Permanent Custodians Ltd v El Ali (No 2)

[2008] NSWSC 1391

CITATION:	Permanent Custodians Ltd v El Ali (No 2) [2008] NSWSC 1391
HEARING DATE(S):	Written submissions
JUDGMENT DATE :	23 December 2008
JURISDICTION:	Common Law
JUDGMENT OF:	Rothman J
DECISION:	The Court orders that the second defendant, Ms Awad, pay the plaintiff’s costs of and incidental to the motion to set aside default judgment, such costs to be as agreed or assessed.
CATCHWORDS:	COSTS – successful motion to set aside default judgment – principles – “misconduct in litigation” includes failure to file defence – defendant to pay costs – solicitor’s default matter between client and solicitor
LEGISLATION CITED:	Civil Procedure Act 2005 Real Property Act 1900
CATEGORY:	Consequential orders
CASES CITED:	Arian v Nguyen [2001] NSWCA 5 Australian Executor Trustees Limited v Lanmar Pty Ltd & Ors [2008] NSWSC 549 Burgoine v Taylor [1878] 9 Ch D 1 Cockle v Joyce [1877] 7 Ch D 56 Dib v Regtop (Court of Appeal, 20 December 2006, unreported) Federal Bank v Bate [1889] 5 WN (NSW) 67 Gamble v Killingsworth & Mclean Publishing [1970] VR 161 Hooker v Gilling (No 2) [2007] NSWCA 214 Passmore v Minahan [1887] 13 VLR 262 Permanent Custodians Ltd v El Ali [2008] NSWSC 1264 Proudfoot v O’Brien [1896] 13 WN (NSW) 64 Re Zagoridis; Ex parte Q’Plas Group Pty Limited (1990) 98 ALR 718 White v Overland [2001] FCA 1333 Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306
PARTIES:	Permanent Custodians Ltd (Plaintiff/Respondent) Mohamed El Ali (First Defendant) Baheja Awad (Second Defendant/Applicant)
FILE NUMBER(S):	SC 12469/2006
COUNSEL:	A C Casselden (Plaintiff/Respondent) No Appearance (First Defendant) P M Barham (Second Defendant/Applicant)
SOLICITORS:	Gadens Lawyers (Plaintiff/Respondent) No Appearance (First Defendant) MCW Lawyers (Second Defendant/Applicant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

ROTHMAN J

23 DECEMBER 2008

12469/2006 Permanent Custodians Ltd v Mohamed El Ali & Anor (No 2)

JUDGMENT

1 HIS HONOUR: On 28 November 2008, the Court, as presently constituted, issued orders setting aside a default judgment as against the second defendant and permitting the filing of a defence confined to the existence of a debt, above and beyond any debt satisfied by a mortgagee sale, pursuant to the terms of the Real Property Act 1900: Permanent Custodians Ltd v El Ali [2008] NSWSC 1264 (“the earlier judgment”). This judgment ought be read in conjunction with the earlier judgment. The orders granted liberty to apply for any further or consequential order, including an order for costs. Each of the plaintiff and the second defendant seek that the other pay its or her costs of the motion.

Principles

2 Section 98 of the Civil Procedure Act 2005 grants to the Court a broad discretion as to what, if any, orders for costs should issue, by whom, to whom and to what extent they should be paid, and whether they should be paid on an ordinary or indemnity basis. The terms of s 98 of the Civil Procedure Act are additional to the inherent jurisdiction of the Supreme Court of New South Wales, as a superior court of record with general jurisdiction in law and equity, to award costs.

3 The terms of s 98, and the broad discretion, which it embodied, requires the Court to exercise its power judicially. The ordinary rule is that costs follow the event: Uniform Civil Procedure Rules, Rule 42.1. Often the issue is that which is meant by “following the event”, or which of the parties, if anybody, is the successful party.

