Barker v Perpetual Trustees Aust Ltd & Pioneer Homes Aust Pty Ltd (No. 2) No. Scciv-02-1833

BARKER v PERPETUAL TRUSTEES AUST LTD &
PIONEER HOMES AUST PTY LTD (NO. 2)
[2003] SASC 275
Civil

BLEBY J: The plaintiff is a mortgagor in default. The first defendant (“the defendant”) is the mortgagee who sought to enforce the power of sale under the mortgage. The second defendant, Pioneer Homes Australia Pty Ltd, is the company which contracted with the plaintiff to build a house on the land the subject of the mortgage. The second defendant was joined as a party during proceedings relating to the first interlocutory injunction mentioned hereunder. The plaintiff claimed relief against enforcement by the defendant under s 55A(3) of the Law of Property Act 1936. The defendant filed a counterclaim seeking declarations of its rights under the mortgage, and its costs of the action. On 13 June 2003, I dismissed the plaintiff’s application for relief and the defendant’s counterclaim. The first defendant’s application for costs is now before me. The second defendant does not seek any order as to costs.
The history of the matter
The history of the matter is set out in my reasons for judgment in Barker v Perpetual Trustees (Australia) Ltd [2003] SASC 148. It may be helpful, however, to reflect briefly upon the manner in which these proceedings have been conducted by both parties.
Following the plaintiff’s default on a number of mortgage payments, on 23 August 2002 the defendant gave him notice of an intention to enforce its power of sale, in accordance with the requirements of s 55A of the Law of Property Act, and served a notice of default on him, in accordance with the requirements of the credit contract between the plaintiff and the defendant. In accordance with s 55A(3) of the Law of Property Act, the plaintiff had 21 days from service of the s 55A notice in which to make an application for relief against the enforcement of rights against him. An auction of the house property (which had by that stage been substantially built) was scheduled for Sunday, 15 December 2002. It was not until Thursday 12 December 2002 that the plaintiff commenced proceedings under s 55A, sought an extension of time in which to bring those proceedings and sought an interlocutory injunction to prevent the impending sale. The defendant opposed the application. An interim injunction was granted by a Judge of this Court upon the condition that the plaintiff pay the sum of $5,139 into Court to abide any further order. The plaintiff fulfilled that condition.
There was a further hearing on 19 December 2002 at which stage the hearing of the application for a further interlocutory injunction was adjourned to a later date, and the Judge directed that the parties confer. Pursuant to that direction, a conference was held between the parties, however no settlement was reached. His Honour also ordered that further affidavits be filed, and that the defendant provide to the plaintiff particulars of costs. That was done, and to 15 January 2003, those costs were particularised as being $11,652.
The defendant opposed the interlocutory injunction application, and on 28 January 2003, argument was heard on the matter. The plaintiff was represented. On 6 February 2003, the Judge delivered his judgment refusing the application and discharging the interim injunction. The defendant then sought an order for its costs associated with the application for the interim injunction and for those associated with its discharge. On 1 May 2003 the Judge ordered that the plaintiff pay to the defendant its taxed costs of and incidental to the application for an interlocutory injunction such costs to be taxed as between solicitor and own client.
On 20 February 2003 the plaintiff sought leave to appeal to the Full Court against the discharge of the injunction. The plaintiff was still represented at that time. The Judge considered that no leave was required, and extended the time for filing a notice of appeal to 7 March 2003. The plaintiff filed the notice of appeal against the order discharging the injunction and the costs order (which had not yet been made) on 14 March 2003, two days before a second scheduled auction of the property on 16 March 2003. He also sought a further extension of time within which to lodge his appeal and a further interlocutory injunction restraining the sale. A different Judge granted an extension of time in which to file the notice of appeal, and granted another injunction preventing the sale of the property pending the determination of the appeal. That Judge dealt with the costs of that application and interlocutory injunction. Those costs are of no present concern.
