Acron Pacific Ltd v Offshore Oil NL

Solicitors: Applicant: Diamond Conway Second Respondent: Farah Lawyers File Number(s): 2015/00027858

INTRODUCTION

1. By a notice of motion filed on 22 April 2015 Mango Credit Pty Ltd ("the applicant") applies for orders for the payment out of funds held in court following a mortgagee sale of land at Auburn.
2. The respondents to the motion are the former registered proprietor of the land (the first respondent) and his estranged former wife (the second respondent).
3. The first respondent, as registered proprietor of the land, relevantly, granted two mortgages over it. The first (in favour of a company from which, via an intermediary, Bendigo and Adelaide Bank Limited took an assignment as mortgagee) was registered on the title. The second, in favour of the applicant, was not.
4. In 2013, when the first respondent was in default of his obligations under the first mortgage, there were three caveats on the title to the land, each ranking behind the first mortgage.
5. The first caveat was lodged by a company related to the applicant, claiming an interest under an unregistered mortgage dated 2 March 2006. It can be disregarded. It was lodged in respect of a mortgage subsequently repaid by the first respondent, who had neglected to register a withdrawal of caveat form provided to him upon his repayment of the loan secured by the unregistered mortgage protected by it.
6. The second caveat was lodged by the applicant, claiming an interest under an unregistered mortgage dated 21 February 2013. This mortgage provides the foundation upon which the applicant grounds its present application for payment of funds out of court.
7. The third caveat was lodged by the second respondent, claiming "an interest arising from the Family Law Act, by virtue of financial and non-financial contributions… made directly and indirectly to the acquisition, conservation and improvement to the land as owned by the registered proprietor." Save on the most favourable construction, this claim falls short of a claim to an existing, equitable estate or interest in the land or, following sale of the land, proceeds of sale. An entitlement to an equitable interest in land (arising, for example, from an agreement or common intention about the acquisition of the land or expenditure on it) is a caveatable interest; a right to apply to a court for a discretionary adjustment of property rights as between the parties to a marriage or a de facto relationship is not: Morling v Morling (1992) 16 Fam LR 161 at 163-164.
8. No objection has been taken by the applicant to the second respondent's appearance in opposition to its motion. Whether the second respondent has any (and, if so, what) rights against the first respondent or, through the first respondent, against the applicant has not thus far been explored in these proceedings.
9. In February 2015 the second respondent (as "the Wife") commenced proceedings (numbered PAC 1814/2015) in the Family Court of Australia seeking against the first respondent (as "the Husband") orders, including orders under s 79 of the Family Law Act 1975 CTH, in the character of a property settlement. The relief sought in her Initiating Application included an order that she be paid the whole of the funds presently held in this Court. On 12 June 2015 a Registrar of the Family Court made orders the effect of which was: (a) to join the present applicant (Mango Credit Pty Ltd) as an intervening party in the Family Court proceedings; and (b) to stand the Family Court proceedings out of the list, with liberty to the Wife and the Husband to restore them to the list upon finalisation of these, Supreme Court proceedings.
10. Given the obligation of the Court to ensure that funds in court are not paid out without proper reason, little may turn upon the second respondent's appearance before the Court or, perhaps, the absence of any appearance by or on behalf of the first respondent. In the administration of funds in court, the Court has an obligation to proceed cautiously in making an order for funds to be paid out, so as to minimise the risk of funds being paid out to a party not duly entitled to them.
11. On the evidence before the Court, I am satisfied that the only competing claims on the funds in court are the applicant, the first respondent and the second respondent. If the applicant establishes its claimed proprietary interest in the land the sale of which produced those funds then, in the nature of the interest claimed and with the precedence in time its caveat had over that of the second respondent, it has priority over both the respondents. If it fails to do so, the funds must all go to the first respondent unless, and to the extent, the second respondent establishes an entitlement vis-à-vis him.
12. The absence of any appearance by or on behalf of the first respondent (coupled with his failure to appear before the Court when, in proceedings numbered 2013/00266422, the present applicant on 10 December 2013 obtained a default judgment against him, and with correspondence written by him in the aftermath of the mortgagee sale of the land) is capable of supporting an inference that he does not oppose, and indeed he may acquiesce in, orders being made in favour of the applicant on its motion. Such an inference, if drawn, would be an invitation to error.
13. The first respondent swore an affidavit in the present proceedings on 26 June 2015 which, in the absence of any appearance by him, the applicant read on the hearing of the motion. The affidavit speaks of desperation in being subject to an ongoing liability to the applicant for interest accruing at "a default interest rate of 150% per annum", on what was intended to be a short-term mortgage, and being unable to effect a settlement of the applicant's claim. The affidavit is predicated upon an assumption that the applicant has an entitlement to funds in Court. A fair inference from the affidavit, and surrounding circumstances, is that the first respondent (who described his occupation as "unemployed") is impecunious, and that his impecuniosity may be a factor in his non-appearance in opposition to the applicant's motion.
14. In any event, absent an affirmative, fully informed and freely given consent to a payment out by all parties in competition for the funds in court, the Court is, prima facie, required to form an independent judgement as to the applicant's entitlement to the relief it seeks.
15. That presents this difficulty: that, in the course of my examination of the cases summarily advanced on behalf of the applicant and the second respondent on the hearing of the applicant's motion, issues of principle have arisen upon which assistance is required, and in respect of which the parties should have an opportunity to address the Court before the motion is determined. My initial impression that the motion could be dealt with summarily was wrong.
16. Issues of principle that require attention can be summarised in the following questions: (a) QUESTION ONE: Whether, if the respective rights and obligations of the applicant and the first respondent, inter se, were to be considered afresh, unencumbered by the default judgment obtained by the applicant on 10 December 2013, the contractual "entitlement" to interest and other charges claimed by the applicant for the period following expiry of the six month term of its loan to the first respondent was void, or unenforceable, as a penalty. (b) QUESTION TWO: Whether, upon the same assumption as grounds Question 1, the contractual "entitlement" to interest and other charges claimed by the applicant for the period following expiry of the six month term of its loan was void, or unenforceable, as a clog on the first respondent's equity of redemption. (c) QUESTION THREE: Whether the default judgment operates (by reference to principles governing res judicata or issue estoppel) to preclude, on the hearing of the applicant's notice of motion, any enquiry as to whether the contract between the applicant and the first respondent is, or was, amenable to a finding of penalty or clog on the equity of redemption. (d) QUESTION FOUR: What, if anything, is the effect of the doctrine of merger upon any contractual entitlement the applicant may have to charge post-judgment interest (and ancillary enforcement charges) vis-à-vis principles respectively governing penalties and clogs on the equity of redemption?

