Tarkington Pty Ltd & Anor v Kingdrake Pty Ltd [2000] VSCA 98

Court of Appeal (Vic)|2000-06-01|Before: BROOKING, PHILLIPS and CHERNOV, JJ.A.

Mortgages - Mortgagee's costs and expenses - Costs and expenses claimed in relation to legal proceeding against borrowers and third parties - Whether related to enforcement or attempted enforcement of mortgages - Whether reasonably incurred. Practice and procedure - Appeal - Appellant company de-registered before appeal commenced - Appeal by de-registered company incompetent - Corporations Law, s.601AD(1).

The respondent ("Kingdrake") was the assignee of an Indenture dated 4 August 1989 pursuant to which $400,000 was lent to the appellants, who I shall call the "borrowers". The first appellant ("Tarkington") was a trustee of a family trust of the second appellant ("Nashaar") who was the principal director of the company. Kingdrake was also the assignee of mortgages over leases granted by Tarkington as security for the loan. The leases were of business premises on which mixed grocery businesses were conducted. Each was carried on by a manager appointed by Tarkington. He paid it a fee as well as the rent due to Tarkington's lessor and the outgoings and retained any net proceeds generated by the business.

The borrowers were in default of their payments from about June 1994 and on 26 November 1994 Kingdrake took possession of the leased premises and businesses in the exercise of its powers under the mortgages. It seems that at all relevant times the borrowers contended that Kingdrake did not have the power under the mortgage to take possession of the premises. Kingdrake proceeded thereafter to sell two of the businesses and in respect of another business (which was allegedly "stripped" by Nashaar), it sold its "rights to the lease". It also renegotiated new leases for the purchasers.

It was unable, however, to complete an agreement with the fourth manager for the sale of the business to him (for the sum of $60,000) because the two owners of the premises ("the fourth and fifth defendants") had terminated the lease in November 1994 on account of Tarkington's alleged non-payment of rent and then entered into a contract to sell the premises to John Ferguson ("the third defendant"). Kingdrake claimed that the arrangement between those parties was a sham and was taken for the purpose of assisting Nashaar, who was the third defendant's brother-in-law, and defeating Kingdrake's attempted exercise of its rights under the securities. Kingdrake thereupon brought this proceeding against the borrowers and the third to fifth-named defendants and obtained an interlocutory injunction against the latter restraining the sale to the fifth defendant. Notwithstanding this, the proposed arrangement between Kingdrake and the manager could not be implemented. As a consequence, Kingdrake proceeded against the third to fifth-named defendants for damages for conspiracy, fraud, interference with contractual rights and related causes of action.

After a mediation that was held between the relevant parties in April 1997, Kingdrake discontinued its claim first against the fourth and fifth defendants (in May 1997) and about one year later against the third defendant, although it is not known on what terms it discontinued. It pressed on, however, with its proceeding against the borrowers and the matter was heard in late July 1998.

Kingdrake claimed that part of the debt for which it sued comprised legal expenses incurred by it after 26 November 1994 in relation to its enforcement or attempted enforcement of its rights under the mortgages. It contended that it was entitled to recover those amounts from the defendants under clause 11 of the mortgage which, so far as relevant, is in the following terms:

" ... the Mortgagor shall pay to the Mortgagee on demand all costs charges and expenses ... in relation to the exercise or enforcement or attempted exercise or enforcement of any rights powers or remedies by virtue of this security or otherwise ..."

At the trial the borrowers challenged the correctness of the amount claimed by Kingdrake as a debt, including its entitlement to charge the higher rate of interest. They also challenged Kingdrake's right to be paid the legal expenses in question because, it was contended, those expenses were not incurred in relation to the enforcement or attempted enforcement of the mortgages. It was said that this particularly applied in respect of the legal costs incurred by Kingdrake in pursuing the aborted claims against the third to fifth- named defendants. They further contended that Kingdrake did not have the power under the mortgages to enter into possession of the subject premises and counterclaimed for damages arising from its alleged wrongful entries and for its breach of duty in the exercise of its powers of sale.

