Elderly Citizens Homes of SA Inc v Balnaves (No 2) No. Scgrg-97-1008 Judgment No. S6959
[1998] SASC 6959
•16 November 1998
ELDERLY CITIZENS HOMES OF SA INC v BALNAVES (No 2)
[1998] SASC S6959
Civil
Debelle J
On 18 September 1998 I published reasons for judgment determining the priority of claimants to a fund remaining after the sale of a substantial house property called “Rymill House”. The relevant facts, the parties and the nature of the respective claims are set out in the reasons and need not be repeated. The claims were held to rank in the following order of priority: JAD International Pty Ltd (“JAD”), F Moir Management Services Pty Ltd (“Moir Management”), Mr Burton, Mr Parsons and Mrs Balnaves. The claim for priority of Melbourne Projects Pty Ltd was dismissed.
On 18 September 1998 I ordered that the sum of $210,000, the amount secured by the mortgage in favour of JAD, be paid to JAD. All parties other than Mr Parsons consented to that order. The claim of Mr Parsons ranks fourth in priority and, as will appear, the sum paid into court is insufficient to meet the claim of even Mr Burton. For those reasons, I made the order notwithstanding the opposition of Mr Parsons.
There remain several issues. They are:
Whether JAD is entitled to interest and, if so, the amount to be paid.
What sum should be allowed to JAD as its costs. As noted in the reasons published on 18 September, JAD is entitled by the terms of its mortgage to its costs of recovering the sum due under the mortgage.
What sum should be paid to Moir Management as interest on its deposit. In the reasons published on 18 September, it was held that it was entitled to recover interest for a period of six months. There remains the question of the rate of interest.
Whether Moir Management is entitled to its legal costs.
The amount of interest payable to Mr Burton.
Whether Mr Burton is entitled to costs.
No claim for interest or costs is made by Mrs Balnaves or Mr Parsons. In any event, the fund is not large enough to pay their claims. I deal with each issue in turn.
JAD’s Claim for Interest
The mortgage is silent on the question of interest. However, the letter dated 30 August 1996 from Mr Peter Balnaves to Mr Asikas constitutes a sufficient memorandum of the agreement to pay interest. Furthermore, there is evidence that Cummings Corporation Pty Ltd or Peter Balnaves paid interest. The rate of interest was 12 per cent per annum. JAD seeks interest from 27 June 1997 to the date of the payment out of court, namely 23 September 1998. Interest to 3 February was $16,612.84: see para 22 of the Affidavit of Mr Asikas. Interest from that date at the rate of 12 per cent per annum equates to 1 per cent per month or $2,100 per month. JAD is willing to accept seven and a half months interest at that rate notwithstanding that it is entitled to interest for a slightly longer period. On that footing, the interest since 3 February 1998 totals $15,750, making a total sum of $32,362.84. Neither the claim for interest nor the calculation of interest was opposed. I am satisfied that JAD is entitled to be paid interest in a total sum of $32,362.84.
JAD’s Costs
JAD’s solicitors had prepared a bill of costs seeking $25,474.71. It had been examined by the solicitors for Moir Management, who agreed the sum claimed. Counsel for Mr Burton said that his client was prepared to rely on the assessment made by the solicitors for Moir Management. No other party challenged the claim for costs. No party sought a taxation of the costs. As Moir Management and Mr Burton rank after JAD, the amount they might recover is immediately affected by any award for costs to JAD. They have, therefore, a direct interest in ensuring that the costs are not excessive. I am prepared to rely on their assessment. I am, therefore, satisfied that JAD should be paid its costs in a total sum of $25,474.71.
Interest Payable to Moir Management
In the reasons published on 18 September I held that Moir Management was entitled to interest for a period of six months. A question remains as to the rate of interest. By clause 7 of the contract for sale and purchase of “Rymill House”, Moir Management is entitled to interest at the default of rate which is defined by the contract to mean the rate of interest which is two percentage points above the rate charged by the State Bank of South Australia for investment loans. A letter from Bank SA, the successor to the State Bank of South Australia, proves that the bank’s standard rate of interest for investment home loans on 30 December 1997 was 6.8 per cent per annum. The default rate is, therefore, 8.8 per cent per annum, which, for a period of six months, realises interest in the sum of $4,387.95. I, therefore, award the sum of $4,387.95 interest to Moir Management.
