Central Stone Pty Ltd v Gem Management Group Pty Ltd (In Liq)
[2020] VSC 373
•24 June 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 01071
IN THE MATTER of an application by Central Stone Pty Ltd for payment out of an amount of funds in Court held by the Court in Common Fund No. 1, account number 84143, which were paid into Court by Principled Mortgage Investments Pty Ltd pursuant to s 77(3) of the Transfer of Land Act 1958 and s 69 of the Trustee Act 1958
BETWEEN
| CENTRAL STONE PTY LTD (ACN 137 684 514) | Plaintiff |
| - and - | |
| GEM MANAGEMENT GROUP PTY LTD (in liquidation) (ACN 143 095 774) | First Defendant |
| SALVATORE ALGERI & ROBERT WOODS (who are sued as joint and several liquidators of Gem Management Group Pty Ltd (in liquidation) | Second Defendant |
| HEANG CHOUNG TAING | Third Defendant |
---
JUDGE: | Derham AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 May 2020 and written submissions |
DATE OF JUDGMENT: | 24 June 2020 |
CASE MAY BE CITED AS: | Central Stone Pty Ltd v GEM Management Group Pty Ltd (In Liq) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 373 |
---
REAL PROPERTY – Surplus proceeds from sale of land paid into court by mortgagee —Applications for payment out — One claimant entitled to an equitable chargee under loan agreement — Equitable charge secured principal, interest and all legal costs ‘associated with the loan’ — Whether legal costs of dealing with the claims of a lender under a back-to-back loan are legal costs associated with the loan – Section 77(3) of the Transfer of Land Act 1958 and s 69 of the Trustee Act 1958.
CONTRACT – Construction of indemnity provision in loan agreement - Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 referred to.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C R Northrop | Scammell Black Mileo Pty Ltd |
| For the First and Second Defendants | Mr NL Papaleo | Lander & Rogers |
| For the Third Defendant | Mr IWD Upjohn QC with Mr TD Best | Novatsis & Alexander |
HIS HONOUR:
Introduction
In January 2020 approximately $20 million (Fund) was paid into Funds in Court (FIC) as the result of a mortgagee’s sale of the land situated at 64 Hutton Road, Keysborough, Victoria.
The Court has recently made orders for the payment out of the bulk of the Fund, being satisfied that the claimants have valid claims under a registered mortgage and unregistered charges held by them. The parties and the claimants on the Fund resolved their differences with commendable alacrity, with the exception of one issue concerning the legal costs to which the third defendant (Mr Taing) is entitled under his security. In short form, the issue is whether the legal costs incurred by Mr Taing include legal costs incurred in dealing with the solicitors for, and Liquidators of, the company that lent him the moneys to on-lend to the Company.
For the reasons which follow, I conclude that the legal costs recoverable pursuant to the security (Charge) are limited to those legal costs associated with the loan by Mr Taing to the Company and do not extend to the legal costs incurred in dealing with the lender to Mr Taing. Insofar as the costs incurred by Mr Taing involve the briefing of Senior Counsel, I consider in the circumstances the engagement of Senior Counsel was justified and his costs will be allowed.
Background
The plaintiff was registered as a mortgagee (mortgage no. AM737491R ) of the land situated at and known as 64 Hutton Road, Keysborough, Victoria (Property).[1] The mortgagor and registered proprietor of the Property was Gem Management Group Pty Ltd (ACN 143 095 774) (Company).
[1]The land more particularly described in Certificates of Title Volume 9079 Folio 377, Volume 9108 Folio 782 and Volume 9108 Folio 783.
By order of the Federal Court of Australia made on 20 April 2018, on the application of the Australian Securities and Investments Commission, the Company was ordered to be wound up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) and Salvatore Algeri and Robert Scott Woods were appointed the joint and several liquidators (Liquidators) of it for the purposes of the winding up. In addition orders were made that:
(a) the managed investment scheme operated by the Company pursuant to the VKK Investments Unit Trust Deed dated 9 January 2007 (the Scheme) be wound up;
(b) the Liquidators were appointed as liquidators of the Scheme;
(c) the Liquidators were appointed as trustees of the VKK Investments Unit Trust.
