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
Mishra1, 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
By May 2012, the defendants had repaid one of the facilities,
and reduced their indebtedness under the remaining two
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
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 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
The decisions in Liberty Funding Pty Limited v
Funding) and Overton Investments Pty Limited v
Cuzeno RVM Pty Limited3 (Overton
Investments). In Overton Investments the NSW Court of
Appeal held that:
"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.
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 Limited5).
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.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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