RHG Mortgage Corporation Ltd v Summerfield (No.2)

[2018] NSWSC 1550

Supreme Court

New South Wales

Medium Neutral Citation:	RHG Mortgage Corporation Ltd v Summerfield (No.2) [2018] NSWSC 1550
Hearing dates:	27 July 2018
Date of orders:	19 October 2018
Decision date:	19 October 2018
Jurisdiction:	Common Law
Before:	Garling J
Decision:	(1)    Defendants’ Notice of Motion filed 16 July 2018 dismissed. (2)   Orders made by the Court on 29 June 2018 with respect to costs stand. (3)   Order the defendants to pay the plaintiff’s costs of the Motion filed 16 July 2018.
Catchwords:	COSTS — party/party — bases of quantification — indemnity basis — application by successful defendants for indemnity costs — not unreasonable for plaintiff to continue proceedings — offers of compromise made by defendants were vague and unclear — no basis for award of exemplary damages — indemnity costs not awarded
Legislation Cited:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005
Cases Cited:	Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397 Hamod v State of New South Wales [2002] FCA 424; (2002) 188 ALR 659 RHG Mortgage Corporation Limited v Summerfield & Anor [2016] NSWSC1595 RHG Mortgage Corporation Ltd v Summerfield [2018] NSWSC 972 South Eastern Sydney Area Health Service v King [2006] NSWCA 2
Texts Cited:	Not Applicable
Category:	Procedural and other rulings
Parties:	RHG Mortgage Corporation Ltd (P) Brian John Summerfield (D1) Catherine May Summerfield (D2)
Representation:	Counsel: M W Young SC (P) D C Eardley (D1, D2)   Solicitors: Dibbs Barker (P) Jane Button & Associates (D1, D2)
File Number(s):	2015/52745
Publication restriction:	Not Applicable

Judgment

1. On 29 June 2018, the Court made orders dismissing the plaintiff’s claim brought in an Amended Statement of Claim dated 5 May 2017. It ordered the plaintiff to pay the costs of the first and second defendants.

2. The Court gave directions permitting either party to make application by Notice of Motion for any alternative orders for costs.

3. The reasons for the Court’s dismissal of the plaintiff’s application are to be found in RHG Mortgage Corporation Ltd v Summerfield [2018] NSWSC 972 (“the first judgment”).

4. Pursuant to the orders and directions, the defendants filed a Notice of Motion on 16 July 2018 seeking the following orders:

“1.   In lieu of order 2 of his Honour Garling J of 29 June 2018 the following orders:

(a)   The plaintiff is to pay the whole of the defendants’ legal costs on an indemnity basis;

(b)   The costs orders made in the following interlocutory applications are to be set aside and replaced with the following orders:

(i)   The orders of her Honour Adams J of 11 November 2016;

(ii)   The orders of Registrar Bradford of 20 April 2017;

(c)   The plaintiff is to identify and remove from the defendants’ Loan Account any costs applied in respect of those costs orders and any interest charged on those costs.

(d)   The plaintiff is to indemnify the defendants in respect of all fees and charges applied to the home loan for all legal fees and enforcement expenses in respect of proceedings 2015/52745.

(e)   Such further order as the Court deems fit.

2.   The plaintiff is to pay the defendants’ costs of this motion.”

Defendants’ Evidence

5. In support of the Notice of Motion, the defendants relied upon two affidavits sworn by the first defendant – the first sworn in the course of the proceedings dated 7 September 2017, and a second sworn on 13 July 2018.

6. As the first judgment shows, proceedings were initially commenced on 19 February 2015. The litigation history is set out at [40]-[48] in the first judgment.

7. The evidence relied upon by the defendants includes a letter sent by their solicitor on 23 December 2016, on a “without prejudice” basis which informed the solicitors for the plaintiff that they were not in a position to put an offer to resolve the proceedings “… as your client’s fees and charges have never been explained to our client”. The letter went on to record a history of past correspondence seeking such detail and included a reference to a recent complaint made by the defendants to the Credit Ombudsman with respect to the conduct by the plaintiff. That letter included this paragraph:

“We further note that your client has claimed the whole of its legal fees on the Motion filed by our client against our client’s mortgage account before judgment was handed down and before our client has had an opportunity of seeking to have those fees and charges assessed. Please provide a copy of all invoices that have been charged against our client’s mortgage account in billable form.”