The plaintiff was unrepresented before the Full Court. The Full Court allowed the plaintiff’s appeal against the order discharging the interim injunction, setting aside the order made on 6 February 2003, the order as to costs made on 1 May 2003, and ordering an injunction restraining the defendant from selling the subject property pending the hearing of the plaintiff’s substantive application under s 55A(3). The Full Court ordered that the defendant pay the plaintiff’s costs of the appeal, but reserved the question of costs of and incidental to the application for the first interlocutory injunction for consideration in conjunction with the substantive application.
On 12 June 2003 I heard the plaintiff’s substantive application. The plaintiff was again unrepresented. On 13 June I dismissed both the substantive application and the counterclaim. In the light of that decision, it is now necessary to deal with the question of the costs of and incidental to the application for the interlocutory injunction as reserved by the Full Court, and the costs of and incidental to the substantive application.
The application
As contained in its written submission, the defendant makes the following applications for costs:
1.1 That [the defendant] have the costs of the whole of the action;
1.2That [the defendant] have the costs of the whole of the action on an indemnity basis.
1.3That those costs include the costs of the plaintiff’s application for an interlocutory injunction; but not of the Full Court Appeal (which have already been dealt with by the Full Court’s order); excluding only the costs of the counterclaim document filed in the proceedings.
1.4 Each of the 3 applications is dealt with separately.
The plaintiff was unrepresented both on the substantive hearing and on the application for costs.
The issues
Nothing has been put to me, and I am not aware of any circumstances that the defendant, having succeeded in the action, should not have its costs of the action, other than in respect of its counterclaim which was dismissed. The issues are whether the defendant is entitled to its costs on some basis other than party and party costs and whether it should have its costs of the first application for an interlocutory injunction.
Consumer Credit Code
Although it was not addressed in argument before me, it would appear that the provisions of the uniform Consumer Credit Code (the “Code”) applied to the contract of loan entered into by the plaintiff and to the mortgage the subject of this application.
For the purposes of the Code a credit contract is defined in s 5 as meaning a “contract under which credit is or may be provided, being the provision of credit to which this Code applies”. Section 6 provides for the circumstances under which the Code applies to the provision of credit. I will not set out the whole of the section, but it would appear the plaintiff’s contract of loan falls within it. As he was a resident of Victoria at the time when the contract was entered into, it would appear that it is the Consumer Credit (Victoria) Code which actually applies and continues to apply to the contract of loan. However, nothing turns on which enactment of the Code applies.
By virtue of s 8 of the Code, the provisions of the Code also apply to the mortgage the subject of this application because it secures obligations under a credit contract.
Section 99 of the Code addresses the recovery of enforcement expenses. It provides:
“99(1) A credit provider must not recover or seek to recover enforcement expenses from a debtor, mortgagor or guarantor in excess of those reasonably incurred by the credit provider.
(2)Civil effect. Any provision of the credit contract, mortgage or guarantee that appears to confer a greater right is void. If enforcement expenses are in fact recovered in excess of this limitation, they may be recovered back.
(3) If there is a dispute between the credit provider and the debtor, mortgagor or guarantor about the amount of enforcement expenses that may be recovered by the credit provider, the Court may, on application by any of the parties to the dispute, determine the amount of that liability.”
Section 45 of the Code provides:
“45(1) A mortgage is void to the extent that it secures an amount, in relation to any credit contract which it secures, that exceeds the sum of the amount of the liabilities of the debtor under the credit contract and the reasonable enforcement expenses of enforcing the mortgage.
(2)A mortgage is void to the extent that it secures an amount, in relation to any guarantee which it secures, that exceeds the limit of the guarantor’s liability under the guarantee and the reasonable enforcement expenses of enforcing the mortgage.
(3) ...”
Schedule 1 of the Code defines “enforcement expenses” as including:
“expenses incurred by the mortgagee in preserving or maintaining property subject to the mortgage (including insurance, rates and taxes payable for the property) but only if the expenses are incurred after a breach occurs and are authorised by the mortgage.”
The provisions of the credit contract and the mortgage
A portion of clause 20 of the credit contract provides:
“20.5Enforcement expenses may become payable under your loan contract or the mortgage in the event of a breach.
20.6You must pay all reasonable enforcement expenses Perpetual reasonably incurs or expends in exercising its rights under your loan contract or under any security resulting from any default. These amounts may be debited to your account and they are payable when they are debited.”