The Property was sold by Principled Mortgage Investments Limited (PMI) as the holder of a registered mortgage of the Property having priority over the plaintiff’s mortgage and the surplus proceeds of the sale were paid into Court in account number 84143 and amounted at that time to $22,445,132.91.
The surplus proceeds from the sale of the Property were paid into Court without first paying the moneys due to the plaintiff as a registered mortgagee of the Property because the Company/Liquidators disputed the entitlement of the plaintiff under its mortgage, or contended that the mortgage was held by the plaintiff on trust for the VKK Investments Unit Trust.
By its originating motion the plaintiff sought orders that there be paid to it from the Fund the amount required to discharge its mortgage, the fixing of that amount and costs.
By order made on 11 March 2020, the Company was added as the first defendant, the Liquidators were added as the joint second defendants, the plaintiff was required to give notice of this proceeding to all the interested persons, identified in Schedule A to the order (Claimants), by serving on them the originating motion and affidavits in support, directions were made as to the filing of affidavits and submissions and the proceeding was adjourned to 7 May 2020.
By 7 May 2020, all Claimants had been served and with one exception, proposed orders as to the entitlements of the parties and the Claimants were agreed or not opposed by the parties and the Claimants who had not been made parties, and the Court was satisfied that each of the Claimants on the Fund was entitled by virtue of their security to payment out of the amount specified in the orders made that day.
The exception was one remaining issue between the Company/Liquidators, on the one hand, and Mr Taing, on the other, relating to the quantum of interest and legal costs recoverable under his security. Mr Taing was added as the third defendant by the order made that day. Having regard to the lack of dispute as to the claims of the Claimants who were not parties, other than Mr Taing, the Court considered that it was not necessary to add them as parties to the proceeding, particularly where the plaintiff was excused from any further participation in the proceeding.
The principal claimed by Mr Taing was not in dispute and that sum, $800,000, was ordered to be paid to his solicitors by the order made on 7 May 2020 and, after the payments out authorised by the order, the balance of the moneys held in the Fund were ordered to be paid to the Company and the Liquidators, subject to the retention of an amount sufficient to cover any taxation liability and the retention of the sum of $750,000 to abide the decision of the Court as to the quantum of the interest and legal costs properly recoverable by Mr Taing pursuant to his security.
Directions were made for the filing of affidavits and submissions in relation to the quantum of interest and legal costs claimed by the third defendant pursuant to his security. Those affidavits and submissions were filed.[2] By the order made on 7 May 2020 after the filing of the affidavits and submissions, the costs of those parties were reserved and judgment of the Court was reserved to be dealt with on the papers.
[2]The submissions of the Company/Liquidators were mistakenly filed in the related proceeding S ECI 2019 03659.
Mr Taing was one of the directors of the Company. On or about 22 December 2014 he agreed to advance the sum of the $1 million to the Company, in order to partially reduce a loan that had been advanced to the Company by another lender, Woodlane. The monies to make that loan were advanced to Mr Taing by another company associated with the families who controlled the Company, Aviation 3030 Pty Ltd (Aviation). The terms of the loan agreement between Mr Taing and the Company (Gem Loan Agreement) provided that the commencement date of the loan was 22 December 2014 and the repayment date was 22 June 2014, being six months from its commencement. The interest payable on the loan was set at a rate of 10% per annum and was payable on the repayment date. In the event that the principal was not repaid on the repayment date, interest accrued on all outstanding amounts at the rate of 2% higher than the statutory penalty interest rate in Victoria as fixed from time to time.
By clause 11 of the Gem Loan Agreement, it was provided:
11. Costs and Indemnity
(a)The Borrower will bear the legal costs and disbursements in relation to the preparation and execution of this Agreement and the Security Documents.
(b)The Borrower agrees to indemnify and keep indemnified the Lender from all legal actions and all costs and claims made against the Lender associated with the Loan, including but not limited to bank fees and charges and all legal costs. (emphasis added)
The Gem Loan Agreement also contained a charge over the Property which, it is not disputed, gives rise to Mr Taing having an equitable interest in the Property as chargee. It is also not disputed that the charge secures the loan made, interest on the loan and such costs as are properly the subject of the indemnity in clause 11 of the loan agreement.
