1 STEIN JA: The parties were involved in a series of proceedings in the Supreme Court arising out of a lease of commercial premises by the respondent (Sandtara) to Cenrin Pty Limited. The appellant (Abigroup) had guaranteed Cenrin's obligations under its lease.
2 Cenrin failed to pay rent due under the lease and eventually went into liquidation. On 11 December 1993 the liquidator disclaimed the lease pursuant to s 568 of the Corporations Law. The Supreme Court proceedings conducted between 1991 and 1998 resulted in various orders for costs being made, mostly in favour of Sandtara (on a party/party basis), some in favour of Abigroup and some to the effect that there would be no order as to costs.
3 Sandtara brought separate proceedings in the District Court in 1998 which sought to recover all of its costs incurred in the Supreme Court proceedings pursuant to an indemnity in the lease (cl 18.02). It sought these costs on a solicitor/client basis less the costs already paid by Abigroup. Prior to the hearing in the District Court the parties agreed on the quantification of the disputed costs on a compromised basis. The agreed sum, exclusive of interest, was $133,313.82. The court should not and has not been asked to go behind this agreement, which is set out in the judgment of Patten DCJ given on 3 May 2001 (Red AB48).
4 Patten DCJ rejected all of the appellant's arguments and found in favour of Sandtara. Essentially the same arguments have been put by the appellant on this appeal. Sandtara failed on one point, namely, that of the rate of interest to be awarded on the outstanding amount. It claimed to be entitled to a contractual rate of interest (2% per month) pursuant to cl 8.03 of the lease. His Honour held that in the absence of a demand served on Cenrin pursuant to cl 3.09 of the lease, there was no entitlement to interest under cl 3.03. However, his Honour awarded interest pursuant to s 83A of the District Court Act. Sandtara cross-appeals on this issue.
5 The central contractual provision is cl 18.02 of the lease. This provision provides as follows:
INDEMNITY BY GUARANTOR . The Guarantor (and if more than one, jointly and severally) hereby unconditionally indemnifies the Landlord and agrees at all times hereafter to keep the Landlord unconditionally indemnified from and against all actions claims demands losses summonses writs proceedings judgments orders decrees damages costs and expenses which the Landlord may suffer or incur consequent upon or arising directly or indirectly out of any breach or non-observance by the Tenant of any of the covenants terms provisions restrictions or conditions in this lease contained or implied and on the part of the Tenant to be performed observed or fulfilled and the Guarantor agrees that this indemnity shall continue and the Guarantor shall remain liable to the Landlord under this indemnity notwithstanding that as a consequence of such breach or non-observance the Landlord has exercise (sic) any of its rights hereunder including its rights of re-entry and notwithstanding that the Tenant (being a company) may be wound up or (being a natural person) may be declared bankrupt and notwithstanding that the guarantee hereby given may for any reason whatsoever be unenforceable either in whole or in part. [My emphasis added]
6 His Honour found that Sandtara was entitled under the indemnity to recover its solicitor/client costs. The appellant propounds five arguments to the contrary. In summary, these are:
(a) The powers and discretions in s 76 of the Supreme Court Act 1970
override any contractual right;
(b) Any right of a party to the payment of costs by another party is merged in any final order of the court as to costs, accordingly, the decisions of the Supreme Court on costs are res judicata;
(c) It is an abuse of process for a party to seek in one court to reverse the effect of a decision of another court;
(d) Sandtara was obliged to bring forward in proceedings all claims which it ought reasonably to have expected to raise in those proceedings; its failure to do so meant that it was estopped under the principles in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 from doing so in later proceedings; and
(e) 'All costs and expenses' in cl 18.02 of the lease means party/party costs and not solicitor/client costs.
Section 76 Supreme Court Act and Res Judicata
7 The appellant submitted that because s 76 of the Supreme Court Act says that costs shall be in the discretion of the court and Part 52A rule 8 of the Supreme Court Rules says that a party cannot recover costs except under an order of the court, the Act and rules displace any contractual entitlement to recover costs. Even if that not be correct, it submitted that once the Supreme Court has spoken on costs, that is an end of the issue, thus removing any right to recover costs on any other basis. In other words, it submitted that any contractual right is extinguished or overridden. Further, it was open to Sandtara to seek indemnity costs in the Supreme Court on the basis of cl 18.02, indeed on one occasion it did so, but unsuccessfully.