In support of its case on the issue of what was due to it by way of principal, interest and legal expenses, Kingdrake relied on a certificate (Exhibit P13) issued under clause 4(c) of the Indenture which showed the debt at $864,501.96. According to clause 4(c) such a certificate was prima facie evidence of the debt due under the Indenture. Kingdrake's counsel also tendered a schedule (Exhibit P12) showing the constituent amounts and how the final figure was calculated. This document was tendered through Mr Kellar, a director of Kingdrake, who had signed the certificate and who was familiar with its business and its accounts. He gave evidence of what was due to the company. Exhibit P12 recorded, inter alia, calculations of interest, payments received by Kingdrake as well as payments made by it to, inter alia, Meerkin & Apel who were Kingdrake's solicitors until about mid 1997. It also showed payments to solicitors for the fourth and fifth defendants (on 20 November 1995 of $7,300) and to solicitors for the third defendant (on 2 April 1997 of $11,800). I will come back to those items later.

Mr Kellar gave evidence about, inter alia, the steps taken by Kingdrake upon its entry into possession to realise its securities and the circumstances in which proceedings were commenced and continued against the third to fifth-named defendants. He was cross-examined both as to substantive issues and as to credit. In the course of the cross-examination he told the trial judge that Kingdrake had discontinued the proceeding against the third to fifth-named defendants because of what he called "commercial reality" and that his company had proceeded against the borrowers in order to protect its securities in circumstances where, inter alia, the third defendant, who was Nashaar's brother-in-law, had admitted to him that they were "in cahoots" with one another in relation to the premises in question. Mr Kellar was also cross-examined about the items shown in Exhibit P12 as legal expenses. He explained that they related, variously, to non-litigious legal expenses such as the preparation of contracts of sale entered into by Kingdrake with the managers for the sale of the businesses as well as to litigious costs referable to this proceeding. It was never suggested to the witness by counsel for the borrowers, however, that any of the legal expenses, including those relating to the aborted proceeding, were unreasonable or that they were unreasonably incurred. It was put only that they were not within clause 11 as relating to the enforcement or the attempted enforcement of the security. Similarly, it was not put to Mr Kellar that there was insufficient particularly in the relevant material. He was asked whether he had accounts for a particular item about which he was then being cross-examined and said that those and "all accounts" could be produced. Perhaps for good forensic reasons, the matter was not pursued by the cross-examiner and the underlying "accounts" were not called for. It is to be borne in mind that at the trial the principal issues canvassed were Kingdrake's entitlement to charge the higher rate of interest and to enter the premises. The claim in respect of legal costs was then of relatively minor prominence. The only question before his Honour in that regard was whether the legal expenses which consisted of litigious and non-litigious expenses and including the costs of the aborted proceeding, related to Kingdrake's enforcement or attempted enforcement of the mortgages.

In so far as is relevant, his Honour held that the prima facie certificate was rebutted, but that was principally because of the way in which interest had been calculated by Kingdrake. His Honour dismissed the counterclaim holding that Kingdrake had been entitled to enter into possession under the mortgages and that it had not breached its duty in the exercise of its powers of sale. As to legal expenses that were set out in Exhibit P12, his Honour said that he was satisfied that they were related to Kingdrake's attempt to enforce its securities and so fell within clause 11.

Accordingly his Honour gave judgment on the claim for $472,897.59 against the borrowers, plus interest and costs. The borrowers appealed, challenging both the judgment given and the dismissal of their counter claim.

According to the notice of appeal the borrowers were challenging the judge's findings that Kingdrake had the necessary power of entry, that it had properly exercised its powers of sale and that Kingdrake was entitled to claim expenses such as insurance costs and legal expenses. All grounds of appeal, however, other than those relating to the decision about legal expenses were abandoned. This was intimated to the Court informally prior to the hearing of the appeal and was confirmed by Mr Bennett, who appeared with Mr Baker for Nashaar, at the hearing.

Grounds 8, 9 and 10 were the only grounds pursued. They read -

"8. His Honour erred in finding that the appellants were liable to pay to the respondent as a debt owed: ... (b) legal costs incurred by the respondent on or after 26 November, 1994. 9. His Honour erred in finding that the legal expenses and costs incurred by the respondent on or after 26 November, 1994 were all incurred in an endeavour to preserve and enforce the respondent's securities. 10. His Honour erred in failing to find that the legal costs incurred or expended by the respondent after 26 November, 1994 were costs that were unnecessarily or negligently incurred by the respondent."

Implicit in ground 9 is the contention that his Honour erred in holding that the aborted proceeding against the third to fifth-named defendants amounted to an attempted enforcement by Kingdrake of its securities. This complaint is repeated in ground 10. These grounds may also cover the assertion that his Honour failed to hold that the various interlocutory costs that Kingdrake was ordered to pay to the defendants did not constitute relevant legal expenses.

