Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 (21 February 2003)

Last Updated: 24 February 2003

NEW SOUTH WALES COURT OF APPEAL

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

FILE NUMBER(S):

40330/02

HEARING DATE(S): 3 December 2002

JUDGMENT DATE: 21/02/2003

PARTIES:

Overton Investments Pty. Ltd. - appellant

Cuzeno RVM Pty. Ltd. - respondent

JUDGMENT OF: Handley JA Stein JA Hodgson JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): ED 4945/01

LOWER COURT JUDICIAL OFFICER: Palmer J

COUNSEL:

Mr. J.T. Gleeson SC with Mr. A.J. McInerney for appellant

Mr. R.G. Forster SC with Mr. T.G.R. Parker for respondent

SOLICITORS:

Gadens, Sydney for appellant

Michie Shehadie & Co. for respondent

CATCHWORDS:

MORTGAGES - Remedies of mortgagor - Redemption - Construction of mortgage - Whether contingent or future debts secured - Costs - When mortgagee loses entitlement.

LEGISLATION CITED:

Supreme Court rules Pt.52A r.42

DECISION:

See par.[70] of judgment

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40330/02

ED 4945/01

HANDLEY JA

STEIN JA

HODGSON JA

Friday 21 February 2003

OVERTON INVESTMENTS PTY. LTD. v CUZENO RVM PTY. LTD.

HEADNOTE

FACTS:

Overton Investments Pty Ltd ("Overton") was the manager of a retirement village at Padstow. Overton granted 99-year leases to persons who occupied apartments at the retirement village. As consideration for the acquisition of the lease the occupiers paid Overton a lump sum (called the "lease price") and contributions towards outgoings.

On 14 April 2000, Overton entered into a Contract with Cuzeno RVM Pty Ltd ("Cuzeno") to sell the property and the position of manager of the retirement village to Cuzeno, for the sum of $6.5 million. The contract provided that $2 million of the purchase price would be left as an outstanding loan from Overton to Cuzeno and would be secured by a mortgage in a form annexed to the contract. It was a term of the mortgage that it secured money owing by Cuzeno under the contract.

The contract made provision in relation to certain debts owing by residents to Overton, called "resident debts". Clause 50 of the contract required Cuzeno to assist Overton in the collection of those debts and to pay to Overton any amounts it received on account of those debts.

During 2001, Overton sought to discharge the mortgage, and Overton claimed to be entitled to withhold discharge until Cuzeno had paid the whole of the resident debts.

Cuzeno brought proceedings seeking declarations as to what was secured by the mortgage and an order that Overton give a discharge of the mortgage.

At first instance, Palmer J held that the mortgage secured the principal of $2 million and any resident debt collected in the period between the completion of sale and the time when the mortgage was to be discharged, and made a costs order generally in favour of Cuzeno.

Overton appealed from Palmer J's construction of the mortgage, claiming that the mortgage secured the whole of the resident debts.

HELD:

1. The primary judge was correct in finding that the mortgage secured only so much of the resident debts as had been received by Cuzeno when the mortgage was to be discharged.

2. A mortgagee is generally entitled to all costs in ascertaining or defending its rights, in preserving the security or recovering the mortgage debt. However, that will not necessarily be the case where a mortgagee unsuccessfully claims that the mortgage secures unsecured debts, and the mortgagee may lose its right to costs where it does not respond reasonably to a request for redemption.

**********

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40330/02

ED 4945/01

HANDLEY JA

STEIN JA

HODGSON JA

Friday 21 February 2003

OVERTON INVESTMENTS PTY. LTD. V. CUZENO RVM PTY. LTD.

Judgment

1 HANDLEY JA: I agree with the reasons of Hodgson JA as set out below.

2 STEIN JA: I agree with Hodgson JA.

3 HODGSON JA: The appellant Overton is the mortgagee and the respondent Cuzeno is the mortgagor of a residential retirement village at Padstow Heights. So far as is now relevant, Cuzeno in proceedings in the Equity Division sought declarations as to what was secured by the mortgage and an order that Overton give a discharge of the mortgage. On 21 March 2002, Palmer J made orders declaring what was secured by the mortgage and ordering that there be referred for enquiry pursuant to Pt.72 of the Supreme Court Rules certain questions relating to the calculation of the amount secured by the mortgage and to whether Cuzeno was entitled to a discharge of the mortgage.

4 Overton appeals to this Court from those orders, seeking a declaration from this Court that the mortgage secures substantially more than Palmer J declared.

CIRCUMSTANCES

5 Prior to 29 June 2000, Overton was the registered proprietor of the Heritage Retirement Village at Padstow Heights. The Village was established pursuant to a Trust Deed dated 31 December 1985 between Overton and Perpetual Trustee Co. Limited, under which Overton was appointed manager of the Village. Overton granted 99 year leases to persons wishing to take up accommodation in the Village. Those persons paid a lump sum (called the lease price) for such leases, 75% of which was called the lease deposit and 25% of which was called the total rent. The Trust Deed and individual leases provided to the effect that the total rent was applied as rent over the first five years of each lease, and that the lease deposit was to be refunded in whole or in part upon the expiry or surrender of each lease.

6 The leases provided for payment of a contribution to outgoings of the manager in connection with the operation and maintenance of the Village; and the Trust Deed and each lease provided to the effect that the manager as lessor was entitled to deduct from the amount of any refund to which a lessee was entitled on surrender any amount (including interest thereon) owing by the lessee in respect of outgoings and other moneys owing in respect of the lease.

7 From about 1993, there were disputes between Overton and many of the Village residents concerning the amount of outgoings claimed from them by Overton. These disputes led to proceedings in the Residential Tenancies Tribunal (1996), the Local Court (1997 onwards), the Supreme Court (1997 onwards), the Federal Court (1999 onwards), and the District Court (1999 onwards). As at 29 June 2000, there was pending in the New South Wales Court of Appeal an appeal by Overton (with a cross-appeal by residents), and there were other outstanding matters to be determined in the Supreme Court; there were proceedings still undetermined in the Federal Court, and two proceedings in the Federal Court by residents had recently been dismissed, but there was a subsequent appeal by those residents that partially succeeded; and the Local Court and District Court proceedings had also not been finalised. The residents had not been successful in obtaining any determination adverse to Overton as to the amount of outgoings payable to Overton; and there had been costs orders made in favour of each side, but predominantly in favour of Overton.