PROCEDURAL CONTEXT

1. On notice to the caveators (given in October 2013), the first mortgagee took possession of the subject land on about 16 April 2014.
2. As mortgagee in possession, it exchanged contracts for sale of the land on or about 28 June 2014.
3. The sale was settled on 8 August 2014.
4. The first mortgagee's debt was repaid in full from the sale proceeds.
5. At the time of settlement of the sale the applicant claimed entitlement to a debt in the total sum of $149,716.29, representing a principal sum of $54,000.00 (including capitalised interest), accrued interest on that sum in the amount of $78,466.29, and enforcement fees in the sum of $17,250.00.
6. With the benefit of the default judgment awarded against the first respondent on 10 December 2013, the applicant persuaded the first mortgagee to pay to it, from the proceeds of sale of the land, on the day of settlement, the sum of $83,154.99, leaving an unpaid balance of $66,561.30.
7. Following settlement of the sale, the solicitors for the first mortgagee corresponded with the respective solicitors for the first respondent and the caveators about their competing claims on the surplus.
8. After allowing those parties an opportunity to engage in negotiations about disposition of the surplus, on 29 January 2015 (with a summons filed on that date) the first mortgagee paid the sum of $204,711.77 into court under Part 4 of the Trustee Act 1925 NSW.
9. Although the land was ultimately sold by the first mortgagee, the first mortgagee took possession of the land and sold it in the wake of attempts by the applicant to pursue a similar course.
10. The applicant claims to have been unable to register its mortgage in July-August 2013 because the first respondent was, at that time, in default of his obligations under the first mortgage.
11. The applicant's loan to the first respondent was advanced (secured by the mortgage on which the applicant relies) on the 21 February 2013, and it fell due for repayment on 21 August 2013, six months later. The first respondent defaulted in repayment. The applicant served a formal notice of default upon the first respondent and, on 3 September 2013, commenced proceedings (by filing a statement of claim seeking, inter alia, an order for possession and a judgment in debt) that resulted in the default judgment awarded to it on 10 December 2013.
12. In discussion between bench and bar leading up to the award of default judgment, an exchange (now relied upon by the applicant) took place about the applicant's entitlement to interest under its mortgage.
13. An understanding of that exchange requires an appreciation that, as has been noted, the mortgage granted by the first respondent provided, in terms, for a default rate of interest, calculated on a monthly basis, that was equivalent to a nominal rate of 150% per annum.
14. The effective rate of interest in the amount awarded by way of a default judgment was higher than 150% per annum because, from the outset, interest for the whole of the 6 month term of the loan secured by the mortgage was capitalised.
15. In its application for default judgment, the applicant sought, inter alia: (a) judgment for the principal sum of $54,000.00; (b) an award of interest on that sum, to the date of judgment, at the rate of 150% per annum; and (c) an order to the effect that post-judgment interest on the principal sum accrue at the rate of 150% per annum for which the mortgage provided.
16. With editorial adaptations, the exchange between bench and bar was to the following effect: "JUDGE: …On what basis do you say that I should order [post-judgment interest at the rate of 150% per annum]? When you say the [applicant] should be awarded post-judgment interest, that is asking for a special rate of interest from the Court [under the Civil Procedure Act 2005 NSW, section 101]. Can you show me any precedents where the Court has done that? APPLICANT'S LAWYER: We don't press the 150 post-judgment interest, simply the 150% per annum until judgment. JUDGE: So you don't really need [an order for post-judgment interest], do you, under the rules [of court]? Realistically you will have a right to that under the mortgage, won't you? APPLICANT'S LAWYER: Yes, your Honour, there is a right to that under the mortgage. JUDGE: So when the property is being sold and the balance has to be dealt with by the first mortgagee, your client will make a claim for the principal and interest calculated in accordance with the mortgage until the date of payment. APPLICANT'S LAWYER: Yes, your Honour. JUDGE: And the [applicant] won't need the Court to do anything about that. APPLICANT'S LAWYER: No, your Honour."
17. On 10 December 2013 the judge granted (and on 12 December 2013 the court entered) in favour of the applicant a judgment in the following terms (with editorial adaptation): "The court makes the following declarations and orders: (1) Declaration that for the purpose of section 58(3) of the Real Property Act the plaintiff [the present applicant] is a subsequent mortgagee and the amount under that mortgage is the amount of the plaintiff's judgment in accordance with the following orders. (2) The plaintiff be awarded $60,750 as against the first defendant [the present first respondent]. (3) The plaintiff be awarded interest against the first defendant on the sum of $54,000 at the rate 150% per annum pursuant to the mortgage from 21 September 2013 to judgment. (4) The first defendant to pay the plaintiff's costs on ordinary basis."
18. The sum of $60,750 represented the "principal sum" ($54,000), so described in the mortgage, together with $6,750 representing an allowance for "unpaid interest" on that sum, calculated at the rate of 150% per annum, referable to the period between 21 August 2013 (the date upon which the principal sum of $54,000 was due under the mortgage) and 20 September 2013 (the date representing expiry of one month after a one month's interest in advance fell due on 21 August 2013).
19. These figures can be seen in paragraph 11 of the applicant's statement of claim filed 3 September 2013.
20. The effect of the judge's orders was that judgment was entered for $54,000, together with interest on that amount to accrue at the rate of 150% per annum between the date when the debt of $54,000 fell due and the date of the judgment.
21. A short ex tempore judgment delivered in support of the orders dealt primarily with a perceived need to accommodate orders for possession made in favour of the (registered) first mortgagee, in proceedings numbered 2013/00312691 in the Possession List of the Common Law Division of the Court, on 5 December 2013. The judge was not invited to address, and did not address, larger issues relating to the applicant's entitlements which, I apprehend, need to be confronted on the applicant's motion.
22. The correctness of the Court's declaration (Order 1) may be open to controversy. In Residential Housing Corporation v Esber [2011] NSWCA 25 at [53] et seq the Court of Appeal held that section 58(3) of the Real Property Act 1900 NSW is concerned only with registered mortgages, and an unregistered mortgage is not a "subsequent mortgage" within the meaning of that provision so as to entitle the mortgagee to a statutory right (as distinct from an equitable right) to participation in the distribution of the proceeds of a mortgagee sale.
23. Had the Court not granted the applicant relief by reference to RPA s 58(3), but required it to establish a priority entitlement in equity, the applicant might conceivably have been compelled to join the second respondent or, at least, to demonstrate that she had notice of the proceedings and an opportunity to oppose relief it then claimed.
24. The factual matrix underlying progress towards the applicant's obtaining a default judgment has not been fully explored on the present motion. Whether the judgment is liable to be set aside or varied is a question that may, or may not, need to be considered.
25. A focus in these proceedings is on the fact, and nature, of an award of pre-judgment interest. The words "under that mortgage" in the declaration (order 1), the amount of the judgment awarded in excess of $54,000 (order 2) and the terms of order 3 provide clear indications that the judge perceived himself to be granting an award of interest based upon a contractual right to interest, not a discretionary award of interest under CPA s 100.
26. This ties in with his Honour's exchange with the applicant's lawyer, which evidenced an understanding on the part of the judge that the applicant had a contractual entitlement to post-judgment interest at the rate of 150% per annum, not merely a commercial expectation that the Court would exercise its discretion in favour of a grant of statutory interest under CPA s 101 at the contract rate.
27. The amount of the payment made to the applicant, by the first mortgagee, out of the proceeds of sale at the time of settlement of the sale was calculated by reference to the amount of the judgment awarded on 10 December 2013 (involving pre-judgment interest) and, at the court rate of interest (for which the Civil Procedure Act 2005, s 101 provides), interest calculated on the judgment debt to the time of settlement.
28. The first mortgagee refused to meet the applicant's demand that it be paid interest at the mortgage (default) rate of 150% per annum in the absence of an order from the Court under CPA s 101.
29. So far as material, CPA ss 100 and 101 provide as follows (with emphasis added): "100 Interest up to judgment (1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. (2) In proceedings for the recovery of a debt or damages in which payment of the whole or a part of the debt or damages has been made after the proceedings commenced but before, or without, judgment being given, the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money paid, and (b) for the whole or any part of the period from the time the cause of action arose until the time the money was paid. (3) This section: (a) does not authorise the giving of interest on any interest awarded under this section, and (b) does not authorise the giving of interest on a debt in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise, and (c) does not authorise the giving of interest in any proceedings for the recovery of money in which the amount claimed is less than such amount as may be prescribed by the uniform rules, and (d) does not affect the damages recoverable for the dishonour of a bill of exchange. (4) In any proceedings for damages, the court may not order the payment of interest under this section in respect of the period from when an appropriate settlement sum was offered (or first offered) by the defendant unless the special circumstances of the case warrant the making of such an order. (5) For the purposes of subsection (4), appropriate settlement sum means a sum offered in settlement of proceedings in which the amount for which judgment is given (including interest accrued up to and including the date of the offer) does not exceed the sum offered by more than 10 per cent. 101 Interest after judgment (1) Unless the court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid. (2) Interest under subsection (1) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from: (a) the date on which the judgment takes effect, or (b) such later date as the court may order. (3) Despite subsection (1), interest is not payable on the amount of a judgment if the amount is paid in full within 28 days after the date on which the judgment takes effect, unless the court orders to the contrary. (4) Unless the court orders otherwise, interest is payable on an amount payable under an order for the payment of costs. (5) Interest on an amount payable under an order for the payment of costs is to be calculated, at the prescribed rate or at any other rate that the court orders, as from the date the order was made or any other date that the court orders. (6) This section does not authorise the giving of interest on any interest payable under this section. (7) In this section, a reference to the prescribed rate of interest is a reference to the rate of interest prescribed by the uniform rules for the purposes of this section."
30. For completeness, I record that CPA s 136 (referred to in a note to CPA s 101) is in the following terms: "136 Appropriation of payments towards judgment debt Unless the court otherwise orders, any payment made on account of a judgment debt is to be appropriated: (a) firstly, towards such part of the judgment debt as comprises interest payable under section 101, and (b) secondly, towards the balance of the judgment debt."
31. If it be relevant, and it may not be, no order was made under CPA s 136 varying the order in which payments on account of the first respondent's judgment debt were to be appropriated. On settlement of the sale of the land registered in the name of the first respondent, the applicant received the whole of the amount of its judgment debt together with an allowance equivalent to interest at the rate prescribed for the purpose of CPA s 101.
32. At the time the applicant obtained its default judgment against the first respondent, no order was made under CPA s 101(2) varying "the prescribed rate" of interest payable on the judgment debt under CPA s 101(1). Nor was any order made under CPA s 101(1) varying the operation of that subsection.
33. No such orders have since been made under CPA s 101.
34. The discretionary power under CPA s 101 to vary the rate of interest payable, under that section, on a judgment is to be exercised in the interest of justice in the particular case: Gould v Vaggelas (1985) 157 CLR 215 at 273.
35. The applicant contends that: (a) its claim to funds in court is not dependent upon the operation of CPA s 101 because it has a contractual right to interest that did not merge in the judgment it obtained against the first respondent; and (b) if and to the extent that CPA s 101 might be called into operation, the interests of justice require that (i) effect be given to that contractual right and (ii) the exchange between bench and bar at the time default judgment was awarded to it reinforces a legitimate expectation in it that it will be allowed interest at the contract rate: Multispan v Portland (No 2) [2001] NSWSC 1047 at [4]-[6].
36. That any contractual entitlement of the applicant to post-judgment interest did not merge in the judgment it obtained against the first respondent may well be correct, but the legal effect of the contract might not rise as high as its express terms. Clause 3 of the mortgage executed by the first respondent in favour of the applicant provides, inter alia, that "[the] Mortgagor [the first respondent] will pay to the Mortgagee [the applicant] interest on the Principal Sum or upon any judgement [sic] order or decree in which this or any other covenant may become merged at the [contract rate]…" Clause 6(a) is to the same effect. So too is clause 1.2 of the registered memorandum (X004943) incorporated in the mortgage. Clause 11.1 of the memorandum declares the mortgage to be a "continuing security".
37. Even if putative rights of the applicant did not merge in the judgment, identification of any entitlements it now has vis-à-vis funds in court requires consideration of: (a) what, if any, rights of the applicant merged in the judgment; and (b) what, if any, survived the judgment.
38. I approach the question of whether the applicant has a right to funds presently in court, or ought to be the recipient of those funds, upon an assumption that its entitlements are to be measured by its contractual entitlements, if any, vis-à-vis the first respondent.
39. In the absence of any appearance, let alone any separate, formal application for relief, by or on behalf of the first respondent, I put to one side the possibility that the transaction entered by the applicant (as lender) and the first respondent (as borrower) might have been liable to challenge: (a) under the Contracts Review Act 1980 NSW, as an "unjust contract"; or (b) under the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010 CTH) or comparable legislation.
40. Upon an assumption that the applicant, vis-à-vis the first respondent, ostensibly has a contractual right to money beyond that it has hitherto recovered from the sale of the mortgaged property, the first two questions for consideration are, taken together, whether, but for its default judgment, any contractual obligation the applicant seeks to enforce against the first respondent (or, more particularly, the funds in court) was void, or unenforceable, upon an application of equitable principles either (a) as a penalty; or (b) as a clog on the equity of redemption.
41. As a general proposition, these questions must be determined, upon (or by reference to) a construction of the agreement between the applicant and the first respondent, as a matter of substance rather than of mere form: O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 368 and 399-400, Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 at 520 and Esanda Finance Corporation Ltd v Plessnig (1989) 166 CLR 131 at 153 (penalties); and Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194 at 198E-199C (clogs).
42. What is sometimes recognized as an anomalous exception to Equity's preference for substance over form is the conventional "rule", routinely encountered in mortgage cases, that a covenant offering an incentive by reduction of an interest rate upon prompt payment is not a penalty whereas a covenant to pay an increased rate, in the event of a default in due payment, is a penalty: Kellas-Sharpe v PSAL Ltd [2013] 2 Qd R 233.
43. In the present case, there are several features of the applicant's mortgage and the underlying loan contract that require close scrutiny. They are: (a) the high rates of interest for which the mortgage provided; (b) the disparity between the lower and higher rates for which the mortgage provided; (c) the contractual requirement that interest (calculated at the lower rate) for the whole loan term be paid at the outset of the term; (d) the circumstance that the higher rate became payable upon, and only upon, a default by the mortgagor, including (but not limited to) a default in repayment of the principal sum; (e) the apparently disproportionate relationship between the amount of the loan and the amount required to discharged the mortgage; (f) the generally onerous character of the terms required to be fulfilled by the mortgagor to redeem the mortgage, including broad provisions for the mortgagor to pay the mortgagee's enforcement costs; and (g) the apparent availability of equity (in the sense of realizable value) in the mortgaged property (confirmed by a valuation exercise undertaken by the mortgagee, at the cost of the mortgagor, in anticipation of the mortgage) sufficient to provide security for repayment of moneys lent, and reasonable ancillary charges, without substantial risk of loss to the mortgagee.

