Broleb Pty Ltd v Naranto Pty Ltd
[2010] VSC 520
•11 November 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. S CI 2010 00869
BETWEEN
| BROLEB PTY LTD | Plaintiff |
| - and - | |
| NARANTO PTY LTD | Defendant |
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JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 November 2010 | |
DATE OF JUDGMENT: | 11 November 2010 (ex tempore, and now published in written form) | |
CASE MAY BE CITED AS: | Broleb Pty Ltd v Naranto Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 520 | |
COSTS ― Mortgagee’s action for possession of land ― Contractual right to solicitor and own client costs of enforcement ― Judgment obtained ― Contractual basis of costs sought but not pleaded ― Whether costs on a higher basis is precluded
REASONS FOR DECISION
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Mattin | Ajzensztat, Jeruzalski & Co |
| For the Defendant | Mr D Harrison | Alan Shnider & Co |
HIS HONOUR:
This proceeding came on for trial before the Court, as constituted by an Associate Justice. The plaintiff seeks possession of land and payment of a secured debt of $63 390 under a second registered mortgage dated 11 March 2009. It is alleged the mortgage required repayment of the principal sum of $60 000 together with interest by 11 July 2009, but the defendant failed to pay the sum when due, causing the defendant to serve a Notice to Pay dated 21 January 2010 which was unsatisfied.
A defence filed in April this year can be described as merely a holding, or perfunctory defence. The defendant admits the legal incorporation of the parties and its ownership of the mortgaged land. Otherwise it says it “does not admit” any of the other allegations. In modern litigation I think such a form of defence for this type of case is meaningless. It is not as if facts are uniquely in the knowledge of the plaintiff. There are times when a lawyer has to file such a defence to save the defendant from a time limit and a hawkish plaintiff. But if there is a defence, such a pleading is usually soon followed up with an amended pleading and if not, it is highly susceptible to be struck out by the Court with a requirement that the defendant positively plead any facts by which it says the plaintiff’s claim is to be challenged. I am told that no such step was taken, nor was summary judgment sought because there were other disputations that complicated matters, and with which I need not be concerned. From what I can see in the file, routine procedural directions were made in April but nothing has evidently happened by way of amended pleadings or discovery.
When the matter was called on for trial, the parties announced the defendant was willing to consent to an order that the plaintiff have possession of the mortgaged land, and an order for costs. But there were two matters in dispute.
First, the plaintiff sought costs on a solicitor and own client basis according to the explicit terms of the mortgage, or alternatively (and faintly) on the ground of unreasonable conduct in conducting litigation by doing no more than putting the plaintiff to its proof. The defendant resisted the first ground contending that no such claim for an extraordinary costs order was pleaded or referred to in the relief sought in the statement of claim.
Secondly, the defendant sought a stay of any order of possession. This was opposed on the ground that any stay application had to be properly made with supporting evidence, and there was none.
After hearing argument, I decided that the defendant ought pay the plaintiff’s costs on a solicitor and own client basis because clause 11 of the Memorandum of Common Provisions (“the MCP”) of the mortgage obliged the mortgagor to pay costs on such a scale, and a court order for costs ought be consonant with what the parties agreed. I also decided that even without a formal application, there ought be a stay of 30 days and that any application for a prolongation of that stay be brought back before this Court with proper material. I granted that stay because by convention or practice (at least in cases involving institutional lenders) where a mortgage property is being occupied as a residence, the Court usually accedes to a request to allow about 30 days to enable an orderly and trouble‑free departure from the premises. I should add that in my experience it is not unknown for the 30 day stay to also give the mortgagor one last opportunity to re‑finance the mortgage debt or come to some other possible terms. The facts are not clear, but I am told that the mortgage premises are occupied.
At the request of the defendant’s counsel, I now restate my reasons for the decision on costs. It is just as well to do so, and say a little more, because as I said in the course of argument such costs orders are, at least in my experience, frequently sought and made in summary judgment applications in mortgage cases with or without the point being pleaded or referred to in the claims for relief.
The defendant does not, because it really cannot, dispute the meaning or effect of clause 11 of the Memorandum of Common Provisions of the mortgage. That clause says where relevant:
The Mortgagor shall pay to the Mortgagee on demand all costs (and in the case of legal costs as between a solicitor and his own client) expenses duties taxes and other moneys –
…(c) of and incidental to –
(i)the exercise or attempted exercise of any right, power, authority or remedy conferred on the Mortgagee under or by virtue of this Mortgage or by statute; and
(ii)any proceedings in any court or tribunal in which the Mortgagee is involved to protect any such right, power, authority or remedy …;
…
The clause goes on to say that moneys payable under clause 11 form part of the moneys secured. Thus, even without litigation or without an extraordinary costs order in litigation, the lender can lawfully debit to the mortgage account its legal costs on a solicitor and own client basis, and seek satisfaction by recovering such costs from the exercise of any rights as mortgagee. The mortgagee could lawfully refuse to give a discharge of the mortgage unless such costs are paid. Moreover, it seems to me a mortgagee could sue, obtain judgment, and abstain from asking for costs knowing that it can help itself to solicitor client costs under clause 11 as it goes about possibly selling the land and dealing with the proceeds of sale. But in practice a costs order would always be sought lest it be thought the lender was signifying an intention not to recover its enforcement costs.
I know of no authority which considers the question whether a Court’s costs order ought be aligned with a contractual term such as clause 11. But, in my view at least as a general rule, I see no reason why the Court’s discretion over costs should depart from what the parties have agreed. Terms such as clause 11 are notorious in domestic and commercial banking and finance. They vary only in their expression as some clauses oblige the mortgagor to pay costs on a complete indemnity basis. Such clauses have not been regarded as unconscionable or unenforceable.
