New South Wales Supreme Court CITATION : Ginelle Pty Limited v Singh & Anor [2010] NSWSC 1166 HEARING DATE(S) : 17 September 2010 JUDGMENT DATE : 22 October 2010 JUDGMENT OF : Garling J DECISION : The mortgagee is not entitled to retain $25,000 as security for future legal costs. The mortgagor's other claims for relief are dismissed. The parties are to prepare short minutes of order to give effect to these findings. Proceedings adjourned to 9.30am on 2 November 2010. CATCHWORDS : MORTGAGES – Mortgagee exercised power of sale upon default – Claim by mortgagors that mortgagee incorrectly accounted for the proceeds of sale – Whether mortgagee entitled to costs and expenses levied – Whether mortgagee entitled to retain an amount as security for future legal costs – Where the future legal costs relate to proceedings other than the dispute over redemption accounts - CONTRACTS – Interpretation of settlement agreement – Whether the settlement agreement in respect of proceedings to recover a debt affected the terms of the mortgage securing that debt – Doctrine of merger considered - PRACTICE AND PROCEDURE – Interest up to judgement – Interest after judgment – Where terms of mortgage provide for the payment of interest at a rate higher than the statutory rate – Where the mortgagee has not made a formal application under the Civil Procedure Act 2005 that interest be payable at the higher rate Civil Procedure Act 2005 LEGISLATION CITED : Conveyancing Act 1919 Uniform Civil Procedure Rules 2005 CATEGORY : Procedural and other rulings Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 Liberty Funding Pty Limited v Steele-Smith [2004] NSWSC 1100 Mercantile Credits Ltd v McDowell [1980] 2 NSWLR 101 Multispan Constructions No 1 Pty Ltd v 14 Portland Street Pty Ltd (No 2) [2001] NSWSC 1047 CASES CITED : Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 Project Research Pty Ltd v Permanent Trustee of Australia Limited (1990) 5 BPR 97341 Radin v Commonwealth Bank of Australia (Federal Court of Australia, 3 February 1998, unreported), Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at 662 Work Childcare Holdings Pty Ltd (in liq) v Phillip Redmond Dwyer [2006] NSWSC 1443 Ginelle Pty Limited (Plaintiff) PARTIES : Balbir Singh (First Defendant) Prem Jeet Kaur Singh (Second Defendant) FILE NUMBER(S) : SC 2009/292530 M.W. Young (Plaintiff) COUNSEL : A. Kumar (First Defendant) A. Kumar (Second Defendant) Nugent Wallman & Carter (Plaintiff) SOLICITORS : Self-represented (First Defendant) Self-represented (Second Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION GARLING J FRIDAY, 22 OCTOBER 2010 2009/292530 GINELLE PTY LIMITED v BALBIR SINGH & ANOR JUDGMENT 1 HIS HONOUR: The plaintiff, Ginelle Pty Limited, in September 2008, lent to the defendants, Balbir Singh and Prem Jeet Kaur Singh, the sum of $465,000 which was secured by a registered mortgage over the Singh's land at 20 Spencer Road, Londonderry in NSW. 2 Within a short time, Ginelle claimed that the Singhs were in default under the loan. Since that time there has been a lengthy history of litigation between the parties. In order to understand, and place in context, the notice of motion which falls for determination before me, it will be necessary to recount some of that history. Procedural background 3 On 6 February 2009, Ginelle commenced proceedings in this Court seeking a judgment for possession of the land at Londonderry with leave to issue a writ of possession forthwith. As well, it sought a monetary judgment against the Singhs together with interest pursuant to s 100 of the Civil Procedure Act 2005 at the rate of 15% per annum up to judgment. 4 On 4 March 2009, the Singhs filed a defence. 5 On 3 April 2009, Ginelle filed a notice of motion seeking summary judgment. Ultimately, that notice of motion, and another filed by the Singhs, came on for hearing before Hoeben J on 9 June 2009. On that day, Mr M. Young of counsel appeared for Ginelle, and the Singhs appeared in person and were not legally represented. 6 The parties came to an agreement which was recorded in writing that day, the terms of which were noted by Hoeben J. By consent of the parties, the proceedings were stood over until Tuesday, 1 December 2009. Consequential orders were made. 7 On 1 December 2009, because the Singhs had failed to comply with the settlement agreement of 9 June 2009, judgment was entered for Ginelle against the Singhs in the following terms: "(1) Judgment for the Plaintiff for possession of the land situated at and known as 20 Spencer Road, Londonderry 2753 NSW, being the entirety of the land contained in Folio Identifier 7/18586. (2) Leave to issue a writ of possession forthwith. (3) Judgment for the Plaintiff against the Defendants in the sum of $469,572.93. (4) The Defendants to pay the Plaintiff's costs of the proceedings." 8 A writ of possession was issued by the Court on 2 February 2010 based upon the judgment of 1 December 2009. 