Supreme Court of WA|2000-05-16|Before: Wheeler J, Owen J

Rumball & Ors v Mortimore [2000] WASC 126 (16 May 2000)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : RUMBALL & ORS -v- MORTIMORE [2000] WASC 126

Procedure - Costs - Recovery action by mortgagee - Indemnity costs sought but not granted - Whether costs order overrode contractual right to costs under mortgage

Collins v Westralian Sands (1993) 9 WAR 56

Department of Health & Social Security v Envoy Farmers Ltd [1976] 1 WLR 108

Mosman Park v Walker (1991) 73 LGRA 30

Reichel v McGrath (1889) 14 App Cas 665

Somasundaram v M Julius Melchoir & Co [1988] 1 WLR 1394

1 OWEN J: This is an application by originating summons by the plaintiffs seeking declarations in respect of the defendant's liability for costs pursuant to a mortgage agreement between the plaintiffs and the defendant.

2 On 28 October 1992 the defendant (as trustee of the C W Mortimore Family Trust) executed a mortgage in favour of the Bank of Western Australia (then R & I Bank of Western Australia Ltd) ("BankWest"). In November 1992 the mortgage was registered on the title to the defendant's land and was given the number F38542. By a deed of assignment undated but stamped 6 October 1997 BankWest assigned the mortgage to the plaintiffs. The plaintiffs commenced enforcement proceedings ("the Action") in respect of the mortgage in October 1997. During those proceedings, the mortgaged property was sold and from the proceeds a fund of $200,000 was set aside as substitute security, in accordance with the mortgage agreement. On 17 August 1998, Master Ng gave judgment in favour of the plaintiffs, pursuant to an application for summary judgment.

3 The terms of the mortgage provide that the mortgagor agrees to pay the mortgagee's costs arising from an act of default "including in each case, without limitation, legal costs and expenses on a solicitor and own client basis", and separately indemnifies the mortgagee in respect of these costs. As part of their application for summary judgment, the plaintiffs sought an order that the plaintiffs' costs of the Action be paid by the defendant on an indemnity basis. Counsel for the plaintiffs submitted to the Master that, although the usual order for costs is on a party and party basis, it was appropriate to award costs on an indemnity basis, so as to reflect the terms of the mortgage. The defendant objected to the variation, and a "compromise" order was suggested. Both parties agreed to the "compromise", and the Master made the following costs order:

"The defendant pay the plaintiffs' costs of the [A]ction, including all reserved costs, except costs of 1 May 1998, to be taxed, with the proviso that the taxing officer shall not be bound by the maximum permissible under the scale if satisfied that the plaintiffs' reasonable costs exceed the scale."

4 The taxation of the plaintiffs' bill of costs was completed on 11 March 1999. Notice of objection to taxation was filed pursuant to O 66 of the Rules of the Supreme Court. On reconsideration, the taxing officer confirmed the taxation of those costs. The plaintiffs then applied to a Judge of this Court for a review of the decision of the taxing officer. On 22 June 1999 Wheeler J dismissed that application for review. The amounts repayable for principal and interest, together with taxed costs of the Action as determined by the taxing officer, were subsequently paid out of the substitute security fund.

5 By a minute of proposed orders filed 26 August 1999, the defendant sought orders that the balance of moneys held in the fund be paid out to the defendant. By chamber summons dated 3 September 1999, the plaintiffs sought a special order entitling them to the balance of their costs, being their solicitor and client costs, on the basis that Master Ng's order was made only as between party and party, leaving open the question of solicitor and client costs. Both applications were heard by special appointment before Master Sanderson on 18 October 1999. The Master made orders in terms of the plaintiffs' summons, and adjourned the defendant's application sine die because of the fact that, having made an order allowing costs as between solicitor and client, the consideration of the costs of the action had not been exhausted.

