Consideration
103 There was no dispute between the parties about the principles which govern the right of subrogation. Both parties accepted that the right of subrogation exists to preserve securities for the benefit of a third party or guarantor who pays out the debt of a principal debtor.
104 In Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [9] the High Court recognised that the guarantor's right of subrogation operates in favour of a guarantor as against mortgages that rank lower in priority than the relevant creditor's mortgage. The Court said:
What then are the equities where the creditor holds a first mortgage and there are puisne mortgagees? The authorities hold that a second mortgagee cannot complain where the surety utilises by subrogation the security held by the first mortgagee. In Drew v Lockett this was put on the basis that the second mortgagee took its interest with notice and by grant from the equity of redemption enjoyed by the principal debtor in its state remaining after giving full effect to the first mortgage.
(footnotes omitted)
105 In Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174; [2013] NSWCA 393, in the context of the issues there raised, Gleeson JA (with whom Meagher and Leeming JJA agreed) set out the principles governing the equitable doctrine of subrogation including at [51]-[54] that:
51 Thirdly, one well recognised area of subrogation is where there has been payment out by a third party of a prior security: see Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2002, Butterworths) at [9-060] to [9-075].
52 Thus, where a third party has paid off a mortgage, he or she is presumed, unless the contrary appears, to intend that "the mortgage shall be kept alive for his own benefit": see Ghana Commercial Bank v Chandiram [1960] AC 732 at 745; see also Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759 at [53]; Butler v Rice [1910] 2 Ch 277; Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177 at 202 per Windeyer J, who dissented on the facts.
53 Fourthly, the expression "kept alive" means in this context, that the legal relations between the third party and the debtor are regulated as if the benefit of the security had been assigned to the third party: Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 at 236F per Lord Hoffmann.
54 In Cochrane v Cochrane (1985) 3 NSWLR 403 at 405, Kearney J accepted that the principle emerging from Ghana Commercial Bank applies, unless it is shown that the circumstances are such as to displace the presumption. His Honour observed that:
This principle is based on equity's concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive. This is illustrated in the text book examples first, of a third party not being entitled to a right by way of subrogation where he simply lends the money on an unsecured basis to the mortgagor who then uses such funds to pay off the mortgage; and secondly, of a third party being so entitled where he advances the money to pay out the mortgage on the understanding that security would be provided for such advance upon the mortgage being paid out. (Emphasis added)
106 For the purposes of the MMB Guarantee, the guarantor's right of subrogation is governed by the laws of New South Wales and is relevantly set out in s 3(1) of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW).
107 In any event, given the position taken by Warratah at the hearing, which was contrary to that taken in its earlier correspondence with Print Mail, and the proposed undertaking proffered by Warratah, it is clear that Warratah accepts that, in line with well established authority, if Print Mail pays out the amount owing to Warratah pursuant to the MMB Facility Agreement, Print Mail (or a financier paying on its behalf) is entitled to be subrogated to the securities held by Warratah to secure the amount owing under the MMB Facility Agreement. However, Warratah maintains that it will not, as requested by Print Mail, assign those securities to an incoming financier.
108 The first issue raised by Print Mail's submissions is whether the Demand should be set aside pursuant to s 459H(1) of the Act because there is a genuine dispute about the existence or the amount of the debt the subject of the Demand. Print Mail does not assert that it has an offsetting claim. In my opinion, Print Mail has not established that there is a genuine dispute about the existence or the amount of the debt.
109 Print Mail alleges that Warratah's conduct, in refusing to assign its securities or in stating that it will, upon payment, release its securities thereby stripping Print Mail's right of subrogation of any value, either constitutes unconscionable conduct under s 21 of the ACL or is conduct which would give rise to a discharge of the guarantee and would make Warratah liable to repay the amount paid by Print Mail, as monies had and received, together with equitable compensation.
110 But those claims do not rise to a genuine dispute about the existence or the amount of the debt the subject of the Demand as is required by s 459H(1)(a) of the Act. Firstly, the threat of release of the securities upon tender of payment is no longer an issue between the parties. Secondly, the events which would give rise to the alleged claims have not yet occurred. Thirdly, and in any event, even if made out those claims would sound in damages. As Print Mail submitted, if successful in a claim for breach of s 21 of the ACL, it may be entitled to various remedies including injunctive relief, damages and compensation. Similarly, a successful claim based on Warratah's discharge of securities in disregard of Print Mail's right of subrogation would give rise to a claim for equitable compensation. That is, the claims made by Print Mail do not, in my opinion, amount to a dispute about the amount or existence of the debt.
111 Despite Print Mail originally raising the issue in the First Elias Affidavit, there was ultimately no dispute about the amount the subject of the Demand and the construction of the MMB Facility Agreement.
112 The second question which arises is whether the events which have occurred would amount to "some other reason" within the meaning of s 459J(1)(b) of the Act such that the Demand would be set aside or would result in the Court, in its inherent jurisdiction, restraining Warratah from relying on the Demand because it is being used to further an abuse of process.
113 Print Mail raised as an issue the possibility that the basis upon which it alleges that the Demand should be set aside pursuant to s 459J(1)(b) only emerged after the 21 day period specified in s 459G and accordingly, in the alternative, made the Injunction Application which it submitted, if granted, would have the same effect.
114 In Graywinter Sundberg J observed that s 459G(3) provides that an application is made for the purposes of that section if, within the 21 day period, two things happen: an affidavit supporting the application is filed and copies of the application and affidavit are served. No issue arises about the validity of Print Mail's application in that respect. The issue that Print Mail raises against itself is whether the grounds that underpin its argument that the Demand should be set aside pursuant to s 459J(1)(b) were raised in the First Elias Affidavit.
115 In relation to the content of the affidavit required by s 459G in Graywinter at 459 Sundberg J noted, in the context of an application relying on s 459H(1)(a), that to be a supporting affidavit, the "affidavit must say something that promotes the company's case"; it must advance the company's cause but it need not detail, in admissible form, all of the evidence that supports the contention of a genuine dispute. Rather, that evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief.
116 In the First Elias Affidavit, which was filed and served within the 21 day period mandated by s 459G(2) of the Act, Mr Elias, among other things, raised the matters summarised at [19] above as the bases upon which the Demand should be set aside. By contrast, the facts giving rise to and the correspondence which crystallised the issues at the heart of Print Mail's argument that the Demand should be set aside pursuant to s 459J(1)(b) of the Act because, in effect, it was issued for a collateral purpose or is an abuse of process, arose after the expiration of the 21 day period following service of the Demand. Those matters were not the subject of any evidence nor canvassed or raised in any way in the First Elias Affidavit.
117 The First Elias Affidavit does not promote or advance in any way Print Mail's case insofar as it alleges that the Demand should be set aside for "some other reason" pursuant to s 459J(1)(b) because its issue and service is an abuse of process in that Warratah was allegedly using the Demand to prevent Print Mail from relying on its right of subrogation vis a vis Warratah so as to give the benefit of all of the equity in the Property to Wellington. To the extent that the First Elias Affidavit raises that the Demand is an abuse of process it relies on other facts unconnected to those now relied on to make out the ground. It follows that Print Mail cannot rely on this ground as a basis to set aside the Demand pursuant to s 459J(1)(b) of the Act.
118 In recognition of this possibility Print Mail made the Injunction Application relying on the same facts and circumstances. However, given the conclusion I have otherwise reached on the Set Aside Application, there is no utility in my considering and I do not propose to consider the Injunction Application.