Platinum United II Pty Ltd & Anor v Secured Mortgage Management Ltd

**[1] FRASER JA: On 15 July 2011 the Court dismissed an appeal against orders made by the Chief Justice striking out paragraphs of the appellants' third further amended statement of claim and refusing the appellants' application for particulars of the respondent's defence.[1] The Court directed the parties to lodge written submissions as to costs in accordance with paragraph 52 of Practice Direction No 2 of 2010.

[2] The appellants did not make any submissions. The respondent's submission that the appellants should be ordered to pay the respondent's costs of the appeal should be accepted, there being no reason why costs should not follow the event.

[3] The respondent also submitted that the Court's discretion should be exercised to reflect the respondent's contractual entitlement to costs on the indemnity basis. The respondent referred to the following provisions of the commercial loan facility agreement ("the agreement") made between the first appellant (as "the Borrower") and the respondent (as "the Lender") in May 2007:**

(a) cl 15.1: "The Borrower shall indemnify and keep indemnified the Lender against any loss, expenses or tax which the Lender may reasonably sustain, incur or be required to pay as a consequence of:-

(C) the enforcement of all or any of the securities under all or any of the Transaction Documents."

(b) cl 17.4(a): "The Borrower shall indemnify and upon demand reimburse the Lender for all legal fees on an indemnity basis, documentary costs and out of pocket expenses including and without limiting the generality of the foregoing all other expenses of the Lender in connection with the negotiation, preparation, execution, completion and enforcement of all Transaction Documents."

**The definition of "Transaction Document" in the agreement comprehends "the Securities". The definition of that term includes a mortgage given by the first appellant over "the Caloundra land" and a mortgage given by the second appellant over "the Margate units" as security for the first appellant's obligations as Borrower under the agreement.

[4] The appellants pleaded in their third further amended statement of claim that the mortgages of the Caloundra land and the Margate units secured repayment of money lent to the first appellant under the agreement and the second appellant's obligations as a guarantor of the first appellant's obligations. The paragraphs which the Chief Justice struck out were pleaded in support of claims by both appellants for damages in excess of $9 million, a declaration that the first appellant was entitled to set off its loss and damage against any money due and payable pursuant to the agreement by the first appellant to the respondent, and other relief. The respondent defended the appellants' claims and counterclaimed for the money alleged to be due by the first appellant under the agreement, and by the second appellant under its guarantee, and for recovery of possession of the Caloundra land and the Margate units.

[5] The respondent argued that, although the costs for which it sought indemnity were incurred in an appeal concerning the appellants' claim for damages against the respondent, those costs were incurred as a consequence of or in connection with the enforcement of the mortgages, and thus fell within cl 15.1(C) or cl 17.4(a).

[6] The general principle is that a mortgagee is ordinarily limited to party and party costs (or "the standard basis of assessment" in r 702 of the Uniform Civil Procedure Rules 1999 (Qld) ("UCPR")) but a court will usually exercise the discretion as to costs to give effect to a contractual provision which "plainly and unambiguously" provides for taxation on another basis.[2] It is doubtful whether cl 15.1(C) of the agreement confers an entitlement to have costs assessed on the indemnity basis in sufficiently clear terms to justify the exercise of that discretion, but the expression "on an indemnity basis" in cl 17.4(a) clearly comprehends "the indemnity basis of assessment" of costs provided for in UCPR r 703(1).

[7] A question under cl 17.4(a) is whether the respondent incurred its legal costs of resisting the appeal in connection with the enforcement of the mortgages. Before the application was decided by the Chief Justice the respondent had brought its counterclaim seeking to enforce the mortgages. The set off claimed by the appellants would reduce what was otherwise the amount of the debt secured by the mortgages. To that extent the striking out of paragraphs of the appellants' pleading which supported the claimed set off advanced the respondent's counterclaim to enforce the mortgages. The legal costs which the respondent incurred in resisting the appeal are therefore appropriately described as being incurred "in connection with" the enforcement of the mortgages, within the meaning of cl 17.4(a) of the agreement, even though the respondent merely resisted an appeal rather than taking some positive step by way of enforcement. Support for the view that a successful respondent to a proceeding may invoke such a provision in this way may be found in Perpetual Trustees Australia Ltd & Ors v Barker.[3]

[8] In my opinion cl 17.4(a) of the agreement does plainly and unambiguously oblige the first appellant to indemnify the respondent against its costs of the appeal on the indemnity basis. No reason appears why the Court's discretion should not be exercised in a way which reflects that contractual provision. However, the second appellant is not a party to the agreement. The second appellant might be bound by its guarantee of the first appellant's obligations to pay the costs on an indemnity basis, but the guarantee is not in the appeal book and no submissions were directed to its scope. In these circumstances, it seems inappropriate to exercise the discretion to order indemnity costs against the second appellant.**

[9] In my opinion the appropriate orders are:

(a) The first appellant pay the respondent's costs of the appeal assessed on the indemnity basis.

(b) The second appellant pay the respondent's costs of the appeal assessed on the standard basis.

**[10] CHESTERMAN JA: I agree with the orders for costs proposed by Fraser JA for the reasons given by his Honour.

[11] FRYBERG J: I agree with the orders proposed by Fraser JA and with his Honour's reasons for those orders.**

[1] Platinum United II Pty Ltd & Anor v Secured Mortgage Management Ltd (in liq) [2011] QCA 162.

[2] Re Adelphi Hotel (Brighton) Ltd [1953] 2 All ER 498 at 502 per Vaisey J. The principle has been applied in numerous decisions in Australia, including Jamieson v Gosigil Pty Ltd [1983] 2 Qd R 117 at 120 - 123 per GN Williams J.

[3] [2004] SASC 58 at [32] - [34] per Duggan J (Doyle CJ and Anderson J agreeing).