Commonwealth Bank of Australia v Aspenview Productions Pty Ltd and Ors [2001] VSC 499

Supreme Court of Victoria|2001-12-12|Before: McDonald J

Costs: Proceedings by bank to enforce mortgage and guarantee; each instrument containing a term as to costs and expenses incurred to be paid including solicitor client costs; no policy reason why order for costs should not be made reflecting agreements; costs against unsuccessful parties ordered as between solicitor and client.

In Proceeding No. 8085 of 1993 and Proceeding No. 6398 of 1994 I delivered my judgment on 5 December 2001. On that day I reserved until 10 December 2001 all questions as to costs. On that day I heard submissions on behalf of all parties as to costs.

On behalf of plaintiff, in Proceeding 8085 of 1993 application was made that it be ordered that the defendants, Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean, pay the plaintiff's costs of the proceedings, including reserved costs, and that such costs be taxed as between solicitor and client. In Proceeding 6398 of 1994 application was made on behalf of plaintiff that it be ordered that the defendants, Alexander McLean and Lana McLean, pay the plaintiff's costs of the proceedings, including reserved costs, and that such costs be taxed as between solicitor and client.

On behalf of those defendants in those proceedings counsel said that although his clients could not, in the circumstances, resist an order for costs in those proceedings, he submitted that such costs should be ordered to be taxed as between party and party and not as between solicitor and client.

Application was made on behalf of Krystyna Masluk in each proceeding for an order that the plaintiff pay her costs. This application was resisted on behalf of the plaintiff in each proceeding, it being submitted that as between the plaintiff and Krystyna Masluk in each proceeding no order should be made as to costs.

In seeking an order that the plaintiff's costs against Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean in proceeding number 8085 of 1993, and against Alexander McLean and Lana McLean in proceeding 6398 of 1994 be taxed as between solicitor and client, counsel for the plaintiff sought to rely on the terms of the mortgage and guarantee the subject of such proceedings.

It was submitted that the overriding factor that the court should take into account in the exercise of its discretion as to costs in Proceeding 8085 of 1993 was the terms of mortgage entered into by Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean with the plaintiff dated 10 December 1986, which secured payment to the plaintiff of the debts of Aspenview Productions Pty Ltd to it and, in particular, clause 14 of that instrument. Clause 14 provides:

"The Bank may from time to time without further authority than this mortgage debit and charge the account of the Debtor or the Mortgagor with all costs charges and expenses legal or otherwise (including premiums for insurance solicitor and client as well as party and party costs and other moneys paid or payable to the Bank or any attorney of Mortgagor) which the Bank shall pay incur sustain or be put to in connection with the account of the Debtor or Mortgagor or the mortgaged premises or this mortgage or the preparation or completion or release thereof or the exercise or attempted exercise of any right power authority discretion or remedy conferred on the Bank or on the attorney of the Mortgagor under or by virtue of this mortgage or by statute together with interest on all such moneys at the rate or if more than one the highest of the rates aforesaid and the same shall be covered by this mortgage and be portion of the moneys hereby secured"

With respect to Proceeding 6398 of 1994 a like submission was made on behalf of the plaintiff, it being submitted that in the exercise of its discretion the court should take into account as the overriding factor not only the provisions of clause 14 of the mortgage but also clause 3 of the guarantee dated 2 November 1989, pursuant to which instruments the plaintiff recovered judgment against each of Alexander McLean and Lana McLean.

