Farm Mortgages Ltd v Irving

[2012] VCC 3

IN THE COUNTY COURT OF VICTORIA Revised
Not Restricted

AT MELBOURNE

CIVIL DIVISION
COMMERCIAL LIST – BANKING & FINANCE DIVISION

Case No. CI-08-01397

FARM MORTGAGES LTD	Plaintiff
v
LORRAINE IRVING & ORS	Defendants

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JUDGE:	HIS HONOUR JUDGE ANDERSON
WHERE HELD:	Melbourne
DATE OF HEARING:	23 January 2012
DATE OF JUDGMENT:	23 January 2012 (revised on 25 January 2012)
CASE MAY BE CITED AS:	Farm Mortgages Ltd v Irving & Ors
MEDIUM NEUTRAL CITATION:	[2012] VCC 3

REASONS FOR JUDGMENT

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Catchwords:    Practice and procedure – Application for attachment of earnings – Judgement debtor not liable to pay legal costs of $52,178.21 at the time they were deducted from the proceeds of sale of a security property – Judgment debt fully paid – Liability of judgment debtor for legal costs of $52,178.21 yet to be determined – Application dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr D. Carlile	Arthur E. George & Sons
For the Second Defendant	In person

HIS HONOUR:

1        The plaintiff is the judgment creditor in this proceeding. It obtained a default judgment against the three defendants on 4 June 2008 for $202,489.18 and possession of a property which had been offered by the first defendant as security for a loan granted by the plaintiff. The default judgment included an order for costs of $1,503.90.

2        The judgment as against the first defendant, Mrs Lorraine Irving, was set aside by order of Judge Holt made 9 September 2008. The action as between the plaintiff and Mrs Lorraine Irving, including a counterclaim by Mrs Irving, proceeded to trial before Judge Kennedy. On 21 August 2009, Judge Kennedy gave judgment for the plaintiff against the first defendant, Mrs Lorraine Irving, in the sum of $230,972.87, together with possession of the security property. She also ordered that “the first defendant is to pay the plaintiff’s costs to be taxed on scale D in default of agreement”.

3        The judgment creditor in late 2011 sought to execute upon the judgment by seeking attachment of the earnings of the second defendant, Mr Rick Irving. The judgment creditor’s attachment of earnings summons, filed 18 October 2011 came before me on 25 November 2011 and was adjourned until today. On 25 November 2011, I ordered that, “By 4:00pm on 18 December 2011, the judgment creditor must serve upon the judgment debtor, Mr Irving, an affidavit setting out the detail of the calculation of the amount due under the judgment entered in default of defence on 4 June 2008 [and] payments received in reduction of the judgment and the detail of the calculation of the costs and interest claimed”.

4        In compliance with the order, a director of the plaintiff, David Anthony John Harris, swore an affidavit dated 15 December 2011. The affidavit states that, as at October 2011, the plaintiff was claiming that the sum of $56,937.06 was outstanding under the judgment. That sum was comprised of $18,639.77, being the balance due under the judgment after taking account of payments received, $1,315.60 for costs of the summons seeking the attachment of earnings and $36,981.69 interest on the outstanding judgment from 4 June 2008 to 17 October 2011.

5        As a result of further discussion in Court this morning, the plaintiff provided to Mr Irving a series of calculations and documents which clarify how the plaintiff has determined the present indebtedness of Mr Irving. It appears that the security property was sold in 2009. Mr Irving informed the Court that he was aware of a public auction at which the property was passed in on a vendor’s bid of $240,000. I was informed that the property was sold subsequently for $250,000. The calculations prepared by the plaintiff show that the net proceeds of the sale applied in reduction of the judgment debt was the sum of $183,120.09.

6        The plaintiff has supplied a breakdown of the deductions made in arriving at that sum. They include adjustments, advertising, agents commission and conveyancing costs, which would all appear to be appropriate deductions. The deductions also include the sum of $52,178.21, as “litigation costs”. The plaintiff has provided to Mr Irving and to the Court a document of 19 pages, setting out the calculation of that sum. The document is dated 19 October 2009 and is headed, “Costs of the plaintiff to be taxed pursuant to order of Her Honour Judge Kennedy, made 21 August 2009”. These are the costs the first defendant, Mrs Lorraine Irving, was ordered to pay by Judge Kennedy. The costs have never been taxed.

