A mortgagee insisted on payment of additional amount beyond what was owing on the mortgage to secure future costs of litigation before giving a discharge. The borrower sought a mandatory injunction compelling the bank to discharge the securities. The history of the dispute had its origin in the borrower disputing the bank’s entitlement to fees and this resulted in the borrower refinancing its loan. However the disputed fees were not paid and remained a live issue. The bank claimed a right to the fees plus consequential damages and that it was entitled to secure an amount in respect of legals it would incur in defending the anticipated litigation. The terms of the all monies mortgage covered money owed to the bank now or in the future actually or contingently.
The court held that money being owed contingently is wide enough to encompass future legal costs. The court stated that the law is that if a mortgagee states a payout figure, which a mortgagor proposes to pay under protest, it is open to the mortgagee to require an additional payment of a reasonable sum to cover anticipated legal costs and the entitlement to secure costs is not limited to proceedings that are redemption proceedings but includes other future actions claiming damages as here. The entitlement to costs is on a full indemnity basis. The bank filed a detailed estimate of the costs likely to be incurred in defending the anticipated proceedings. The court found the amount appropriate and said:
Although the result seems counterintuitive, and perhaps a little unfair, it is clear on the authorities that the bank is permitted to secure its possible future entitlement to costs before it becomes obliged to discharge the securities.
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