4 Further, prior to the enactment of s 98 and the Uniform Civil Procedure Rules, the general principle was that, where a party seeks the indulgence of the Court, that party must pay the costs associated with a successful application for that indulgence. The plaintiff submits that where a default judgment has been regularly entered, then setting aside the default judgment ordinarily includes the imposition of the term that the defendant (it is usually the defendant) has terms imposed upon it or her relating to the payment of costs: Gamble v Killingsworth & Mclean Publishing [1970] VR 161 at 168.

5 Further, the plaintiff submits that it is not unusual for terms to be imposed upon a defendant that the defendant pay the costs of the judgment and the costs of the application to set it aside: Federal Bank v Bate [1889] 5 WN (NSW) 67; Burgoine v Taylor [1878] 9 Ch D 1; Cockle v Joyce [1877] 7 Ch D 56; Passmore v Minahan [1887] 13 VLR 262; Proudfoot v O’Brien [1896] 13 WN (NSW) 64; Australian Executor Trustees Limited v Lanmar Pty Ltd & Ors [2008] NSWSC 549 (per Adams J). They also cite, and I repeat, a passage from the judgment of Spender J in Re Zagoridis; Ex parte Q’Plas Group Pty Limited (1990) 98 ALR 718 at 723, in which his Honour said:

“Where judgment is irregular or signed in breach of good faith, the plaintiff is usually ordered to pay the costs of the application to set it aside, but, if the judgment be regular, as a rule it will be set aside only on terms that the defendant pay the costs of the judgment and of the application to set the judgment aside.”

6 The second defendant, Ms Awad, relies upon the judgment of the Court of Appeal in Hooker v Gilling (No 2) [2007] NSWCA 214, Dib v Regtop (Court of Appeal, 20 December 2006, unreported) and Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]. Essentially, Ms Awad submits that the starting point for the exercise of discretion is that the successful party is entitled to her costs of the proceedings (or, in this case, of the motion), unless there is some competing fact which requires special consideration.

7 The Court of Appeal in Hooker, supra, cited, with approval, its own judgment in Arian v Nguyen [2001] NSWCA 5 and said:

“[21] The circumstances in which the Court may depart from the general rule in UCPR 42.1 were considered by Ipp AJA (with whom Foster AJA agreed) in Arian v Nguyen [2001] NSWCA 5; (2001) 33 MVR 37 as follows:


‘36 In Oshlack v Richmond River Council McHugh J (at 97) reiterated the long-standing rule that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. His Honour went on to say:

“The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd ([1951] 1 All ER 873 at 874), Devlin J formulated the relevant principle as follows:

‘No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.’”



His Honour noted that “misconduct” in this context includes conduct relating to the litigation and conduct that unnecessarily protracts the proceedings.

McHugh J was in dissent in Oshlack but as Foster AJA pointed out in Mannix v Loumbos [2000] NSWCA 32 there was no disagreement in the High Court as to these observations of general principle which are well established.

37 The making of an order that a successful party pay his or her opponent’s costs requires strong justification ( Ottway v Jones [1955] 1 WLR 706 at 708, 714, Scherer v Counting Instruments Limited [1986] 1 WLR 615 at 618) and exceptional circumstances must exist before a party will not only be deprived entirely of costs but also required to pay part of the opponent’s costs ( Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201; Robinson v Australian Association of Social Workers Limited [2000] SASC 239).


Where a party raises issues or makes allegations improperly or unreasonably, this may constitute misconduct such that the court may not only deprive it of its costs but order it to pay the whole or a part of the unsuccessful party’s costs: Trade Practices Commission v Nicholas Enterprises Pty Ltd at 208 per Fisher J, Re Elgindata Limited (No 2) [1993] 1 All ER 232 at 237 per Nourse LJ; Ashby v Marshall , (unreported, SC (SA), 28 November 1991); Popovic v Murray (unreported SC(Tas), 15 March 1991).

