Riz & 1 or v Perpetual Trustee Australia Ltd & 4 ors [2007] NSWSC 1488 | Case summary

JUDGMENT (ex tempore) 1 HIS HONOUR: In the judgment that I gave on 18 October 2007 [Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153] I indicated that orders would be appropriate to the effect (1) that the plaintiffs' claims against the first and second defendants be dismissed, (2) that the third, fourth and fifth defendants pay the plaintiffs the sum calculated in accordance with the formula set out in paragraph 150 of the judgment, and (3) on the first cross-claim that the plaintiffs/cross-defendants pay the first defendant/cross-claimant the outstanding balance of the Perpetual loan and give Perpetual possession of the property. I expressed the view that the second cross-claim, the determination of which had been deferred, should be dismissed; and that, prima facie, the plaintiffs should pay the first and second defendants' costs, and the third, fourth and fifth defendants should pay the plaintiffs' costs. I stood the matter over, so that the parties might bring in short minutes to give effect to the judgment, and also so that any question of a stay might be considered. 2 The parties agree that a consequence of the judgment is that the plaintiffs' claims against the first and second defendants should be dismissed; that aspect does not require further consideration. So far as the amount of the judgment that the third, fourth and fifth defendants should pay the plaintiffs' costs is concerned, the only evidence before me is a certificate given under the relevant mortgage on behalf of Perpetual, which certifies the amount of principal and interest at the lower rate, interest at the higher rate and legal costs to be respectively $359,695.64, $22,315.99 and $383,435.40, a total of $765,447.03. While this certificate is evidence, if not conclusive evidence, as between Perpetual and Mr and Mrs Riz, its status as between Mr and Mrs Riz and DDS is, at least, disputable. In any event, it is accepted that DDS are entitled to an opportunity, which they seek, to consider the amounts referred to in the certificate. It follows that the amount of the judgment to be given against DDS will have to be deferred, to enable them to be advised in respect of at least the amounts of principal and interest, and higher rate interest. It is therefore unnecessary to resolve, at least at this stage, whether the certificate may be evidence as against DDS. 3 So far as the first cross-claim is concerned, the certificate, at least prima facie, establishes that the outstanding balance of the Perpetual loan is $765,447.03. As I have said, $383,435.40 is described as legal costs, and includes Perpetual's costs of defending Mr and Mrs Riz's claim under the (NSW) Contracts Review Act 1980, and for unconscionability. This has been added to the principal amount secured, in apparent reliance on provisions of the loan contract and mortgage, which oblige Mr and Mrs Riz to pay as part of the moneys secured, "all reasonable enforcement expenses the mortgagee reasonably incurs or expends in exercising its rights under the mortgage". It is accepted that Mr and Mrs Riz should pay Perpetual's costs, as costs if not as "reasonably enforceable expenses". 4 The more difficult question is whether Mr and Mrs Riz should recover from DDS the costs which they will have to pay Perpetual, whether those costs are recoverable under the mortgage by Perpetual as enforcement expenses or pursuant to a costs order. For Mr and Mrs Riz, Mr Leggat SC submits that they should recover those costs against DDS, either pursuant to an order in the nature of a Bullock or Sanderson order, or alternatively as damages, being "costs of default" as contemplated in paragraph 150 of my previous judgment. 5 So far as a Bullock or Sanderson order is concerned, for present purposes the parties do not significantly differ on the appropriate test, which was discussed by Giles JA, with whom Spigelman CJ and Handley JA agreed, in Roads and Traffic Authority of NSW v Palmer (No 2) [2005] NSWCA 140 [30]-[35]; see also Coombes v Roads and Traffic Authority (No 2) [2007] NSWCA 70, [8]-[28] (Beazley JA), with whom Ipp and Basten JJA agreed); Almeida v Universal Dye Works Pty Ltd (No 2) [2001] NSWCA 156 [7]-[8] (Priestley JA); Permanent Trustee Co Ltd v Keogh [1999] NSWSC 883, [6]-[8]. In short, it is not enough to justify making an unsuccessful defendant responsible for a successful defendant's costs that it was reasonable for the plaintiff to sue both defendants; more is required in order to demonstrate that, as between the plaintiff and the unsuccessful defendant, the costs of suing the successful defendant were reasonably and properly incurred. This usually requires identification of some conduct on the part of the unsuccessful defendant that makes it proper and appropriate that the successful defendant be joined, or that the unsuccessful defendant should bear the successful defendant's costs. 6 In this case, Mr Leggat proposes three matters by reason of which it is said that the unsuccessful defendant DDS should bear the successful defendant Perpetual's costs. In short, the first is that the negligent conduct of DDS was a cause of the litigation which it was their function as solicitors for Mr and Mrs Riz to avoid, since they knew or ought to have known that the purpose of their being required to give legal advice was to ensure that the loan contract and the mortgage were not unjust under the Contracts Review Act. As Mr Darke points out, it is not quite correct that the solicitors were advising the plaintiffs as a result of a requirement of the lender. The plaintiffs were referred to DDS by the plaintiffs' mortgage broker QLS. Further, the purpose of requiring legal advice is not accurately characterised as being to ensure that the loan contract and mortgage were not unjust, but rather as to ensure that the