Plaintiff v Defendants

Supreme Court of Victoria|2008-03-27|Before: WHELAN J

Banking and Financial Institutions - Banker and Customer - Recovery of legal costs under securities - Account taken by Master- Appeal - Right of appeal to a Judge from Master's order under order 78 - Master did not err by not precluding recovery of costs of earlier proceeding until costs had been taxed pursuant to order made by judge

1 Litigation between these parties in this Court has been extensive. Most of that litigation has been in proceeding number 6093 of 2003, which I will refer to as the "earlier proceeding". Doctor Boman Irani and persons associated with him were plaintiffs in that proceeding. Certain issues were decided against the plaintiffs in that proceeding by Byrne J in August 2004 and the balance of the issues raised were, in substance, decided against them by me in October 2005.

2 In the earlier proceeding the plaintiff, St George Bank Limited, which I will refer to as "the bank", was the defendant. It had a counterclaim in which it sought declarations as to its entitlements under various securities. It succeeded on its counterclaim and it obtained certain declarations.

3 For reasons which I gave on 26 October 2005,[3] I refused a late application by the bank to amend its counterclaim so as to claim a money sum. I made an order for costs in favour of the bank on the ordinary party/party basis. No claim was made in that proceeding for recovery of costs on any other basis relying upon contractual provisions.

4 The bank then issued this proceeding to recover the outstanding amount of its debt and also to recover legal costs which it alleged were owed to it under indemnity provisions in the various security documents. Justice Dodds-Streeton gave summary judgment on liability in this proceeding in May 2006.[4] I then heard the quantum issues and on 3 October 2007 I made orders including an order under Order 52 of the Rules for the taking of an account by a Master.[5] On 10 December 2007 Master Daly determined the amount owing. The defendants now appeal the order she made in relation to that determination.

5 The appeal came on before me in the Practice Court on 18 March 2008. Two issues were raised on the hearing of the appeal. They were:

(1) Whether there is a right of appeal to a Judge from an order such as Master Daly's order under Order 78 of the Rules.

(2) Whether the Master erred in the order she made in that she ought to have precluded recovery of the costs of the earlier proceeding until those costs had been taxed pursuant to the order which I had made in 2005.

6 Counsel for the bank submitted that there was no entitlement to appeal to a Judge from the order of Master Daly and that any appeal would need to made to the Court of Appeal. The bank submitted that Order 78 did not apply to the circumstances here. It submitted that the relevant order referring the matter to the Master was an order made under Order 52 and not under Order 78.

7 Counsel for the defendants submitted that what had occurred here fell squarely within the express terms of Order 78 and in particular, Rules 78.02, 78.07 and 78.08. Rule 78.08 provides that Rule 77.05 shall apply to an order made under Rule 78.07. Rule 77.05 provides, amongst other things, that any person affected by an order of a Master may appeal to a Judge and that the appeal shall be by rehearing de novo.

8 I was told by counsel that there are no relevant authorities on the operation of Order 78.

9 It is correct that the order I made for the taking of an account was made under Order 52, but in my view both Order 52 and Order 78 apply, as was submitted by counsel for the defendants. I accept the submission of counsel for the defendants that what has occurred falls squarely within the relevant rules of Order 78. My conclusion is that there is a right of appeal under Rule 77.05 pursuant to Rule 78.08.

10 The substantive matter relied upon by the defendants in the appeal was an argument not relied on before Master Daly. As the appeal is a hearing de novo and as the defendants did not seek to rely upon any new material, nothing turns on that. Written outlines of submissions were exchanged before the appeal was heard and the bank's counsel had notice of the matter sought to be argued.

11 In substance, the point now raised is as follows. The defendants submit that the bank, having obtained an order for party/party costs in the earlier proceeding, cannot proceed to recover under its contractual entitlement until the process of taxation of costs pursuant to Order 63 under the order made has been completed and until interest in accordance with s.101 of the Supreme Court Act (1986) ("the Act") has been calculated.