6 The defendant then applied to recall Master Sanderson's order. In the meantime, on 10 November 1999, the plaintiffs filed this originating summons finally to determine the remaining liability, if any, of the defendant for the costs and expenses incurred by the plaintiffs. The plaintiffs seek the following orders:

1. A declaration that the defendant is now liable to pay legal fees and disbursements to the plaintiffs.

2. Consequential and other relief including but not limited to:

(a) an order that funds held in trust for the parties to be paid to the plaintiffs to the extent allowed on taxation as between solicitor and client;

(b) an order that the plaintiffs' costs and disbursements as rendered to the defendant be taxed by a taxing officer of the Court including the cost to the plaintiffs of drawing and taxing the bill including preparation for and taxation of the bill; and

7 On 1 December 1999 Master Sanderson agreed to recall his order of 18 October 1999 and adjourned the plaintiffs' application until the determination of the question of costs had finally been resolved by this originating summons.

8 The plaintiffs contend that the defendant is liable to pay the balance of their costs, being:

(a) non-litigation costs arising from the defendant's default; and

(b) the remainder of their costs arising from the Action, being their solicitor and client costs.

9 The primary submission for the plaintiffs is that they have a contractual right to these costs, by virtue of the terms of the mortgage agreement, which is unaffected by Master Ng's costs order. It was submitted that Master Ng's order is confined to the costs of the Action, and silent as to the plaintiffs' entitlement to costs under the mortgage. So, according to the plaintiffs, the defendant remains liable to pay those costs incurred by the plaintiffs which were not dealt with in Master Ng's order.

10 Counsel for the defendant contended, however, that Master Ng's order finally determined the question of liability for costs between the parties. The defendant submits that Master Ng's order dealt with the plaintiffs' right to costs in relation to both the Action and the contractual document, being the mortgage. The defendant pointed out that the issue of the plaintiffs' contractual right to costs was raised before Master Ng, and that he declined to make an order for indemnity, solicitor and client, or non-litigious costs. Instead, the Master made a "compromise order" which the defendant submits takes account of the plaintiffs' contractual right to costs, and of which counsel for the plaintiffs and the defendant expressed their approval. The defendant asserts, therefore, that no question of remaining liability as to costs is left open by the Master's order and that the present application amounts to a collateral attack upon a final decision of the Master.

11 It seems to me that there are three principal issues for resolution:

1. Did Master Ng's order deal with the plaintiffs' right to costs under the mortgage?

2. If so, did Master Ng's order finally determine the question of liability for costs between the parties?

3. If not, are the plaintiffs entitled to the balance of their costs, as claimed?

12 I will deal with each of these issues in turn. Before doing so, I should say something about costs orders in general.

The basis upon which the costs of an action are assessed

13 Order 66 of the Supreme Court Rules 1971 (WA) sets out the general rules as to the basis upon which the costs of an action are assessed, but it does not say how the discretion should be exercised in particular cases. There is a useful summary of the generally accepted ways of assessing costs in Bank of Western Australia Limited v Ponga, unreported; (Master Sanderson) SCt of WA; Library No 980697; 2 December 1998 at 6:

"[I]t is generally accepted that there are at least three different ways that costs can be assessed. The most common way is that costs are on a party/party basis. Where an order for costs is made in proceedings this is the basis upon which the costs will be taxed, although there appears to be nothing in O 66 to this effect. The second form of order is that costs should be on a solicitor/client basis. The meaning of this form of order is considered in Seaman: Civil Procedure WA at par 66.1.14. The learned author puts the position as follows:

'An order may be made that costs be paid by one party to the other upon a solicitor and client basis with the result that the costs are taxed on a more generous basis than party and party costs. The form of the order is that the plaintiff (or defendant) pay the costs of the defendant (or plaintiff) to be taxed as between solicitor and client.'

Finally, there is indemnity costs. Referring again to Seaman, this time at par 66.1.16, the learned author says as to indemnity costs:

'If costs are awarded on an indemnity basis against a party, he will pay all the costs incurred by his opponent except insofar as they are of an unreasonable amount or have been unreasonably incurred so that, subject to these exceptions, the opponent is completely indemnified for its costs.'"

14 Section 37(1) of the Supreme Court Act 1935 (WA) reads as follows:

"Subject to the provisions of this Act and to the Rules of Court and to the express provisions of the Local Courts Act 1904, or any other Act, the costs of and incidental to all proceedings in the Supreme Court ... shall be in the discretion of the Court or Judge, and the Court or Judge shall have full power to determine by whom or out of what estate, fund, or property, and to what extent such costs are to be paid."

