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[2018] VSC 427
General information, not legal advice.
Supreme Court of Victoria
2018-08-03
Digby J
Original judgment source is linked above.
CONTRACTS - Interpretation of deed of assignment - Interpretation of a commercial instrument - Whether drafting errors prevail over commercial purpose.
CONTRACTS - Remedies - Contractual interest - Non-merger clause - Whether contractual interest recoverable after judgment - Whether contractual interest displaces statutory interest.
COSTS - Interpretation of costs agreement - Default position of party-party costs - Award of solicitor-client costs - Whether plain and unambiguous language required for recovery of costs beyond standard party-party costs.
MORTGAGES - Enforcement costs - Third party claim - Whether litigating the costs of mortgage recovery related issues is a secured cost.
Joint and Several Trustees of the Bankrupt Estate of Dr Nicholas William Sevdalis (a Bankrupt).
Receivers of Native Bond Pty Ltd (Receivers and Managers Appointed) (In Liquidation)
Liquidator of Native Bond Pty Ltd (Receivers and Managers Appointed) (In Liquidation)
NB Services (Australia) Pty Ltd (Receivers Appointed)
1 On 31 January 2018, Panorama Investments Pty Ltd (Panorama), the plaintiff in the First Mortgagee Proceeding (S CI 2017 4334) and the Possession Proceeding (S CI 2017 3283) and the defendant in the Down Town Proceeding (S CI 2017 3990), paid the sum of $3,708,785.95 (the Settlement Proceeds) into the Supreme Court of Victoria's Funds in Court. This payment was made pursuant to paragraph [2] of the Orders of Elliott J dated 24 January 2018 in the Possession Proceeding. The Settlement Proceeds represent the surplus from the sale of the land located at 895 Yan Yean Road, Doreen, Victoria.
2 The purpose of this judgment is to determine the proper distribution of the Settlement Proceeds as between a number of competing claimant parties, insofar as can be done at this point.
3 Dr Nicholas Sevdalis (Sevdalis) was a medical practitioner turned property developer. His property development enterprise was conducted through a number of related entities including Native Bond Pty Ltd (Native Bond), Summit Tower Pty Ltd (Summit Tower) and N Sevdalis Pty Ltd (Sevdalis Co). These companies are collectively referred to as the Sevdalis Entities. Sevdalis' relevant business activities ran into severe difficulties. He and his companies defaulted on numerous secured and unsecured loans. This resulted in the underlying and current litigation.
4 Sevdalis filed for bankruptcy on 23 December 2016. Each of the Sevdalis Entities has since gone into some form of external administration.
5 Sevdalis secured the finance for his business pursuits utilising the following parcels of land (the subject land) as security:
6 On 2 March 2017, after a good deal of litigation in what has been referred to as the Debt Proceeding (S CI 2015 4426), judgment was entered on a loan agreement in favour of Panorama against Summit Tower and Native Bond for $3,027,431.80, plus costs on an indemnity basis.[2]
7 On 8 December 2017, Elliot J made orders in the three abovementioned proceedings directing the sale of the subject land in relation to which Sevdalis and the Sevdalis Entities were registered proprietors. That sale was settled on 31 January 2018.
8 Some of Sevdalis' creditors have been paid from the proceeds of the above sale. The Settlement Proceeds sum which remains has been paid into Funds in Court pending determination of the following eleven questions. These questions are referred to in Elliot J's Order of 22 February 2018 as the following 'Agreed List of Issues':[3]
(a) the sum of $1,250,000 referred to in paragraph [9] of the Bochrinis affidavit;
(b) the sum of $280,000 (or any other sum) in respect of the categories of expenses referred to in paragraph [7] of the Bochrinis affidavit;
(c) the sum of $120,000 (or any other sum) referred to in paragraph [11] of the Bochrinis affidavit;
(d) costs and interest and, if so, in what amount?
(a) Recoverable by Panorama pursuant to its registered mortgage:
(i) Only to the extent to which they constitute reasonable enforcement expenses within the meaning of clause 39.1 of the memorandum of common provisions.
(ii) Or, is Panorama entitled to the payment of those legal costs and expenses:
(b) Or payable pursuant to any other written costs agreement and, if so, which costs agreement.
(c) Or payable on any other basis and, if so, what basis?
9 The key and more determinative of these questions were argued at this trial of these proceedings.[4]
10 There are five sets of claimants who participated in this litigation, although not all ultimately took part at trial.[5]
(a) Panorama
On 17 January 2013, Panorama entered into a loan agreement with Summit Tower (the Loan Agreement) under which Panorama advanced $2.424 million (the Loan).[6] The Loan was secured over, inter alia, the subject land.[7] The Loan was also guaranteed personally by Sevdalis;[8] and by Native Bond[9] pursuant to two separate Deeds of Guarantee each dated 21 January 2013.
Panorama sued Summit Tower, Sevdalis and Native Bond after those borrowers defaulted on the above Loan in proceeding S CI 2015 4426 (the Debt Proceeding). The defendants counterclaimed to set aside the Loan Agreement for contravention of the National Credit Code and on the basis of unconscionable conduct. In turn, Panorama brought a third party claim against its former solicitors, McKinnon Jacobs Horton & Irving Pty Ltd, which prepared, and advised on the Loan Agreement.
As earlier mentioned, on 2 March 2017, judgment was entered for Panorama in the Debt Proceeding against Summit Tower, Sevdalis and Native Bond for $3,027,431.80, plus costs on an indemnity basis.[10] The defendants' counterclaim was struck out.[11] The third party claim was discontinued and Panorama was ordered to pay costs to its former solicitors in relation to the third party claim.[12]
Questions 2, 3, 4 and 5 in this proceeding concern the extent to which Panorama can recover, including in respect of interest and enforcement and legal costs, from the Settlement Proceeds.
(b) Gulf Country Investments Pty Ltd (Gulf Country)
On 23 November 2011, Gulf Country advanced $1,221,518.10 million to the Sevdalis Entities.[13] That loan was secured by fixed and floating charges over Native Bond's assets.[14] On 28 May 2014, Gulf Country appointed Receivers to Native Bond in respect of these charges.[15] In a separate proceeding, the validity of this appointment was confirmed by Efthim AsJ,[16] and on appeal by Judd J.[17] At the present trial, Counsel for the Receivers represented the interests of Gulf Country.
(c) Down Town Visuals Pty Ltd (Down Town)
On 21 March 2013, by Deed of Assignment, Gulf Country assigned rights under its own loan agreement with the Sevdalis Entities to Down Town.[18] The extent to which that assignment included rights to interest on the Gulf Loan is disputed and requires determination. If the assignment did not include the full amount of interest, Down Town has foreshadowed that it may in the future seek rectification of the Deed of Assignment. The affected parties have agreed to defer the contingent issue of rectification until after judgment on the central questions in these proceedings.[19]
(d) NB Services Pty Ltd (NB Services) and its former controlling Director and Interest Holder Mr Nicholas Bochrinis (Bochrinis)
On 21 July 2017, NB Services (through Bochrinis) entered into a Deed of Assignment with Bendigo & Adelaide Bank for the first registered mortgage held over, inter alia, the subject land.[20] It would seem that NB Services claims an entitlement to the Settlement Proceeds on this basis. However, as explained below, no submissions were made in support of this claim, with NB Services and Bochrinis both refusing to participate in the trial of the Agreed Issues.