On 8 April 2016 the Company repaid Mr Taing the sum of $200,000 in reduction of the monies owing under the loan agreement. The Company failed to repay the balance of the loan, or any interest accrued thereon, on the repayment date or at all. As a result, interest has accrued on the loan since 23 June 2014 at the higher rate.
It is clear, and undisputed, that the Company knew that Mr Taing had borrowed the amount of the loan from Aviation on substantially the same terms and conditions, save as to security, as were contained in the loan agreement between him and the Company, and intended that he do so (Aviation Loan Agreement). It is central to Mr Taing’s claim that the Aviation loan was made for the purposes of Mr Taing on lending the money to the Company, that is, the Aviation loan was entered into back-to-back with the loan made to the Company. The two loan agreements contained identical interest terms and were made effective on the same date.
Mr Taing entered into the Aviation Loan Agreement on 22 December 2014 based upon a loan proposal dated 19 December 2014. He attended a board meeting of the Company on that day. It was in the course of this board meeting that Mr Taing was requested to enter into the Aviation Loan Agreement and to loan the same amount to the Company. Mr Taing deposes that at the board meeting on 22 December 2014 he received a written indemnification from the Company in respect of all costs associated with the Aviation loan. The terms of this indemnity are set out in a letter dated 22 December 2014 signed by two directors, as follows:
Dear Mr Taing,
Re: INDEMNIFICATION AGREEMENT
The Board would like to thank you for securing the funds of $1 million from Aviation 3030 for the purpose of part payment of the Woodlane loan. The board of Gem Management Group ATF the VKK Investment Unit Trust will hereby indemnify you from all legal actions and all costs associated with this loan and transaction. This covers but not limited to, the costs of the loan and its terms/particulars as per the signed Loan proposal dated 19 December 2014 between Heang Chuong Taing and Aviation 3030 Pty Ltd.
This so called ‘Indemnification Agreement’ is separate from the Gem Loan Agreement under which the loan was made by Mr Taing to the Company. That Loan Agreement was not signed until 23 June 2015, although the agreement to make it and the moneys were advanced on or shortly after 22 December 2014. The Gem Loan Agreement was back dated to 22 December 2014. This back-dating and the relationship between Aviation and the family of Mr Taing in particular meant that initially the Company and the Liquidators opposed the payment of any sum pursuant to the Gem Loan Agreement, either by way of principal or interest. There were a variety of bases upon which challenges were made to the efficacy of the Gem Loan Agreement and these were set out in a draft originating motion exhibited to the Liquidators’ affidavit.[3]
[3]These were set out in a draft Originating Motion in exhibit RW21 to the affidavit sworn 14 April 2020 by Robert Scott Woods.
By the time the matter came back to court on 7 May 2020, these differences had been resolved, largely (it would seem) on the basis of the facts set out in the affidavit material filed on behalf of Mr Taing, so that the only dispute was in relation to the interest and legal costs, which included legal costs claimed by Mr Taing that related to the Aviation loan.
On 6 May 2020, the solicitor for Mr Taing received an email from the lawyers for the Liquidators informing him that the Liquidators will consent to payment being made to Mr Taing pursuant to his charge. The email requested that Mr Taing’s solicitor provide the relevant figures for interest and costs. Up until the receipt of that email, the Liquidators had been threatening to apply to the Court to set aside Mr Taing’s charge. This explains to a substantial degree the decision of Mr Taing’s solicitor to engage Senior and Junior Counsel.
The Company and the Liquidators now agree with Mr Taing’s calculation of interest on the secured sum and consent to the payment of the interest claimed by Mr Taing. That is agreed to be $531,928.13 as at 11 May 2020 and interest on it is running at $262.9344 from 11 May 2020 to the date of payment. So far as the court is aware, the first time that the Company/Liquidators conceded that the interest claimed by Mr Taing was properly calculated is in a letter dated 15 May 2020 and later in the written submissions of the Company/Liquidators filed on 18 May 2020. Orders have now been made for the payment out of the Fund of the amount agreed to be due for interest.