8 On 14 April 2000, Overton entered into a contract to sell the Village to Cuzeno for $6.5 million. The contract included a dictionary, containing a definition of "Resident Debts", as follows:

Resident Debts means:

(a) any court order debts or judgment debts awarded in favour of the vendor against any tenants or any guarantors under the (sic) any of the Leases (including any orders for costs or amounts, determined after completion to be paid by way of costs which have not been invoiced to the tenants pursuant to the terms of the Leases) plus any interest accrued on any of them pursuant to the Leases and the Trust Deed to the actual date of repayment;

(b) any unpaid Outgoings or other amounts owing to the vendor as landlord under any of the Leases or as Manager under the Trust Deed up to the actual date of completion and any interest accrued on such amounts pursuant to the leases and the Trust Deed up to the date of repayment; and

(c) any money owing to the vendor by a licensee under any of the Car Parking Licences to the actual date of completion and any interest on such amounts up to the date of repayment,

and the term "Resident Debts" includes all or any part of the Resident Debts.

9 Special Condition 50 of the contract was in the following terms:

50. RESIDENT DEBTS

50.1 The purchaser as owner of the Resident Debts upon completion agrees as follows.

50.2 The purchaser must pay to the vendor the total amount, if any, received by the purchaser on account of the Resident Debts. Any money received by the purchaser on account of the Resident Debts must be paid to the vendor within 14 days of receipt by the purchaser.

50.3 The purchaser must exercise its rights as landlord on termination or surrender of a Lease to recover any Resident Debt relating to that Lease. Any amount so recovered must be paid to the vendor within 14 days of receipt by the purchaser.

50.4 The purchaser authorises the vendor to take action (including legal action) in the vendor's name for the recovery of the Resident Debts. For this purpose the purchaser acknowledges that the Resident Debts will be due jointly and severally to the purchaser and the vendor by virtue of an automatic transfer immediately after completion assigning to the vendor an interest as tenant in common with the purchaser in the Resident Debts such that either the vendor or the purchaser are entitled to recover the Resident Debts.

50.5 Despite the joint ownership of the Resident Debts, the purchaser agrees that the entire amount recovered in respect of the Resident Debts belongs to the vendor.

50.6 All Resident Debts relating to a Lease or Car Parking Licence will rank and operate at law and in equity ahead of any other any (sic) debt owed to the purchaser by the tenant or licencsee (sic) or any guarantor under that Lease or Car Parking Licence. Any money received by the purchaser in exercising its rights as landlord on termination or surrender of a Lease must be applied in the following manner and in the following order of

(a) First, towards payment of any Resident Debts relating to that Lease.

(b) Second, the balance, if any, to the purchaser.

50.7 The purchaser must comply with any reasonable request of the vendor to assist the vendor in connection with the collection of any Resident Debts.

50.8 The purchaser must notify the vendor immediately it becomes aware of any of the following events:

(a) the death of any tenant under any Lease;

(b) the grant of letters of administration in respect of any tenant under any lease;

(c) the grant of probate in respect of any tenant under any Lease; or

(d) the name, address or contact details of an executor or administrator of the estate of any tenant under any Lease or of that tenant's next of kin.

50.9 The purchaser acknowledges that:

(a) as at 20 March 2000 the total of the Resident Debts was $3,061,066.68;

(b) before the date of this contract it has inspected the aged trial balance relating to the Resident Debts and that this identifies the amount of Resident Debt owed to the vendor by each tenant under the Leases;

(c) the total of the Resident Debts may change between 20 March 2000 and completion.

50.10 The parties agree that the amount of Resident Debts on completion will be determined by the vendor in accordance with the Leases and any court orders or judgments and will be delivered to the purchaser on completion. The amount so determine will constitute the Resident Debts for the purpose of this contract subject always to the accrual of interest on the Resident Debts to the actual date of repayment.

50.11 The purchaser may not raise any objection, requisition, question or claim for compensation, delay completion or rescind this contract in respect of any matter disclosed in or contemplated by this clause.

50.12 If the purchaser enters into a contract for sale of all or any part of the property, that contract must provide that:

(a) the provisions of this clause apply mutatis mutandis to the purchaser under that contract; and

(b) the purchaser under that contract must enters into a Deed with Overton Investments Pty Limited under which it agrees to assume all of the rights and obligations of the purchaser contained in this clause.

50.13 This clause does not merge on completion.

10 Special Condition 52 was to the effect that the purchaser should be solely responsible for the payment of any refund or other money payable to any lessee under any of the leases or on termination or surrender of any of the leases, and that Cuzeno indemnified Overton against any claim made against Overton in respect of such matters.

11 Special Condition 66 of the contract was in the following terms:

66. VENDOR FINANCE

66.1 The balance purchase price as to $2,000,000 will be secured by a first registered mortgage over the property (the Mortgage) and will be paid as specified in the Mortgage.

66.2 If the purchaser is a corporation, the directors of the purchaser must guarantee the performance of the Mortgage. The Mortgage and guarantee will be in the form attached to this contract at Annexure L.

66.3 The purchaser must pay any stamp duty on the Mortgage and each party must bear its own costs and disbursements in relation to the granting of the Mortgage.

66.4 This clause does not merge on completion.

12 The sale was settled on 29 June 2000. $2 million of the purchase price was left outstanding, and Cuzeno granted a mortgage over the Village containing terms as set out in an Annexure A to the mortgage and Memorandum I264748 filed in the Land Titles Office.

13 Annexure A to the mortgage contained the following terms:

In consideration of $2,000,000 the Principal Sum left outstanding as balance purchase money and payable by the Mortgagor to the Mortgagee, the Mortgagor covenants with the Mortgagee as follows:

1. Memorandum

All the provisions contained in Memorandum I264748 are deemed to be incorporated in this Mortgage and are deemed to be covenants for the purposes of section 80A of the Real Property Act 1900. If there is any conflict between the provisions of this Mortgage and the Memorandum, the provisions of this Mortgage prevail.

2. Definitions

In this Mortgage -

(a) The Trust is named in Item 1.

(b) Collateral Documents include the documents specified in Item 2.

(c) The Contract means the contract for sale of the Mortgaged Land dated 14 April 2000 between the Mortgagee as vendor and the Mortgagor as purchaser pursuant to the call option between the Mortgagee and Cuzeno Pty Limited dated 2 April 2000.

3. Principal payment

The Mortgagor must pay to the Mortgagee the outstanding Principal Sum, and the balance, if any, of the Mortgage Debt on the date specified in Item 3.

4. Payment of interest

Without prejudice to the Mortgagor's obligation to pay the whole of the Mortgage Debt on the date specified in Item 3, the Mortgagor must pay interest on the amount outstanding under this Mortgage on daily balances at 10.5% per annum, computed from the date in Item 4 payable on the last day of each calendar month.