"The Bank may from time to time without further authority than this Guarantee debit and charge the account of the Debtor with all costs charges and expenses legal or otherwise (including solicitor and client as well as party-and-party costs and other moneys paid or payable by the Bank) which the Bank shall pay incur sustain or be put to in connection with the account of the Debtor or this Guarantee or the preparation or completion or release thereof or the exercise or attempted exercise of any right power authority discretion or remedy conferred on the Bank under or by virtue of this Guarantee or by statute together with interest on all such moneys at the rate or if more than one the highest of the rates aforesaid and the same shall be covered by this Guarantee and be portion of the moneys hereby secured"

In resisting the application made on behalf of the plaintiff counsel for Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean submitted, in substance, that pursuant to s.24 of the Supreme Court Act 1986 all questions as to costs of proceedings were solely within the discretion of the court, and it was not competent for the parties, by agreement, to effect or to seek to abrogate that power and discretion of the court. Accordingly, it was submitted, that in exercise of its discretion as to costs the court should not have regard to the aforesaid provisions of the mortgage and guarantee. It was not an issue that in the Proceeding No. 8085 of 1993 the plaintiff successfully relied on the aforesaid mortgage against Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean, and in Proceeding No. 6398 of 1994 the plaintiff successfully relied on the provision of the mortgage and guarantee against Alexander McLean and Lana McLean.

In addition to the provisions of these instruments, in seeking an order that the costs of the plaintiff against Aspenview Productions Pty Ltd and Alexander McLean and Lana McLean be taxed not as between solicitor and client, counsel for the plaintiff sought to rely on a number of letters which passed between the solicitors for Alexander and Lana McLean and the solicitor for the plaintiff.

In a letter from the solicitors acting for Alexander and Lana McLean, dated 17 May 1999, an offer was made to pay "$164,000 in full and final settlement of your client's claims". In response to that letter the solicitor for the plaintiff wrote a letter to the solicitors acting for Alexander McLean and Lana McLean, dated 21 May 1999. That letter was marked "Without Prejudice". By this letter the plaintiff's solicitor rejected the offer and confirmed a "previous offer" made in settlement of the action which was stated to be:

"1 My client will take possession of Unit 1 or be paid the cash equivalent of a sworn market valuation; 2 My client relinquishes its claim to Unit 2; 3 Each party to the proceeding (including Mrs Masluk) bear their own costs;

4 Mutual releases; 5 A default provision which would come into operation if possession of Unit 1 was not relinquished or payment made to my client by a particular date with that provision to involve my client obtaining an order for possession of both Units and the amount then and there owing on the Aspenview and Whiteboards accounts; 6 Confidentiality; 7 Time to be of the essence"

This offer was clearly not accepted as the actions proceeded to trial.

On behalf of the plaintiff it was submitted that the court should have regard to this correspondence as supporting that which was said to be the contractual obligation of the defendants, Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean, as to costs, as by them not accepting such offer and proceeding to trial the plaintiff recovered judgment against them no less favourable to it than the terms of the offer. It was not contended on behalf of the plaintiff that the offer made on its behalf by letter dated 21 May 1999 was made pursuant to or in accordance with O.26 of the General Civil Procedure Rules of the Court; nor was it sought to rely on R.26.08(b) of the Rules.

On behalf of the defendants, Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean, it was in substance submitted that the court should not have regard to these letters on the question of costs as they could not deal with the interest that Krystyna Masluk claimed that she had in Unit 2 of the property at 1 Alfred Street, Prahran. It was submitted that, to the extent that the offer of the plaintiff did involve the disposition or otherwise of Unit 2, the plaintiffs sought to use that matter to put some pressure on the defendants to settle the actions.

As to the submissions made on behalf of the plaintiff that there should be no order as to costs in the proceedings between it and Krystyna Masluk, the letters dated 17 May 1999 and 21 May 1999 were relied on. It was submitted that it should be concluded that the offer made by letter 17 May 1999, although made by the solicitors for Alexander and Lana McLean, was an offer made not only on their behalf but also on behalf of Krystyna Masluk. It was further submitted that the counter-offer made on behalf of the plaintiff by the letter dated 21 May 1999 should be seen and accepted as an offer made not only to Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean, but also to Krystyna Masluk. It was submitted that at trial she succeeded no more favourably than the offer made to her, and that in consequence no order should be made as to the costs in the proceedings between the plaintiff and Krystyna Masluk.