The italics appear in the original and indicate words or phrases that are defined.
Clause 7 of the covenants of the mortgage is entitled “Enforcement Expenses”. It provides:
“7.1Enforcement expenses may become payable under the Mortgage in the event of default under clause 5.
7.2You must pay the Mortgagee all reasonable enforcement expenses the Mortgagee reasonably incurs or expends in exercising its rights under the Mortgage. In the case of legal fees and disbursements, these are payable on the higher of a full indemnity basis or a solicitor and own client basis.”
The phrase “enforcement expenses” is not defined in either the credit contract or the covenants of the mortgage.
Finally, clause 8.9 of the covenants of the mortgage provides:
“8.9 Consumer Credit Code
This clause 8.9 applies to the extent that a Consumer Credit Code applies to the Mortgage.
(a)If that Code would otherwise make a provision of the Mortgage illegal, void or unenforceable or a provision of the Mortgage would otherwise contravene a requirement of that Code or impose an obligation or liability which is prohibited by that Code, the Mortgage is to be read as if that provision were varied to the extent necessary to comply with that Code or, if necessary, omitted.
(b)The Consumer Credit Code makes a mortgage void to the extent that it secures certain amounts. The Debt does not include any such amounts.”
Defendant’s Submissions
The defendant argues that on the basis of the provisions of the credit contract and of the mortgage quoted above it is entitled to its costs of the interlocutory injunction application and the substantive application on the higher of a full indemnity or solicitor and own client basis. It is submitted that as a consequence of the plaintiff’s default the defendant took action to exercise its power of sale under the mortgage. The plaintiff, by applying for relief under s 55A(3), is alleged to be attempting to interfere with the exercise of that power. The defendant submits that it incurred the expense of defending the applications so as to be able to exercise its rights under the mortgage. The interlocutory and substantive applications were so closely related to the enforcement of the defendant’s rights under the mortgage that the costs incurred in defending those applications are properly characterised as enforcement expenses within the terms of the contract of loan and the mortgage.
There is no challenge by the plaintiff to the enforceability of those provisions, and the defendant submits that the plaintiff cannot reasonably put forward any reason why the discretion to grant costs should be exercised in a manner different to that set out in the mortgage document.
The effect of the covenants
The power to order the payment of costs is discretionary: s 40, Supreme Court Act 1935. Where there is an agreement between the parties as to costs this will not bind the Court in the exercise of its discretion.
In Citibank v Pirrotta & Ors (Unreported, Full Court of the Supreme Court of South Australia, 1 April 1998, Judgment No. S6603), Williams J, in an appeal against a costs order made against unsuccessful mortgagors, considered a clause in a mortgage specifying how legal costs were to be paid. His Honour stated:
“In proceedings between mortgagee and mortgagor upon the mortgage, the 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. However, 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 191 and 186; Jamieson v Gosigil Pty Ltd (1983) 2 QdR 117 at 121).”
Cox and Mullighan JJ agreed with his Honour’s reasons. The rule was stated in similar terms by the Full Court comprising Olsson, Debelle and Wicks JJ in Micarone & Ors v Perpetual Trustees Australia Ltd & Ors (No 2) [1999] SASC 533 at [32].
Williams J went on to observe that there may be special situations in which policy considerations will call into question the enforceability of the particular contractual provision. In my opinion, no such policy questions arise in this case. The clause in the mortgage is self-limited to reasonable enforcement expenses reasonably incurred by the mortgagee, and moreover must be so limited in order to comply with ss 45(1) and 99 of the Code.
The term in the mortgage is that the mortgagee must pay reasonable “enforcement expenses … in exercising its rights under the Mortgage”. It is only legal costs so incurred that are to be payable on an indemnity or solicitor and own client basis.
Although “enforcement expenses” is not defined in the contract of loan or the covenants of the mortgage it is clear that it is intended that the phrase should have the same meaning as in the Consumer Credit Code. If the contract of loan or the mortgage enabled recovery or the granting of security in respect of an amount greater than that allowed by the Code by way of enforcement expenses, the provision would unenforceable, and the amount would not be secured by the mortgage.