THE CONTRACT DOCUMENTATION

1. An examination of the questions of penalty and clog on the equity of redemption requires identification of the contractual provisions upon which the applicant relies as establishing the putative obligation of the first respondent to pay, or to allow, to the applicant more money than the applicant has yet received referable to their contract.
2. For its claim of a security interest referable to the funds in court, the applicant relies upon a memorandum of mortgage dated 21 February 2013 granted by the first respondent (as mortgagor), in its favour (as mortgagee), over the land, proceeds of sale which are the source of funds in court.
3. The memorandum of mortgage incorporated by reference registered memorandum number X004943, filed with the Registrar-General pursuant to the Real Property Act 1900 NSW, s 80A.
4. Underlying the mortgage was an application made by the first respondent to the applicant for a loan said, by the first respondent, to have been for a commercial purpose. The written application was dated 15 February 2013. It resulted, that day, both in the applicant issuing a letter of offer to the first respondent and acceptance of that offer by him.
5. On 18 February 2013 the applicant obtained a valuation of the specific property at Auburn offered by the first respondent as security for the proposed loan.
6. The applicant's letter of offer having misspelt the first respondent's name, the applicant issued an amended letter of offer dated 19 February 2013 correcting the error. It was in substantially the same terms as the original letter. On 20 February 2013 it was accepted by the first respondent.
7. On or about 20 February 2013 the first respondent, through a solicitor, returned to the applicant's solicitors the following loan documents, signed by him and bearing that date: (a) a document entitled "Declaration of purposes for which credit is provided" addressed by the first respondent to the applicant. (b) a statutory declaration, made by the first respondent, entitled "Borrower does not receive independent financial advice". (c) a document styled "Borrower's acknowledgement" addressed by the first respondent to the applicant and its solicitors. (d) a "Direction to pay and authority" also addressed by the first respondent to the applicant and its solicitors. (e) a statutory declaration made by the first respondent entitled "Declaration by borrower". (f) a document, addressed by the first respondent to the applicant and its solicitors, entitled "Authority to complete, undertaking to comply with requisitions". (g) a statutory declaration, so entitled, made by the first respondent warranting his title to the property named in the mortgage as security.
8. As a matter of record, those documents were accompanied by a schedule recording evidence of identity provided by the first respondent to the applicant: an Australian passport and a driver's licence. The licence confirmed, if confirmation be required, that the property offered by the first respondent as security was his residential address, a fact which might have some bearing on matrimonial disputes between the first and second respondents, but is not presently the subject of any disputation involving the applicant.
9. Clause 4 of the document styled "Borrower does not receive independent financial advice" was in the following terms (with emphasis added): "4. I understand that: (a) by signing the loan documents I will be liable for regular payments of interest and repayment of the amount of the loan at the due date; (b) if I fail to make any payment on time, the Lender can charge a higher rate of interest, and the Lender's costs of rectifying that failure; (c) if I fail to comply with any of the terms and conditions of the loan documents including the obligations to pay principal or interest,

• the Lender can sue me personally; and
• the Lender may take possession of my property (if given as security); and
• after notice, sell my property (if given as security) to recover the amount owing together with interest and other costs including solicitor's costs, the costs of selling the property and the costs of maintaining the property; and
• if the proceeds of the sale of my property (if given as security) are insufficient to satisfy the debt to the Lender, the Lender can sue me/us [sic] for the deficit."

1. Clause 4(b) expressly identifies the "lower rate" of interest, not the "higher" rate, as the commercial rate of interest payable under the mortgage.
2. The first respondent's loan application requested a loan of $33,000 for six months. An accompanying email from his broker requested $35,000.
3. The following are extracts from the applicant's amended letter of offer (with emphasis added): "We offer as follows for business and investment purposes only; 6 month loan secured by - caveat mortgage $54,000.00 $35,000.00 Cash To Borrower $1,980.00 Brokerage Commercial Finance Loans $1,253.00 Loan Assessment Fee Mango Credit [the applicant] $1,850.00 Legals Mango Credit Estimate $550.00 Valuation $157.00 Stamp Duty OSR LPI $250.00 Misc Registration and Lodgement Fees $12,960.00 6 Months Interest in Advance $54,000.00 Loan Amount Interest rate 4% per month, reducible from 12.5% per month where there is no default. Interest payments must be made by the due date or within seven (7) days of the due date. 6 Month - caveat mortgage

… - Loan can be repaid early, balance of the month due when it is repaid early after 15 working days notice. Interest credit given after this is applied if repaying early … By signing this letter of offer you hereby agree as follows: 1. To pay all of our fees and expenses and loan assessment fee from the monies to be advanced at settlement of the loan. … 4. To pay all of our legal fees and expenses on a solicitor and client basis incurred in lodging any caveat or in respect to the preservation of our charge or caveat including [sic] in respect to the release or withdrawal thereof and in respect to the recovery of any of our fees and expenses and interest thereon. 5. That we are under no obligation to provide to you a withdrawal of any caveat lodged pursuant to this agreement until such time as all of our fees and expenses as described herein and interest thereon are paid in full."

1. The first respondent signified his acceptance of this offer by signing, and returning, the letter of offer to the applicant.
2. The "Direction to pay" signed by the first respondent, consequential upon his acceptance of the applicant's offer, was substantially consistent with the offer. It authorised and directed the applicant "to pay the proceeds of settlement of the mortgage" by delivery of bank cheques to the following payees:
3. Diamond Conway [applicant's solicitor] $2,100.00
4. Office of State Revenue $207.00
5. Commercial Finance Loans (brokerage fee) $1,980.00
6. Mango Credit Pty Limited [applicant] (loan assessment fee) $1,253.00
7. Mango Credit Pty Limited (valuation fees) $550.00
8. Six (6) months interest in advance $12,960.00
9. Joseph Paul Chalouhl [first respondent] $34,950.00

Total $54,000.00

1. The same document authorised and directed the applicant "to deduct from the loan advance any council rates and/or land tax that are currently payable or will become payable during the term of the loan".
2. As it happens, electronic funds transfers, rather than bank cheques, were the favoured means of advancing some, if not all, of the advance of the sum of $54,000, on the account of the applicant, on 21 February 2013. The payments actually made were as follows: 14. Payee Amount