On behalf of Krystyna Masluk it was submitted that she should have her costs of each proceeding against the plaintiff. It was submitted on her behalf that the offer made by the letter dated 21 May 1999 was outside the capacity of her to accept, as she could not control the disposition of Unit 1 or the offer made to Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean. It was submitted that, by its terms, Krystyna Masluk could not accept the offer, and that no regard should be had to this offer of the plaintiff.

The power of the court to make an order for costs of the nature now sought in these proceedings is vested in the court by s.24(1) of the Supreme Court Act 1986. By that statutory provision, the court has vested in it a wide discretion as to costs. That discretion must be exercised judicially.

It is generally the settled practice that a successful party should receive his or her costs of the proceedings, and that special circumstances should exist for the court, in exercise of its discretion as to costs, to not award a successful party his or her costs - Donald Campbell & Co Ltd v. Pollock [1927] A.C. 732, Viscount Cave, L.C. at 809; Berbette Pty Ltd v. Hanna [1976] VicRp 35; [1976] V.R. 385 at 388; D. Phillips Construction (Vic) Pty Ltd v. R.F. Mullavey [1980] VicRp 21; [1980] V.R. 171.

It is the usual practice of the court to order costs to be paid to a successful party on a party and party basis. That this is the practice is also to be seen from R.63.31.

However, in these proceedings it is contended on behalf of the plaintiff that in the exercise of the court's discretion it should have regard to the contractual terms of the mortgage and guarantee that I have referred to, and that in taking into account those provisions this plaintiff should have its costs against Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean on a solicitor and client basis.

In Citibank Savings Ltd v. Nicholson & Ors (1998) A&NZ C.R. 442, Williams, J. (with whose judgment Cox and Mulligan, JJ. agreed) at p.444 said: -

"In proceedings between mortgagee and mortgagor upon the mortgage, the terms of any costs order in favour of a successful mortgagee should ordinarily reflect the terms of any special bargain contained in the mortgage contract. However, the mortgagee will be limited to party and party costs unless the mortgage contract plainly and unambiguously provides for taxation on some other basis".

"...there will be special occasions where policy considerations may call in question the enforceability of a particular contractual provision".

In Rumball v. Mortimore [2000] WASC 126: 16 May 2000 (unreported) Owen, J. at paragraph 15 of his judgment said:

"The Court has a broad discretion over the basis upon which it orders the costs of an action. However, where the parties to an action are also parties to a contract which contains plain and unambiguous provisions allowing for costs to be paid on a certain basis, the Court should ordinarily exercise its discretion in a manner consistent with the contractual provisions."

In ANZ Banking Group (New Zealand) Ltd v. Gibson [1986] 1 NZLR 556 Richardson, J. at p.566 said:

"The undertaking of the guarantee for payment of costs of enforcement on a solicitor/client basis is in my view an extending provision intended to entitle the Bank to indemnity with respect to legal expenses properly incurred by it in relation to a recovery action under the guarantee. Clearly that contractual obligation is enforceable unless contrary to public policy and I am unable to see how this contractual arrangement could be said to impede the administration of justice or otherwise be contrary to any discernible public policy considerations. To put the point affirmatively, why should a lender be out of pocket as a result of a failure to pay when the parties have expressly provided that they should be indemnified in the event of default by the other"

In my view in these proceedings in which the plaintiff has successfully relied on and enforced the provisions of the mortgage to which it was a party and also a guarantee to which it was a party. When making an order for costs against the unsuccessful defendants who were parties to those agreements, the court in exercise of its discretion may make an order as to costs which reflects any agreement as to costs entered into between the plaintiff and such defendants unless for policy reasons the order to be made should not have regard to such agreements.

Clause 14 of the mortgage entitles the plaintiff to debit and charge against the account of Aspenview Productions Pty Ltd and that of Alexander McLean and Lana McLean solicitor/client costs payable incurred or sustained by it in exercising its right power and authority under and by virtue of the mortgage.

