In the matter of Webuildem Pty Limited and In the matter of Maroun Investments Pty Limited (No 8)
[2012] NSWSC 882
•02 August 2012
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Webuildem Pty Limited and In the matter of Maroun Investments Pty Limited (No 8) [2012] NSWSC 882 Hearing dates: 22 June 2012, 25 July 2012 Decision date: 02 August 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Defendants to pay Plaintiffs' costs of and incidental to Interlocutory Process filed 12 June 2012. Defendants to pay Arab Bank Australia Limited's costs of and incidental to Interlocutory Process filed 12 June 2012 on indemnity basis.
Catchwords: COSTS - Uniform Civil Procedure Rules 2005 (NSW) r 42.1 - Ordinary rule that costs follow the event - Whether reason has been shown to depart from the ordinary rule in circumstances where Interlocutory Process has been dismissed. Legislation Cited: - Civil Procedure Act 2005 (NSW) ss 98, 98(1)
- Uniform Civil Procedure Rules 2005 (NSW) rr 42.1, 42.2, 42.5Cases Cited: - Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171
- Kyabram Property Investments Pty Ltd v Murray [2008] NSWCA 87
- Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534
- Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3) [2010] NSWSC 1139
- Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 816
- Ohn v Walton (1995) 36 NSWLR 77
- Re Webuildem Pty Ltd [2012] NSWSC 708
- Westpac Banking Corporation v Mason [2011] NSWSC 1241Category: Costs Parties: Paul Gerard Weston and David Gregory Young (Plaintiffs/First and Second Cross-Defendants)
Arab Bank Australia Limited (Third Cross-Defendant)
Webuildem Pty Limited (First Defendant/First Cross-Claimant)
Maroun Investments Pty Limited (Second Defendant/Second Cross-Claimant)
George Maroun Rahme (Third Defendant/Third Cross-Claimant)
Nouha Rahme (Fourth Defendant/Fourth Cross-Claimant)Representation: Counsel:
A.P. Lo Surdo SC/B.K. Koch (Plaintiffs/Cross-Defendants)
B. Coles QC/S. Milanovic (Defendants/Cross-Claimants)
Solicitors:
Henry Davis York (Plaintiffs/Cross-Defendants)
Cadmus Lawyers (Defendants/Cross-Claimants)
File Number(s): 11/357909
Judgment
By Interlocutory Process filed on 12 June 2012, the Defendants sought orders (which were ultimately pressed in a more limited form and on an interlocutory basis) staying the entry of certain orders ("Escrow Orders"). In my judgment delivered on 27 June 2012 ([2012] NSWSC 708), I dismissed the Interlocutory Process and released the Plaintiffs from undertakings given not to enter the Escrow Orders (to the extent that such a release might be necessary), subject to a short stay to allow the Defendants to bring an application for leave to appeal. I have been informed by Counsel that such an application was brought and leave to appeal was not granted by the Court of Appeal.
I noted in my judgment that, in the ordinary course, costs would follow the event and the Defendants should pay the costs of and incidental to Interlocutory Process, but indicated that I would hear the parties as to costs. Both parties provided written submissions as to costs and also made brief oral submissions in respect of that matter.
The Plaintiffs, the receivers and managers of certain properties, and Arab Bank Australia Limited ("Bank") seek orders that the Defendants pay the Plaintiffs' costs of and incidental to the Interlocutory Process, on an ordinary basis, and the Bank's costs of and incidental to the Interlocutory Process on an indemnity basis. Orders were also initially sought that those costs be payable forthwith, but those orders were not pressed before me given the current status of the proceedings.
The Plaintiffs and the Bank contend that they were successful in defending the Interlocutory Process and costs should follow the event in the usual course. The Bank also contends that the relevant memorandum of mortgage provides that the Defendants must pay the Bank's "reasonable costs" in administering (including taking action in connection with the Bank's or any receiver's rights) and terminating the mortgage or other arrangement with the Bank and "costs" is defined to include "costs charges and expenses in connection with legal and other advisers on a full indemnity basis".
