Bresimark Nominees Pty Ltd v Smart World Enterprises Pty Ltd - [2008] SADC 71

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application)
BRESIMARK NOMINEES PTY LTD v SMART WORLD ENTERPRISES PTY LTD AND ORS
[2008] SADC 71
Reasons for Ruling of His Honour Judge Barrett
6 June 2008
PROCEDURE - COSTS
Third defendant applies for costs of pre-trial applications for judgment to be paid by second defendant and third parties - seeks solicitor/client costs based on contract of indemnity.
Held: Third defendant to be paid her costs on party/party basis. Terms of indemnity did not warrant departure from ordinary party/party basis for orders for costs.
SGIC v Lane (1997) 68 SASR 257; Bayford v St George Bank (No 2) (2003) 229 LSJS 59, considered.

BRESIMARK NOMINEES PTY LTD v SMART WORLD ENTERPRISES PTY LTD AND ORS
[2008] SADC 71

This is an application for costs by the third defendant, Ms Takmakis, against the first and second defendants (Smart World and Galanis)and the first and second third parties (Accordent and Portellos) (“the indemnifiers”). It is the only matter unresolved in these proceedings.
The first defendant (Smart World) consented to judgment against itself by way of a consent order made by me on 18 April 2007 (see para 1 of the consent orders). By consent no costs were ordered against the first defendant (see para 2).
On 22 February 2008 I delivered judgment for the plaintiff against inter alia the second and third defendants (Galanis and Takmakis respectively). On 2 April 2008 I made orders in terms of Minutes of Order including an order for costs against the second and third defendant and the third parties. There is an appeal against the substantive order and by implication the order for costs.
That left unresolved the question of costs sought by the third defendant (Takmakis). She did not seek her costs at the hearing before me. She was unrepresented and relied on the submissions made on behalf of the first and second defendants. She seeks instead her costs incurred before the trial in, 1) the contribution proceedings against the first and second defendants; 2) the third party proceedings against the first and second third parties and 3) the pre-trial costs of action. She seeks these costs on an indemnity basis. She submits that she is entitled to indemnity costs because her indemnity arises out of a contract, a Deed of Settlement dated 24 April 2004.
The third defendant submits she was obliged to remain a party to the proceedings and to initiate the contribution and third party proceedings because the indemnifiers had not carried out the terms of paragraph 9 of the Deed of Settlement pursuant to which they undertook to secure her release from her liabilities under the Deed of Guarantee and Indemnity which was the subject of the trial. That same paragraph purports to provide her with an indemnity for liability under the deed. The paragraph reads as follows:
9.Smart World, Portellos, Galanis and Accordent will within 120 days of the execution of this deed use their best endeavours to secure the release of Takmakis from her liabilities under the Deed of Guarantee and Indemnity relating to the premises at 195-196 Fullarton Road Dulwich. It is also hereby agreed that not withstanding the above obligation to secure the release of Takmakis should the landlord of the premises at 195-196 Fullarton Road Dulwich not agree to such a release, Smart World, Portellos, Galanis and Accordent agree as of the date of this deed to indemnify Takmakis for all amounts she might be liable to pay under the Deed of Guarantee and Indemnity.
The third defendant instituted the pre-trial proceedings seeking judgment in her favour on the contribution and third party notices together with declarations that she be fully indemnified for any liability she might incur as a result of the trial. She submitted she took those proceedings despite the indemnity contained in the deed because the indemnifiers had not the taken steps contemplated by the first part of that paragraph. She wished to avoid incurring costs of the trial. She made two pre-trial applications for judgment. Each was resisted by the indemnifiers. Each was dismissed by Master Norman. His Honour’s decisions were delivered on 6 December 2005 and 23 March 2007. I need not dwell on the reasons for those decisions. The later decision was delivered some three weeks before the trial began. His Honour made no orders for costs. The third defendant was at all times represented before trial.
As events turned out, on the eve of the trial, the indemnifiers consented to judgment against them in favour of the third defendant if judgment was entered against her in the trial. I have now entered judgment against her. Paragraph 14 of the Consent Order made on 18 April 2007 reads as follows:
In the event that the plaintiff obtains a judgment against the third defendant, the third defendant will have judgment against the first and second defendants on her contribution notice and against the first and second third parties on her third party statement of claim with the costs of those actions to be determined by the court. This order does not affect the right of the first and second third parties to institute and prosecute an appeal to dispute any judgment obtained by the plaintiff. (Italics original.)
The indemnifiers submit the third defendant should not receive her costs incurred pre-trial. Essentially they submit two reasons for that outcome. The first is they submit that all along the third defendant was protected by the indemnity in the Deed of Settlement. The second argument is that before the trial two of the indemnifiers (viz the first and second defendants) offered to have her represented at the trial by their counsel thereby saving her the cost of her own representation. In the event she did not retain counsel and relied upon arguments put on behalf of the other indemnifiers.
The third defendants’ response to the first of those arguments is that the indemnifiers had not demonstrated the bona fides of their indemnity by taking the steps they undertook in the deed to take. On the contrary when the third defendant sought judgment they resisted her applications. In this way she could have no confidence in the indemnity. She only obtained full protection on the eve of the trial when consent orders were made in the terms she had sought twice before the Master.