12 Counsel for both parties submitted that the applicable principles are set out in Gomba Holdings Ltd v Minories Finance.[6] Lord Justice Scott, speaking on behalf of the Court of Appeal, said:

"In our opinion, the following principles emerge from the cases and dicta to which I have referred:

(i) an order for the payment of costs of proceedings by one party to another party is always a discretionary order [reference was made to the relevant statutory provision which for present purposes is equivalent to section 24(1) of the Act].

(ii) where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that contractual right.

(iii) the power of the court to disallow a mortgagee's costs sought to be added to the mortgage security is a power that does not derive from [the statutory provision] but from the power of courts of equity to fix the terms on which redemption will be allowed.

(iv) a decision by a court to refuse costs, in whole or in part, to a mortgage litigant may be a decision in the exercise of the [statutory] discretion or a decision in the exercise of the power to fix the terms on which redemption will be allowed or a decision as to the extent of a mortgagee's contractual right to add his costs to the security or a combination of two or more of these things. The pleadings in the case and the submissions made to the judge may indicate which of the decisions to which we have referred has been made.

(v) a mortgagee is not, in our judgment, to be deprived of a contractual or equitable right to add costs to the security merely by reason of an order for payment of costs made without reference to the mortgagee's contractual or equitable rights and without any adjudication as to whether or not the mortgagee should be deprived of those costs."

13 Counsel for the defendants also cited and relied upon the application of these principles by the New South Wales Court of Appeal in Abigroup Limited v Sandtora Holdings Pty Ltd.[7]

14 The defendants' written submission, after setting out the passage I have quoted from Gomba and after referring to Abigroup and other authorities, continued:

"The defendants accept that the costs orders made in proceeding 6093 on the usual party/party basis do not preclude a subsequent claim for indemnity costs based on a contractual provision save in cases where the court has for some substantive legal reason and after argument refused to make a claimed order for indemnity costs pursuant to such a provision."

15 In this case it is clear that the contractual entitlement was not in any relevant sense adjudicated upon when the party/party costs order was made. Thus, this is not a situation where the circumstances in which the costs order was made relevantly affects the contractual entitlement and it was not suggested by the defendants that it was.

16 What the defendants say is that the contractual entitlement to recover costs of the earlier proceeding, in which the party/party order was made, must be deferred until after taxation because otherwise the right to insist upon a taxation in Rule 63.53 and the restrictions upon the recovery of interest in s.101 of the Act would be effectively rendered nugatory.

17 The effect of these provisions in the circumstances is, according to the defendant's written submission, as follows:

"In this proceeding [the bank is] only entitled to the following legal costs of [the earlier proceeding].

(i) the amount of the taxed costs which were ordered to be paid by the defendants as and from the date of taxation of those costs.

(ii) interest on those taxed costs as and from the date they were taxed.

(iii) a contractual right to be indemnified against any other and additional legal costs and expenses incurred by them in relation to [the earlier proceeding] with interest calculated as and from the date those legal costs and expenses were incurred and

(iv) these calculations cannot be made unless and until the party/party costs of the plaintiff have been taxed by the Taxing Master."[8]

"(1) Where a party who is entitled to be paid costs and to have the cost taxed under this Part, does not apply to have the cost taxed within 30 days after service on that party of a request in writing to do so by a party liable for the costs, the Taxing Master-

(a) may order the party entitled to file and serve a summons under Rule 63.38 and

(2) Where a party in respect of whom an order is made under paragraph (1) fails to comply with the order the Taxing Master may-

(a) disallow the costs of the party or allow a nominal or other sum for costs

(b) order that party to pay the costs of any other party."

19 Rule 63.38 provides for the filing of a summons to have costs taxed.

"(1) Every judgment debt carries interest at the rate for the time being fixed under section 2 of the Penalty Interest Rates Act (1983) from the time the judgment or order was given or, in the case of costs which are assessable by the Taxing Master, from the date of the order of the Taxing Master stating the result of the assessment or such other date as the Court orders."