It is convenient to deal immediately with the last claim. It now seems common ground that the amounts of $7,300 and $11,800 included in Exhibit P12 and to which I have referred previously, were paid by Kingdrake to the solicitors for the fourth and fifth defendants and the third defendants respectively. Mr Wyles, who appeared for Kingdrake, informed the court that Kingdrake does not seek to recover those amounts and will notionally delete them from Exhibit P12 and from the re-calculation of it that was made in accordance with his Honour's findings and which resulted in the claimed debt (inclusive of the legal expenses referred to earlier) being reduced to $472,897.59 - the amount for which judgment was given on 9 October 1998. The amendment proposed by Mr Wyles will require the deletion of the two sums and a re-calculation of interest so that, in the end, assuming Kingdrake otherwise holds the judgment, Kingdrake will be entitled to something in the order of $445,000. That is all that I need say about this complaint.

Before proceeding I should say something about the position of Tarkington. Notwithstanding that the parties were aware since at least the trial that Tarkington had been earlier de-registered, it was only after an informal inquiry was made of the parties by the Court shortly before this hearing commenced, that we were informed by them that Tarkington was de-registered under s.601AD(1) of the Corporations Law on 4 March 1996 and thus, had ceased to exist from that date. It follows that the appeal by Tarkington is incompetent and cannot proceed (United Service Ins Co Ltd (In Liq) v. Lang[1]; Sweeney & Vanderleur Pty Ltd v. BNY Aust.[2]; and Re Morton[3]). It was accepted by Mr Bennett and by Mr Wyles that Tarkington's appeal must therefore be dismissed and that, whatever the outcome of Nashaar's appeal on the merits, the judgment below would need to be varied so as to delete the references to Tarkington in paragraphs 1 and 3.

The appeal by Nashaar, however, proceeded. Although contending that Nashaar could only be liable to Kingdrake under the Indenture, Mr Bennett accepted that nothing turned on that point with the result that, if he failed on this appeal, Nashaar would be liable for the judgment sum, including so much of it as is made up of the relevant legal expenses.

In my view, none of the three grounds of appeal which were pursued has been made out. In my opinion, his Honour was correct in finding on the evidence before him that Kingdrake's proceeding against the third to fifth-named defendants, although ultimately aborted, amounted to an enforcement by Kingdrake, or an attempted enforcement by it, of the security and that the legal expenses incurred in relation to it were not unnecessarily or unreasonably incurred. So, too, the non-litigous expenses incurred by Kingdrake after 26 November 1994 and those in relation to the proceeding against the borrowers. I have previously referred to the evidence of the conduct of the third to fifth-named defendants which attacked and put in jeopardy the securities held by Kingdrake. It will be recalled that the borrowers maintained that Kingdrake had no power under its security to take possession of the premises and they founded their counterclaim on that contention. 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. The contrary was never suggested to Mr Kellar in cross-examination by the borrowers' counsel. His Honour came to the view that he did after considering all the evidence, including that of Mr Kellar in the course of which he explained his company's conduct in relation to its securities and the legal expenses about which he was asked. His Honour was required to assess his credibility which was attacked by Mr Baker. In my view, no error has been demonstrated in his Honour's reasons for judgment in this regard.

To reiterate, it is my opinion that the grounds of appeal all fail.

Mr Bennett further contended, however, that his Honour was bound to satisfy himself that the legal expenses were properly charged; that, given the lack of particulars about the legal expenses, his Honour could not have been so satisfied; and that, therefore, the judge should have ordered that Kingdrake provide further material before determining the matter. This contention does not fall within the grounds in the notice of appeal and no application to amend was made. Had it been made I would have refused leave. Not only was it entirely novel, the point was unlikely to succeed.

At the trial, counsel for the borrowers did not seek an order for particulars from his Honour and, as I have mentioned, decided not to avail himself of Mr Kellar's offer to produce his company's accounts. Moreover, it was not suggested that the matter should be referred to the Taxing Master or to an expert or referee for assessment. His Honour had evidence before him in the form of Exhibit P12 and Mr Kellar's explanation as to the incurring of the legal costs set out in that document. It was clearly open to his Honour to act on that evidence and he did so. That he did not, of his own volition, call for further particulars, does not constitute any relevant error on his part. Mr Bennett relied on Pangas v. Permanent Trustee Aust. Ltd. [4]where Santow, J., effectively required the provision of further particulars. But his Honour was there concerned with the right of a mortgagor to the taking of accounts as between himself and the mortgagee. In that context, it was understandable that his Honour called for further particulars, but that is a far cry from the present situation where the proceeding is very different.