(e) Champion Investment Group Pty Ltd (Champion Investment)
Champion Investment has lodged a caveat recording an interest in the subject land arising under a contract for the sale of land dated 21 November 2016.[21] As detailed above, the subject land has since been sold. In its Amended Counterclaim dated 23 March 2018, Champion Investment now asserts an interest in the Settlement Proceeds on the bases of estoppel and 'unjust enrichment'.[22]
11 The following parties were excused from attendance at the outset of the trial:
(a) The Liquidator for Native Bond
The solicitors for the Liquidator of Native Bond noted there were no available funds to enable their participation in the trial. In addition, the solicitors for the Liquidator indicated they were retained only in the immediate lead-up to the trial. The Liquidator informed the Court that he was not in a position to fully participate at trial for these reasons. The Liquidator did not move for an adjournment of the trial. In the circumstances, the Liquidator requested that the Court note the interest of the Liquidator as a potential 'residuary beneficiary' and excuse the Liquidator from further participation in the trial.[23]
(b) The Trustees in Bankruptcy for Sevdalis
The solicitor for the Trustees in Bankruptcy for Sevdalis neither consented to nor opposed the relief sought in the Agreed Issues. To the extent that part of the Settlement Proceeds remained after determination of the Agreed Issues, or the Court considered that the Trustees' solicitor should participate in the interests of justice, the Trustees indicated their preparedness to assist the Court if and when it is appropriate.[24]
12 In light of the parties' above positions and submissions at trial, this Judgment does not address certain of the above questions.
(a) Question 1 concerns NB Services' claim to the Settlement Proceeds.
NB Services was required to file and serve affidavit material and submissions in support of this claim by 9 March 2018.[25] No materials or submissions in support of NB Services' claim were filed or served by NB Services, or Bochrinis, by 9 March 2018 or indeed by the commencement of the trial.
Instead, on 9 April 2018, the day of commencement of this trial, NB Services and Bochrinis made an application to adjourn the trial indefinitely. Counsel for NB Services, Mr Guzzo, drew the Court's attention to the fact that the previous solicitor for NB Services had withdrawn from the record and that his instructor had been retained for the trial just five days earlier. Counsel for NB Services submitted that both he and his new instructors were, in the result, deprived of sufficient time to prepare the required materials earlier ordered and to prepare generally. NB Services and Bochrinis also argued that these circumstances were exacerbated by the allegation that the mortgage documents were forged and the fact that Victoria Police held certain documentary evidence necessary to substantiate the forgery allegation. In support of NB Services' reasons for not filing materials as ordered by the Court, and it not being in a position to proceed at trial, NB Services and Bochrinis also referred to Bochrinis' motor vehicle recently being firebombed and asserted that Bochrinis was suffering from depression and anxiety.[26]
On 9 April 2018, I rejected the NB Services and Bochrinis adjournment application.[32]
No substantive submissions were made in respect of NB Services' claim to the Settlement Proceeds or any of Bochrinis or Champion Investment's claims.[35]
The Receivers and Managers of NB Services have also indicated that their claim to the Settlement Proceeds is limited to costs.[36]
(b) Question 5 concerns the costs recoverable in light of Question 3. During oral submissions, Question 5 was deferred pending determination of the scope and proper basis for assessment of Panorama's legal costs.[37]
In light of my decision on Question 3, I now propose to refer Question 5 to the Costs Court for determination. This course was foreshadowed by Elliott J in his Orders made 24 January 2018.
(c) Question 7 does not arise because Down Town does not have a charge.[38] In Native Bond Pty Ltd (controller apptd) v Cant,[39] Efthim AsJ found that the Deed of Assignment did not effect a transfer of Gulf Country's charge to Down Town.[40] This finding was upheld on appeal to Judd J.[41]
Although Down Town indicated that it may seek rectification of the Deed of Assignment at a later stage, principally dependent upon the outcome in this judgment in relation to the effect of the Deed of Assignment in respect of the claim to interest under the Loan Agreement dated 23 November 2011 between Gulf Country and Sevdalis and two of the Sevdalis Entities, Down Town did not challenge this finding in its written or oral submissions.
(d) Question 8 was not prosecuted. At trial an appearance for Champion Investment was entered by Mr Morry Blumenthal, Solicitor.[42] However, Champion Investment did not otherwise participate in the trial by legal representation or otherwise. Mr Blumenthal did not seek to be involved in the hearing of the trial and was not present at trial after about the time of the ex tempore dismissal of NB Services' and Bochrinis' adjournment application on 9 April 2018.
(e) Question 9 concerns the amount Native Bond is entitled to be paid from the Settlement Proceeds. In substance, this entitlement is determined by the findings made in relation to Question 6, being the extent of the assignment of the Loan Agreement effected by the Deed of Assignment dated 21 March 2013.
(f) Question 10 concerns the priority for the entitlements of Down Town, Champion Investment and Native Bond to the Settlement Proceeds. I have deferred this question to be argued, if necessary, after findings are made in this judgment as to Down Town, Native Bond and Champion Investment's primary entitlements, if any.[43]
(g) Question 11 concerns the legal costs of the parties that should be paid from the Settlement Proceeds. This question is likely to be informed by the outcome of other above questions and should be deferred to be addressed, if necessary, after the primary finding in this judgment.
In oral submissions Mr Magowan, Counsel for Panorama, sought interest on costs from the date of their payment or alternatively, from another date ordered by the Court such as the date of judgment.[44] However, because this submission was not foreshadowed to other relevant parties, including parties which by the time this submission was put by Mr Magowan had been excused, I deferred this Question pending judgment on the primary questions so that in due course any interested party may address these issues on proper notice.[45]
13 The second question is whether the borrowers' liability for interest to be paid to Panorama from the Settlement Proceeds is for interest calculated on a 'contractual' basis under the Loan Agreement or on a 'statutory' basis.
14 Panorama claims 'contractual' interest pursuant to the Loan Agreement. While accepting the prima facie position that interest runs from the date of judgment pursuant to the Supreme Court Act 1986,[46] which applies the Penalty Interest Rates Act 1983,[47] Panorama submits it has an enduring contractual interest obligation under the Loan Agreement. That enduring contractual interest obligation is said to be preserved under Sevdalis' contract of guarantee.[48] The upshot, on Panorama's submission, is that the obligations in the Loan Agreement owed to it have not fully merged in the judgment.[49]
15 The guarantee provides in relevant part:[50]
2.1 Obligations Guaranteed
The Guarantor unconditionally Guarantees to the Beneficiary:
(a) the due and punctual payment by the Borrower of:
(i) all moneys due and payable from time to time or to become due and payable from time to time, to the Beneficiary by the Borrower pursuant to or in connection with the Agreement; and
(ii) all other moneys which the Borrower either alone, jointly, severally, or jointly and severally with any other person, now or from time to time is or becomes actually or contingently liable to pay to the Beneficiary pursuant to or in connection with the Agreement; and
(b) the due and punctual observance and performance by the Borrower of all its other liabilities, obligations and agreements (whether monetary or non-monetary, present or future, actual or contingent) to the Beneficiary pursuant to or in connection with the Agreement.
2.2 Result of non-payment
If the Borrower defaults in the due and punctual payment of any money referred to in clause 2.1(a) the Guarantor must pay that money to, or as directed by, the Beneficiary, immediately on demand.
...
3.3 Preservation of Guarantor's Obligations
The Guarantor's Obligations are absolute, unconditional and irrevocable. The liability of the Guarantor under this Guarantee extends to, and is not affected by an act or omission which, but for clause 3.3, might otherwise affect it at law, or in equity, including:
...
(e) any judgment or right which the Beneficiary may have or exercise against the Borrower, the Guarantor, or any other person...
