AJH Legal Group Pty Ltd v Mbachilin (No 2)

[2022] VCC 1365

IN THE COUNTY COURT OF VICTORIA

AT Melbourne

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

Expedited List

Case No. CI-21-02627

AJH Legal Group Pty Ltd	Plaintiff
v
Godwin Ikpi Mbachilin	First defendant
and
Doom Sonia Shaakaa	Second defendant
and
Westpac Banking Corporation	Third defendant
And
Prospa Advance Pty Ltd	Fourth defendant
and
Southern Cross Austereo Pty Ltd	Fifth defendant

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JUDGE:	His Honour Judge Woodward
WHERE HELD:	Melbourne
DATE OF HEARING:	15 August 2022, submissions on final orders dated 23 August 2022
DATE OF RULING:	25 August 2022
CASE MAY BE CITED AS:	AJH Legal Group Pty Ltd v Mbachilin & Ors (No 2)
MEDIUM NEUTRAL CITATION:	[2022] VCC 1365

RULING ON COSTS
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Subject:COSTS

Catchwords:          Costs following trial – costs in priority

Legislation Cited:         Property Law Act 1958 (Vic), s105

Cases Cited:Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1988) 84 ALR 734; Chen v Kevin McNamara & Sons Pty Ltd [2012] VSCA 229; Across Australia Finance Pty Ltd v Kalls [2008] NSWSC 783; Re a Solicitors’ Bill of Costs: Re Shanahan (1941) 58 WN (NSW) 132

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APPEARANCES:	Counsel	Solicitors
For the plaintiff	Dr M Sharpe	AJH Legal
For the first defendant	Godwin Mbachilin – in person	-
For the second defendant	Doom Sonia Shaakaa – in person	-
For the third defendant	No appearance	-
For the fourth defendant	No appearance	-
For the fifth defendant	No appearance	-

HIS HONOUR:

Background to ruling

1Following the trial in this proceeding held on 15 August 2022, I handed down my reasons for judgment on 19 August which included my proposed orders reflecting my reasons (“Judgment”).[1] Terms used in this ruling have the meanings in my Judgment. In my Judgment and in subsequent email correspondence from my chambers, I invited parties to provide written submissions should they be of the view any further or other orders should be made.

[1]        AJH Legal Group Pty Ltd v Mbachilin & Ors [2022] VCC 1323

2AJH provided submissions seeking additional orders for interest on the Judgment amount, and for an order to the effect that the disbursements it incurred in this proceeding to be included as part of the sums payable first out of the proceeds of sale of the Property. None of the defendants have elected to make submissions. For my reasons below, I am satisfied that the additional orders sought by AJH should be made, and I will order accordingly.

Interest

3Counsel for AJH has helpfully provided the table below to reflect the re-calculation of the principal amount and the interest accrued.

Date From	Date To	Principal Amount	Interest rate	Interest Amount
28 June 2021	29 June 2021	$123,664.20	10%	$67.76
30 June 2021	11 August 2022	$123,414.20	10%	$13,795.34
12 August 2022	18 August 2022	$113,314.20	10%	$217.31
19 August 2022	23 August 2022	$112,964.20	10%	$154.75
Total:				$14,235.16

4I accept these calculations as accurate and will add interest to the Judgment amount accordingly.

Costs in priority

AJH submissions

5AJH claims its costs in the proceeding in priority to all other claims against the proceeds of sale of the Property, but is content to limit its costs to the disbursements it has incurred in the proceeding. AJH has provided particulars of those disbursements and supporting invoices, and I am satisfied that those disbursements are proven. There are two alternative grounds advanced by AJH on this issue. First, it notes that unless the Court otherwise orders, a party who sues as mortgagee of a property is entitled to the costs of the proceeding out of the mortgaged property, insofar as the costs are not paid by another party.[2] It argues that this principle extends to its costs in this proceeding.

[2]Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1988) 84 ALR 734 (“Elders”), positively cited in Chen v Kevin McNamara & Sons Pty Ltd [2012] VSCA 229 (“Chen”) at [10]

6Second, it submits that the steps taken by AJH in this proceeding for the purpose of obtaining orders for judicial sale of the Property have been to the benefit of the “puisne mortgagees” that would otherwise “have been left to wait” until action was taken in order to realise their securities. Accordingly, the court should “regard the payment of costs reasonably and properly incurred by [the Plaintiff] as a charge on the fund with priority over mortgage debts”.[3]

[3]        Across Australia Finance Pty Ltd v Kalls [2008] NSWSC 783 (“Across Australia”) at [53]

Priority as mortgagee

7It is well established that a mortgagee is entitled to its costs, charges and expenses incurred as incidental to the sale of property (following the discharge of any prior incumbrances that are not made subject to the sale).[4] Further, I accept that when an action for recovery has been caused by the default of the mortgagor, there can be recovery of all costs and expenses. However, there are two obstacles to AJH recovering its costs on this basis in this proceeding.