9 On 1 March 2010, the Singhs filed a notice of motion in which they sought orders setting aside the agreement reached on 9 June 2009, and the judgment of 1 December 2009. They sought orders staying the execution of the writ. 10 That motion was heard by Latham J who, in a judgment of 9 March 2010, dismissed the motion. In the judgment, her Honour said: "Be that as it may, there is no evidence before me, nor is there a submission, which even suggests that the defendants did not agree with the terms of agreement reached on 9 June 2009 and entered with the short minutes of order. The judgment obtained by the plaintiff on 2 December 2009 was entirely in accordance with the terms of the agreement and there is, in my view, no reason to set that agreement aside in the absence of any evidence justifying such a course." 11 The Singhs filed a summons seeking leave to appeal from the judgment of Latham J to the Court of Appeal. On 16 March 2010, Sackville AJA heard an application seeking a stay of the writ of possession pending the determination of the summons for leave to appeal. Sackville AJA dismissed the application for a stay and stood the summons over to the Registrar's list on 12 April 2010. He ordered that the Singhs pay Ginelle's costs of the application for a stay. 12 The summons seeking leave to appeal has been fixed for hearing in the Court of Appeal on 29 October 2010. Sale of the Londonderry property 13 On 8 May 2010, the Londonderry property, upon the instructions of Ginelle, was offered for sale by public auction and was sold on that day for $735,000. 14 Settlement of the sale occurred on 25 June 2010. The net proceeds received on settlement were disbursed in accordance with the instructions given by Ginelle's solicitors. It will be necessary to return to the detail of the disposal of those net proceeds of sale. However, it is clear that the Singhs did not personally receive any of those net proceeds. Current notice of motion 15 On 12 August 2010, the Singhs filed a notice of motion in which they sought the following orders: "1. The Respondent plaintiff pay the balance of the sale proceeds from the sale of the property known as 20 Spencer Street, Londonderry after deduction of the judgment sum of $469,572.93 forthwith and no later within 3 days of this order (the Court noting that this sum is subject to appeal); 2. The Respondent plaintiff, by its officers, servants, agents and its legal representatives do all that is necessarily promptly to give efficacy to Order 1; 3. costs; 4. such further Order the Court deems fit." 16 The notice of motion was drafted by Balbir Singh on behalf of himself and his wife. There is some imprecision in the orders that were sought. However, it is tolerably plain that the notice of motion sought to challenge the appropriateness of the deductions which had been made by Ginelle from the net proceeds of sale, seeking to have the excess funds paid to the Singhs. 17 After orders were made for the filing of evidence, the motion came on for hearing before me, in the Duty List, on 17 September 2010. On that occasion, Mr M.W. Young appeared for Ginelle and Mr A. Kumar appeared for the Singhs. 18 Mr Kumar on behalf of the Singhs was unable to identify with any precision the basis within the Uniform Civil Procedure Rules 2005 upon which the relief in the notice of motion was sought nor the basis upon which a court could make the order which they sought. 19 Ginelle, through its counsel Mr Young, specifically eschewed the absence of any specific power and invited the Court to determine the issues which were in dispute between the parties, by reference to whatever power might be found in the Civil Procedure Act 2005 and the UCPR. 20 From the oral submissions of Mr Kumar, it seemed clear that there were three principal issues which concerned the Singhs, and upon which a determination was sought. They were: (a) Whether Ginelle was entitled to deduct any monies for legal costs from the proceeds of sale, in addition to those which had been specified in the settlement agreement, and whether there was a proper basis for deducting the actual amounts which it did; (b) Whether Ginelle was entitled to deduct interest at the rate of 15% per annum from the proceeds of sale after the date of the settlement agreement, or alternatively, after the date of the entry of judgment, consequent upon the terms of that settlement agreement; and (c) Whether Ginelle was entitled to retain the sum of $25,000 against its possible legal costs of future litigation. 21 As mortgagors, the Singhs would be entitled to an accounting from Ginelle with respect to the dispersal of the proceeds of sale. As well, if an issue arose as to the proper interpretation of the settlement agreement, the parties could apply to the court for relief by way of a declaration as to the proper meaning and construction of the settlement agreement and for consequential orders giving effect to that interpretation. Another alternative avenue which might be available to these parties would be an application under UCPR r 36.17 (the slip rule) to vary the orders of the Court to correct any omission. 22 In light of the nature of the issues to which I have referred and in order to ensure that the real issues in dispute are determined without any more expense being incurred by the parties, I have decided that it is appropriate that I express my views on the issues identified and then it will be a matter for the parties to bring in appropriate orders to give effect to those views. Relevant facts 23 In addition to the matters which I have already referred to, it is necessary to note some additional relevant facts. 