The dispute between the Company/Liquidators and Mr Taing concerns the amounts claimed for legal costs payable pursuant to the indemnity contained in the Gem Loan Agreement. The legal costs claimed include costs incurred by Mr Tang in dealing with the solicitors acting on behalf of Aviation, now in liquidation, and costs incurred by Mr Taing in briefing his Solicitor and Counsel to advise in relation to the initial disputes between him and the Company/Liquidators regarding the enforceability of the Gem Loan Agreement, and the charge contained in it, settling documents and correspondence and appearing in Court.
Mr Taing’s submissions
Mr Taing submits that in clause 11(b) of the loan agreement the expression ‘all costs and claims made against the Lender associated with the Loan including … all legal costs’ is wide enough, in the context in which the loan agreement was entered into, to cover all legal costs incurred by Mr Taing in dealing with Aviation in relation to the loan by that company to Mr Taing, given that the loans were back-to-back. The words of clause 11(b) of the loan agreement that the Company ‘agrees to indemnify and keep indemnified the Lender from all legal actions and all costs and claims made against the Lender associated with the Loan, including …all legal costs’ are of wide import and include the legal costs of dealing with the claim made by Aviation. This is because it was known to both parties that the loan to the Company was sourced entirely from the loan by Aviation to Mr Taing.
Both loans deal with the same amount, both loans were intended to be made at the same time and essentially on the same terms. As such, Mr Taing's costs in dealing with Aviation's Liquidator in relation to default under the loan from Aviation (which was caused by the Company’s default under the Gem Loan Agreement) are losses that are clearly associated with the loan pursuant to clause 11(b) of the Gen Loan Agreement. Further; having regard to the first limb of the rule in Hadley v Baxendale,[4] these costs reasonably arise from the Company’s failure to repay the Loan and its breach under the Gem Loan Agreement and were in the parties' proper contemplation at the time the Loan was made.
[4](1854) 9 Exch 341.
Company and Liquidators’ submissions
The Company/Liquidators submit that properly construed, the loan agreement between Mr Taing and the Company does not entitle Mr Taing to be paid, from the Funds, any costs associated with the Aviation loan. They submit that construction of a contract is to be determined objectively, and in the case of a commercial contract it is necessary to ask what a reasonable business person would have understood the terms to mean.
They submit that the approach which should be taken to the construction of the Loan Agreement is that taken to commercial contracts as summarised by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd[5] to the following effect:
[5](2015) 256 CLR 104, 116–17, [46]-[50].
(a) The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose;
(b) In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract;
(c) Ordinarily, this process of construction is possible by reference to the contract alone. If an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning;
(d) However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating. It may be necessary in determining the proper construction where there is a constructional choice;
(e) Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations;
(f) Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption that the parties intended to produce a commercial result. Put another way, a commercial contract should be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
If contractual language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust.[6] An interpretation of a contract which makes it ‘foolish as a business arrangement’ is to be rejected where a more reasonable interpretation is open on the language.[7]
[6]Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 (Gibbs J).
[7]J Kitchen & Sons Pty Ltd v Stewart’s Cash and Carry Stores (1942) 66 CLR 116 at 124-125 (Lathan CJ and McTiernan J).
The definition of ‘Loan’ in the Gem Loan Agreement is confined to the loan by Mr Taing to the Company. Properly construed, clause 11(a) entitles Mr Taing to the payment of administrative and other costs associated with arranging and implementing the loan. The substance of subparagraph (a) informs the interpretation of sub-paragraph (b), and they operate so that:
(a) The Company is to bear the costs of preparing and executing the Loan Agreement; and
(b) In the event that Mr Taing ultimately does bear any of those costs, the Company agrees to indemnify him against them.
It would be a strain on the words of clause 11(b), and it would be unjust and ‘foolish as a business arrangement’, to include the flow-on effects upon Mr Taing of financial circumstances behind the scenes – i.e. arising from the Aviation Loan – as sums for which the Company would be liable upon a default under the Loan Agreement.
