Bayford v St George Bank Ltd (No 2) No. Scciv-01-711

BAYFORD v ST GEORGE BANK LIMITED
[2003] SASC 242
Civil

BESANKO J: On 2 December 2002, a Master of this Court made an order for possession of land occupied by Ms Bayford at Lot 4 Pelican Point, Morgan, in the State of South Australia, being the land comprised and described in Certificate of Title Register Book Volume 5387 Folio 604 (“the land”), in favour of St George Bank Ltd (“the Bank”). Ms Bayford appealed to this Court and I heard the appeal. On 1 July 2003 I made an order dismissing the appeal. My reasons for judgment were delivered on 2 July 2003 (Bayford v St George Bank Ltd [2003] SASC 210).
The Bank applies for the costs of the appeal as between solicitor and own client. The order sought and obtained from the Master in relation to the costs of the application for possession was an order that Ms Bayford pay the Bank’s costs as between party and party. That fact does not prevent the Bank from making the present application. Costs as between solicitor and own client are defined in r 101.07(6)(d) of the Supreme Court Rules 1987, as follows:
“Costs as between solicitor and own client, or a like expression, means costs as a complete indemnity against the costs incurred by the party in respect of the litigation provided that they are not to include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them;”
The Rules provide that indemnity costs are the same as costs between solicitor and own client. Rule 101.07(6) also contains a definition of costs as between solicitor and client which is in the following terms:
“(c)Costs as between solicitor and client, or a like expression, means all costs reasonably incurred by the party in respect of the litigation and having regard to the proper interests of the persons who will ultimately bear the burden of such costs.”
The Bank submits that it is entitled to an order for the costs of the appeal as between solicitor and own client for two reasons. First, it submits that it has a contractual entitlement to costs on this basis, and that the order of the Court should reflect the contractual entitlement. The Bank refers to certain clauses in the mortgage. Secondly, the Bank submits that on the appeal Ms Bayford made allegations of fraud against it and that those allegations failed. It submits that that is a sufficient basis for the order it seeks (Australian Transport Insurance Pty Ltd & Anor v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 10 FCR 177).
In my opinion, the Bank has a contractual entitlement to an order for the costs of the appeal as between solicitor and client (not solicitor and own client) and I should make an order reflecting that entitlement. In relation to the second reason advanced by the Bank, even if I considered that Ms Bayford made unnecessary and inappropriate allegations of fraud against the Bank, that fact would not justify an award of costs more favourable to the Bank than costs as between solicitor and client, and in those circumstances it is unnecessary to consider the second reason advanced by the Bank.
The Bank submits that the following clauses of the mortgage are relevant:
“What you must pay
17.2When we ask, you must pay us for:
(a)     our reasonable costs, and any receiver’s costs and remuneration, in arranging, administering (including enforcing, attempting to enforce or taking any other action in connection with our rights or any receiver’s rights), releasing and terminating this mortgage or any agreement covered by this mortgage; and
(b)     …
17.3You indemnify us against, and you must therefore pay us for, liability, loss or costs (including consequential or economic loss) we suffer or incur:
(a)if you default under this mortgage (in which case you will also be liable for any loss arising because we require repayment of the amount owing earlier than its due date); or
(b)     in connection with the property or our monitoring of works.”
Clause 17.1 of the mortgage provides that clause 17 applies to the extent that a Consumer Credit Code does not apply to the mortgage. As I said in my reasons for judgment in relation to the appeal, it is not disputed that the loan agreement between Ms Bayford and the Bank was a credit contract within the provisions of the Consumer Credit (South Australia) Code and that the Code applied to the mortgage.
Clause 21 of the mortgage provides as follows:
“To the extent that a Consumer Credit Code applies to this mortgage, when we ask, you must pay us the reasonable expenses we reasonably incur in enforcing this mortgage after you are in default (including in preserving and maintaining the property – such as by paying insurance, rates and taxes for the property). This applies to expenses we incur before or after taking action under clause 20.”
