Aged Care Services v Macedonian Aged Care

Judgment - (ex tempore - revised 7 june 2012) 1HIS HONOUR: The essential question for resolution in these proceedings was who, of two mortgagees, had priority in circumstances where the mortgaged property was of insufficient value to support the claims of both. I resolved that question in principle in favour of the cross-claimant (Kanning) and against the first cross-defendant (ACS). See [2012] NSWSC 531. I stood the matter over to enable the parties to bring in orders. One of the reasons for doing so was that when I gave judgment on 4 April 2012, I was informed that there was a contract for sale of the mortgaged property that might proceed to completion. Obviously enough, had that happened, orders for sale would not have been necessary. 2That sale did not proceed to completion. I have been informed that the deposit of five per cent, $46,000, has been forfeited. 3Kanning now proposes orders that include judgment in its favour for the amount to which I held it was entitled, interest on that judgment sum and other matters that are not (at least in the light of my earlier reasons) now contentious. The draft orders also provide for judicial sale, or more accurately sale under the control of the Court, with Kanning to be the selling party. Sale under the direction of the Court would be necessary because Kanning's mortgage is unregistered. If ACS were to have conduct of the sale, the Court's supervision would not be necessary, except to ensure that the proceed were applied in accordance with the relevant priorities, because the mortgage held by ACS is registered. 4A difficulty arises because it seems that although the sale procured by ACS has collapsed, there is another buyer who is willing to buy the property on similar terms save that it will pay a deposit of ten per cent rather than five per cent of the purchase price. Since the proposed sale price of $920,000 is well and truly supported by the valuation and other evidence on which Kanning relies, there is much to be said for creating a situation to enable that sale to be effected and completed. If that happened the expense of marketing the property would not be incurred; nor would ACS be in a position to complain that any hypothetical sale effected by Kanning as mortgagee was at an under-value, or otherwise disregarded the interests of ACS. 5Mr Blackburn-Hart SC, for Kanning, submitted, correctly, that his client had by far the greater interest in the proceeds of sale. He submitted, again correctly, that that would ordinarily be taken to indicate that his client should have the conduct of the sale. However, in my view, the latter proposition, although correct at a level of generality or principle, should give way in the particular circumstances with which the Court is faced. 6For the reasons that I have given, I think it appropriate to offer ACS some limited time to see if it can exchange contracts on the terms indicated; and if it can then it should be given further time to enable that sale to proceed to completion. 7Those objectives can be accommodated by making the orders sought by Kanning, but by staying them (so far as necessary) in the first instance for fourteen days on conditions and thereafter, if contracts for sale are exchanged, staying them further until completion of that sale. 8There is a dispute as to costs. Kanning submits it is entitled to have its costs in this and related proceedings, on the basis that they are costs incurred by it in its capacity as equitable mortgagee for the purposes of defending its secured interest. Further, it submits, those costs should be secured under the mortgage, and thus charged against the property and against the proceeds of any sale. In my view that submission is correct at the level of principle. 9The issue in these proceedings was who had priority. On the view to which I came, Kanning succeeded on that issue. Thus, it incurred costs in defending its position as a secured creditor. It is clear, and supported by authority, that in those circumstances it should have its costs, and that those costs should be charged on the security. Those costs would include any costs incurred in realising the security. In general, once the question of priority has been determined, the order of payment of costs follows the order of priority which has been determined. The application of those principles in this case supports the position for which Kanning contends. 10Further, in my view, that position applies even though there is no formal mortgage document and thus no express costs provision on which Kanning can rely. As to this, see the decision of Hodgson JA (with whom Handley and Stein JJA agreed) in Overton Investments Pty Limited v Cuzeno [2003] NSWCA 27 at 61. 11I do not understand it to have been in dispute that, so far, the orders sought by Kanning should be made; but if I am wrong, and if ACS did contest the making of those orders, then for the reasons I have given they should be made in any event. 