McMillan Investment Holdings Pty Ltd v Mangos

[2021] NSWSC 37

Supreme Court

New South Wales

Medium Neutral Citation:

McMillan Investment Holdings Pty Ltd v Mangos [2021] NSWSC 37

Hearing dates:

24 June 2020

Date of orders:

3 February 2021

Decision date:

03 February 2021

Jurisdiction:

Common Law

Before:

Walton J

Decision:

The Court makes the following orders:

(1) The amended notice of motion filed on 15 June 2020 by the first and second defendant is dismissed;

(2) The amended notice of motion filed on 28 June 2020 by the plaintiff is dismissed; and

(3) Each party shall pay its own costs of those motions.

Catchwords:

INTERLOCUTORY PROCEEDINGS – claim under mortgage, guarantee and deed – motion for costs thrown away – motion for variation of orders made by Davies J to meet costs – motion to vary orders of Davies J for enhanced security – motions dismissed

Legislation Cited:

Corporations Act 2001 (Cth)

Personal Property Securities Act 2009 (Cth)

Cases Cited:

Cassimatis v Australian Securities and Investments Commission (2016) 334 ALR 350; [2016] FCA 131

KBL Mining Limited v Kidman Resources Limited [2015] NSWSC 515

Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87

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

Oswall v Commissioner of Taxation (No 5) [2016] FCA 916

Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27

Ziliotto v Dr Hakim (No 2) [2012] NSWSC 1079

Category:

Principal judgment

Parties:

McMillan Investment Holdings Pty Limited (Plaintiff)
John Bernard Mangos (First Defendant)
Natalie Vivienne Mangos (Second Defendant)

Representation:

Counsel:
J T Svehla (Plaintiff)
V Bedrossian (First and Second Defendants)

Solicitors:
Somerset Ryckmans (Plaintiff)
Yates Beaggi Lawyers (First and Second Defendants)

File Number(s):

2018/218097

Judgment

INTRODUCTION

1. HIS HONOUR: By a third further amended statement of claim (“TFASC”) filed 26 April 2019, McMillian Investment Holdings Ltd (“MIH”) brought proceedings against John Bernard Mangos, the first defendant; Natalie Vivienne Mangos, the second defendant (collectively, “the Mangos’”); and Christopher Wallace, the third defendant, in their capacity as debtors, guarantors and/or mortgagors for monies claimed to be owed under various instruments.

2. On 20 June 2019, the Mangos’ filed a defence to the TFASC (“the amended defence”). There were cross-claims brought by the Mr Mangos (“the Mangos’ cross-claim”), Mr Wallace (“the Wallace cross-claim”) and what were described in the proceedings as the “McMillan Entities” (the cross-claimants consisted of MIH, Julie-Anne McMillan and Robert McMillan (“the Third cross-claim”).

3. As I will explain, these proceedings involve a dispute between a lender (MIH) and guarantors (the Mangos’) about loan facilities that were secured over the guarantors’ property. Pursuant to consent orders entered in February 2019, MIH and the Mangos’ reached an interim arrangement whereby the property was sold and funds were paid into court. In April 2019, they reached a further interim agreement reflected in consent orders whereby some of the funds were released to MIH, some funds were released to the Mangos’ to allow them to purchase another property in exchange for the provision of an agreed amount of security of the new property and some funds remained in court. Now, as the costs of the litigation have risen and economic circumstances have changed, MIH brought a motion seeking an order that the Mangos’ provide further security over the new property (“the MIH motion”), and the Mangos’ have brought a motion seeking orders for payment of their costs on an interim basis or, in the alternative, a release of further funds to allow them to fund their defence (“the Mangos’ motion”). As I will explain, the Court has no authority to rewrite the parties’ agreement about the provision of security. The only orders that the Court could make is for the release of funds and no proper basis for that to occur has been shown.

THE MOTIONS

4. These proceedings address two notices of motion brought by the Mangos’ and MIH, respectively.

The Mangos’ Amended Motion

5. By an amended notice of motion, filed 18 June 2020 (hereinafter, “the Mangos’ amended motion”) the Mangos’ sought, inter alia, the following relief:

1. An order, by way of an interim costs order pursuant to s 98 of the Civil Procedure Act 2005 (NSW), that the Plaintiff immediately pay to the solicitors of the First and Second Defendants an amount of $300.000, or such other amount as the Court may determine as appropriate, on account of costs thrown away by reason of the various amendments made by the Plaintiff to its claim, but such order not to prejudice any final costs order ultimately made by the Court, nor to prejudice any assessment of those costs at the conclusion of the proceedings.

2. In the alternative to the relief sought in prayer 1 above, an order varying the orders made by Davies J on 2 April 2019, such that:

a. Order 3 (2 April 2019), pursuant to which the sum of $492,186.82 was retained in Court, be varied so as to reduce the balance retained in Court by $300.000;

b. the sum of $300,000 referred to in Prayer 2(a) above be paid out of Court to the solicitors for the First and Second Defendants for the sole purpose of meeting the costs, expenses and disbursements associated with the conduct of their defence of these proceedings and any cross-claim and upon condition that any unexpended funds not be released to the First and Second Defendants without the Plaintiffs consent in writing or order of the Court;

c. Order 4 (2 April 2019), pursuant to which the First and Second Defendants were obliged to provide a mortgage over the Woolooware Property in favour of the Plaintiff in the strictly limited amount of $537.171, be varied so as to compel the First and Second Defendants to grant a new, or further mortgage, to the Plaintiff, such that the total amount secured by those one or more mortgages over the Woolooware Property in favour of the Plaintiff shall be a strictly limited to the amount of $837.171.

3. A grant of liberty to the First and Second Defendants to approach the Court, without the requirement to file and serve a separate Notice of Motion, for further variation of the Court's orders concerning the funds held in Court and/or the extent of the security in favour of the Plaintiff over the Woolooware Property.

The MIH Amended Motion

6. By an amended notice of motion, filed 28 June 2020 (hereinafter, “the MIH amended motion”), MIH sought the following relief:

1. An order that the Orders made by the Honourable Justice D Davies on 2 April 2019 be varied by deleting the words "strictly limited to the sum of $537,171" recorded in Order 4.

2. An order that the Mortgage bearing registration number AP170804 be varied by:

(a) deleting in the second line of paragraph (b)(A) of the Mortgage the words “is strictly limited to the sum of $537,171.00 to secure" after the words "the Mortgage";

(b) adding in the second line of paragraph (b)(A) of the Mortgage the words "shall mean" after the words "the Mortgage";

(c) adding at the end of the paragraph (b)(A) of the Mortgage after the words "(2 April 2019 Orders)" the words "as amended'; and

(d) adding at the and [sic, end] of the paragraph (b)(C) of the Mortgage after the words "(2 April 2019 Orders)" the words "as amended".

3. An order that, within 5 business days of the date this order is made, the second defendant deliver to the plaintiff a duly executed Variation of Mortgage in registrable form in accordance with order 2 above and that upon such delivery the plaintiff is at liberty to cause the Variation of Mortgage so executed to be registered on title.

4. An order that, if the second defendant fails to deliver the executed Variation of Mortgage in accordance with order 3 above, a Registrar of this Court is directed, within a further 3 business days, to:

(a) sign the Variation of Mortgage for and on behalf of the second defendant and such Variation of Mortgage signed by a Registrar of this Court shall be deemed to be duly executed by the second defendant; and

(b) deliver the Variation of Mortgage so signed into the possession of the plaintiffs solicitor and that upon such delivery the plaintiff is at liberty to cause the Variation of Mortgage so executed to be registered on title.

5. An order that, pending the determination of the relief sought by the plaintiff in orders 1 to 4 above, further or alternatively, pending the final determination of the Proceeding, the second plaintiff defendant be restrained from dealing with the property the subject of the Mortgage.

6. Costs.

7. Such further or others orders as to the Court seem fit.

8. Liberty to the plaintiff to apply to the court on 24 hours’ notice.

EVIDENCE ON THE MOTIONS

7. It may be noted at the outset that there was voluminous evidence relied upon in these proceedings, principally in the form of five court books.

8. The evidence relied upon by MIH was as follows:

1. affidavits of Ms McMillan sworn on 20 February 2019 (together with exhibit JM-1), 2 April 2019 (together with exhibit JM-10), and 28 May 2020 (together with exhibit JM-11);

2. affidavits of Mr Marc Ryckman sworn on 29 May 2020 (together with exhibits MR-1 and MR-2), 19 June 2020 (together with exhibit MR-3) and 22 June 2020 (together with exhibit MR-4); and

3. affidavits of Ms Kerrie-Ann Rosati sworn 3 June 2020 (together with exhibit KAR-1 and KAR-2) and 22 June 2020 (together with exhibits KAR-3 and KAR-4).

9. The material primarily relied upon by the Mangos' was two affidavits of Mr Farshad Amirbeaggi, the solicitor for the Mangos’, dated 11 December 2019 and 18 June 2020, respectively, together with Annexure D, Corelogic lntelliVal Automated Valuation Estimate ("the CoreLogic Report").

10. It was contended by MIH that the Mangos' did not put on affidavits or give evidence but rather produced a solicitor's affidavit incorporating some second hand or third hand conclusory evidence without setting out a proper basis for the same. It was further contended that Mr Amirbeaggi had an economic interest in the Mangos’ amended motion in that the solicitor for the mortgagor and chargor was seeking the “Court place his past and future fees ahead of the secured rights of MIH”. The Court should not, it was submitted, allow the Mangos' to defeat the secured rights of MIH as mortgagee and the registered Illawong Property mortgagee.

11. Out of that submission, it was contended that the Court should draw a Jones v Dunkel inference adverse to the Mangos’, namely, that their evidence would not have assisted them on contested issues before the Court.

12. It is not apparent how the issues raised by MIH may attract a Jones v Dunkel point in these proceedings, given they are interlocutory proceedings in which no witnesses were required for cross-examination. The affidavits of Mr Amirbeaggi were admitted without objection and the weight attached to the evidence will vary depending upon its form and content (similar to those passages of Mr Ryckman's evidence for MIH, which were of a similar character).

13. MIH also advanced a submission regarding the CoreLogic Report (Annexure D to Mr Amirbeaggi's affidavit of 18 June 2020) as follows:

Paragraph 34 of the Mr Amirbeaggi 18 June 2020 Affidavit refers to a Core Logic Automated Valuation which is an Annexure "D" to that affidavit. No weight should be put on it at all for the reasons stated in the document itself: See CB Vol. 4 Tab 23 p.1482 para [2] and para [5].

The Core Logic Automated Valuation provides that it is generated by a computer driven mathematical model without the physical inspection of the Woolooware Property. It provides no indication of what sales data it has reviewed, when those sales occurred or why they are considered comparable. MIH as Plaintiff and the Court is unable to interrogate the computer driven mathematical model. It is as if it was a received truth when it is far from that.

The Core Logic Automated Valuation makes plain that it not a document to be relied upon by a Court: "The CoreLogic Data provided in this publication is of a general nature and not be construed as specific advice or relied upon in lieu of appropriate professional advice".