8 Reliance was placed by the appellant on the English Court of Appeal decision in Gomba Holdings Ltd v Minories Finance [1993] Ch 171. In that case the court held that under the terms of a mortgage the defendants were entitled to recover their actual costs and expenses and that they were contractually entitled to payment on an indemnity basis. The court said that normally the court's discretion as to costs should be exercised to correspond with the contractual entitlement (194). My reading of Gomba, however, does not assist the submission of the appellant. It certainly does not support the proposition that the power to make an order for costs or the making of an order for costs in a court extinguishes or overrides a contractual right to costs.
9 It is, of course, correct that a court is not bound to give effect to any extra curial contract as to costs when exercising its discretion to award costs. It does not follow, however, that the discretion takes over from the contract and the exercise of discretion against giving effect to the contract precludes enforcement of the contract as to costs. As Salter J said in Mansfield v Robinson [1928] 2 KB 353 at 359, agreements as to costs are common practice and perfectly valid and enforceable. Gomba did not overrule Mansfield, as seems to have been suggested by the appellant. Although Scott LJ noted that some of the dicta in Mansfield was not easily reconcilable, the judgment of the court is consistent with Mansfield, see for example at 194 - 195. For other relevant examples see In Re Shanahan (1941) 58 WN (NSW) 132 at 134; Maher v Network Finance Ltd (1986) 4 NSWLR 694; and Elders Trustee & Executor Co Ltd v Eagle Star Nominees Ltd (1986) 4 BPR 9205. The contractual right simply stands independently of the curial power and order.
10 In so far as enforcement of the contractual provision as to costs is concerned, there is no issue on the costs judgments in the Supreme Court proceedings which is capable of giving rise to a res judicata. The validity or enforceability of the indemnity provision as to costs in cl 18.02 was never an issue in the Supreme Court. Moreover, the contractual claim for costs had not crystallised until the conclusion of all of the Supreme Court proceedings. Following judgment, there still may have been costs and expenses which would have been incurred by the respondent within cl 18.02. The respondent would have been unable to claim any such costs prior to the conclusion of the Supreme Court proceedings. Accordingly, I can see no basis for any suggestion that Sandtara's contractual rights merged into the judgments for costs made in the Supreme Court.
No Anshun estoppel or abuse of process
11 The appellant's submission that the respondent's failure to proceed upon its contractual right under cl 18.02 in the Supreme Court proceedings estopped it from so doing in later proceedings is, in my view, misconceived. As I have already mentioned, Sandtara's right to enforce its contractual right in court had not crystallised before the Supreme Court proceedings were completed. Accordingly, it could not proceed in those proceedings to enforce its contractual indemnity. Therefore, it did not fail to bring all of its claims in those proceedings. It was not, in my estimation, in breach of the principles discussed in Anshun (at 602 - 603). The possibility of conflicting judgments does not arise because no judgment in the Supreme Court pronounced on the respondent's rights to indemnity under cl 18.02. As such, it is not relevant that in one case (before Hodgson J as he then was) Sandtara asked for the contractual indemnity to be taken into account in the exercise of the costs discretion.
12 The authorities discussed earlier make it clear that Sandtara's contractual right of indemnity for all costs remains independently of the court's orders. By seeking costs in the Supreme Court, the respondent did not lose or surrender its contractual rights.
13 Nor can the respondent's proceedings in the District Court be seen as an abuse of process. The proceedings did not seek to reverse the decisions of the Supreme Court, contrary to the appellant's submission, but merely sought to enforce the respondent's contractual rights. The respondent's contractual right was simply not an issue before the Supreme Court.
14 In my view, Patten DCJ was correct to dismiss the appellant's submissions on the effect of s 76 and res judicata, Anshun estoppel and abuse of process.
What costs are included in cl 18.02?
15 The remaining dispute is whether the costs in cl 18.02 extend to costs on a solicitor and client basis or are restricted to costs on a party and party basis. Patten DCJ noted the decision of Brownie J, on 4 September 1992 (Sandtara Pty Limited v Abigroup Limited), relying on the statement in Halsbury's Laws of England that ordinarily an indemnifier would be liable for the full costs as between solicitor and a client.
16 It is the submission made on behalf of the appellant that the non-specific provision for 'all costs and expenses' in cl 18.02 means, absent plain reference to some other basis for assessment, the payment of party and party costs. The appellant points to cll 3.04 and 3.09, which specifically utilise the phrase 'solicitor and client' costs, as indicating that cl 18.02 does not import such a notion when the words are not used.