[4]        Property Law Act 1958, s105

8First, AJH did not sue as a mortgagee, but as a holder of a charge over the Property. Second, and more importantly, the relevant clause in the Deed of Charge provided that Mr Mbachilin and Ms Shaakaa charged their interest in the Property:

“…as security for

(a)    payment to [AJH] for the professional costs and disbursements payable under the

(i)the [Costs Agreement];

(ii)the [Disclosure Statements]

together with interest (if any) pursuant to rate fixed under Section 2 of the Penalty Interest Rates Act 1983 (Vic) and additionally relating to costs associated with:

i.the registration of the Caveat at Land Use Victoria; and

ii.withdrawal of the Caveat upon payment of all monies required to be paid under this Deed of Charge.”

Notably, the Deed of Charge does not extend to any costs associated with the enforcement of the Deed of Charge.

9Both the authorities relied upon by AJH involved express clauses regarding costs within the relevant contract. In Elders, the mortgage required the mortgagee to pay on demand all costs and expenses, including as between solicitor/client, incurred by the mortgagee in consequences or on account of any default of the part of the mortgagor. In Chen, the Building Agreement required the Owner to pay to the Contractor “any costs and fees incurred by the Contractor in enforcing its rights under the Agreement”.[5]

[5]        Chen at [3]

10In Elders, the court held that the first respondent, in defending the action bought by the appellant to avoid the mortgage, incurred costs and expenses, which it did so both for the preservation of its security and in a manner in reference to the security. The court relied upon the decision of Street J in Re a Solicitors’ Bill of Costs: Re Shanahan,[6] in which his Honour noted that the clause in question had the widest possible nature, which:[7]

“…imposes on mortgagors an obligation to pay something in addition to those costs and expenses which they would be liable at law or in equity to pay, and would appear to be designed to impose upon the mortgagors a higher obligation than would be imposed upon them by the rule as stated in the cases to which I have referred. They are bound to pay on demand all costs and expenses which the mortgagees might not ordinarily be entitled to recover from the mortgagors at law or in equity, if those costs and expenses were incurred on account of any default on the part of the mortgagor, or for the preservation of the security…”

[6] (1941) 58 WN (NSW) 132

[7] Ibid at [136]

11Redlich JA in Chen also cited the above passage and noted that costs orders made in favour of a successful mortgagee reflected the terms of any special bargain contained in the mortgage contract.[8] However, his Honour observed that where the terms of the relevant guarantee did not sufficiently specify the nature of the costs, only party and party costs should be awarded.[9]

[8]        Chen at [10]

[9] Ibid at [11]-[13]

12Having regard to these matters, I have serious reservations as to whether the principles discussed in Elders and Chen apply to the facts of this case and justify the order on costs that AJH now seeks. However, it is not necessary for me to reach a concluded view on this, because I am satisfied that AJH’s alternative basis for the order is made out, as discussed below.

Priority based on benefit to “puisne mortgagees”

13Dr Sharpe submits that AJH’s actions are analogous to that of the plaintiff in Across Australia. In particular, she argues that AJH’s steps in this proceeding have ultimately benefitted each of the third, fourth and fifth defendants as “puisne mortgagees”, including Westpac (the third defendant) as prior registered mortgagee. I agree. In particular, Westpac had exercisable rights in relation to the sale of the Property but had not elected to act on those rights.

14In Across Australia, NAB was the holder of the first registered mortgages over two properties and the plaintiff held subsequent unregistered mortgages. The plaintiff sold the properties pursuant to orders from the Court. In relation to the plaintiff’s claim that it should have its costs of the enforcement proceeding paid in priority to NAB and the other puisne mortgagees Bryson AJ held as follows (citations omitted):[10]

“Evidence of Across Australia’s solicitor shows that Across Australia has incurred legal costs and expenses relating to this litigation and the sale of the Pyrmont property, which have not all been paid. When the sale of the Rose Bay property was completed on 30 August 2007 real estate agent’s commission, conveyancing costs and similar charges were paid out of the proceeds of sale before payment to NAB of the balance of $2,134,811.75. Before completion of the sale of the Pyrmont property took place Across Australia gave to the Court, in these proceedings, an undertaking which specified how the proceeds of sale were to be applied; accordingly when the sale was settled on 28 March 2008 the proceeds were applied to pay charges relating to the property and $1,936,335.81 was paid to NAB. The charges and expenses paid in this way were municipal and water rates, outstanding strata fees and land tax, the first mortgagee's legal costs and discharge and agents’ commission. Across Australia also incurred marketing costs of $15,279.41 to its estate agents and conveyancing costs of $5,494.35 to its solicitors. In the ordinary course of business these would have been paid out of the proceeds of sale but the terms of the undertaking prevented this. For the purposes of the marshalling exercise, the proceeds of Rose Bay should first be charged with the conveyancing costs and marketing costs, that is $21,044.95.

