Ribchenkov v Suncorp-Metway Limited [2001] FCA 151 | Case summary

REASONS FOR JUDGMENT SPENDER J: 1 On 21 June 2000, I published my reasons dealing with my conclusions on the application of the applicant against Suncorp-Metway Limited ('Suncorp Metway', or 'the bank'), the cross claim by Suncorp-Metway against the applicant, the cross claim by Suncorp-Metway against the solicitor Mr Sapuppo, the applicant's claim for damages against Mr Sapuppo, and his cross-claim for an indemnity against his professional indemnity insurer. 2 Those reasons are reported: Ribchenkov v Suncorp-Metway Ltd & Ors (2000) 175 ALR 650. 3 When publishing those reasons I said: "I have concluded that the applicant fails in her attack against the enforceability of the securities except insofar as they are based on the second and third advances. I propose to give judgment for the bank against the applicant on its cross-claim limited to the net amount owing pursuant to the original advance and interest thereon. It follows as a result of that that since the cross-claim by the bank against Mr Sapuppo was in the nature of an indemnity for any amounts which it might be ordered to pay the applicant that cross-claim fails. In my reasons I have concluded that Mr Sapuppo was not guilty of dishonesty or fraud but was negligent in respect of the duty which he owed to the applicant in respect of the provision of advice and that the applicant is entitled to damages in negligence against him. It follows also from those findings that Mr Sapuppo is entitled to the benefit of his policy of indemnity insurance subject to the deductible amount of $7500. I further said to the parties: "The evidence, in fact, is very sparse in relation to the precise amount for which judgment should be entered in respect of various claims and cross claims that I've indicated. At paragraph 86 of my reasons, at page 27, I summarise that in my judgment the bank is entitled as against the applicant to the moneys secured (and) in interest due and payable under that loan account as if the bank had not made the further advances to Mr and Mrs Rouyanian and the applicant in April 1994 and July 1995. And Mr Talbot's affidavit, exhibit 27, says that, not taking into account those further advances, the money secured as at 29 May would be a certain figure and interest due and payable would be a certain figure. Now, I am not at all sure as to the correctness of that and whether proper deductions have been made in respect of payments that were made and proceeds that were realised. In any event the position has to be updated as at the day of judgment." I later said: "In my reasons I have given the parameters of what I say the amount should be. There is evidence of how a calculation by the bank was made and I would appreciate it if there could be agreement as to the propriety of taking into account the net proceeds of the property, the various payments that were made and so on, if the interest was charged on the appropriate figure. Mr Torbett deposes to having done that and done that correctly as at 29 May 1999. That has to be updated, it seems to me, but it also has to be, I would think, corroborated or confirmed that the interest is calculated on the correct amounts at various stages through the matter." 4 I then directed the parties to bring in short minutes of order to give effect to my reasons, and directed each party to file and serve written submissions on what costs orders the Court should make. I granted liberty to apply "if there is any difficulty in relation to the agreement to the short minutes of order to give effect to my reasons". 5 After receiving written submissions from some of the parties, I heard further submissions on 31 July 2000. Counsel for Suncorp-Metway submitted: "The parties are here before you to determine what is to be added to the judgment sum in respect of interest and costs that have been incurred since a day in May 1999, and that the matters were confined to those factors." 6 In my view, this is inconsistent with what I indicated in delivering my reasons. At par 86 I said: "As to the quantum of judgment in respect of the claims, for the above reasons I have concluded that the bank is entitled, as against the applicant, to the moneys secured and interest due and payable under the loan account 1680554, as if the bank had not made the further advances to Mr and Mrs Rouyanian and the applicant in April 1994 and in July 1995. An affidavit by Stephen Richard Talbot, which was Ex 27 before me, deposes: 'The moneys secured and interest due and payable under loan account 1680554 as at 28 May 1999 would be $159,331.95 and $167,463.13 respectively if Metway Bank Ltd had not made the further advances to Andrew Rouyanian, Ludmila Rouyanian and Alevtina Ribchenkov in April 1994 and July 1995.' I think judgment should be given for the amounts that would be owing as at the date of judgment on that basis. …" 7 The affidavit of Mr Talbot filed on 2 June 1999 contained an exhibit ST12, which was a print-out of