15 The Court has a broad discretion over the basis upon which it orders the costs of an action. However, where the parties to an action are also parties to a contract which contains plain and unambiguous provisions allowing for costs to be paid on a certain basis, the Court should ordinarily exercise its discretion in a manner consistent with the contractual provisions: see Citibank Savings Ltd v Nicholson, unreported; FCt SCt of SA; 1 April 1998; Bank of Western Australia Limited v Ponga; Gomba Holdings (UK) Ltd v Minories Finance Pty Ltd (No 2) [1992] 4 All ER 588. In Citibank Savings Williams J (with whom Cox and Mullighan JJ agreed) said, with particular reference to proceedings between mortgagee and mortgagor, at 3:

"[T]he terms of any costs order in favour of a successful mortgagee should ordinarily reflect the terms of any special bargain contained in the mortgage contract ... [T]here will [however] be special occasions where policy considerations may call in question the enforceability of a particular contractual provision ..."

16 In ANZ Banking Group (New Zealand) Ltd v Gibson [1986] 1 NZLR 556 the New Zealand Court of Appeal was dealing with a provision in a guarantee allowing for costs to be paid by a guarantor on a solicitor/client basis. Richardson J said, at 566:

"The undertaking of the guarantee for payment of costs of enforcement on a solicitor/client basis is in my view an extending provision intended to entitle the Bank to indemnity with respect to legal expenses properly incurred by it in relation to a recovery action under the guarantee. Clearly that contractual obligation is enforceable unless contrary to public policy and I am unable to see how this contractual arrangement could be said to impede the administration of justice or otherwise be contrary to any discernible public policy considerations. To put the point affirmatively, why should a lender be out of pocket as a result of a failure to pay when the parties have expressly provided that they should be indemnified in the event of default by the other."

17 In both Citibank Savings and Gibson the court made reference to "policy considerations" which may militate against the court exercising its discretion to make a costs order in accordance with the basis provided for in the contract. In general, a costs order will not allow a party to recover costs which were improperly or unreasonably incurred or improper or unreasonable in amount, notwithstanding what is provided for by the contract: see Gomba Holdings at 601 - 602. Furthermore, a mortgagee will forfeit his contractual right to his general costs of an action on the mortgage if his conduct has been "[so] ... inequitable ... as [to] amount to violation or culpable neglect of his duty under the contract": per Lord Selbourne LC in Cotterell v Stratton [1872] LR 8 Ch App 295 at 302 (followed in Union Finance Association Ltd v Howarth (1903) 4 SR (NSW) 31; Re Shanahan (1941) 58 WN (NSW) 132; Shercliffe v Engadine Acceptance Corporation Pty Ltd (No 2) (1982) 3 BPR 9207; Sandtara Pty Ltd v Australian European Finance Corporation Ltd (1990) 20 NSWLR 82; Gomba Holdings; Citibank Savings).

18 As noted above, the mortgage agreement between the plaintiffs and defendant contained provisions that the mortgagor to pay the mortgagee's costs "including in each case without limitation legal costs and expenses on a solicitor and own client basis". Master Ng's costs order, however, was not made in those terms. Instead, the order is more like a standard party and party costs order although it contains a proviso that the taxing officer may lift the scale "if satisfied that the plaintiffs' reasonable costs exceed the scale". The parties agree that this is the nature of the order made. That was the view taken by the taxing officer, and confirmed by Wheeler J.

19 Given that there is no question of disentitling conduct on the part of the plaintiffs, it is perhaps a little unusual that Master Ng did not follow more closely the terms of the mortgage. However, it must be borne in mind that the order arose out of discussions between the parties and was in the form of a "compromise". The appropriateness of the order is not in dispute. The contest concerns the meaning and application of the order.

The Order and the Plaintiffs' Right to Costs under the Mortgage

20 The plaintiffs essentially claim that the reason why Master Ng's order does not more closely reflect the costs provisions of the mortgage is that the Master simply did not deal with those provisions in making his order. On the other hand, the defendant contends that whereas Master Ng's order may not follow the form of the costs provisions of the mortgage, it nevertheless deals with them. To determine this issue it is necessary to examine the transcript of argument before Master Ng in relation to costs.