5. Early repayment

The Mortgagor may repay this Debt at any time without penalty upon payment to the Mortgagee of the Principal Sum, any other moneys payable under this Mortgage and interest (if any is payable) to the date of repayment only.

6. What does this Mortgage secure?

This Mortgage secures payment to the Mortgagee of the Principal Sum, any money owing to the Mortgagee by the Mortgagor under the Collateral Documents, and all other money payable under this Mortgage on any account whatever.

SCHEDULE

ITEM 1

Trust: The Mortgagor is trustee of the *

trust established by deed dated *

None known to the Mortgagee at the date of this Mortgage

Complete/delete as applicable

ITEM 2

Collateral Documents: The Contract.

Deed of Guarantee dated the same day as this Mortgage.

ITEM 3

Date for repayment

of Mortgage Debt: 15 months from the date of this Mortgage.

ITEM 4

Date on which payment

of interest commences: The date of this Mortgage.

14 Clauses 1.1, 1.8(a) and 3.4 of Memorandum I264748 were in the following terms:

1.1 ALL DEBTS The Mortgagor on demand must pay to the Mortgagee the money described in this clause. The Mortgage secures payment of all money which the Debtors whether directly, indirectly, contingently, or otherwise are or become liable at any time either alone, jointly. or severally to pay to any of the Mortgage, or any person on whose behalf the Mortgagee holds this security (all of which are included in the term "Mortgagee" in this clause) including without limitation:

(a) on any guarantee, bond, account, document, negotiable instrument, or other instrument including the Mortgage and/or any Collateral Documents;

(b) because of anything by which the Mortgagee is or becomes a creditor of the Debtors;

(c) on the account of any person on the order, request, or under the authority of the Debtors;

(d) arising from any thing done or omitted to be done by the Debtors which gives rise to a payment. expense, or loss by the Mortgagee;

(e) because of the Mortgagee drawing, accepting, endorsing, paying, or discounting any order, draft, cheque, promissory note, bill of exchange, or other negotiable instrument on behalf of the Debtors;

(f) under any bond, guarantee, letter of credit, or indemnity issued or given by the Mortgagee on behalf of the Debtor;

(g) interest on all money described in this clause at the highest rate prescribed for that money or, if none, as determined by the Mortgagee.

1.8 DEALINGS WITH MORTGAGED LAND

(a) The Mortgagor must not accept or permit a surrender, assignment or variation of any lease or licence, consent to or permit any sublease or assignment or variation of any sublease, sell, transfer, assign, let, license, part with possession, further mortgage, charge, encumber, subdivide, consolidate, or otherwise dispose of or deal with the Mortgaged Land or the income derived or to be derived from the Mortgaged Land, or agree to do any of those things despite any power implied by statute or otherwise without the Mortgagee's prior written consent. The Mortgagor must pay to the Mortgagee any deposit or other money released to the Mortgagor under any agreement for the sale of the Mortgaged Land and if directed by the Mortgagee must pay or cause to be paid to the Mortgagee or as the Mortgagee directs any licence fee, rent, option fee, or other money payable directly or indirectly in relation to the Mortgaged Land. Any leasing of, licensing of, or permit to use the Mortgaged Land must be for not less than the then current market rent or licence fee.

(b) The Mortgagor warrants that it has correctly and fully disclosed to the Mortgagee as at the date of the Mortgage and on demand by the Mortgagee will correctly and fully disclose to the Mortgagee as at the date of the demand the existence of and any details the Mortgagee requires of any of the dealings described in sub-clause (a) of this clause.

(c) The Mortgagor must not lodge, permit or allow to be lodged any caveat in respect of the Mortgaged Land and promptly at its own expense must do all things and pay all money necessary to remove any caveat lodged by any person. Without being bound to do so, the Mortgagee may at any time in the Mortgagor's name or in its own name do any act, commence any proceedings, enter into any agreement, and/or pay any amount to procure the removal of any caveat.

(d) The Mortgagor must fully observe, perform, and comply with all restrictions, covenants, easements, and notifications to which the Mortgaged Land is at any time subject.

3.4 MORTGAGEE'S CERTIFICATE A certificate signed by or on behalf of the Mortgagee as to a matter or as to an amount payable to the Mortgagee in connection with the Mortgage is conclusive and binding on the Mortgagor as to the amount stated in it or anything else.

15 "Debtors" was defined in the Memorandum so as to include the mortgagor and also any person who at any time guarantees to the mortgagee the payment of the mortgage debt.

16 Also on 29 June 2000, a guarantee was executed by George Jabbour, a director of Cuzeno, which identified Overton as the Vendor, Cuzeno as the Purchaser, and Mr. Jabbour as the Guarantor, and the contract of 14 April 2000 and the mortgage to which I have referred as the Documents. The guarantee defined "Debt" as follows:

Debt means all money (and where the context admits any part of that money) which the Purchaser whether directly or indirectly or contingently or otherwise at any time and from time to time is or becomes liable either alone or jointly or severally to pay to the Vendor on any account including without limitation:

(a) on or upon any guarantee bond account document negotiable or other instrument including this Guarantee and/or the Documents and/or any collateral security;

(b) by reason of any matter or thing by which the Vendor is or may become in any manner a creditor of the Purchaser;

(c) on the account of any other person or upon the order or request or under the authority of the Purchaser;

(d) arising from any thing done or omitted to be done by the Purchaser which gives rise to a payment expense or loss by the Vendor;

(e) by reason of the Vendor drawing accepting endorsing paying or discounting any order draft cheque promissory note bill of exchange or other negotiable instrument on behalf of the Purchaser;

(f) pursuant to any bond guarantee letter of credit or indemnity issued or given by the Vendor on behalf of the Purchaser; and

(g) interest upon all money described in this clause at the highest rate prescribed for that money or if none as determined by the Vendor.

17 The guarantee contained the following provisions:

2. GUARANTEE AND INDEMNITY

The Guarantor irrevocably and unconditionally guarantees to the Vendor the due and punctual payment of the Debt to the Vendor and the due and punctual performance of all the obligations undertakings and provisions contained in or implied by the Documents other than those imposed on the Vendor and indemnifies the Vendor against all loss damage costs and expenses suffered or incurred by the Vendor as a result of any failure by any person to pay in a due and punctual manner the Debt on due date or as a result of any breach of any of the covenants and conditions contained in or implied by the Documents.

The Guarantor must pay the Debt immediately on demand to the Vendor.

