meantime the plaintiff amend the proceedings pursuant to leave hereby granted to include Cornelius Kool as a party, and that the plaintiff pay into Court the sum of K120,000, by consent, within the period of three (3) weeks commencing on Friday, 4th June, 1976, and it is further ordered by consent that upon the said sum being paid into Court interest on such sum be payable to the defendants, that from the date of payment thereof into Court until the date such sum is released and paid out from the Court, the interest under the principal Deed in this matter shall abate at an amount or rate of interest earned by such sum for that period, that such payment of interest and such abatement of interest shall be without prejudice to the rights of any party to the action under the principal Deed, that payment into Court be satisfied by payment of the said sum of K120,000 to an interest bearing deposit account with I.A.C. (New Guinea) Pty. Limited to be known as “Niugini Hotels Pty. Ltd. Trust A/c.” and to be operated by the joint instructions of the solicitors for the parties, and that costs in the application be costs in the cause.

Orders accordingly.

Solicitors for the plaintiff: Francis & Francis.

Solicitors for the defendant: Gadens.

[ccxlii][1934] 1 Ch. 65.

[ccxliii][1964] HCA 69; (1964) 112 C.L.R. 125, at pp. 128-130.

[ccxliv](1969) 14 F.L.R. 311.

[ccxlv][1968] Tas. S.R. 77.

[ccxlvi][1946] 1 Ch. 242.

[ccxlvii](1969) 14 F.L.R. 311.

[ccxlviii][1960] A.C 167.

[ccxlix][1960] A.C. 192.

[ccl][1962] 2 W.L.R. 543.

[ccli][1974] 3 All E.R. 217.

[cclii][1971-72] P. & N.G.L.R. 229.

[ccliii](1971) 126 C.L.R. 376.

[ccliv][1967] 1 A.C. 569.

[cclv][1975] UKHL 1; [1975] A.C. 396.

[cclvi][1976] P.N.G.L.R. 59.

[cclvii][1975] A.C. 396.

[cclviii][1975] 2 All E.R. 829.

[cclix](1968) 118 C.L.R. 618.

[cclx][1967-68] P. & N.G.L.R. 490.

[cclxi](1968) 118 C.L.R. 618.

[cclxii](1971) 123 C.L.R. 614.

[cclxiii][1975] 2 All E.R. 829.

[cclxiv][1975] A.C. 396.

[cclxv](1973) 47 A.L.J.R. 448.

[cclxvi](1972) 46 A.L.J.R. 48.

[cclxvii](1929) 43 C.L.R. 334.

[cclxviii][1956] A.C. 539.

[cclxix](1958) 101 C.L.R. 428.

[cclxx](1972) 46 A.L.J.R. 48.

[cclxxi][1973] HCA 20; (1973) 47 A.L.J.R. 448.