plaintiffs understood the legal and practical consequences of the transaction into which they were entering. The substance of the case which the plaintiffs brought under the Contracts Review Act against Perpetual, articulated in the 14 matters pressed by Mr Leggat and listed in paragraph 56 of the judgment, did not refer to the role of the solicitors. The real burden of the case, which I summarised in paragraph 69 of the judgment, was concerned with whether Perpetual was engaged in asset lending and whether the loan would have been declined had the true circumstances of Mr and Mrs Riz been known to Perpetual, but was approved because of false information provided to Perpetual without their knowledge. It is true that one element in that summary of the case was the Riz's erroneous belief that they would easily be able to service the loan with income from the KSE investment, but I do not consider that the conduct of the solicitors constituted a substantial part of the plaintiffs' Contract Review Act case. I do not think it can be said that the solicitors' negligence was a substantial cause of the litigation. The litigation against Perpetual was brought because the plaintiffs chose to bring it, not because they had to bring it. 7 The second matter pressed on their behalf is that solicitors, so it is said, unlike other unsuccessful defendants, are in a position to determine whether they are liable to the plaintiffs. It was submitted that just as it ought to have been apparent to Ms Jajoo that she had not done enough to bring home the importance to Mr and Mrs Riz of obtaining independent advice, it also ought have been apparent to her that she was in breach of her duty of care. In this context, I do not think I can overlook that, as I have adverted to in my principal judgment, Ms Jajoo and her principals had succeeded in the defence of a number of other claims brought on substantially similar, though obviously not identical, facts to the present case. Mr Leggatt's submissions in the substantive proceedings acknowledged that to hold DDS liable would involve at least some novelty. While I have expressed the view that it ought to have been apparent to Ms Jajoo that she had not done enough, I do not accept, in the context of the litigation once brought, that it ought to have been so apparent to Ms Jajoo that there was a breach of duty of care that the case should not have been defended; the issue was a disputable one as a matter of law. In any event, it does not follow, even if DDS had entertained that appreciation, that they should be visited with the costs of the plaintiffs' unsuccessful cross-claim against Perpetual. 8 The third matter on which Mr Leggat founds is an offer made on 7 July 2006 by Mr and Mrs Riz to all the defendants, and the absence of any counter offer - or, for that matter, any other offer on the part of the solicitors between 2002 and judgment. The offer of 7 July 2006 was not capable of immediate acceptance because it required the concurrence of Perpetual. As Mr Darke points out, it would always have required Perpetual to waive what was, no doubt, by then a substantial prima facie entitlement to its costs. As the offer was not in a form capable of immediate acceptance and required the concurrence of another party which was far from assured, it is not entitled to much weight on the issue of costs. More significantly, whatever significance it might have does not extend to the plaintiffs' costs of their unsuccessful claim against Perpetual. 9 One matter which might, for example, have made a difference on this issue would be if the claim against Perpetual had been brought with the encouragement or at the behest of the solicitors. It is of course not unknown for solicitors to contend that reasonable mitigation by a plaintiff involves bringing a claim under the Contracts Review Act or for unconscionability. However, no such contention was advanced in this case. In circumstances where the solicitors have not encouraged such a course, it was not a reasonable attempt to mitigate to bring this Contracts Review Act claim which, for reasons explained in my principal judgment, I do not regard as having been a strong one. 10 The alternative basis upon which Mr Leggat submits that the plaintiffs ought to recover the costs which they must pay Perpetual from DDS is that they fall within the concept of "costs of default" in paragraph 150 of my principal judgment. By that term I intended to capture the costs to which the plaintiffs were inevitably or reasonably put as a result of going into default, including additional costs or fees which Perpetual as mortgagee might be entitled to recover against them as a result. I did not intend to include costs voluntarily incurred as a result of the plaintiffs taking such action as they might chose. In particular, I did not intend that the costs of the default include the costs which the plaintiffs must pay Perpetual as a result of their unsuccessful Contracts Review Act claim against Perpetual. 11 In any event, I would not regard the costs of the plaintiffs' claim against Perpetual as "reasonable enforcement costs", because they are not costs of enforcement of the mortgage, but rather costs of resisting an attempt to set aside the mortgage, and I would not regard them, on any view, as within the words "costs of default". They are costs incurred by the plaintiffs' determination to attempt to have the mortgage set aside. 12 It follows that I do not accept on any basis the submission that the plaintiffs should be entitled to recover the costs which they must pay Perpetual from DDS. 13 I make the following orders: (1) Order that the plaintiffs' claims against the first and second defendants be dismissed.

Riz & 1 or v Perpetual Trustee Australia Ltd & 4 ors

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Judgment (22 paragraphs)

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