3. CONTINUING GUARANTEE

This Guarantee is continuing and irrevocable and the obligations of the Guarantor are absolute and unconditional in all circumstances. The Vendor is not obliged to take any action against any person or under any security prior to claiming from the Guarantor.

4. NON-WAIVER

This Guarantee will not be abrogated, modified, prejudiced, affected or considered as wholly or partially discharged by any one or more of:

(a) any time credit indulgence or concession extended by the Vendor to the Purchaser any Guarantor or any other person;

(b) any compounding compromise release abandonment waiver variation relinquishment or renewal of any rights of the Vendor against the Purchaser or any other person;

(c) any variation of the Documents or of any term covenant or condition contained in or implied by any of the Documents and the Guarantor will be deemed to have consented to any such variation and in particular without limitation this Guarantee extends to:

(i) any extension of the period for repayment under the Documents;

(ii) any increase or decrease in the amount owing under the Documents;

(iii) any increase or decrease in the interest rate payable in respect of the Documents;

(iv) any partial or total release or discharge of the security conferred by the Documents or otherwise irrespective of the amount, if any, paid in reduction of the Debt; and/or

(v) any other variation in the obligations set out in the Documents, whether or not such variations are formalised in writing and whether or not the Guarantor is aware of those variations;

(d) the neglect or omission of the Vendor to enforce any such rights;

(e) the winding up bankruptcy or death of the Purchaser or any party to the Documents;

(f) the lack of power of any Guarantor to enter into this Guarantee;

(g) any other obligation arising between the Vendor and the Purchaser being or becoming unenforceable in whole or in part for any reason;

(h) any release or discharge of the Debt, the Purchaser, the Documents or any other security or person;

(i) any other person who is intended to execute this Guarantee or be a guarantor not executing this Guarantee or being bound;

(j) the reduction of the Debt to nil;

(k) any change in the name, style, constitution or otherwise of the Purchaser or any other person;

(l) where the Purchaser is or becomes a partnership or firm, any change that may be made whether by death or otherwise in the partnership or firm or of any persons at any time constituting or trading under the name of the partnership or firm;

(m) the Vendor being party to any bill of exchange or other instrument relating to the Debt;

(n) anything else.

18 Also on 29 June 2000, Gadens, solicitors for Overton, sent a letter to Mr. Shehadie, solicitor for Cuzeno, in the following terms:

In accordance. with clause 50.10 of the contract of sale, we have been instructed to advise to you that the amount of $3,568,198.72 constitutes the sum of the Residential Debts for the purpose of this contract subject to the accrual of interest on the Residential Debts, pursuant to sub-clauses 5(h) and 17(b) of the Leases of Premises in the Heritage Retirement Village, to the actual date of repayment of the Residential Debts.

Attached is a copy of the vendor's Aged Trial Balance for Lessees of the Heritage Retirement Village, as at 28th June 2000, which indicates the Resident Debts as at that date.

Please be advised that this amount of $3,568,193.72 constitutes principal only. It does not contain any component of interest payable or chargeable under the Leases or the Trust Deed or by Court Order before or after completion.

Kindly have your client indicates its agreement with the above by signing and returning the acknowledgment below.

19 The letter enclosed a schedule identifying the amount of the Residents Debt said to be owing in respect of each individual lease. The evidence did not disclose whether the acknowledgement referred to in the letter was signed and returned.

20 On 13 December 2000, Cuzeno paid Overton over $1.4 million as partial repayment of moneys due under the mortgage.

21 On 27 March 2001, Mr. Shehadie requested a payout figure from Gadens; and on the same day Gadens wrote claiming that the mortgage debt included a number of items among which was the Resident Debts defined in the contract, and noting that these specified items did not exhaust the mortgage debt, and advising that they were obtaining a final payout figure.

22 It appears that no such figure was supplied; and on 6 June 2001, Gadens wrote to Mr. Shehadie alleging breaches of the mortgage in a number of respects, including permitting occupation of units without obtaining Overton's consent, and failing to pay the Resident Debt in respect of Unit 62 "in spite of receiving the proceeds of a proposed incoming lessee".

23 On 27 September 2001, Mr. Shehadie wrote to Gadens noting that the principal sum secured by the mortgage was due to be repaid on 29 September 2001, a Saturday, and asserting that Cuzeno was ready, willing and able to repay the balance of the principal sum on 28 September 2001. He subsequently attended at the office of Gadens with a bank cheque for $631,884.13, and a cheque in favour of Gadens for $285.00. However, those cheques were not accepted, and Gadens subsequently on that day certified that the amount payable to discharge the mortgage on 29 September 2001 was $6,030,649.70.

24 On 28 September 2001, Gadens wrote to Cuzeno alleging numerous defaults under the mortgage, relating in particular to acceptance of surrenders without consent, re-letting units without consent, and failure to collect and remit Resident Debts in relation to various units (8A, 61, 6, 7, 9, 20, 37 and 62).

25 Meanwhile, there had been further developments in various legal proceedings, including a Federal Court appeal against Overton which was partially successful, and proceedings in this Court which resulted in orders on 2 May 2001 dismissing an appeal by Overton and a cross-appeal by residents, both with costs.

26 These proceedings were commenced in October 2001. By the time of the hearing, Cuzeno had paid the whole of the $2 million left outstanding of the purchase price, and it claimed that it had tendered that part of the Resident Debts which it had collected since completion.

DECISION OF PRIMARY JUDGE

27 The primary judge relevantly identified the following question for determination:

Whether the Mortgage secures payment by Cuzeno, of the whole of the amount defined in the Contract for Sale as the Resident Debts, regardless of whether Cuzeno has received from the residents, in one form or another, any payment in respect of the Resident Debts or whether it secures payment only of such monies as have actually been received by Cuzeno on account of Resident Debts as at the time stipulated in the Mortgage for payment of the Mortgage Debt.

28 He noted Overton's contention that the mortgage secured all money falling within the definition of Resident Debts, whether or not received by Cuzeno; but held that the mortgage secured the following items only:

(a) the Principal Sum and interest thereon;

(b) that part of the Resident Debts which the Plaintiff has actually received in accordance with clauses 50.2 and 50.3 of the contract for sale but has not yet paid to the Defendant by the due date for payment of the Mortgage, ie 29 September 2001;

(c) interest on such amounts of Resident Debts received by the Plaintiff in accordance with clauses 50.2 and 50.3 of the Contract for Sale, at the rate specified in clause 4 of annexure "A" to the Mortgage calculated from the time of receipt until the time of payment to the Defendant;

(d) that part of Resident Debts, if any, which the Plaintiff has, prior to 29 September 2001, failed to collect on termination or surrender of a lease, in breach of clause 50.3 of the Contract for Sale;

(e) interest on any amount referred to in paragraph (d).