The Core Logic Automated Valuation has failed to take into account the well publicised effect of the economic consequences of COVID-19 has had and will continue to have in decreasing Sydney residential property prices. Numerous press, financial and authoritative articles circulating in the public domain predict a fall in Sydney residential property prices of somewhere between 10% to 30%. The Core Logic Automated Valuation states it does not take into account economic conditions. That is not part of its mathematical model.

The Mangos as Defendants' failure to provide an expert opinion as to the current and anticipated market value of the Woolooware Property has had the consequence that they have not disclosed to the Court the current and anticipated adverse economic impact of COVID-19 on the value of the Woolooware Property.

This is a choice the Mangos as Defendants have made.

In the circumstances, the only evidence that the Court can even consider when determining the market value of the Woolooware Property is the purchase price of the Woolooware Property in the amount of $1,285,000 as reflected in the 29 January 2019 Woolooware Property Purchase Contract.

The Court can have no confidence that the purchase price some 17 months ago is the Woolooware Property's current market value or will be its current market value by the determination of the proceeding (guesstimated to be the end of 2021).

This is important as the more the value of the Woolooware Property falls the more the secured rights of MIH as Plaintiff are irretrievably prejudiced. In the current economic climate cash is king. MIH as Plaintiff is entitled to be secured over the approximate $449,000 paid into Court. Its rights to this should not be prejudiced and certainly not to enable the mortgagor's solicitor to be paid his past costs in fighting the mortgagee and then money on account for his future legal costs for this fight.

14. The CoreLogic Report clearly has, in my view, a reduced probative value because of the express limitation or caveat within the report as to the use which may be made of the report and the value of estimates made. However, the report was introduced without objection and, in part, relied upon by MIH. It does have some weight and apart from the purchase price for the property (in relevantly recent times) it is the only other evidence as to the current market value of the property.

AMENDMENTS TO THE STATEMENT OF CLAIM

15. MIH’s statement of claim was filed on 16 July 2018.

16. There were a series of amendments leading to the TFASC, which MIH described as follows:

1. On 8 November 2018, the amended statement of claim was filed. This removed Westpac as the fourth defendant, identified some additional monies owing, clarified that MIH was proceeding against the Mangos’ under both the facility agreement and the Registered MIH/Mangos Illawong Property Mortgage and clarified the Mangos’ liability under the $150,000 Loan.

2. On 13 March 2019, the further amended statement of claim was filed (“the further amended claim”). This was the most substantive amendment by MIH. It sought to deal with requests for particulars raised by the Mangos’ in August-September 2018 and it identified the clauses of the instruments relied on. Many of these clauses had already been identified in MIH Particulars Replies and MIH Particulars Documents served on 26 September 2018.

3. On 23 April 2019, the second further amended statement of claim was filed. These were minor amendments, compared to the further amended claim, to identify in particular amounts and calculations already pleaded in the further amended claim, by reference to exhibits JM-1 to JM-2 which had been prepared for the redemption suit in the proceeding, in the period 8 February to 4 April 2019.

4. On 26 April 2019, the third further amended statement of claim was filed. This added the agreed facts that the Illawong Property had been sold, monies had been paid into Court on the Illawong Property Sale and then out of Court for the Woolooware Property Purchase and the effect of the 2 April 2019 Orders.

THE THIRD FURTHER AMENDED STATEMENT OF CLAIM

17. Relevant aspects of the pleadings in the TFASC should be brought to attention at the outset.

18. MIH pleaded that, on about 27 March 2015, Mr Mangos and Mr Wallace, as guarantors and indemnifiers, entered into a facility agreement (“the facility agreement”), the other parties to which were MIH and Sydney Allen Manufacturing Pty Ltd (in liquidation) (“SAM”) and Sydney Allen Printers Pty Ltd (in liquidation) (“SAP”), as joint and several borrowers.

19. It was further pleaded that under the facility agreement that MIH agreed to advance SAM and/or SAP the “principal money” (as defined in the facility agreement), on the terms and conditions in the facility agreement, and that Mr Mangos and Mr Wallace provided a joint and several guarantee and indemnity to MIH in respect of the “principal money” and MIH’s costs and expenses, permitting MIH to call on them as guarantors without calling on SAM and/or SAP as the borrowers.

20. It was pleaded that the obligations under the facility agreement were secured by a collateral security including a general security deed. On or about 27 March 2015, MIH, SAM, SAP, Mr Mangos and Mr Wallace, as guarantors, entered into a general security deed which granted MIH, as the secured party, a “PPSA Security Interest”, “PPSA Personal Property” and a “Fixed Charge” over all other property to secure the payment of the secured money. (“PPSA” is defined in the general security deed to mean the Personal Property Securities Act 2009 (Cth)).

21. In the period 5 March 2015 to about 6 July 2016, MIH advanced $1,460,876.61 (“the principal money”). It was further pleaded that interest was payable on the principal money.

22. It was further pleaded that MIH received payment of $1,039,564.28, at various dates between 8 September 2015 to 1 August 2017, plus an additional amount of about $300,000 (which was brought to account from a payment of $330,000 by Warehouse Australia Pty Ltd). The payments were made for payment of interest and then principal reductions (in the sum of $227,869.91).

23. Nonetheless, it was pleaded that, as at 1 April 2016, default occurred under the facility agreement and, as at 7 April 2016, voluntary administrations were appointed to SAM and SAP. From 2 August 2017 to the filing of the TFASC, no payments under the facility agreement were repaid to principal or interest were made to MIH. (As at 25 February 2019, the principal and interest owed was $298,360.38).

24. It was further pleaded that, on 27 March 2015, the Mangos’, in their capacity as mortgagor, granted a mortgage in a registrable form in respect of a property in Illawong, NSW (the then home of the Mangos’, and hereinafter, “the Illawong Property”) to MIH in its capacity as mortgagee (the Mangos’ were the registered proprietors of the Illawong Property). That mortgage shall hereinafter be referred to as “the Registered MIH-Illawong Property Mortgage”.

25. Under the Registered MIH-Illawong Property Mortgage, the Mangos’ promised to pay, it was pleaded, the principal amount as agreed between the Mangos’ and MIH and that interest accrued daily on the principal money in the rates in the facility agreement. It was further pleaded that the Registered MIH-Illawong Property Mortgage was a security granted by the Mangos’ for payment to MIH for the secured money, which consisted of the principal money and all interest, and for the performance of their obligations under the mortgage and under any collateral security, which was defined as including the facility agreement and the general security deed.

26. On or about 27 January 2016, MIH, as lender, and the Mangos’ entered into the 27 January 2016 MIH/Mangos’ $150,000 Loan Agreement (“the $150,000 Loan Agreement”) whereby MIH agreed to lend Mr Mangos $150,000.

17. On or about 28 January 2016, pursuant to the $150,000 Loan Agreement, MIH lent $150,000 to Mr Mangos or alternatively to Mr Mangos and Mrs Mangos. (Mr Mangos caused MIH/Mangos’ $150,000 Loan to be paid to or to the benefit of SAP pursuant to the 27 January 2016 Mr Mangos/SAP Loan Agreement).

18. MIH pleaded the $150,000 Loan:

1. constituted “principal money” within the meaning of that expression in the facility agreement and the Registered MIH-Illawong Property Mortgage.

2. constituted “secured money” within the meaning of that expression contained in the Registered MIH-Illawong Property Mortgage.

29. It was pleaded that on 26 March 2019, the Mangos’ owed MIH $241,077.82 in relation to the $150,000 Loan (excluding legal fees therein).

30. It was further pleaded that the Mangos’ were liable to pay the $150,000 Loan and all interest calculated on it in accordance with the Facility Agreement Interest Provisions including “McMillan’s costs and expenses”.

31. On or about 21 November 2007, Westpac, as lender, and the Mangos’, as borrower, entered into the 21 November 2007 Westpac/Mangos’ Loan whereby Westpac agreed to lend, and lent, to the Mangos’ $490,000.

32. The 21 November 2007 Westpac/Mangos’ Loan was constituted by:

1. the Westpac/Mangos’ Rocket IPL Loan Offer; and

2. the Westpac/Mangos’ Booklet.

33. MIH pleaded that, on 28 August 2015, MIH entered into a
    Westpac-MIH-Mangos’ Debt and Securities Assignment under which MIH would pay $354,183.22 to Westpac for Westpac to assign to MIH the debt and other obligations owed by the Mangos’ to Westpac under a 21 November 2018 Westpac-Mangos’ Loan. On 28 August 2018, as part of and associated with the Westpac-MIH-Mangos’ Debt and Securities Assignment, Westpac transferred MIH the registered first and second mortgages over the Illawong Property held by Westpac as mortgagee.

34. It was further pleaded:

1. From about 28 September 2015 to about 5 December 2016, the Mangos’ owed payments of principal and interest to MIH in respect of the Former Westpac/Mangos’ Debt, leaving a balance owing, on 5 December 2016, of $62,580.44.

2. From 6 December 2016, the Mangos’ did not pay any amount to MIH, whether principal or interest, in respect of the Former Westpac/Mangos Debt to MIH pursuant to the Westpac-MIH-Mangos’ Debt and Securities Assignment.

3. On 26 March 2019, a week prior to the 2 April 2019 Orders, the Mangos’ owed MIH $74,870.11 in relation to the Former Westpac/Mangos’ Debt.

35. Between 10 November 2016 and 27 September 2018, MIH made demands upon the Mangos’ for payments of monies owing under the facility agreement, the general security deed, the MIH-Illawong Property Mortgage and other debts or loans.

36. It was pleaded that:

1. from 15 May 2017 until 4 December 2018, MIH incurred $94,234.64 legal costs;

2. from the latter part of November 2018 until about 11-22 March 2019, MIH incurred legal costs of $146,883.23; and

3. from 19-22 March 2019 to the present, the legal costs of $250,000 were incurred.

INSTRUMENTS RELIED UPON BY MIH

37. Particular reliance was placed by MIH upon the facility agreement, guarantees under the facility agreement, the general security deed, the mortgage over the Illawong property and the Woolooware mortgage. I will set out some of the detail of these instruments as found in the evidence.

The Facility Agreement

38. As mentioned, the parties were MIH, as lender, and SAP and SAM, as borrowers.

39. There are a number of key terms in the facility agreement which created the asserted Mangos’ liability to MIH under the facility agreement. Key terms include “principal money”, “McMillan’s costs and expenses”, and the interest provisions.

40. “Principal money” was defined broadly in the facility agreement to include but not limited to, at any time all money (unless otherwise agreed in writing by MIH) which was represented as follows:

(i) I owe to MIH as Plaintiff at that time for any reason and includes:

(A) “McMillan’s costs and expenses” and GST;

(B) all interest accrued and added to the principal money;

…

where money which is described in each of the above paragraphs will be principal money:

(iii) whether or not the money is due for payment at that time;

(iv) even if the money is owing only on a contingency;

(v) whether I or the other person owes the money alone or jointly, or jointly and severally or in common with any other person and whether as principal or as surety;

(vi) whether the relevant transactions took place before or after I executed the Facility Agreement;”.

(vii) whether or not the relevant transactions took place in the course of McMillan’s business.

