Supreme Court New South Wales Medium Neutral Citation: Hill Foundation Pty Ltd v 131 MVR Pty Ltd [2022] NSWSC 520 Hearing dates: 23 March 2022 Date of orders: 3 May 2022 Decision date: 03 May 2022 Jurisdiction: Common Law Before: Macfarlan JA Decision: (1) Order Hill Foundation within 7 days to calculate the appropriate amount of the judgment to be entered in its favour, calculated in accordance with this judgment, and advise the first defendant and the Court of that amount. (2) Order that Ms Walker be given leave to respond within a further 3 working days if she wishes to. Catchwords: GUARANTEE AND INDEMNITY — construction of contract of guarantee — creditor's claim was a claim in debt for a liquidated sum as distinct from a claim for damages for breach of contract — distinction important as principles of mitigation only apply to the latter MORTGAGES AND SECURITIES — mortgages — duties, rights and remedies of mortgagee — power of sale — no duty to sell at any particular time or at all CIVIL PROCEDURE — Court of Appeal — costs orders — interest component of a judgment is included when determining whether a judgment meets the $500,000 threshold in UCPR r 43.34 Legislation Cited: Civil Procedure Act 2005 (NSW), s 100(1) Contracts Review Act 1980 (NSW), s 7 Uniform Civil Procedure Rules 2005 (NSW), r 42.34 Supreme Court Act 1970 (NSW), s 101(2)(r) Cases Cited: Commonwealth Bank of Australia v Lee (1996) 22 ACSR 574 Edwards v Australian Securities and Investments Commission (2009) 235 FLR 207; [2009] NSWCA 424 Mailman v Challenge Bank Ltd (1991) 5 BPR 11,721 Maund v Crown in right of the State New South Wales [2013] NSWCA 226 Re Castleplex Pty Ltd (in liq) [2010] QCA 59 Starrs v Retravision (WA) Ltd [2012] WASCA 67 UBS AG v Tyne (2018) 265 CLR 77; [2018] HCA 45 Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 Young v Queensland Trustees Ltd (1956) 99 CLR 560; [1956] HCA 151 Texts Cited: B Edgeworth, Butt's Land Law (7th ed, 2017, Lawbook Co) J.W. Carter, Contract Law in Australia (7th ed, 2018, LexisNexis Butterworths) J O'Donovan and J Phillips, Modern Contract of Guarantee (Looseleaf ed 2020, Thomson Reuters) Category: Principal judgment Parties: Hill Foundation Pty Ltd (ACN 105 270 611) (Plaintiff) 131 MVR Pty Ltd (ACN 140 772 050) (First Defendant) Karen Walker (Second Defendant) Representation: Counsel: A Rogers / P Lin (Plaintiff) P J Beazley (sol) (Second Defendant) Solicitors: Baccus Investments Limited (Plaintiff) Beazley Lawyers (Second Defendant) File Number(s): 2021/69903 Publication restriction: Nil Judgment 1. In these proceedings the plaintiff, Hill Foundation Pty Ltd ("Hill Foundation"), claims an amount alleged to be owing by the second defendant, Ms Karen Walker, under a guarantee given by Ms Walker to Hill Foundation in respect of indebtedness of the first defendant, 131 MVR Pty Ltd. The first defendant is in liquidation and Hill Foundation's proceedings against it have been discontinued. 2. Ms Walker does not dispute that on 11 October 2017 Hill Foundation advanced $1,235,000 (the "Principal Sum") to the first defendant on the security of a property situated at St Ives and that Ms Walker guaranteed repayment of that sum and payment of all other monies due to Hill Foundation. The mortgage provided for interest to be paid on the Principal Sum on the 11th day of each month at a rate of 11.95% per annum, with the rate to reduce to 8.95% per annum in the event that payment was made within 7 days of the first day of each month. 3. It is also not in dispute that the Principal Sum was not repaid when due on 11 April 2018 and that on 4 August 2020 Hill Foundation exercised its statutory power of sale, with settlement effected on 1 September 2020, resulting in Hill Foundation receiving $1,185,916.53 in reduction of the indebtedness of the first defendant to it. 4. The quantum of Hill Foundation's claim against Ms Walker is proved by affidavits of Ms Rhonda Galayini, the plaintiff's solicitor. She deposes to the amount outstanding to Hill Foundation after deducting the net proceeds of sale of the property to be $476,482.04 as at 2 September 2020, with interest accruing thereafter at the contractual rate. In written submissions with which Ms Walker did not relevantly take issue, Hill Foundation stated that interest at the contractual (default) rate from 1 September 2020 to 23 March 2022 amounted to $56,939.60, giving a total indebtedness at that latter date of $533,421.64. Subject to the matters addressed below, judgment should be entered in favour of Hill Foundation for that amount together with interest from 23 March 2022 to the date of judgment. 5. The matters raised by Ms Walker in response to Hill Foundation's claim are as follows. 