Australia and New Zealand Banking Group v Mishra [2012] NSWSC 1333

The borrower filed a defence alleging misleading and deceptive conduct, unconscionable conduct and estoppel and indicated they would file a cross-claim and never did.

They then announced they had arranged refinancing but reserved their rights to bring the anticipated cross-claim after the discharge of the mortgage.

The lender added an extra $50,000 to the payout figure as security for the costs of the threatened cross-claim or alternatively the borrower was given the option of signing a deed of release.

The borrower argued that the lender was not entitled to demand a deed of release as a condition of the discharge of the mortgages or any security for costs of defending any claim brought by them after discharge.

The court found for the lender and held the lender entitled to require payment of extra money as security for costs and found it was not necessary that proceedings had already commenced against the lender. The court followed an earlier NSW Court of Appeal decision that 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 probably costs of any contest. If the mortgagee does not specify a payout figure which bears some reasonable relationship to the amount truly owing and anticipated costs, then this may amount to unreasonable conduct or misconduct which disentitles the mortgagee to costs subsequently incurred in determining the rights of the parties. Furthermore, where the mortgagee does not require payment or security for the probable costs of any contest, and a question later arises as to whether the mortgagor’s tender was sufficient to entitle the mortgagor to redemption, the mortgagee cannot then claim that the tender was insufficient because it did not include provision for those costs.

The court noted that if the lender had simply demanded a release on its own, without the option of providing security for costs to reserve such rights, that would likely be inconsistent with contractual and equitable rights to redeem.

The court endorsed an earlier South Australian Supreme Court decision which held that:

Enforcement of a mortgagee’s rights is not confined to the taking of steps to exercise a power of sale or other right conferred by the mortgage: it encompasses whatever is necessary to protect and preserve the mortgagee’s rights when their validity is challenged or their exercise is sought to be prevented or impeded.

The court found that the threatened claim by reason of those matters alleged in the borrowers’ defence would likely involve a challenge to the rights of the lender to enforce the mortgage and the lender did not act unreasonably in incurring those costs, which were payable pursuant to the terms of the mortgage.

The borrower’s application was dismissed and they were ordered to pay costs.

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