24 On 24 September 2008, the Singhs executed a mortgage over the Londonderry property in favour of Ginelle which secured all their liabilities to Ginelle. The mortgage was lodged for registration and given dealing number AE233760X. There was no separate loan agreement tendered in evidence. The parties proceeded upon the basis that the entirety of the obligations of the parties was to be found in the mortgage documents. 25 The principal sum advanced was $465,000 which was required to be repaid by 23 March 2010. The mortgage included the following clauses: "3. The Mortgagor covenants to pay the Mortgagee on 23 rd March 2010 ("the Expiry Date") such of the Principal Sum of $465,000.00 that has not been repaid as at the Expiry Date. 4. The mortgagor will pay interest on the Principal Sum or upon any judgment or order in which this or the preceding clause shall become merged at the rate of 15 per centum per annum ('the Higher Rate'). …. 10. The Mortgagor will be entitled to a lower rate of interest ('Lower Rate') being 12 per centum per annum provided that the Lower Rate payment is made within seven days of the due date of the Monthly Payment and all other covenants of the Mortgage have been observed by the Mortgagor. … 18. In addition to all costs and expenses which the Mortgagor may be liable at law or in equity to pay in respect of this Mortgage, or otherwise in relation thereto, the Mortgagor will upon demand pay all costs and expenses ('Costs and Expenses'), including costs as between solicitor and client, incurred by the Mortgagee, in consequence or on account of any one or more of the following: (a) any default on the part of the Mortgagor; (b) any act taken by the Mortgagee for the preservation of, or otherwise in relation to, this Mortgage; (c) … … 20. The Costs and Expenses payable by the Mortgagor are not limited to legal costs but include all other disbursements, all internal administrative costs of the mortgagee, and all other Costs and Expenses whatsoever. 21. All of the Costs and Expenses payable by the Mortgagor will, from the time of payment or expenditure, be due to the Mortgagee and payable forthwith and until payment shall carry interest at the Higher Rate, and the amount of that interest shall be secured on and charged to the Security Address. … 23. Amounts paid by the Mortgagor to the Mortgagee shall be appropriated as between principal, interest, and Costs and Expenses as the Mortgagee determines. Any such appropriation overrides the nomination made by the Mortgagor." 26 Incorporated into the mortgage were the provisions contained in Memorandum Q860000. There is no need to draw attention to any particular provision of the Memorandum at this point. 27 As indicated earlier in the judgment, default occurred, proceedings were brought seeking a judgment for possession of the land, and leave to issue a writ of possession forthwith. A monetary judgment was also sought. 28 On 9 June 2009, the proceedings were settled in accordance with an agreement. The relevant terms of the settlement agreement which was contained in a handwritten document signed by counsel for Ginelle and by Mr and Mrs Singh personally, are as follows: "1. Mr and Mrs Singh ('the Singhs') agree to judgment being entered by Ginelle against them in proceedings 10748/09 in the Supreme Court of NSW ('the proceedings') as follows ('the judgment'): (a) judgment for the plaintiff for possession of the land situated and known as 20 Spencer Road, Londonderry 2753, New South Wales, being the entirety of the land contained in folio identifier 7/18586; (b) leave to issue a writ of possession forthwith; (c) judgment for the plaintiff against the first and second defendants in the sum of $484,363.93 (less any payments made by the Sings after 9 June 2009); (d) interest pursuant to s 100 of the Civil Procedure Act at the rate of 15% per annum on the sum of $465,000 from 9 June 2009 until judgment; and (e) defendants to pay the plaintiff's costs of these proceedings. 2. Ginelle agrees not to cause the judgment to be entered in the proceedings unless the Singhs breach their obligations to make the payments provided by this agreement. The times for these payments are of the essence. 3. The Singhs agree to make payments to Ginelle with respect to the loan made by Ginelle to the Singhs ('the loan') in accordance with the following schedule: $28,350.30 by 30 June 2009 $4,650.00 by 24 July 2009 $4,650.00 by 24 August 2009 $4,650.00 by 24 September 2009 $4,650.00 by 24 October 2009 $4,650.00 by 24 November 2009 Outstanding costs by 30 November 2009 $466,140.54 by 30 November 2009 4. If the Singhs make all the payments to Ginelle in accordance with the schedule set out in clause 3 above Ginelle agrees not to enter the judgment but instead to cause the proceedings to be dismissed with no order as to costs (to which the Singhs consent), and to provide the Singhs with a discharge of the mortgage securing the loan. 5. The item 'outstanding costs' in clause 3 of this agreement refers to such costs of Ginelle due under the loan and/or the mortgage securing the loan, including but not limited to legal costs incurred in the proceedings, incurred up to and including 30 November 2009 and including also any costs anticipated for discharge of the mortgage and to dismiss the proceedings, less the amount of $4,916.20 which is included in the $28,350.30 payment due on 30 June 2009. 