Heaps v Longman [2000] NSWSC 542 | Case summary

1 MASTER: This is the hearing of a notice of motion filed on 22 May 2000 in which the plaintiff seeks certain orders consequent upon a decision of His Honour Mr Justice Austin on a separate question which he determined under Part 31 on 2 November 1999. The notice of motion seeks orders for damages, interest and costs. Damages are now agreed by the parties in the sum of $21,444.24 and interest is agreed in the sum of $5,737.99. The remaining matter concerns the third claim in the notice of motion that the defendant pay the plaintiffs' costs on an indemnity basis or alternatively on such other basis as the court thinks fit. 2 The actual order for costs was made by His Honour when he ordered the defendant to pay the plaintiffs' costs of the determination of the separate question. The parties are agreed that His Honour had not determined the basis upon which those costs would be paid and it is appropriate that the matter now be determined. I note that as a result of the answer to the separate question and the agreement between the parties as to the amount of damages and interest there is no further utility in the proceedings continuing. 3 The principal proceedings concerned the construction of a rent review clause and the procedure to resolve a disagreement between valuers appointed to determine the further rent due under the lease. There was the appointment of an umpire who was required to make his decision within a certain time which he failed to do. This led to the question which was separately determined by His Honour. 4 The difference between the parties in the matter argued before me arises because the plaintiffs submits it is appropriate that costs be on an indemnity basis while the defendant submits it should be on a party and party basis. The basis for the claim is based upon the provisions of the lease itself and in particular clause 13.5 which provides as follows:- "The Lessee will pay all stamp duty (including penalties and fines other than penalties and fines due to the default of the Lessor) and all the Lessor's reasonable legal and other costs charges and expenses of and incidental to the preparation completion stamping and registration of this lease and any certified copy thereof required by the Lessor and of any consent required hereunder and of any subletting and of any surrender or termination of this Lease otherwise than by effluxion of time and in case of default by the Lessee in observing or performing any covenants of this Lease contained or implied the Lessee shall pay the Lessor all legal and other costs charges and expenses for which the Lessor shall become liable or which the Lessor shall suffer or incur in consequence of or in connection with such default." 5 The defendant placed reliance on the case of Re: Adelphi Hotel (Brighton) Ltd (1953) 2 All ER 498. The case concerned a bank issuing a writ to enforce its security. The question arose as to the basis upon which an order for costs should be made. His Honour Mr Justice Vaisey held that a mortgagee is entitled as against a mortgagor and against the mortgage property to his "full costs". But that expression meant ordinary party and party costs and not costs as between solicitor and client. His Honour excluded cases where there was some special bargain such as the terms of the relevant clause in the mortgage and he himself considered in that case whether or not the relevant mortgage had an effect on the basis on which costs would be paid. His Honour's conclusion was followed by Williams J in Jamieson v Gosigil Pty Ltd 1983 2 Qd R 117. His Honour Mr Justice Williams also referred to the decision of Street J in Re: A Solicitor's Bill of Costs; in re Shanahan & Anor (1941) 58 WN 132. Mr Justice Street in that case referred to the general rule being that only those costs are recoverable by a mortgagee which are properly payable on a party and party taxation. 6 In addition Adelphi's case has been followed by His Honour Mr Justice Hodgson as he then was in AGC (Advances) Limited v West and AGC (Advances) v Cranston & Ors (1986) 5 NSWLR 301. His Honour in that case was dealing with the rules as they existed in Part 52 at that time. At the present time the provisions of Part 52A which came into force in 1994 apply. The relevance of this is that the rules now provide for only two bases of taxation, namely, party and party and indemnity. 7 His Honour Mr Justice Hodgson's judgment is useful in that he deals with the different bases of assessment of costs under those rules as I have mentioned. Costs on a party and party basis are normally those that are "all such costs as were necessary or proper" in connection with the proceedings. The common fund basis which is a more generous basis extended to "a reasonable amount in respect of all costs reasonably incurred". He pointed out that the difference between this and solicitor and client or solicitor and own client basis is that costs may be allowed on the latter even though they are an unreasonable amount and even though they may have been unreasonably incurred if, in either case, this has happened with the approval of the client. 8 The parties have assumed that the principles to be derived from these cases should also apply in case of a lease and this is plainly correct. It is the effect upon the court rules of any contract between the parties "plainly and unambiguously expressed" which has to be considered. See ANZ Banking Group (NZ) Limited v Gibson (1986) 1 NZLR 556. 9 Under Part 52A Rule 32 costs are payable on a party and party basis unless the rules or an order provide that they are payable on an indemnity basis. A party and party basis is defined as the basis of costs assessment provided for in Part 11 Division 6 of the Legal Profession Act 1987. Sections 208F and 208G of that Act refer to the factors that a costs assessor must consider. 10 Part 52A Rule 37 provides as follows:- "37 Where, in any proceedings, costs are payable to a person by or under the rules or any order of the Court on an indemnity basis -

