1 The plaintiff owns a property at Five Dock which is the subject of a first registered mortgage to the defendant (which I shall call "Perpetual"). There has been default under the mortgage. The plaintiff, however, has entered into a contract for sale which is due to be completed in two days time. The contracted sale price is $980,000.
2 Perpetual has indicated to the plaintiff's solicitors the estimated amount of the debt and interest on the proposed settlement date, namely, $916,607.98. But the plaintiff's solicitors also say that there will be "additional legal fees and sale fees to date for marketing done by our agent regarding the sale". Perpetual takes the view that these expenses incurred by it towards exercise of its power of sale are secured by the mortgage and, accordingly, form part of the secured monies which must be paid in full to obtain a discharge.
3 The plaintiff, by summons filed in court this morning, sues Perpetual on various statutory causes of action. It pleads a provision of the Australian Securities and Investments Commission Act 2001 (Cth) and provisions of the Contracts Review Act 1980 by way of challenge to Perpetual's reliance on a contractual licence conferred by clause 8.1 of the mortgage for Perpetual, as mortgagee, to enter into possession of the property following default. It is contended that to act in accordance with that clause by going into possession while possession proceedings in the Common Law Division remained undetermined amounted to unconscionable conduct forbidden by statute and that reliance on the clause was unjust within the meaning of the Contracts Review Act.
4 As a separate claim in the summons, it is said by the plaintiff that it is unjust within the meaning of the latter Act for Perpetual to rely on the clause in the mortgage entitling it to recover and to have secured by the mortgage the costs and expenses incurred by it in and towards its exercise of the power of sale. These are within the definition of "enforcement expenses" in clause 1.1 of the mortgage (or, at least, the filed memorandum, the terms of which apply to the mortgage). The payment obligation in respect of "enforcement expenses" is in clause 2.4.
5 It is the latter aspect of the principal claims - that is, the Contracts Review Act challenge to the clause allowing Perpetual to recover "enforcement expenses" as part of the secured moneys - that forms the basis for the interlocutory relief claimed by the plaintiff in his notice of motion filed this morning. The interlocutory claim is for orders to the effect that the mortgage be discharged by Perpetual upon payment of the notified figure for principal and interest and that the balance of the sale proceeds after expenses of sale be paid into court to abide determination of the Contracts Review Act claim with respect to the provision of the mortgage under which enforcement expenses form part of the secured monies.
6 I suppose the first thing to do is to consider whether the plaintiff has shown that there is a serious question to be tried regarding that substantive claim. The evidence is sparse. The plaintiff says in his short affidavit that he migrated to Australia from Italy in 2000, that he has had very limited business experience in Australia, that he has difficulty comprehending English except when things are explained slowly, that he was in financial difficulty when he signed the mortgage to Perpetual and was desperately in need of the loan, that he could not attempt to negotiate with Perpetual and simply signed what was put in front of him, that he knew in general terms that he would have to pay principal and interest to Perpetual, that he did not know that he would have to pay anything else, that he is surprised that he is expected to pay more and that the mortgage was not explained to him by Perpetual. All this is said in an affidavit in the English language apparently affirmed by the plaintiff without assistance of or intervention by any interpreter. As I have said, the evidence is sparse.
7 There are some somewhat disturbing features of the affidavit of which not the least is the apparent expectation of the plaintiff, in retrospect, that Perpetual rather than some adviser of his own should have explained the mortgage to him and his apparent ability, to which I have referred, to affirm an affidavit in English despite his professed difficulties in understanding English.
8 Having regard to the criteria laid down in the Contracts Review Act itself as explained by the Court of Appeal in cases such as West v AGC (Advances) Ltd (1986) 5 NSWLR 610, Elkofairi v Permanent Trustee Company Limited (2003) 11 BPR 20,841 and Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41, I suppose it is conceivable that the basic evidence of the plaintiff could lead to a determination favourable to him under the Contracts Review Act with respect to the clauses of the mortgage regarding the clause allowing recovery by Perpetual of enforcement costs. I say this because of the essentially evaluative and discretionary nature of the statutory jurisdiction based on the criteria emerging from the Act (particularly ss.7 and 9) and recognising that the bare bones of the evidence so far given would no doubt have some flesh added to them before the matter came to trial.
9 While the case cannot be said to be a particularly compelling one, at least at this stage, I am satisfied that there is a serious question to be tried on the Contracts Review Act aspect concerning the clause which includes enforcement expenses in the moneys secured.
10 If the plaintiff were ultimately fully successful in that claim, the result would not only be that the enforcement costs were not secured by the mortgage but also that they were not recoverable at all by Perpetual. The circumstances may thus be regarded as akin to the case where a mortgage secures a contingent liability. In such a case the mortgagor who wishes to redeem cannot be stopped by the existence of the contingency.
11 The situation in that kind of case is as discussed by Palmer J in Liberty Funding Pty Ltd v Steele-Smith [2004] NSWSC 1100. His Honour said at para 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.
12 In Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27, a case to which Palmer J referred, Hodgson JA referred at para 63 to a mortgagee's right to require not merely payment of the amount secured by the mortgage but also "payment of or security for the probable costs of any contest". His Honour was referring to costs of determining by an accounting the precise amount of the secured moneys. Payment into court would be a form of security for that kind of purpose.
13 Payment into court is in any event an established solution in cases where there is doubt about the extent of the secured debt. One need only refer to the decision of the High Court in Inglis v Commonwealth Bank of Australia (1972) 126 CLR 161 where it was held that exercise by a mortgagee of the power of sale should only be enjoined if there is paid into court the amount claimed by the mortgagee.
14 Given the analogy in this case with a contingent liability, I consider that moneys should be paid into court. However, the court should not make the order for which the plaintiff contends, that is, an order that the whole of the net proceeds of sale over and above the secured principal and interest be paid into court. Rather, in the manner suggested by Inglis v Commonwealth Bank of Australia, Perpetual should nominate the estimated amount of its claim under clause 2.4 with respect to "enforcement expenses" and that amount should be paid into court pending determination of the Contracts Review Act claim concerning clause 2.4. I will make an order to that effect unless the parties prefer to agree to some regime which sees the amount in question, that is the amount nominated by Perpetual, as sufficient to cover enforcement expenses go into an interest-bearing controlled monies account with interest to follow the principal when it is paid out.
15 I would be assisted by short minutes giving effect to what I have said.