The Defendants contend that:
- The application was justified where the Bank had, the Defendants contend, misrepresented the amount owing to it and about $1.2 million was overcharged by the Bank and the application had merit on the basis of "serious duress conduct, the lack of agreement, the lack of authority, consent and knowledge by at least [Maroun Investments Pty Ltd] and [Mrs N Rahme]";
- The application was necessitated by the Bank's failure to agree to an extension of time for the period before the Escrow Orders could be entered;
- Having regard to the nature of the application and the Plaintiffs' and the Bank's conduct, each party should pay its own costs or alternatively party/party costs would be the appropriate order;
- The Court of Appeal, in dismissing the application for leave to appeal, did not order costs on an indemnity basis. (The Bank responds to this submission by noting that there was no argument as to the basis for costs in the Court of Appeal);
- Each party should pay its costs in the circumstances having regard to Civil Procedure Act 2005 (NSW) s 98 and the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"); and
- Costs may be ordered on a party/party basis although a mortgage provides for indemnity costs.
There are accordingly two issues to be determined, now that the application for an order that costs should be paid forthwith is not pressed, namely whether the receivers should have their costs of the Interlocutory Process on an ordinary basis and whether the Bank should have its costs of the Interlocutory Process on an indemnity basis.
These issues are to be determined by reference to s 98(1) of the Civil Procedure Act which relevantly provides:
"Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."
UCPR r 42.1 provides that, if an order is made as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. UCPR r 42.2 states the general rule that costs payable to a person under an order of the Court or these rules are to be assessed on the ordinary basis. UCPR 42.5 provides that, if the Court determines that costs are to be paid on an indemnity basis, all costs (other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount) are to be allowed.
The receivers were successful in respect of the Interlocutory Process and, in my view, no reason is shown for the Court to depart from the ordinary rule reflected in UCPR r 42.1 that costs follow the event. This approach reflects the fact that costs orders are compensatory in nature to reflect the vindication of the successful claim or defence thereof: Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534; 97 ALR 45; Ohn v Walton (1995) 36 NSWLR 77; Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 816 at [8].
The Bank's claim to indemnity costs relies primarily on the terms of the mortgage. Although criticisms of the Defendants' conduct of the Interlocutory Process were made by the Bank in the course of submissions before me, it is not necessary for me to address those criticisms having regard to the conclusion which I have reached in respect of the terms of the mortgage. The mortgage provides for payment of costs on an indemnity basis, where those costs relate to administering or terminating the mortgage, the loan or another arrangement with the Bank. The reference to another arrangement with the Bank would, in my view, include the settlement terms reached on 7 March 2012 which in turn provided for the entry of the Escrow Orders in certain circumstances.
The Defendants refer, inter alia, to the Court of Appeal's decision in Kyabram Property Investments Pty Ltd v Murray [2008] NSWCA 87, where the Court of Appeal noted that it was well established that a mortgagee may rely upon its contractual entitlement to costs so as to claim an order other than on a party/party basis and considered the interaction of a contractual entitlement of that kind with the Court's general discretion. Beazley JA (with whom Hodgson and Ipp JJA agreed) referred to the English Court of Appeal's decision in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 at 194, where Scott LJ had noted that, although an order for costs is discretionary, "the discretion should ordinarily be exercised so as to reflect that contractual right". In Kyabram, the Court of Appeal ordered costs only on a party/party basis, because that was the order that had been sought in the Statement of Claim in the proceedings. The Bank has not, so far as I am aware, confined its claim to costs in respect of the Interlocutory Process in that manner.
The Bank refers to the decision in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3) [2010] NSWSC 1139 at [22], [39], where Nicholas J referred to the decision in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) as authority that the Court's discretion would normally be exercised to give effect to the contractual entitlement and made an order for indemnity costs on that basis. McCallum J took the same approach in Westpac Banking Corporation v Mason [2011] NSWSC 1241 at [38]. In my view, the proper course in this matter, consistent with the authorities, is to give effect to the Bank's contractual right to indemnity costs and I will order that the Defendants pay the Bank's costs of and incidental to the Interlocutory Process on an indemnity basis.
Accordingly, I make the following orders:
1. The Defendants pay the Plaintiffs' costs of and incidental to the Interlocutory Process filed 12 June 2012.
2. The Defendants pay Arab Bank Australia Limited's costs of and incidental to the Interlocutory Process filed 12 June 2012 on an indemnity basis.
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Decision last updated: 10 August 2012
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