Kornerstone Pty Ltd v CLB Training and Development Pty Ltd (No.2)

[2012] VCC 1047

IN THE COUNTY COURT OF VICTORIA  Revised
Not Restricted

AT MELBOURNE

CIVIL DIVISION
COMMERCIAL LIST
GENERAL DIVISION

Case No. CI-12-02560

KORNERSTONE PTY LTD (ACN 096 423 808)	Plaintiff
v
CLB TRAINING & DEVELOPMENT PTY LTD (ACN 105 177 044)	Defendant

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JUDGE:	HIS HONOUR JUDGE GINNANE
WHERE HELD:	Melbourne
DATE OF HEARING:	28 June 2012
DATE OF JUDGMENT:	9 August 2012
CASE MAY BE CITED AS:	Kornerstone Pty Ltd v CLB Training & Development Pty Ltd (No.2)
MEDIUM NEUTRAL CITATION:	[2012] VCC 1047

REASONS FOR JUDGMENT

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COSTS - charge providing for chargee to pay reasonable legal expenses on a full indemnity basis – costs ordered in those terms

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr I.D. Martindale SC and Ms J Turfrey	MCK Legal
For the Defendant	Mr D Farrands	Kliger Partners

HIS HONOUR:

1       On 28 June 2012, I gave judgment in this proceeding and ordered that the authorised representatives of the plaintiff be permitted to inspect and take copies of the documents described in the Schedule to the Order at the defendant’s premises.  These reasons need to be read in conjunction with those given on that day.

2       After I delivered judgment and made orders, the parties argued about the costs of the litigation and these reasons relate to that issue. 

3       The right that I recognised in my judgment to inspect and take copies of documents was granted by a fixed and floating Charge Deed made between the parties and executed on 1 July 2010.  It is necessary to set out part of Clause 15 of that Deed, which is headed “Indemnities”, because the plaintiff relies on its provisions in support of an argument for indemnity costs.

4       Clause 15.3 is as follows:

“Indemnity for exercise of rights or proceedings

To the extent permitted by law, the Chargor must indemnify the Chargee, each Authorised Representative of the Chargee and each Receiver, Attorney, agent, administrator of the Chargor or other person appointed under this deed or the Corporations Act by or on behalf of the Chargee under this deed against, and must pay each of them on demand the amount of all reasonable losses, liabilities, expenses and Taxes (other than Excluded Taxes) that they each incur:

(a)(directly or indirectly) in the exercise or attempted exercise of any of the powers, rights, discretions or remedies (express or implied) vested in them under this deed or the Corporations Act; and

(b)in connection with all proceedings, expenses, claims and demands in relation  to anything done or omitted in any way relating to Secured Property,

Including reasonable legal expenses on a full indemnity basis and reasonable expenses incurred in engaging consultants.”

5       In its Originating Motion and in the summons on that Motion, the plaintiff sought orders including:

“Pursuant to clause 15.3 of the Charge Deed the Defendant pay the costs and expense incurred by the Plaintiff in the attempted exercise to date of its rights under the Charge Deed and its costs and expenses of this proceeding, including its legal expenses on an indemnity basis and the reasonable costs of engaging consultants.”

6       The plaintiff relied on the provisions of Clause 15.3 to support its claim for indemnity costs. 

7       The defendant disputed that the plaintiff had won the proceeding.  It submitted that costs could not be recovered under Clause 15.3 of the Deed as no evidence was led as to the fact that there had been costs reasonably incurred and of their quantum.  The plaintiff therefore had failed to prove its case in respect of costs. The contractual right stands independently of the Court’s power to order costs.

8       The defendant also relied on the fact that the plaintiff had previously been provided with a large volume of material and had refused a reasonable offer to have an independent third party accountant inspect the books and records.  It submitted that the plaintiff’s costs of the proceedings were unreasonably incurred and therefore could not be recovered under Clause 15.3.  It had lost its application and refused a reasonable offer and had engaged in unreasonable conduct. The defendant submitted that plaintiff should pay it’s costs on an indemnity basis. The intentions of the Civil Procedure Act 2010 had been ignored.