6. If the Singhs make any default in compliance with clause 3 (with time of the essence), Ginelle is free to immediately cause the judgment to be entered and to proceed to enforce the judgment, and the Singhs agree to sign such documents and perform such acts required to cause the judgment to be entered and enforced." 29 The parties on 9 June 2009 agreed to consent orders which included inviting the Court to note the agreement between the parties. 30 The Singhs did not comply with the obligations under the settlement agreement, in particular with clause 3. The relevant payments were not made and accordingly as recorded in paragraph 7 above, judgment was entered in terms there specified. Settlement of the Sale 31 The evidence filed by Ginelle demonstrates that the property was sold at public auction on 8 May 2010 for $735,000 and settlement took place on 25 June 2010. At the time of settlement, Ginelle handed over a discharge of the mortgage to the purchaser to enable the purchaser to be properly registered on the title as the proprietor of the land. On any view, at that point, the security over the land provided by the mortgage came to an end. 32 The proceeds of sale, after adjustments between vendor and purchaser, amounted to $736,785.27. From that sum, after payments were made to the real estate agent for commission, the Penrith City Council and Sydney Water, two separate payments were made to Ginelle. These were in the following amounts: (a) $25,000; and (b) $598,216.64. 33 As well, from the proceeds of sale, a total of a little over $74,000 was paid to C & L Cameron Pty Limited, the second mortgagee. 34 Of significance, for the present arguments, are the components of the larger of the two sums paid to Ginelle. At the time of payment that sum of $598,216.64 was said to be comprised of the following amounts (Ex 1, pp 25-27): (a) The principal sum: $465,000; (b) Interest on that principal up to 25 June 2010: $58,010.60; and (c) Costs and expenses up to 23 June 2010: $75,206.04. 35 After the present notice of motion was filed, and before the hearing of it took place, Ginelle's solicitors reviewed the distribution of funds. In a letter of 8 September 2010 (Ex 1, pp 153-155), the solicitors noted that two adjustments had been made. One was in a small sum related to the reimbursement of a disbursement. The other, and for present purposes more significant, was an adjustment to the calculation of, and payment affected by, interest on the principal sum. The letter noted that Ginelle had that day sent a further cheque for $10,345.62 to C & L Cameron Pty Ltd, the second mortgagee, "… being a refund of overpayment of interest received by Ginelle Pty Ltd on discharge of mortgage on 25/6/10". 36 This payment meant that the total of monies sent to C & L Cameron was increased to a little under $85,000. According to tendered documents (Ex 1, pp 151-152) after the receipt by the second mortgagee of the further cheque, the balance owed by the Singhs to the second mortgagee was a little over $120,000. Interest was continuing to accumulate on that mortgage at the rate of 22% per annum. 37 As a result of this adjustment, the position which was finally reached was that the sum owing to Ginelle was $586,326.02 and not the sum of $598,216.64 which had been calculated at the time of settlement. The new total was comprised of the following amounts: (a) The principal sum: $465,000; (b) Interest on that principal up to 25 June 2010: $47,664.98; and (c) Costs and expenses up to 23 June 2010: $73,661.04. 38 In considering the submissions about the monies said to be wrongly deducted, I am satisfied that I should regard this final position as the correct one. I will use it as the base from which adjustments, if any, are to be made. 39 I should also note that, although by comparison to existing generally available market rates of interest, the rate of 15% per annum does appear rather high, no submission was put to the Court that the interest rate, or any part of it, amounted to a penalty, and so ought be held to be invalid: see Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at 662 [10]; Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 86-87 per Lord Dunedin. Issue 1: Legal costs 40 The Singhs submitted that as legal costs were specifically provided for in clauses 3 and 5 of the settlement agreement, it was not open to Ginelle to recover any such costs after 30 November 2009. 41 The basis for that submission was that the settlement agreement had finally determined all issues between the parties and that there was no room for the continued operation of the mortgage. The Singhs also relied upon the fact that Ginelle had gone into possession of the Londonderry property as providing a basis for denying any further entitlements under the mortgage. 42 As well, the Singhs submitted that there was no adequate detail outlining the basis for the calculation of those legal costs and expenses. 