29 He made a declaration to that effect on 21 March 2002, and made the following order:

2. Pursuant to Part 72 of the Supreme Court Rules, there be referred to Peter Taylor SC for inquiry and report the following questions having regard to the Reasons for Judgment delivered on 26 February 2002:

(a) whether the Plaintiff was at any time prior to the making of these orders entitled to a discharge of the Mortgage and, if so, when the Plaintiff first become so entitled;

(b) if so, whether the Defendant wrongfully refused to grant a discharge of the Mortgage to the Plaintiff,

(c) if so, the quantum of damages, if any, to which the Plaintiff is entitled by reason of such wrongful refusal;

(d) whether the Plaintiff:

(i) had, prior to 29 September 2001, actually received any Resident Debts in accordance with clauses 50.2 and 50.3 of the Contract for Sale, but which it has not yet paid to the Defendant; and if so, the amount of such Resident Debts;

(ii) has failed to pay interest on such Resident Debts; and if so, the amount of such interest;

(iii) had, prior to 29 September 2001, failed to collect any Resident Debt upon termination or surrender of a lease, in breach of clause 50.3 of the Contract for Sale; and, if so, the amount that the Plaintiff ought properly to have collected;

(iv) has failed to pay interest on such amount; and, if so, the amount of such interest;

(e) such of the questions raised in proceedings No. 13267 of 2001 as have not already been determined in these proceedings.

He also made certain procedural directions in relation to the reference.

30 He ordered Cuzeno to pay certain of Overton's costs, but otherwise ordered Overton to pay Cuzeno's costs of the proceedings.

GROUNDS OF APPEAL

31 Overton relies on the following grounds of appeal:

1. His Honour erred in concluding that the construction of the Mortgage between the appellant (Overton) and respondent (Cuzeno) only secured, in addition to the Principal Sum and interest thereon:

(a) that part of the Resident Debts which Cuzeno has actually received in accordance with clauses 50.2 and 50.3 of the Contract for Sale but has not yet paid to Overton by the due date for payment of the Mortgage, ie 29 September 2001;

(b) Interest on such amounts of Resident Debts received by Cuzeno in accordance with clauses 50.2 and 50.3 of the Contract for Sale, at the rate specified in clause 4 of annexure W to the Mortgage calculated from the time of receipt until the time of payment to Overton;

(c) that part of Resident Debts, if any, which Cuzeno has, prior to 29 September 2001, failed to collect upon termination or surrender of a lease, in breach of clause 50.3 of the Contract for Sale;

(d) Interest on any amount referred to in the foregoing sub paragraph.

2. His Honour erred in not concluding that the Mortgage secured all money falling within the definition of Resident Debts whether or not that money had been received by Cuzeno as at 29 September 2001.

3. A declaration that His Honour erred in concluding that clause 1. 1 of the Mortgage Memorandum could not be construed as securing payment by Cuzeno of contingent liabilities including Resident Debt which had not crystallized by 29 September 2001.

4. His Honour erred in concluding that the only part of the Resident Debt which is "payable" by Cuzeno as at 29 September 2001 was that part which Cuzeno had received but not yet paid on to Overton or had failed to collect by 29 September 2001 in accordance with its obligations under clause 50.3 of the Contract for Sale.

5. His Honour erred in failing to take into account the Guarantee provided by Cuzeno's directors.

32 In addition to seeking that the declaration and orders made below be set aside, Overton seeks the following declaration:

3. A declaration that the Mortgage secures:

(a) The principal sum, that is the sum of $2 million;

(b) any money owing to Overton from Cuzeno from time to time under the collateral documents, which includes:

(i) the total of the Resident Debts. referred to in Clause 50 of the Contract for Sale, and determined by Overton in accordance with Clause 50.10 of the Contract for Sale, in the sum of $3,568,198.72 plus interest;

(ii) any other amounts payable by Cuzeno under the Contract for Sale from time to time - which would include any amount payable by way of damages for breach of the Contract for Sale (e.g. breaches of Clauses 50.2, 50.3, 50.7 or 50.8),

(iii) any monies payable by Mr George Jabbour under the guarantee;

(c) any other money payable under the mortgage on any account whatever.

33 Overton has also applied for leave to appeal, against the possibility that the primary judge's orders would not be considered final. Cuzeno has conceded that the orders were in fact final, and that, even if they were not, leave to appeal should be granted. In those circumstances, it will not be necessary to further consider the application for leave.

34 The submissions on appeal have fallen into two broad areas: first, submissions concerning the question whether Cuzeno has no entitlement to a discharge of the mortgage until the whole of the Residents Debts are paid; and secondly, questions concerning the details of the declaration as to what the mortgage does secure and the terms of the reference.

DOES THE MORTGAGE SECURE THE WHOLE OF THE RESIDENT DEBTS?

Submissions

35 Mr. Gleeson SC for Overton submitted that, by virtue of Special Condition 50 of the contract and s.117 of the Conveyancing Act, Cuzeno became legal owner of the Resident Debts on completion, subject to the effect of Special Condition 50. Special Condition 50 made it clear that Overton remained the beneficial owner of the Resident Debts, and it created six cumulative obligations on Cuzeno. First, an obligation to pay money received in respect of Resident Debts within fourteen days of receiving it (50.2); second, a positive obligation to exercise its rights as lessor to recover Resident Debts (50.3); third, an obligation to give priority to Overton's rights in respect of money received from lessees (50.6); fourth, an obligation to comply with reasonable requests of Overton to assist in collection of Resident Debts (50.7); fifth, an obligation to notify Overton of events relevant to the collection of Resident Debts (50.8); and sixth, an obligation upon sale of the property to procure that the purchaser enter into a deed with Overton under which the purchaser assumes the same obligations as those assumed by Cuzeno under Special Condition 50 (50.12). The amount of Resident Debts was quantified for the purposes of the contract by cls.50.9 and 50.10, and the service of the letter of 29 June 2002 and the accompanying schedule.