16 Panorama submits the language of cl 3.3, in particular the words 'absolute, unconditional and irrevocable', reflect an enduring agreement between the relevant borrower and Panorama preserving Panorama's entitlement to contractual interest which has not merged in the 2 March 2017 judgment in the Debt Proceeding.
17 Down Town rejects Panorama's entitlement to contractual interest following judgment. It submits neither the Sevdalis Guarantee nor the Loan Agreement so operate in the present case. [51]
18 Down Town points out that Sevdalis' obligations under his Deed of Guarantee are 'defined in turn by reference to the Borrower's obligations under the Loan Agreement with Panorama'.[52] Down Town submits that the operation of cl 3, and in particular cl 3.3(e) of the Sevdalis Guarantee, is limited to and by the 'guarantor's obligations'. Specifically, the 'guarantor's obligations' are defined by the borrower's obligations under its Loan Agreement with Panorama. Accordingly, Down Town submits that, once it is accepted that the borrowers' contractual interest obligations have merged in the judgment, there can no longer be a contractual interest obligation of the kind claimed by Panorama by reference to the Sevdalis Guarantee. Following judgment, no contractual right to interest is 'due and payable' by the borrower. There is nothing to which the Sevdalis Guarantee can attach. This, Down Town argues, precludes finding that the guarantor's obligations can survive and separately endure after judgment against the borrower. Down Town also submits that the function of cl 3.3(e) is to maintain the guarantor's obligations in case judgment against the borrower is obtained but not satisfied.[53]
19 The Receivers of Native Bond made submissions to a similar effect of Down Town.[54] In oral submissions, Mr Moller, Counsel for the Receivers, pointed out that it is 'not unusual' for a Loan Agreement to contain a non-merger clause.[55] Here, he submitted, there is no non-merger clause and nothing in the Loan Agreement to detract from the general rule the contractual right to interest merges with judgment on the Loan Agreement.[56]
20 In addition to relying on the merger of obligations between Summit Tower and Panorama, the Receivers of Native Bond also submitted that Panorama's asserted claims against Native Bond have likewise merged in the judgment in Panorama's favour and that Panorama cannot now seek to obtain interest at a higher contractual rate than what is available pursuant to the Penalty Interest Rates Act 1983. The Receivers emphasise that there is no stipulation in the Sevdalis Guarantee, or pursuant to any relevant order of the Court, providing a basis for Panorama to recover non-statutory interest from the Settlement Proceeds.
21 Ordinarily, contractual interest obligations merge in a judgment on the loan under which such interest would otherwise continue to be payable.[57] It may arise, however, that a borrower continues to be liable for contractual interest post-judgment. The default position referred to can be displaced by the terms of the loan agreement or an independent covenant requiring payment of such interest.[58] The relevant principle was stated in Re Sneyd; ex parte Fewings:[59]
The first question is simply one of construction. When there is a covenant for the payment of a principal sum, and a judgment has been obtained upon the covenant for that sum, it is plain that the covenant is merged in the judgment, and, if there is a covenant to pay interest which is merely incidental to the covenant to pay the principal debt, that covenant also is merged in a judgment on the covenant to pay the principal debt. Of course a covenant to pay interest may be so expressed as not to merge in a judgment for the principal; for instance, if it was a covenant to pay interest so long as any part of the principal should remain due either on the covenant or on a judgment.[60]
22 In relation to its judgment of 2 March 2017, Panorama accepts that pursuant to s 101(1) of the Supreme Court Act 1986, the maximum amount of interest which can be claimed against Summit Tower (as borrower) and Native Bond (and other guarantors) is as provided by the Penalty Interest Rates Act 1983.
23 However, as outlined above, Panorama asserts an entitlement to contractual interest in accordance with the Loan Agreement, on the basis that the Sevdalis Guarantee in respect of the relevant Loan endures unaffected by the judgment or s 101 of the Supreme Court Act 1986. Panorama points out that no judgment was entered against Sevdalis as guarantor on the relevant Loan on account of his bankruptcy.
24 In my view, all relevant obligations of Summit Tower as borrower from Panorama under the Loan Agreement have merged in the Panorama judgment of 2 March 2017 against the borrower. This appears to be accepted, in substance, by Panorama in its written submissions.[61] That judgment was not entered against Sevdalis as guarantor does not alter this position. This is because the relevant guarantor's obligations are defined by reference to Summit Tower's obligations under the Loan Agreement.
25 Clause 2.1 of the Deed of Guarantee circumscribes the guarantor's obligations by reference to the obligations of the Borrower (Summit Tower), as those arising from time to time pursuant to on in connection with the Loan Agreement between Panorama and Summit Tower dated 17 January 2013. This is the ordinary meaning cls 2.1(a), (b) and (c) of the Deed of Guarantee, the provisions of which repeat the phrases 'due and payable' and 'pursuant to or in connection with the Agreement', being the Loan Agreement.
26 Clause 3.3(e) of the Deed of Guarantee is in terms consistent with the scheme of the Deed of Guarantee, namely that the obligations of a guarantor under the Deed of Guarantee are defined and confined by reference to the borrower's obligations under the Loan Agreement.
27 Clause 1.1(c) of the Deed of Guarantee further reinforces that the guarantee is in respect of the borrowers' obligations defined in cl 2.1 of the Deed of Guarantee. The obligations of the guarantor are thereby limited to being pursuant to, or in connection with, moneys due and payable to Panorama by Summit Tower under the Loan Agreement.
28 Clause 3.3(e) of the Deed of Guarantee is not expressed in language which conveys any intention by the parties to that Deed to modify or qualify the terms and effect of cl 2.1 of the Deed of Guarantee. Put another way, cl 3.3(e) does not limit or extend the scope of the borrower's obligations which are guaranteed. The scope of those borrowers' obligations is as earlier outlined.
29 Further, there is no language in the Guarantee, or the underlying Loan Agreement, reflecting an intention that the borrower's obligation to pay interest will not merge with a judgment on the subject Loan Agreement. Contractual terms to achieve this outcome are not uncommon. No such terms have been included in either the Deed of Guarantee or the Loan Agreement. Instead, the borrower's obligations to pay interest under the Loan Agreement is incidental to the covenant by the borrower to pay the principal debt. This is reflected by terms of to the Loan Agreement, including clauses cl 1(a), (b), (c) and (e), and Items 1, 2, 3 and 4 and of the Schedule.
30 For these reasons, Panorama has failed to establish that it is entitled to recover 'contractual interest' in accordance with the Loan Agreement and/or in some other way pursuant to or as a result of the operation of the Deed of Guarantee, against the Settlement Proceeds, including as against that part of the Settlement Proceeds referrable to the sale of Sevdalis' title.[62]
31 For the above reasons, I reject Panorama's claim that it is entitled to be paid a sum from the Settlement Proceeds calculated by reference to the amount of the judgment debt, at 2 March 2017, together with interest calculated by reference to the Default Mortgage rate under the Loan Agreement.
32 The third question concerns the appropriate basis for the assessment of Panorama's costs and expenses arising from the enforcement of its registered mortgage on the alternative bases set out in Question 3 above. Panorama does not press sub-questions (3)(b) and (3)(c).[63]
33 Panorama's written submissions focused on Panorama's right as mortgagee to recover costs in a redemption proceeding.[64] That right was never at issue. The extant question is the appropriate basis for the assessment of Panorama's costs.