43 Ginelle submitted that, although there had been a settlement agreement, the mortgage had nonetheless continued, with the result that, it was entitled to all of the benefits under the terms and conditions of the mortgage. 44 As part of the evidence in these proceedings, Ginelle tendered as exhibits each of the itemised bills of costs which had been delivered to it by its solicitors, Nugent Wallman & Carter, which contained all relevant detail on an item by item basis of the work which the solicitors had carried out for Ginelle with respect to the default by the Singhs under the mortgage, the attempts made to obtain possession including the various proceedings in this Court, the sale of the secured property and the conveyancing costs associated with that sale and its subsequent settlement. 45 Ginelle also tendered invoices and receipts for all disbursements paid by Nugent Wallman & Carter in undertaking the tasks which I have just described, whilst acting for Ginelle. 46 Of the total of $73,661.04 for costs and expenses up to 23 June 2010, $54,333.73 was paid to Nugent Wallman & Carter for their legal costs. The balance was accounted for as disbursements, copies of the supporting documents for which were tendered and became part of Ex 1. 47 I am satisfied that the amount of costs and expenses claimed has been more than adequately substantiated. On the face of the description provided in the documentation, including the detail of the amounts claimed, there is sufficient for me to conclude that the costs and expenses related to the Singhs mortgage, their default and the consequential actions. Mr Kumar did not make any submission which related to any one or more of the supporting documents. He did not submit that any of the individual amounts were unreasonable, or else should be disallowed on any basis. 48 There is no basis in the evidence to conclude that the submission referred to in para 42 above has been made out. 49 The principal submission made for the Singhs was that once the settlement agreement was entered into, it was not open to Ginelle to charge for any costs and expenses which were not specifically referred to in the settlement agreement. Put in another way, the Singhs argued that once the settlement agreement had been concluded on 9 June 2009, the terms of it meant that the mortgage was at an end, and Ginelle was no longer entitled to rely on any of its terms and conditions for recovery of its costs and expenses. 50 I reject this submission for the following reasons: (a) The terms of the settlement agreement do not include any clause which suggests in specific and express words that the parties intended that the agreement would immediately bring the mortgage to an end, with the result that the mortgage no longer governed the rights of the parties but, rather, all rights being governed thereafter by the agreement; (b) The words of clause 4 of the settlement agreement make it plain that it is only if the Singhs make all the payments to Ginelle in accordance with the agreed schedule, that Ginelle will provide the Singhs with a discharge of the mortgage. If the agreement itself was intended to bring the mortgage to an immediate end, this clause would not have been necessary. The terms of this clause suggest strongly that it was the contemplation of the parties that the mortgage would continue in effect; (c) The settlement agreement made no provision for an obligation upon Ginelle to provide the Singhs with a discharge of the mortgage at the time the agreement was made, or any arrangements for that to occur; (d) The proper construction of the agreement seems to me to be that in the context of an existing default, all further action by Ginelle to enforce its entitlements was being deferred for six months but on the condition that the payments specified in the schedule were made in a timely manner. If the payments were not made, then the parties agreed on the orders which would then be entered. The effect of those orders was that there would then be no further delay for Ginelle being able to access the security property and enforce that security. I cannot detect that any benefit or advantage could possibly enure to Ginelle by discharging its security, namely a mortgage with specific terms and conditions which were favourable to it, at the time it made the settlement agreement. For the Court to interpret the settlement agreement in a way which would impose such a significant financial disadvantage on Ginelle, would be an erroneous approach, in the absence of the clearest language indicating that this was what was intended by the parties. 51 I conclude that the mortgage and all rights under it continued at all relevant times and was not terminated, subsumed in, or otherwise replaced, by the terms of the settlement agreement. The consequence is that Ginelle was entitled under the mortgage to recover all of its costs and expenses. Ginelle was entitled under the mortgage to deduct the sum of $73,661.04 from the proceeds of sale at settlement. 