Mr Harrison for the defendant does not dispute the meaning or effect of clause 11 nor the appropriateness of a costs order being aligned with the effect of that clause. Rather, he raises a pleading point. He submits that the statement of claim does not refer to the MCP, nor does it allege clause 11. And, he submits, the prayers for relief seek only “costs” and not costs on a solicitor and own client basis. He submits that the defendant ought to have been put on proper notice on the pleadings about the extraordinary claim for costs. He says the defendant is not prejudiced or embarrassed in the sense of needing the opportunity to consider the point or adduce additional evidence. But, he submits the defendant has hitherto conducted litigation in the belief that nothing more than “costs” were being sought on the usual basis. He says the mortgage debt here was not large, and asserts (for there is no evidence) that had the defendant known that it was facing solicitor and client costs (which would be a significant amount) the defendant might have taken a different approach to the case. Indeed, he goes further to submit that the absence of any reference to clause 11 or the MCP amounts to a waiver by the plaintiff of its entitlement under that clause.
First, I reject the submission that the omission to plead the MCP or clause 11 amounts to a waiver. Legal discourse in this field shows there are uncertainties and difficulties which attach to the doctrine of waiver, and its relationship with the doctrine of estoppel. Waiver can be used in a number of different senses: an election between inconsistent rights; an application of the common law doctrine of forbearance; or the abandonment or renunciation of a right – see Agricultural and Rural Finance Pty Ltd,[1] and before then, Commonwealth v Verwayen.[2] For present purposes, it is sufficient to say that waiver requires an intentional act, done with knowledge, whereby a person abandons a right.[3] Here, there is no basis for saying that the lender in this case has intentionally and knowingly abandoned its rights under clause 11. The failure to plead it does not amount to a renunciation.
[1](2008) 238 CLR 570 at 586, [49].
[2](1990) 170 CLR 394.
[3]See Agricultural and Rural Finance v Gardiner at [56].
Secondly, it is elementary that a litigant is bound by the way it pleads its case, and any claims it seeks to make, and to have adjudicated, has to be pleaded. That is the function of pleadings and the procedural fairness they serve in enabling the defendant to know the case to meet. That is certainly so for substantive matters but not necessarily so for matters ancillary or consequential to the claim. It depends on the matter. For example a failure to claim any interest does not preclude the claim being ultimately made; or a failure to claim any costs. An amendment would overcome any technical procedural point being taken.
Paragraph 4 of the statement of claim pleads the registered mortgage and particularises it by reference to its dealing number in the register book. The mortgage has been identified for litigation purposes and the defendant cannot credibly say it was entitled to assume the MCP had no part to play in the case. The MCP is a notorious and convenient document used in mortgage lending.
I would accept that a replete pleading would have included an allegation of clause 11 of the MCP elsewhere. And ideally, the prayers for relief should have said “costs on a solicitor and own client basis under clause 11”. But I do not think the absence of the specific reference to clause 11 precludes the costs order as sought here. A costs order is consequential or ancillary to the adjudication of the claim. I do not think it unfair, in the sense of procedurally unfair, for a successful plaintiff to ultimately contend that it ought have an extraordinary costs after it has succeeded in obtaining its primary relief. For example, a plaintiff may at the end of a trial claim indemnity costs on the grounds that the defence was bound to fail as being in the face of established facts or law, or that the defendant had otherwise acted unreasonably, or on some other basis. In that situation, the defendant could not contend that such a costs order was not available because it had not been claimed in the statement of claim or otherwise put on notice.
I do not accept the assertion that the non-pleading of clause 11 has embarrassed or caused possible detriment to the defendant in its approach to the case. It would have been open at any time, even now at trial, for the plaintiff to amend its statement of claim or amend its prayers for relief to refer to clause 11. Unless the defendant could point to and prove some real prejudice in allowing the amendment, the plaintiff would have been allowed to make a clause 11 claim for costs. I think it is unconvincing, and certainly unproved, to assert that the defendant’s approach to this case (with a meaningless defence) has depended on its assumption that the plaintiff was only seeking costs on the ordinary or party/party basis. I think it is unreasonable to say “I was willing to defend this litigation by putting the plaintiff to its proof, but I might not have done that if I saw there was a claim for solicitor and client costs pleaded.” If there was no defence, the mortgagee should not have litigated.
In the end, I apply the principle that parties ought to be held to their bargain even if it be a contract of adhesion. To my mind it is not unfair to make the costs order sought because in any event the plaintiff can go about exercising its rights and obtain recovery of the moneys secured including enforcement costs under clause 11. In other words, one way or another, the mortgagee gets its solicitor and client costs. I apprehend that if the Court makes only the usual party/party costs order, disputations may subsequently arise whether that displaces the lender’s contractual rights under cl 11 after it takes possession of the land and seeks satisfaction of the moneys secured, including enforcement costs.
It is for those reasons that this Court made the costs order as it did.
I take leave to make this final remark. Pleadings nowadays are not always drawn by counsel, and possession actions are commonplace. Many borrowers are unrepresented, and in my experience obtain quite a shock when they seek a payout figure and are told the legal costs that have accumulated after lawyers are retained and litigation is undertaken. Lenders may spare no legal expense in taking enforcement steps. By the time judgment is sought there will have been billed costs and unbilled costs. I would strongly encourage lawyers to plead the contractual right to higher than usual legal costs and to claim costs according to those terms, in the interests of completeness and precision.
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