Clause 20 deals with the notice which must be given to the mortgagor who is in default.
Although the Bank did not refer to it, clause 32.3 of the mortgage should also be noted. Clause 32.3 provides that the mortgage does not secure (in the case of a credit contract to which the Code applies) any amount other than the liabilities under the credit contract and “our reasonable enforcement expenses reasonably incurred in enforcing this mortgage”.
Section 45(1) of the Code provides as follows:
“(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.”
Clearly, clause 32.3 reflects the prohibition in s 45(1) of the Code.
Section 99 of the Code provides as follows:
“(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. Enforcement expenses of a credit provider extend to those reasonably incurred by the use of the staff and facilities of the credit provider.
(2)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.”
Schedule 1 contains the following definition of enforcement expenses:
“ ‘enforcement expenses’, in relation to a mortgage, includes 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.”
Clearly, clause 21 of the mortgage has been drafted having regard to the above sections, and in particular, the definition of enforcement expenses in Schedule 1. Counsel for the Bank placed particular emphasis on clauses 17.2 and 17.3, but I think, in light of the relevant sections of the Consumer Credit Code, the relevant clause of the mortgage in terms of the Bank’s entitlement to costs is clause 21.
In my opinion, the Bank’s contractual entitlement is to an order for costs in terms of r 101.07(6)(c) (ie., costs as between solicitor and client). Clause 21 of the mortgage has been drafted with the relevant sections of the Consumer Credit Code in mind. It allows the Bank to recover reasonable expenses which have been reasonably incurred. Such an entitlement will be reflected by an order in terms of r 106.07(6)(c) rather than an order in terms of r 101.07(6)(d). I say that because in the case of the latter paragraph, the onus would be on Ms Bayford to prove that costs were incurred unreasonably.
In Micarone v Perpetual Trustees Australia Ltd & Ors (No 2) [1999] SASC 533 Olsson, Debelle and Wicks JJ said (at para 32):
“The general rule is that, in the absence of an agreement to the contrary, a mortgagee is entitled to costs on a party and party basis: The Kestrel (1866) LR 1 A&E 78; Re Queen’s Hotel Co Cardiff Ltd [1900] 1 Ch 792; Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955; Re A Solicitor’s Bill of Costs (1941) 58 WN (NSW) 132; Jamieson v Gosigil Pty Ltd [1983] 2 Qd R 117; AGC (Advances) Ltd v West (1986) 5 NSWLR 301; Katsaounis v Belehris (1994) 179 LSJS 143 at 155 - 156. The expression of a contrary intention must be “plainly and unambiguously expressed” to use the words of Vaisey J in Re Adelphi Hotel Co Ltd (supra) at 961. Generally speaking, a contractual obligation to pay all costs is not construed to require payment of costs improperly or unreasonably incurred, such an obligation being open to objection on public policy grounds: Gomba Holdings (UK) Ltd v Minories Finance Ltd [1993] Ch 171 at 187 - 188. That difficulty does not exist in this case since the obligation to pay solicitor and own client costs is subject to conditions as to reasonableness: Citibank Savings Ltd v Pirrotta (unreported, Full Court of the Supreme Court of South Australia, 1 April 1998, Judgment no. S6603); Elders Trustee and Executor Co Ltd v Eagle Star Nominees Ltd (1986) 4 BPR 9205. To make good any objection upon taxation, the mortgagors should be required to satisfy the taxing officer of the unreasonableness of the item, doubts being resolved in favour of the mortgagee: Katsaounis v Belehris (supra) at 157 approved in Citibank Savings Ltd v Pirrotta. The court will usually give effect to an express contractual obligation but, nevertheless, retains a discretion to award costs on some other basis: ANZ Banking Group (NZ) Ltd v Gibson [1981] 2 NZLR 513 at 524 - 525.”
(See also Citibank Savings Ltd v Pirrotta (unreported) Full Court of the Supreme Court of South Australia, 1 April 1998, Judgment No S6603).
I do not think there is any reason why an order for costs reflecting the contractual entitlement should not be made. I propose to make an order that the appellant pay the respondent’s costs of the appeal as between solicitor and client (see r 101.07(6)(c)).
The order of the Court is that the appellant pay the respondent’s costs of the appeal as between solicitor and client.

[2003] SASC 242

5 August 2003