52 The Singhs are not entitled to any relief on the basis of this issue. Issue 2: Interest deductions 53 The Singhs submitted that Ginelle was not entitled to deduct interest at the rate of 15% per annum from the proceeds of sale for any interest which accumulated after the date of the settlement agreement, or alternatively, after the date of the entry of judgment. It was submitted that this was supported by the proper construction of the settlement agreement. 54 There were two principal arguments advanced to support this submission. The first was that the only basis for the imposition of an interest rate of 15% per annum was the mortgage which it was argued had been terminated by the entry into the settlement agreement. I have rejected this argument when considering the first issue. The change in the articulation of the issues does not lead to any different result. 55 The second argument depends upon the application of the Civil Procedure Act 2005 to the rights of the parties consequent upon the entry of judgment on 1 December 2009. It also depends on whether Ginelle's right to interest at 15% per annum merged with the judgment. 56 It is to be recalled that, on 1 December 2009, Ginelle obtained a judgment for possession of the Londonderry property, and also a monetary judgment in the sum of $469,572.93. Although provision clause 1 (d) was made for interest up to judgment in accordance with s 100 of the Civil Procedure Act 2005, no provision was made in the settlement agreement, or in the orders made by the Court on 1 December 2009, about payment of interest after the entry of judgment. 57 Section 101 of the Civil Procedure Act 2005 provides for the payment of interest after judgment has been entered. It is in the following form: "101 Interest after judgment (1) Unless the court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid. (2) Interest under subsection (1) is to be calculated, at the prescribed rate or at such other rate as the court may order, …" 58 The prescribed rate of interest as at 1 December 2009, and since has been 9% per annum. No order has been made by the Court that interest should accrue at any other rate. In those circumstances, once the monetary judgment has been entered, then under the Act only interest at the prescribed rate can accrue. 59 This may have been an omission in the making of the orders of the kind which would qualify for correction under the slip rule (UCPR: r 36.17). In the course of the hearing of the motion, no application was made by counsel for Ginelle under this rule. It is not appropriate that I consider it further in this judgement. 60 However, I do note that Rogers J in Mercantile Credits Ltd v McDowell [1980] 2 NSWLR 101 at 103E expressed the view that where parties to a contract had agreed on a rate of interest to be paid on monies outstanding under the contract, it would be in the interests of justice for the Court to make an order that interest should run on the judgement at the contractual rate, rather than the lesser prescribed rate. See also: Multispan Constructions No 1 Pty Ltd v 14 Portland Street Pty Ltd (No 2) [2001] NSWSC 1047 at [7] – [8] per Barrett J. 61 Ginelle submitted, however, that it was entitled to charge interest at the rate of 15% per annum up to the date of the settlement of the sale of the security property by reason of the provisions of clause 4 of the mortgage. It submitted that the provisions of this clause and its entitlements under the clause did not cease when judgment was entered, or at any time prior to the settlement of the sale of the security property when it provided a discharge of the mortgage to the purchaser. In other words, it submitted that there was no merger of clause 4 of the mortgage into the settlement agreement, or the judgment entered on 1 December 2009. 62 I accept this submission. 63 With respect, I adopt the description given of the doctrine of merger by Lindgren J in Radin v Commonwealth Bank of Australia (Federal Court of Australia, 3 February 1998, unreported), where his Honour said: "It is usually said that the doctrine of merger is activated where a lesser and a greater interest become vested in the one legal person, and that its effect is that the lesser is merged in the greater and so ceases to exist as an independent interest. Perhaps a preferable way of describing what happens is to say that where there are two complementary interests, the existence of each depending on the separate existence of the other, which become vested in the one person, they lose their raison d'être as distinct interests and constitute together a greater interest recognised in the law." 64 I cannot detect in the evidence any suggestion of any intention of either party, separate from that expressed documents generally, and in clause 4 of the mortgage in particular, for there to be a merger of all of the entitlements of Ginelle to interest at 15% per annum into the settlement agreement or judgment. As a matter of construction of that clause, I would hold that the clear intention expressed there by the parties was that there would be no merger of the obligation to pay interest at 15% per annum during the period that the mortgage remained in existence, and the principal sum remained outstanding. 