34 There are three bases contended for in relation to the assessment of such costs and expenses, namely:[65]
(a) 'any and all legal costs' under cl 4(c) of the Loan Agreement;
(b) 'reasonable enforcement expenses' under cl 39.1 of the Memorandum of Common Provisions; or
(c) 'on an indemnity basis', insofar as the costs related to the Debt Proceeding, pursuant to the Orders made 2 March 2017.
35 In his submissions, Mr Magowan directed the Court to a number of authorities which construed individual costs agreements. He accepted that the starting point under a costs agreement is for 'party-party costs' which, his submissions recognised, will ordinarily only be displaced where the parties specify an alternative basis for assessment.[66]
36 Mr Magowan submitted that the phrase 'any and all' costs used in cl 4(c) of the Loan Agreement reflected the parties' intention that costs be assessed on an indemnity basis.[67] The substance of Panorama's submission in this regard is that a relevant agreement to 'any and all' costs supports a more expansive basis for costs assessment notwithstanding the absence of plain and unambiguous language nominating recovery on an indemnity, or some other special basis.
37 Down Town submits in respect of each basis of assessment that:
(a) Properly construed, the expression 'any and all legal costs' in cl 4(c) of the Loan Agreement identifies the scope of the costs payable but is silent on the basis for assessment.[68] Courts will only depart from a party-party basis if there is 'plain and unambiguous' language in the Loan Agreement demonstrating the parties nominated a special basis;[69]
(b) While a clause similar to 'reasonable enforcement expenses' under cl 39.1 of the Memorandum of Common Provisions has sustained an award of solicitor-client costs, covenant 3 of the mortgage in issue provides that the terms of the Loan Agreement as to costs will prevail.[70] This position is acknowledged by Panorama in its written outline;[71]
(c) Indemnity costs ordered on 2 March 2017 attached a personal liability in respect of Native Bond alone. That cost liability has not been 'added' to the amount secured under the mortgage. In any event, there is no evidence which provides a sufficient basis for the Court to segregate Settlement Proceeds exclusively representing Native Bond's former title.[72]
39 In Chen v Kevin McNamara & Son Pty Ltd ('Chen'),[75] to which Counsel referred, Redlich JA of the Victorian Court of Appeal held:
An agreement to pay costs as an agreement to pay costs on a party and party basis, unless it is plain from its terms that costs are to be paid on a 'special basis'. Where the terms plainly and unambiguously provide for costs to be assessed on some special basis, the court will take such a provision into account but it is not bound to give effect to any extra-curial contract as to costs.[76]
40 That approach is consistent with the remarks of Vickery J in Taree Pty Ltd v Bob Jane Corporation:[77]
It is well established that a mortgagee may rely upon its contractual entitlement to costs so as to claim an order other than on a party/party basis...the prima facie rule was that costs were awarded on a party/party basis unless some alternative basis was shown 'either on some well-recognised principle, or under some contract plainly and unambiguously expressed'...even where a contractual term for the payment of costs on a basis other than the usual party and party basis exists and is expressed in plain and unambiguous language, the Court continues to have a discretion in relation to making orders for the payment of such costs.[78]
41 In Chen, Redlich JA found that the clause in question, requiring the payment of 'any costs and fees incurred by the Contractor in enforcing or further securing its rights', contained no language that signified that the costs contemplated were solicitor client or indemnity costs.[79] That alone was not dispositive. His Honour went on to observe:
...the search for like cases illuminated the fact that even very similar terms have sometimes been construed quite differently and these different constructions cannot be reconciled on the basis that the decisions were discretionary. That said, contractual terms which have been considered in other cases are of some assistance, as there are recurring features of those contractual terms which have been construed as reflecting an intention by the contracting parties that the costs extended to solicitor/client or indemnity costs and those which have been construed as manifesting no such intention.[80]
42 However, there are authorities which indicate a different position may obtain in the specific context of a mortgage agreement. Panorama referred to the decision of Street J in Re Shanahan.[81] In that case, Street J held that a mortgagor was obliged to pay all costs of the mortgage assessed on a 'solicitor-client basis'. The contractual entitlement to costs in that case provided:
...that in addition to all costs and expenses which the mortgagor may be liable at law or inequity 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 any matter in reference to this security, all of which costs and expenses shall, from the time of the 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.[82]
43 Street J held that the terms of this clause were 'sufficiently wide to cover any costs falling within their terms occasioned to the mortgagees, whether or not the actual possibility of these specific costs was present to the minds of the parties or not'.[83] His Honour reached the conclusion that costs were to be assessed on a solicitor-client basis principally due to the generality of the terms of the costs agreement.[84]
44 Counsel for Panorama also referred to the decision of Croft J in Whild v GE Mortgage Solutions.[85] In that case, his Honour also interpreted an agreement to costs as permitting the recovery of reasonable enforcement costs on a solicitor-client basis. The relevant clause provided:
6.6 When we ask, you must pay us the reasonable expenses we reasonable [sic] incur in enforcing the mortgage after you are in default (including in preserving and maintaining the property - such as by paying insurance, rates and taxes for the property). This applies to expenses we incur before or after taking action under 6.4.[86]
45 Croft J framed the enquiry in the following terms:
...the Court is required to determine whether costs are to be awarded on the usual basis, or whether there is a basis upon which costs can be ordered on a solicitor and client basis, having regard to clauses 6.4 and 6.6 of the MCP, and the Court's general discretion as to costs.[87]
46 His Honour went on to observe that the adoption of a 'reasonableness' criterion in the clause was consistent with r 63.30 of the Supreme Court (General Civil Procedure Rules) 2005.[88] That Rule provided (at the relevant time) for the taxation of costs on a solicitor-client basis.[89] Perhaps due to similarities between the language of former r 63.30 and the costs agreement his Honour found that the costs agreement was 'clearly intended to enable a mortgagee to recover all reasonable costs and expenses incurred in relation to the enforcement of the mortgage', which 'permits the recovery of costs on a higher basis than a party-party basis', and that pursuant to the costs agreement, the mortgagee was entitled to solicitor-client costs.[90]
47 Mr Magowan observed, and I accept, that there is difficulty in reconciling the authorities.[91]
48 To the extent that Re Shanahan or Whild may militate against the existence of a presumption in favour of party-party costs in the absence of plain and unambiguous language, I am at all events bound by the decision of the Victorian Court of Appeal in Chen. In this context, which includes the relevant mortgage and other relevant instruments, plain and unambiguous language indicating a special basis for assessment of costs would be needed to justify awarding costs on other than a party-party basis.
(a) Clause 4(c) of that Agreement provides that the borrower 'shall be responsible for any and all legal costs, enforcement expenses, fees, charges and other costs...'
(b) Clause 39.1 of the Memorandum of Common Provisions (MCP) provides that '[the borrower] must pay us on demand all reasonable enforcement expenses that we or a Receiver or an attorney reasonably incur in enforcing or exercising rights after a breach of the mortgage occurs'.
50 The reference in cl 4(c) to 'any and all legal costs' in my view identifies the scope of recoverable costs rather than the basis on which those costs should be assessed. When read in its contractual context, 'any and all legal costs' is followed by other phrases particularising the breadth of the borrower's liability for costs incurred in the enforcement of their mortgage (such as 'enforcement expenses' and 'other costs'). Clause 4(c) does not nominate a basis for the assessment of costs using plain and unambiguous language.
51 The reference 'reasonable enforcement expenses' in cl 39.1 of the relevant Memorandum of Common Provisions does not, without more, support the assessment of costs on a higher than usual level of recovery. While instructive, the interpretation of similar phrases in past cases cannot alone determine the meaning of the extant document. In any event, the Supreme Court Rules which had an analogical significance in Whild have since been amended. Nor is the phrase 'reasonable enforcement expenses' plain and unambiguous in its provision for a special basis for assessment. Accordingly, I see no sufficient justification for the more expansive costs order that is sought by Panorama.