(b) otherwise all costs incurred by that person shall be allowed except to the extent that it appears that they are of an unreasonable amount or have been unreasonably incurred." 11 The second of these provisions which applies to the instant case would seem to be somewhat closer to what was costs on a common fund basis under the old rules. In any event it seems that an indemnity basis is likely to allow recovery of a higher sum than under a party and party basis as one starts from a basis that all costs incurred are allowed. 12 The fundamental question in the present case is whether clause 13.5 which I have set above is sufficient to displace the general principle which is referred to in the cases I have quoted above. The plaintiffs relied upon a number of factors which are evident from the clause 13.5. Broadly they are that there are three different subject matters. The second of them included all the lessors reasonable legal and other costs whereas the third referred to "all legal and other costs charges and expenses". 13 In the AGC case His Honour Mr Justice Hodgson did not displace the general rule when he dealt with clause 24A which purported to extend recovery to "all costs, charges, expenses and payments which may be incurred or made by the mortgagee…". He did, however, when dealing with clause 11 which stated that "all such legal costs shall be assessed on a solicitor and client basis without any necessity of taxation" come to the view that that allowed an assessment essentially on a common fund basis. 14 In Gomba Holdings UK Ltd & Ors v Minories Finance Ltd & Ors (1993) Ch 171 the usual rule was displaced because of the fact that the definition of costs included "all costs charge and expenses howsoever incurred by the bank or any receiver and/or in relation to this mortgage…on a full indemnity basis …". 15 Such references do not appear, of course, in the clause under consideration. 16 The clause with which His Honour Mr Justice Vaisey was concerned in Adelphi's case was "all costs charges and expenses incurred or paid by it in relation to the negotiation for and preparation, completion realisation and enforcement of the security". 17 His Honour refused to construe those words as giving a measure of indemnity to change the basis of the recovery from a party and party basis. 18 The clause His Honour Mr Justice Williams had to deal with in Jamieson's case was to this effect. "(iii) All costs charges and expenses which the Grantee may from time to time incur sustain or be put to in or about the exercise or enforcement or attempted exercise or enforcement of any of the powers rights or remedies of the Grantee hereunder and/or by reason of any default in the payment of any moneys hereby secured or in the performance or observance of any of the obligations on the part of the Grantor to be performed or observed herein contained or implied or otherwise on behalf or on account of the Grantor in respect of the premises or the security or incidental thereto…" (vi) And Also on demand the costs and expenses of the Grantee of and/or incidental to the preparation execution stamping and registration of this security and/or of any renewal of the registration thereof …." 19 His Honour Mr Justice Williams thought that this provision went no further than that considered by Vaisey J but was not as wide as that considered by Street J. In the circumstances he held that the clauses did not amount to an agreement between the parties that the mortgagees were entitled to recover the costs and expenses taxed on a solicitor and own client basis. 20 It is important to look at the nature of the clause referred to in Re: Shanahan & Anor because that is one where there was not an express definition of the costs including either a solicitor and client basis or an indemnity basis. The clause in Shanahan's case was as follows:- "Sixthly, that in addition to all costs and expenses which the mortgagor may be liable at law or in equity to pay in respect of this security or otherwise in relation thereto, the mortgagor will upon demand pay all costs and expenses incurred by the mortgagee in consequence or on account of any default on the part of the mortgagor hereunder or incurred by the mortgagee for the preservation of or in any manner in reference to this security, all of which costs and expenses shall, from the time of payment or expenditure thereof respectively until repaid to the mortgagee by the mortgagor be deemed principal moneys covered by this security, and shall carry interest accordingly." 21 As His Honour Mr Justice Street observed that the terms of that clause were of the widest possible nature and imposed upon the mortgagor an obligation to pay something in addition to those costs and expenses which they would be liable at law or in equity to pay. In the circumstances His Honour construed the clause to include any costs on a solicitor and own client basis. 22 With the benefit of these considerations in mind if one returns to clause 13.5 one finds that there are, as the plaintiff points out, three separate subject matters dealt with in the clause. In each case the subject matter is different. The first one refers to stamp duty, the second to costs of the preparation of the lease and the third to costs in connection with a default. Effectively in relation to default one only has a statement in general terms as appears in the third part of the clause. That part of the clause is little different from the one in Adelphi and very similar to that which was considered by His Honour Justice Williams in Jamiesons case. 23 I do not find it helpful to rely upon the use of the word "reasonable" in the second part of clause 13.5 in contrast to the word "all" in the third part of the clause. At the time the mortgage was executed there were at least three different bases on which costs could be ordered. In the present litigation considering that an order was made after 1 July 1994 there are only two possible bases. It will be seen from s 208F (1) and (2) that party and party costs now include an assessment of reasonableness in respect of the incurring and amount of the costs. The emphasis has changed from the former touchstone of "necessary or proper" costs. In these circumstances it seems appropriate that one should confine attention to that part of clause 13.5 which deals with the relevant costs, namely, the third part of the clause. Having regard to the clauses considered in the other cases to which I have referred I am not satisfied that the clause changes the normal basis which under the present rules is party and party costs. 24 Accordingly, I am of the view that the costs ordered to be paid under His Honour's order of 2 November 1999 are to be on a party and party basis. It is thus not necessary to deal with the question of whether the costs are suffered or incurred in consequence of or in connection with default under the lease. The parties can bring in short minutes to give effect to these reasons and any other outstanding matters.

Heaps v Longman

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