36 Mr. Gleeson submitted that, having sold the land, Overton became dependent upon Cuzeno for the exercise of rights to recover the Resident Debts. If Cuzeno failed to exercise those rights, and in particular failed to deduct amounts owing as Resident Debts from amounts refunded and pass on such amounts to Overton, Overton would be left in the position where it would have to sue numerous tenants for very small amounts. Furthermore, Overton was liable to be sued by tenants for refunds, and depended on its indemnity provided by Special Condition 52 of the contract to ensure that Cuzeno met its obligation to pay out the tenants. In those circumstances, it made commercial sense that Overton be given a mortgage to give it protection in relation to these matters. Although Special Condition 66 of the contract was to the effect that the mortgage was to secure the $2 million of the purchase price left outstanding, it did not say that this was the only liability to be secured by the mortgage.

37 Accordingly, he submitted, the substantial effect of Special Condition 50 was to establish a liability to Overton by Cuzeno in respect of the Resident Debts, but to defer the obligation of Cuzeno to pay until actual receipt by Cuzeno of money in respect of Resident Debts on termination or surrender of each lease.

38 In any event, Mr. Gleeson submitted, the mortgage in its terms secured all moneys which Cuzeno or Mr. Jabbour, whether directly, indirectly, contingently or otherwise are or become liable to pay to Overton; and the totality of the Resident Debts was moneys for which Cuzeno was at least contingently liable and for which Cuzeno could become liable in the future. The mortgage did not grant any entitlement to a discharge on payment of any particular amount, and it secured the obligations of Mr. Jabbour under the guarantee, which itself was expressed to continue even if the debt in relation to which the guarantee was given was at any time reduced to nil.

39 Mr. Gleeson submitted that the obligation under cls.3 and 4 of Annexure A to the mortgage to pay the mortgage debt on 29 September 2001 did not affect this position. Either it required the whole of Resident Debts then outstanding to be paid on 29 September 2001; or alternatively, it required that so much of the Resident Debts as had then become payable be paid on 29 September 2001, in addition to the principal of $2 million, but such payment would not entitle Cuzeno to a discharge of the mortgage: there would be no such entitlement until the whole of the Resident Debts had been paid.

Decision

40 In my opinion, it is clear that Special Condition 50 does not constitute Cuzeno a debtor to Overton in respect of the totality of the Resident Debts. It does constitute Cuzeno a trustee for Overton of whatever rights it has in respect of the causes of action associated with the Resident Debts. It constitutes Cuzeno a debtor to Overton in relation to any money which might actually be received by Cuzeno in satisfaction or partial satisfaction of those causes of action. It imposes on Cuzeno certain obligations with a view to promoting the receipt of such money, either directly by Overton or through Cuzeno. It does not provide that Cuzeno is a debtor to Overton for the whole amount of the Resident Debts; and in my opinion that relationship would be incongruous with the obligation of Cuzeno to co-operate with Overton to promote the recovery by Overton of these debts from the lessees.

41 This leaves the argument that the totality of the Resident Debts are amounts for which Cuzeno is contingently liable, so fall within cl.1.1 of the Memorandum and also within the definition of "Debt" in the guarantee: the mortgage Memorandum asserts that it secures all money for which the guarantor becomes liable at any time, and the guarantee guarantees performance of all Cuzeno's obligations under the contract (including cl.50) and is not discharged even by reduction of the debt to nil; so that, it was submitted, until there is no possibility of Residents Debts proceeds coming into the hands of Cuzeno, Cuzeno remains contingently liable and has given security for performance of the guarantee, and cannot have a discharge.

42 That is a possible construction of the mortgage, but I would reject it.

43 In my opinion, the mortgage should be interpreted in the light of its stated purpose as set out in Special Condition 66 of the contract, that is, the purpose of vendor finance to the extent of $2 million. Furthermore, cls.3 and 4 of Annexure A to the mortgage, prepared specifically for this particular mortgage, manifest a clear intention that the whole of the mortgage debt be paid during or at the expiry of fifteen months, and that the mortgage should then be discharged. I would reject the submission that those provisions require payment of amounts then payable, but contemplate that the mortgage be left in place to secure amounts that may become payable in the future. That leaves the possibility that what cls.3 and 4 require is the payment of the totality of the Residents Debts, with interest, to the extent that they have not previously been paid.

44 In my opinion, the words of Annexure A to the mortgage, referring to "money owing" under the contract and guarantee, and to "money payable" under the mortgage, make it clear that what is being referred to are amounts actually owing and payable, rather than amounts payable on some future contingency; and as indicated earlier, my opinion is that cl.50 does not make Cuzeno liable for the Resident Debts over and above such amounts as actually come into its hands or would have done so but for its default. In my opinion, the provisions of Annexure A, prepared specifically for the mortgage, should prevail over the words of the Memorandum referring to contingent liability and liability under the guarantee. At the very least, the provisions of Annexure A indicate that those provisions of the Memorandum do not extend to the kind of contingency involved here.

45 For those reasons, in my opinion the primary judge was correct in relation to this first question, which was the main issue on the appeal.

DETAILS OF DECLARATION AND ORDERS

46 Taking up suggestions by this Court, it was contended for Overton that, even if the primary judge was correct on the first question, he was in error in various respects in the declaration and orders that he made.

47 In relation to the declaration, it was contended for Overton that pars.(b) and (d) were erroneous in limiting the amounts in question to amounts that Cuzeno either received or failed to collect prior to 29 September 2001; whereas it should have extended to such amounts which Cuzeno either received or failed to collect at any time up to the time when Cuzeno became or becomes entitled to a discharge of the mortgage. Cuzeno conceded that the declaration was in error in this respect.

48 Next, it was contended for Overton that the declaration was in error in omitting the costs, charges and expenses of the mortgagee. Cuzeno conceded that there was an error in this respect, but there was a dispute as to the extent to which the costs of these proceedings and of the reference should be included in that item, and otherwise as to the basis of calculation.

49 Next, it was contended for Overton that the declaration was in error in omitting reference to damages for breaches of the sale contract (that is, for breaches other than breaches of cl.50.3) and the mortgage, and other amounts which might arise under the mortgage or collateral documents. There was an issue as to whether there was error in this respect.

50 It was also contended for Overton that the primary judge was in error in making a costs order generally in favour of Cuzeno. That matter was in issue.

51 Finally, Overton contended for various changes in the order for the reference, mainly changes consequential on the changes to the declaration.

52 One other matter relevant to the orders that this Court should make is that the following consent orders were made on 13 June 2002, that is after the orders were made by the primary judge and before the hearing of this appeal:

1. Grant leave to the plaintiff to file in Court and make returnable instanter its notice of motion dated 23 May 2002 seeking strike-out or summary dismissal of the defendant's Points of Claim.