21 At 139 the Master said that judgment should be entered for the plaintiffs and that costs be "as asked". The Master explained, at 141, that his order that costs be "as asked" meant "as asked on [the] application for summary judgment". Counsel representing the defendant opposed that order, which was for costs on an indemnity basis, submitting that it would be "most extraordinary" to award costs on such a basis in respect of a summary judgment application. However, the costs order on the application sought costs on an indemnity basis in respect of the Action, and not simply of the application. It is not clear that counsel for the defendant appreciated this difference. He appeared to base his ensuing argument on principles which relate particularly to the costs of summary judgment applications.

22 The Master then sought clarification as to the special costs order requested by the plaintiffs, and the basis upon which such an order should be made. At 143, counsel for the plaintiffs directed the attention of the Master to par 4 of the summary judgment application, in which the plaintiffs sought an order that "the defendant pay the plaintiffs' costs of the [A]ction on an indemnity basis". Counsel for the plaintiffs then referred to the specific terms of the mortgage that provided for the mortgagor to pay the mortgagee's costs "including in each case, without limitation, legal costs and expenses on a solicitor and own client basis". It was then submitted on behalf of the plaintiffs that the plaintiffs were entitled to a variation of the usual party and party costs order on the basis of those terms. The Master responded by commenting, perhaps rhetorically, "so it is expressly provided for in the mortgage agreement," and acknowledged that he had "overlooked that ... [and] par 4" of the summary judgment application.

23 In his reply at 144 - 145, counsel for the defendant continued to object to an order awarding costs on an indemnity basis, but suggested a "compromise" in the form of an order allowing the taxing officer "to go beyond the bounds of the scale ... if the taxing officer [could] be satisfied that more work was done than might normally fall within the allowance for proceedings in chambers". After some discussion as to whether such an order would be satisfactory to both parties, and if so, in what terms, the Master finally settled the "compromise" order. I have already set out in full the text of the order. I should note that in the course of that discussion, Master Ng remarked, at 146, that "[in] empower[ing] the taxing officer to go beyond the scale ... we will sort of circumvent the issue of indemnity costs" and that "notwithstanding it is a proviso in the mortgage agreement, ... [the issue of costs] is still a discretion of the court".

24 It is clear from the transcript that Master Ng was aware of the plaintiffs' entitlement to costs under the mortgage, if not at first then by the time he made the order. It is also clear that the plaintiffs' application for costs specifically requested that the Master make a special order so as to take account of the relevant mortgage provisions. In my view, the Master acquiesced to the plaintiffs' request by making a special costs order in recognition of the terms of the mortgage. Although the order was not in the form initially sought by the plaintiffs, the Master nonetheless deliberately added a proviso to what would otherwise have been a standard party and party costs order.

25 This interpretation of events explains the Master's comments which apparently acknowledge the principle that where there is a contractual right to costs, the costs order should reflect that right, but that the court always retains an ultimate discretion as to the basis upon which it orders costs. This reflects s 37 of the Supreme Court Act 1935.

26 I do not find this to be a case where the Master was silent as to the contractual right to costs. It cannot be said that the lack of explicit reference to the plaintiffs' contractual right to costs in Master Ng's order means that the right was not dealt with by the order. In my opinion, the course of argument preceding the making of the order, during which the terms of the mortgage are discussed, indicates that the order was intended to deal with the right.

27 Counsel for the plaintiffs suggested that the reasoning of Wheeler J is consistent with the argument that the Master omitted to take account of the plaintiffs' right to costs under the mortgage in his order. In particular, reference was made to Wheeler J's comment that "the plaintiffs may yet have a contractual right to recover costs in excess of those recoverable pursuant to the order of Master Ng": see Rumball & Ors v Mortimore [1999] WASC 66 at 5. The context in which that comment was made must be considered. The relevant passage is as follows:

"I accept that where there is a contractual right to costs, the discretion should ordinarily be exercised so as to reflect the contractual right_: Bank of Western Australia Ltd v Ponga_. I accept also that the discretion of the court in respect of orders as to costs does not deprive the plaintiff of any contractual right it may have under the security: Gomba Holdings at 607 per Scott LJ. However, these propositions simply mean that the plaintiffs would have had an arguable basis for resisting the costs order made by Master Ng and for appealing it if it had been made over the plaintiffs' objections, and that the plaintiffs may yet have a contractual right to recover costs in excess of those recoverable pursuant to the order of Master Ng. Neither of those propositions of law can govern the meaning and effect of the Master's order if it is otherwise clear, as in my view it is."