8. Further correspondence ensued between the parties about whether the plaintiff should be permitted to amend its Statement of Claim. In the course of that correspondence, on 17 January 2017, the solicitor for the defendants wrote to the solicitors for the plaintiff. That correspondence, amongst other things, drew attention to the opacity of the amounts added to the mortgage account kept by the plaintiff. The letter included the following:

“Further we note that your client alleges that the amount due on 17 February 2015 was $442,055.30. We can only infer that demonstrates a reluctance to state what amount your client has incorrectly added to the account now, which it is reluctant to disclose as it would demonstrate an ongoing abuse of our client and the charges under the account.

Simply put if your client contends that the amount in the default Notice is not the three months alleged then the amount, its source and why or how it was incurred has never been explained and when your client had the opportunity to explain that in the witness stand he was unable to do that. No default notice was issued for those fees and charges.

Whether your client chooses now to try and disclose how that amount was incurred or does so later, it seems that the initial ‘Notice’ was incorrect and that our client was not obliged to pay an amount that was not due and that in the circumstances there was no ‘default’. Everything that follows from that is therefore an error including penalties, fees and charges and or any right to immediate possession of the land.

If you proceed with the purported amendment, we will draw this letter to the attention of the Court and seek costs on an indemnity basis.

We are hopeful the matter can be resolved.

We invite you to have a meeting or a mediation to get to grips with the accounts and the amounts due. Our client has the capacity to refinance and pay your client what is due and owing to it, which cannot occur unless your client is more transparent about its accounts, including fees and charges.”

9. The plaintiff's evidence included correspondence between the solicitors for the parties, but that correspondence does not need to be specifically outlined in this judgment.

Submissions of the Defendants

10. The solicitors for the defendants have filed submissions in support of the orders claimed in the Notice of Motion. It is not unfair to describe those submissions as diffuse and unfocussed. The submissions seek relief which is not claimed in the Notice of Motion and generally travel well beyond the order made granting leave to the defendants to bring a Notice of Motion dealing with the question of costs of the proceedings.

11. By way of example, the submissions contain an assertion that the Court ought award exemplary damages to the defendants on the basis that the plaintiff's claim was an abuse of process. Exemplary damages are also claimed on the basis that the plaintiff’s conduct in the proceedings was unreasonable, and that in some way the plaintiff’s conduct in applying sums to the defendants’ loan account was “tortious (and injurious)”. Submissions are made that the actions of the plaintiff may be characterised as fraudulent “… in the absence of an explanation… ".

12. Ultimately after extensive reference to Canadian cases as a basis for an award of exemplary damages, the submissions of the defendants say this:

“33.   All of these principles apply in the present case.

34.   In this matter there was no cross-claim filed for exemplary damages … and the defendants are unable to claim exemplary damages or obtain any other relief as a result of the plaintiff’s injurious conduct. Nevertheless they remain important principles for a court to determine in this case in how it should exercise discretion on costs.”

13. To the extent that the submissions direct attention to the principles upon which a court ought proceed in considering an award for indemnity costs, it seems that the defendants submit that the basis for an award of indemnity costs is as follows:

1. at the time the case was commenced the plaintiff knew that there had been no default in payments as it claimed, but nevertheless issued a default notice and proceedings claiming costs to which it was not entitled;

2. notwithstanding a number of requests by the defendants for an explanation as to how the mortgage account was properly constituted thereby giving rise to the sums owed and the amounts claimed by way of default, no proper or adequate explanation was given by the plaintiff;

3. throughout the proceedings and prior to their commencement, the defendants had made many requests for the provision of essential documents and an explanation in detail of the claims made by the plaintiff for arrears; and

4. the conduct of the proceedings by the plaintiff amounted to a deliberate failure to comply with s 56 of the Civil Procedure Act 2005.

14. In support of these submissions, the defendants draw attention to the matters addressed by N Adams J in her interlocutory judgement in which she set aside a default judgement and permitted the defendants to file a Notice of Defence: RHG Mortgage Corporation Limited v Summerfield & Anor [2016] NSWSC1595 at [80].

15. The defendants also submit that the plaintiff’s conduct of the proceedings was unreasonable because although it had been put on notice that the defendants regarded the claims of arrears to be unsubstantiated and that it was essential for them to be properly explained, the plaintiff did not ever undertake such an analysis. Further, it was submitted that the evidence of Mr Hooper (the only witness called for the plaintiff) did not adequately prove that the debits which had been made to the defendants’ mortgage account were either justified or justifiable.