the transactions occurring on loan account number 1680554 maintained by Metway in the normal course of its business in relation to the loan between 30 December 1992 and 25 May 1999. That print-out contains a significant number of entries under the code "LC" which stands for legal costs, although most were after the filing of the present application on 17 March 1997, and one is not able to tell from that document whether the legal costs were in connection with the costs of Suncorp-Metway concerning default, including sale of the mortgaged premises, or whether they were in respect of this litigation, and in particular, in that regard, no differentiation is able to be made between what might be the legal costs associated with defending the relief sought by Mrs Ribchenkov on the one hand, and on the other, the costs by the bank of pursuing its claim against Mrs Ribchenkov and the costs of the cross-claim by the bank against Mr Sapuppo. The 'legal costs' included in the print-out almost certainly include costs in respect of the second and third advances, on which the bank was unsuccessful. 8 Notwithstanding the submission on behalf of the bank that "It is inappropriate for your Honour to re-open the question of what should be the judgment sum for money secured and interest to 29 May 1999", it was accepted by counsel for the bank that the bank's cross-claim, while it claimed costs, did not claim a contractual entitlement to all costs on a solicitor and client basis pursuant to clause 1(e) of the mortgage. That clause relevantly provided: "The Moneys Secured are all the amounts now or at any time in the future falling within any of the following categories: … (e) Fees and expenses incurred by the Bank in connection with the preparation, execution, registration, stamping, enforcement or attempted enforcement of this Mortgage or any Collateral Security or the exercise of any right under this Mortgage including legal expenses on a solicitor and own client basis". 9 The items for legal costs included in the print-out ST12 to Mr Talbot's affidavit (part of Exhibit 27) were, I take it, the actual outlays by the bank, so they are costs calculated on a 'solicitor and own client' basis. 10 On the bank's cross claim, in my judgment, the bank is entitled to the principal sum advanced, as well as 'solicitor and own client' costs by the bank (which I label as "non-litigation costs"), being costs associated with the defaults under the mortgage, attempts at realisation of the security and costs of that kind, but not costs associated either with Mrs Ribchenkov's claim against the bank or the bank's cross claim against it. I propose to make specific orders in respect of those costs. The bank is also entitled to interest on what is owing from day to day. The bank has to give credit for all repayments that have been made. On that basis, the appropriate way of dealing with the matter, given the state of the evidence before me, is to take the calculation which has been made on the basis of principal and interest at the ordinary rate less repayments, but excluding all legal costs, and then to make a separate assessment, in rather a broad brush way it has to be said, of the non-litigation costs, and apply the ordinary rate of interest to that assessment to arrive at the total sum due by Mrs Ribchenkov to the bank on the bank's cross claim. Amounts that can be attributed as non-litigation costs, being costs identified by the code 'LC' in print-out ST12 prior to the date of commencement of this litigation total $6,907.40 which I round up to $7,000. This amount seems probably on the light side, but is the consequence of the way the bank has sought to prove its claim, and it has to wear whatever deficiencies of proof there are. I will allow interest on that sum from 4 November 1996, which is the date of the first of the 'LC' items in ST12 to date of judgment, at 9 per cent, which is a rough average of the rates used by the bank for its calculations in respect of outstanding principal during that period. That gives an amount for interest on the non-litigation costs of $2,677.07. The amount for non litigation costs plus interest is therefore $9,677.07, which I round up to $10,000. The bank in Exhibit B to the affidavit of Brian David Bartley filed 31 July 2000 has calculated the amount that would be due on the first advance, together with interest and other charges at the appropriate ordinary interest rates, up until 21 June 2000. That calculation totals $170,669.72. I will add further interest on that figure at the rate of 7.8 per cent, being the rate that the bank applied as at the date of calculation, from that date until date of judgment, which gives an interest component of $9,409.75, making a total of $180,079.47. The amount in respect of which I will give judgment for the bank against Mrs Ribchenkov is therefore $190,079.47. Mrs Ribchenkov, in her application, claimed: (a) an order that a registered bill of mortgage over the Applicant's property situated at 21 Maynard Street, Buranda be set aside. (b) an order pursuant to s 87 of the Trade Practices Act 1974 (Cth) that the mortgage is void and unenforceable. (c) damages for fraudulent misrepresentation. (d) damages pursuant to s 52 of the Trade Practices Act 1974 (Cth). The applicant was successful only to the extent that, in my opinion, it would be unconscionable to permit Suncorp-Metway to pursue Mrs Ribchenkov in respect of the second and third advances, and amounts properly referrable thereto. The attack by Mrs Ribchenkov on the major part of her indebtedness to the bank failed. 