Further, if that construction is not accepted, costs associated with the Aviation Loan cannot be ‘associated with the’ Loan within the proper meaning of those words. In fact there is no express provision dealing with Mr Taing’s costs of default at all. This is illuminated by the terms of clause 9 which provides, relevantly, that each ‘Guarantor’, as a separate and additional obligation, indemnified Mr Taing against all loss which he may sustain or incur and all actions, proceedings, claims or demands made against him as a result of any default by the Company in the payment, performance or observance of the ‘Guaranteed Obligations’. No provision in similar terms entitles Mr Taing to claim any loss against the Company arising out of its default. This application comprises an attempt by Mr Taing to shoehorn an entitlement to those costs into the closest possible clause.
Mr Taing deposes that the Aviation Loan Agreement was entered into by him as borrower and made back-to-back with the Gem Loan Agreement such that the borrowed sum was on-lent to the Company. That evidence cannot guide the interpretation of clause 11(b), but the circumstances set out do make one thing clear: if the parties intended the Company to be liable for Mr Taing’s costs associated with the Aviation Loan Agreement, their solicitors could have drafted the Gem Loan Agreement accordingly. On the face of that document, they did not. Rather, Mr Taing chose to accept the ‘Indemnification Agreement’ (see above at [19]) based upon which he could claim in the liquidation of the Company as an unsecured creditor, but which does not give him any interest in the Fund.
Whether Mr Taing remains liable to suit for failure to repay the remaining sum he owes to Aviation is irrelevant. If clause 11(b) covered the type of loss Mr Taing claims, that would be the case each time a person borrowed funds to on-lend to another. Absent express words, it would be foolish as a business arrangement to render the ultimate borrower liable to satisfy each default in the chain. The liabilities Mr Taing chose to incur for the purpose of making the loan to the Company are a matter for him. There is no basis upon which they should be thrown against the Fund.
If, contrary to the above, the Court decides that Mr Taing is entitled to the payment of some costs associated with the Aviation Loan, he should not be allowed to claim the full $100,000. The costs consultant’s certificate and counsel fee slips exhibited to the affidavit of Chris Alexander sworn 13 May 2020 make it clear that the legal costs being claimed relate to the amounts payable under each of the Gem Loan Agreement and the Aviation Loan Agreement. Mr Taing has chosen not to provide sufficient detail to distinguish between the amounts that relate to the Gem Loan Agreement and those that relate to the Aviation Loan Agreement. In those circumstances, he has failed to substantiate his claim for costs in the sum of $100,000.
If the Court decides that Mr Taing is entitled to the payment of some costs, he should be required to have those costs assessed (at his own expense), and, to the extent that the costs are not capable of clear association with the Gem Loan Agreement, they should not be paid to him from the Fund.
Finally, the payment of the costs of retaining senior counsel is not reasonable in the circumstances. The Company/Liquidators have not retained senior counsel in this application as its complexity has not warranted it.
Mr Taing’s response
Although no order for a responsive submission from Mr Taing’s Lawyers was ordered, with the leave of the Court they filed an affidavit which exhibited a letter responding to the matters advanced and set out above. Relevantly, it was submitted that:
(a) Since the hearing on 7 May 2020, Mr Taing’s solicitors’ file has been independently assessed and has been recalculated in the sum of $122,578 (which includes an allowance of $20,000 for further costs).
(b) It is wrong to say that Mr Taing’s claim for costs fails to distinguish between amounts claimed under the Gem Loan Agreement and those incurred in relation to the Aviation loan. Had it not been for the Company’s default under the Gem Loan Agreement, Mr Taing would not have defaulted under the Aviation Loan.
(c) The contention that the guarantee clause (Clause 9) of the Gem Loan Agreement supports an argument that the parties never intended Mr Taing to be indemnified for costs associated with the Company’s failure to repay the Loan is mistaken. Clause 9 only relates to the requirement that the named guarantors guarantee the obligations of the principal debtor and as such it operates separately and apart from Mr Taing’s fundamental right as lender to seek repayment from the Company not only of the Loan but also the cost of providing the Loan and dealing with loss associated with the Company’s repayment default. It is noted that the default rate of interest in the Gem Loan Agreement is the same as that owed under the Aviation Loan Agreement.