6. First, Ms Walker contended that, by not exercising its power of sale until 4 August 2020, approximately two years after the date on which it took possession of the property (19 October 2018), Hill Foundation failed to mitigate its loss, with the result that it should not be entitled to claim interest on the debt for that period. 7. This contention must be rejected because Hill Foundation's claim against Ms Walker is a claim in debt, that is, for a liquidated sum, and not a claim for damages (see J O'Donovan and J Phillips, Modern Contract of Guarantee (Looseleaf ed 2020, Thomson Reuters) at [10.3100]). An action in debt is distinct from an action for damages for breach of contract (Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 567; [1956] HCA 151; Edwards v Australian Securities and Investments Commission (2009) 235 FLR 207 at 223-224; [2009] NSWCA 424 at [80]). This distinction is important because the principles of mitigation do not apply to claims in debt (Re Castleplex Pty Ltd (in liq) [2010] QCA 59 at [65] (McMeekin J); Starrs v Retravision (WA) Ltd [2012] WASCA 67 at [72]) (see also J.W. Carter, Contract Law in Australia (7th ed, 2018, LexisNexis Butterworths) at 823 [35]-[37]). This is so because such a plaintiff does not need to prove that it suffered a loss represented by the difference between the position it is in and that which it would have been in if there had been no breach of duty or contract by the defendant. Suing in debt, its task is, relevantly, to prove a contractual promise by the defendant to pay it a specific sum that has accrued and is ascertainable under the contract without any need for independent assessment by the court. 8. Whilst in some circumstances a claim against a guarantor may be framed as a claim for damages, ordinarily such claims are made in debt and the statement of claim in this matter clearly puts the claim on that basis. The memorandum which incorporates the mortgage, loan and guarantee defines "debt" as "all monies owing to the mortgagee from time to time under the mortgage or loan". The guarantee provides that the guarantor, Ms Walker, must "pay the debt to the lender in the manner and at the time specified in the loan and where not specified upon demand made by the lender". Read together, these provisions indicate that the substance of the guarantor's promise is the payment of the loan and mortgage debt in the event of default by the first defendant. 9. In any event, even if the plaintiff had had a general duty to mitigate its loss, the well-established principle that a mortgagee is not obliged to sell at all or at any particular time would have indicated that here there was no breach of that duty (see Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 at 705; Mailman v Challenge Bank Ltd (1991) 5 BPR 11,721 at 11,727-11,728; Commonwealth Bank of Australia v Lee (1996) 22 ACSR 574 at 578; see also B Edgeworth, Butt's Land Law (7th ed, 2017, Lawbook Co) at 764 [11.1330]). 10. Secondly, Ms Walker contended in her written submissions that Hill Foundation was guilty of an abuse of process and, arising out of the same facts, that this was the subject of an estoppel (although, as Hill Foundation complained, she did not do so in her filed defence). It is unnecessary to decide whether she should be precluded from putting the contention in the absence of it being pleaded as the contention is in my view clearly without merit. 11. The contention is based on the commencement prior to these proceedings of different proceedings by Baccus Investments Limited against Ms Walker and Mr Gregory Walker. In its statement of claim, Baccus Investments Limited described itself as the Responsible Entity for the Kremnizer Mortgage Fund and that that fund lent an amount of $2,925,000 to the present first defendant, 131 MVR Pty Ltd, on 11 October 2017. After correspondence between the parties, Baccus discontinued the proceedings with the consent of the defendants. 12. Ms Walker alleged in the present, subsequently commenced, proceedings that the loan of which Baccus sought repayment included that which is the subject of the present proceedings. That may well have been so, but it is apparent that the Baccus proceedings were, and were recognised by the parties to it to be, misconceived, because, although the ultimate source of the funds lent may have been the Kremnizer Mortgage Fund, it is apparent that at least the funds the subject of the present proceedings were lent by Hill Foundation to 131 MVR Pty Limited and that the wrong entity had been named as plaintiff. The correct plaintiff is the lender/mortgagee identified in the mortgage the subject of these proceedings, namely, Hill Foundation. The existence of a connection between that company and Baccus Investments Limited is evidenced by the fact that the latter lodged the mortgage for registration. 