41. The facility agreement also defined “McMillan’s costs and expenses” as:

includes but is not limited to any … costs, fees and expenses which McMillan considers it, or any McMillan appointee or adviser, has incurred or will incur:

(i) …

(ii) in connection with … defending the title to the property which includes the Illawong Property;

(iii) …

(iv) as a result of exercising, trying to exercise or not exercising McMillan’s rights under a law or under the facility agreement, a collateral security or any other agreement relating to the secured money;

(v) …

(vi) because I, that is, the borrower, namely, SAM and/or SAP, and/or the Guarantors, namely Mr Mangos and/or Mr Wallace, have breached any provision of the facility agreement, which costs and expenses include:

(vii) the fees and expenses of any adviser engaged by McMillan for any purpose relating to the facility agreement, the collateral security, the property, which includes the Illawong Property, or the secured money;

McMillan’s legal costs on a full indemnity basis.

42. Interest payable under the facility agreement was 15% per annum, when it is not paid on or before the due date, on the basis of a 360-day year and actual days elapsed.

43. Under the facility agreement, the “principal money” outstanding from time to time, includes unpaid interest (it is then capitalised and forms part of the “principal money”).

The Guarantees

44. MIH contended that Mr Mangos and Mr Wallace provided a joint and several guarantee and indemnity to MIH in respect of the “principal money” and “McMillan’s costs and expenses”, permitting MIH to call on them as guarantors without calling upon SAM and/or SAP as the borrowers.

45. MIH contended that Mr Mangos, as one of the guarantors under the facility agreement, was liable to pay MIH:

1. the MIH/SAM & SAP Outstanding Balance of $227,869.91;

2. MIH’s legal costs and expenses;

3. interest, calculated at 15%, on both the amounts as above in subparas (2) and (3) and in accordance with the facility agreement interest provisions.

46. Mrs Mangos was not a party to the facility agreement.

The General Security Deed

47. On or about 27 March 2015, MIH, SAM, SAP, Mr Mangos and Mr Wallace, as Grantor, entered into the general security deed.

48. Under the General Security Deed, Mr Mangos, inter alia, as a Grantor, granted to MIH, as the Secured Party:

1. a PPSA Security Interest over all PPSA Personal Property; and

2. a fixed charge over all other property, to secure the payment of the Secured Money.

49. MIH contended that the amount of $492,186.82 which had been paid into, and remains in, Court in accordance with order 3 of the 2 April 2019 Orders, inter alia, is subject to MIH’s secured rights against Mr Mangos under the General Security Deed.

The Registered MIH-Illawong Property Mortgage

50. On 27 March 2015, the Mangos’, in their capacity as mortgagor, granted a mortgage in a registrable form in respect of the Illawong Property (the then home of the Mangos’) to MIH, in its capacity as mortgagee.

51. The Registered MIH-Illawong Property Mortgage was a “collateral security” within the meaning and for the purposes of the facility agreement.

52. Under the Registered MIH-Illawong Property Mortgage, the Mangos’ promised to pay the “principal money” as agreed between them and MIH; otherwise when MIH demands it.

53. Interest accrued daily on the “principal money” at the rates in the facility agreement.

54. “Principal money” included “McMillan’s costs and expenses”.

55. As mentioned, on 28 August 2015, as part of, and associated with the Westpac-MIH-Mangos’ Debt and Securities Assignment, Westpac transferred to MIH the registered first and second mortgages over the Illawong Property held by Westpac, as mortgagee.

INTERLOCUTORY PROCEEDINGS AND TERMS OF AGREEMENTS

56. On 8 February 2019, the Mangos’ approached the Common Law Duty Judge seeking an order that MIH deliver up an original certificate of title of the Illawong Property and discharge of the mortgages which MIH held over the Illawong Property in its capacity as mortgagee to secure the monies owed by the Mangos’ to MIH.

57. MIH pleaded that on, 26 February 2019, the Mangos’ notified it of an exchange on a Woolooware Property purchase by the Mangos’ (the contract having been exchanged on 29 January 2019).

58. On 27 February 2019, MIH and the Mangos’ reached a settlement of the interlocutory proceedings concerning the Illawong Property sale contract in, relevantly, the following terms:

1. As mentioned above, upon settlement of the sale of the Illawong Property, the Mangos’ shall provide to the MIH a bank cheque in the sum of $1,863,141.87 payable to the Supreme Court of NSW (“the cheque”).

2. Subject to the provision of the cheque to MIH, MIH would provide and deliver up at, or make available for settlement of the sale of the Illawong Property, a discharge of mortgages registered 5182284, 5252889 and AM495223 (the “Mortgages”) on the title of the Illawong Property together with the certificate of title for the Illawong Property.

3. The cheque (which represented the amount MIH contended, but the Mangos’ disputed, was owing or will become owing and payable by the first and second defendants under the Mortgages) was paid by MIH into Court pending resolution of these proceedings, further order of the Court or agreement of MIH and the Mangos’.

4. The payment of the cheque into Court was without prejudice to all parties' rights that are the subject of these proceedings and in respect of the amount properly due and payable by the Mangos’ to the plaintiff, which is currently secured by the Mortgages on the title to the Illawong Property.

5. The Mangos’ notice of motion dated 8 February 2019 would be dismissed with costs reserved.

6. The Mangos’ Notice of Motion dated 18 February 2019 was adjourned to the Registrar's list on 12 March 2019 together with the plaintiff’s Notice to Produce dated 18 February 2019.

7. MIH is to file and serve a further amended statement of claim by
   12noon on 11 March 2019.

8. It was noted that Mrs Mangos was a purchaser under a contract of sale of the property at 23 Riverview Avenue, Woolooware (the “Woolooware Property”) that is scheduled to settle on 13 March 2019. The Mangos’ envisaged seeking alternative orders in respect of the monies that are the subject of the cheque to enable settlement of the purchase of the Woolooware Property to occur.

(Those terms shall hereinafter be referred to as the “27 February 2019 Orders and Terms of Settlement”).

59. On 12 March 2019, settlement of the Illawong Property Sale Contract occurred and, pursuant to the 27 February 2019 Orders and Terms of Settlement, $1,863,141.87 of the net proceeds from the sale of the Illawong Property was paid into Court by MIH.

60. At 9.09am, on 1 April 2019, Ms Gleeson, solicitor for the Mangos’, sent to the Common Law Registrar an email seeking to relist the proceedings before the Common Law Duty Judge by exercise of the liberty to apply on 24 hours’ notice contained in the orders made on 21 March 2019.

61. That email, relevantly, stated:

… We write to request a listing before the Common Law Duty Judge tomorrow morning, Tuesday 2 April 2019, to enable the first and second defendants to seek a partial release of monies paid into Court on 12 March 2019. The urgency arises because the second defendant is required by a notice to complete to settle on her purchase of a property by Friday 5 April 2019. In order for her to complete the purchase, she will require some of the monies paid into Court on 12 March 2019, to be released to her…

62. On 2 April 2019, the Mangos’ served on MIH a notice of motion (“the 2 April 2019 Motion”). Further, the Mangos’ informed MIH that they would:

1. seek leave to file in Court the 2 April 2019 Motion, that morning, before the Common Law Duty Judge;

2. seek to rely upon Mr Mangos’ affidavits of 26 February and 21 March 2019, together with exhibit Mangos-1, at the hearing before the Common Law Duty Judge;

3. seek to have paid out of Court part of the $1,863,141.87 to Mrs Mangos to enable Mrs Mangos to complete the Woolooware Property Purchase Contract scheduled to occur on 5 April 2019.

63. On 2 April 2019, prior to court, MIH served on the Mangos’ an affidavit of Ms McMillan of 2 April 2019, together with exhibit JM-10 (comprising 41 pages).

64. On 2 April 2019, orders were made in these proceedings by Davies J. In the affidavit of Ms McMillan of 2 April 2019, it was asserted there was a financial entitlement comprised $862,265.31 (including interest and about $247,957.00 of legal costs).

65. In the 2 April 2019 Motion, the Mangos’ sought, inter alia, the following orders:

1. The sum of $1,055,007.12 in Court be paid forthwith by 2.00pm on 2 April 2019 by telegraphic transfer in accordance with the Direction to Pay to PEXA at Schedule A.

2. The sum of $315,94 7.93 in Court be paid to the MIH forthwith without prejudice to all parties' rights that are the subject of this proceeding (to discharge the Westpac Debt and the $150,000 loan facility gross of interest up to 26 March 2019).

3. The sum of $342,186.82 be preserved and remain in Court without prejudice to all parties' rights that are the subject of this proceeding, pending further Order of the Court (which represents the amount the Plaintiff contends, but the First and Second Defendants dispute is owing).

4. The sum of $150,000 be preserved and remain in Court without prejudice to all parties’ rights that are the subject of this proceeding, pending further Order of the Court (which represents an amount to cover MIH’s legal costs of enforcement, but the Mangos’ dispute is owing).

5. Costs of the 2 April 2019 Motion be reserved and in the cause of the substantive proceedings.

66. On 2 April 2019, Davies J, as Common Law Duty Judge, made, inter alia, the following orders (the “2 April 2019 Orders”) (the orders have been converted into the short forms used in this judgment):

1. The sum of $1,055,007.12 in Court be paid forthwith by 5.00 pm on 2 April 2019 by telegraphic transfer in accordance with the Direction to Pay to PEXA at Schedule A.

2. The sum of $315,947.93 in Court be paid to MIH forthwith without prejudice to all parties' rights that are the subject of this proceeding (to discharge the Westpac Debt and the $150,000 loan facility gross of interest up to 26 March 2019).

3. The balance of the sum in Court (the sum of $492,186.82) be preserved and remain in Court without prejudice to all parties' rights that are the subject of this proceeding, pending further orders of the Court (which represents the amount MIH contended, but the Mangos’ disputed, is owing under the facility agreement).

4. Upon settlement by the Mrs Mangos as purchaser under a contract for sale of the Woolooware Property, scheduled for Friday 5 April 2019, Mrs Mangos undertakes to the Court to give to MIH a first ranking registrable mortgage over the Woolooware Property, strictly limited to the sum of $537,171 to further secure the amount which the Court determines is owing by the Mangos’ to MIH, or the Mangos’ agree with MIH they owe to MIH.

5. The costs of the 2 April 2019 Motion be reserved and in the cause of the substantive proceedings.

6. Liberty to apply on 3 days' notice to the Common Law Registrar at first instance.

7. Direct that these orders be entered forthwith.

8. Direct that the Court Revenue & Trust Account Coordinator facilitate the telegraphic transfer payment in para 1 of these orders, and provide to the solicitors for the Mangos’ (Yates Beaggi Lawyers (“YBL”)) email confirmation of said payment, by no later than 5.00 pm on 2 April 2019.

67. In the result, the funds held in Court were dealt with as follows:

1. $1,055,007.12 was released to the Mangos’ to permit Mrs Mangos to purchase a replacement home (the Woolooware Property), which was purchased for $1,285,000 by a contract exchanged in January 2019 and then settled in April 2019;

2. $315,947.93 was paid to MIH; and

3. $492,186.82 continued to be held in Court.