(d) The Company/Liquidators’ interpretation is unduly restrictive and inconsistent with the purpose of the Gem Loan Agreement and the parties' intentions. There is no reason for Mr Taing to be out of pocket as a direct result of the Company’s default which persisted for more than five years and necessitated considerable legal effort in two directions, viz Aviation's liquidators and also in relation to the Liquidators’ serious allegations against him of wrongdoing.
(e) Mr Taing has provided sufficient detail to distinguish between the [two] amounts. Exhibit CA-13 to the affidavit of 13 May 2020 exhibits the relevant Costs Consultant Certificate which shows that the sum of $2,375 is the assessed costs for work performed in the Aviation Loan. Exhibit CA-14 to that affidavit contains Counsels' Fee Slips and also sets out the work performed by Counsel in response to communications with Ashurst who act for the liquidators of Aviation.
(f) In relation to the retention of Senior Counsel by Mr Taing, the total claim was in the order of $1.5 m, the Liquidators demanded that Mr Taing withdraw his Caveat and renounce his interest as Chargee. They repeatedly threatened litigation, without actually ever issuing. When Mr Taing persevered with his claim, the Liquidators made allegations of dishonesty against him by alleging that the Gem Loan Agreement (and Charge) were a 'sham' transaction. The Liquidators also alleged Mr Taing had engaged in deceptive conduct and breached s.588FDA of the Corporations Act. It was a consequence of the Liquidators attitude and unfounded allegations that Mr Taing was put to the cost and expense of having to engage Senior and Junior Counsel to prepare, file and serve a lengthy affidavit detailing both the evidentiary basis for his claim and also defending the serious allegations made against him. All the while Mr Taing was at risk of being sued by Aviation's Liquidators for his failure to repay the Aviation Loan. Mr Taing's affidavit was served on 30 April 2020. Much of the material exhibited was material that had already been provided to the Liquidators. On the eve of the hearing on 7 May 2020, the Liquidators relented and conceded the validity of the Gem Loan Agreement and the Charge.
(g) Mt Taing made an open offer to accept the sum of $87,000 in full and final settlement of his legal costs. This figure is purely commercial and intended to bring the matter to an end so that further costs on the question of what the indemnity figure is avoided. The total of Mr Taing’s Lawyers costs and disbursements are now well in excess of $100,000 and are increasing.
Consideration
The short answer to the question of what legal costs are embraced by clause 11(b) of the Gem Loan Agreement is that it covers only those costs associated with the Gem Loan Agreement, and that is a separate and discrete agreement from the Aviation Loan Agreement.
The critical words in clause 11(b) of the Gem Loan Agreement relied upon by Mr Taing to extend the range of legal costs subject to indemnity are ‘associated with’. These words, although of wide import considered alone, take their meaning and colour from their context. That context anchors the association to the Loan, as defined in the Agreement, and that means the Gem Loan and not any other loan. In this case, this process of construction of clause 11(b) is possible by reference to the Gem Loan Agreement alone. The clause is unambiguous in its application to the present circumstances. Thus evidence of the circumstances and things external to the Loan Agreement relied on by Mr Taing cannot be adduced to contradict its plain meaning.
For this reason, the Court cannot be guided in the interpretation of clause 11(b) by the evidence given by Mr Taing that his loan agreement with Aviation was entered into by him as borrower and made back-to-back with the Gem Loan Agreement so that the borrowed sum was on-lent to the Company.
I do not accept, however, that cl 11(b) is merely an adjunct to clause 11(a). The words of cl 11(b) plainly cover a different subject matter to those in clause 11(a). It is true that the words of indemnity in cl 11(b) contrast markedly with the words of indemnity in clause 9. The language of the indemnity given by the guarantors under the Gem Loan Agreement is significantly wider than the language of cl 11(b) and if the Charge had been intended to extend to costs with a more remote association than ‘associated with the Loan’, then different language would have been employed. The legal costs incurred by Mr Taing of dealing with the Liquidators of Aviation are costs associated with that loan and not the Gem Loan.