3. Diamond Conway Lawyers (legal costs, stamp duty and registration fees)  $2,307.00
   

4. Mango Credit (Loan Assessment Fee)                                      $1,253.00
   

5. Mango Credit (Valuation fee)                                            $550.00
   

6. Mango Credit (Pre-paid interest six months in advance)                  $12,960.00
   

7. Adelaide Bank                                                           $12,874.34
   

8. Joseph Chalouhi                                                         $22,075.66
   

9. Commercial Finance Loans (Broker)                                       $1,980.00
   

TOTAL $54,000.00

1. Items five and six, together, total the $34,950 loan, net of expenses and prepaid interest, advanced to the first respondent.
2. The mortgage included terms to the following effect (with emphasis added): "In this Mortgage unless the context shall otherwise require: …. 1. …. (e) "Final Maturity Date" shall mean on or before six (6) months from the date of advance of the Principal Sum; (f) "Higher Rate" shall mean twelve point five per centum (12.5%) per month; (g) "Lower Rate" shall mean four per centum (4%) per month; …. (i) "Principal Sum" shall mean Fifty Four Thousand Dollars ($54,000.00). 2. Repayment Subject to clause 4 below the Mortgagor [the first respondent] hereby acknowledges receipt of the Principal Sum and will pay to the Mortgagee [the applicant] the Principal Sum and all other Moneys Hereby Secured on the Final Maturity Date. 3. Interest Payment The Mortgagor will pay to the Mortgagee interest on the Principal Sum or upon any judgement order or decree in which this or any other covenant may become merged at the Higher Rate, however, the Mortgagee will accept such interest at the Lower Rate if it is paid by one (1) instalment in advance calculated from the date of the advance of the Principal Sum. The first instalment is for six (6) months interest in advance and is to be paid on the date of the advance of the Principal Sum. 4. Notice of Intention to Repay The Mortgagor must give the Mortgagee fifteen (15) clear working days notice in writing of the Mortgagor's intention to repay the Principal Sum and all other Moneys Hereby Secured, whether such repayment of the Principal Sum and all other Moneys Hereby Secured be made before, on or after the Final Maturity Date. 5. Early Repayment and/or Discharge Provided the Mortgagor is not in default: (a) The Mortgagor may repay the Principal Sum and all other Moneys Hereby Secured on a day (other than a Saturday, Sunday or public or bank holiday in Sydney) earlier than the Final Maturity Date provided that it shall have given to the Mortgagee not less than fifteen (15) clear working day's notice in writing of its intention so to do. This date shall be known as the "Early Repayment Date". (b) In the event the Principal Sum and all other Moneys Hereby Secured are repaid prior to or on the Early Repayment Date, the Mortgagor agrees that the Mortgagee will retain all interest paid in advance up to the Early Repayment Date together with interest paid in advance to the next monthly anniversary date of the advance of the Principal Sum. This date shall be known as the "Deemed Repayment Date". (c) The Mortgagee will rebate to the Mortgagor an amount equal to the interest paid in advance from the Deemed Repayment Date to the Final Maturity Date. 6. Non Payment of Principal Sum and all other Moneys Hereby Secured on Final Maturity Date (a) The Mortgagor shall pay to the Mortgagee interest on any amount (other than the Principal Sum) owing but unpaid at any time under this Mortgage and on the Principal Sum or any part thereof for a period after the Final Maturity Date during which the Principal Sum or any part thereof and/or all other Moneys Hereby Secured remain unpaid and upon any judgement, order or decree in which this or any other covenant may become merged (and any moneys owing but unpaid and any such judgement, order or decree are in this clause 6(a) referred to as the "Outstanding Moneys") at the Higher Rate of interest…. …. 24. Any inconsistency To the extent of any inconsistency between this Mortgage … and the Memorandum, this Mortgage … prevails, except if [which appears not to have occurred] the Mortgagee provides a written notice to the Borrower [the first respondent] stating otherwise. 25. Severability Any provision in this Mortgage which is prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be severable as to that jurisdiction but shall not invalidate the remaining clauses of this mortgage."
3. The expression "Moneys Hereby Secured" was defined, not in the mortgage, but in the registered memorandum incorporated in the mortgage.
4. Amongst the clauses not here reproduced from the mortgage, clause 12 mortgaged to the applicant all the first respondent's "estate title and interest" in any real property owned or partly owned by him, not limited to the property at Auburn specified in the mortgage as a security. Clause 13 mortgaged to the applicant all his "estate title and interest in any real property [he] will in the future own or partly own".
5. The registered memorandum incorporated in the mortgage included the following terms (with emphasis added): "A. Interpretation In this Memorandum and elsewhere in this Mortgage, unless the contrary intention is indicated by the context: (a) 'Agreement' means and includes each and every agreement, deed, guarantee, instrument referred to in the Schedule (and any amendment from time to time to them) together with each and every other agreement, deed, instrument, arrangement or understanding (and any amendment from time to time to them) existing or now or in the future made between the Mortgagor (either alone or jointly with another person) and the Mortgagee in relation to the Moneys Hereby Secured; … (g) 'Event of Default' means and includes any one or more of the following events: (i) the Mortgagor defaults in the due and punctual payment of any of the Moneys Hereby Secured; (ii) the Mortgagor defaults in any respect in the performance of any term, condition, covenant, warranty, undertaking or obligation on his part contained in this Mortgage, any Collateral Security, any Agreement or in any security given over the Mortgaged Property to any person other than the Mortgagee; (iii) any person who has given (either alone or jointly with another person) a Collateral Security to the Mortgagee defaults in any respect in the performance of any term, condition, covenant, warranty, undertaking or obligation on the part of such person or there is any other default under a Collateral Security; (iv) the Mortgagor assigns, transfers, leases, parts with possession of, or executes or gives any further security, Mortgage or charge over, the Mortgaged Property without the prior written consent of the Mortgagee; (v) this Mortgage or any Collateral security is or becomes void, voidable or ineffective; (vi) the Mortgagor does, fails to do, or permits the doing of any act with the result that, in the opinion of the Mortgagee, the value of the security conferred on the Mortgagee by this Mortgage or any Collateral Security is materially and adversely affected; (vii) the Mortgagor enters or proposes to enter into any scheme, arrangement or composition for the benefit of his creditors or any class of such creditors or convenes a meeting of such creditors for the purpose of considering any such scheme; (viii) any undertaking given to the Mortgagee or its solicitors by the Mortgagor or any person on behalf of the Mortgagor in relation to this Mortgage, any Collateral Security, any Agreement or the Mortgaged Property is not wholly performed within any time limit specified in such undertaking or if no time limit is specified, within thirty (30) days from the date of the giving of such undertaking; (ix) execution is levied against the Mortgagor or the assets of the Mortgagor or execution is levied against the Mortgaged Property in an amount in excess of one thousand dollars ($1,000.00) and such execution is not stayed or satisfied within fourteen (14) days; (x) the Mortgagor ceases or threatens to cease to carry on his business or a major part of it or stops or suspends payment of his debts or indicates his intention to do so; (xi) a receiver or a receiver and manager of the Mortgaged Property is appointed; (xii) any representation or warranty contained in this Mortgage, any Collateral Security or in any notice, document, certificate or statement delivered by the Mortgagor pursuant to or in connection with this Mortgage is incorrect, misleading or untrue in a material way; (xiii) any resumption, reservation, restriction, prohibition, realignment or requirement is imposed on or affects the Mortgaged Property by or under the provisions of any statute, environmental planning instrument or other relevant time is provided, within a reasonable time; (h) 'Higher Rate' means the highest rate of interest from time to time chargeable by the Mortgagee under this Mortgage or the relevant Agreement and in the absence of such a rate, the rate fixed by the Mortgagee from time to time; (i) 'Moneys Hereby Secured' means and includes all or any of the following: (i) all moneys and amounts which are: (A) presently owing and payable by the Mortgagor to the Mortgagee; (B) presently owing, but not presently payable, by the Mortgagor to the Mortgagee; or (C) contingently owing by the Mortgagor to the Mortgagee; (ii) all moneys owing or remaining upaid to the Mortgagee in any manner or on any account whatsoever by the Mortgagor whether alone or jointly with any other person and whether as principal or surety; (iii) all moneys which the Mortgagee, whether requested so to do or not, has advanced or paid or become liable to pay to or for or on account of the Mortgagor; (iv) all moneys and amounts which may become owing or for which the Mortgagee may become liable by reason (wholly or partly) of past events involving the Mortgagor (including, but not limited to, anything done or omitted to be done by the Mortgagee or the Mortgagor) or which may reasonably foreseeably become owing on any account or in any manner whatsoever by reason of the relation of banker and customer or by operation of law or equity or otherwise by reason of anything done by the Mortgagee with the consent or at the express or implied request of the Mortgagor; (v) the amount of any orders, drafts, cheques, promissory notes, bills of exchange and other instruments in respect of which the Mortgagor is or may become liable in any manner whatsoever and which, have been accepted, endorsed, discounted or paid by the Mortgagee for or on behalf of or at the express or implied request of the Mortgagor or are held by the Mortgagee as a result of any other transaction entered into by the Mortgagee for or on behalf of or at the express or implied request of the Mortgagor, whether or not they have matured; (vi) the amount of any costs, charges, expenses and liabilities of any description incurred by the Mortgagee; (A) in or about the negotiation, preparation, execution, registration or stamping of this Mortgage, any Collateral Security or any Agreement; (B) under this Mortgage or any document executed by the Mortgagor pursuant to this Mortgage, any Collateral Security or any Agreement; (C) in the exercise or enforcement or attempted exercise or enforcement of any power or remedy which the Mortgagee has or is entitled to for any reason against the Mortgagor or in respect of the Mortgaged property; including, but not limited to, the amount of any costs charges expenses and liabilities not previously mentioned in this paragraph but incurred by the Mortgagee and. the amount of any administration fee charged by the Mortgagee for follow up, recovery, collection or enforcement action in relation to any moneys overdue in respect of this Mortgage, any Collateral Security, any Agreement or the Mortgaged Property and also the amount of any charges and disbursements for legal advice and assistance to the Mortgagee as between solicitor and client; (vii) all moneys payable for stamp duty, financial institutions duty, federal bank accounts debit tax and/or any similar statutory fiscal imposts (whether payable by the Mortgagor or the Mortgagee) payable in respect of this Mortgage, any Collateral Security, any Agreement, any moneys and transactions secured by this Mortgage, payment to (or receipt by) the Mortgagee of any and all moneys so secured and/or the debiting or crediting of the bank account of the Mortgagee) in respect thereof; (j) 'Mortgage' means' the relevant mortgage for a particular transaction and in relation to which this Memorandum (or any part of it) forms part and includes the provisions set out in such mortgage and each and every provision of this Memorandum or any other Memorandum of Common Provisions which is incorporated in such mortgage; (k) 'Mortgaged Property' means any real property the subject of this Mortgage (and includes each and every part thereof and interest therein) together with any improvements limited to, any buildings, erections, structures, plant or equipment) erected on or affixed to the mortgaged land and (where applicable) together with all rights and interests of the Mortgagor in any common property; … B. Covenants by Mortgagor The Mortgagor covenants with the Mortgagee in the terms and in the manner set out below. 1. Principal and Interest 1.1 The Mortgagor will pay to the Mortgagee the Moneys Hereby Secured at the time or times and in the manner and at the place set out in this Mortgage or in the relevant Agreement (or at such other place as the Mortgagee may in writing from time to time direct) and if no time or times are so provided the Mortgagor will repay the same to the Mortgagee upon demand. 1.2 Subject to any provision to the contrary in this Mortgage or the relevant Agreement the Mortgagor will pay interest at the Higher Rate on the Moneys Hereby Secured during the period that they remain owing but unpaid to the Mortgagee. Interest payable under this Mortgage may be varied from time to time in the manner provided in this Mortgage or in an Agreement. Interest shall be calculated on the basis of intervals agreed upon in this Mortgage or in an Agreement or otherwise from time to time at such intervals as are fixed by the Mortgagee and shall be computed from the day or respective days when the relevant amounts become owing, up to and including the date of payment. Unless agreed in writing by the Mortgagee, no allowance in calculating such interest stall be made for the credit balance of any account of the Mortgagor. If the liability of the Mortgagor to pay the Moneys Hereby Secured becomes merged in any judgment, order, deed or other thing then the rate of Interest payable by him shall be the rate (or if more than one rates then at the highest rate) payable in accordance with this Mortgage or any Agreement or that judgment, order, deed or thing. 1.3 Unless otherwise agreed in an Agreement, interest will accrue from day to day and will be paid to the Mortgagee on the dates fixed for payment under this Mortgage or the Agreement or, if no dates for payment are so fixed, on demand by the Mortgagee from time to time, 1.4 Subject to any contrary provision in this Mortgage or any Agreement, on each date fixed for the payment of interest under this Mortgage or the agreement the Mortgagee may at its option and without demand convert the interest then payable into principal immediately payable to the Mortgagee and charge interest under this clause on such principal. … 11 Rights of the Mortgagee Continuing Security 11.1 This Mortgage is a continuing security and shall not be wholly or partially discharged (even if all of the Moneys Hereby Secured that are presently owing are paid) as long as any of the Moneys Hereby Secured are owing, contingently owing or may, in the opinion of the Mortgagee, become owing or payable. … 19. Default 19.1 On the happening of an Event of Default all of the Moneys Hereby Secured shall, at the option of the Mortgagee (notwithstanding any delay or previous waiver of such option), immediately become payable on demand. 19.2 At any time after the happening an Event of Default in addition to its rights, powers and. remedies by statute, law or equity, the Mortgagee may: (a) enter upon and take possession of the Mortgaged Property, manage the Mortgaged Property and/or receive any rents and profits from property; (b) grant to any person an option to purchase the Mortgaged Property upon such terms and conditions as the Mortgagee thinks fit; (c) sell the Mortgaged Property and buy-in, rescind or vary any agreement for sale and resale; (d) lease or licence, surrender or accept the surrender of any lease or licence of, determine any lease or licence of, and renew any lease or licence of, the Mortgaged Property or agree to do any of these things for such period and upon such terms (including the taking of a fine or premium and giving options to the lessee or licensee to renew such lease or licence) as the Mortgagee shall think fit and to compromise with to make concessions to tenants or licensees upon such terms as the Mortgagee shall think fit; (e) erect, make, or complete the erection or making of any building, erection, structure or improvement on the Mortgaged Property; (f) pull down, rebuild, alter, add to or complete, paint, clean, and otherwise make and effect repairs and improvements to, provide services to, insure and otherwise incur expenditure in relation to, the Mortgaged Property; (g) surrender or transfer the Mortgaged Property to the Crown or any instrumentality of the Crown or any statutory, public or local authority; (h) exchange the Mortgaged Property with any person for any other estate or interest in land of any tenure (either with or without giving or receiving any money or other consideration for the purpose of giving or receiving equal value for the exchange). Any property so acquired may be dealt with by the Mortgagee as if it were part of the Mortgaged Property and the Mortgagee may mortgage or charge such property with the payment of the Moneys Hereby Secured; (i) develop, subdivide and/or consolidate, the Mortgaged Property and in this regard do, sign and seal all things necessary to prepare or procure the preparation of, and to register any plans in respect of, the Mortgaged Property including strata plans and plans of consolidation and subdivision; (j) carry on or concur in carrying on any business or pursuit of the Mortgagor conducted on or from the Mortgaged Property or any business or pursuit which the Mortgagee considers expedient and for that purpose to enter into all necessary contracts and other arrangements, borrow money or obtain financial accommodation from any source (either unsecured or secured by any form of security over the Mortgaged Property) in the name of the Mortgagor and do all other acts, matters or things that the Mortgagee considers necessary or expedient in relation to such business; (k) employ or engage any person (including any employee of the Mortgagee) for or in relation to the performance of any of the rights and powers given to the Mortgagee or to delegate any such acts to any person; (l) sever fixtures belonging to the Mortgagor and sell them apart from the Mortgaged Property; (m) remove from the Mortgaged Property all chattels which are not encumbered by this Mortgage and store all or any of such chattels in the name and at the cost of the Mortgagor with any person including the Mortgagee for such period as the Mortgagee may think fit. Upon service of a written notice to the Mortgagor stating the name and address of the place where any such chattels are stored and the amount of the costs incurred at the date of the notice in that removal and storage the Mortgagee shall be under no further liability to the Mortgagor in respect of those chattels. Unless the Mortgagor shall have paid to the Mortgagee the cost of removal and storage up to the date of payment within fourteen (14) days of service of the notice referred to above the Mortgagee may sell the chattels for such price in such manner and upon such terms and conditions as the Mortgagee thinks fit. The proceeds of any sale of chattels pursuant to this clause may at the option of the Mortgagee be set off by the Mortgagee against the Moneys Hereby Secured. (n) grant, create, release or vary easements, profits a prendre and restrictions over the Mortgaged Property; (o) institute, prosecute and defend any proceedings in any court or tribunal in respect of any act or transaction referred to in this clause; (p) charge against the account of the Mortgagor a reasonable administration fee in an amount, determined by the Mortgagee for each follow up, recovery, collection or enforcement action taken by the Mortgagee in relation to any moneys overdue by the Mortgagor under this Mortgage or any Agreement; (q) where the Mortgaged Property is subject to a lease or leases granted by the Mortgagor or the Mortgagee: (i) if the Mortgagee enters into possession of the Mortgaged Property, it shall be entitled to charge against the Mortgagor and the Mortgagee Property a collection fee or commission equal to the fee or commission adopted, recommended or generally charged from time to time as a scale of charges by the Real Estate Institute of New South Wales (or other equivalent body) upon the amount of all moneys collected by way of rent or otherwise before crediting the balance to the account of the Mortgagor; and (ii) where any portion of the Mortgaged Property is leased together with the use of any furniture or other chattels of the Mortgagor and any of those chattels are the subject of a leasing or hire-purchase agreement, the Mortgagee at its discretion may pay the rent and interest charges under such agreement and any instalments required by the terms of such agreement; and (r) do or cause to be done any other acts and things which the Mortgagee considers expedient for the protection or enforcement of this Mortgage or the recovery of the Moneys Hereby Secured. The Mortgagee may do all or any of the above or any other matter or thing which should have been done by the Mortgagor under the terms of this Mortgage but has not been done or done properly, but without any obligation to do so and without prejudice to its other rights, powers and remedies under this Mortgage and notwithstanding any previous delay or waiver. … 22. Application of Moneys Received 22.1 Moneys received as a result of the exercise by the Mortgagee of its rights and powers under this Mortgage shall be applied as follows: (a) firstly, in satisfaction of any claims taking priority over this Mortgage; (b) secondly, in or towards discharge of that part of the Moneys Hereby Secured that is costs, charges and expenses incurred by the Mortgagee or a Receiver in the exercise or enforcement of any rights or powers under; this Mortgage; (c) thirdly, in or towards discharge of that part of the Moneys Hereby Secured that is the remuneration of the Receiver; (d) fourthly, in or towards discharge of the balance of the Moneys Hereby Secured in such manner and order as the Mortgagee may in its absolute discretion determine including, without limiting the generality of the foregoing, with absolute liberty to apply such moneys to either principal or interest; (e) fifthly, in or towards discharge of any subsequent encumbrance or mortgage of which the Mortgagee is aware (whether registered or not) in the order of their priority; and (f) sixthly, to pay any surplus moneys to the Mortgagor or to any other person who in the opinion of the Mortgagee may be entitled to those surplus moneys. … 26. General Provisions Certificate as to Moneys Hereby Secured 26.1 A statement signed by an Authorised Officer of the mortgagee stating: (a) the amount of the Moneys Hereby Secured or any part thereof; (b) that such amount falls within a particular paragraph of the definition of the "Moneys Hereby Secured" (c) the amount of interest due and payable under this Mortgage; (d) that an amount is owing or payable to the Mortgagee by the Mortgagor or any other person whose indebtedness to the Mortgagee is intended to be secured by this Mortgage; and/or (e) that the Mortgagee is entitled to payment of such amount on demand and given to the Mortgagor by or on behalf of the Mortgagee shall in the absence of manifest error be prima facie evidence as to its contents without the Mortgagee being required to produce any books of account or other records or any copies of any of them to the Mortgagor or any other person. … Moneys Payable Notwithstanding 26.5 Until the Honeys Hereby Secured have been paid or satisfied in full all moneys payable under this Mortgage and/or any agreement are payable by the Mortgagor notwithstanding: (a) that the Mortgagor is dead, bankrupt, in liquidation or receivership or under official management; (b) that the relationship of banker and customer between the Mortgagee and the Mortgagor has ceased; or (c) any other matter or thing. Severability 26.6 Each of the covenants of this Memorandum shall be severable and distinct from one another and if at any time any one or more of the provisions of this Memorandum is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. …"
6. In the course of oral submissions in support of the applicant's motion counsel relied upon a "conclusive evidence" clause (no less extensive than that found in Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 at 651) found in clause 19 of the mortgage. Upon closer examination, that clause is limited in its operation to evidence of debts incurred in relation to prior or subsequent mortgages. The correct reference is to clause 26.1 of the memorandum, which provides for a "prima facie evidence" certificate to be relied upon by the applicant.
7. On the hearing of the motion the applicant relied upon a clause 26.1 certificate which (omitting the formal parts) stated the following: "1. The amount of the principal sum and interest forming part of the Moneys Hereby Secured by the Mortgage as at 7 August 2015 is $130,090.11, made up as follows: Principal $54,000.00 Interest 21.02.13 to 07.08.2015 $159,245.10 SUBTOTAL $213,245.10 (Less Settlement Proceeds) (83,154.99) TOTAL $130,090.11 2. The amount of legal costs forming part of the Moneys Hereby Secured by the Mortgage is $38,711.85. The lender anticipates that a further sum of $9,047.50 in legal costs will form part of the Moneys Hereby Secured by the Mortgage as at 7 August 2015. 3. The total sum of $177,849.46 thereby falls within the definition of the "Moneys Hereby Secured" in Clause A(i) of the Memorandum to the Mortgage. 4. The amount secured is owing and payable to the Mortgagee [the applicant] by the Borrower and the Mortgagor [the first respondent]. 5. The Mortgagee is entitled to payment of such amount on demand."
8. Counsel for the applicant conceded in argument that the sum of $9,047.50 relates to costs on the applicant's motion.