7        Plaintiff’s counsel, Mr Carlile, submitted that the second defendant, Mr Irving, was liable to pay those costs pursuant to an obligation that he had as a party to a mortgage with the plaintiff. The statement of claim annexed to the writ alleges that the mortgage entered into with the defendants, contained a term that the second and third defendants “covenanted to perform and observe the covenants under the mortgage … and on the part of the first defendant, to be performed and observed under the mortgage”. Clause 11 of the memorandum of common provisions provided that “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 monies …

(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;

(ii)   Any proceeding in any court or tribunal in which the mortgagee is involved to protect any power, authority or remedy … [and] on account of any default by the mortgagor in performance or observance of any covenant”.

8        On 22 April 2010, a letter was sent to Mrs Lorraine Irving at the address of 39 Nicholson Street, Warrnambool, stating, “We enclose by way of service the litigation costs of the plaintiff and the conveyancing costs of the solicitors for Farm Mortgages Ltd, together with Farm Mortgages Ltd’s final account”. Mr Carlile informed me that the letter was sent to the address of the mortgaged property which had, by that date, been sold.

9        On 21 July 2011, a letter was sent to the three defendants, seeking the “remittance for the balance below”, being the amount of $71,209.65. On 19 September 2011, a letter was sent to the second and third defendants which included a demand for $55,482.04, which it was said “remains outstanding in relation to a judgment debt arising from a loan previously secured by 39 Nicholson Street, Warrnambool”. It was stated that “this amount also includes penalty interest which has accrued since judgment was entered against you on 4 June 2008”.

10      The problem for the plaintiff is that from the proceeds of the sale of Mrs Irving’s property, a deduction of only $183,121.90, was made from the judgment debt. The plaintiff purported at that stage to retain the sum of $52,178.21 as the “litigation costs” although those costs had not been taxed or agreed as foreshadowed by the order of Judge Kennedy made 21 August 2009.

11      If the sum of $52,178.21 had been taken into account, as a deduction from the amount then due under the judgment, the whole of the judgment would have likely been repaid. Without the costs having been taxed, there appears to have been no warrant at that stage for the deduction of those costs. The sum of $52,178.21 should have been taken into account in the calculation of the deductions to be made from the judgment sum.

12      Accordingly, it appears that no part of the judgment sum was owing after taking into account the proper application of the sale proceeds of the security property. The affidavit of Mr Harris suggests that the total amount of interest to December 2009 would have been approximately $30,000. The $52,178.21 wrongly deducted at that time would have covered that sum and the balance owing under the mortgage.

13 Mr Carlile submitted that the second defendant, Mr Irving, would have a separate liability to pay the legal costs of $52,178.21 pursuant to the covenant contained in clause 11 of the common provisions of the mortgage. There is authority that such a claim is separate from a legal liability to pay costs (see Thomas v Balanced Securities Ltd [2011] QCA 258 at para 60 and 61). However, pursuant to the common provisions, the liability to pay that sum only accrues upon demand being made. It is not clear whether such a demand has been made.

14      It is likely that the letter to Mrs Irving, dated 22 April 2010, which enclosed the “litigation costs of the plaintiff” would have been sufficient notice to her, if the demand had been properly served upon her. It appears that at the time the documents were sent, the property at Nicholson Street had been sold. Although letters were sent subsequently to Mr Irving in July and September 2011, it is unlikely that either of them would constitute a demand for payment for the purposes of clause 11 of the common provisions.

15 If the plaintiff were now to take steps to rectify this situation, or if there is correspondence to which I have not been referred which might satisfy the provisions of the mortgage, it may be that Mr Irving would still have rights pursuant to the Legal Profession Act 2004 to review those costs as a “third party payer” as defined by the Act.

16      I have set these matters out in some detail as Mr Irving is unrepresented before me, although he apparently receives legal advice from time to time. It is appropriate, therefore, that his solicitor has the opportunity to peruse these reasons. Further, it appears that the plaintiff has not appropriately followed procedures in seeking to enforce its rights against the defendants, including Mr Irving.

17      It is likely, however, that if the plaintiff were to pursue those rights, Mr Irving may be found to be liable to pay the costs of the trial of the proceeding before Judge Kennedy. Those costs would amount to a significant sum, particularly on a solicitor own client basis, regardless of whether the costs would tax out at the sum of $52,178.21.

18      When these matters have been clarified, either in the present proceeding or in fresh proceeding against Mr Irving based upon any liability under the common provisions of the mortgage (if in fact they are applicable to him), then the plaintiff may be entitled to pursue appropriate procedures for execution against him. At present, however, the plaintiff is not entitled to pursue those procedures and the attachment of earnings summons, filed 18 October 2011, will be dismissed.

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Certificate

I certify that these 5 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 23 January 2012 (and revised on 25 January 2012).

Dated: 25 January 2012

Hannah Christensen

Associate to His Honour Judge Anderson