In light of this conclusion, the legal costs incurred by Mr Taing in dealing with the Aviation Loan will not be allowed by way of indemnity pursuant to the Charge.
In my view, however, the costs covered by the indemnity in cl 11(b) and secured by the Charge properly include the costs of engaging Senior and Junior Counsel. I have not set out all the issues that were raised in detail in the Liquidators draft originating motion, nor have I set out the work that both Senior and Junior counsel performed. But in each case I have reviewed the material. Clearly, the contest was whether the Gen Loan Agreement was enforceable at all. Mr Taing’s liability under Aviation Loan meant that recovery of the Gem Loan was critical to him. A great deal of money thus turned on the enforceability of the Gem Loan Agreement. It was the Liquidators allegations that meant that Mr Taing was compelled to put his case, factually and legally, in the best light possible. That was done, and in circumstances that justified Senior and Junior Counsel be engaged to do a large part of the work, including quite extensive drawing and settling of affidavits and correspondence. Mr Taing was put to the cost and expense of having to engage Senior and Junior Counsel to prepare, file and serve a lengthy affidavit detailing both the evidentiary basis for his claim and also defending the serious allegations made against him.
The quantum of the costs properly recoverable is another matter. The evidence given by Mr Taing’s solicitor shows that very little of his costs were with respect to dealing with the Aviation Loan. My review of the accounts for fees from the barristers’ clerks exhibited to the affidavit of Mr Alexander shows very little work clearly attributable to the Aviation Loan or dealings with the Liquidators of Aviation. Moreover, having regard to the nature of the proceeding in this Court, and the issues raised by the Liquidators’ material filed, and my review of the affidavits, the area likely to give rise to the work to be performed by the barristers was in relation to the Gem Loan Agreement. The only issue concerning the Aviation Loan Agreement that is revealed in the affidavits in this proceeding is that the Aviation Liquidators initially claimed compound interest, which was abandoned before 6 May 2020.
Ordinarily the quantification or assessment of costs is a matter for the Costs Court. But, the Court has the power under s 65(2)(c) of the Civil Procedure Act 2010 (Vic) ‘to award a party costs in a specified sum or amount’ if to do so would further the overarching purpose of facilitating ‘the just, efficient, timely and cost effective resolution of real issues in dispute’. In addition, r 63.07(2)(c) empowers the Court to order that a party in whose favour a costs order is made shall be entitled to ‘a gross sum specified in the order instead of taxed costs’. The purpose of that rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation. It gives the Court the ability to apply a much broader brush than is entailed in a taxation process. It is based on costs on the standard basis on an estimate that is logical, fair and reasonable, for which the Scale of Costs can provide assistance.[8]
[8]See the explanation of the rule by Wood AsJ in ACN 074 970 109 (as trustee for the Argo Unit Trust) & Anor v National Mutual Life Association of Australasia Ltd [2013] VSC 137.
I believe I am in a position to make such an order, but I will give the parties the opportunity to submit any further evidence and submissions as they may be advised, before doing so. I expect that there are further barristers fee slips and solicitors costs since the exhibits to the affidavit of Mr Alexander sworn on 13 May 2020. Whether these properly relate to the primary dispute, as distinct from the issue before me, remains to be seen.
Conclusion
My conclusions are as follows:
(a) The legal costs incurred by Mr Taing in dealing with the Aviation Loan are not costs associated with the Gem Loan Agreement and will not be allowed by way of indemnity pursuant to the Charge.
(b) Mr Taing was justified in engaging Senior and Junior Counsel to act in relation to the Gem Loan Agreement and the disputes with the Liquidators.
(c) This is a case where it is appropriate for the Court to fix a gross sum for the costs of Mr Taing to be paid out of the Fund, instead of his costs being taxed and assessed by the Costs Court. However, as that matter was not raised in argument, it is appropriate for the parties to make submissions and file any further evidence considered necessary.
My associate will communicate with the solicitors for the Company/Liquidators and the solicitors for Mr Taing as to how they wish to proceed in relation to the quantification of the legal costs to be paid out of the Fund.
0
4
0