52 I do not consider that the relevant provisions of the above cost related agreements relied on by Panorama reflect agreement that costs are to be assessed on any basis other than a party-party basis. Nor am I satisfied there is any other proper basis justifying the recovery of the level of cost sought by Panorama.
53 Panorama brought a third party claim against its former solicitors, McKinnon Jacobs Horton & Irving Pty Ltd, in the First Mortgage Proceeding principally for drafting allegedly defective loan documentation and providing what Panorama asserted was poor advice in relation thereto. The fourth question is whether Panorama is entitled to recover the costs payable by Panorama to its former solicitors in respect of this discontinued third party claim from the Settlement Proceeds.
54 Panorama observes it was prima facie entitled to recover the costs of enforcing its mortgage, and that the defendants have not shown any disentitling conduct.[92] That was not in dispute. The point in dispute is whether the costs of pursuing former solicitors are an 'enforcement expense' secured by Panorama's mortgage of the secured property.
55 In its supplementary written submissions, Panorama also argues that, given the third party claim would not have been prosecuted but for Sevdalis' default, the costs of the third party claim are 'Costs of default' recoverable under cl 4(c) of the Loan Agreement. Further, Panorama asserts its equitable right to charge the costs of enforcing its mortgage over the secured property. It submits that joinder of its former solicitors was an 'incidence_'_ to its defence of the Counterclaim in the First Mortgagee Proceeding.[93]
56 Down Town's submissions addressed the causal requirement to the right to charge costs against secured property, namely, that the costs incurred relate to enforcement of the relevant security.[94] In this respect, a distinction is drawn by Down Town between costs incurred in defence of title to the estate and costs incurred in defence of title to the mortgage.[95]
57 Down Town submits that when incurring costs to defend title to the mortgage, the mortgagee is acting in its own interest and such costs are not chargeable. Down Town submits that Panorama's third party claim against the solicitors was not in defence of its own mortgage, but amounted to the pursuit of a personal remedy in an attempt to preserve Panorama's commercial position in the event that the Loan Agreement mortgage documents were ineffective.[96] Mr Colbran QC described this exercise as 'extraneous' to the Loan Agreement or the securities.[97]
58 The submissions of the Receivers of Native Bond support the submissions of Down Town. The Receivers characterise these costs as costs incurred in an attempt by Panorama to 'hedge its risk on the counterclaim by suing the solicitors who prepared the relevant agreement'.[98] In oral submissions, Mr Moller of Counsel sought to highlight the absence of a causal link between the third party costs in question and the 'default'.[99] He further submitted that the coincidence a third party proceeding was litigated at the same time as a default is plainly insufficient.[100]
59 Ordinarily, absent some specific agreement, a mortgage will extend to secure the costs and expenses incurred in relation to preserving and enforcing that mortgage, but not the cost and expenses incurred directly or indirectly as a result of defending an attack on the mortgagee's title to the mortgage or, as here, where the mortgagee seeks recovery against a third party in the event that the liability secured by the mortgage is rendered irrecoverable. The core dispute between the parties here lies in the proper characterisation of the third-party claim against Panorama's former solicitors and whether it relates to enforcement of the security.
60 It is apposite to begin with the observation of Nourse LJ in Parker-Tweedale v Dunbar Bank Plc (No 2).[101] The relevant passage states as follows:
A mortgagee is allowed to reimburse himself out of the mortgaged property for all costs, charges and expenses reasonably and properly incurred in enforcing or preserving his security. Often the process of enforcement or preservation makes it necessary for him to take or defend proceedings. In regard to such proceedings three propositions may be stated. (1) The mortgagee's costs, reasonably and properly incurred, of proceedings between himself and the mortgagor or his surety are allowable. The classical examples are proceedings for payment, sale, foreclosure or redemption, but nowadays the most common are those for possession of the mortgaged property preliminary to an exercise of the mortgagee's statutory power of sale out of court. (2) Allowable also are the mortgagee's costs, reasonably and properly incurred, of proceedings between himself and a third party where what is impugned is the title to the estate. In such a case the mortgagee acts for the benefit of the equity of redemption as much as for that of the security. (3) But where a third party impugns the title to the mortgage, or the enforcement or exercise of some right or power accruing to the mortgagee thereunder, the mortgagee's costs of the proceedings, even though they be reasonably and properly incurred, are not allowable.[102]
61 This suggests there are two situations in which a mortgagee is permitted to charge reasonably and properly incurred costs to the secured property. The first is in respect of proceedings between themselves and the mortgagor. That will commonly involve the mortgagee exercising its power of sale. The second is in respect of proceedings defending title to the estate. In defending title to the estate, the mortgagee acts for the benefit of both itself in relation to its security, and also, in effect, for the mortgagor's equity of redemption.
62 By contrast, a mortgagee cannot ordinarily charge costs incurred in defence of a third party's claim in respect of their title or rights under the mortgage. To charge such costs would diminish the mortgagor's equity in the secured property. To do so in respect of disputation with a third party or parties is also outside the sphere of rights and obligations as between the mortgagor and the mortgagee.
63 This reasoning was approved in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2),[103] was adopted by the Supreme Court of New South Wales in Break Fast Investments Pty Ltd v Giannopoulos (No 6),[104] and was referred to as 'well-established' in Manly Property Holdings Pty Ltd v Lisker Pty Ltd (No 2).[105] Parker-Tweedale was also approved on a different point in Ringrow Pty Ltd v BP Australia.[106] That a mortgagee must bear the costs of defending its mortgage to the secured property from third parties is also accepted by the learned authors of Fisher & Lightwood's Law of Mortgage.[107]
64 The decision of the Victorian Court of Appeal in Tarkington Pty Ltd v Kingdrake Pty Ltd,[108] relied on by Down Town,[109] is somewhat difficult to reconcile with Parker-Tweedale. In the former case, a mortgagee was permitted to charge the costs of bringing a claim against third parties who had 'attacked and put into jeopardy the securities' to the secured property.[110] In so holding, Chernov JA observed:
This was another attack on Kingdrake's security. It was open to his Honour to find, as he did, that the legal expenses incurred in relation to the proceeding were related to the enforcement by Kingdrake of its securities. Such a finding necessarily involved that the legal expenses were reasonably incurred and in my view no error is shown in that.[111]
65 The material facts in this case are different. In Tarkington, the third parties attacked the mortgage. In the present case, the third parties were sued to, in effect, hedge the risk that the underlying secured loan and, as a consequence the mortgage, were, in the case of the former unlawful and in the case of the latter, ineffective.
66 To this end the judgment of 29 June 2017 contained the following observation in relation to the case against Panorama's former solicitors and the National Credit Code:
[t]he overarching allegation by Panorama in the third party proceeding was predicated on the Code applying to Panorama's loans and alleged that Mackinnon Jacobs carelessly failed to ensure that the requirements of the Code were met'.[112]
67 It follows, in my view, that the third party costs sought by Panorama against the Settlement Proceeds fall outside the scope of chargeable enforcement costs. By prosecuting its former solicitors, Panorama sought a remedy personal to it to preserve its commercial position in relation to the relevant loan and the relevant mortgage.