68. On 2 April 2019 the parties presented Davies J with a document entitled “Terms of Order made by the Court by consent” which has his Honour duly made and which provided as follows:

1. The sum of $1,055,007.12 in Court be paid forthwith by 5:00 pm on 2 April 2019 by telegraphic transfer in accordance with the Direction to Pay to PEXA at Schedule A.

2. The sum of $315,947.93 in Court be paid to the Plaintiff forthwith without prejudice to all parties' rights that are the subject of this proceeding (to discharge the Westpac Debt and the $150,000 loan facility gross of interest up to 26 March 2019).

3. The balance of the sum in Court (the sum of $492,186.82 be preserved and remain in Court without prejudice to all parties' rights that are the subject of this proceeding, pending further Order of the Court (which represents the amount the Plaintiff contends, but the First and Second Defendants dispute, is owing under the Facility Agreement).

4. Upon settlement by the Second Defendant as purchaser under a contract for sale of the property at 23 Riverview Avenue, Woolooware, New South Wales (Woolooware Property), scheduled for Friday 5 April 2019, the Second Defendant undertakes to the Court to give to the Plaintiff a first ranking registrable mortgage over the Woolooware Property, strictly limited to the sum of $537,171.00 to further secure the amount which the Court determines is owing by the First and Second Defendants to the Plaintiff, or the First and Second Defendants agree with the Plaintiff they owe to the Plaintiff.

5. The costs of the First and Second Defendants' Notice of Motion filed in Court on 2 April 2019 be reserved and in the cause of the substantive proceedings.

6. Liberty to apply on 3 days' notice to the Common Law Registrar at first instance.

7. Direct that these Orders be entered forthwith.

8. Direct that the Court Revenue & Trust Account Coordinator facilitate the telegraphic transfer payment in paragraph 1 of these Orders, and provide to the solicitors for the First and Second Defendants (Yates Beaggi Lawyers) email confirmation of said payment, by no later than 5:00 pm on 2 April 2019.

NOTE: The Court presently holds the sum of $1,863,141.87 in Court (REC23250061).

69. The first three of these orders concern the distribution and retention of monies paid into Court. The fourth “order” is not in substance an order at all but instead the Mangos’ proffering an undertaking to the Court concerning the provision of a mortgage.

70. MIH contended in written submissions that the effect of the 2 April Orders was to provide MIH payment or security of $1,345,305.75. The $1,345,305.75 comprised:

1. first element – payment to MIH: $315,947.93;

2. second element – monies paid into Court: $492,186.82;

3. third element – the Registered First Woolooware Property Mortgage: $537,171.

71. In substance, however, the security now held by MIH comprises
    $1,029,357.83 plus interest as accrued on funds held in Court (a position accepted elsewhere in the MIH submissions). Mr Amirbeaggi in his affidavit of 17 June 2020 stated that the security reflects the amount MIH states is due and owed under the facility agreement (principal plus interest to 25 February 2021), being $397,551.95 plus incurred on future legal fees expected to
    25 February 2021 being a combined sum of $631,805.88. The Woolooware Property mortgage is the only security interest in title.

72. Thus, to reiterate, the situation, at the hearing of the 2 April 2019 Motion was that:

1. MIH had received $315,947.93 from the Mangos’ monies, a significant portion of which was in relation to an alleged debt that remains disputed by the Mangos;

2. $492,186.82 (plus accrued interest) continues to be held in Court as security for MIH;

3. MIH has a Woolooware Property Mortgage (a first registered mortgage) in the limited amount of $537,171.00; and

4. Mrs Mangos owns the Woolooware Property. The value is disputed. The Mangos’ contend the Woolooware Property is worth at least
   $1.285 million (on the available evidence, likely about $1.34 million) and with only the Woolooware Property Mortgage secured against it. The Mangos’ submitted that, therefore, there is net equity in the range of $750,000 to $850,000 (or perhaps more). As earlier mentioned, MIH submitted that the only reliable market value on the evidence was the sale price for the property which itself would be subject to decline due to worsening economic conditions resulting from the pandemic.

73. As to the 2 April 2019 Orders, MIH contended that those orders were:

1. based upon the Court’s then best estimate of MIH’s entitlements;

2. without having seen the amended defence and the Mangos’ First Cross-Claim;

3. without foreseeing all of the additional steps which in fact have occurred in the proceedings; and

4. based on the premise that the trial and a final determination of the proceedings would occur by February 2021.

74. Because the Woolooware Property Purchase Contract had to settle on 5 April 2019, the Mangos’ had the proceedings urgently listed before the Common Law Duty Judge at 3pm on 4 April 2019 to resolve a dispute that had arisen over the terms of the proposed MIH Woolooware Property Mortgage.

75. The legal representatives for MIH and Mrs Mangos then engaged in further discussions and at 5.12pm on 4 April 2019, Campbell J noted the agreement of MIH and Mrs Mangos contained in the memorandum filed and initialled by Justice Campbell.

76. The memorandum which was initialled by Campbell J was a document of 3 pages:

1. first, a one-page email from Ms Gleeson to Mr Rowan, solicitor for MIH, sent on 4 April 2019 at 2.33pm which contained a term of and some proposed amendments to mortgage Memorandum Q86000, which were then further amended in hand;

2. secondly, the two-page standard provisions contained in Memorandum Q86000, which had been amended in hand both by handwritten additions and deletions.

77. On 5 April 2019, $315,947.93 was paid by electronic fund transfer out of the Supreme Court of NSW into the account of MIH at the ANZ.

78. Ms McMillan gave evidence that the amount of $315,947.93 in order 2 of the 2 April 2019 Orders comprised a total of:

1. $74,870.11, being the amount owing to MIH, on 26 March 2019, on the Westpac/Mangos Rocket IPL Loan;

2. $241,077.82, being the amount owing, as at 26 March 2019, in relation to the MIH/Mr Mangos $150,000 Loan, together with interest.

79. In the proceedings the Mangos’ have not sought to recover from MIH the amount of $74,870.11 in respect of the Westpac/Mangos Rocket IPL Loan paid out of Court to MIH as part of the $315,947.93 on 5 April 2019.

80. MIH contend that in these circumstances, as the amount of $74,870.11 did not include legal fees paid by MIH to recover the amount of $74,870.11 as owing to MIH under the:

1. Westpac/Mangos Rocket IPL Loan;

2. Registered First Westpac Illawong Property Mortgage;

3. Registered Second Westpac Illawong Property Mortgage, MIH is entitled to recover its legal fees and expenses in respect of these matters up to 5 April 2019.

81. Ms McMillan, estimated that MIH legal costs and expenses from early 2017 (when FD Legal first commenced providing legal services in relation to MIH recovery from the Mangos’) to 5 April 2019 to somewhere between $40,000 to $80,000 in relation to recovering from the Mangos’ the amount of $74,870.11 owing under the:

1. Westpac/Mangos Rocket IPL Loan;

2. Registered First Westpac Illawong Property Mortgage;

3. Registered Second Westpac Illawong Property Mortgage.

82. MIH would engage an expert costs consultant to undertake the task of calculating these legal costs and expenses of MIH. MIH estimated that the cost consultant’s costs would be an additional $10,000 to $20,000.

83. The Mangos’ disputed that they were liable to pay the $241,077.82 in relation to the $150,000 Loan, which amount included interest, which, as mentioned, comprised part of the amount of $315,947.93 paid to MIH out of Court on 5 April 2019. This is set out in their amended defence.

84. MIH submitted that it is entitled to have its legal costs and expenses secured in respect of the attempt by the Mangos’ to recover or set off the amount of $241,077.82 by reason of MIH rights under the:

1. facility agreement;

2. Registered MIH-Illawong Property Mortgage; and

3. General Security Deed.

SUBMISSIONS

The Mangos’ Amended Motion

The Mangos’ Submission

85. The core reason for the claim was that, to date, the Mangos’ have incurred significant expenses already in respect of these proceedings (including in responding to multiple iterations of MIH’s claim) and, if they do not obtain access to funds (whether it be by way of an interim costs order or access to monies they contend are their own), then they will be deprived of their present legal representatives.

86. It was further contended the Mangos’ have:

1. expended a significant amount on legal fees to date in respect of these proceedings, including in the course of dealing with the multiple iterations of MIH’s pleadings;

2. exhausted their capacity from existing and accessible liquid financial resources to pay for their legal expenses;

3. present liabilities or soon-to-be crystallised liabilities of an amount in the vicinity of $160,000 in respect of legal work on these proceedings; and

4. will lose their current legal representation, if unable to pay for outstanding and anticipated legal fees.

87. As to the first prayer for relief of the Mangos’ amended motion it was submitted:

1. it is clear that MIH has, by its manner of conduct of the proceedings, caused the Mangos’ to incur legal costs greater than ought to have been the case. One order for costs thrown away (15 August 2019) has already been made, but equivalent costs orders (for costs thrown away by reason of amendments to pleadings) ought to have been made in respect of each of MIH’s multiple amendments to the statement of claim.

2. It is also not unlike the manner, in which MIH obtained interim access to the amount of $315,947.93.

3. MIH’s conduct of these proceedings has been prejudicial to the Mangos’ in two respects. First, it has caused the Mangos’ to expend an unnecessarily large amount upon their defence of the proceedings. Secondly, it has caused MIH’s own costs to be unreasonably inflated, upon which inflated costs MIH now relies in order to cause further financial prejudice to the Mangos’. This is what MIH is attempting to achieve by its motion, the MIH amended motion.

4. There is, however, beyond the relief sought in prayer 1 of the Mangos’ amended motion, a more direct and straightforward route to achieving a fair balance between the parties’ respective interests.

5. However, it was accepted that, the most direct route to facilitating an even playing field between the parties is for the Mangos’ to be granted the relief sought in prayer 2 of the Mangos’ amended motion. The present solicitors for the Mangos’ have a significant amount of accumulated knowledge of the issues arising in these proceedings; loss of that legal representation would work a significant and irreparable prejudice to the Mangos’.

88. As to the second prayer for relief:

1. The Mangos’ sought access to $300,000 of the $492,186.82 (plus interest) presently held in Court, but, in lieu thereof, agree to provide an extended version of the Woolooware Property Mortgage which would be strictly limited to the amount of $837,171 (being a $300,000 increase). It follows that MIH would continue to have a security interest in respect of the same amount as it presently does, with the Woolooware Property Mortgage being for $837,171 and in circumstances where the value of the Woolooware Property is in the vicinity of, $1.35 million.

2. The Woolooware Property Mortgage would, therefore, be for an amount not exceeding 65% of the value of the Woolooware Property.

3. The Mangos’ contended that the above amendments to the balance between cash in Court and the first registered mortgage security would cause no prejudice to MIH. Importantly, the only thing being proposed by the Mangos’ is that they be entitled to have access to their own net assets in order to defend these claims brought by the Plaintiff and in order to retain the legal representation of their choice.

