Liberty Funding Pty Limited v Steele-Smith [2004] NSWSC 1100

New South Wales Supreme Court

CITATION : Liberty Funding Pty Limited v Steele-Smith [2004] NSWSC 1100 HEARING DATE(S) : 16 November, 2004 JUDGMENT DATE : 17 November 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Declarations as sought by Plaintiff; otherwise Summons dismissed.

CATCHWORDS : MORTGAGES - DISCHARGE - Whether mortgagee's costs of defending suit to set aside mortgage were a contingent liability of the mortgagor secured by the mortgage - whether mortgagor obliged to provide security for contingent liability in order to obtain discharge. Bank of New South Wales v O'Connor (1899) 14 App Cas 273 Estoril Investments Pty Ltd v Westpac Banking Corporation (1993) 6 BPR 13,146 CASES CITED : Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 Perpetual Trustees Australia Ltd v Barker [2004] SASC 58 Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 11,225 Rudd & Son Ltd, Re (1986) 2 BCC 98,955 PARTIES : Liberty Funding Pty Limited - Plaintiff Doreen Steele-Smith - Defendant FILE NUMBER(S) : SC 6151/04 COUNSEL : R.C. Beasley - Plaintiff Trevor Steele (representing Defendant under Power of Attorney) - Defendant SOLICITORS : Dibbs Barker Gosling - Plaintiff Trevor Steele (representing Defendant under Power of Attorney) - Defendant

1 The Plaintiff ("Liberty") is the mortgagee of a property owned by the Defendant ("Mrs Steele-Smith") known as 9 Seaspray Close, Caves Beach in New South Wales, under a Registered Mortgage dated 8 July 2002. 2 In proceedings number 4778/04 commenced on 30 August 2004 Mrs Steele-Smith seeks orders setting aside the mortgage on the ground that Liberty, by its agent or employee, procured the grant of the mortgage by taking unconscientious advantage of her inability, through infirmity and age, to protect her own interests. In those proceedings Mrs Steele-Smith is represented by her son, Mr T. Steele, who acts under a Power of Attorney. Mr Steele has appeared in person in those proceedings and in the present proceedings. 3 Proceedings 4778/04 have not yet come to trial, although it is hoped that they may be set down for hearing early next year. When the proceedings were before me yesterday morning for directions the parties raised an ancillary but pressing problem. 4 Mrs Steele-Smith is, as Mr Steele concedes, in default in paying the interest due under the mortgage for the months of September and October 2004. By Notice dated 12 October 2004 Liberty informed Mrs Steele-Smith that unless she remedied the default within a specified period it would exercise its rights under the mortgage. 5 Mrs Steele-Smith then decided to sell the property. She has entered into a contract for sale at a price of $520,000. Settlement of the sale was to take place on 9 November 2004. However, a dispute arose between Liberty and Mrs Steele-Smith as to the terms upon which Mrs Steele-Smith is entitled to have a discharge of the mortgage delivered upon settlement of the sale. 6 There is no dispute as to the amount of principal and interest outstanding under the mortgage. However, by letter dated 3 November 2004 Liberty's solicitors asserted that the mortgage secured not only the principal and interest but also Liberty's costs and expenses incurred in defending proceedings 4778/04. Accordingly, they required the balance of the proceeds of sale to be paid into Court until proceedings 4778/04 are finally determined. 7 Mrs Steele-Smith has a solicitor acting for her on the sale of her property, but not in the litigation with Liberty. On 5 November, Mrs Steele-Smith's solicitor replied to Liberty's solicitors, saying that the conveyance and the litigation were entirely separate matters and that Liberty's costs of the litigation were its own responsibility. The requirement for payment of the balance of the proceeds of sale into Court was rejected. An appointment for settlement of the contract for sale was made for 15 November 2004. 8 By letter dated 10 November 2004 to Mrs Steele-Smith's solicitor, Liberty's solicitors advised that the pay-out figure for principal and interest for settlement on 15 November would be $322,179.96 so that there would be a surplus of $197,820.04, less the costs of sale. They advised that to date Liberty had incurred approximately $24,000 in legal fees and disbursements in defending proceedings 4778/04 and that it was continuing to incur fees and disbursements. They suggested that orders by consent be made whereby the surplus of proceeds of sale from the contract be paid into the trust account of Mrs Steele-Smith's solicitor to await determination of proceedings 4778/04. 9 By letter dated 10 November, Mrs Steele-Smith's solicitors rejected the proposal for consent orders. 10 The purchaser under the contract for sale has now served a notice to complete requiring settlement on 1 December 2004. This was the state of affairs when proceedings 4778/04 came before me yesterday for directions. 11 Both parties were anxious to have a determination of the issue in dispute as urgently as possible. Both parties are anxious that the contract for sale not be lost. Mr Beasley, who appears for Liberty, said that he would be ready to argue the matter later that day. Mr Steele firmly assured me that he also would be ready to argue the matter that day. Accordingly, I directed Liberty to prepare a Summons setting out the relief it sought and said that I would hear the case at 2:00pm. 12 When the matter was called on later that day, I granted Liberty leave to file its Summons in Court, returnable instanter, and dispensed with service on Mrs Steele-Smith. The Summons seeks the following relief: "1. A declaration that, subject to other order by the court, the 'reasonable expenses' referred to in clause 20 of the memorandum of mortgage number 5040194 include: