Who will win in a priority dispute between a mortgagee and a tenant (Part 2)?

  • Author : Bill Stark - 09-10-2013

Further to my post about who will win a priority dispute between a mortgagee and a tenant, Macaulay J of the Supreme Court of Victoria on 27 September 2013 handed down the decision in Mendonca v Mason [2013] VSC 516.

In that case, the alleged tenant of premises at 1st floor, 375 Queen St, Melbourne sought an injunction to prevent the mortgagee in possession from locking the tenant out.

In refusing the tenant’s application for an injunction, Macaulay J concluded that the tenant had relatively low prospects of success in his claim about the lease and its renewal, and that the balance of convenience overwhelmingly favoured the refusal of the injunction.

Background

The premises are residential premises. Mendonca alleged that he was granted a lease by the registered proprietor of the freehold estate, Candolim Pty Ltd, for a term of 10 years commencing 8 June 1998. Three months before its expiry, on 8 June 2008, he claimed to have renewed that lease, pursuant to an option to do so, for a further 10 year term. Hence, he claimed to be entitled to occupation of the premises under a fixed lease term to 7 September 2018.


 

Candolim Pty Ltd (the landlord and borrower) was placed into liquidation in April 2009.

Mason is the mortgagee of the freehold of the whole of the premises at 375 Queen St, both the ground floor and the first floor.

Mason served notices on Candolim and its liquidator, and upon Mendonca as alleged tenant, requiring payment of all rents and other monies under any lease or tenancy between them to be paid to her. She also demanded written details of any such lease. None were provided by either party. Mendonca has since denied receiving the notices.

On 26 June 2013, having received neither rent nor details of any lease or tenancy agreement between Mendonca and Candolim, Mason sent Mendonca a further notice alleging that if there were any lease of the premises Mendonca had repudiated it and stating that she accepted that repudiation. She demanded that he vacate the premises not later than 15 days after service of the notice. On 15 July 2013 Mason took possession of the premises by changing the locks.

Mendonca immediately sought and obtained an interim injunction from the Victorian Civil and Administrative Tribunal. An interim order was made but ultimately on 17 September 2013 Senior Member Vassie dismissed Mendonca’s proceeding at VCAT without determination on the merits after both parties agreed that VCAT had no jurisdiction.

Hence, the matter came before the Supreme Court of Victoria.

Justice Macaulay set out the well known legal principles that should apply in deciding the matter at an interlocutory stage.

The first is whether the plaintiff has made out a prima facie case.

The second consideration (often combined with the third) is whether or not damages would be an adequate remedy.

The third consideration is what is usually called the balance of convenience, but has been expressed by the Court of Appeal in Victoria in terms of where the lowest risk of injustice lies:

In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.

Mendonca submitted that if there is a contested question of fact, it is not appropriate for a court to make any conclusive finding at the interlocutory injunction stage but it must assume the fact in the plaintiff’s favour.

Macaulay J decided that

So expressed, the proposition is too wide. One of the authorities relied upon for the proposition was the decision of Croft J in BDO Group Investments (NSW-Vic) Pty Ltd v Ngo. But his Honour was careful to qualify his statement about resolving conflicts in favour of the plaintiff with the words “insofar as it goes to establishing whether or not there is a serious question to be tried”.

He pointed out that:

In ABC v O’Neill, Gummow and Hayne JJ (Gleeson CJ and Crennan J agreeing) rejected the idea that so long as the court is satisfied that there is a question for determination that is not frivolous and vexatious there will necessarily be a serious question to be tried sufficient to satisfy the first of the usual elements. Instead, their Honours described the “governing consideration” as “the strength of the probability of ultimate success [which] depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought”.

At Paragraph 23 and following of the judgment, Macaulay J concludes that

... there is a dispute between the parties on each of the five questions referred to at [14] above. Although it may be said that there is a serious question to be tried on each of these issues — and therefore in respect of the cause of action pleaded by the plaintiff — the totality of the evidence advanced by the parties demonstrates, in my view, that the strength of Mendonca’s prospects of ultimate success is relatively low. That is not to say that I make any final conclusions on any of the facts.

Macaulay J went on to list in detail why he thought that Mendonca’s claim may face considerable hurdles.

That list included that when requested to do so, Mendonca did not (perhaps, could not) produce the lease or a copy of it, and the renewal of the lease between 2009 and July 2013; No original of the lease or the renewal was ever produced; The liquidator apparently did not produce the lease or the renewal or a copy of them when requested to do so (suggesting it may not have existed within Candolim’s records); Mason’s solicitor, Terry Fraser, swore that on 13 July 2009 Mendonca telephoned him and said “that the residential lease to him [ie Mendoca] had expired and that the last date for renewal was 8 June 2008 and that he was proposing to show that lease to the liquidator”. Fraser further swore that Mendonca “requested … advice as to whether he should produce a letter of renewal which he would backdate to 8 June 2008”. Fraser swore that he informed Mendonca that he (Fraser) could not be involved in advising him on such a matter because he was acting for Mason and not for him.

Justice Macaulay decided that if he declined to order an interlocutory injunction, yet Mendonca ultimately succeeded at trial, damages would be an adequate remedy.

Mendonca did not depose to his financial circumstances. However, the evidence showed that he had been paying Mason $3,000 per month in compliance with the conditions of the interim injunction already granted. The judge concluded that if Mendonca is able to pay $3,000 a month there is no reason to believe that he could not obtain suitable, alternative residential premises within the city area.

Justice Macaulay concluded that the balance of convenience favoured refusing the injunction.

This decision confirms that the courts are moving away from the ancient proposition that claims to proprietary rights will automatically mean that damages are not an adequate remedy.

In fact, there have been a number of decisions of the Court of Appeal of the Supreme Court of Victoria that have decided that damages may be an adequate remedy when a person claims a proprietary interest, and as a result a stay of a decision or the grant of an injunction pending an appeal will not be made (See, for example: Johnson v Cressy [2009] VSCA 123; Palmer v Permanent Custodians Ltd [2009] VSCA 164 and Ozden v Commonwealth Bank of Australia [2013] VSCA 195).

In those circumstances it seems that in the majority of circumstances, a lender/mortgagee will win a priority fight with a tenant.

About the Author

Bill Stark

Recent Posts

Who is responsible when external cladding fails in an apartment tower during a fire?

Bill Stark Date: 10-01-2020

Valuations in Leasing Part 1: Options to Renew

Bill Stark Date: 30-11-2018

Valuations in Leasing: Renewals, Market Rent Reviews and Valuation Pitfalls

Bill Stark Date: 15-11-2018

When will there be a concluded lease, and what compensation will be payable if the landlord wrongfully breaches the lease?

Bill Stark Date: 23-05-2018

Can a lease cease to be covered by the Retail Leases Act 2003 during its current term?

Bill Stark Date: 16-04-2018

Can I challenge an expert valuer's rental determination made under section 37 of the Retail Leases Act 2003?

Bill Stark Date: 16-04-2018