28 I think it is a fair reading of this passage that her Honour was making the observation that the plaintiffs may have had grounds to appeal Master Ng's costs order, by reference to Bank of Western Australia Limited v Ponga and Gomba Holdings, and it is in that sense that the plaintiffs "may yet ... recover costs" under the mortgage agreement. I do not interpret the passage as saying that the plaintiffs may still rely on their contractual right to recover costs because the Master omitted to deal with that right. It is also to be noted that her Honour does not comment on the type or nature of the expense items that might fall to be recovered under the contractual right. I will return to this point a little later.

29 It is correct, according to Gomba Holdings at 607, that the plaintiffs would have retained their contractual right to costs if Master Ng failed to deal with it in making his special costs order because:

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

30 However, as I have indicated, I do not think that Master Ng's order was made without any such reference or adjudication.

31 The next question is whether Master Ng's order finally determined the issue of liability for costs between the parties. It does not necessarily follow that because I have found that the order took account of the plaintiffs' right to costs under the mortgage, this question is to be answered in the affirmative. The Master's order can only be said to have finally determined the issue of liability of costs between the parties if it dealt with all costs issues between the parties. In my view, it did not. The order refers solely to "the costs of the [A]ction", and it is clear from the transcript that the order was only intended to deal with those costs. On that basis, I find that the order finally determined the parties' liability only as to the costs of the Action but not as to the non-litigation costs arising from the defendant's default.

The Plaintiffs' Entitlement to the Balance of Their Costs

32 Counsel for the plaintiffs contended that the defendant is still liable to pay the balance of the plaintiffs' costs, by virtue of the terms of the mortgage, being:

(a) non-litigation costs arising from the defendant's default; and

(b) remaining costs arising from the Action, being their solicitor and client costs.

33 If, as I have found, the costs of the Action were finally determined by Master Ng's order, then the plaintiffs cannot recover their remaining costs arising in and from the Action. The plaintiffs applied for, but were not granted, costs on an indemnity basis. This must be given some meaning. In this jurisdiction there is not a great deal of difference between indemnity costs and costs taxed on a solicitor and client basis: see Stobbart v Mocraj & Ors [1999] WASC 252 at 6 - 7. The plaintiffs' party and party costs have been dealt with by the Master's order. If the plaintiffs were now permitted to recover their remaining solicitor and client costs arising in and from the Action, it would give no substance to the Master's refusal to grant indemnity costs.

34 However, there is nothing in the exchanges between the Master and counsel to suggest that non-litigation costs incurred as a result of the defendant's default were decided. They are, therefore, governed by the terms of the mortgage. As such, the defendant is still liable to pay those non-litigation costs to the plaintiff.

35 I see no tension between this conclusion and the conclusion that Master Ng's order took account of the plaintiffs' right to costs under the mortgage. It also gives some operation to the comment of Wheeler J, to which I have previously referred, that the plaintiffs "may yet have a contractual right to recover costs in excess of those recoverable under the Master's order": Rumball & Ors v Mortimore at 5. Under the mortgage the plaintiffs have a right to all costs they have incurred as a result of the defendant's default. Accordingly, the plaintiffs' contractual right to costs arising from the defendant's default other than the costs of the Action remains unaffected by the order. In other words, the order only dealt with the plaintiffs' contractual right to costs in so far as that right related to the costs of the Action.

36 The plaintiffs are entitled to a declaration that the defendant is liable to pay non-litigation costs arising from the defendant's default to the plaintiffs. Consequently, I order that:

1. The defendant pay to the plaintiffs, from the substitute security fund, the plaintiffs' non-litigation costs incurred as a result of the defendant's default.

2. The non-litigation costs incurred as a result of the defendant's default be taxed if not agreed, and that they include the costs to the plaintiffs of the preparation and taxation of the bill (if necessary).

3. The balance of moneys held in the substitute security fund be paid out to the defendant.

Court Rules 1971(WA)

Rumball & Ors v Mortimore [2000] WASC 126

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Judgment (72 paragraphs)

Rumball & Ors v Mortimore [2000] WASC 126 (16 May 2000)

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