12In relation to the costs in associated proceedings, it is necessary to give some attention the nature of those proceedings. They were proceedings taken by Kanning first to obtain an order permitting it to lodge a further caveat (that order was needed under s 74O of the Real Property Act 1900 (NSW) for reasons indicated in my earlier judgment) and, secondly, to maintain that caveat in the face of a lapsing notice. Each of those proceedings involved not only Kanning but also the proprietor of the mortgaged land - MACAL. MACAL wished to contend that it had not agreed to pay the disputed sum to Kanning and that it had not charged the subject land with payment of that sum. For reasons which I gave on 4 April 2012 I did not accept those contentions of MACAL. Nonetheless, it follows that the costs incurred by Kanning in those proceedings against MACAL were incurred by it for the purposes of defending and preserving its security. Accordingly, on the ordinary principles to which I have referred, those costs should be regarded as costs charged against the mortgaged land and recoverable from the proceeds of sale to the extent those proceeds go so far. 13Kanning seeks further, an order that the various costs incurred by it be assessed on the indemnity basis. That is so, both in respect of costs payable by ACS and in respect of costs payable by MACAL. There are several bases assigned for that submission. First, Kanning submits that the relevant conduct of ACS and MACAL was unreasonable. It relies on the way in which ACS and MACAL entered into the consent orders of 3 June 2011 and 21 June 2011 that I considered in my earlier reasons. It is clear, in my view, that those orders were procured to be made, by consent, without notice to Kanning, in an attempt to shut it out. I concluded in my earlier reasons that it was open to infer that the orders were thus not procured in good faith. See at [90] of those reasons. 14The question is whether that conduct, which was effectively the trigger for the prosecution of the cross-claim, is sufficiently "relevantly delinquent" (to paraphrase Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 at 89 [44]) to justify an order for costs to be assessed on the indemnity basis. 15In my view, that conduct does exhibit the relevant degree of delinquency. In my view, it amounted to a deliberate attempt to misuse the processes of the Court for commercial advantage. I do not understand how any reasonable litigant in the position of ACS or MACAL could have thought it appropriate to seek to procure the consent orders in question in circumstances where, each knowing that Kanning claimed an interest in the subject property, Kanning was not offered any opportunity to be heard on the making of those orders. Nor can I conceive that, had the Court been advised of Kanning's claim in June 2011, it would have made the orders without requiring that Kanning be given an opportunity to be heard. In my view, this is a clear and conspicuous case of delinquency. Further, it is relevant delinquency because it was the making of those orders, and the reliance placed on them by ACS, that led to the agitation of the cross-claim. 16For that reason, I am satisfied that this is an appropriate case to order that Kanning's costs be assessed on the indemnity basis. To make any lesser order would be in effect to leave Kanning at the risk of being out-of-pocket by reason of what, in my view, is egregiously delinquent conduct on the part of both ACS and MACAL. Although the jurisdiction to order costs on indemnity basis is not punitive (see, again, Gaudron and Gummow JJ in Oshlack at the paragraph cited above), nonetheless the Court should not be loath to ensure that those who suffer from abuse of its processes, through no fault of their own, should be compensated in costs so far as that is possible. 17In those circumstances, it is unnecessary to refer in detail to the alternative basis on which indemnity costs were sought: namely, a "Calderbank" letter of 11 November 2011. It is sufficient to say that, if that were the only basis, I would not be inclined to order indemnity costs. The offer was conditional. It did not involve MACAL. And the condition on which it was premised did not come to pass. 18The only other matters that were the subject of contention have been resolved, one way or another, in the course of argument. It is accordingly not necessary to deal with them. 19For those reasons, I give judgment and make orders in accordance with paragraphs 1 to 15, 17 and 18 as amended of the form of order initialled by me and dated today's date. I stay orders 8, 9, and 14 for fourteen days to permit the first cross-defendant to enter into a contract for sale of the subject property on the basis that: (1) The purchase price is to be not less than $920,000; (2) There is to be a full deposit of ten per cent payable on exchange of contracts; (3) The time limited for completion is to be forty-two days from the date of exchange; (4) The proceeds of sale (including so much of the deposit as may be accounted to the vendor) are to be paid into a controlled moneys account in the names of the solicitors for the cross-claimant and the first cross-defendant. If any such contract be exchanged, then I extend the stay until the completion of that contract or until the further order of the Court, on condition that on completion of any such sale the balance held in the controlled monies account is to be applied in accordance with orders 10 and 13 made today.