Australia and New Zealand Banking Group Ltd v Mishra

Judgment 1The Plaintiff sought possession of two properties of the Defendants in Northbridge as a result of alleged defaults under three facility arrangements. A Defence was filed on 13 January 2012 verified by the First Defendant and the same Defence was filed again on 24 February 2012 verified by the Second Defendant. 2Shortly before the three facilities were entered into on 20 November 2008 (the November 2008 Facilities) the Plaintiff had provided an earlier facility on 15 July 2008 secured over a property in Giraween (referred to in the Defence as the Targo Road Facility). The Plaintiff does not make any claim in the present proceedings on the basis of the Targo Road Facility. 3In the Defence the Defendants pleaded these matters: (1) In breach of the Targo Road Facility the Plaintiff wrongfully withheld the sum of $150,000 which ultimately prevented and hindered the Defendants in repaying the November 2008 Facilities; (2) In making representations and not providing the Defendants with the $150,000 the Plaintiff engaged in misleading and deceptive conduct contrary to the Australian Consumer Law; (3) As a result of the representations made in relation to the November 2008 Facilities the Plaintiff was estopped from taking possession of the Northbridge properties; (4) By reason of the misleading and deceptive conduct the Plaintiff engaged in unconscionable conduct. 4The Defence went on to say: 14. The Defendants seek orders from the Court varying the contracts or arrangements or orders to reinstate the Defendants into an equitable position had the estoppel or the misleading and deceptive conduct not have occurred. Particulars The Defendants seek orders from the Court which have the effect or substance of providing a moratorium on the Plaintiff to seek or enforce possession of the security properties... ... 17. The Defendants claim relief for the Unconscionable conduct. Particulars The Defendants seek orders form the Court which have the effect or substance of providing a moratorium on the Plaintiff to seek or enforce possession of the security properties... 5For some time after the proceedings commenced the Defendants had indicated that they wished to file a cross-claim. Orders were made for them to do so on 14 February 2012, 3 April 2012, 8 May 2012 and 5 June 2012. 6When the Defendants finally provided on 17 May 2012 answers to the Plaintiff's request for particulars made on 20 February 2012 the covering email said that the cross-claim would follow shortly. No cross-claim was ever filed or served. 7By mid-May 2012 the Defendants had repaid in full the Targo Road Facility and one of the November 2008 Facilities, and had reduced the other two Facilities. To pay out and discharge the remaining balance due to the Bank under the two remaining of the November Facilities the Defendants say that they arranged finance through HomeLoans Ltd. On 22 June 2012 the Defendants' solicitors (KB Legals) informed the Bank's solicitors (Kemp Strang) in a telephone conversation that the Defendants had obtained refinance and wished to pay out the loans. 8On 25 June 2012 Kemp Strang wrote in reference to that telephone conversation and said: Accordingly, we request that you provide us with a copy of the unconditional letter of offer for refinance to Westpac. If it is the case that your clients have obtained refinance with the debt owed to our client, please confirm whether your clients still intend to file and serve a cross-claim. We note that our client will not discharge its securities should your clients serve a cross-claim against our client until that cross-claim is finally determined. 9KB Legals sent copies of two letters from HomeLoans dated 26 June 2012. The letters were identical apart from the reference in each to the specific facility with ANZ with which the particular letter was concerned. The letters said: We hereby advise that the above named wish to pay out their existing mortgage(s) to ANZ [then the ANZ facility number was provided] over the above mentioned property(s). Please arrange for the relevant Discharge of Mortgage to be drawn up in anticipation of settlement which is due to be effected as soon as possible. The clients have been instructed to advise your office in writing of their intention to discharge the mortgage(s) over the abovementioned property(s). Please provide pay out figure (plus daily rate] at your earliest convenience. 10Although those letters might not be thought to be unconditional letters of offers of refinance, KB Legals sent an email to Kemp Strang on 23 July 2012 saying that their clients were in a position to settle on Friday of that week (27 July) and asking for a payout figure. That is a fairly strong indication that the Defendants were in a position to discharge the mortgage by the provision of refinance. 