Blog 95.          Caveator makes unsuccessful application to restrain mortgagee’s sale.

This Blog does not normally cover injunctions but for completeness I cover Trotter v RNC Nominees Pty Ltd [2025] VSC 224, Gray J. which succeeds the caveat case RNC Nominees Pty Ltd v Trotter [2025] VSC 207 the subject of the previous Blog.

The facts were –

• The first plaintiff (Gary) established a farming business, Beverly Farming Pty Ltd (Beverly Farming), with his wife Lorna. He and their son Andrew were its directors.
• In around January 2023 Beverly Farming agreed to purchase a property (Marnoo Property). It sought finance.  On 24 May 2023 a loan facility agreement (Facility Agreement) was made by which the first defendant (RNC) agreed to advance up to $6.8 million to Beverly Farming including: $4.1m. for this purchase (the ‘Marnoo Acquisition Limit’); and a $1.5m. ‘Crop Lending Limit’ in three tranches of $500,000 payable respectively by 31 May, 30 June and 30 September 2023.   Clause 10.5(b) in substance required the Borrower to ensure that the interest cover ratio (ICR) remained above 2.00x (the ICR Undertaking).  The ICR was calculated by dividing the ‘Annualised EBIT’ (Beverly Farming’s EBIT for the previous three months multiplied by four) by the ‘Annualised Interest Amount’ (being, in respect of a particular month, the interest amount payable that month multiplied by 12).  Clause 4.2(a)(iii) required RNC to make the Marnoo Acquisition Limit available provided the Borrower was not in breach, or would be rendered in breach by the proposed Advance, of each financial covenant in clause 10.5.
• Beverly Farming’s guarantors were members of the Trotter family and an associated company. The advances were to be secured by registered mortgages over the Marnoo property and nine other properties, including ‘Hemphills’, ‘South East’ and ‘Woods’ (the three properties), variously owned by members of the Trotter family, and by a general security agreement (collectively, the Securities).
• Eight of these properties were already encumbered by first registered mortgages to other lenders, seven securing a debt of approximately $4.75m to the National Australia Bank (NAB) as quantified in March 2025.  Accordingly RNC would only be the first mortgagee of the Marnoo Property and another property.
• On 7 June 2023, the Marnoo Acquisition Limit was advanced. The first and second tranches of the Crop Lending Limit were also advanced.  However, the Marnoo Acquisition Limit did not cover $400,000 in stamp duty, interest and costs.  Accordingly Beverly Farming used approximately $400,000 of this second tranche on the costs of acquisition of the Marnoo Property.  Andrew became its registered proprietor.
• Beverly Farming failed to pay interest for June 2023.
• On 15 September 2023, RNC advised Beverly Farming that it was in breach of the ICR Undertaking.  Beverly Farming requested drawdown of the third tranche of the Crop Lending Limit with some $80,000 of it being applied to the interest due under the Facility Agreement on 29 September.  On 21 September 2023 RNC refused this drawdown on the basis that the Facility was in default and of non-satisfaction of conditions in a reservation of rights letter (Draw Down Dispute).
• On 9 October 2023, RNC served a default notice, relying on the failure to pay the interest due on 29 September and the breach of the ICR clause, and calling in the whole loan.
• In February 2024 RNC issued another default notice.
• On 4 April 2024 the parties to the Facility Agreement entered into a Deed of Forbearance (the Deed).  This recited that the secured debt exceeded $7 m. with other amounts accruing. Clause 5.1 required the Obligors to repay the Secured Money by 19 April 2024.  RNC agreed to forbear from exercising its rights and remedies arising out of the “Existing Defaults” (defined as including but not being limited to failures to pay interest and fees due in five specified months and failure to comply with cl. 10.5(b) as at 30 September 2023) for the “Forbearance Period” (defined as the period ending on the earlier of a breach of the Deed or a future default under the Facility Agreement or Securities).  By cl. 8.1 the Borrower and the Guarantors released the Lender from any Claims which they now had or but for the execution of this Deed may have had in relation to the Facility Agreement, the Securities, the Draw Down Dispute and/or anything else under the Deed.
• On 1 May 2024 RNC issued a third default notice, under the Transfer of Land Act (TLA) s. 76 relying on a series of defaults, including breach of cl 10.5(b) as at 30 September 2023.