11 I think the best way of dealing with the success by the bank in respect of the first advance and Mrs Ribchenkov's success in respect of the second and third advances, is, on the application of Mrs Ribchenkov against the bank, to make declarations that it would be unconscionable for the bank to enforce the mortgage in respect of the amounts of, and incidental to, the second and third advances; and on the cross claim by the bank against Mrs Ribchenkov, to give judgment for the bank in the amount of $190,079.47. 12 Mrs Ribchenkov should have judgment against Mr Sapuppo for that sum which the applicant is required to pay to the bank. Mrs Ribchenkov should also have judgment against Mr Sapuppo in respect of the costs she is liable to pay to the bank on its cross claim. 13 On the cross claim by Mr Sapuppo against his private indemnity insurer, Mr Sapuppo is entitled to a declaration that he is entitled to be indemnified by Australian Pacific Professional Indemnity Insurance Co Ltd for the amount Mrs Ribchenkov is to pay to the bank on the cross claim, and for the amount she is ordered to pay to the bank for its costs against her on the cross claim, less the $7500 specified as 'the deductible' on the policy. 14 Since the bank has not been ordered to pay Mrs Ribchenkov anything of her claim against it, its cross claim against Mr Sapuppo for an indemnity is otiose; the contingency on which it is predicated did not fall in. I should order, in those circumstances, that the bank pay the costs of Mr Sapuppo of its cross claim against him, to be taxed if not agreed. 15 However, a serious difficulty concerns the appropriate orders to make in respect of the costs of the applicant's claim against the bank and in respect of the costs of the cross-claim by the bank against the applicant. It is, in my opinion, appropriate to order that the costs of the bank's cross claim be on a 'solicitor and own client' basis. On the other hand, the costs of the claim by Mrs Ribchenkov for relief against the obligation which the bank says she owed it ought properly be ordered on a 'party and party' basis. Each of those conclusions, in my opinion, is supported by the judgment of Burchett J in Leda Holdings Pty Ltd v Oraka Pty Ltd [1999] FCA 444 which in turn followed the judgment of Carr J in Quadrascan Graphics Pty Ltd v Crosfield Electronics ANZ Pty Ltd [1995] FCA 319. As to the costs of the bank being on a 'solicitor and own client' basis, in Gomba Holdings (UK) Ltd v Minories Finance Ltd [1993] Ch 171, Scott LJ said at 184-5: "The principle that a mortgagee is entitled to add to the secured debt his costs, charges and expenses properly incurred is, therefore, firmly embedded in the law and is the principle underlying express contractual provisions such as those that must be construed in the present case." 16 In Quadrascan, the applicant had claimed damages for an alleged contravention of s 52 of the Trade Practices Act 1974 (Cth). The transaction involved a lease of equipment and a guarantee in respect of each of which relief was sought, the lessor being alleged to have been knowingly concerned in the contravention of s 52. The lessor cross claimed for moneys owing under the lease and for a full indemnity in respect of costs. The lessor relied on a clause of the lease which provided as follows: "27. The Lessee must pay: (a) all stamp, transaction, registration, financial institutions, debit and other duties and taxes (including fines and penalties) which may be payable or determined to be payable in relation to the execution, delivery, performance or enforcement of this lease or any payment or receipt or other transaction contemplated by this lease (except to the extent that any such payment by the Lessee is specifically forbidden by the law of the place where such payment is to be made); and (b) all costs, expenses, duties and outgoings of or incidental to: (i) any breach or default by the Lessee under this lease; or (ii) the exercise or attempted exercise of any right, power, privilege, authority or remedy of the Lessor under or by virtue of this lease, including but not limited to the cost of registration, repairs, maintenance, servicing or storage of the Goods, the fees of all professional consultants reasonably incurred by the Lessor and legal costs on a full indemnity basis." 