THE QUESTION OF PENALTY

1. The current point of commencement for consideration of the question of "penalty" in Australia is the judgment of the High Court of Australia in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 at 216-217: Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (LexisNexis Butterworths, Australia, 5th ed, 2015), paragraph [18-025].
2. As far as is presently material, in Andrews the High Court wrote as follows (with citation of authority omitted): "[9] Mason and Deane JJ observed in Legione v Hateley (1983) 152 CLR 406 at 445 that, as the term suggests, a penalty is in the nature of a punishment for non-observance of a contractual stipulation and consists, upon breach, of the imposition of an additional or different liability. [10] In general terms, a stipulation prima facie imposes a penalty on a party (the first party) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes on the first party an additional detriment, the penalty, to the benefit of the second party. In that case the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation. [11] It has been established at least since the decision of Lord Macclesfield in Peachy v Duke of Somerset (1720) 1 Str 447; 93 ER 626 that the penalty doctrine is not engaged if the prejudice or damage to the interests of the second party by the failure of the primary stipulation is insusceptible of evaluation and assessment in money terms. It is the availability of compensation which generates the 'equity' upon which the court intervenes; without it, the parties are left to their legal rights and obligations.… [12] It should be noted that the primary stipulation may be the occurrence or non-occurrence of an event which need not be the payment of money. Further, the penalty imposed on the first party upon failure of the primary stipulation need not be a requirement to pay the second party a sum of money…."
3. In Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at 662 [10] the High Court observed (before embarking upon an application of Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86-87): "The law of penalties, in its standard application, is attracted where a contract stipulates that on breach the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach."
4. In the course of its judgment in Andrews the High Court approved the finding of Brereton J, in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd [2007] NSWSC 592, that the penalty doctrine retains its equitable nature and is not limited to the failure of stipulations which are breaches of contract: 247 CLR 221 [29] - 223 [32] and 236 [78].
5. The UK Supreme Court decided in Cavendish Square Holding BV v Makdessi [2015] UKSC 67; [2015] 3 WLR 1373 to limit the operation of "the common law rule that a term in a contract which constitutes a penalty is unenforceable" to stipulations which involve a breach of contract. This counsels caution against an uncritical acceptance of current English case law as representative of Australian law, but it does not deprive English case law of persuasive value to the extent that it can be accommodated within the framework of Australian law.
6. Although Andrews v ANZ Banking Group Limited provides authoritative guidance for this Court as to the nature, and field of operation, of the "penalty doctrine", Kellas-Sharpe v PSAL Ltd [2013] 2 Qd R 233 (a judgment of the Queensland Court of Appeal) demonstrates that, absent further consideration by the High Court, a first instance judge is bound to proceed on the basis that Andrews has not displaced the conventional rule governing differential interest rates routinely found in mortgages. A convenient summary of principles governing the penalty doctrine in such a context can be found in PT Thiess Contractors Indonesia v PT Arutmin Indonesia [2015] QSC 123 at [151]-[157].
7. The contract documentation in the present proceedings pays lip service to this conventional rule in so far as it speaks of "lower" and "higher" rates of interest, and suggests that the higher rate is "reducible" to the lower rate in the absence of any default by the first respondent in the performance of his obligations as mortgagor.
8. A central problem with this is, however, that, upon a construction of the contractual documentation as a whole, the higher rate of interest may be characterised merely as a secondary, "default" rate so as to be struck down, not saved, by the conventional rule governing differential rates of interest.
9. That is because: (a) the lower rate of interest is presented in the documentation, not merely as a concessional rate but as the contract rate of interest, reserving the higher rate for operation only in the event of a default in the mortgagor's obligations; (b) the lower rate is not available merely as a concession for prompt payment of instalments of interest, but is applied in the calculation of interest payable, for the whole term of the loan, up-front; (c) as the mortgagor was contractually obliged to pay, and the mortgagee was contractually entitled to receive, at the outset a lump sum payment of interest for the whole term of the loan, the parties' contract made no provision for interest to be paid at the higher rate except in the event of a default, including (but not limited to) a failure to repay the principal sum at the end of the loan term; and (d) the higher "default" rate of interest was payable on the happening of any one of a large range of "the events of default", not limited to default in repayment of the principal sum.
10. Expressed in the language of Andrews v ANZ Banking Group Ltd: In so far as the contract documentation purported to require the first respondent to pay interest calculated at the higher rate upon his failure to repay the principal sum at the end of the loan term or earlier breach, it could be said to have imposed on him, to the benefit of the applicant, an additional detriment in the nature of a security for, and in terrorem of, the first defendant's primary obligation to repay the principal sum. Given that compensation could be made to the applicant for any prejudice suffered by a failure of the primary obligation of the first respondent, the collateral stipulation that the first respondent pay interest at the higher rate (if not also associated obligations to pay "enforcement costs") was in force only to the extent of that compensation, and the first respondent was relieved to that degree from liability to satisfy the collateral stipulation.
11. The differential between the higher and lower rates of interest for which the mortgage provided is of such a dimension that it could be characterised as having been out of all proportion to any legitimate interest of the applicant in enforcement of the first respondent's obligation to repay the principal sum in a timely manner: cf, Bay Bon Investments Selvarajah [2008] NSWSC 1251 at [54] and [56].
12. It is neither necessary nor appropriate, at this stage of the proceedings, that I form a concluded view about whether the applicant's claim for the payment out of funds in court fails because the contractual provisions upon which it relies were void as a penalty.
13. Nor is it necessary for me to form a view as to whether any "compensation" allowed to the applicant for the first respondent's default in repayment of the principal sum could have been (and, now, notionally should be) calculated by reference to the lower "contract" rate of interest for which the mortgage provided, or the rates of interest respectively prescribed for the purposes of CPA ss 101 and 101. If the higher "default" rate provisions of the mortgage were void, CPA s 100 would have been available as a source of authority for an award of pre-judgment interest: CPA s 100(3)(b).
14. Subject to consideration of the effect of the default judgment obtained by the applicant against the first respondent, there are, prima facie, sufficient indicia of a penalty that, before any order is made for the payment out of funds to the applicant, interested parties should be called upon to address the question whether, in light of the penalty doctrine, the applicant has any (and, if so, what) entitlement to funds in court.