13. These circumstances do not indicate that there has been an abuse of process by Hill Foundation or that any estoppel has arisen against it. The circumstances are a far cry from the type of circumstances, which may amount to an abuse of process, discussed in UBS AG v Tyne (2018) 265 CLR 77; [2018] HCA 45 and CBRE (V) Pty Ltd v Trilogy Funds Management Ltd [2021] NSWCA 316. 14. Thirdly, Ms Walker contended that Uniform Civil Procedure Rules 2005 (NSW) r 42.34 had the consequence in this case that no costs order should be made in favour of Hill Foundation, notwithstanding its projected success in obtaining all the substantive relief it sought against Ms Walker. 15. Rule 42.34 is in the following terms: 42.34 Costs order not to be made in proceedings in Supreme Court unless Court satisfied proceedings in appropriate court (1) This rule applies if— (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied that— (a) for proceedings that could have been commenced in the District Court—the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted, or (b) for proceedings under Part 2 of Chapter 7 of the Industrial Relations Act 1996—the commencement and continuation of the proceedings in the Supreme Court, rather than the Local Court, was warranted. 1. The short answer to Ms Walker's contention is that Hill Foundation's judgment will not be for an amount "of less than $500,000" as the interest component brings it over that figure. There is no reason, stated in r 42.34 or elsewhere, why the interest component should be disregarded. Interest is properly included in the judgment, even where interest is awarded pursuant to s 100 of the Civil Procedure Act 2005 (NSW) rather than, as here, as contractual interest (see s 100(1)). 2. The claim for interest in Hill Foundation's statement of claim is broadly expressed (that is, simply as a claim for "Interest"). I see no reason why that term should not be regarded as embracing a claim for contractual interest, particularly when Ms Walker has been apprised of the contractual interest claim by Hill Foundation's affidavits and written submissions. 3. That the interest component of a judgment is not to be disregarded for the purposes of r 42.34 is confirmed by drawing an analogy to s 101(2)(r) of the Supreme Court Act 1970 (NSW) which refers, for the purposes of identifying proposed appeals that require leave to appeal, to matters in issue "amounting to or of the value of $100,000 or more". It is well established that for the purposes of that rule that the amount of $100,000 includes any interest (although not costs) which is at stake in the proposed appeal (see Maund v Crown in right of the State New South Wales [2013] NSWCA 226 at [7]). 4. Finally, I will mention three matters that were not pursued by Ms Walker. First, her filed defence sought relief under s 7 of the Contracts Review Act 1980 (NSW) but no evidence was adduced or submission advanced to support such a claim. Secondly, Ms Walker raised a question at the hearing before me as to one limited component of the amount claimed by Hill Foundation. That question appeared to have been answered to Ms Walker's satisfaction and the point was not pursued, but in any event there was no evidence to suggest that the component was not properly included and the total debt was admitted on the pleadings (by Ms Walker's failure to traverse that contention). Thirdly, Ms Walker said that, at least initially, she was confused about who the plaintiff was in the present proceedings. After discussion at the hearing before me that Hill Foundation had properly filed and served its statement of claim naming itself as plaintiff but that a mistake, perhaps of the person who filed the statement of claim, led to the Common Law Division Registry issuing a coversheet naming Baccus as plaintiff. I do not consider that Hill Foundation's proceedings were defective and Ms Walker did not ultimately suggest that they were. 5. For these reasons, Hill Foundation is entitled to judgment against Ms Walker in the amount of $533,421.64 together with interest at the rate of 11.95% accruing from 23 March 2022 to the date of judgment. I direct Hill Foundation, within 7 days of today's date, to calculate the appropriate amount of the judgment and advise Ms Walker and the Court of that amount. Ms Walker is given leave to respond within a further 3 working days if she wishes. The Court will then proceed to enter judgment and order that Ms Walker pay Hill Foundation's costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 May 2022