11There appears to have been no response to that email because on 25 July a further email was sent by KB Legals to Kemp Strang asking as a matter of urgency for them to provide a payout figure to discharge the mortgage facilities because KB Legals wished to book in settlement for Friday afternoon. 12In the meantime, KB Legals had written on 24 July 2012 saying this: I refer to our telephone conversation today and I advise that our clients demand for a discharge settlement to payout the mortgages is not a settlement of our clients' claims against your client. Accordingly our client is not prepared to release your client from any claims they have against your client. Our client merely wants to discharge and pay-out your client on monies properly due on the loan account(s). Any failure of your client to enable our client to pay-out the mortgage due to our client not releasing your client from claims for wrongful acts and conduct is in fact a clog on the equity of redemption. Contrary to your assertion any alleged security held by your client for contingent liabilities does not cover liability of your client for its own wrongful conduct including breaches of terms of the loan facility or for tortious or statutory liability for misleading and deceptive conduct. If your client's position was maintained in respect to security for contingent liabilities any bank could totally breach all its obligations and then claim if is covered by the terms of its securities This would be an extremely brave proposition to put before a Court. I look forward to the requested payout figure. Please also advise who I should contact to book in settlement. (emphasis added) 13On 26 July 2012 Kemp Strang wrote referring to the letter of 24 July and relevantly said this: We refer to your letter dated 24 July 2012, to your telephone conversation with the writer on 24 July 2012 and to your emails dated 25 and 28 July 2012. ... 2. Our Client's Position 2.1 We note that you have advised us that your clients intend to file a Cross Claim against our client in the Proceedings on 27 July 2012 ("Cross Claim"). 2.2 Accordingly, our client requires security for the costs it will incur in defending the Cross Claim in the sum of $50,000. 2.3 Our client's position is supported by the following authorities: (a) Re Rudd and Son Limited; Re and Rudd Limited (1986) 2 BCC 98955; (b) Evans v Evans (Unreported, Supreme Court of New South Wales, McLelland J, 28 March 1983); (c) Project Research Pty Ltd v Permanent Trustee of Aust Ltd (1990) 5 BPR 11,225; (d) Liberty Funding Pty Ltd v Steele-Smith [2004] NSWSC 1100; and (e) Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27. 3. Payout Figure 3.1 Accordingly, as at 27 July 2012, we advise that in order to discharge the mortgages given by your clients to our client, our client requires the following Bank Cheques: (a) $ 1,475,260.12 made payable to Australia and New Zealand Banking Group Limited; and (b) $50,000 made out to Australia and New Zealand Banking Group Limited. 3.2 We note that the amount referred to at paragraph 3.1(b) is our client's best estimate as to its costs to defend your clients" threatened cross claim, which is a contingent liability owed to our client by your clients and secured by the mortgages given by your clients to our client. 3.3 Alternatively, our client will execute a discharge of its mortgages on the provision of the following: (a) a bank cheque in the sum of $1,475,260.12 made payable to Australia and New Zealand Banking Group Limited; and (b) your clients provide to our client security, acceptable to it in its sole and unfettered discretion, in the sum of $50,000. 14On 30 July 2012 KB Legals asked if the Bank was prepared to allow the Defendants to pay out the existing mortgages for payment of the sum of $1,475,260.12 plus interest from 27 July 2012 but with no amount of $50,000 for security as the Bank had demanded. In such circumstances the Defendants said that they would consent to a discontinuance of the proceedings but they would not enter into a Deed of Release because the Defendants would reserve their rights. 15On 1 August 2012 Kemp Strang wrote saying that the Bank was not prepared to discharge its securities where the Defendants reserved their rights to make a claim against the Bank after the securities had been discharged. The letter concluded: In circumstances where your clients maintain that they have a claim against our client, our client will only agree to discharge its securities on the terms referred to in paragraph 3 of our letter dated 26 July 2012. 16On the same day a without prejudice letter was sent by Kemp Strang offering to reduce the payout figure in return for a Deed of Release and a Notice of Discontinuance. 