THE QUESTION OF CLOG ON THE EQUITY OF REDEMPTION

1. For present purposes, the law to be applied in these proceedings can be taken to be summarised in statements made by Bowen LJ in Marquess of Northampton v Pollock (1890) 45 Ch D 190 at 215 and by Lord Parker in G and C Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 at 61. Those statements may require qualification in light of subsequent case law, but they remain foundational to an analysis of current Australian law.
2. In the former case Bowen LJ said: "… whenever a transaction is in reality one of mortgage, equity regards the mortgaged property as security only for money, and will permit of no attempt to clog, fetter, or impede the borrower's right to redeem and to rescue what was, and still remains in equity his own."
3. In Kreglinger's case, Lord Parker said: "… there is now no rule in equity which precludes a mortgagee, whether the mortgage be made upon the occasion of a loan or otherwise, from stipulating for any collateral advantage, provided such collateral advantage is not either (1) unfair and unconscionable or, (2) in the nature of a penalty clogging the equity of redemption or, (3) inconsistent with or repugnant to the contractual and equitable right to redeem."
4. In Charmelyn Enterprises Pty Limited v Klonis (1981) 2 BPR 9572 the NSW Court of Appeal adopted (as Waddell J had at first instance) the following statement made by Browne-Wilkinson J in Multiservice Bookbinding Limited v Marden [1979] 1 Ch 84 at 110 (made after an examination of authorities, including Kreglinger): "… a bargain cannot be unfair and unconscionable unless one of the parties to it has imposed the objectionable terms in a morally reprehensible manner, that is to say, in a manner which affects his conscience."
5. An examination of case law confirms that Australian courts, mindful of a need to respect freedom of contract, proceed to the making of a finding of a clog on the equity of redemption with the utmost caution. Young J reviewed the authorities in Westfield Holdings Limited v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194.
6. His Honour's treatment of the topic has been largely followed by Santow J in Re Modular Design Group Pty Ltd (Receiver and Manager Appointed) (in liq) (1994) 35 NSWLR 96 at 103-104 and 108G; Gazell J in Wily v Endeavour Health-Care Services Pty Ltd (No 5) (2003) 11 BPR 21,081, a judgment which went on appeal (reported at (2003) 12 BPR 22,447) without consideration of the scope of the rule against clogs on the equity of redemption; and the Full Court of the South Australian Supreme Court in Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (1998) 71 SASR 161 at 173.
7. In Westfield at 32 NSWLR 202F-203A Young J made the following observations: "There does not appear to be any commercial reason why, in 1992, the court should invalidate any transaction merely because a mortgagee obtains a collateral advantage or seeks to purchase a mortgage property. Quite obviously equity must intervene if there is unconscionable conduct. Again equity must intervene in the classic case where it can see that a necessitous borrower is not, truly speaking, a free borrower. In my view, in 1992, the rule [concerning clogs on the equity of redemption] only applies where the mortgagee obtains a collateral advantage which in all the circumstances is either unfair or unconscionable. It may be that the court presumes from the mere fact of a collateral advantage that the transaction is unconscionable unless there is evidence to the contrary, but the principle does not extend to invalidate automatically cases in which the mortgagee has obtained the right to purchase the whole or part of the mortgaged property in certain circumstances or has obtained a collateral advantage where the circumstances show that there has been no unfairness or unconscionable conduct."
8. In Lift Capital Partners Pty Ltd (in liq) v Merrill Lynch International (2009) 73 NSWLR 404 at 425-431 (especially at [131] and [136]-[137]) Barrett J published comprehensive reasons for limiting the operation of the rule to cases in which a finding of unconscionability can be made. Sam Management Services (Aust) Pty Ltd v Bank of Western Australia Ltd [2009] NSWCA 320 at [60] supports that view.
9. There remains room for debate about the rationale, nature and scope of any rule governing a mortgagor's right to redeem mortgaged property and principles governing equitable intervention to vindicate that right. Useful treatments of the topic can be found in Fisher and Lightwood's Law of Mortgage (3rd Australian edition, LexisNexis Butterworths, 2014), edited by ELG Tyler, PW Young and CD Croft; see chapter 32, especially paragraphs [32.12]-[32.16]; Peter Butt, Land Law (Lawbook Co, Sydney, 6th ed, 2010), paragraphs [18.31]-[18.43]; RW Turner, The Equity of Redemption (Cambridge University Press, 1931), pages 175-183; D Browne, Ashburner's Principles of Equity (Butterworth, London, 2nd ed, 1933), pages 38-39, 205-209, 215-222 and 265-267; and Fiona Burns' paper "Clogs on the equity of redemption: a story of changing equitable intervention", chapter 3 in J Glister and P Ridge (ed), Fault lines in Equity (Hart Publishing, Oxford, 2012).
10. That the applicant's mortgage provides for the payment of high rates of interest may attract attention, and may be taken into account upon a determination whether there is a clog on the equity of redemption, but it is unlikely, of itself, to be sufficient to attract the intervention of equity: Butt, Land Law (6th ed, 2010), paragraph [18.48]. Something more is likely to be required.
11. Historical and jurisprudential connections between equitable principles governing penalties and clogs on the equity of redemption can be seen in a classic historical treatment in which a mortgage clause raising the rate of interest on non-punctual payment is presented as a clog on the equity of redemption: Turner, The Equity of Redemption (1931), page 177 note 2, citing Holles v Wyse (1693) 2 Vern 289; 23 ER 787 and Strode v Parker (1694) 2 Vern 316; 23 ER 804. These cases approximate the genesis of the conventional rule regarding differential interest rates: Fisher and Lightwood, Law of Mortgage (3rd Aust ed, 2014), paragraph [3.18].
12. Nevertheless, consideration of whether there is "something more" that bespeaks of a clog generally commences with a consideration of the substance of the parties' transaction (having regard to its nature and purpose), and the question whether their contract documentation includes a collateral impediment to redemption of the mortgage security.
13. The objective nature and purpose of any contract can be important to its construction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40]. It is no less important upon consideration of a mortgage, and whether a provision of the mortgage is a clog on the equity of redemption.
14. A touchstone for the operation of principles governing a mortgagor's right to redeem a mortgage security, and the concept of a clog on the equity of redemption, is sometimes summarised in the Delphic maxim, "once a mortgage, always a mortgage". This may point to the idea that, if a transaction is correctly characterised as a "mortgage", the mortgagee is not entitled, in equity, to enforce a collateral stipulation that is repugnant to, oppressive of, or an unreasonable burden upon, the right of the mortgagor to redeem the mortgage security on repayment of money lent on that security. To approach the question otherwise could be to defeat the purpose of the transaction. Equity may regard such a stipulation, foreign to the purpose of the transaction, as "unconscionable'', an expression here used interchangeably with "unconscientious". Such an attitude could, characteristically of equity, involve an element designed to maintain minimum standards of fair dealing, and a countervailing necessity for restraint in interfering with freedom of contract: Commonwealth v Verwayen (1990) 170 CLR 394 at 440-441.
15. Equitable intervention is not available simply to rewrite a contract or merely because a contractual stipulation, in the abstract, is "unreasonable". A burden on a mortgagor's right to redeem is likely to be "unreasonable" in the current context only if it impedes redemption of security to such an extent that it bears upon characterisation of the parties' transaction as a mortgage or otherwise defeats the purpose of the transaction. Each party (but, here, particularly, the mortgagee) is liable to be held to the intended purpose for which, objectively, the parties' transaction was entered: provision of a loan on security, coupled with an obligation on the mortgagee to return the security on repayment of the loan. "Once a mortgage, always a mortgage".
16. The primary stipulation in the current contractual documentation was that the first respondent, as mortgagor, would repay the principal sum (incorporating a lump sum allowance for interest calculated at the lower rate) within six months of the date of the advance of the loan.
17. Upon the mortgagor's default in his obligation to repay the mortgage within that timeframe, the contract documentation purported to impose on him (as a condition of redemption of the mortgage) a significantly more onerous obligation to pay interest at the higher rate (going forward), coupled with a compounding of interest and an onerous obligation to pay enforcement costs. This new regime of obligations (particularly the obligation to pay interest, in advance, at the higher rate) could arguably have been so onerous as to have been oppressive of the mortgagor in exercise of his right of redemption, or to have rendered his right of redemption illusory, exposing his property to the extensive range of enforcement powers for which the mortgage provided in favour of the mortgagee, escalating his indebtedness to such an extent as to put it beyond his power to refinance the mortgage as originally contemplated by both parties. Without using such language explicitly the first respondent, in his affidavit, complains of being trapped by a short term debt that grew exponentially and continues to cling to him.
18. Where (as in this case) a lender has specific contractual entitlements to recover all loss and expenses in consequence of a default, a provision for a higher rate of interest to become payable in circumstances where there has been a default (even if such a provision is cast in a form that takes it outside the law concerning penalties) is not reasonably necessary for protection of any legitimate interest of any party to the loan contract: Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; 14 BPR 26565 at [161]-[178] and [216].
19. The Court of Appeal's observation to that effect in Kowalczuk was made in the course of making a finding of "unjust contract" for the purpose of the Contracts Review Act 1980 NSW and a finding of statutory "unconscionability" for the purpose of s 43 of the Fair Trading Act 1987 NSW. That needs full recognition. The Court was not dealing with the general law. Nevertheless, the Court's analysis of onerous mortgage terms, not unlike those found in the present proceedings, could arguably inform a finding of clog on the equity of redemption in like circumstances.
20. The post-default regime of obligations operative in the current case could arguably be characterised as an unconscionable collateral advantage, not forming part of the security provided by the mortgagor, which gave the mortgagee an additional advantage that fettered the mortgagor's right of redemption, was repugnant to the operation of the mortgage as a mortgage and was oppressive.
21. It is neither necessary nor appropriate for me, at this stage of the proceedings, to do more than notice this as a question which, subject to the default judgment point, should be addressed before any order is made for payment out of funds in court to the applicant.