17 Carr J referred to the remarks of Gummow J in Re Elders Trustee and Executor Company Ltd v E.G. Reeves Pty Ltd, (an unreported judgment of 12 February 1988) where Gummow J remarked "[t]he meaning of any express provision is a question for interpretation in the particular case". Carr J in his judgment said at para 315: "As a matter of construction, in my view, the legal costs incurred by [the lessor] in defending the principal application do not fall within clause 27(b). In those circumstances it will be entitled only to party and party costs in that application. However, I consider that [the lessor's] costs in respect of its cross-claim do fall within clause 27(b) and that it is entitled to have those costs on a full indemnity basis." 18 In the Leda Holdings case, Burchett J said: "…it is relevant to bear in mind that, even in the special context of mortgagor and mortgagee, except where the case falls within a category recognised as involving a right in the mortgagee to indemnity costs, 'the mortgagee will be limited to party and party costs unless the mortgage contract plainly and unambiguously provides for taxation on some other basis (see Gomba Holdings (UK) Ltd v Minories Finance Ltd [1993] Ch 171 at 186 and 191; Jamieson v Gosigil Pty Ltd [1983] 2 Qd R 117 at 121)'; Citibank Savings Ltd v Nicholson and Pirrotta (Full Court of Supreme Court of South Australia (Williams, Cox and Mullighan JJ), unreported, 1 April 1998), per Williams J, with whom Cox and Mullighan JJ agreed. This proposition is also supported by the general principle stated by Vaisey J in In re Adelphi Hotel (Brighton) Ld [1953] 1 WLR 955 at 961 …" Burchett J held that: "The costs of the principal action were not incurred in connection with any non-compliance with obligations under the lease, but in connection with a claim of contravention of a statutory protection which related to the circumstances in which the lease came into existence. His Honour said: "…the claim for relief in respect of the lease under s87 did not involve a repudiation of either the agreement for lease or the lease itself, but an appeal to the Court's statutory power to relieve against a valid document by reason of the alleged misleading conduct lying behind its execution." His Honour continued: "…Each of those things - consent, approval, exercise or non-exercise of rights, waiver, variation, release, surrender or discharge - has a quite close connection with the lease. None aptly falls within what was involved in the principal action under s52. That action, and its costs, would not naturally be described as in connection with any of them. It was concerned, as has been said, with the circumstances as a result of which the lease came into being. If clear language is required to disturb the ordinary rule in respect of the costs of litigation, replacing it with a special right to costs as between solicitor and client, there is no such clear language here. For these reasons, I reject the claim for indemnity costs, or costs as between solicitor and client, in respect of the principal action." 19 It was submitted on behalf of the professional indemnity insurer of Mr Sapuppo that: "For the purposes of costs , the claim by Mrs Ribchenkov against the Bank and the cross-claim by the Bank against Mrs Ribchenkov should be treated separately: Atlas Metal Company v Miller [1898] 2 QB 500; Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88; Smith v Madden (1946) 73 CLR 129." I recognise that there is clearly an interest in the professional insurer in seeking to minimise the quantum of the costs in respect of which it might be ordered to indemnify Mr Sapuppo. Mr Sapuppo should be required to pay to Mrs Ribchenkov the amount she is obliged to pay to the bank that would not have been her obligation, had Mr Sapuppo not been in default of his duty to her. 20 In Atlas Metal Company v Miller the plaintiffs brought an action to recover damages for an alleged libel. The defendants by counter-claim sought to recover damages from the plaintiff for an alleged libel by the plaintiffs on the defendants. Lindley MR said at 504: "By the judgment as drawn up the plaintiffs have to pay the defendants the costs of the action - not some of them or some portion of them, but all of them. There are no separate issues in the action the costs of which have to be borne by the defendants. In considering what are costs of the action the counter-claim, as distinguished from the defence, ought to be disregarded. The costs of the action ought to be taxed as if there were no counter-claim." At 505, the Master of the Rolls said: "…as to the counter-claim. The defendant has to pay the costs of this, …as if the claim did not exist." And later the Master of the Rolls said: "What are costs of a counter-claim? The answer must be the costs occasioned by it. No costs not incurred by reason of the counter-claim can be costs of the counter-claim." And at 506 the Master of the Rolls said: "Counter-claims, although cross-actions for all purposes of procedure and evidence, cost less than actions, and the party who has to pay the costs of a counter-claim gets the benefit of the cheaper procedure." 