Watson Wyatt Superannuation Pty Ltd v Oberlechner

[2008] NSWSC 272

CITATION:	Watson Wyatt Superannuation Pty Ltd v Oberlechner & 2 ors [2008] NSWSC 272
HEARING DATE(S):	28 February 2008
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	28 February 2008
DECISION:	The charge caught the money in the trustee’s hands, but was defeated by the forfeiture provision. The costs clause in the security was not engaged.
CATCHWORDS:	SECURITIES – charges – pursuant to condition imposed by Court – construction – whether charge of proceeds of suit caught moneys paid voluntarily by defendant in discharge of cause of action – where policy against assignment of interests in superannuation funds – whether charge defeated by contractual forfeiture – whether moneys ceased to be part of trust fund on admission but before payment of claim. - COSTS – provision in security obliging mortgagor to pay all mortgagee’s costs of acting in connection with mortgage – whether suit in connection with charge was caught – discretionary considerations.
LEGISLATION CITED:	(CTH) Bankruptcy Act 1966 (CTH) Superannuation Industry (Supervision) Act 1993, s 31 (CTH) Superannuation Industry (Supervision) Regulations 1994, reg 13.11, 13.12, 13.13
CATEGORY:	Principal judgment
CASES CITED:	First Mortgage Management Investments Limited v Oberlechner [2006] NSWSC 1397 Oberlechner v Watson Wyatt Superannuation Pty Ltd [2007] NSWSC 906 Oberlechner v Watson Wyatt Superannuation Pty Ltd [2007] NSWSC 1435 Woddell v Kerr-Jones [2002] FCA 1090
PARTIES:	Watson Wyatt Superannuation Pty Ltd (plaintiff) Alfredo Oberlechner (first defendant/cross defendant) Herbert Weller (second defendant) First Mortgage Managed Investments Pty Ltd (second cross claimant/third defendant)
FILE NUMBER(S):	SC 5880/07
COUNSEL:	Mr T J Boyd (first defendant/cross defendant) Mr M J Cohen (second cross claimant/third defendant)
SOLICITORS:	Hunt & Hunt (plaintiff) Herbert Weller, Solicitor (first defendant/cross defendant & second defendant) Gadens Lawyers (second cross claimant/third defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Thursday 28 February 2008

5880/07 Watson Wyatt Superannuation Pty Ltd v Alfredo Oberlechner & 2 ors

JUDGMENT (ex tempore)

1 HIS HONOUR: The first defendant Alfredo Oberlechner was employed by EDS Australia Pty Limited for many years and was a member of its superannuation fund, the EDS (Australia) Superannuation Fund, which was constituted by a trust deed, dated 16 October 1987, and subsequently amended from time to time, of which the plaintiff Watson Wyatt Superannuation Pty Limited is now the trustee. Pursuant to clause 20 of the Trust Deed, the trustee had made arrangements with National Mutual Life Association to insure benefits payable under the Trust Deed on death or total and permanent disablement of members.

2 Mr Oberlechner ceased working for EDS in 1999 and made a claim on the fund on the basis of total and permanent disablement. In November 2005, the insurer rejected Mr Oberlechner's TPD claim. Subsequently, on 29 November 2005, the trustee also rejected his claim. Mr Oberlechner brought proceedings in this Court to challenge those decisions and, on 16 August 2007, Hamilton J gave judgment [Oberlechner v Watson Wyatt Superannuation Pty Ltd [2007] NSWSC 906], holding relevantly that the insurer's consideration of the claim was seriously flawed and in breach of the insurer's obligation to consider and determine the correct question, and to act reasonably; declaring the insurer's determination void on that ground; and substituting for the decision of the insurer that of the Court, that Mr Oberlechner was totally and permanently disabled within the relevant definition.

3 In the light of that conclusion, his Honour adjourned the claim against the trustee for further consideration, if necessary – since, as is not uncommon where the insurer's determination is quashed in a case of this type, there was a reasonable prospect that the trustee would change its own position. In a later judgment given on 20 November 2007 [Oberlechner v Watson Wyatt Superannuation Pty Ltd [2007] NSWSC 1435], his Honour recorded that on 11 September 2007 - that is to say after his Honour's first judgment quashing the insurer's decision - the trustee had indeed resolved to reverse its decision to decline Mr Oberlechner's claim, and added, "The proceedings against the trustee thus became otiose and must be dismissed". His Honour made orders that day, including the following:

2. Declare that the second defendant's rejection of the claim in respect of the plaintiff's total and permanent disablement under AXA Group Insurance Policy No GL 21540 ("the policy") is void and without effect.