4. The unchallenged evidence is that MIH’s lawyers will have to cease to act if the funds sought are not made available.

The MIH Submission

89. The MIH produced a lengthy written submission as to the Mangos’ amended Motion which was encapsulated as follows (with supplementary submissions and particular overall submissions as to the MIH amended motion):

1. MIH, as a mortgagee/secured creditor of the Mangos’, is legally entitled to be protected by payment for security for all of its rights;

2. MIH should be so protected until the final determination of the proceeding when the Court has determined all of the issues raised by MIH and the Mangos’. The fact that Mr Amirbeaggi, the Mangos’ solicitor, is of the view that the Mangos’ have a good case is simply not to the point and of no assistance;

3. MIH is of the view that it has a strong case and will succeed against the Mangos’;

4. on these applications before the Court, the Court should not make a preliminary assessment which in any way would be adverse to MIH contractual and secured rights as the mortgagee/secured creditor;

5. MIH does not accept that there have been four material amendments to the statement of claim which have resulted in costs thrown away;

6. from 8 February to 5 April 2019, the Mangos’ brought on a redemption suit in the proceeding, involving five to six appearances and hearings before the Common Law Duty Judge (Davies J). This occurred so that the Mangos’ could complete the Illawong Property Sale Contract and the Woolooware Property Purchase Contract, both of which had been entered into without the consent of or notice to MIH and in disregard of its rights as a mortgagee. This redemption suit involved a very substantial body of evidence, notices to produce and subpoenas and motions in relation to these. This redemption suit, in effect, was a separate proceeding within the proceeding;

7. some two and a half months after this redemption suit had concluded, and some two months after the TFASC had been filed, the Mangos’, on 20 June 2019, filed the amended defence and the Mangos’ cross-claim. In these two pleadings, the Mangos’ raised significant defences and claims including under the Corporations Act 2001 (Cth) and claims for breaches of statutory, fiduciary and equitable duties, claims for equitable contribution and claims which involved the conduct of MIH’s solicitors.

8. from 20 June 2019, the proceeding has been concerned with:

1. Defences and Amended Defences to the TFASC;

2. Cross-claims: the Mangos’ cross-claim, the Wallace cross-claim and the Third cross-claim. The Mangos’ cross-claim and the Wallace cross-claim added parties to the proceeding, MIH’s directors, Mr McMillan and Ms McMillan because of matters alleged in the Mangos’ cross-claim. The Third cross-claim joined MIH’s former solicitors, PMFPL and FD Legal, as well as Westpac;

3. a Mangos’ Amended First Cross-Claim and the defences to the three cross-claims;

9. no order for “costs thrown away” should be made.

10. Davies J did not make any order for costs in relation to the amendments to the claim when they were made;

11. any costs thrown away by MIH’s amendments to the claim should be determined after the trial when there can be a proper consideration and assessment of any thrown away costs;

12. MIH’s costs of the redemption suit have been reserved by Davies J. No doubt his Honour did so with a view that all these interlocutory costs should be determined after the trial;

13. costs thrown away should be construed to mean wasted costs and limited only to the amendments to the claim.

14. a cost assessor in the usual way should determine what are the costs thrown away by reason of the amendments to the claim;

15. the evidence proffered by the Mangos’ is inadequate and would not enable the Court to make a gross or lump sum costs order for costs thrown away. Further, Ms Rosati has reviewed YBL’s tax invoices and formed that opinion;

16. Ms Rosati, the expert cost consultant, has material concerns about the content of the YBL Tax Invoices;

17. under the 2 April 2019 Orders, MIH is presently secured to the amount of $1,029,357.82;

18. if the proceeding is finally determined on 30 June 2021, MIH needs to be secured for the amount of $1,441,346.91;

19. MIH can only be properly secured if the current limitation of $537,171 on the MIH Registered First Woolooware Property mortgage under the 2 April 2019 Orders is removed. This order is sought in the MIH amended motion;

20. the Mangos’ have no ability or means to pay MIH other than out of the:

1. $492,186.82 paid into Court;

2. the value of the Woolooware Property.

21. in these circumstances, Mrs Mangos should be restrained from dealing with the Woolooware Property pending the final determination of the proceeding. This order was sought in the MIH amended motion.

90. As to the first enumerated contention by MIH it was submitted:

1. A fundamental principle is that a mortgagee, when asked by the mortgagor, to redeem the mortgage, is entitled to both:

1. payment or security of the amount secured by the mortgage; and

2. payment or security for “probable” costs of any contest with the mortgagor, whether that contest relates to an account or a challenge to the validity of the mortgage.

2. In the amended defence and the Mangos’ Amended First Cross-Claim, the Mangos’ claim that amounts which MIH sought to recover fall outside the terms of the Registered MIH-Illawong Property Mortgage and they impugn the validity of that mortgage.

3. In those circumstances MIH was, and continues to be, entitled to payment or security for the amount which MIH contended was the amount secured by the Registered MIH-Illawong Property Mortgage and also for MIH’s “probable” costs of the contest with the Mangos’.

91. As to contentions regarding costs thrown away, MIH submitted as follows:

[122] No order should be made that the Mangos … are entitled to “costs thrown away” by reason of [MIH’s] amendments to the Claim.

[123] No order for “costs thrown away” by reason of MIH’s amendments to the Claim should be made at this stage for many reasons including:

(a) it is far too difficult to disentangle, at this stage, costs of the Mangos as Defendants associated with MIH as Plaintiff’s amendments to the Claim with the other steps concurrently occurring in the Proceeding, including:

(i) the interlocutory applications brought by the Mangos … to complete the Illawong Purchase Sale Contract and the Woolooware Property Purchase Contract, which required numerous appearances before the Court, in particular the Common Law Duty Judge (Davies J) and extensive affidavit evidence and exhibits …

(ii) issuing of notices to produce and subpoenas and applications to set these aside …

(b) the [TFASC] was filed on 26 April 2019 and although there were four amended versions prior to this, only one was of any substance, namely the First Amended Claim filed on 13 March 2019, and that merely pleaded matters in greater detail, in effect, responding to outstanding requests for particulars of the [Mangos’] … and otherwise relied on instruments (the Facility Agreement, General Security Deed, etc.) and other documents provided to the [Mangos’] … in mid September 2019 …

(c) subsequent to 26 April 2019, the Proceeding has concerned itself with filing defences to the [TFASC], the [Mangos’] … and Mr Wallace … filing cross-claims which are not only made against MIH … but added Mr McMillan and Ms McMillan as cross-defendants. These cross-claims significantly expanded the scope of the Proceeding by alleging that MIH, Mr McMillan and Ms McMillan were de facto/shadow directors of SAP and SAM. In addition, the [Mangos’] … raised claims in relation to the conduct of MIH’s …solicitors which necessitated MIH … joining those solicitors (PMFPL and FD Legal) and Westpac as cross-defendants to the [TFASC] …

(d) the SAP Liquidators conducted examinations under section 596A of the Corporations Act upon Mr Mangos and Mr Wallace in August and October 2019 respectively …

(e) the [Mangos’] … filed the current motion on 22 November 2019, which has turned into a trial itself with detailed affidavit evidence, expert evidence, notices to produce, a subpoena and applications to set those aside and a separate hearing in relation to that;

(f) in all these circumstances it is completely unsafe to disentangle and apportion costs until the determination of the Proceeding when, no doubt, there will be a significant costs hearing, at which time, the trial judge can consider the entire history of the Proceeding in the context of the determinations made in the trial judge’s judgment and costs ought properly be apportioned on particular matters;

(g) if there is to be any consideration of an order for “costs thrown away” at this stage, that task should be undertaken by Justice Davies who has been seized with the interlocutory conduct of the matter since February 2019 and is familiar with its history;

(h) the fact that Justice Davies, who has been case managing the Proceeding since February 2019, made no costs orders in relation to the amendments to the Claim by MIH … is a strong indicator that it was the view of Justice Davies that any costs consequences occasioned by such amendments should be dealt with after the trial;

(i) Justice Davies also made no orders in relation to the [Mangos’] … interlocutory applications for the completion of the Illawong Property Sale Contract and the Woolooware Property Purchase Contract. His Honour had in mind the difficulty of disentangling costs all such matters should abide the final hearing;

(j) the Court ought be very cautious in seeking to disturb the contractual and secured rights of MIH at this stage. That is clearly a matter which should await final determination. It is in the context of that final determination that costs orders in relation to any interlocutory steps can be properly considered and adjudicated upon. If the Court is minded to make an interlocutory order for “costs thrown away” it should be a very limited one and made with sufficient specificity so that a costs assessor could properly undertake the task of assessing those costs;

(k) there is simply no adequate or proper evidence for the Court to even commence to engage in the task of considering a lump sum costs order, not only having regard to all of the above matters, but also the detailed reasoning and opinions of Ms Rosati...

[124] There is little judicial guidance as to what is meant by “costs thrown away” by reason of amendments to a pleading. In Andromeda v Holme, Banks LJ stated at p330: “I do not propose to attempt the definition of what the words “all costs thrown away” mean, …”

[125] In Ziliotto v Dr Hakim (No. 2), Davies J had to consider an order sought by the defendant that the plaintiff pay the costs thrown away by reason of the adjournment. His Honour noted at [41] that: “the parties were unable to agree as a matter of principle on what those costs should be.”.

[126] Then, Davies J continued at [44]:

There is scarcely any other guidance as to what is embraced by the expression "costs thrown away". The matter is discussed in Edelman v Badower [2010] VSC 427 in connection with the meaning of rule 63.17 Supreme Court (General Civil Procedure) Rules 2005 (Vic) which provides that a party who amends a pleading shall "pay the costs of and occasioned by the amendment". Mukhtar AsJ said:

[30] According to Quick on Costs there are differing views whether the phrase "costs of and incidental to" really mean anything more than "costs of" because it is doubtful whether the words "of and incidental to" would allow more than what was allowed by the word "of". The authors say that ordinarily the costs occasioned by an amendment are such costs as would not have been included had the pleading been delivered originally in the form of the amendment. That would include costs of work done in preparing pleadings rendered useless by the amendment. ...

[31] Despite its widespread usage, the term "costs thrown away" is not to be found in the rules. An order for costs thrown away is regarded as compensation for work already done but wasted as a result of the other party's error or failure to comply with the procedure set by the rules: see Dal Pont, Law of Costs. It is an instance of a party seeking the court's indulgence to accurately formulate its pleading which, in an ideal world, it should have got right in the first place.”

[127] In Ziliotto, at [47], Davies J agreed with the views expressed in Edelman v Badower, set out in the preceding paragraph, and stated at [47]:

“I agree with Mukhtar AsJ's analysis that "costs thrown away" is looking to past costs - compensation for work already done and wasted because of the adjournment, or amendment or error. It does not refer to costs which have not yet been incurred ….”

[128] If an order is made that the [Mangos’] … are entitled “costs thrown away” by reason of the amendments to the Claim then:

(a) the Mangos as Defendants are only entitled to those costs which have been reasonably incurred;

(b) those costs which are truly “costs thrown away”, that is, on a considered analysis, considered to have been wasted in the relevant sense …;

(c) the quantum of such costs is to be determined in the usual way by cost assessment before a cost assessor and not by the Court.

[129] In Fitzgerald v CBL Insurance Ltd (No. 2)130 at [29], Sloss J stated:

“In the absence of agreement between the parties, the identification and quantum of any costs thrown away will fall to be assessed by the Costs Court.”,

applying the oft quoted statement of Williams J in The Fashion Warehouse Pty Ltd v Pola at p254:

“It was for the Taxing Master in the exercise of his discretion to determine what costs are actually ‘thrown away’. All that those cases establish is that for costs to be allowed as – “costs thrown away”, they must have been, in the opinion of the Taxing Officer, reasonably incurred and relate to the work done which has become wasted in the circumstances”.