68 That personal remedy was to enliven a contingency so as to hedge against the prospect Panorama would, or could, be exposed to the Loan Agreement being rendered unenforceable in whole or in part, and Panorama being deprived of the effect of its mortgage security by a counterclaim by the borrower parties which asserted that the secured Loan was impugnable at law, and thereby the subject of the mortgage, to that extent, rendered illusory. Panorama's former solicitor was sued as a third party as a 'back stop measure' against the possible success of those borrower parties' challenges.
69 Further, the judgment of 29 June 2017 described the strength of the counterclaim, which Panorama argues justified its third party claim, in the following way: [113]
(a) The counterclaim exhibited 'manifest weakness'.[114]
(b) The counterclaim contained 'unsupported allegations of Code non-compliance'.[115]
(c) The counterclaim did not have 'any particularisation of a proper basis for those claims' and were of an 'unsubstantiated nature'.[116]
(d) The counterclaim did not 'properly particularise' the 'weak allegations'.[117]
70 Down Town also submits that, given the baselessness of the counterclaim, the joinder of the third party was unnecessary and gave rise to unnecessary costs, which Panorama should bear.[118]
71 To the limited degree it is possible to evaluate the strength of Panorama's counterclaim against its former solicitors, that claim appears to be manifestly weak for the reasons referred to above, and therefore the costs incurred by Panorama in relation thereto, were arguably unnecessarily expended. However, I am not prepared to find, on these bases, that the weakness of the counterclaim per se resulted in Panorama incurring 'unnecessary' cost which cannot be recovered.
72 At all events, for the reasons I have separately outlined above, Panorama should not in my view recover the legal costs and expenses payable to its former solicitors.
73 For the above reasons, I am unpersuaded that costs in respect of Mackinnon Jacobs Horton & Irving Pty Ltd can be properly characterised as enforcement expenses or that they are established as arising from the default of the borrower. To the contrary, I consider that Panorama incurred these costs to protect its own interests and to hedge and bolster its position in relation to the borrowers' counterclaims. Panorama has failed to satisfy me that those costs were 'enforcement costs'.
74 In the circumstances, Panorama's entitlement to costs and expenses does not extend to the legal costs and expenses payable to Mackinnon Jacobs Horton & Irving Pty Ltd.
75 By Deed of Assignment dated 21 March 2013 (the Deed), Gulf Country assigned rights under its Loan Agreement dated 23 November 2011 with Native Bond, Sevdalis Co and Sevdalis to Down Town. Question 6 concerns the amount Down Town is entitled to be paid from the Settlement Proceeds in respect of interest payable by Native Bond. While Down Town asserts a full entitlement to the 8% interest that was payable by the Sevdalis Entities on the Loan, the Receivers submit that the Deed split the interest entitlement: 3.5% being assigned to Down Town and 4.5% remaining with Gulf Country.[119] In the case of either rate the nominate percentages was a rate per month.
76 Clauses 1, 2, 3 and 4 of the Deed provide as follows: [120]
(a) all parties executing the Deed on or before 21 March 2013. If all parties do not execute the Deed, this Deed will be deemed to be void ab initio and the loan will not be assigned to Downtown.
(b) the amount owing to Gulf of $396,365.06 being paid on the 21 March 2013 (hereinafter called the Settlement claim). The interest rate on the said loan amount shall be fixed at a flat rate of 3.5% per month until the Loan Amount is repaid.
(c) this Deed will take effect as at and from the Settlement Date.
(b) In consideration of payment of the amount owing to Gulf by Downtown on the Settlement date, Gulf will absolutely and unconditionally assign all of its beneficial and legal interest in the Loan, subject to clause 2(b), without limitation to Downtown.
77 On Down Town's submission, Gulf Country agreed to assign to Down Town (i) its right to the principal sum from Native Bond, Sevdalis Co and Sevdalis; and (ii) its right to interest from Native Bond, Sevdalis Co and Sevdalis. In exchange, Down Town was obliged to (i) pay to Down Town the outstanding loan amount; and (ii) pay interest at 3.5% per month on the outstanding loan amount after the settlement date.[121] Upon completion of the assignment, Down Town would step into the place of Gulf Country and acquire a full entitlement to the principal and interest that was owed by Native Bond, Sevdalis Co and Sevdalis under the Loan Agreement.[122]
78 The reference to 3.5% interest per month is found in cl 1(b) of the Deed. Down Town submits that this interest has no bearing on the obligational content of the assignment. Critically, Down Town argues, this 3.5% interest rate was distinct from the interest entitlement against Sevdalis that was the subject of assignment.[123] Down Town argued that:
The amount that they have to pay as at 21 March, the loan amount, was $396,000. If they did not pay it on time, they had to pay interest at the rate of 3.5 per cent per month until the payment was in fact made. So we say that's the proper interpretation of clause 1(b). The interest rate of 3.5 per cent that my client was binding itself to pay if it did not pay the full amount of the loan on time, is less than the amount of interest that was payable under the loan agreement, which was 8 per cent per month.[124]
79 In making this submission, Down Town relied principally on two provisions of the Deed:
(a) Clause 2(b) of the Deed, which states in part that Gulf Country will 'absolutely and unconditionally' assign all of the legal and beneficial interest in the subject loan.[125]
(b) Clause 4 of the Deed which states in part that the provisions of the Deed are 'in addition to and not in derogation of the terms and conditions of the loan'.[126]
80 Down Town submits that those provisions effect a full assignment of all rights under the Loan Agreement from Gulf Country to Down Town and ensure that the substance of the Loan Agreement is not varied by the assignment.[127]
81 In his oral submissions, Mr Colbran QC emphasised that this interpretation was commercially-viable. Originally, Native Bond was liable to Gulf Country for 8% interest because of the risk associated with lending to Sevdalis. However, given that Down Town was solvent and there was a stronger prospect of repayment, Gulf Country assigned the Loan to Down Town, and in doing so set a lower interest rate of 3.5% in the event of Down Town owing money to Gulf under the assignment contract.[128]
82 Mr Colbran QC also stressed that if there was a full assignment of rights under the Loan Agreement it would make 'no commercial sense whatsoever' for Down Town to accept anything less than the full amount of interest.[129] Nor, for the same reason, would it make commercial sense for Gulf Country to receive interest from Native Bond after being indemnified by Down Town pursuant to cl 3 of the Deed of Assignment.[130]
83 The Receivers rejected that the Deed of Assignment assigned all interest entitlements. Instead, the Receivers submitted that the Deed of Assignment has split the entitlement to interest on the Loan Amount owed by Sevdalis. Under cl 1(b) of the Deed of Assignment, Down Town is entitled to 3.5% of the interest payable 'until the Loan Amount is repaid'. The remaining right to interest, being a rate of 4.5%, is not the subject of the assignment and remains Gulf Country's entitlement.[131]
84 The Receivers' submission characterises cl 1(b) as altering the obligational content of the Loan Agreement rather than in a more limited way stipulating the terms of assignment to Down Town. In support of this interpretation, Mr Moller submitted that:
(a) Clause 1(b) states the 3.5% interest is payable until the Loan Amount is 'repaid' rather than 'paid'. The submission is that the word 'repaid' is more likely to refer to the 'repayment' obligation of Sevdalis, to repay the principal sum, rather than the 'payment' obligation of Down Town in consideration for the assignment.[132]
(b) Clause 2(b), which obliges the 'absolute and unconditional assignment of the Loan', is 'subject to clause 2(b)'. Mr Moller submitted this is a drafting error because the clause cannot be 'self-referential' and should read 'subject to clause 1(b)'.[133] Clearly, the Receivers submit, the parties intended for the 'unconditional' assignment of the Loan to be subject to 'something'.[134] That 'something' must be Gulf Country's retention of a 3.5% interest entitlement until the loan amount is repaid.[135]
(c) Given the Court has already found that Gulf Country retained a charge, the Deed of Assignment, clearly did not affect an assignment of 'everything'[136]. The Receivers submit that Down Town would not be likely to take a full assignment of the interest but remain wholly dependent on Gulf Country to enforce the Native Bond charge. The Receivers submit that this interpretation of the Deed of Assignment, under which Gulf Country retains an interest, is consistent with the Court's earlier finding that Gulf Country's charge was not assigned. There would be no reason for Gulf Country to retain the charge unless it also retained a right to interest.[137]
85 Mr Moller also disputed whether Down Town's claim to a full interest entitlement was 'commercial'. If, as on Down Town's submission, the Deed assigned everything other than the charge, then Down Town would be dependent on Gulf Country to enforce its security. Mr Moller submitted that this could not have been intended by a prudent and sensible commercial party in the position of Down Town.[138]
86 The principles governing the interpretation of commercial contracts were summarised by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:[139]
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.[140]
87 That the document contains ostensible errors or is the product of an unsophisticated drafting process does not affect the requirement that the meaning is determined objectively; and that the intention of the parties is evaluated by reference to the understanding of a reasonable businessperson in their position. Even so, in such circumstances, the need to ensure a commercial result according with the text and the intention of the parties may become more significant.[141] The High Court has recognised that 'words may generally be supplied, omitted or corrected in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency'.[142]
88 Viewed objectively from the perspective of reasonable businessperson, I consider that the intended effect of cl 1(b) is to fix a flat rate of interest of 3.5% per month, which is to be payable by Down Town to Gulf Country, in the event that the nominated amount to be paid to Gulf is not paid by Down Town on 21 March 2013.