The definition of “enforcement expenses” in the Consumer Credit Code, being an inclusory one, does not qualify the natural meaning of those words. They must be construed according to their ordinary meaning both in the Code and in the contract of loan and in the mortgage.
There is, in Schedule 1 of the Code, a definition of “enforcement proceedings” in relation to a credit contract or a guarantee or a mortgage. It means:
“(a)proceedings in a court to recover a payment due under the contract or a guarantee; or
(b)taking possession of property under a mortgage or taking any other action to enforce a mortgage.”
That definition gives some guidance as to what activities might generate enforcement expenses for the purposes of the Code, and hence under the mortgage.
It is plain that steps taken towards the exercise of a power of sale where there has been default in the payment of instalments fall into the category of enforcement expenses. The costs of an application for possession would likewise fall into that category. However, the application brought by the plaintiff was in exercise of a statutory right conferred upon him by s 55A of the Law of Property Act. Subsection (3) enables the Court to grant relief to a mortgagor against the enforcement of such rights by the mortgagee and to reinstate the position of the mortgagor “in all respects as if no breach of a covenant or condition of the mortgage had occurred”.
I construe Clause 7.2 of the mortgage as entitling a mortgagee to indemnity costs or solicitor and own client costs where those costs are incurred in enforcing its rights under the mortgage. Defending an application for relief against the enforcement of those rights is not the same as enforcing those rights. Section 55A(3) contemplates an application being brought by a mortgagor where the mortgagee has taken no steps to enforce its rights other than to serve a notice required by s 55A(1). It is an application independent of any steps taken by the mortgagee to enforce its rights.
There might be a sense in which it can be said that, in defending an application under s 55A, a mortgagee is defending the exercise of its rights to enforce the terms of the mortgage. However, there is a difference between enforcement expenses incurred in exercising rights under the mortgage and defending one’s right to be able to exercise those rights.
In order to rely on a contractual term such as Clause 7.2, the mortgage must “plainly and unambiguously” provide for taxation on the higher basis. In my opinion, this clause does not, in respect of an application under s 55A(3). If it did, it would probably fall foul of s 99 and s 45 of the Consumer Credit Code.
This case is to be distinguished from the situation in Micarone & Ors v Perpetual Trustees Australia Ltd & Ors(No 2) [1999] SASC 533 where the mortgagee was awarded costs on the contractual basis provided for in an action in which it was merely defending its right to enforce the mortgage. However, the relevant clause in that case included an obligation on the mortgagor to pay costs as between solicitor and own client incurred or paid by the mortgagee “of and incidental to … any proceedings in any court or tribunal in which the Mortgagee ……… is involved to protect any …….. right power authority or remedy” contained or implied in the mortgage. The clause in this case is not nearly so comprehensive. However, even if it were, it would, on the view I have taken, be rendered unenforceable by the provisions of the Consumer Credit Code.
To the extent that the interpretation of clause 7.2 of the mortgage is governed by the provisions of the Consumer Credit Code I consider that there are also good policy reasons consistent with the objects and purposes of the Code why “enforcement expenses” should bear this limited meaning. The Code is designed for the protection of consumers, to ensure that credit contracts that they enter and securities that they give meet acceptable community standards, and that they do not become the victims of standard terms and conditions devised by and beneficial to credit providers. The Code has its own provisions for the granting of relief to consumers in the case of hardship and unjust transactions: Part 4 Division 3. Those beneficent provisions of the Code and like provisions of s 55A of the Law of Property Act would be largely negated if, whenever a debtor applied for relief, the mortgagee’s or credit provider’s costs of resisting such applications could merely, as a term of the contract, be added to the amount of the debt and become secured by the mortgage, regardless of the result, and, if the terms of the contract so provide, on an indemnity basis. That would be the effect of the interpretation sought by the defendant, for even an unsuccessful defence of such proceedings would, in that case, fall within the meaning of “enforcement expenses”. Such an interpretation would defeat the purposes of the Code and, in the case of s 55A of the Law of Property Act, the purposes of the section.