21 I note at this point that I was told during the course of argument in the appeal that the defendants had made a request in writing under Rule 63.53 and then issued a summons seeking an order that the taxing master require the bank to tax its costs. I was told that this summons came on for hearing after Master Daly had made the orders which are now the subject of the appeal and that the taxing master had dismissed the summons on the basis that there was no point in requiring a taxation given Master Daly's orders.

23 The contractual entitlement, in circumstances such as those arising here, stands apart from the entitlement under the costs order. There is no reason why the bank cannot proceed to recover on its contractual entitlement without taking any step to tax the costs or to recover costs under the order or to recover any interest which might otherwise be due under s.101 of the Act. There is no inconsistency between this conclusion and the provisions of Rule 63.53 and s.101 of the Act as the respective rights are separate. Rule 63.53 and s.101 regulate entitlements under the costs order. The plaintiff has a separate entitlement which, in this case, has in no sense been affected by the order. No issue of the need to accommodate the contractual entitlement to Rule 63.53 and s.101 arises.

24 The incorrectness of the defendant's submission is made clear in the portion of their written submission which I have quoted above where a sequence of recovery steps is set out under which it is said that the bank must first recover under the order, must then calculate interest under the Act, and only then, according to the written submission, will it have "a contractual right to be indemnified against any other and additional legal costs and expenses."

25 The error in this approach is that the contractual right is not a right to be indemnified against "any other and additional" legal costs and expenses. The contractual right is a right to be indemnified against all legal costs and expenses covered by the relevant provision. It is not confined to legal expenses additional to those recoverable under the order.

27 First, the taxing master was correct in my view to take the course that he did as the costs of pursuing a party/party taxation would, in the circumstances here, have been unnecessary. In this respect I refer to Gomba at page 195.

28 Second, in the course of the appeal I heard argument in relation to a decision of the Full Court of the Supreme Court of Western Australia in Rayner v ANZ Bank.[9] In that case an argument having superficial similarity to the argument put by the defendants here was rejected. I accept the submission of the defendants' counsel that in Rayner the parties liable for costs were unrepresented and the matters raised in this appeal were not argued. I accept that to that extent the assistance to be gained from the decision in Rayner is limited. Nevertheless, in my view the analysis in Rayner is consistent with the analysis in Gomba and Abigroup and the provisions relied upon before me, s.101 of the Act and Rule 63.53, do not relevantly alter that analysis.

29 Third, no issue was raised in this appeal concerning respects in which it might be said that the decision in Abigroup differs from that in Gomba. The argument before me proceeded on the basis that the principles in Gomba, as applied in Abigroup, were applicable.

31 Mr Bailey on behalf of the bank seeks costs on solicitor/own client basis of the appeal. That is the cost order that was made by Master Daly on the taking of the account. Solicitor/own client means the indemnity basis provided for in Rule 63.28(c) and Rule 63.30.1.

32 Mr Leonidas, the solicitor for the defendants, makes two points in relation to that. First, he says that the defendants were successful on one point that was argued on the appeal and that that should be reflected in the costs order. Secondly, he says that whatever order is made the costs will be covered under the relevant contractual indemnity in any event.

33 In my view, applying the principles in Gomba, this is now a situation where the discretion to be exercised in relation to costs should reflect the contractual right. I am concerned that otherwise the litigation may become even more protracted. I think the approach of Master Daly in ordering costs on a solicitor/own client basis was correct.

34 Whilst it is true that the defendants were successful on the issue of whether there is a right of appeal, the point was arguable and it was a legal point upon which there was no relevant authority. It did not involve any additional costs, or such additional costs as it did involve were very minor. It seems to me that the appropriate thing is to order that the defendants pay the bank's costs of the appeal on the same basis as Master Daly. I make that order.

[6] [1993] Ch 171, 194 ("Gomba")

[7] [2002] NSWCA 45 ("Abigroup")

[8] In quoting the defendants' written submission, I have in places interpolated expressions different from the expressions used in their document so as to render the submission consistent with the terminology I have used in these reasons.

At a glance

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Judgment (60 paragraphs)

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