• On 6 May 2024 it took possession of the mortgaged properties, appointing the second defendant and another person its agents, and as receivers and managers of Beverly Farming.
• On 21 February 2025 RNC entered into contracts of sale of the three properties, due for settlement on 7 April 2025.
• Lorna caveated over these properties. RNC applied under the TLA s. 90(3) for removal of the caveats and on 16 April 2025 his Honour declined to remove the caveats, on the balance of convenience (Blog 94).  He also expressed the preliminary view of adjourning this application for two months provided Lorna undertook to commence within that period any proceeding asserting her equitable interest in the properties and alleging breach of the TLA s. 77 in the sales, with liberty to apply.  He also stated that the parties would be heard on the precise terms of the orders to be made.
• RNC sought an urgent listing of the s. 90(3) application to obtain final orders.  It also extended the settlement dates of the contracts of sale to 30 April 2025 but stated to the Court that a further extension was likely to be impossible.
• Before the relisted date, 22 April, the parties filed fresh material.  RNC still sought removal of the caveats.  His Honour determined that the s. 90(3) application would be reconsidered afresh on 24 April, and that Lorna could file material responding to RNC’s new material.
• The plaintiffs then commenced this proceeding seeking an injunction, listed for mention on 24 April. The Writ claimed that:
  • it was unconscionable, including under ss. 12CB or 12CA of Australian Securities and Investments Commission Act 2001 (Cth), for RNC to rely on Beverly Farming’s breach of the ICR Undertaking. The loss claimed was that in reliance on this breach RNC had not advanced the final tranche of money, whereby Beverly Farming could not pay the September 2023 interest, and, that RNC had relied on breach of the ICR Undertaking and this non-payment to enforce the Securities, and RNC had charged default interest;
  • in entering into the three contracts RNC had failed to act in good faith and with regard to the plaintiffs’ interests, contrary to s. 77(1) and the duty it otherwise owed to Gary (breach of duty claim), and if RNC was not restrained from completing the sales the plaintiffs would suffer harm for which damages would be an inadequate remedy. It alleged that RNC should have sold properties over which it was first mortgagee because the sales of properties over which it held second mortgages would not reduce Beverly Farms’ net indebtedness to it.  It also complained about the conduct of the sales.
• In the Writ and Summons the plaintiffs inter alia sought: injunctions restraining completion of the sales and any steps to sell any property, and; production of unredacted copies of the three contracts of sale.
• On 24 April his Honour determined to hear the application as one for an interim interlocutory injunction to restrain both completion of the existing contracts of sale, and other sales, based on the material currently filed (pending the plaintiffs supplementing their evidence concerning applicability of the Deed and were ready for a full hearing of their Summons supported by this evidence) before further hearing the s. 90(3) proceeding. This was on the understanding that Lorna’s position was that if this interim injunction application failed the caveats would be removed.
• On 24 April his Honour also heard the application for production of documents.
• Evidence filed in the s. 90(3) proceeding was not treated as evidence in this proceeding.
• Andrew deposed that the sales were defectively conducted attaining an undervalue.
• Counsel for the plaintiffs argued that RNC had acted unconscionably because it knew before advancing any funds that: Beverly Farming’s income was mostly made in early summer; the first advance of funds occurred when Beverly Farming had forecast no or no significant income until January 2024 and accordingly it intended to use the Crop Lending Limit for working capital, including payment of interest, and; accordingly, Beverly Farming would breach the ICR Undertaking immediately.  Counsel also submitted that RNC was not required to advance the purchase monies for the Marnoo Property if that would cause Beverly Farming to breach cl. 10.5(b), and so RNC had acted unconscionably in later relying on that breach, ie it should never have advanced funds in the first place.