65 The deduction of interest at the rate of 15% per annum by Ginelle from the proceeds of sale is consistent with the contractual obligation of the parties. There has been no sufficient basis demonstrated to ignore that contract. I am not persuaded that any part of the settlement agreement was intended to, or had the effect of, nullifying the effect of clause 4 of the mortgage. 66 The Singhs are not entitled to any relief on the basis of this issue. Issue 3: Retention of $25,000 against future legal costs 67 As I identified earlier in this judgment at para 32, Ginelle retained the sum of $25,000 from the proceeds of sale asserting that it was legitimately entitled so to do. 68 In correspondence of 28 July 2010 (Ex 1, pp 16-20), the solicitors for Ginelle, Nugent Walman & Carter, wrote to the solicitors for the Singhs, a letter which enclosed, relevantly, documents which explained what had happened to the proceeds of sale. One of those documents contained the following statement "We are holding $25,000 to cover future litigation initiated by Singhs". Details were then provided as to the bank account in which the monies were retained. 69 In a further letter of 3 August 2010 the basis for the retention of that $25,000 was described in this way: "You will note that the first mortgagee received on settlement the sum of $25,000 which it will apply towards its costs in relation to the continuing litigation with your clients including your clients' two appeals to the Court of Appeal, and in this regard we draw your attention to our letter to you of 25/5/10 in which we advised that ' in the event that there is still ongoing litigation on foot, at the date of settlement of settlement of the sale of the security property, the mortgagee will have to retain sufficient funds to cover the ongoing litigation '. Once this litigation has been disposed of, the first mortgagee will account to the second mortgagee for the balance held in the account in reduction of the second mortgagee's debt." (Ex 1, pp 22-23). 70 In his affidavit filed on 9 September 2010, and read on the motion, Mr Carter, Ginelle's solicitor, deposes with respect to the sum of $25,000 the following: "I also obtained a cheque for the plaintiff in the sum of $25,000 being an amount, which the plaintiff required to hold as security for costs for ongoing appeals by the defendants and litigation arising out of the defendants' default under the mortgage, which cheque I handed to the plaintiff." 71 In para 7 of his affidavit sworn 9 September 2010, James Carnovale, a director of Ginelle, gave evidence to a similar effect. 72 There is no suggestion that the retention of the sum of $25,000 was done with the consent of the Singhs. Rather, the submission which was made was that Ginelle had a legal entitlement to retain the funds regardless of the view expressed by the Singhs. 73 In this Court, counsel for Ginelle submitted that Ginelle's entitlement to deduct and retain this sum arose from the mortgage, and not from the settlement agreement of 9 June 2009 or the judgment that was entered on 1 December 2009 as a consequence of that agreement. 74 He also submitted that the decision of Hodgson J in Project Research Pty Ltd v Permanent Trustee of Australia Limited (1990) 5 BPR 11,225 was authority for the proposition that Ginelle was entitled to retain the monies. No reliance was placed on s 66 of the Conveyancing Act 1919. 75 An analysis of this issue necessarily commences with the terms of the mortgage. Clause 18 appears to be the only clause which has the potential to support Ginelle's claim. 76 An examination of the clause demonstrates that clause 18 of the mortgage, which is set out in para 25 above, relates only to an obligation of the mortgagor to pay, upon demand, costs and expenses which have been incurred by the mortgagee. That clause is not applicable to the retention of the sum of $25,000 in advance of the incurring of any costs. It is not an adequate basis for the retention of the monies. 77 Memorandum Q860000 which is incorporated into the mortgage does not contain any provision which specifically authorises the retention of monies to be held against the incurring of future costs by the mortgagee. 78 In addition to relying upon the mortgage, counsel for Ginelle relied upon the decision of Hodgson J in Project Research as being sufficient authority to permit the mortgagee to retain the monies. 79 In that case, the mortgagee provided a set of figures to the mortgagor detailing how it intended to allocate the proceeds of the sale of mortgaged property. The mortgagor questioned the figures, so the mortgagee, anticipating some litigation over the issue, refused to return the mortgage documents to the mortgagor. After negotiation, the parties agreed to substitute a sum of $20,000 as security pending determination by the court, as the mortgagor needed the documents for a transaction with a third party. Hodgson J ruled that the mortgagee was entitled to hold the sum as security for the anticipated litigation. 