3. Declare that the plaintiff, as at November 2005, is totally and permanently disabled within the meaning of the policy.

4. Order that the second defendant pay to the first defendant forthwith the sum of $339,360.01, being $289,436.65 in respect of the plaintiff's claim under the policy for his total and permanent disablement together with $49,923.36 for interest from 1 December 2005 to date.

5. Order that the summons be dismissed as against the first defendant.

4 In view of certain of the submissions that have been advanced, it is germane to note at this stage that order 4 required a payment by the insurer to the trustee, and not a payment to the beneficiary, Mr Oberlechner; also that the amount referred to in that order was said to be in respect of the plaintiff's claim under "the policy", defined as the Group Insurance Policy (and not the Superannuation Trust Deed).

5 On 5 December 2007, the insurer paid the trustee the said sum of $339,360, which is the subject of the present proceedings, but it is first necessary to describe how the interest of the present second cross-claimant, First Mortgage Managed Investments Pty Limited, arises.

6 On 21 May 2004, Mr Oberlechner entered into a loan agreement and mortgage of his property at Tura Beach with First Mortgage. At some stage, it would seem in about December 2004, he made default under the loan agreement, and on 11 May 2005 First Mortgage commenced proceedings for possession of the Tura Beach property. On 11 September 2005, First Mortgage obtained, with Mr Oberlechner's apparent consent, judgment for possession of Tura Beach and leave to issue a writ of possession, with a stay until 10 October 2005 in order to permit Mr Oberlechner an opportunity to refinance.

7 That did not happen, and on 26 October 2005 steps towards execution of the writ of possession commenced. On 10 November 2005, the Sheriff gave Mr Oberlechner notice to vacate by 22 November, but on 22 November Mr Oberlechner obtained, ex parte from a Registrar, a stay of execution until 16 December 2005. On 16 December, the stay was continued, apparently again ex parte, until 18 January 2006, when it was further extended until 25 January 2006; then it was adjourned again – Mr Oberlechner being unwell – until 30 January and, apparently, then till a later date.

8 On 11 February 2006, Mr Oberlechner filed a Notice of Motion to have the consent judgment for possession set aside. That motion was heard by Rothman J on 30 June 2006. Judgment was delivered on 19 December 2006, dismissing Mr Oberlechner's motion [First Mortgage Management Investments Limited v Oberlechner [2006] NSWSC 1397]. Mr Oberlechner sought leave to appeal, and on 4 May 2007 sought a further stay of execution pending the determination of the application for leave. That day, Hulme J made an order, which the Associate's Record of Proceedings records in the following terms:

Stay all proceedings on judgment herein (file number 11898/05) up to and including 18/6/2007 conditional upon the defendant on or before Friday 18 May 2007 charging any proceeds he may receive in equity proceedings between himself as plaintiff and EDS Superannuation Fund Pty Limited (file number 2006/1911) with payment to the plaintiff the sum of $30,000, such sum to become payable on the occasion of the defendant's receipt of any money pursuant to those proceedings and to be on account of interest payable under the mortgage the subject of these proceedings. The defendant is restrained from receiving or otherwise dealing with any monies to which he may become entitled under any equity proceedings or pursuant to settlement thereof without 14 days notice, written to the solicitor for the plaintiff. Grant liberty to apply on 24 hours written notice.

9 That injunction apparently remains on foot.

10 On 18 May 2007, in apparent compliance with the condition imposed by Hulme J, Mr Oberlechner and First Mortgage entered into a deed of charge of that date, which provided as follows:

Recitals
The Chargor agrees to charge to the Chargee all the Chargor’s right, title and interest in and to the Proceeds on the terms of this deed.
Operative provisions
1. Definition
In this deed, unless the context otherwise requires:
“Proceeds” means the proceeds paid or collected, received or recovered, or entitled to be paid, collected, received or recovered, by or on behalf of the Chargor in respect of, or in connection with, proceedings 1911 of 2006 between the Chargor and v EDS (Australia) Superannuation Fund Pty Limited ACN 065 504 583.
2. Interpretation
In this deed, unless the context otherwise requires;
(a) words importing the singular include the plural and vice versa;
(b) references to any document or agreement (including this Deed) include references to that document or agreement as amended, consolidated, supplemented, novated or replaced;
(c) to an item, Recital, clause or Schedule is to an item, Recital, Clause or Schedule of or to this Deed;
(d) headings are for convenience only and must be ignored in construing this Deed;
(e) references to any person or any party include references to their or its respective successors, permitted assigns and substitutes, executors and administrators.
3. Charge
The Chargor charges to the Chargee all of the Chargor’s right, title and interest in and to the Proceeds as security for the payment of $30,000.00 to the Chargee.
2. Notice of Chargor
This Chargor will, at the request of the Chargee, complete and send EDS (Australia) Superannuation Fund Pty Limited ACN 065 504 583 an irrevocable direction in the form of the notice set out in Annexure 1.
3. Costs and Expenses
The Chargor will pay or reimburse the Chargee on demand for all stamp duties, fees, taxes and charges which are payable in connection with this deed or a payment, receipt or other transaction contemplated by it.
4. Documents
The Chargor agrees to do all things reasonably necessary to ensure that $30,000.00 is paid to the Chargee out of the Proceeds immediately on receipt of, or becoming entitled to, the Proceeds.
5. Governing Law
This Deed is governed by and construed in accordance with the laws of the State of New South Wales.

11 The stay was subsequently extended from time to time, including on 11 July 2007, following which, on 18 July 2007 Mr Oberlechner executed a further deed of charge, securing a further $20,000, otherwise on the same terms and conditions as the first deed of charge. Yet another extension of the stay was subsequently granted, pursuant to which, on 28 August 2007, Mr Oberlechner executed a third deed of charge, securing a further $20,000 and thereby increasing the total amount secured to $70,000, and otherwise upon the same terms and conditions as the first deed of charge. Notice of each charge was given to the trustee, together with what was expressed to be an irrevocable direction to pay the amount charged from the proceeds to First Mortgage instead of to Mr Oberlechner.

12 On 24 September 2007, the Court of Appeal dismissed Mr Oberlechner's application for leave to appeal. He was given notice to vacate the Tura Beach property on 30 October 2007. On 31 October, he purported to revoke the direction given to the trustee to pay the proceeds to First Mortgage. He obtained short further indulgences from the Court, to 16 November 2007, and subsequently to 21 November 2007, when the writ of possession was eventually executed.

13 On 5 December 2007, as has been recorded, the trustee received the sum of $339,360 pursuant to Hamilton J's judgment in the earlier proceedings. It initiated these proceedings by summons filed on 6 December 2007, seeking an order that it pay into Court that sum, an order that it was entitled to receive out of that sum its costs incurred in the earlier proceedings; an order restraining each of the defendants Mr Oberlechner, his solicitor Mr Weller, and First Mortgage from bringing any action against it in respect of the sum; and such other orders and directions as the Court thought fit for determination of all matters in dispute between the defendants in respect of that sum. (Mr Weller's interest arose because he had purported to take security over the proceeds of the earlier suit for his and/or counsels' costs; in the event, the dispute about that was resolved between him and Mr Oberlechner and consent orders disposing of the case against Mr Weller were made on a previous occasion).

14 First Mortgage, on 20 December 2007, filed a motion claiming an order that it be forthwith paid the sum of $70,000 out of the sum paid into Court by the plaintiff, and that the balance of the sum paid in (or so much as First Mortgage was entitled to claim) be paid to it – apparently to satisfy any outstanding indebtedness of Mr Oberlechner under the loan agreement after realisation of the Tura Beach security. Subsequently, on 22 February, First Mortgage filed a second cross-claim, claiming a declaration that it was entitled to be paid the sum of $70,000 from the sum of $339,360 held by the trustee, an order that the balance of that sum be paid into Court to be held until further order, an inquiry as to the loss and damage sustained by First Mortgage (as was later explained, under the loan agreement), and an order that the amount certified on that inquiry be paid out to it from the amount in Court.

15 Although the trustee had sought an order that it pay the $339,000 into Court, Mr Oberlechner opposed that course and the trustee did not pay it into Court but has retained it. I do not doubt that this was because, for the purposes of the present argument, Mr Oberlechner's position would be stronger if the funds remained in the hands of the trustee rather than in Court or in his own hands.