89 This means Down Town is (i) obliged to pay the loan amount to Gulf Country and (ii) obliged to pay 3.5% interest per month to Gulf Country on what remains of the loan amount following the settlement date.
90 In return, Down Town receives Gulf Country's rights to the principal debt against Native Bond. Relevantly, this includes a right to 8% interest against Native Bond.
91 The language employed by the parties to effectuate an absolute and unconditional assignment by Gulf Country to Down Town, pursuant to cl 2(b) of the Deed of Assignment, extends to all entitlements to interest under that Loan. I consider that cls 2(b) and 4 of the Deed of Assignment make that plain. Further, cl 4 importantly confirms that the rights and obligations created by the Loan itself are not altered by the assignment. To accept the Receivers' submissions, and thereby 'split' the interest entitlement, would offend the purpose of this provision.
92 That there has been no separate assignment of the fixed and floating charge earlier granted to Gulf Country in respect of Native Bond's interest does not, in my view, cause any significant commercial anomaly. The text of the Deed under consideration suggests that the parties did not appreciate any need for security in relation to the interests and rights assigned and that the parties were not concerned about the implications of the Deed on their existing security arrangements. Furthermore, to impute such a lack of commercial sensibility and meticulousness to the parties seems somewhat consistent with the inelegant drafting and internal inconsistencies in the Deed.
93 The Court should construe commercial documents 'fairly and broadly, without being too astute or subtle in finding defects'.[143] In this regard, the phrase in cl 2(b), 'subject to clause 2(b)', appears to do no sensible work and makes no sense. In my view, this reference in cl 2(b) to 'clause 2(b)' is an error. A provision cannot be subject to itself. That reference may well have been intended to be to cl 1(b) and the timing requirements of cl 1(b) of the Deed. Perhaps, on the other hand, the reference was meant to be to cl 2(a) of the Deed. Those are in my view mere possibilities, the consequences of which were not fully considered in the parties' submissions, and should not alter what would otherwise be a commercially viable interpretation according with the remainder of the document.
94 On one discrete point, I accept that the Receivers' case is stronger. This concerns the use of the word 'repaid' in cl 1(b). I accept that 'repaid', when read in isolation, is more likely to refer to the repayment obligation of Sevdalis rather than the payment obligation of Down Town. This alone, however, is not decisive. Specific words and phrases in an instrument should not be read in isolation.[144] Nor, where parties have recorded their agreement in loose and ungrammatical language, should meaning turn on 'semantic exactitude'.[145] To read 'repaid' as 'paid', in a document bedevilled by inelegant drafting and internal inconsistencies, requires considerably less contortion than accepting the overall interpretation proposed by the Receivers of Native Bond.
95 For these reasons, I consider that the Deed of Assignment provides for an absolute and unconditional assignment by Gulf Country to Down Town of all Gulf Country's beneficial and legal interest in the Loan Agreement. Accordingly, Down Town has been assigned Gulf Country's 8% interest entitlement on the loan amount that was payable by Native Bond, Sevdalis Co and Sevdalis. Down Town's entitlement to the Settlement Proceeds should be calculated accordingly.
96 To the extent that the Deed of Assignment is not construed in Down Town's favour, Senior Counsel for Down Town indicated during the course of the trial that his client may seek rectification.[146] That issue has been deferred and will be addressed if necessary and appropriate at some future point.
(a) Under Question 2, that Panorama's entitlement to contractual interest on the Loan to Summit Tower has merged in the relevant judgment, such that Panorama is limited to statutory interest entitlement under the Supreme Court Act 1986;
(b) Under Question 3, that Panorama's cost entitlement arises under its Loan Agreement with Summit Tower and that Panorama's costs and expenses recoverable thereunder and under the related mortgage are to be assessed on a 'party-party basis';
(c) Under Question 4, that the costs incurred by Panorama in respect of costs payable by Panorama to McKinnon Jacobs Horton & Irving Pty Ltd are not an 'enforcement expense' chargeable or otherwise recoverable from the Settlement Proceeds;
(d) Under Question 6, that (subject to any future relevant determination of deferred questions concerning any relevant priority issues under questions 9 and 10) Down Town is entitled to be paid outstanding principal and interest at the rate provided in the Loan Agreement dated 23 November 2011, including cl (3) therefore, pursuant to the assignment from Gulf Country dated 21 March 2013.
98 The following questions have not been answered in summary because:
(a) Questions 1 and 8 were not pressed by any moving party and need not be answered;
(b) Question 7 does not arise because, pursuant to the decision of Efthim AsJ, upheld by Judd J, Down Town does not have a relevant charge.
(c) Questions 9 and 10 concern questions of the order of priority of any relevant claims in respect of the Settlement Proceeds and may, if necessary, require further submissions as a result of the findings in this judgment. These questions are therefore deferred, if necessary, to await any permitted further submissions;
(d) Questions 5 and 11 concern legal costs which may be payable and are questions suitable for referral to the Costs Court, if necessary, subject to any further submissions by the parties. Orders in relation to such referral may be made in due course, if necessary.
99 I shall, if necessary in due course, deal with any further submissions in relation to the matters earlier identified as contingent upon the outcome on the above Questions.
100 I shall also await the parties' submissions in relation to the appropriate form of orders, including in relation to the costs of this trial.
SCHEDULE OF PARTIES TO THE DOWN TOWN PROCEEDING - S CI 2017 3990
SCHEDULE OF PARTIES TO THE POSSESSION PROCEEDING - S CI 2017 3283
NICK MELLOS AND STEPHEN ROBERT DIXON (AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF DR NICHOLAS WILLIAM SEVDALIS (A BANKRUPT))
NATIVE BOND PTY LTD (IN LIQUIDATION) (ACN 006 589 055)
CHAMPION INVESTMENT GROUP PTY LTD (ACN 607 958 592)
SCHEDULE OF PARTIES TO THE FIRST MORTGAGE PROCEEDING - S CI 2017 4334
NICK MELLOS AND STEPHEN ROBERT DIXON (AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF DR NICHOLAS WILLIAM SEVDALIS (A BANKRUPT))
NATIVE BOND PTY LTD (IN LIQUIDATION) (ACN 006 589 055)
[1] On 22 August 2017, the third defendant was removed as a party from the proceeding (T40.17-20 22).