2. Order that on condition that the plaintiff provides security to the Court in the sum of Five Hundred Thousand Dollars ($500,000) in a form acceptable to the Court for the damages claimed by the defendant pursuant to its Points of Claim (as particularised in defendant's solicitors letter dated 13 May 2002 and as outlined in the affidavit of John James sworn 10 May 2002 in these proceedings) the defendant must take all such steps as are necessary to discharge the mortgage registered number 7006296.

3. Order that:

(A) execution of Order 2;

(B) further proceedings on the Reference provided for in Orders 2, 6 and 7 made by Palmer J on 21 March 2002;

(C) proceedings on the plaintiff's notice of motion referred to in order 1,

be stayed until the defendant's appeal in the Court of Appeal proceedings numbered CA40330/02 ("the Court of Appeal Proceedings") is finally determined and upon the further terms that:

(i) the defendant forthwith apply for expedition of the Court of Appeal Proceedings;

(ii) the defendant undertake to conduct the Court of Appeal Proceedings in as expeditious manner as possible;

(iii) the defendant provide the usual undertaking as to damages resulting to the plaintiff from the stay;

4. Order that the costs of each party in respect of the plaintiff's notice of motion filed 27 March 2002 be reserved.

5. Order that liberty is granted to the plaintiff to apply in respect of the amount of the security referred to in Order 2 on 2 days notice.

6. Order that liberty is granted to each party to apply for the setting aside or variation of Order 2 depending upon the determination of the Court of Appeal Proceedings, such liberty to be exercised on 24 hours notice following the final determination of the Court of Appeal Proceedings.

53 It seems clear that the orders proceed on the assumption that, if the first question in this appeal is answered in favour of Cuzeno, then Overton would grant a discharge of the mortgage in return for provision of security in the sum of $500,000.00, and the enquiry should determine how much of that amount should be retained by Overton and how much returned to Cuzeno. It appears that Overton now contends that those orders should be set aside or at least the amount of the security varied. In any event, it is a matter that has some bearing on the consequential orders relating to the reference.

Submissions

54 Mr. Gleeson submitted that the amount secured by the mortgage included damages arising from breaches of the mortgage, including the failure to obtain releases from tenants when they surrendered their lease, this being a condition specified by Overton as being required before it would consent to acceptance of surrenders of the tenancies. Mr. Gleeson also submitted that the mortgage plainly secured damages for failure to collect the Resident Debt owing by a tenant Shipman in the amount of $39,189.42, and submitted that, as a trustee, Cuzeno should be liable to pay compound interest on that amount.

55 Mr. Gleeson submitted that the mortgage secured the mortgagee's costs, and that these costs included the total costs of the proceedings below and in the Court of Appeal. He referred to Pt.52A r.42 of the Supreme Court Rules which is as follows:

42.(1) Where a person is or has been a party to any proceedings in the capacity of trustee or mortgagee, he shall, unless the Court otherwise orders, be entitled to the costs of the proceedings out of the fund held by the trustee or out of the mortgaged property, as the case may be, in so far as the costs are not paid by any other person.

(2) The Court may otherwise order pursuant to subrule (1) only where:

(a) the trustee or mortgagee has acted unreasonably, or

(b) in the case of a trustee, he has in substance acted for his own benefit rather than for the benefit of the fund.

56 I would also add a reference here to cl.3.1 of the Memorandum which provides that the mortgagor is to be liable for all costs incurred by the mortgagee "in respect of the Mortgage, the Guarantee and/or any Collateral Documents"; and goes on to provide to the effect that anything which the mortgagee is "required or permitted to do under the mortgage" will be done at the mortgagor's expense.

57 Mr. Gleeson submitted that Overton had not acted unreasonably, and accordingly was entitled to all its costs.

Decision

58 In my opinion, on the true construction of the various documents and in the events which have happened, at least until the time of Overton's submissions dated 16 December 2002, Overton is not entitled to any damages in respect of alleged failures by Cuzeno to obtain releases from tenants surrendering their lease or for failure to extract additional amounts of $50,000.00 as a condition of such surrender (the latter was in fact conceded by Overton). The mortgage did entitle Overton to impose such conditions as conditions for the grant of consent to surrender of leases, but the only damages that these matters could give rise to are damages reflecting loss caused to the value of Overton's security. These breaches cannot give grounds for Overton to demand, as a price of granting a discharge, more than the amount otherwise due under the mortgage. Furthermore, the demand for $50,000.00 is inconsistent with the schedule of Resident Debts provided on completion of the sale; and there is no evidence that the failure to obtain releases caused damage in circumstances where, upon surrender, the lessee is in any event contractually bound to grant such a release.

59 Furthermore, there is no evidence of any other events, up to 16 December 2002, which could give rise to any other damages or any other amount secured by the mortgage. It is possible that some such event could occur between 16 December 2002 and the determination of the reference, so in my opinion it is appropriate that the declaration be qualified as being a declaration as to amounts secured by the mortgage on its true construction and having regard to events that have occurred up to 16 December 2002. That would leave open the possibility that if events occurring after 16 December 2002 gave rise to some additional liability, that could be dealt with under the reference.

60 Turning to the question of costs, the Supreme Court Rule raises two questions: first, are the relevant costs incurred "in the capacity of a ... mortgagee"?; and if so, did the mortgagee act unreasonably? Under the mortgage itself, there are questions similar to the first question, namely whether the costs are "in respect of the mortgage" or in respect of something that the mortgagee is permitted to do under the mortgage.

61 Even where there is no express provision in the mortgage, a mortgagee is generally entitled to all costs it incurs in ascertaining or defending its rights, in preserving the security or in recovering the mortgage debt: see Fisher & Lightwood's Law of Mortgage (Aust.Ed.) [40.3], National Provincial Bank of England v. Games (1886) 31 Ch.D. 582 at 592. A mortgagee does not lose the right to costs merely by making a bona fide claim beyond its entitlement, at least so long as that claim has some merit: Fisher & Lightwood [40.11], Cotterell v. Stratton (1872) 8 Ch.App. 295, Credland v. Potter (1874) 10 Ch.App. 8, Bird v. Wenn (1886) 33 Ch.D. 215, Kinnaird v. Trollope (1889) 42 Ch.D. 610.