[130] This principle has been accepted and applied in the Federal Court (eg. Sobey, Cassimatis), Victoria (eg. Fitzgerald v CBL), WA (eg. Brookvista Pty Ltd v Melonie, Simmons v Love (No. 2)) and Queensland (eg. Hannover International Pty Ltd v CW Robson; Mine and Quarry Equipment International v CW Robson; GF Robson v CW Robson).

[131] This principle stated in Fashion Warehouse v Pola, is to be ultimately derived from Andromeda v Holme where Banks LJ stated at p330:

“… those must be costs reasonably incurred and it would be for the Taxing Master to say whether in those circumstances the steps taken by the plaintiff were reasonably taken”.

[132] In this Proceeding, in particular given its complexity and the interweaving and overlapping of various matters, including applications, the Court should not now determine what order, if any, should be made by reason of MIH’s … amendments to the Claim. This should await the determination of the Proceeding when all cost issues are dealt with.

[133] See also Pagone J in Oswal v Commissioner of Taxation (No. 5) at [9]:

“In general, however, questions about costs should be resolved when the proceedings are concluded.”

[134] Pagone J stated that this is the general rule as:

“An important consideration in deciding when a court should determine applications for costs is that the Court may not be able to decide where justice lies between the parties until the proceedings are finally concluded: Castel Electronics Pty Ltd v TCL Airconditioner (Zhongshan) Co Pty Ltd [2013] VSC 92, [28].”

[Original emphasis.]

[135] These principles were applied by Edelman J (then a Federal Court judge) in Cassimatis & Anor v Australian Securities and Investments Commission [2016] FCA 131; (2016) 334 ALR 350, where his Honour was dealing with an appeal of a decision of the Deputy District Registrar’s taxation of costs under the Federal Court Rules in relation to applications by ASIC to amend its pleading. Edelman J declined to determine the “quantum of the costs thrown away” by reason of ASIC’s amendment and stated at [75]:

“These are matters which can only be assessed after having considered the documents that are contained within the client files, in light of the two relevant pleadings. That task would, in any event, be more appropriately performed by the Deputy District Registrar who has a familiarity with the files that would make the task far more efficient.”

[136] In TTE Pty Ltd v Ken Day Pty Ltd, Martin J stated at [145]:

“… There must be something about the circumstances of the interlocutory application under consideration to lead the Court, in the exercise of its discretion, to make an order as to costs, taxation and payment”.

[137] This principle was approved and applied by Davies J in Castel Electronics Pty Ltd v TCL Airconditioner (Zhongshan) Co Pty Ltd at [27]-[28].

THE MIH AMENDED MOTION

The MIH submission

92. In summary, the MIH submission in this respect is as follows:

1. The Mangos’, whilst in employment, are nearing retirement age.

2. The only source of funds for the Mangos’ to pay MIH will be from the:

1. $492,186.82 paid into, and remaining in, Court;

2. the value of the Woolooware Property.

3. As at 25 May 2020, the total amount secured to MIH pursuant to the 2 April 2020 Orders was $1,029,357.82, comprising the:

1. $492,186.82: paid into Court; and

2. $537,171: the limit on the Registered First Woolooware Property Mortgage.

4. Ms McMillan has signed a certificate pursuant to cl 9.9 of the Registered MIH Illawong Property Mortgage stating that, as at 25 May 2020, MIH was owed $943,169.55 by the Mangos’ secured over the Illawong Property and now secured over the moneys paid into Court and the First Registered Woolooware Property Mortgage.

5. Thus, as at 25 May 2020, there was only $86,188.27 of additional security available to MIH under the terms of the 2 April 2019 Orders to secure MIH until the end of the proceeding, which is not likely to occur until 30 June 2021, but probably in December 2021.

6. In order for MIH to be properly secured by the Mangos’ up to 30 June 2021 (not December 2021 which is the more likely scenario), MIH will need security for $1,441,346.91. There was liberty to apply given in the February 2019 agreement.

7. This means that MIH needs additional security of $411,989.09 ($1,441,346.91—$1,029,357.82).

8. The amount of $1,441,346.91 is based upon the evidence of Ms McMillan in her affidavit of 28 May 2020. On the assumption that the trial in the proceedings will end on 30 June 2021 (not December 2021, which is more likely), at that date, the Mangos’, it was contended would owe MIH $1,441,346.91, comprising:

1. $418,801.93, which includes interest to 30 June 2021: the Amended MIH/SAM & SAP Outstanding Balance;

2. $692,827.29, which includes interest to 30 June 2021: MIH’s legal fees paid as at 25 May 2020;

3. $329,717.68, which includes interest to 30 June 2021: MIH’s legal fees from 26 May 2020 to 30 June 2021. This is conservatively estimated at $300,000 without taking into account interest. The $300,000 includes work in progress not yet billed by MIH’s lawyers to MIH up to 25 May 2020.

9. The $1,441,346.91 does not include any amount for the costs which MIH can recover from the Mangos’ in respect of the Former Westpac Mangos Debt which Ms McMillan estimates will be somewhere between $40,000 to $80,000, with $10,000 to $20,000 to pay a costs consultant to prepare such bill.

10. In these circumstances, the MIH amended motion seeks an order that MIH’s registered first Woolooware Property Mortgage not be limited to $537,171 but be unlimited in amount and further or alternatively that pending the final determination of the proceeding, Mrs Mangos be restrained from dealing with the Woolooware Property.

11. It is common ground that the only source of funds to pay MIH is the $492,186.92 in Court and the value of the Woolooware Property.

12. The Woolooware Property was purchased for $1.265 million on 5 April 2019.

13. A computer generated automated valuation estimate of the Woolooware Property prepared on 12 June 2020 by CoreLogic provides that, as at that date, the Woolooware Property had an:

1. estimated price range: $1,236,000 to $1,451,000;

2. estimated value: $1,340,000.196.

14. If these are added to the amounts found in the CoreLogic Report, the $492,186.82 paid into and remaining in Court from the Illawong Property Sale Contract Net Proceeds, there is available from the Illawong Property Sale Contract Net Proceeds somewhere between $1,728,186.82 to $1,943,186.82.

15. In these circumstances, Mrs Mangos, as the registered proprietor of the Woolooware Property, should be restrained from dealing with the Woolooware Property pending the determination of the proceeding. This is the amended order 5 sought in the MIH amended motion.

16. MIH has a seriously arguable case and the balance of convenience is in its favour.

The Mangos’ submission

93. The Mangos’ contended that the MIH amended motion was extraordinary for three reasons:

1. First, it seeks orders, the effect of which would be to grant to the MIH a security interest over the property of Mrs Mangos, being a security interest to which the MIH is not entitled. The MIH is asking for an extended security in respect of its substantive claims (as plaintiff).

2. The securities ordered by Davies J were predicated upon the anticipated expenses for the dispute offered by MIH. The fact that the amounts may, as submitted by MIH, represent a “best guestimate” does not obviate the fact that these were the amounts upon which the Court acted in making the orders. These were for substantial sums. No bases have been demonstrated for MIH effectively obtaining a greater secured interest.

3. Secondly, MIH does not purport to identify the juridical basis, upon which the Court would be able to grant the relief sought in the MIH amended motion. The Mangos’ deny that there is any legal or equitable basis for any such orders.

4. It is also important that by the 27 February 2019 Orders and Terms of Settlement, the amount paid into Court represents the sum MIH contended was owing. Further, the discharge of the Registered MIH-Illawong Property Mortgage brought to an end all mortgage entitlements had by MIH with respect to that property. The agreement was drawn in the light of the Woolooware Property purchase. The limit of any secured interest on the Woolooware Property by Mrs Mangos was strictly limited to $537,171. There were no additional obligations. Davies J delivered the amount required to be surrendered as the security.

5. There is no security claim pleaded against Mrs Mangos. It is a false premise in MIH’s argument that, irrespective of the course of litigation, MIH was entitled to costs on a full indemnity basis. Costs are at the discretion of the Court, noting further that MIH may be unsuccessful.

6. Thirdly, the MIH’s factual basis for the application appears to be that it has already expended at least $587,000 upon its pursuit of proceedings in respect of what is presently a principal obligation of $227,869.9114 and, even including interest, a total obligation of not more than about $355,000. It is not clear how such an extraordinary amount of costs would be recoverable, even if the MIH succeeds and even if the MIH is permitted to rely upon the typically generous costs provisions of loan agreements relied upon by sophisticated lenders. Further, it is not meritorious for the MIH to rely upon those circumstances so as to encumber further the only meaningful asset available to the Mangos’ for the purpose of funding their active involvement in the proceedings.

7. Even upon the amount MIH claims is owing ($1,441,346.91), when viewed in light of the CoreLogic Report estimates, there remains a margin of $300,000 to $500,000 over and above, as counsel for the Mangos’ submitted, “the fullest possible estimate given by the plaintiff for its interest, principal and costs that would be available to found my client’s defence and cross-claim”.

8. It is appropriate that the Mangos’ be fully funded to permit the expeditious resolution of the proceedings.

94. The MIH amended motion ought to be dismissed with costs.

MIH Supplementary Submissions

95. MIH advanced three supplementary submissions regarding superannuation and the Woolooware Property as follows.

Superannuation Entitlements

96. Paragraph 9(b)(iii) of affidavit of Mr Amirbeaggi of 18 June 2020 stated that the Mangos’ only assets, inter alia, are: “their respective superannuation entitlements that have not reached maturity”.

97. MIH issued two Notices to Produce to the Mangos’ and a Subpoena to Produce to YBL seeking information as to the superannuation entitlements of the Mangos’.

98. Documents were produced by YBL in response to the Subpoena to Produce and by the Mangos’ under the Notices to Produce. However, information in relation to the superannuation entitlements had not been provided.

99. MIH sent a letter to the Mangos’ which sought, inter alia, the provision of the information relating to the Mangos’ superannuation entitlements.

100. While the solicitors for the Mangos’ replied that they had sought instructions from their clients, the information requested by MIH had never been provided by the Mangos’.

101. The Mangos’ had not provided any documents to:

1. support the contention of Mr Amirbeaggi that their superannuation entitlements have not reached maturity;

2. establish that they have taken any steps to access their superannuation entitlements; or

3. establish that they are not able to access their superannuation entitlements to pay their legal costs.

102. In circumstances where the Mangos’ sought an order that money in Court which was paid into Court as security for MIH, as mortgagee, be paid to the Mangos’ for legal costs, it was incumbent upon the Mangos’ to put this evidence before the Court and to personally swear the affidavit.

103. The Mangos’ have not been frank with MIH, as mortgagee, or the Court on this issue.

Rent of the Woolooware Property

104. The Mangos’ have never resided in the Woolooware Property. It has been rented out and used for investment purposes.

105. There is evidence that the rent for the Woolooware Property was not paid to the Mangos’ but to Courtney Mangos, presumably a relative of the Mangos’.