16 Before I turn to the issues, it is appropriate to refer to some of the legislative and contractual provisions. (CTH) Superannuation Industry (Supervision) Act 1993, s 31, authorizes regulations that may prescribe standards applicable to the operation of regulated superannuation funds and to trustees of those funds. Pursuant to that section, (CTH) Superannuation Industry (Supervision) Regulations 1994 prescribes standards in respect of the assignment of a superannuation interest and the charging of a member's benefit. Regulation 13.11 provides as follows:

13.11 Interpretation
In this Division: charge includes a mortgage, lien or other encumbrance. recognise includes act on or give effect to.

17 Regulation 13.12 provides as follows:

13.12 Assignments of superannuation interests
For the purposes of subsections 31 (1) and 32 (1) of the Act, it is a standard applicable to the operation of regulated superannuation funds and approved deposit funds that, subject to regulation 13.15, the trustee of a fund must not recognise, or in any way encourage or sanction, an assignment of a superannuation interest of a member or beneficiary.

18 Regulation 13.13(1) provides as follows:

13.13 Charges over a member’s benefits
(1) For the purposes of subsections 31 (1) and 32 (1) of the Act, it is a standard applicable to the operation of regulated superannuation funds and approved deposit funds that, subject to regulation 13.15, the trustee of a fund must not recognise, or in any way encourage or sanction, a charge over, or in relation to a member’s benefits.

19 In apparent compliance with those regulations, clause 15 of the Trust Deed provides as follows:

15. Benefits are Personal and Non-Assignable
All rights, interests and benefits of Members are strictly personal and except as provided in this Deed no Member shall assign or charge his or her interest in the Fund either absolutely or conditionally without the written consent of the Trustee first being obtained (which consent the Trustee may refuse without assigning any reason therefor or may grant subject to conditions). If any Member becomes bankrupt or commits any act of bankruptcy or attempts without the consent aforesaid to assign or charge his or her interest in the Fund or any part thereof or does, suffers or incurs anything by which his or her interest in the Fund or any part thereof through his or her act or default or by operation or process of law would become vested in or payable to some other person or if any other event happens by which he might be wholly or partly deprived of the personal enjoyment of any of his or her rights, interests or benefits under this Deed the right, interest or benefit thereby affected shall, to the extent permitted by the relevant requirements of the Relevant Law, thereupon determine. In any such event the Trustee may at the discretion of the Trustee apply or cause to be applied the money representing such determined right, interest or benefit for or towards the maintenance or otherwise for the benefit of such Member and the spouse, children and Dependants of such Member or such one or more of them to the exclusion of the other or others and in such shares and proportions as the Trustee may from time to time in the absolute discretion of the Trustee determine and any part of the money representing such determined right, interest or benefit which is not to be so applied shall form part of the Fund to be used for the general purposes thereof.

20 The first issue is whether, on the proper construction of the deed of charge the $339,000, now in the hands of the trustee, is caught by the charge. This depends fundamentally upon the definition of “proceeds” in the deed of charge. The meaning to be given to that definition is, of course, to be considered in the light of all the facts known to both parties at the time at which they entered into the charge. At that time, in May 2007, the equity proceedings were on foot. They had been set down for hearing, and the hearing was only 10 days or so away, to commence on 21 May. The second deed of charge and the third deed of charge both followed the completion of the hearing; indeed, the third deed of charge was entered into after Hamilton J had given the judgment of 16 August 2007.

21 The context included that Mr Oberlechner was seeking the indulgence of a stay of execution of the judgment for possession pending his application for leave to appeal. It may be inferred that if he could not give some security for the interest that would accrue during the pendency of the stay, no stay would have been granted by the Court or agreed to by First Mortgage.

22 In referring to proceeds "in respect of" or "in connection with" the equity proceedings, the parties should be taken to have had in mind the condition imposed by Hulme J on 4 May that the charge was to cover "any proceeds he may receive in equity proceedings ... " and that he was restrained from receiving or otherwise dealing with any moneys to which he may become entitled "under any equity proceedings or pursuant to settlement thereof" without 14 days notice. In my view, it is tolerably clear that the intent of the parties, when the deed of charge was entered into, was that if Mr Oberlechner became entitled to and received money either under an order of the Court or as a result of a settlement of the earlier equity proceedings – which ultimately involved his claim to a TPD benefit – then those moneys would be caught by the charge. I cannot imagine that they intended to exclude from the scope of the charge moneys which he would receive if one or both of the defendants, instead of suffering an adverse judgment or entering into a compromise, voluntarily paid the moneys to Mr Oberlechner. Any such moneys would be received as a result of some concession made by one or both of the defendants in the face of the proceedings and would, in my opinion, be moneys received or recovered or entitled to be received or recovered in connection with the proceedings.