Her response to the second argument is that she was plainly in conflict with the indemnifiers and could not reasonably accept the offer to be represented by their counsel. On two occasions they resisted her applications for judgment. It is true she was unrepresented at the trial and expressly relied on the submissions of counsel for the indemnifiers but before the trial there was a real conflict. In any event the offer came only from the first and second defendants and not the first and second third parties. Ms Takmakis could never be sure that the defendants would protect her against the third parties even though at the time one solicitor acted for all four of the indemnifiers. In addition, of course, the indemnifiers now seek to avoid liability for her costs so the conflict becomes apparent.
In my view there was nothing unreasonable in Ms Takmakis defending the proceedings instituted by the plaintiff or instituting the two applications for judgment. The behaviour of the indemnifiers could quite understandably make her feel vulnerable. They had not carried out their obligations to have her released from the guarantee as required by the Deed of Settlement. The indemnifiers ask, “Why did she take those proceedings?” The question might easily be turned on them. Why did they not consent to the first of those two applications? They effectively consented on the eve of the trial to what she was seeking. Equally it is clear that it was reasonable of her not to accept the offer from the two defendants to be represented by them at the trial. It was plain in the pre-trial proceedings how clearly she was in conflict with them.
In my view she is entitled to her costs pre-trial.
The question then remains whether she is entitled to those costs on an indemnity basis as opposed to a party/party basis.
The ordinary rule is that costs are paid on a party/party basis (see SGIC v Lane (1997) 68 SASR 257 at 265). Adapting the reasoning of Debelle J (with whom the other members of the Full Court agreed) at page 265 the fact that Ms Takmakis is seeking to recover costs under an indemnity does not of itself justify departure from the ordinary rule as to costs. The terms of the indemnity must be considered. I refer to the terms of paragraph 9 of the Deed of Settlement. As mentioned earlier, the first part of the paragraph is an undertaking by the indemnifiers to “use their best endeavours to secure the release of Takmakis from her liabilities under the Deed of Guarantee and Indemnity”. If the indemnifiers had carried out their obligations under this part of the Deed, and if they had succeeded in their endeavours to secure Ms Takmakis’s release from her liabilities, then she would not have incurred any costs. However the second part of the paragraph is the indemnity, and in its terms it does not indemnify her for anything more than the “amounts she might be liable to pay under the Deed of Guarantee and Indemnity”. It does not refer to costs. Nor does the original Deed of Guarantee and Indemnity. Some agreements do refer to indemnity for costs. For example, mortgage agreements dealing with the costs of mortgagees enforcing their agreements often refer to costs. In Bayford v St George Bank (No 2) (2003) 229 LSJS 59 there was an express provision for the recovery by the bank/mortgagee of its costs from a defaulting mortgagor. Notwithstanding that provision, the court had to determine whether the term “costs” meant solicitor/client costs pursuant to Rule 101.07(6)(c) or solicitor/own client costs pursuant to Rule 101.07(6)(d). The court held that the costs payable were on a solicitor/client basis. The point of that case is that even where costs are contemplated by the indemnity the precise terms of the indemnity have to be determined.
Other paragraphs of the Deed of Settlement do refer to costs. Paragraph 2 is in these terms:
In the event that all or any part of the gift of $40,000 paid to Takmakis pursuant to clause 1 above is deemed by the Australian Taxation Office to be subject to payment of tax by Takmakis, Smart World, Galanis and Portellos agree jointly and severally to make any payment of tax so assessed on behalf of Takmakis and to indemnify Takmakis to a maximum sum of $15,000 with respect to any claims, proceedings, actions and costs made or claimed by the Australian Taxation Office including any penalties or interest with respect to such tax.
Admittedly there the reference to costs is to be subsumed in a lump sum.
More pertinently, paragraph 4 refers to what might be described as a complete indemnity. It reads as follows:
Accordent will within 120 days of the execution of this deed repay to Homeside Lending/National Australia Bank the loan secured over the property owned by Takmakis at Unit 2/608 Magill Road Magill in the state of South Australia together with all interest, fees and charges to the intent that the mortgage security in favour of Homeside Lending/National Australia Bank granted by Takmakis be discharged with no cost to Takmakis. (Italics added.)
In these circumstances I conclude that paragraph 9 of the Deed of Settlement does not provide for the recovery by Ms Takmakis of costs on a solicitor/client basis. There is nothing else about the case to suggest that a departure from the normal rule is appropriate. That is notwithstanding that the indemnifiers appear not to have carried out the full terms of their obligations under the Deed of Settlement. While it might not have been strictly necessary for Ms Takmakis to take the pre-trial applications before the Master it was not unreasonable for her to do so.
In those circumstances I decline to order costs on a solicitor/client basis. I order that the third defendant be paid her costs by the indemnifiers on a party/party basis.
On behalf of the second defendant (Mr Galanis) Mr Riggall submitted that his client has had to be represented separately from the other indemnifiers because he has fallen out with them. In my view that does not put him in a different position from the others in relation to the application for costs by the third defendant. Mr Riggall further submitted that there was in this case no reason to depart from the normal rule about costs being ordered on a party/party basis. As indicated, I agree with him.