80 It should be noted that Hodgson J's reasoning in that case turned on the nature of those proceedings. His Honour held that provided that a mortgagee had acted reasonably in stating redemption figures, in any subsequent proceedings brought by the mortgagor to challenge those figures, the mortgagee was entitled to all its costs, regardless of the outcome of the account. In that case, there was no suggestion that the mortgagee had acted unreasonably. Since the mortgagee would ultimately be entitled to all its costs from the sale proceedings anyway, his Honour decided (at 11,230) that "perhaps in that situation, a mortgagee may be entitled as of right to an order for security for costs when the proceedings are brought by the mortgagor". 81 The principle has subsequently been discussed, within those confines, in Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 at [63] per Hodgson JA (Handley and Stein JJA agreeing), Work Childcare Holdings Pty Ltd (in liq) v Phillip Redmond Dwyer [2006] NSWSC 1443 at [36] per White J, and Liberty Funding Pty Limited v Steele-Smith [2004] NSWSC 1100 at [25] per Palmer J. 82 I am of the opinion that the principle is not applicable to this case. As earlier described, the evidence is that the $25,000 is retained to secure ongoing or future litigation including the Court of Appeal proceedings. Those Court of Appeal proceedings are not over any dispute about Ginelle's conduct in allocating the proceeds of sale, and whether it had acted reasonably in doing so. Rather, the dispute appears to be about whether the provisions of the Consumer Credit Code, governed the underlying loan on the basis that the loan was for personal and domestic purposes. That litigation would go to whether the mortgage was ever enforceable. Ginelle can have no expectation that it would be entitled to its costs of that litigation regardless of the result. 83 It seems to me that there is a significant difference between the type and nature of proceedings in equity for redemption accounts, and the proceedings in the Court of Appeal in this dispute. In the absence of further authority, I would not be prepared to extend the limited operation of the decision in Project Research to the circumstances here. 84 If the principle in Project Research does not apply in this case which as I have indicated in my view is the position, the retention of the $25,000 seems to me to be merely an attempt to procure security for costs independently of a court order. 85 There is no evidence that the Singhs fall within r 42.21(1) of the UCPR. In any event, an order for security for costs in respect of proceedings in the Court of Appeal is an issue for that court's determination. 86 It seems to me that the mortgagee has no basis either by reason of the terms of the mortgage, or alternatively under any principle of law which was cited to me, to retain the $25,000. 87 The Singhs have succeeded in persuading me that the monies have been inappropriately detained and that relief ought be granted. 88 Since I am unclear as to whom might be entitled to the $25,000 as between the second mortgagee, C & L Cameron Pty Limited, or the Singhs personally, it is not appropriate that I proceed immediately to make orders disposing of this finding. 89 I would be prepared to make a declaration to the effect that Ginelle had no entitlement to deduct from the sale proceeds, and retain, the sum of $25,000 and to make orders consequential upon such a declaration. 90 It will be a matter for the parties to bring in short minutes of order reflecting the terms of the appropriate declaration and the terms of the orders necessary to give effect to the declaration. Costs 91 Each party has had a measure of success. The hearing of the notice of motion proceeded expeditiously within the duty list. Even after the notice of motion was filed, Ginelle engaged in a further accounting which was found necessary when it checked the amounts which had been deducted, and which it had retained, from the proceeds of the sale. 92 Whilst I accept that as part of the usual practice, a mortgagee acting reasonably will recover its costs of proceedings for redemption accounts, what I have found here, in proceedings which are only analogous to redemption accounts, is that the mortgagee has not acted reasonably in respect of one of three issues before the Court. 93 It would be possible to fashion an order which permitted the mortgagee to recover its costs of Issues 1 and 2, upon which it succeeded, and for the Singhs to recover their costs of Issue 3. However, the cost and expense involved in such an exercise is not warranted. But the order which I propose to make, and which I articulate in the next paragraph, is not intended to permit the mortgagee to recover its costs of these proceedings by some claim of entitlement under the mortgage. 94 The appropriate costs order, in the interests of justice, in all of the circumstances of this notice of motion, is to order that each party pay its and their own costs of the notice of motion. 95 An order to that effect ought be included in the short minutes of order brought in by counsel. Orders (1) Direct each counsel to file by 4pm Friday, 29 October 2010, the short minutes of order which they contend for. (2) Any such short minutes of order are to be filed by forwarding, electronically, a copy of the document to my Associate. (3) Adjourn the proceedings for mention to 9.30am on Friday, 5 November 2010. ********** 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.