17Neither of the courses offered was acceptable to the Defendants who were not prepared either to enter into a Deed of Release nor to pay the $50,000 as demanded by the Bank. 18The proceedings were then re-listed on 21 August 2012 because the directions made on 5 June 2012 had not been complied with and the matter had not been resolved. The Defendants indicated a desire to file a Notice of Motion to enable them to pay out the mortgage. On 21 August 2012 orders were made in relation to the filing of such a Notice of Motion and evidence from both sides concerning it. 19On 22 August 2012 KB Legals wrote to Kemp Strang saying that they wished to pay a further $600,000 off the HomeLoan account and to pay out fully the home loan. They asked for payout figures. Those were provided the next day. 20The matter was due to come back before the Court on 28 September 2012 but the Defendants had not filed any Notice of Motion. KB Legals wrote on 27 September 2012 saying that they had not filed a Notice of Motion as the Defendants had exchanged contracts on properties and were expecting the sale proceeds to pay out the remaining monies. The letter went on to say that the contracts were terminated by the purchaser pursuant to a subject-to-finance clause and the Defendants were waiting to exchange on another property to enable a payout. 21KB Legals wrote a lengthy letter to Kemp Strang on the same date arguing their position in relation to the payout. 22The letter concluded by saying that the Defendants were waiting to exchange contracts on 1 October 2012. They said the purchasers were ready and were only waiting for 1 October to avail themselves of a new FHOS Scheme. The letter enclosed orders which were to enable a payout of the loans and a dismissal of the proceedings but with a reservation of rights to the Defendant in relation to the loan facilities. The letter was said to be an open letter and the Defendants said they would seek indemnity costs if the Bank would not agree to the proposed orders enabling the payout of the loan. 23When the matter came before the Court on 28 September the Bank was directed to provide a payout figure to the Defendants for a settlement of the loans. That was provided on 8 October 2012 and settlement occurred on 12 October 2012. The Defendants paid $514,457.12 to discharge the mortgages. That figure included the Bank's costs. 24Included in those costs was an amount of $17,844.05 incurred from 31 July 2012 until settlement. On the present application the Defendants claimed to be entitled to that amount on the basis that they were ready, willing and able to pay out the mortgages in July, and claimed that the costs incurred since that time should not be payable by them. 25The Defendants said that the Bank was not entitled to demand a Deed of Release as a condition of an agreement to discharge the mortgages. The Bank submitted, however, that if a Deed of Release was not to be provided by the Defendants the Bank was entitled to require payment of an amount that might cover their costs of defending any cross-claim or fresh claim that might be brought by the Defendants. In that regard the Bank relied on the line of authority referred to in Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27. 26The Bank relied upon the provisions of the mortgage to justify the right to seek an amount that secured its costs in the event that the Defendants proceeded with the threatened claim. The relevant provisions of the mortgage are these: 2.2 What is Secured Money? Regulated Arrangements This Mortgage will only secure obligations in relation to a Regulated Arrangement if I acknowledge or agree the Regulated Arrangement will be covered by this Mortgage. If I do then Secured Money in relation to the Regulated Arrangement means: (a) all amounts that I am required to pay under the Regulated Arrangement; and (b) Enforcement Expenses. Unregulated Arrangements This Mortgage secures all my obligations in relation to all Unregulated Arrangements. To the extent it does so, Secured Money means all money owing to ANZ for any reason: (a) by me; (b) now or in the future; (c) actually or contingently (money is 'contingently' owed where I have an obligation to pay ANZ if something happens or is discovered), other than under a Regulated Arrangement. It includes: ... (v) amounts payable under clause 9. ... 9.2 Expenses I will reimburse ANZ for its expenses in relation to the following. ... (e) The contemplated, actual or attempted enforcement of, or exercise of, its powers under this Mortgage. ... It also includes legal fees (including in-house lawyers charged at their usual rates) on a full indemnity basis in relation to any of the above. 