Moir Management’s Costs
Although it initially sought costs against those parties which were held to rank after it, Moir Management now seeks costs only against the amount in the fund. It is entitled to recover costs: Rose v Watson (1864) 10 HLC 672 and Whitbread v Watt [1901] 1 Ch 911 at 913. I, therefore, hold that it is entitled to its costs as taxed or agreed.
Interest Payable to Mr Burton
Mr Burton is entitled to interest at the rate of 20 per cent per annum for a period from 16 December 1996 to 15 May 1997 (an amount of $964.38) and, for the period of default, at the rate of 28 per cent per annum from 16 May 1997 to 8 October 1998 (an amount of $13,424.65): see the schedule to the mortgage. I order that Mr Burton is entitled to recover interest in the total sum of $14,389.01.
The Entitlements So Far
Excluding the costs payable to Moir Management, which have yet to be taxed or agreed, the claims to be allowed against the fund paid into court total $406,629.43 being:
JAD - Principal 210,000.00
- Interest 32,362.84
- Costs 25,474.71
Moir Management - Deposit 100,000.00
- Interest 4,387.50
Burton - Principal 20,000.00
- Interest 14,404.38
$406,629.43
The amount paid into court totals $368,696.93. Even allowing for interest on that sum, the claims so far identified will substantially exceed the fund standing in court. It is unlikely, therefore, that Mr Burton will recover interest as well as principal.
Mr Burton’s Claim for Costs
Mr Burton’s mortgage provided that the standard terms and conditions apply. The standard terms and conditions have not been proved. There is, therefore, no contractual basis upon which to order payment of his costs. Further, the amount paid into court is not sufficient to meet his costs. Mr Burton, therefore, claims costs on a party and party basis against the fund in court and, to the extent that it is insufficient to pay his costs, he seeks to recover costs against those who rank in priority after him. No claim for costs is made by Mrs Balnaves or Mr Parsons. The persons ranking after Mr Burton are Mr Parsons and Mrs Balnaves. They oppose Mr Burton’s claim for costs.
A mortgage usually provides that the mortgagee is entitled to recover costs incurred in recovering payment from the mortgagor. Thus, claims for costs will usually be recovered with the mortgage debt and will rank in priority with the mortgage debt. The question which now arises is whether orders for payment of costs are made against other parties in circumstances where there are a number of competing claimants to a fund and the fund is not large enough to pay all the claims made upon it. I have searched a number of text books and other references on the law of mortgages. I am unable to find any relevant decision. I think that in those cases a party should not, as a general rule, be entitled to recover costs from those who have been held to have an interest ranking in priority after him. That accords with ordinary principles of fairness and equity. One example illustrates the principle. If it is assumed that Mr Burton is entitled to costs from Mr Parsons, Mr Parsons, in turn, would be entitled to seek indemnity for those costs from Mrs Balnaves. If an order were made against Mrs Balnaves indemnifying both Mr Parsons and Mr Burton for their respective costs, that would place an unfair burden on Mrs Balnaves. All of the parties in this case had a claim against the fund. The only issue was the order of priority. The parties will thus recover costs to the extent that they succeed in establishing their respective claims for priority and to the extent to which the fund is sufficient to pay the respective claims upon it.
Conclusion
For these reasons, there will be orders that the following sums shall be paid out of the fund standing to the credit of the account entitled with the name of this action in the following order and to the extent that there are funds available:
to JAD the sum of $57,837.55 being its costs and interest
to Moir Management the sum of $100,000
to Moir Management the sum of $4,387.95 as interest
to Moir Management its costs as taxed or agreed
to the estate of William Burton deceased the sum of $20,000
to the estate of William Burton deceased the sum of $14,389.01 as interest.
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