Introduction

1. Consideration of the effect of the "default judgment" obtained by the applicant against the first respondent requires (in the context of principles governing res judicata and issue estoppel) preliminary observations about the procedural character of the judgment.
2. For the reasons that follow, it presently appears to me, prima facie, to be a judgment liable to be set aside or varied; an "interlocutory" rather than a "final" judgment; and a judgment given without a hearing on the merits; but one which, unless and until set aside or varied, is nevertheless a binding determination of the rights and obligations of the applicant and the first respondent inter se, arguably capable of operating to preclude an examination of the questions of "penalty" and "clog on the equity of redemption" on the applicant's motion for the payment out of funds in court.

The Procedural Character of the Applicant's Default Judgment

1. Rules 36.16 (1) and (2) of the Uniform Civil Procedure Rules 2005 NSW provide as follows: "36.16 Further power to set aside or vary judgment or order (1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order. (2) The court may set aside or vary a judgment or order after it has been entered if: (a) it is a default judgment (other than a default judgment given in open court), or (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or (c) in the case of proceedings for possession of land, it has been given or made in the absence of a person whom the court has ordered to be added as a defendant, whether or not the absent person had notice of the relevant hearing or of the application for the judgment or order…"
2. The "judgment" obtained by the applicant against the first respondent (as, for convenience, I call it) was a "judgment or order" that was "given or made" (within the meaning of UCPR r 36.16) on 10 December 2013 and entered on 12 December 2013. No notice of motion for the setting aside or variation of the judgment was filed before entry of the judgment. Accordingly, UCPR r 36.16(1) would not be available on an application to set aside or vary the judgment.
3. The expression "default judgment" is defined in the Dictionary at the end of the Uniform Civil Procedure Rules (UCPR r 1.2(1)) to mean "judgment given under Part 16" of the Rules.
4. UCPR Part 16 applies to proceedings commenced by statement of claim: UCPR r 16.1. The proceedings in which the applicant obtained a judgment against the first respondent were so commenced.
5. UCPR r 16.2 provides that a defendant is "in default" for the purposes of Part 16, inter alia, if the defendant fails to file a defence within a specified limited time. The first respondent was in default, within the meaning of that rule, when the applicant obtained a judgment against him.
6. UCPR r 36.16(2)(a) would not, however, be available on an application to set aside or vary the judgment because it was a (default) judgment given in open court.
7. Nevertheless, UCPR r 36.16(1)(b) would be available because judgment was given in the absence of the first respondent. The rule applies even if a party had notice material to the judgment being given. It supplements the general law position that an order made against a party who did not have a reasonable opportunity to appear ought, generally, to be set aside: Taylor v Taylor (1979) 143 CLR 1.
8. If the first respondent were, now, to apply for an order that the applicant's judgment be set aside or varied the Court would, accordingly, have jurisdiction to grant the application. It might, as a matter of discretion, decline to do so because of: (a) delay on the part of the first respondent in making such an application; and (b) the fact that the judgment has been substantially, if not fully, executed in the meantime. The Court would need to be satisfied that some useful purpose would be served by setting aside or varying the judgment: Vacuum Oil Pty Limited v Stockdale (1942) 42 SR(NSW) 239 at 243. It could, in the interests of justice, set aside or vary the judgment on terms: Civil Procedure Act 2005, s 86. If it did set aside or vary the judgment it could also make an order for the restitution to the first respondent of moneys recovered by the applicant upon execution of the judgment: Commonwealth v McCormack (1984) 155 CLR 273 at 276-277; TCN Channel 9 Pty limited v Antoniadis [No 2] (1999) 48 NSWLR 381 at 383 at [9] - 384 [11].
9. Because the judgment is liable to be set aside, and cannot therefore be said to have finally disposed of the rights of the parties, it is apt to be characterised as an "interlocutory" rather than a "final" judgment: Hall v Nominal Defendant (1966) 117 CLR 423; Licul v Corney (1976) 180 CLR 213; Carr v Finance Corporation of Australia Ltd [No 1] (1981) 147 CLR 246. In Hall, Taylor J (at 439-440) accepted that an order dismissing an application to set aside a default judgment does not constitute a bar to a subsequent application of the same character. In Carr v Finance Corporation of Australia Limited [No 1] the High Court specifically so found in the context of a judgment entered in default of a defence in proceedings for the possession of land. A default judgment (including a judgment in default of appearance) is no less an interlocutory judgment than a refusal to set aside such a judgment.
10. Absent an appearance by the first respondent, the applicant's judgment against him was not only deprived of the character of a "final" judgment, but it could not be said to have been obtained after a hearing on the merits. Such hearing as there was appears to have focused on procedural issues consequent upon a default in filing a defence and in appearance before the Court.
11. Principles governing the finality of judicial proceedings include discussion of res judicata and issue estoppel. They are closely related and, not uncommonly, discussed together. In Blair v Curran (1939) 62 CLR 464 at 532 Dixon J described the distinction between them in the following terms: "The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in … former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by [a] prior judgment, decree or order."
12. Fullagar J elaborated the distinction, in Jackson v Goldsmith (1950) 81 CLR 446 at 466 in the following terms: "…the rule as to res judicata can be stated sufficiently for present purposes by saying that, where an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action. This rule is not, to my mind, correctly classified under the heading of estoppel at all. It is a broad rule of public policy based on the principles expressed in the maxims 'interest reipublicae ut sit finis litium' and 'nemo debet bis vexari pro eadem causa'. The rule as to issue estoppel is generally stated in the words of Lord Ellenborough in Outram v Morewood (1803) 3 East, at p 355; (102 ER, at 633). His Lordship said that parties and privies are 'precluded from contending to the contrary of that point, or matter of fact, which having been once distinctly put in issue by them . . . has been, on such issue joined, solemnly found against them.' This is, I think, a true case of estoppel, analogous to estoppel by deed and estoppel by representation. The same rule was concisely stated by Dixon J in Blair v Curran (1939) 62 CLR, at 531 …"
13. in Kuligowski v Metrobus (2004) 220 CLR 363 at 373 (21) the High Court accepted that for the "doctrine of issue estoppel" to apply to a second set of proceedings, the requirements are: (1) that the same question has been decided; (2) that the judicial decision which is said to create the estoppel was final; and (3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.
14. The Court went on to record, at 220 CLR 375 [25]: "A final decision … is one which is not of an interlocutory character, but is completely effective unless and until rescinded, altered or amended. The fact that an appeal lies from a decision does not make it any less final … It must be 'final and conclusive on the merits, 'the cause of action must be extinguished by the decision which is said to create the estoppel' …"
15. A key assumption of discussion of principles governing res judicata and issue estoppel, not always articulated, is that the first set of proceedings was the subject of contest culminating in a determination on the merits: Spencer Bower and Handley, Res Judicata (4th ed, 2009), chapter 6.
16. This does not sit comfortably with the concept of a default judgment, the practical essence of which is that judgment is entered without a hearing on the merits. Against that, recognition must be given in proceedings such as the present to the status of a judgment of the Court, as a superior court of record; such a judgment is valid unless and until set aside: State of New South Wales v Kable (2013) 252 CLR 118.
17. Spencer Bower and Handley, Res Judicata (LexisNexis, UK, 4th edition, 2009) records the following at paragraphs [2.22]-[2.23], omitting footnotes: "[2.22] A judgment (or order) by default is a judicial decision, whether the default was in filing an appearance; in pleading; in appearance at the hearing; or in prosecution of, or resistance to, an appeal … A judgment by default in any form will, unless and until set aside, conclude the matters expressly decided by its operative and declaratory parts. [2.23] An issue estoppel will only be created by a default judgment if an issue was determined in favour of the claimant which can be formulated with complete precision."
18. One of the authorities cited by Handley JA as editor of this work is Kok Hoong v Leong Cheong Kweng Mines Limited [1964] AC 993. There, commencing at [1964] AC 1010, the Privy Council wrote as follows (omitting footnotes): "…[There] is no doubt that by the law of England, which is the law applicable for this purpose, a default judgment is capable of giving rise to an estoppel per rem judicatam. The question is not whether there can be such an estoppel, but rather what the judgment prayed in aid should be treated as concluding and for what it is to stand. For, while from one point of view a default judgment can be looked upon as only another form of a judgment by consent… and, as such, capable of giving rise to all the consequences of a judgment obtained in a contested action or with the consent or acquiescence of the parties, from another a judgment by default speaks of nothing but the fact that a defendant for unascertained reasons, negligence, ignorance or indifference, has suffered judgment to go against him in the particular suit in question. There is obvious and, indeed, grave danger in permitting such a judgment to preclude the parties from ever reopening before the court on another occasion, perhaps of very different significance, whatever issues can be discerned as having been involved in the judgment so obtained by default. It is true that, in certain contexts, estoppel per rem judicatam has been given a very wide operation. The rule laid down by [1011] Wigram V-C in Henderson v Henderson (1843) 3 Hare 100, 115 has been frequently cited with approval … Their Lordships are satisfied that, where a judgment by default comes in question, it would be wrong to apply the full rigour of any principle as widely formulated as that of Henderson v Henderson. It may well be doubted whether the Vice-Chancellor had in mind at all the peculiar circumstances of a default judgment and whether such a judgment would not naturally fall into his reservation of 'special cases'. In any event it is clear from what has been said in other authorities more immediately directed to the point that a much more restricted operation must be given to any estoppel arising from a default judgment. Howlett v Tarte (1861) 10 CBNS 813 is usually referred to as supplying the governing rule in this context. It is at any rate a decision explicitly arising out of a judgment by default. The report of it contained several short and separate opinions, but the effect of them is taken to be that, while such a judgment can give rise to estoppel in subsequent proceedings, the defendant in such proceedings is estopped only from asserting something which, if pleaded in the earlier action, would have amounted to a direct traverse of what was there asserted and founded upon by the party who obtained that judgment…[1012]. ... In their Lordships' opinion [New Brunswick Railway Co v British and French Trust Corporation Ltd [1939] AC 1] can be taken as containing an authoritative reinterpretation of the principle of Howlett v Tarte in simpler and less specialised terms. This reinterpretation amounts to saying that default judgments, though capable of giving rise to estoppels, must always be scrutinised with extreme particularity for the purpose of ascertaining the bare essence of what they must necessarily have decided and, to use the words of Lord Maugham LC, they can estop only for what must 'necessarily and with complete precision' have been thereby determined."
19. The Privy Council's reference to Henderson v Henderson can be taken, in a contemporary Australian context, to be a reference to Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 598-599 and 602-603.
20. Upon an application of the Kok Hoong case, the starting point is an enquiry as to what the default judgment said to preclude further action must be taken to have decided.
21. Accepting that the respondents should be allowed an opportunity to contend otherwise, prima facie the default judgment of 10 December 2013 must be taken to have decided that, upon the first respondent's default in repayment of the principal sum due under the mortgage at the expiration of the six month term of the loan advanced on the security of the mortgage, the applicant had a contractual right (to the point of judgment) to charge interest at the "higher rate" of 12.5% per month (150% per annum).
22. Unless and until the judgment is set aside or varied, it precludes the first respondent (or, through him, the second respondent) from contending otherwise. The Court has no discretion to deny the application of principles of res judicata because of special circumstances: Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 504-505 and 512.
23. In fairness to the respondents I am minded, after publication of these reasons for judgment, to allow them an opportunity to consider whether an application is to be made to set aside or vary the default judgment, either generally or on terms that would permit the applicant to retain what it recovered from the proceeds of sale of the Auburn property, but perhaps be at a greater risk than otherwise of a finding of "penalty" or "clog on the equity of redemption" in relation to its claim for further relief. That would permit those questions to be determined on their merits untroubled by the judgment.
24. The processes of the Court having been engaged by the first mortgagee's payment of funds into court, and by the applicant's motion for funds to be paid out to it, the Court remains in control of its own processes; is bound, in the interests of justice, to case manage proceedings having regard to the overriding purpose (for which s 56 of the Civil Procedure Act 2005 provides) of facilitating a just, quick and cheap resolution of real issues; and must endeavour (as directed by s 63 of the Supreme Court Act 1970 NSW) to determine all matters in controversy, completely and finally, without a multiplicity of proceedings.