10.3 Release of Mortgage I am only entitled to a release of this Mortgage if; (a) I have paid all the Secured Money to ANZ; and (b) ANZ is satisfied that there is no likelihood that ANZ will be required to repay any of the Secured Money to me for any reason. ... Enforcement Expense means any reasonable amount ANZ reasonably spends or incurs in' relation to: (a) the actual or contemplated enforcement or exercise of its powers under this Mortgage; or (b) ... after a breach of this Mortgage or any Regulated Arrangement occurs. ... It also includes legal fees (including in-house lawyers charged at their usual rates) on a full indemnity basis in relation to any of the above. (emphasis added) 27The Bank relied on the decision in Liberty Funding Pty Limited v Steele-Smith [2004] NSWSC 1100 and submitted that the relevant clauses in the mortgage in that case did not differ in substance from the present clauses. The Defendants submitted that Liberty Funding was clearly distinguishable because in that case the mortgagor had already commenced the proceedings against the Bank claiming that the mortgage had been taken by the Bank unconscionably. The Defendants submitted that, by contrast, they had not filed a cross-claim and had not commenced fresh proceedings but had merely refused to release any rights that they may have. 28In Overton Hodgson JA (with whom Handley and Stein JJA agreed) said at [63]: Where a dispute has arisen or is reasonably anticipated, a mortgagee is entitled to require not merely payment of the amount secured by the mortgage but also payment or security for the probable costs of any contest: see Bank of New South Wales v O'Connor (1889) 14 AppCas 273; Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 11,225. If the mortgagee does not specify a payout figure which bears some reasonable relationship to the amount truly owing and anticipated costs, then this may amount to unreasonable conduct or misconduct which disentitles the mortgagee to costs subsequently incurred in determining the rights of the parties: see Cotterell v Stratton (1872) LR 8 Ch.App. 295, In Re Watts (1882) 22 ChD 5, Rourke v Robinson [1911] 1 Ch 480, Webb v Crosse [1912] 1 Ch. 323, Charles v Jones (1885) 35 ChD 544, and Heath v Chinn (1908) 98 LT 855. Furthermore, where the mortgagee does not require payment or security for the probable costs of any contest, and a question later arises as to whether the mortgagor's tender was sufficient to entitle the mortgagor to redemption, the mortgagee cannot then claim that the tender was insufficient because it did not include provision for those costs: I know of no direct authority for that proposition, but in my opinion it follows from the principles I have discussed. 29If the stipulation of the Bank had simply been that it would not redeem the mortgage without a Deed of Release of all the Defendants' rights against the Bank it is likely such a stipulation would be inconsistent with or repugnant to the contractual and equitable right to redeem and in that way amount to a collateral advantage to the Bank: Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 at 61; Baker v Biddle (1923) 33 CLR 188 at 194-195, 196-197. 30However, the Bank's position was one where it accepted that a Deed of Release would not be provided and, in reliance on Overton and other similar authorities, stipulated the requirement for a payment additional to what was otherwise due as a payout of the facilities secured by the mortgage as security for the probable costs associated with what had been threatened. So much is clear from the last paragraph of the Bank's open letter of 1 August 2012. 31The issue is, therefore, whether it could be said in all the circumstances that a dispute could be reasonably anticipated. The Defendants did not contend that the amount of $50,000 did not bear "some relationship to the amount truly owing and anticipated costs" Overton at [63]. They said only that the Bank was not entitled to stipulate any amount in excess of the amount owing under the facilities. 32In my opinion the Bank was entitled to require the payment of the extra moneys as a security for the costs of any claim by the Defendants. The provisions of the Mortgage are not relevantly different from those contained in the Mortgage considered by the Full Court of the Supreme Court of South Australia in Perpetual Trustees Australia Ltd v Barker [2004] SASC 58 at [32]-[33]. Duggan J said at [33]: In my view, there is no basis for confining the words in cl 7.2 of the mortgage 'all reasonable enforcement expenses the Mortgagee reasonably incurs or expends in exercising its rights under the Mortgage' to expenses incurred in actions or procedures initiated by the mortgagee in contradistinction to responses by the mortgagee to actions or procedures instituted by the mortgagor to prevent the enforcement of rights by the mortgagee. 33That decision was followed by Palmer J in Liberty Funding where the relevant clause of the mortgage (clause 20) provided: When we ask, you must pay us the reasonable expenses we reasonably incur in enforcing this mortgage after you are in default (including in preserving and maintaining the property - such as by paying insurance, rates and taxes for the property). This applies to expenses we incur before or after taking action under clause 19. 