62 I think it is clear that costs incurred in resolving matters of accounting on which minds can reasonably differ are plainly recoverable by a mortgagee, on the general principles discussed in Fisher & Lightwood, and also pursuant to provisions such as those referred to in par.[58] above. It is perhaps not so clear in relation to a question of whether or not a mortgage, properly interpreted, does or does not include certain debts. In my opinion, costs incurred by a mortgagee in making a claim that the mortgage includes debts which the mortgage on its true construction does not include, even if this claim has some support in the text, are not necessarily incurred in the capacity of a mortgagee, or in respect of the mortgage, or in respect of something that the mortgagee is permitted to do under the mortgage. The more doubtful the question, and the more reasonable the claim, the readier the Court would be to find in the mortgagee's favour on this matter. On the whole, although I think the appellant's arguments were not entirely without merit, in my opinion the costs it incurred in seeking to have the mortgage extend to debts that it did not in fact cover are not properly regarded as costs incurred in the capacity of a mortgagee, or in respect of the mortgage, or in respect of something that the mortgagee is permitted to do under the mortgage.

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.

64 Having regard to these principles, I am not satisfied the primary judge was in error in the costs order that he made. I think also that it should be made clear that Overton is not entitled to add its own costs of the proceedings below to the amount secured by the mortgage.

65 In relation to interest, in my opinion it should be calculated in accordance with the terms of the mortgage. I do not see sufficient ground for ordering some separate basis for calculation in relation to amounts for which Cuzeno is liable as a trustee.

66 Dealing with the terms of the reference, it seems to me that the reference should be directed first towards the question whether or not there has been a tender prior to the commencement of the hearing under the reference of an amount sufficient to discharge the mortgage, and if so when. In accordance with the principles discussed in par.[61] above, the amount of this tender would not need to have included any provision for the anticipated costs of any dispute, there having been no requirement by the mortgagee for that provision. If a tender has been made of an amount sufficient to discharge the mortgage, the question would arise as to whether Cuzeno was entitled to an enquiry as to damages. In my opinion, cls.3-5 of Annexure A to the mortgage impose on Overton a contractual obligation to discharge the mortgage upon a sufficient tender being made (such obligation being implicit in the language itself or implied as a matter of business efficacy), so that if Overton breached that obligation, Cuzeno would be entitled to an enquiry as to damages if it established that such an enquiry would serve a useful purpose, that is, if it seems reasonably probable that substantial damages resulted or would naturally result from the breach: see ICT Pty. Ltd. v. Sea Containers Pty. Ltd. (1995) 39 NSWLR 640 at 660. In my opinion, that should be addressed as a preliminary question, but the reference should not in the first instance go into the amount of any such damages.

67 If it is decided that there has not been such a tender, the reference should address the amount required to discharge the mortgage at the date Cuzeno became entitled to a discharge by virtue of the consent orders and provision of security of $500,000.00, including all items referred to in the declaration and any additional items arising since 16 December 2002. Overton will be entitled to the costs of providing a discharge and also costs charges and expenses reasonably incurred outside the present litigation including those incurred in seeking recovery of portions of Resident Debts that were or should have been received by Cuzeno, and these costs should be quantified by the referee: it would appear that the Legal Profession Act 1987 s.199 does not apply to Cuzeno's liability for these costs. Quantification of the costs of these proceedings would be subject to assessment under the Legal Profession Act, but it seems clear that, after set-offs, there will be no such costs recoverable by Overton from Cuzeno.

68 I see no ground for altering the consent orders: I see no reasonable basis for thinking that $500,000.00 is not more than enough to cover any additional amount required to discharge the mortgage. In any event, the consent orders allow for an application to vary the amount of the security, and Overton can make such an application if so advised.

69 As regards the costs of the appeal, the main question argued on appeal, which took up the most time, concerned the debt secured by the mortgage and costs of the trial, on which Overton has failed. Overton had some success in relation to the consequential orders, but most of the points which led to these orders being varied were raised by the Court during argument. On the whole, I think the appropriate order is that Overton pay 80% of Cuzeno's costs of the appeal, without any entitlement to add these costs or its own costs to the amount covered by the security.

ORDERS

70 For these reasons, I propose the following orders:

1. Declaration 1 below set aside, and in lieu thereof declare that the mortgage registered number 7006296Q dated 29 June 2000, on its true construction and in the events that have happened up to and including 16 December 2002, secures only:

(a) the principal sum and interest thereon;

(b) that part of the Resident Debts which the plaintiff has actually received in accordance with clauses 50.2 and 50.3 of the contract for sale but has not yet paid to the defendant by the date the plaintiff became or becomes entitled to a discharge of the mortgage;

(c) that part of the Resident Debts, if any, which the plaintiff has, prior to the date when it became or becomes entitled to a discharge of the mortgage, failed to collect on termination or surrender of a lease, in breach of cl.50.3 of the contract for sale;

(d) the costs charges and expenses of the defendant;

(e) interest on such amounts in accordance with the Mortgage.

2. Set aside Order 2 below, and in lieu thereof order that there be referred to Peter Taylor SC pursuant to Pt.72 of the Supreme Court Rules for enquiry and report the following questions having regard to these reasons for judgment:

(a) whether at any time prior to the provision of security of $500,000.00 pursuant to the consent orders of 13 June 2000, the plaintiff paid or tendered sufficient monies to the defendant to be entitled to a discharge of the mortgage and if so, when the plaintiff first became so entitled;

(b) if so, whether the plaintiff is entitled to an enquiry as to damages by reason of wrongful refusal to grant a discharge of the mortgage;

(c) if not, the amount required to discharge the mortgage as at the date the plaintiff became entitled to a discharge by virtue of provision of the said security of $500,000.00, including all items included in the declaration 1 together with additional amounts arising since 16 December 2002.

3. Set aside orders 4, 5, 6 and 7 below, and in lieu thereof make the following orders:

4. The defendant to file and serve any Amended Points of Claim within 21 days of the reasons for judgment of the Court of Appeal, and the plaintiff to file and serve a Defence to Amended Points of Claim within 35 days of the judgment of the Court of Appeal.

5. The parties approach the referee within 42 days of the reasons for judgment of the Court of Appeal, to set a date for hearing of the reference and any other interlocutory orders sought by the parties including, if necessary, but not limited to:

(a) pleadings;

(b) discovery;

(c) filing and service of evidence.

6. The referee shall have power to permit such amendments as the referee sees fit in order to dispose of all issues between the parties, and shall conduct the proceedings under the reference in such manner as will, without undue formality or delay, enable a just determination to be made.

7. Direct that the parties be jointly and severally liable to the referee for the fees payable to him, without prejudice to any order for costs that may be made by the Court on the adoption of the report in whole or in part.

4. Appeal otherwise dismissed.

5. Appellant to pay 80% of the respondent's costs of the appeal, and not to be entitled to add these costs or its own costs of the appeal or of the proceedings to the amount secured by the mortgage.

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LAST UPDATED: 21/02/2003