[3] Order of Elliot J made 22 February 2018.
[4] Questions 1, 5, 7, 8, 9, 10 and 11 either need not, or cannot, be determined at present.
[5] On 9 April 2018, NB Services (Aust) Pty Ltd (Receivers appointed) and Bochrinis sought the adjournment of this trial, which was refused, and thereafter elected to absent themselves from the trial. Champion Investment did not actively participate in the trial.
[10] Orders of Digby J made 2 March 2017, [3].
[16] Native Bond Pty Ltd (controller apptd) v Cant [2015] VSC 203 [47].
[17] Native Bond Pty Ltd (Controller Appointed) v Cant [2016] VSC 206 [32].
[20] Affidavit of Nicholas Bochrinis (Possession Proceeding), 12 October 2017, [2] (File No. 24) and Exhibit 'NB-1'; Affidavit of Nicholas Bochrinis (Possession Proceeding), 24 November 2017 (File No. 32).
[21] Affidavit of Nicholas Bochrinis (Possession Proceeding), 11 October 2017, [2] (File No. 21) Exhibit 'NB-1'.
[22] Amended Counterclaim of the Fifth Defendant (Possession Proceeding), 23 March 2018, [12], [16].
[25] Order of Elliot J made 22 February 2018, [2].
[32] Ruling of Digby J made 9 March 2018.
[36] T22.26-T23.1 (16 February 2018) and T27 (22 February 2018).
[37] Down Town Submissions, 9 March 2018, [28]; Receivers of Native Bond's Submissions, 9 March 2018, [26]; T78.24.
[38] Receivers of Native Bond's Submissions, 9 March 2018, [30].
[41] Native Bond Pty Ltd (Controller Appointed) v Cant [2016] VSC 206 [32].
[46] Supreme Court Act 1986 (Vic), s 101.
[47] Penalty Interest Rates Act 1983 (Vic), s 2.
[48] Panorama's Submissions, 9 March 2018, [6].
[51] Down Town's Submissions, 9 March 2018, [9]-[11]; [13]-[14].
[54] Receivers of Native Bond's Submissions, 9 March 2018, [21].
[57] Re European Central Railway Company (1876) 4 Ch D 33, 37.
[58] Multispan Constructions No. 1 Pty Ltd v 14 Portland Street Pty Ltd (No. 2) [2001] NSWSC 1047 [4]; Mercantile Credits Ltd v McDowell [1980] 2 NSWLR 101, 103-4 [7]-[11]; Ealing London Borough Council v El Isaac [1980] 1 WLR 932, 937; Economic Life Assurance Society v Usborne [1902] AC 147, 150; Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pty Ltd [2007] WASC 62 [373]-[375]; McDonald v Scobie [1980] Qd R 477, 478; General Credits (Finance) Pty Ltd v Brushford Pty Ltd [1975] 2 NSWLR 786, 788-89.
[61] Panorama's Submissions, 9 March 2018, [2].
[62] Down Town submitted that no evidence had been adduced by Panorama to establish that the two relevant titles referred to, including in Panorama's Submissions, were of 'relatively equal value'. Panorama relied on a Second Affidavit of Kenneth Stanton, 4 April 2018, [8] which put forward evidence that the sale of the two titles referred to in Panorama's Submission, 9 March 2018, [3] were each of relatively equal value.
[63] Panorama's Submissions, 9 March 2018, [17].
[67] T64.10-15; Panorama's Written Submissions, 9 March 2018, [10]-[15].
[70] Down Town's Submissions, 9 March 2018, [21].
[71] Panorama's Submissions, 9 March 2018, [12]-[13].
[72] Down Town's Submissions, 9 March 2018, [22]-[23]. Note that the Affidavit of Kenneth Thomas Stanton, sworn 4 April 2018, deposes that the properties in question are of relatively equal values between [4] and [9].
[73] Receivers of Native Bond's Submissions, 9 March 2018, [22]-[23].
[76] Ibid [8] (Redlich JA) (emphasis added).
[79] Chen v Kevin McNamara & Son Pty Ltd [2012] VSCA 229, [20] (Redlich JA).
[89] Ibid [14]. Order 63.30 was later amended to 'standard basis' pursuant to Supreme Court (Chapter I New Scale of Costs and Other Costs Amendments) Rules 2012, r 17; before introduction of the Supreme Court (General Civil Procedure) Rules 2015.
[90] Whild v GE Mortgage Solutions [2012] VSC 322 [17] (Croft J).
[92] Panorama's Submissions, 9 March 2018, [20].
[93] Panorama's Submissions on Question 4, 13 April 2018, [2].
[94] Down Town's Supplementary Submissions on Question 4, 11 April 2018, [2].
[95] Parker-Tweedale v Dunbar Bank Plc (No. 2) [1991] Ch 25, 33 (Nourse LJ); Down Town's Supplementary Submissions on Question 4, 11 April 2018, [3].
[96] Down Town's Supplementary Submissions on Question 4, 11 April 2018, [7].
[98] Receivers of Native Bond's Submissions, 9 March 2018, [24].
[103] [1993] Ch 171, 185 (Scott LJ).
[104] [2012] NSWSC 286 [41] (Black J).
[105] [2018] NSWSC 61 [14] (Slattery J).
[107] ELG Tyler, PW Young and CE Croft, Fisher & Lightwood's Law of Mortgage (3rd Australian ed, LexisNexis Butterworths, 2014) 866.
[109] Down Town's Supplementary Submissions on Question 4, 11 April 2018 [5]-[6].
[112] Panorama Investments Pty Ltd v Summit Tower Pty Ltd [2017] VSC 390 [23] (Digby J).
[118] Down Town's Submissions, 9 March 2018, [27].
[119] Although issue (9) is expressed to be concerned with the amount to which Native Bond is entitled, it is likely intended to deal also with the amount to which Gulf Country is entitled. Native Bond is the registered proprietor of one of the parcels of land sold to produce the Settlement Proceeds. Native Bond charged its assets (including the land) to Gulf Country.
[134] Clause 1(b): '... the amount owing to Gulf of $396,365.06 being paid on the 21 March 2013 (hereinafter called the Settlement date). The interest rate on the said loan amount shall be fixed at a flat rate of 3.5% per month until the Loan Amount is repaid'.
[140] Ibid 116 [46] (French CJ, Nettle and Gordon JJ).
[141] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 [17] (Kiefel, Bell and Gordon JJ).
[142] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426-7 (Dixon CJ and Fullagar J).
[143] Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603, 618 [19] (Allsop P).
[144] Metropolitan Gas Co v Federated Gas Employees Industrial Union [1925] HCA 5; (1925) 35 CLR 449, 455 (Isaacs and Rich JJ).
[145] Mainteck Services Pty Ltd v Stein Heurtney SA [2014] NSWCA 184; (2014) 89 NSWLR 633, 658 [98] (Leeming JA).
Down Town Visuals
Panorama Investments [2018] VSC 427
(2015) 256 CLR 104
(1956) 95 CLR 420
(2009) 76 NSWLR 603
(1925) 35 CLR 449
(2014) 89 NSWLR 633