Accordingly, I hold that the defendant cannot rely on the provisions of Clause 7.2 of the mortgage to justify an award of costs on a solicitor and own client or indemnity basis.
The question then arises whether there is any other basis on which the defendant might be entitled to costs on the higher scale. The defendant relies on the hopeless nature of the plaintiff’s case. The application was brought initially on legal advice and with legal assistance. I cannot say that at that stage it was an unreasonable application with no prospect of success. It was brought late, as was the appeal against the interlocutory order. The consequences of that tardiness have been dealt with by other orders of this Court.
The defendant also relies on the fact that in my judgment in the Full Court ([2003] SASC 148) I set out those matters of a financial nature which the plaintiff would need to address in order to obtain relief. The plaintiff failed to address those matters in the substantive application. I set out those matters in the hope of assisting the plaintiff because he was unrepresented on the appeal and was likely to be unrepresented, as indeed he was, on the substantive application. Some allowance must be made for the fact that the plaintiff was unrepresented. Had he persisted in the application with legal advice, the situation might well be different.
In the circumstances I am not satisfied that the defendant should have its costs other than on a party and party basis.
Costs of the interlocutory application
The question arises as to whether some or all of the costs incurred by the defendant in defending the application for an interlocutory injunction were reasonably incurred.
On 12 December 2002, the plaintiff issued an inter partes summons seeking relief under s 55A(3), and filed an application for an interim injunction restraining the defendant from exercising its power of sale “pending determination by this Honourable Court of the plaintiff’s application for relief under Section 55A(3) of the Law of Property Act.” The application for an interim injunction, whilst an attempt to interfere with the defendant’s enforcement of its rights under the mortgage, was an attempt to interfere only on an interim basis to allow the plaintiff’s claim for relief to be determined. It was brought very late and required an order extending the time within which to bring it. Had it been brought in a timely fashion the application for the first interlocutory injunction may not have been necessary.
However, the defendant opposed the application for an interlocutory injunction, the nature and effect of which opposition was to delay, rather than to expedite, the enforcement of its rights under the mortgage. It was obvious that unless an interlocutory injunction were granted, the plaintiff’s right to seek relief under s 55A would be lost. Yet the nature of the defendant’s ultimate opposition to the interlocutory injunction was based principally on arguments which related to the fate of the substantive application, when it was far from clear that all material relevant to the resolution of that application had been provided to the Court. It was that approach by the defendant which led the Judge into the errors identified by the Full Court on the appeal.
In my opinion, the nature and extent of the defendant’s opposition to the interlocutory injunction not only delayed the proper resolution of the plaintiff’s claim, and therefore the enforcement of the defendant’s rights, but also unreasonably added to the costs of that application. An injunction restraining the sale for a short period of time, sufficient to enable the plaintiff’s expedited application to be heard and properly disposed of would have been entirely appropriate. Once the interim injunction had been granted, that is what should have happened. The nature and extent of the defendant’s opposition to the interlocutory injunction was, in the circumstances, unreasonable. Nevertheless, the application for the injunction had to be brought because of the plaintiff’s tardiness, and the defendant is entitled to some of its costs because of that.
Most of the affidavit material filed by the defendant in opposition to the interlocutory application was relevant to and was used upon the hearing of the substantive application. The defendant should therefore have its costs of preparation of that material. However, in the view I take of the matter, the costs of any hearings relating to the first interlocutory injunction after the hearing of the application for the interim injunction on 13 December 2002 were unreasonably incurred and should be borne by the defendant.
Orders
I make the following orders:
1.That subject to paragraphs 2 and 3 of this order and to any orders for costs already made and remaining in force in this action, the plaintiff pay the first defendant’s costs of the plaintiff’s application.
2. That the first defendant pay the plaintiff’s costs of the counterclaim.
3.That the first defendant pay the plaintiff’s costs of any hearings of and incidental to the plaintiff’s application for an interlocutory injunction filed on 12 December 2002 incurred after 13 December 2002.
4. That there be no order as to the costs of the second defendant.

[2003] SASC 275

22 August 2003