Gray J. dismissed the application for interim injunctions and did not determine the application for production, holding –

1. The Court had a broad discretionary power to grant injunctions where just and convenient pursuant to the Supreme Court Act 1986 s. 37 (also the Supreme Court (General Civil Procedure) Rules 2015 r. 38.01) and as an incident of its inherent jurisdiction to preserve the subject matter of litigation and ensure the effective exercise of its properly invoked jurisdiction. [47]

2. The general organising principles for applications for interlocutory injunctions were:

1. 1. The applicant must show a prima facie case for obtaining the relevant relief, ie not that the relief was more probable than not but rather a sufficient likelihood of success to justify the preservation of the status quo pending either trial or, if applicable, expiry of the interim injunction. The required strength of probability depended upon the nature of the rights asserted and the likely consequences of the order sought.  A prima facie case existed where, if the evidence remained as it was, there was a probability that the applicant would obtain relief at trial [48]-[49], [57];
   2. And the balance of convenience favoured an injunction being granted. The Court inquired whether the inconvenience or injury likely to an applicant on refusal of the injunction outweighed injury to the respondent if the injunction were granted.  The Court took the course apparently having 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 failed, or in failing to grant an injunction to a party who succeeded, at trial.  A weaker prima facie case generally required a stronger case on the balance of convenience.  Because the duration of restraint sought by an interim injunction was shorter, the balance of convenience, all other things being equal, was in this case more likely than otherwise to favour relief; [48], [51], [52], [57], [60]
   3. The Court would consider, whether as part of the balance of convenience inquiry or as a separate principle, whether the applicant had demonstrated irreparable injury for which damages would be inadequate compensation, this being presumed where an interest in land was in question; [53], [57]
   4. The Court would generally require the applicant to give the usual undertaking as to damages, moulded to fit the circumstances of the case, and if the undertaking offered was not worthwhile or meaningful this may weigh against granting the injunction. These circumstances may include the likelihood of the applicant’s insolvency, so requiring security to support the undertaking; [54]-[55], [57]
   5. Delay in seeking the injunction was a discretionary factor possibly weighing against granting it. [56], [57]

Most such applications were heard on affidavit material untested in any way, with the Court being unable to resolve disputed questions of fact and often having difficulty resolving conflicts and difficult questions of law. [50]

3. There was no prima facie case, and on current evidence no prospect, that completion of the contracts would be restrained at trial, for two reasons. The first was that the Deed’s releases covered the unconscionable conduct claim, including the argument that RNC need not have advanced money at all. [2], [66], [67], [76], [77], [78]
4. The second reason was no prima facie case that RNC had exercised its power of sale in breach of its duty of good faith and of s. 77.  Under general law, a mortgagee had a duty to exercise the power of sale in good faith and for the purpose for which it was conferred, ie it could not recklessly or wilfully sacrifice the mortgagor’s interest. Section 77 widened this duty to require the mortgagee to exercise this power in good faith and having regard to the interests of the mortgagor.  However, a mortgagee had the right to exercise it for its own benefit – it was obliged to obtain the best price consistent with its entitlement to realise its security.  But even where a specific duty of care to achieve market value applied (not claimed here), a controller acting under the Corporations Act 2001 (Cth) or mortgagee, acting in good faith, was not obliged to improve the property’s value, nor to secure market value or a better price by the method or timing of sale.  In such cases, the Court focused on the process of sale, not on whether market value was achieved. [2], [81], [82], [85], [90]
5. In particular, the following did not give rise to a prima facie case of breach of duty –
   1. the fact that the properties sold were subject to second mortgages; [86]
   2. choice of the selling agent, ie RNC had not disregarded relevant factors and acted with lack of care; [87]-[88]
   3. the timing of the sales; [89]-[91]
   4. the description of the properties being sold; [92]-[94]
   5. the fact that the sales were private. A mortgagee could make a reasonable attempt to obtain market value by auction, private treaty, or public tender; [95]-[96]
   6. there was inadequate evidence of undervalue, even having regard to the non-disclosure of the prices by RNC. A sale at a very significant undervalue could be relevant to assessment of breach of duty, but mere non achievement of market value estimates was not in itself evidence capable of establishing breach. Even if the non‑disclosure founded an arguable claim of breach of duty under s. 77 this was insufficient to justify an interim injunction restraining settlement. [97]-[108]

6. The balance of convenience was also against restraining completion of the contracts of sale, because –
   1. the evidence fell well short of establishing that if the status quo was preserved there was a good prospect of repayment of RNC’s and NAB’s debts; [114]-[116]
   2. it was uncertain that RNC could further extend the contractual settlement dates. The contracts were open to the interpretation that the extension power could be used only once; [117]-[118]
   3. the fact that RNC would not be paid in full from the sales was of no real significance; [119]
   4. although the Trotters had long farmed the land they had not established that damages would be an inadequate remedy for sales at an undervalue in breach of duty. The debt was so great, and the evidence of refinancing so inadequate, that sale of at least some properties seemed inevitable; [120]-[125]
   5. the plaintiffs had not established that their undertaking as to damages would be meaningful; [128]
   6. if the three sales were not settled on 30 April 2025 RNC faced risks in the other sales campaigns and of increased loss; [129], [131]
   7. the plaintiffs had delayed commencing this proceeding for a lengthy, mostly unexplained, period. [132]

[2], [110], [112], [130], [133]

7. The plaintiffs also failed to show a prima facie case for restraining sale of any of the farming properties. Their possible arguments for this injunction would have substantially overlapped those on the application for an injunction to restrain the sales. [44], [45]
8. The injunction applications having failed, it was unnecessary and inappropriate to decide the application for discovery of unredacted contracts as part of an urgent Practice Court matter. It was unusual for an application for discovery to be determined in the Practice Court.  It could be renewed under ordinary case management processes. [3], [138]-[140]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, July 22, 2025