106. MIH sought information as to the reasons why the rent in relation to the Woolooware Property has not been paid to Mrs Mangos as the registered proprietor and lessor of the Woolooware Property.

107. While the solicitors for the Mangos’ replied that they had sought instructions from their clients, the information requested by MIH has never been provided by the Mangos’.

108. The Mangos’ have not provided full and frank disclosure in relation to their dealings regarding the Woolooware Property to MIH, as mortgagee, or the Court.

109. Once again, the Mangos’ have not sworn the affidavits and have not been frank with MIH, as mortgagee and the Court on this issue.

110. It remains, however, how MIH would employ this contention in relation to either of the amended motions.

Woolooware Property Sale

111. Due to the uncertainty of the market and the progressive lessening of MIH’s security, inter alia, as the debt is ever increasing, the Woolooware Property should be sold and MIH’s outstanding amounts claimed in the proceedings and legal costs to the end of the trial should be paid out firstly from the money held in Court in the amount of approximately $449,000 and then from the proceeds of sale of the Woolooware Property. If necessary, the proceeding can be stayed pending the sale of the Woolooware Property.

112. The other benefit of the sale of the Woolooware Property is that the interest which accrues at 15% per annum, charged monthly and then capitalised, under the various instruments will stop running once the outstanding debts as well as legal costs are paid to MIH. Interest is charged on both the principal sums plus legal fees. The longer they remain unpaid the greater the debt becomes. It is conceivable that there could be about $150,000 to $200,000 or more extra interest. If the Woolooware Property is not sold, then MIH should be fully secured over the Woolooware Property and the $449,000 paid into Court.

113. In the event that the Mangos’ succeed on any part of their defence/cross-claim, which has the effect of MIH being overpaid, then MIH will pay that amount to the Mangos’.

114. MIH is good for the money. The Mangos’ know this. If the Mangos’ had had any concern about MIH’s financial capacity, they would have made an application for security for costs.

CONSIDERATION

115. Putting aside interlocutory orders and terms of settlement, and without limiting the foregoing factual analysis of the material before the Court, the following aspects of the factual matters should be mentioned at the outset of the determination of the motions:

1. MIH advanced a total of $1,460,876.61.

2. MIH received payments (8 September 2015 to 1 August 2017) of $1,039,564.

3. MIH received a further payment of $330,000 ($300,000 if GST is excluded).

4. After setting-off the acknowledged receipts against the advance, the net amount, absent interest, owing to MIH, on the pleadings, as at about 1 August 2017 was $227,869.91.

5. The facility agreement interest was $70,490 resulting in a total claim of $298,360.38 as at February 2019 (a more substantial amount with respect to principal and interest appears to be estimated to February 2021, namely, about $390,000).

6. Additionally, in Ms McMillan’s affidavit of 28 May 2020, a claim as to legal costs is made as follows:

1. that the amount owed to the MIH (as at the 25 May 2020) is $943,169.55, which includes $587,708.86 in legal fees (at paras 36(c) and 37); and

2. that the estimated amount that will be owed to the MIH (as at the conclusion of the hearing in June 2021) will be $1,441,346.91, which would include $1,022,544.97 in legal fees ($692,827.29 plus $329,717.68) (at para 45). (This amount does not include any amount for costs.

116. Mr Amirbeaggi stated that since the commencement of the proceedings, the Mangos’ have incurred $523,135.15 in legal fees and disbursements (of which $118,654.29 remains outstanding). Counsel fees and additional solicitor fees by YBL are within the range of $40,000. The amount presently unpaid is approximately $160,000 for legal work. Further legal fees were estimated to be $300,000 to $400,000. The costs for Mr Wallace are additional. Counsel for MIH contended that counsel fees of $80,000 needed to be added to the above sum but that presently remains unclear on the evidence. Ms Rosati indicated that the charge out rates for YBL included $770 (inclusive of GST) for a Solicitor/Director, $660 (inclusive of GST) for a Senior Associate and $550 (inclusive of GST) for an Associate. MIH submitted that these charges and rates were excessive. Ms Rosati also opined that a significant amount of the work undertaken by YBL did not relate to the amended pleadings and would not properly be classified as costs thrown away.

117. As to the various interlocutory orders and relevant terms of settlement, the position was as follows:

1. The MIH has access to $315,947.93, a significant portion of which was in relation to an alleged debt that remains disputed by the Mangos’ (the MIH/Mr Mangos $450,000 loan; together with interest).

2. $492,186.82 (plus accrued interest) is held in Court as security for the MIH.

3. MIH has the Woolooware Property Mortgage (a first registered mortgage) in the strictly limited amount of $537,171.00.

1. It may also be noted that Mrs Mangos owns the Woolooware Property which has, in my view, a value of at least $1,285,000,, with only the Woolooware Property Mortgage secured against it; that is, there is net equity in the range of $750,000 to $850,000. I do not consider the evidence, nor current market conditions permit a conclusion that the property has a lesser market value than the purchase price paid by Mr Mangos. The CoreLogic Report estimated the Woolooware Property has an estimated price range from $1,236,000 to $1,451,000 and an estimated value of $1,340,000. There is nothing in the current property market in Sydney or the evidence which would suggest that estimate should be disregarded for the purpose of these interlocutory proceedings.

118. The issues ventilated by the Mangos’ in the proceeding were articulated by Mr Amirbeaggi, as follows:

1. the accounting of amounts due under the facility agreement;

2. the sums realised by MIH pursuant to the security it held over the assets of SAP and SAM;

3. the realisation of assets of SAP and SAM for less than market value;

4. the knowing engagement in a deceit concerning the realisation of the assets of SAP and SAM;

5. the earlier Westpac facilities assigned or paid out by MIH;

6. MIH’s legal costs as to quantum, indemnification, and reasonableness;

7. MIH’s legal costs and disbursement thrown away by reason of the various earlier amended statements of claim;

8. the failure of MIH to properly secure the obligations of a co-guarantor having the effect of either invalidating the guarantees and/or giving rise to an entitlement on the part of the Mangos’ to damages or compensation.

119. It may be observed that in the amended defence it was admitted by the Mangos’ that Mr Mangos entered into the facility agreement and noted that no allegation is made against Mrs Mangos in that respect. However, it was denied that MIH made payment of about $1.46 million or that any such payment was principal money under that agreement. It was admitted the interest was payable on “Principal Money” (the amount of which required further inquiry).

120. It was further denied that a default occurred upon the facility agreement or that no payments were made from 2 August 2017 to date. Specifically, it is denied that Mr Mangos is liable to pay $227,869.91 with interest under the facility agreement (and pleaded that MIH released or discharged Mr Mangos as guarantor by, inter alia, misleading conduct by Mr and Mrs McMillan.

121. MIH contended that a fundamental principle is that a mortgagee, when asked by the mortgagor, to redeem the mortgage is entitled to security of the amount secured for probable costs of any contest with the mortgagor, irrespective of whether the contest relates to an account or a challenge to the validity of the mortgager.

122. Reliance was placed by MIH upon the judgment of Hodgson J (with whom Handley and Stein JJA agreed) in Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 at [63] as follows:

[63] Another relevant matter is that the mortgagee failed to give a payout figure which bears any reasonable relationship to the amount truly required to pay out the mortgage. 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 probable costs of any contest: see Bank of New South Wales v O’Connor (1889) 14 App Cas 273; Project Research Pty Limited v Permanent Trustee of Australia Limited (1990) 5 BPR 11, 225. 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: see Cotterell v Stratton (1872) LR 8 Ch App 295, In Re Watts (1882) 22 Ch D 5, Rourke v Robinson [1911] 1 Ch 480, Webb v Crosse [1912] 1 Ch 323, Charles v Jones (1885) 35 Ch D 544, and Heath v Chinn (1908) 98 LT 855. 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: I know of no direct authority for that proposition, but in my opinion it follows from the principles I have discussed.

123. The plaintiff relied, in this respect, upon the challenge by the Mangos’ challenging the validity of the Registered MIH-Illawong Property Mortgage and the amounts owing.

124. A difficulty with that submission is that, pursuant to the 2 April 2019 Orders, the Registered MIH-Illawong Property Mortgage was discharged and orders made for security based, in part, upon MIH’s estimate as to costs.

125. Relevant to the determination of this matter is the judgment of White J in KBL Mining Limited v Kidman Resources Limited [2015] NSWSC 515 at [203] and [206] which was in the following terms:

[203] These proceedings in substance became a redemption suit. The question became what amount was KBL required to pay in order to redeem its security. The powers of the Court as to costs are not only contained in s 98 of the Civil Procedure Act. In a suit for redemption the Court, in the exercise of its equitable jurisdiction, can determine what amount of costs the mortgagee is entitled to before being required to surrender its security.

…

[206] In Cotterell v Stratton (1872) LR 8 Ch App 295 Lord Selborne LC said (at 302):

The right of a mortgagee in a suit for redemption or foreclosure to his general costs of suit, unless he has forfeited them by some improper defence or other misconduct, is well established, and does not rest upon the exercise of that discretion of the Court which, in litigious causes, is generally not subject to review. The contract between mortgagor and mortgagee, as it is understood in this Court, makes the mortgage a security, not only for principal and interest, and such ordinary charges and expenses as are usually provided for by the instrument creating the security, but also for the costs properly incident to a suit for foreclosure or redemption. … These rights, resting substantially upon contract, can only be lost or curtailed by such inequitable conduct on the part of a mortgagee or trustee as may amount to a violation or culpable neglect of his duty under the contract.

126. Reference should also be made to the judgment of Beazley JA (with whom Hodgson and Ipp JJA agreed) in Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [9]-[14], as follows:

[9] Kyabram and Banksia maintain that they are entitled to their costs on an indemnity basis, because of the provisions of their respective mortgages with the Murrays. The provision is in the same terms in each mortgage and is as follows:

14. In addition to all costs expenses and other moneys which the Mortgagor may be liable at law or in equity to pay in respect of or in relation to this Mortgage the Mortgagor will upon demand pay to the Mortgagee all moneys lent paid or advanced on account of the Mortgagor by the Mortgagee or which may be or become owing by the Mortgagor to the Mortgagee on any account whatsoever and all moneys paid or expenditure incurred by the Mortgagee for or in connection with the mortgaged premises or this Mortgage or any security collateral hereto or with their preparation or completion or on account of any default whatsoever hereunder or under any security collateral hereto or in or incidental to the exercise or attempted exercise of any right power authority or remedy conferred on the Mortgagee under or by virtue of this or any collateral security and the same shall be a charge upon the mortgaged premises and be deemed moneys hereby secured and bear interest accordingly and the expression ‘costs’ shall mean and include Solicitor and own client’s costs as well as party and party costs and costs of and incidental to the preparation execution stamping and enforcement of this Mortgage and any Guarantee of this Mortgage. …”

[Original emphasis.]

[10] Before proceeding further, it should be noted that clause 14 does not refer to indemnity costs but to “Solicitor and own client costs”. I will, therefore, treat the reference to indemnity costs in the parties’ submissions as a reference to “Solicitor and own client costs”.

