Australia: Security for contingent liabilities: does a mortgagor need to have commenced proceedings for there to be a "contingent liability" on the discharge of a mortgage?

Last Updated: 12 December 2012
Article by Chloe Wallace
Focus: Australia and New Zealand Banking Group Limited v Mishra [2012] NSWSC 1333
Services: Financial Services, Disputes & Litigation
Industry Focus: Financial Services

A recent NSW Supreme Court decision has upheld a mortgagee's right to security for the anticipated reasonable costs of defending a threatened claim by a mortgagor when discharging security.


In Australia and New Zealand Banking Group Limited v Mishra 1, ANZ had commenced possession proceedings in 2011 in respect to two mortgaged properties as a result of alleged defaults under three facilities. A defence was filed. The defendants indicated to the Court on numerous occasions that they intended to file a cross-claim, though no cross-claim was ever filed.

By May 2012, the defendants had repaid one of the facilities, and reduced their indebtedness under the remaining two facilities.

In June 2012, the defendants advised ANZ that they wished to pay out their remaining indebtedness. ANZ refused to discharge its securities until any cross-claim filed by the defendants was finally determined.

The defendants refused to release ANZ from any claims and said that any refusal to discharge the mortgages on payment of their indebtedness would be a "clog on the equity of redemption". They also said that their demand for a discharge of the mortgages in return for payment of the debt was not a settlement of their claims against ANZ.

ANZ ultimately refused to discharge its security unless mutual releases were provided, or security for ANZ's estimated costs of defending a claim, estimated at $50,000, was given. The defendants were not prepared to give either.

ANZ's arguments

ANZ submitted that it was, in the absence of a deed of release, entitled to require payment of an amount that may cover its costs of defending anticipated proceedings brought by the defendants. ANZ relied on:

  1. The decisions in Liberty Funding Pty Limited v Steele-Smith 2 (Liberty Funding) and Overton Investments Pty Limited v Cuzeno RVM Pty Limited 3 (Overton Investments). In Overton Investments the NSW Court of Appeal held that:
  2. "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" 4.

    The defendants sought to distinguish the decision in Liberty Funding on the basis that in that case the mortgagor had commenced proceedings challenging the mortgage, whereas in this case, no cross-claim had been filed nor proceedings commenced.

  1. The terms of the mortgage. The mortgage required that "all Secured Money" be paid to ANZ before a release of the mortgage would be given. The definition of "Secured Money" included "all money owing to ANZ for any reason...actually or contingently (money is contingently owed where I have an obligation to pay ANZ if something happens or is discovered)".


The Court found that had ANZ simply required a deed of release to discharge its security, this would be inconsistent with the contractual and equitable right to redeem (Kreglinger v New Patagonia Meat and Cold Storage Co Limited 5). However, ANZ's position was that it accepted that a deed of release would not be provided and, in reliance on Overton Investments, stipulated the requirement for a payment additional to what was otherwise due as a payout of the facilities, as security for the estimated costs of the threatened proceedings.

The Court did not accept the defendants' argument that Liberty Funding should be distinguished on the basis that in that case the mortgagor had commenced proceedings challenging the mortgage. The Court held that ANZ was entitled to require the payment of extra money as security for its costs in circumstances where a cross-claim had been threatened for some time, and the defendants had expressly said that any discharge of security was not a settlement of their claims against ANZ.


1 [2012] NSWSC 1333.
2 [2004] NSWSC 1100.
3 [2003] NSWCA 27.
4 [2003] NSWCA 27 at [63].
5 [1914] AC 25.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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