23 Accordingly, insofar as it is submitted for Mr Oberlechner that, because of the manner in which the proceedings were resolved and the moneys paid, there is nothing that can be said to be paid or collected, received or recovered, or entitled to be paid collected, received or recovered by or on behalf of Mr Oberlechner in connection with the proceedings, I would reject that submission.

24 I accept that to this point nothing has been paid or collected by or on his behalf, nor received or recovered by or on his behalf. The fact that the trustee has received moneys from the insurer is not a receipt or collection by or on behalf of Mr Oberlechner. However, it seems to me that I should infer that the trustee has accepted Mr Oberlechner's claim. The basis for that inference is to be found, despite the somewhat sparse evidence, first, in Hamilton J's recording, which was put before me, that the trustee on 21 December 2007 resolved to reverse its decision to decline Mr Oberlechner claim on it and, secondly, in the very fact that the trustee commenced these proceedings seeking to pay the money into Court. If it had not accepted Mr Oberlechner's claim, it is inconceivable that it would have sought to pay the moneys into Court. Accordingly, in my view there are proceeds within the definition of the deed of charge in the sense of something to which Mr Oberlechner is, in the events which have happened, entitled to be paid. The $339,000 now serves that description, Mr Oberlechner's application having been accepted by the trustee.

25 However, that is not the end of the matter. The second issue is whether any such charge is deprived of practical effect by clause 15 of the Superannuation Trust Deed, which I have set out above. It is the second sentence of that clause which is germane. I do not think there can be any serious doubt that Mr Oberlechner has, by entering the deeds of charge, attempted, without the consent of the trustee, to charge his interest in the fund or part of it, or at the very least has done something by which his interest in the fund or part of it would become payable to some other person. In those events, the Trust Deed provides that the right, interest or benefit affected should, so far as the relevant laws regulating superannuation funds permit, thereupon determine. No one has drawn my attention to any relevant law which would prohibit that consequence and, indeed, to the extent to which I have been taken to relevant laws, they would support rather than prohibit that result. Accordingly, it seems to me, that Mr Oberlechner, having attempted without consent to charge his interest in the fund, his interest thereupon determines. As the right which Mr Oberlechner sought to charge was ultimately a contractual right created by the Superannuation Trust Deed, I do not see how the circumstance that the giving the charge was required by a condition imposed by the Court can elevate his right above and beyond what the Trust Deed provided. The second sentence of clause 15 contains no element of discretion. It provides for the automatic determination of the member's interest in the events which it contemplates. The result is that there is no longer any interest on the part of Mr Oberlechner in the fund which could be the subject of the claim – although the balance of clause 15 goes on to confer on the trustee a discretion to apply or cause to be applied the money representing the determined right for or towards the maintenance or otherwise for the benefit of a member, spouse, children or dependents in the absolute discretion of the trustee.

26 First Mortgage has contended that by reason of the trustee's acceptance (as I have inferred) of Mr Oberlechner's claim, the moneys in question are no longer part of the fund but part of his personal estate. I am unable to accept this. It seems to me that the point of distinction is when the funds are paid by the trustee to or at the direction of the beneficiary. Somewhat similar circumstances were considered by Spender J in the Federal Court in Australia Woddell v Kerr-Jones [2002] FCA 1090, on appeal from a Federal magistrate. Relevantly, on 23 July 1996, the bankrupt had written to the manager of his superannuation fund directing and requesting a withdrawal of $95,000 to be paid to a third party, his former wife. On 27 September 1996, he presented a debtor's petition and a trustee in bankruptcy was appointed on 2 December 1996. The date of the bankruptcy was 27 September 1996, some two months after the payment. It would seem that all that was required to effect the payment was a request from the bankrupt to the manager of the fund.