9       I consider that the plaintiff has been successful in the proceeding – it has won the action as it has obtained, in substance, the orders sought.  It had to commence the proceedings and pursue its case to obtain an order in the terms that it sought. It was entitled to enforce its legal rights and was not obliged to accept the offers made by the defendant.

10      The Court starts with the proposition that the successful party should receive its costs on a party/party basis.  However, if there is a contractual provision relating to costs on which the parties have agreed, the Court will usually exercise the discretion as to costs to correspond with the contractual entitlement.[1]

[1]See Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228 at [38]; Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [12]; Reading Entertainment Australia Pty Ltd v Burstone Victoria Pty Ltd 2005 VSC 137 at [23], [25]; and Gomba (UK) Holdings Ltd v Minories Finance Ltd (No 2) [1993] Ch 171, 194

11      In Shepparton Projects Pty Ltd v Cave Investments Pty Ltd (No 2),[2] Croft J said:

“It is common ground that the terms of any agreement as to costs will inform the court’s discretion as to the basis of taxation of costs and that the court should ordinarily exercise its discretion in accordance with the agreement.  It is also clear on the authorities, and I do not understand Cave Investments to be suggesting otherwise, that whether the terms of any agreement as to costs entitle a party to more than party-party costs is ultimately a matter of construction.  It is also clear that the terms of the agreement must provide in plain and unambiguous language that costs are to be paid on a special basis, otherwise costs should be awarded on a party-party basis only.” (authorities omitted)[3]

[2][2011] VSC 384

[3](supra) at [25]

12      In Taree Pty Ltd v Bob Jane Corporation Pty Ltd[4], Vickery J stated that the Court retained its discretion in relation to costs:

“ Nevertheless, even where a contractual term for the payment of costs on a basis other than usual party and party basis exists and is expressed in plain and unambiguous language. In Kyabram, the mortgage agreement expressly stated that the mortgagee should be liable to pay costs on a solicitor/own client basis. Nevertheless, the Court held that, even where such an agreement exists, the order for costs continues to be at the discretion of the Court.”[5]

[4][2008] VSC 228 at [38]-[44]

[5](supra) at [40];  see Kyabram Property Investments Pty Ltd v Murray (supra)

13      His Honour also stated that:

“a second principle firmly established in the case law is that the discretion to award costs in the case where there is a contractual right to those costs will ordinarily be exercised so as to reflect that contractual right.”[6]

His Honour referred to Gomba Holdings (UK) Ltd v MinoriesFinance Ltd (No. 2)[7]as authority for that proposition.

[6](supra) at [43]

[7][1993] Ch 171

14      In that case, the relevant loan agreement contained a clause headed “Costs” which provided an indemnity to the lender against:

“any expense or liability the Lender may incur or become liable for in connection with this agreement or any loan transaction, receipt of money under, pursuant to or in connection with the Duties Act 2000(as amended) and from time to time hereafter.”

15      The plaintiff clearly claimed costs under Clause 15.3 in its Originating Motion and summons.

16      The only real issue is whether Clause 15.3 in plain and unambiguous language make it clear that the costs are to be paid on a special basis. 

17      Clause 15.3 is directed at circumstances including where the plaintiff incurs costs in the exercise or attempted exercise of powers or rights under the Deed.  It is clearly directed, as its final words indicate, at legal expenses. 

18      In the context of the clause, legal expenses would include costs incurred in bringing court proceedings to enforce the rights given by the Deed.  That is precisely what the plaintiff has done and done successfully. 

19      I therefore conclude that the plaintiff is entitled to its reasonable legal expenses of the proceeding on a full indemnity basis and reasonable expenses incurred in engaging consultants for the purposes of the proceeding.

20      I do not consider that it was necessary for the plaintiff to prove the quantum of its costs before claiming them.  Their quantum can be taxed by the Costs Court and does not have to be proved in this proceeding. 

21      I do not consider that any of the other arguments advanced by the defendant support an outcome other than that  the plaintiff is  entitled to receive costs on an indemnity basis. 

22      I therefore order that the defendant pay the plaintiff’s reasonable legal expenses of the proceeding on a full indemnity basis and the reasonable expenses incurred in engaging consultants in connection with this proceeding.  In default of agreement as to the quantum of such costs, they are to be taxed by the Costs Court.

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