THE MERGER QUESTION

1. Upon an assumption that the default judgment is not set aside or varied, attention must turn to the question whether any (and, if so, what) rights of the applicant merged in the judgment so that, whilstever it stands, any ongoing entitlements the applicant has are constrained by the merger.
2. Conversely, and perhaps more critically, attention must turn to the question whether any contractual entitlement the applicant may have to charge post-judgment interest is affected (and, if so, how) by principles governing penalties and clogs on the equity of redemption.
3. A covenant in a mortgage for payment of a principal sum merges in a judgment obtained on the covenant, and the cause of action on the covenant ceases to exist: Spencer Bower and Handley, Res Judicata (4th edition, 2009), Chapter 19; Fisher and Lightwood, Law of Mortgage (3rd Australian edition, 2014), paragraphs [36.14] and [39.48]; Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 510-511.
4. The classic statement of the law is that of Fry LJ found in Ex Parte Fewings; In Re Sneyd (1883) 35 Ch D 338 at 355, confirmed in Economic Life Assurances Society v Usborn [1902] AC 147 at 149-150; reaffirmed in Director General of Fair Trading v First National Bank Plc [2002] 1 AC 481 at 487-488; and applied in General Credits (Finance) Pty Ltd v Brushford Pty Ltd [1975] 2 NSWLR 786 at 788F-789C and countless other cases, including Multispan v Portland (No 2) [2001] NSWSC 1047 at [3]-[4]: "Where there is a covenant for the payment of a principal sum, and a judgment has been obtained upon the covenant for that sum, it is plain that the covenant has merged in the judgment, and, if there is a covenant to pay interest which is merely incidental to the covenant to pay the principal debt, that covenant also is merged in a judgment on the covenant to pay the principal debt. Of course a covenant to pay interest may be so expressed as not to merge in a judgment for the principal…"
5. Whether there is a contractual right to charge post-judgment interest on a principal sum the right to recover which has merged in a judgment depends upon construction of the particular contract. What is required is a covenant to pay interest that, objectively construed, is intended to operate after judgment, as a source of an obligation to pay interest.
6. The present mortgage goes further than a provision merely for payment of post-judgment interest on the amount lent to the first respondent, or on the amount of the "principal sum" identified in the mortgage. It provides for the payment of interest on the judgment debt, a larger sum than either of those amounts including, as it does, interest compounded on interest.
7. If (as I find, upon an assumption that it is enforceable) the first respondent's express contractual obligation to pay post-judgment interest at the "higher rate" did not merge with the default judgment entered in favour of the applicant, that obligation nevertheless falls to be construed in the context of the whole of the contract documentation. Merger in the judgment of the applicant's cause of action on the covenant to repay the principal sum and pre-judgment interest does not preclude reference to the whole of the contract documentation in construction, and characterisation, of the first respondent's putative, independent obligation to pay post-judgment interest at the "higher rate".
8. That being so, it is, prima facie, reasonably arguable that, even if the default judgment were never to be set aside or varied, the putative obligation to pay post-judgment interest: (a) is not the subject of any adjudication giving rise to a res judicata or an issue estoppel; and (b) is as amenable to a finding of penalty, or a finding of clog on the equity of redemption, as it would have been had the default judgment never been entered.
9. It is not necessary or appropriate, at this stage of the proceedings, that I form a concluded view about this. The parties' assistance is required, and they should have an opportunity to address the Court on it, before the applicant's motion is determined.

Enforcement costs

1. Upon a consideration of questions of "penalty" and "clog on the equity of redemption", the nature and scope of the applicant's putative entitlements to "enforcement costs" may, arguably, be characterised as an element of a collateral regime of obligations brought into play by the parties' contract upon a mortgagor's default.
2. If that is not a correct characterisation of enforcement costs, separate consideration may need to be given to them in the event that the putative obligation of the first respondent to pay interest at the "higher rate" is characterised as a penalty or a clog on the equity of redemption. In that case, the obligation to pay costs might be thought to fall away if the obligation to pay interest (to which the obligation to pay costs is ancillary) falls by the way.
3. Prima facie, this topic needs to be addressed before any order is made allowing the applicant a portion of the funds in court.

Statutory interest

1. If the putative contractual obligation of the first respondent to pay post-judgment interest at the "higher rate" is held to be void, or unenforceable, a question arises as to whether it is too late for the applicant to seek, or to be granted, an order under CPA s 101 that it be allowed such interest at the "contract rate" of 48% per annum. The second respondent contends that it is too late because the judgment entered in the applicant's favour did not include an element of CPA s 101 interest or a reservation of the possibility of changing the rate of interest which, by operation of law, attached to the judgment: Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256 at [30].
2. If that contention is correct, the applicant might see in an order for the default judgment to be set aside something of an advantage. If the judgment were to be set aside, the applicant might more readily invoke the predisposition apparent in cases such as Mercantile Credit's Limited v McDowell [1980] 2 NSWLR 101 at 104B and (by reference to Asia Pacific International Pty Ltd v Dalrymple [2000] 2 Qd R 229, less emphatically) Multi-Span v Portland (No 2) [2001] NSWSC 1047 at [8]-[10] to allow statutory post-judgment interest at a contract rate.

Conclusion

1. Having reviewed the parties' contract documentation, and considered the possible operation of principles governing penalties and clogs on the equity of redemption, as well as implications of the applicant's default judgment, I am not presently satisfied that the applicant has any entitlement to funds in court.
2. In accommodating the Court's management functions vis-à-vis the funds in court, and in case management of the parties' competing claims to those funds, I remain mindful of questions of onus of proof such as those noticed in Bay Bon Investments Selvarajah [2008] NSWSC 1251 at [51]-[52].
3. I remain mindful, also, that, in assessing whether stipulations for the payment of interest and enforcement costs in the parties' mortgage involve a penalty or a clog on the equity of redemption, allowance must be made for both: (a) the fact that the market in which the parties transacted business was one for lenders of last resort; and (b) equity jurisprudence, according to which principles governing equitable intervention pay heed to a need for minimum standards of fair dealing.
4. The issues of principle identified in this judgment need to be addressed with the benefit of an opportunity being allowed to the parties, as they may be advised, to apply for relief ancillary to their respective claims for monies to be paid out to them; to place further evidence before the Court; or simply to make further submissions.
5. Having published these reasons for judgment, I propose to give directions designed to allow each party (including the first respondent, hitherto absent during the hearing of the applicant's motion) an opportunity to review the case before proceeding, in the absence of fresh developments, to determine the motion.

EDITORIAL NOTE (28 June 2017) After protracted negotiations these proceedings were settled by an agreement to which the applicant and both respondents were party. Accordingly, orders were made for the payment out of funds in court without need of a supplementary judgment.

Amendments 28 April 2016 - para 85 - Dean to Deane. para 98 - the Bowen to Bowen para 103 - Full Court of the South Australian Full Court to Full Court of the South Australian Supreme Court. para 138 - Privy Council to the Privy Council. 29 June 2017 - Editorial Note (28 June 2017) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 June 2017