17 Ultimately, it is a matter of construing the words of the indemnity in cl 18.02. It seems to me that the language of the indemnity, in particular its reference to all costs and expenses, is to costs on a solicitor/client basis. The statement in Halsbury, quoted by Brownie J, and the authorities there cited, support this proposition (see Barnett v Eccles Corporation [1900] 2 QB 423 at 428; Born v Turner [1900] 2 Ch 211; and Great Western Railway Co v Fisher [1905] 1 Ch 316).
18 Expressio unius principles should not be applied since the context of the clauses relied on by the appellant (cll 3.04 and 3.09) are quite different from the indemnification clause.
19 Accordingly, it is my opinion that the appellant fails in all of its arguments and the appeal should be dismissed.
The Cross-Appeal
20 The respondent submits that his Honour erred in refusing it interest at the rate prescribed by cl 3.03 of the lease (2% per month).
21 By reason of cl 3.09 the tenant, Cenrin, became liable on demand to pay to Sandtara all of its costs and expenses incurred in relation to, or in consequence of, any breach of covenant by it. However, no formal demand was ever made by the respondent on Cenrin. In respect of this, Sandtara says that it did not make a demand because such a course was obviated when the liquidator disclaimed the lease. Making the demand, accordingly, became otiose. Another way in which the argument was put was that the disclaimer amounted to a repudiation, thus the giving of a notice to the tenant may be a futility in any practical sense. It was said that the disclaimer of the lease was tantamount to a waiver of the need for the landlord to serve a demand. Accordingly, the condition precedent of the giving of the notice became dispensed with.
22 Counsel for the respondent accepts that there is no direct authority for the proposition put to the court, but argues that it is self-evident and akin to the principle discussed by Gibbs J in Mahoney v Lindsay (1981) 55 ALJR 118 at 119
23 I do not accept this submission. Clause 3.09 does not impose a positive obligation on the landlord to give the notice. However, it is clearly a condition precedent to a claim for interest under cl 3.03. There is an obvious purpose and use in the giving of the notice. The disclaimer of the lease by the liquidator does not obviate the requirement to serve a notice of demand on the tenant under the clause. Mahoney v Lindsay is not to the point. The act required (of the serving of the demand) is not a nugatory one. Just because a person is inherently unlikely to comply with a demand, which is a condition precedent to the further action, does not relieve the giver of the obligation the necessity to comply with that requirement. The requirement remains for the landlord to make the demand. Nor can I see any room for the doctrine of waiver to operate.
24 Accordingly, it is my view that his Honour was correct to reject the respondent's contention that it was unnecessary for it to serve a demand on the tenant. The cross-appeal should be dismissed.
Orders
25 I would propose that the appeal and cross-appeal both be dismissed with costs.
26 GILES JA: In my opinion the appeal and the cross-appeal should be dismissed with costs. I am generally content to adopt the reasons of Stein JA, but since Young CJ in Eq differs from his Honour in relation to interest I add the following on that matter.
27 There may be dispensation with performance of an act a party to a contract is obliged to perform under the contract, in which case that party does not have to perform the act. Sandtara was not obliged to make demand on Cenrin in this sense: demand was a condition precedent to recovery of costs and expenses, but Sandtara would not be in breach of contract if it failed to make demand.
28 There may be prevention of performance of a condition precedent to gaining or exercising a right, in which case the party who would otherwise have to fulfil the condition precedent can gain or exercise the right although the condition precedent has not been fulfilled. But Cenrin did not prevent Sandtara from making demand: neither the disclaimer nor anything else was shown to have had that consequence.
29 It remained that, in order to recover the costs and expenses, Sandtara had first to make demand on Cenrin. If Cenrin had told it that the demand would not be complied with, that would have been quite consistent with Cenrin also maintaining when sued that the necessary demand had not been made. The disclaimer did not rise any higher.
30 On this analysis, I respectfully disagree with Young CJ in Eq's conclusion that the disclaimer made it a nugatory act to make a demand on Cenrin, and join in Stein JA's conclusion that Sandtara is not entitled to recover the contractual interest.
31 YOUNG CJ in Eq: I agree with Stein JA that the appeal in this matter should be dismissed with costs. However, I consider that I should make some additional comments. For the reasons briefly given below, I would allow the cross appeal.