16 The principal difference between the Third Plaintiff and the First Defendant is therefore the basis for assessing on an indemnity basis (widest or narrower basis) and whether the relevant accounts as already rendered should suffice for consideration by the referee or need to be prepared as for a formal assessment of costs.
17 There is no difference between the parties as to the nature of the Court's discretion, which is now an inherent jurisdiction to quantify costs which are recoverable having regard to the relevant provisions of the Supreme Court Rules and the Supreme Court Act. Thus s76 of the Supreme Court Act empowers the Courts to deal with costs, whilst Pt 52A r32 relates to costs on a party and party basis, r37 relates to costs on an indemnity basis, r38 relates to the directing of costs for assessment in an account and r42 relates to the entitlement of the mortgagee to costs out of the mortgaged property.
18 Those rules give the Court a discretion within these parameters in relation to litigation costs in proceedings between the mortgagor and a mortgagee.
19 The First Defendant places particular emphasis on the proposition that where there is a contractual right to recover costs and expenses, the discretion of the Court should ordinarily be exercised so as to reflect that contractual right: see Re Shanahan (1941) 58 WN 132 at 134, AGC (Advances) Limited v West (1986) 5 NSWLR 301, Elders Trustee and Executor Co Limited v Eaglestar Nominees Limited (1986) 4 BPR 9205, Sandtara Pty Limited v Australian European Finance Corporation Limited (1990) 20 NSWLR 82 and Gomba Holdings UK Limited v Minories Finance Limited (No. 2) [1993] Ch 171.
20 In resolving these contentions, I should start by noting that the description of the costs actually incurred in Annexure "E" is of varying specificity. In some cases, there is a statement of the hours and the work; see, for example, the account at page 12 dated 24 February 1998. Generally that degree of detail is provided in the other accounts. However, some accounts such as, for example, the smaller account of 9 February 1995 while itemising what was done in general terms as with the other accounts, does not state the number of hours and thus does not allow any calculation of hours or hourly rate; see, for example, the account of 13 October 1997 appearing at page 5.
21 Sometimes, disbursements are set out relating, for example, to counsel's fees with some particularity; see the account of 10 February 1998 at page 9. Elsewhere, it is not clear why counsel's fees were incurred; see, for example, the account of 24 February 1998 at page 12.
22 In approaching the matter, I consider that broadly speaking a mortgagee with a contractual entitlement to be reimbursed "on a full indemnity basis", but where the mortgage does not enable the mortgagee to create a prima facie position as to the costs involved by a certificate, the proper approach is this. First, the context of the reference to "on a full indemnity basis" does not justify the highest and most generous basis of including "all costs incurred ….. except to the extent that it appears that they were incurred in breach of the person's duty in that capacity". Rather, the enquiry should be, as with indemnity costs generally, that all costs, charges and expenses save those which were unreasonably incurred or were of an unreasonable amount should be recoverable, provided that they were incurred by the mortgagee and paid. "Unreasonably incurred" would also include improper incurrence.
23 That leads to the question, how far should the mortgagee be required to go in substantiating that such costs were not in that sense unreasonably incurred or of an unreasonable amount. In my view, it would be unreasonable to require the mortgagee to provide the full degree of detail required on an assessment of costs. On the other hand, the degree of substantiation provided by the First Defendant falls somewhat short of what I would consider minimally necessary.
24 In the case of the legal costs and disbursements, in those cases where the number of hours and the hourly rate cannot be calculated, that should be provided. In any other case where the First Defendant has failed to provide sufficient particularity for the nature of the work to be at least generally appreciated, that deficiency should be rectified. But it should be for the Third Plaintiff, preferably co-operatively with the First Defendant, to identify those cases. Indeed I would strongly urge that both parties approach the matter in a co-operative spirit.
25 Furthermore, the First Defendant should be required to produce to an agreed referee or, failing agreement, a Court appointed one, with experience in assessment of bills, the relevant files and any costs agreements, with such additional specificity to the bills as I have earlier required, with the Third Plaintiff identifying which bills it challenges.
26 The referee can then in economic fashion be required in relation to those bills challenged to form a broad assessment as to whether in the referee's opinion it would appear that any of the challenged bills were unreasonably incurred or were of an unreasonable amount and similarly with the disbursements. In those cases, the referee should by way of broad appraisal or assessment only, indicate the overall adjustments that should be made to the bill so that it satisfies the indemnity basis of taxation, doing so as a matter of broad impression rather than with absolute precision. Otherwise the costs of the process will be uneconomic, relative to the amounts involved.
27 It will be apparent from the approach that I have set out, that I do not consider it appropriate for the referee to perform the task of appraising the bills with the degree of precision and devotion of time as would apply to a formal assessment. I do so, because in a case of a mortgagee seeking to recover costs under the mortgage provisions that I have quoted, such an approach would add unnecessarily to costs and is to neither party's advantage.
28 Finally, as to the costs of assessment, I consider that these are best dealt with when the referee returns his report as then it will be possible to gauge the extent to which the costs were in fact unreasonable. However, taking a broad brush approach, ordinarily I would expect that the mortgagee would be entitled to recover the costs of the referee's assessment, unless it should emerge that the costs were as a whole excessive, in which case the matter may need further consideration. Such an approach is not out of line with that taken in the somewhat different circumstances of Project Research Pty Ltd v Permanent Trustee of Australia Ltd (Hodgson J, 14 December 1990 in Butterworths Property Services (1990) 5 BPR 11,225). Hodgson J held that where a mortgagor reasonably anticipates proceedings in the nature of accounts, the mortgagee is entitled to anticipate costs of such proceedings out of the security. If a mortgagee bona fide and on reasonable grounds provides a discharge figure to the mortgagor which the mortgagor proposes to pay under protest, it is open to the mortgagee to require, in addition to the stipulated payment, a reasonable sum to cover the costs of foreshadowed litigation.