38 It is rare for a successful party who is guilty of misconduct in the litigation to be ordered to pay the unsuccessful opponent’s costs where the misconduct does not lengthen the proceedings unnecessarily, cause unnecessary issues to be canvassed or otherwise cause the costs of the litigation to be increased. Indeed, the court’s entitlement to depart from the usual order that costs follow the event has sometimes been said, in effect, to be subject to the qualification that the misconduct in question occasioned unnecessary litigation and expense (see Huxley v West London Extension Railway Company (1899) 14 App Cas 26 at 32-33 per Lord Halsbury LC; Ritter v Godfrey [1920] 2 KB 47 per Atkin LJ at 60). In other cases, however, this qualification has not been mentioned: see for example Donald Campbell & Co v Pollak [1927] AC 732 at 811-812; Thorne v Doug Wade Consultants Pty Ltd [1985] VR 433 at 500; Jamal v Secretary, Department of Health (1988) 14 NSWLR 252 at 271-272; Re Elgindata Limited (No 2) (supra). On balance, it seems to me that while delay and increased expense brought about by improper conduct in the course of the litigation are highly relevant factors in the discretion to depart from the usual order as to costs, they are not essential to the exercise of that discretion. It would, in any event, be very unusual for misconduct of that kind not to cause unnecessary delay and expense.’ (emphasis added).” ( Hooker v Gilling (No 2) [2007] NSWCA 214, per McColl JA, with whom Ipp and Basten JJA agreed.)

Application of Principles

8 I have already determined that the plaintiff, and its solicitors, have acted appropriately and no criticism ought to be made of them in obtaining the default judgment: Permanent Custodians Ltd v El Ali [2008] NSWSC 1264 at [28].

9 I have also recounted the circumstances of the failure by the solicitor for Ms Awad in failing to file a defence. Ms Awad submits that this was a “regrettable oversight”. She relies upon the statement by Allsop J (as he then was) in White v Overland [2001] FCA 1333 at [4]:

“Litigation is not a game. It is a costly and stressful, though necessary, evil.… Representatives do not owe duties to the other side’s client. They owe duties to their own client. But no one’s interests are advanced by litigation proceeding on assumptions which are seen or suspected to be false.… In the long run, the only consequence of keeping issues hidden or not clearly identifying them is to disrupt the business of the court leading to the waste of valuable public resources and to lead to the incurring of unnecessary costs by the parties, costs which ultimately have to be borne by someone.”

10 Ms Awad claims that the sentiments of Allsop J (as he then was) relate to the proceedings before the Court in the instant matter. She submits that the plaintiff was aware that the signature had been forged, because there had been an affidavit sworn, and for another purpose, served on the plaintiff’s solicitor, which affidavit set out clearly the allegations of forgery, made by Ms Awad.

11 I accept, without deciding, that the plaintiff was aware that Ms Awad claimed the mortgage was a forgery, at least in respect to her signature. It is also the case that Ms Awad did not (and does not) dispute the capacity of the plaintiff to exercise its rights under the mortgage and effect a mortgagee sale. The mere fact, if it be the fact, as alleged by Ms Awad, that the plaintiff was aware of her claim of forgery, does not translate into an understanding that the second defendant (Ms Awad) was contesting the debt. To say the least, given Ms Awad’s attitude to the mortgagee sale, such an understanding would not necessarily follow.

12 The failure to file a defence, even if it were a defence confined to a debt beyond that sum realised by the mortgagee sale, is the kind of “misconduct in litigation” to which Ipp AJA (as he then was) referred in Arian v Nguyen, supra, cited, with approval, by McColl JA in Hooker v Gilling (No 2), supra. Understandably, Ms Awad submits that she should not bear the cost of the “regrettable oversight”, but that is a matter between Ms Awad and her solicitor.

13 Because these are costs in an interlocutory proceeding, and I do not make an order that the costs be payable forthwith, it seems that the most appropriate exercise of the discretion of the Court, in the circumstances, is to order that the second defendant, Ms Awad, pay the costs of the motion, which costs result directly from her failure to file a defence in time or at all. Otherwise, the costs will be payable at the conclusion of the proceedings and the issue between Ms Awad and her solicitor is, at this stage, a matter for them.

Conclusion

14 The Court orders that the second defendant, Ms Awad, pay the plaintiff’s costs of and incidental to the motion to set aside default judgment, such costs to be as agreed or assessed.

**********