27 (CTH) Bankruptcy Act 1966, s 116(2)(d), relevantly provides that property divisible amongst the creditors of a bankrupt does not include the interest of a bankrupt in a regulated superannuation fund or a payment to the bankrupt from such a fund received on or after the date of bankruptcy, if it is not a pension. The Magistrate found that no part of the payment was an interest in the superannuation fund at the commencement of the bankruptcy, as it had been removed from the fund before the date of the bankruptcy. The payment having occurred on 7 August 1996, it was not a payment received on or after the date of the bankruptcy. Spender J recorded (at [16]) that those findings were not contested on the appeal, with the consequence that the payment was not excluded by s 116(2)(d) from being the property of the bankrupt divisible amongst his creditors. In other words, the $95,000, having been paid from the fund prior to the date of bankruptcy, was not at the relevant date the interest of the bankrupt in a superannuation fund. But his Honour added (at [23]):

It is true to say that if the funds in question had remained in the MLC Five Star variable income plan, they would not have been available to the trustee (or to the creditors) because sub-section 112(2)(d) would have operated to exclude the funds from the 'property of the bankrupt' available for distribution for creditors. The fact is that the funds did not remain in the MLC Five Star variable income plan. Prior to his bankruptcy the bankrupt directed the withdrawal of those funds and payment of them to the respondent.

28 Those observations lend support to the view that it was the act of payment of the sum which removed it from the fund, not the existence of an entitlement to direct payment.

29 At this stage, the $339,000 remains in the hands of the trustee in the fund, and has not been paid from the fund. The entitlement of Mr Oberlechner to that sum, and it is that entitlement which is the subject of the charge, depends upon the deed. Thus it can be seen that what Mr Oberlechner has purported to charge is his interest in the fund, or his rights, interests or benefits under the deed. Accordingly, the charge is ineffective to give First Mortgage any interest in the sum in the hands of the trustee. Mr Oberlechner no longer has any claim to that sum, save such as might arise if the trustee exercises in his favour its discretion under the third sentence of clause 15 of the Trust Deed.

30 I have given serious consideration to whether, in order to avoid defeating the condition imposed by Hulme J, I should not, in any event, require payment into Court of $70,000. However, it seems to me, on reflection, that to do so would be to defeat the policy which the legislative provisions to which I have referred, and clause 15, were intended to achieve. If, in order to secure its position in respect of a stay of the judgment for possession, First Mortgage did not then advert to the problems associated with taking a charge over the proceeds of the superannuation claim, then it must be said that it is the author of its own misfortune as much as Mr Oberlechner.

31 As to First Mortgage's contention that the whole of the sum in question should be required to be paid into Court to abide determination of the deficiency, if any, upon the realisation of the Tura Beach security, that is nothing more than an attempt to obtain security by way of cash for what is presently an unsecured debt, and to do so over an asset in the form of a superannuation asset which the legislature has deemed should enjoy a measure of protection from creditors. In those circumstances, it does not seem to me at all appropriate to order that that amount be paid into Court.

32 Accordingly, the result of the proceedings is that the second cross-claim should be dismissed.

33 I order that the second cross-claim be dismissed.

34 First Mortgage failed on its cross-claim, which is the only matter which has been litigated, and Mr Oberlechner succeeded in resisting that cross-claim. In those circumstances, ordinarily First Mortgage would be required to pay Mr Oberlechner's costs.

35 However, First Mortgage argues that Mr Oberlechner should pay its costs, and on an indemnity basis, pursuant to a provision – clause 20.1 – in the filed memorandum incorporated in the Tura Beach mortgage, by which the mortgagor agrees to pay or reimburse the mortgagee on demand for the mortgagee's costs in “otherwise acting in connection with the mortgage such as enforcing or preserving rights”.

36 The current proceedings relate to the rights under a deed of charge. The Court is not inclined to give a wide construction to provisions such as clause 20.1 in any event. While such a provision is a relevant consideration when the Court comes to exercise its discretion as to costs, the agreement of the parties cannot bind the Court's discretion on issues of costs.

37 In my view, the second cross-claim in these proceedings is not an act in connection with the mortgage within the meaning of clause 20.1(b). The mortgage, and rights under the mortgage, formed no material fact in the cause of action on which First Mortgage had to rely if it were to succeed in these proceedings, which did not involve enforcing or preserving rights under the mortgage, but enforcing or preserving rights said to arise under the deeds of charge. Even if I were of another view on the proper construction of clause 20.1(b), as a matter of discretion, I would not order the successful cross-defendant to pay the unsuccessful cross-claimant's costs on the basis of that clause.

38 My order is that the cross-claimant on the second cross-claim, First Mortgage, pay the costs of the cross-defendant, Mr Oberlechner.

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