Across Australia has also incurred legal costs relating to these proceedings. Its solicitor has set out on affidavit the amounts of five tax invoices related to costs of these proceedings, the most recent dated 2 April 2008; the total is $111,426.61. Across Australia has remedies in respect of these costs; it is no doubt entitled under the mortgage clauses to payment of these costs by Mr Kalls; and Across Australia has the benefit of an order for costs made in the proceedings against Mr Kalls. As Mr Kalls is a bankrupt there can be no confidence that these entitlements will actually produce any payment. In my opinion costs reasonably incurred by Across Australia in conducting this litigation up to the tax invoice of 2 April 2008 should be seen as expenses which it was necessary to incur to produce the fund now under dispute. In the absence of exercise by NAB of its powers of sale as first mortgagee, proceedings for judicial sale by Across Australia or some puisne mortgagee were necessary to produce any results for puisne mortgagees; neither Mr Hill nor Across Australia could use the powers of sale under the Real Property Act 1900 available for holders of registered mortgages. If proceedings for judicial sale had not been brought, the puisne mortgagees would have been left to wait until NAB took some action to realise its securities; it is not known how long that would have taken, but preserving the positions of puisne mortgagees would not have been a factor in NAB’s course of action. Interest liabilities to NAB at default rates would have increased for an unknown period of time adversely to puisne mortgagees. In these circumstances the Court should in my opinion regard the payment of costs reasonably and properly incurred by Across Australia up to 2 April 2008 as a charge on the fund with priority over mortgage debts.”

[10]Across Australia at [52]-[53]

15In my view, AJH is in a directly analogous position to the plaintiff in Across Australia and it should have the benefit of an order to the same effect as that proposed by Bryson JA. I am reinforced in that view by the fact that AJH is seeking only its disbursements in priority over other mortgage debts, and not its own costs of conducting the proceeding.

Orders

16I will therefore order as follows:

(a)   There is judgment for the plaintiff in the sum of $127,199.36, which sum includes interest to the date of judgment of $14,235.16.

(b)   The plaintiff, through Wodonga Real Estate Best Agents (namely, Ms Silviya Saric), shall conduct the sale of the property located at 21 McCarthy Street, Wodonga in the State of Victoria more particularly described in Certificate of Title Volume 11361 Folio 125 (“the Property”) by public auction within 60 days from the date of this order.

(c)   The first defendant and second defendant are to vacate the Property within 30 days from the date of these orders becoming effective, on the conclusion of any stay of these orders.

(d)   The reserve price for the sale of the Property shall be fixed at $740,000.

(e)   The proceeds of sale of the Property shall be applied (until those proceeds are exhausted) as follows:

(i)first, to all proper costs and expenses relating to the sale of the Property (including the Plaintiff’s legal costs of this proceeding fixed in the sum of $21,249.64 and any legal costs associated with effecting the sale on a solicitor client basis).

(ii)second, to the amount due to the third defendant pursuant to registered mortgage AN816449S;

(iii)third, to the amount due to the fourth defendant in discharge of its interest in the Property;

(iv)fourth, to the amount due to the plaintiff in discharge of its interest in the Property;

(v)fifth, to the amount due to the fifth defendant in discharge of its interest in the Property; and

(vi)sixth, to be paid to the first defendant and second defendant jointly.

(f)    The commission payable to Wodonga Real Estate Best Agents in relation to the sale of the Property is fixed at 2% inclusive of GST of the sale price.

(g)   The contract of sale of the Property must be in the form of the Contract of Sale of Real Estate published by the Law Institute of Victoria Limited and The Real Estate Institute of Victoria Ltd.

(h)   The plaintiff is appointed to execute and transfer the Property to the purchaser(s) thereof in order to effect the sale.

(i)    The first and second defendants are to pay the costs of this proceeding (including any reserved costs but not including disbursements paid pursuant to (e)(i) above) to be taxed on the standard basis in default of agreement.

(j)    Each of the orders above is stayed until 4.00pm on 10 October 2022.

(k)   Reserve liberty to the parties to apply by email to the Commercial Division Registry ([email protected]) for further directions upon giving reasonable notice to all other parties.

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Certificate

I certify that these 8 pages are a true copy of the ruling of his Honour Judge Woodward delivered on 25 August 2022.

Dated: 25 August 2022

Claire Findlay

Associate to His Honour Judge Woodward