In my view no policy reason exists why the order for costs sought by the plaintiff against Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean in Proceeding 8085 of 1993 should not take account of such agreement and by its nature and terms reflect such agreement.

The provisions of clause 3 in the guarantee are in like terms to the provisions of clause 14 in the mortgage. In proceeding 6398 of 1994, the plaintiff successfully enforced against Alexander McLean and Lana McLean the provisions of the mortgage and the guarantee to which it was a party.

There exists no policy reason why the order sought by the plaintiff against Alexander McLean and Lana McLean should not take account of and reflect the mortgage entered into by it with Alexander McLean and Lana McLean and the guarantee entered into by Alexander McLean with it.

Neither the mortgage nor guarantee bind the court as to the manner in which it should exercise its discretion when determining whether the costs to be paid by Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean should be as between solicitor and client or otherwise. However, in determining the issue as to whether such costs should be ordered to be paid as between party and party or solicitor and client it is appropriate to take into account the aforesaid terms of the mortgage and guarantee.

In my view the letters sought to be relied on by counsel for the plaintiff are not able to advance the plaintiff's claim that it should have its costs against Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean as between solicitor and client. The offer made by the letter dated 21 May 1999 was an offer to the defendants, Alexander McLean and Lana McLean. By its terms it included the interests of another party to the proceeding, Krystyna Masluk. The offer was not able to be accepted by Alexander McLean and Lana McLean to conclude the plaintiff's actions against the defendants. They could not bind Krystyna Masluk to any agreement in settlement of the action with the plaintiff. Accordingly, I have no regard to the fact that Alexander McLean and Lana McLean did not accept this offer, when determining the present issue as to costs.

Having regard to the provisions of clause 14 of the mortgage and clause 3 of the guarantee (the terms of which were also enforceable against Lana McLean by reason of the terms of the mortgage) as I now set out in these reasons for judgment, I have concluded that in making an order for costs in Proceeding 8085 of 1993 against Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean, the order should reflect the provisions of clause 14 of the mortgage.

In such proceedings it is ordered that Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean pay the plaintiff's costs of the proceedings, including reserved costs, as between solicitor and client.

Again, in Proceeding 6398 of 1994, I have concluded that the order for costs against Alexander McLean and Lana McLean should take into account and reflect the provisions of clause 14 of the mortgage and clause 3 of the guarantee. In such proceedings it is ordered that Alexander McLean and Lana McLean pay the plaintiff's costs of the proceedings, including reserved costs, as between solicitor and client.

I turn to consider the applications for costs made on behalf of Krystyna Masluk. The offer made on behalf of the plaintiff as contained in the letter of 21 May 1999 was made, it appears, to the then solicitor for Alexander McLean and Lana McLean. On that basis alone it was not an offer made to Krystyna Masluk. But assuming for the purpose of the exercise that, in part, the offer was made to her, I accept the submissions made on her behalf that she had no capacity to bind the others to the respective proceedings and, accordingly, such offer insofar as it related to her could not be accepted. The offer of the plaintiff to "relinquish its claim to Unit 2" directly related to the claim that she made in both proceedings relevant to that claim. The offer as to that unit was not made in isolation, but as part of an overall offer which was also made to the other defendants in the aforesaid actions.

As Krystyna Masluk had no capacity to accept the offer made by letter dated 21 May 1999, the offer cannot be used as a basis for the submissions made on behalf of the plaintiff that her non-acceptance should be had regard to on the question of her application for costs.

Krystyna Masluk was successful in each action and the plaintiff failed in its claim in each action against her. There is no reason why her costs should not follow the event. There are no circumstances or matters which in the exercise of my discretion as to costs, would warrant an order being made for costs other than as between party and party.

In Proceedings 8085 of 1993 and 6398 of 1994 it is ordered that the plaintiff pay the costs of the defendant, Krystyna Masluk, including reserved costs, as between party and party.

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