[11] The costs of an action in the Court are, pursuant to the provisions of s.76(1)(a) of the Supreme Court Act (the Act) “in the discretion of the Court”. This provision is subject to the Act and the Rules of Court. Part 52A r.11 of the Supreme Court Rules provides that subject to Pt.52A costs follow the event except where it appears to the Court that some other order ought to be made. Conventionally, costs are awarded on a party/party basis, unless there is some reason for the Court to make a different order.

[12] It is well established that a mortgagee may rely upon its contractual entitlement to costs so as to claim an order other than on a party/party basis. In Re Adelphi Hotel (Brighton) Limited [1953] 2 All ER 498, Vaisey J at 502 observed that the prima facie rule was that costs were awarded on a party/party basis unless some alternative basis was shown “either on some well-recognised principle, or under some contract plainly and unambiguously expressed”. The New Zealand Court of Appeal applied the rule to the payment of a mortgagee’s legal costs in a recovery action: ANZ Banking Group (NZ) Limited v. Gibson (Court of Appeal) [1986] 1 NZLR 556 at 566, 569.

[13] The application of the principle is well recognised in Australia: see Inglis and Anor. v. Commonwealth Trading Bank of Australia (1973) 47 ALJR 234 at 235. In AGC (Advances) Limited v. West (1984) 5 NSWLR 301, Hodgson J stated (at 304-305) that at general law a mortgagee was entitled to party/party costs only but that the general law was subject to the precise terms of any provision of the mortgage. Cole J accepted this to be correct in Sandtara Pty. Limited & Others v. Australian European Finance Corporation Ltd. & Others (1990) 20 NSWLR 82, at 97.

[14] AGC v. West and Sandtara were concerned with whether the terms of the mortgage agreement itself provided for costs on a specific basis. The question which arises here is more specific. It is whether the existence of a contractual provision entitling a mortgagee to the costs of litigation in relation to the enforcement of the mortgage governs the parties’ entitlements, or whether such a provision is subject to a general discretion in the Court. This question was considered by the Court of Appeal in England in Gomba Holdings UK Limited & Others v. Minories Finance Limited & Others (No. 2) [1993] Ch 171. Scott LJ, delivering the Judgment of the Court, after reviewing the cases stated at 194:

In our opinion, the following principles emerge from the cases and dicta … (i) An order for the payment of costs of proceedings by one party to another party is always a discretionary order: s.51 of the Act of 1981. (ii) Where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that contractual right. (iii) The power of the Court to disallow a mortgagee’s costs sought to be added to the mortgage security is a power that does not derive from s.51 but from the power of courts of equity to fix the terms on which redemption will be allowed. (iv) A decision by a court to refuse costs, in whole or in part, to a mortgage litigant may be a decision in the exercise of the s.51 discretion or a decision in the exercise of the power to fix the terms on which redemption will be allowed or a decision as to the extent of a mortgagee’s contractual right to add his costs to the security or a combination of two or more of these things. The pleadings in the case and the submissions made to the judge may indicate which of the decisions to which we have referred has been made. (v) a mortgagee is not, in our judgment, to be deprived of a contractual or equitable right to costs to the security merely by reason of an order for payment of costs made without reference to the mortgagee’s contractual or equitable rights and without any adjudication as to whether or not the mortgagee should be deprived of those costs.

Section 51(1) of the Supreme Court Act 1981 (UK), which is in similar terms to s.76 of the Supreme Court Act 1975 (NSW) , provides that the costs of proceedings shall be in the discretion of the Court.

127. Finally, reference may be made to the judgment of Palmer J in Liberty Funding Pty Limited v Steele-Smith [2004] NSWSC 1100 at [25], as follows:

[25] The usual way in which a mortgagor can obtain a discharge where a contingent liability remains secured under the mortgage is to pay into Court the amount of the contingent liability or a reasonable estimation thereof if the amount cannot be fixed with certainty. So, for example, where a mortgagor threatens proceedings for the taking of an account, the mortgagee is entitled to retain the security to recover the anticipated reasonable costs of such proceedings and the mortgagor may obtain a discharge either by providing alternative security for such costs or by paying into Court an amount equal to the probable reasonable costs of the proceedings: see Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 11,225 at 11,229 per Hodgson J (as his Honour then was); Bank of New South Wales v O’Connor (1899) 14 App Cas 273; Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 at para.63 (per Hodgson JA).

The Mangos’ Amended Motion – First Prayer for Relief

128. Prayer 1 of the Mangos’ amended motion seeks an order for the interim payment of the Mangos’ costs.

129. Whilst there is some substance to the contention of the Mangos’ that the amendments to the TFASC are, in some respects, of substance and potentially constitute costs thrown away (citing the observations in Ziliotto v Dr Hakim (No 2) [2012] NSWSC 1079 at [41]-[44]) and that costs in the proceedings have been substantial. I accept the submissions by MIH that it is too difficult, and ultimately inappropriate to disentangle, at this stage, costs of the Mangos’ associated MIH amendments with other aspects of these proceedings including the amended defence, cross-claims (which expanded the scope of the proceedings) and concurrent issues arising under the redemption suit.

130. It may be observed that Davies J did not make any order for costs thrown away in relation to the amendments (other than an order of 15 August 2019) and the cost of redemption proceedings have been reserved.

131. I also accept the submission of MIH that the Court ought to be cautious about disturbing contracted and secured rights at this stage of the proceedings. A similar issue will arise with respect to secured rights issues under the remainder of the rights sought under this amended motion and the MIH amended motion.

132. Overall, and subject to further significant developments in the proceedings, I consider that costs in these proceedings should now be resolved when the proceedings are concluded (see Oswall v Commissioner of Taxation (No 5) [2016] FCA 916 at [9] (per Pagone J) and Cassimatis v Australian Securities and Investments Commission (2016) 334 ALR 350; [2016] FCA 131 at [75] (per Edelman J).

133. I dismiss the Mangos’ amended motion with respect to the first prayer for relief. It is convenient, given the issues raised, to turn to the MIH amended motion before dealing with the second prayer for relief in the Mangos’ amended motion as similar issues will arise in the Mangos’ amended motion as will be found with respect to the MIH amended motion.

The MIH Amended Motion

134. The Mangos’ do not dispute that Mr Mangos entered into the facility agreement, the terms of which are set out earlier in this judgment (although the agreement does not bind Mrs Mangos). However, the Mangos’ deny default under the agreement or monies owed under the guarantee or the general security deed upon various wide-ranging bases.

135. In the ordinary course, MIH, as a mortgagee/secured creditor of the Mangos’ would be entitled, in these circumstances, to the protection by payment for security for its right for monies secured under the mortgage and security for probable costs. However, as the Mangos’ submitted that broad proposition is subject to the mortgage itself and in this case the effect upon rights under the mortgage under various interlocutory proceedings until hearing of the respective claims.

The rights under the Registered MIH-Illawong Property Mortgage.

136. The Registered MIH-Illawong Property Mortgage was discharged in consequence of the 27 February 2019 Orders and Terms of Settlement. The property rights held by MIH were then effectively merged in consequence of 2 April 2019 Orders.

137. The 27 February 2019 Orders and Terms of Settlement were cognisant of the Woolooware Property Purchase and the 2 April 2019 Orders expressly provided for the same by Mrs Mangos giving MIH the first ranking registered mortgage over that property. Further, the 2 April 2019 Orders were predicated upon the anticipated expenses for the eligible offer by MIH. The fact that a best estimate was given does not alter the fact that the orders were predicated upon those amounts.

138. It is quite a leap to suggest, as MIH does, that a mere liberty to apply provision to the Common Law Registrar would constitute a vehicle for MIH to access to further security, notwithstanding the terms of the orders and no separately identified basis for an improved security interest under the orders.

139. Further, as to the MIH amended motion, I accept that the logic of MIH’s position, namely, that it should be secured to the full extent of its costs claim, even if it was to succeed is questionable. In any event the amount of $1,441,346.91 is, in all likelihood, an unrealistic estimate of MIH’s costs in a wholly successful prosecution of the TFASC and/or prosecution of cross-claims by MIH entities and Mr McMillan, to the extent relevant.

140. Further, there would appear to remain adequate security under the current security arrangements unless, against the conclusions that I have reached, the material value of the Woolooware Property was estimated to have fallen.

141. In any event, the MIH amended motion is entirely misconceived. It is predicated on the combination of orders 4 and 6 made by Davies J somehow conferring power on this Court to require the Mangos’ to provide further security over the Woolooware Property. As noted, so called “order 4” in substance involved the Mangos’ proffering an undertaking to the Court to provide security for a limited amount as part of the interim settlement of various motions that was effected on 2 April 2019. This Court has no authority to rewrite the terms of that settlement much less to compel the Mangos’ to provide further security beyond that which they undertook. The only rights that MIH acquired in respect of the Woolooware Property was those conferred by the consent orders made on 2 April 2019.

142. The MIH amended motion should be dismissed.

The Mangos’ Amended Motion – Second Prayer for Relief

143. Similar considerations to those just identified in relation to the MIH amended motion arise in respect of the prayer 2 of the Mangos’ amended motion. In substance, prayer 2 seeks an order for release of a further $300,000 held in Court to the Mangos’ to allow them to fund their defence. To secure MIH’s position, they agree to provide additional security. The critical question is: what is the legal basis upon which such relief can be granted? This Court has no authority to rearrange settlements, even interim ones, to allow one party to lend funds to another to conduct litigation. Instead the only basis upon which on an interlocutory basis further funds held in Court could be released to the Mangos’ (without agreement) is if they established a sufficiently strong case for final relief to warrant that course. They have not done so.

143. There is no dispute Mr Mangos entered into the facility agreement and gave guarantees.

144. Redemption or equivalent proceedings occurred before Davies J in order that the Mangos’ may complete the sale of the Illawong Property and proceed with the Woolooware Property Purchase. Both were entered into without consent by or notice to MIH.

145. After substantial proceedings a settlement was reached in the form of the 2 April 2019 Orders. This represented the balance of the parties’ interests in circumstances where, as least since the filing of the Mangos’ amended defence and cross-claim there are substantially contested proceedings including claims under the Corporations Act and as to breaches of statutory, fiduciary and equitable duties.

146. MIH’s rights, now established under the 2 April 2019 Orders, should be protected to that extend by the 2 April 2019 orders, which, as the Mangos’ submitted, leaves a residue of equity from the Woolooware Property, although the margin depends upon property estimates. The Mangos’ contention that they are merely realigning how the security is held omits consideration of this fundamental consideration.

147. It is true that the Mangos’ may lose legal representation but that position must have been known at the time that the Mangos’ acquiesced in the 2 April 2019 Order and later filed an amended defence and cross-claims with solicitors who (and I do not say this critically) are charging at fairly substantial rates. I have also taken into account the potential for the Mangos’ to potentially access superannuation funds in that respect. In my view, the second prayer for relief should be refused.

CONCLUSION

149. In the circumstances, I consider that the Mangos’ amended motion and the MIH amended motion should be dismissed with each party to pay their own costs.

ORDERS

150. The Court makes the following orders:

1. The amended notice of motion filed on 15 June 2020 by the first and second defendant is dismissed;

2. The amended notice of motion filed on 28 June 2020 by the plaintiff is dismissed; and

3. Each party shall pay its own costs of those motions.

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Decision last updated: 04 February 2021