Mr Bennett further submitted that, since there was no stipulation to the contrary in the agreements between the parties, Kingdrake was only entitled to claim legal expenses on a party-party basis (see Gomba Holdings (UK) Ltd v. Minories Finance Ltd.[5]). It was argued by him that there was no evidence that the legal expenses were limited to party-party costs and that, therefore, his Honour could not have found that they were properly incurred. If it be accepted for present purposes that Kingdrake was only entitled to claim legal expenses on a party-party basis, it was never suggested to Mr Kellar, or otherwise to his Honour, that the legal expenses put forward through Exhibit P12 were other than party-party costs - and indeed Mr Bennett agreed that they might even have been less than party-party costs. If the borrowers wished to contend that the legal expenses went beyond party-party costs, this should have been raised at the trial so that Kingdrake could have the opportunity to lead evidence to meet such assertion. The matter was not so raised. Again, this contention is not covered by the grounds in the notice of appeal

and no amendment was sought. Had it been, I would have refused it. It is too late

on appeal to seek to raise such a point for the first time.

Mr Bennett sought to add to the Appeal Book a transcript of final addresses and the submissions to his Honour both before and after he had given his reasons for judgment, and after Kingdrake had re-calculated its claim in accordance with his Honour's reasons. This material included submissions which his Honour was at liberty to accept or reject, and material which related to Mr Bennett's submissions which have already been examined. In my opinion, this material would not assist in the resolution of this appeal and we should not receive it.

There is one further matter I should mention. Mr Bennett, understandably, raised the concern that there might be duplication by reason of Kingdrake's entitlement to legal expenses under clause 11 of the mortgage and to costs of the proceeding as ordered by his Honour. It seems clear enough that Kingdrake could not recover its costs twice. Mr Wyles disavowed any such intention and suggested that, to put the matter beyond doubt, paragraph 3 of the judgment should be altered so as to order Nashaar to pay Kingdrake's costs of the proceeding as between itself and Tarkington (until 4 March 1996) and Nashaar to the extent that Kingdrake established that those costs are not included in the judgment sum referred to in paragraph 1 of the judgment. In my view, this practical suggestion should be given effect.

For the above reasons, therefore, it is my view that the Nashaar appeal should be allowed for the limited purposes referred to, but otherwise it be dismissed with costs.

The Court is constrained to rise a little early and we will dispose of this appeal by making orders at half past 2 this afternoon.

We will hand down some minutes of proposed orders, one for counsel and one for Mr Nashaar. The blank amount to be inserted, of course, in paragraph 2(a), is $445,000.

Yes, Your Honour. The respondent is content with those orders, Your Honour.

Yes. Mr Nashaar, these are the orders which we propose to make. The first part of it, under the heading "Other Matters", records what happened and the second part of the page, under the heading "Orders", shows the orders which we propose to make and the orders are, in substance, the dismissal of the appeal by the company, that being done on the basis that a company which does not exist cannot appeal; secondly, the allowing of your appeal for the purpose of giving you the reduction in the judgment which it is accepted should be given to you - so it has reduced the judgment to $445,000 - and by adjusting the order for costs so as to limit the order for costs as regards the proceedings against the company to the period ending 4 March 1996, when it ceased to exist, and so as to limit the costs generally to the costs which the plaintiff establishes or shows have not been included in the amount awarded, $445,000, and otherwise the appeal is to be dismissed.

The appeal will be dismissed with costs, as I did not mention to Mr Nashaar but is shown in the minutes.

We will make orders in accordance with the minutes inserting the amount of "$445,000" in the appropriate place. I have initialled a copy of the minutes, which will remain on the file.

The formal order will record under "Other Matters" the things which are shown in the minutes.

[1] (1935) 35 S.R. (N.S.W.) 487 at 495-7 per Jordon, C.J.

[2] (1993) 11 A.C.S.R. 356 at 359-60 per Cole, J.

[3] (1998) 21 A.C.S.R. 497 at 514 per Sackville, J.

At a glance

Court

Decision date

Before

Source

Judgment (41 paragraphs)

Parties

Cited By (1)