21 In Medway Oil and Storage Company Limited v Continental Contractors Limited & Ors, Continental Contractors sued Medway Oil for damages for wrongfully repudiating a contract to accept and pay for a large quantity of kerosene oil. Medway Oil counter-claimed for the difference between the contract and market price of the oil, on the ground that Continental Contractors had themselves wrongfully repudiated the contract of sale. The trial judge held that Continental Contractors had failed to establish any of their allegations and dismissed their claim with costs. He also dismissed the counter-claim of Medway Oil and Storage Company on the ground that though they were justified in treating the contract as having been repudiated by the respondents, they had suffered no damage. The House of Lords held that where a claim and counter-claim are both dismissed with costs, upon the taxation of the costs the true rule is that the claim should be treated as if it stood alone, and the counter-claim should bear only the amount by which the costs of the proceedings have been increased by it. No costs not incurred by reason of the counter-claim can be costs of the counter-claim. There is an observation by Lord Blanesburgh at 108 which I think is apposite in the present proceedings. There his Lordship said: "…the Taxing Master is not …to be enslaved by the form of the pleadings. The question must be determined as one of substance and not of form - the manner in which the action was fought and in which the issues were dealt with by the parties and the Court not being disregarded." 22 In Smith v Madden, Dixon J, as he then was, said that: "On the taxation of the costs of an action in which judgment has been given for the plaintiff on the claim with costs and for the defendant on the counterclaim with costs, the claim should be treated as if it stood alone and the counterclaim should bear only the amount by which the costs of the proceedings have been increased by it." 23 In the course of his Honour's reasons, Dixon J said that, where there are orders for one party on the claim with costs and for the other party on the counter-claim with costs, "…the rule is that in the absence of special order there is no apportionment of costs. Apportionment of costs was a principle followed in the courts of equity before the Judicature Act … But at common law apportionment was not practised. If issues were found, some for one party, some for the other, then that party who was considered to have succeeded in the result became entitled to the general costs of the action and the costs of the issues upon which he had nevertheless failed went to his adversary." 24 Section 43 of the Federal Court of Australia Act 1976 (Cth) provides inter alia: "(1) Subject to subsection (1A), the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded. (1A) … (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge. 25 I have referred to observations in the cases immediately above to indicate the difficulty in achieving a fair result by any mechanistic application of a rule. The applicant's claim necessarily involved a consideration of whether the bank was entitled to enforce its rights under the mortgage in respect of the sums that had been advanced by it in the first advance, those advanced by it in the second advance, and those advanced by it in the third advance. The cross-claim by the bank involved the same issues. 26 Notwithstanding the thrust of some of the observations I have earlier set out, it seems to me that the fairest way of dealing with the question of costs of the claim by Mrs Ribchenkov against the bank and the counter-claim by the bank against her, is to order that the bank pay to Mrs Ribchenkov the costs of and incidental to the issue of whether the bank was entitled to pursue the applicant in respect of the sums constituting and incidental to the second and third advances to be taxed on a 'party and party' basis, and to order that the applicant pay to the bank the costs of and incidental to its claim based on the first advance, those costs to be taxed on a 'solicitor and own client' basis. 27 In my opinion, there should be judgment for the applicant against Mr Sapuppo for the amount she is obliged by the Court's order to pay to the bank, and also an order that he should pay to Mrs Ribchenkov the costs she has been ordered to pay to the bank. 28 In my opinion, as earlier indicated, the bank should pay Mr Sapuppo's costs of the cross-claim which the bank brought against him. 29 APPIIL should pay Mr Sapuppo's costs of his cross-claim against it, which should be taxed on a 'party and party' basis, and APPIIL should indemnify Mr Sapuppo for his costs of the action other than his costs of his cross-claim against APPIIL, and for the order for costs made against him in favour of Mrs Ribchenkov. 30 I will make orders accordingly. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender.

Ribchenkov v Suncorp-Metway Limited

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