34Palmer J said at [21]: Although the words of cl 20 of the Memorandum in the present case are a little different from the words in Barker, I think that their substance is the same. With respect, I agree with the reasoning of Duggan J in the passage quoted above. In my opinion, enforcement of a mortgagee's rights, as contemplated in cl 20 of the Memorandum, is not confined to the taking of steps to exercise a power of sale or other right conferred by the mortgage: it encompasses whatever is necessary to protect and preserve the mortgagee's rights when their validity is challenged or their exercise is sought to be prevented or impeded. 35The case is authority here for the proposition that the clauses in the present mortgage are wide enough to cover the charging of contemplated costs if the Bank otherwise has the right to do so. That authority is not weakened by the factual distinction that the mortgagor in Liberty Funding had commenced proceedings challenging the mortgage whereas in the present case no cross-claim had been filed nor proceedings commenced. 36In the present case the Defendants had been threatening to file a cross-claim since at least February 2012. It could reasonably have been anticipated that the basis for the cross-claim would be those parts of the Defence referred to in paragraphs [3] and [4] above. Relief sought by reason of those matters would be likely to involve a challenge to the rights of the Bank to enforce the mortgage. 37As late as 24 July (see paragraph [12] above) the Defendants expressly said that any discharge was not a settlement of the Defendants' claims against the Bank. When the Bank thereafter required payment of the extra $50,000 in reliance on Overton and the other cases the Defendants maintained their position in that regard. Although the Defendants proposed a discontinuance of the proceedings on 30 July and later proposed that the proceedings be dismissed, the proposed Short Minutes of Order put forward by KB Legals as late as 27 September expressly reserved the Defendants' rights in respect of the loan facilities. 38The Bank would have been entitled to have regard to what had been said by KB Legals in their letter of 26 July to assess the seriousness of the threats being made by the Defendants. Part of that letter said this: In most cases where your client exercises power of sale, the unfortunate victims have no financial ability to pay out the indebtedness and respond or alternatively just accede to the economic duress. In our clients' case they do have such a capacity and for this reason our client will not accede to your clients' demands to release it from liability for wrongful conduct. 39In my opinion the continued threat of a cross-claim or proceedings was sufficient to justify the Bank's approach. In Liberty Funding Palmer J said: [25] The usual way in which a mortgagor can obtain a discharge where a contingent liability remains secured under the mortgage is to pay into Court the amount of the contingent liability or a reasonable estimation thereof if the amount cannot be fixed with certainty. So, for example, where a mortgagor threatens proceedings for the taking of an account, the mortgagee is entitled to retain the security to recover the anticipated reasonable costs of such proceedings and the mortgagor may obtain a discharge either by providing alternative security for such costs or by paying into Court an amount equal to the probable reasonable costs of the proceedings: see Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 11,225 at 11,229 per Hodgson J (as his Honour then was); Bank of New South Wales v O'Connor (1899) 14 App Cas 273; Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 at para 63 (per Hodgson JA). (emphasis added) 40In all of those circumstances proceedings by the Defendants to challenge the loan facilities and mortgage can be said to be reasonably anticipated. As Hodgson JA made clear in Overton at [63], if the Bank did not require payment or security for the probable costs of any contest it would lose the right to raise the matter later by asserting that the tender was insufficient to cover those costs. 41Where the Defendants embarked upon the course of threatening a claim against the Bank and maintaining the threat throughout the negotiations for a discharge of the mortgage they cannot be heard to say that the Bank acted unreasonably in refusing to agree to a payout figure which did not include a provision for the costs of defending such a claim. A necessary concomitant of the Defendants' approach is the incurring of additional legal costs by the Bank. 42The Bank did not act unreasonably in incurring those increased costs. The costs were payable pursuant to the terms of the mortgage. 43Accordingly I make the following orders: (1)The Defendants' application in relation to costs paid since August 2012 is dismissed. (2)The Defendants are to pay the costs of this application.