16. Finally, the defendants submitted that in the course of correspondence in June, July and December 2016, the defendants had put three offers to the plaintiff to compromise the proceedings. The defendants’ submissions then said this:

“The defendants recognise that the offers may or may not have been capable of acceptance, however, as explained in the defendants’ 23 December 2016 letter to the plaintiff, the reason for this is that the plaintiff, who held all the information, failed or refused to provide it even in the face of several Notices to Produce and a detailed request for particulars.”

17. With respect to the claim in the Notice of Motion, Order 1(b), the defendants submitted that the Court ought reverse the costs orders made by N Adams J and Registrar Bradford on this basis, namely that:

“Neither N Adams J nor Registrar Bradford would have made the orders they had made if they had known the Default Notice forming the basis for the default judgement had no basis at all and that the defendants were not in default.”

18. The defendants also submitted that it would be unfair and unreasonable not to reverse the costs orders of those interlocutory proceedings.

19. Finally, the defendants submitted that Orders 1(c) and 1(d) in the Notice of Motion should be made because of the findings made by the Court in the first judgment to the effect of the plaintiff is not entitled to charge fees, charges and expenses because the plaintiff had not taken the necessary steps to enable that to occur.

Plaintiff’s Submissions

20. The plaintiff submits that there is no basis for the Court to make an order for costs on an indemnity basis.

21. The plaintiff resisted the conclusion that its case was hopeless, that it had conducted the proceedings in a way which would constitute an abuse of process or that it had conducted itself unreasonably.

22. To the extent that the defendants seemed to claim exemplary damages or else some form of a costs order based upon an allegation of tortious or injurious conduct, the plaintiff submitted that there was no basis for claims of that kind.

23. In considering the submissions of the defendants that three “offers of compromise” had been made, the plaintiff submits that none of the offers made in the correspondence constituted offers of compromise in accordance with the Uniform Civil Procedure Rules 2005 (“UCPR”), and that one of the “offers” relied upon is in fact expressed as being no offer at all.

24. In addition, the plaintiff draws attention to the fact that the first two “offers” were made at the time when the plaintiff had a default judgment against both defendants which had not, at that time, been set aside.

25. With respect to the issue of the reversal of costs orders, the plaintiff submits that no factual basis has been established of the kind claimed in the submissions, and further that the costs orders that were made were part of separate, albeit interlocutory, judgments against which no appeal has been taken, or sought to be taken. That plaintiff submitted that there was no basis to vary or set aside those orders.

26. To the extent that the defendants claimed an indemnity for fees and charges, the plaintiff submitted that there was no basis to establish that the fees and charges should be reversed.

Relevant Statute and Legal Principles

27. Section 98(1) of the Civil Procedure Act bestows upon the Court an ample power with respect to ordering costs. It provides, relevantly:

“98.   Courts powers as to costs

(1)   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.”

28. Rule 42.2 of the UCPR provides that unless the Court otherwise orders, the costs ordered to be paid are to be assessed on the ordinary basis. Rule 42.5 of the UCPR permits the awarding of indemnity costs and defines what is meant by that term.

29. The legal authorities make clear that in circumstances where a proper offer of compromise has been made, but not accepted, and that party has obtained a judgment no less favourable than the terms of the offer, there is a clear onus on the other party to persuade the Court that indemnity costs should not be ordered: see South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [83] per Hunt AJA (Mason P and McColl JA agreeing) where the following appears:

“83.   Part 52 rule 22 provides that, where a plaintiff who has made an offer of compromise in accordance with Part 22 (Division I) which is not accepted by the defendant, and where the plaintiff obtains a judgment no less favourable than the terms of the offer, then, unless the Court otherwise orders, the plaintiff will be entitled to an order against the defendant for costs on an indemnity basis in relation to his costs incurred from the day after the offer was made. The onus is on the defendant to persuade the Court that indemnity costs should not be ordered. He must demonstrate the basis on which an order should be made denying the plaintiff's entitlement to indemnity costs. He must establish that he had given serious thought to the risk involved in non-acceptance of the offer, and that he had assessed the plaintiff’s case properly and in the context of the rule and the achievement of its purpose — to encourage the proper compromise of litigation, in the private interests of the litigants and in the public interest of the prompt and economical disposal of litigation. Generally, exceptional circumstances are required to justify such an order denying the plaintiff's entitlement. See, generally, Fowdl v Fowdl, Court of Appeal, 4 November 1993, unreported, per Kirby P at 12, 16; Hillier v Sheather (1995) 36 NSWLR 414 at 422-423; Morgan v Johnson (1998) 44 NSWLR 578 at 581-582.”

30. As Gray J stated in Hamod v State of New South Wales [2002] FCA 424 at [20]; (2002) 188 ALR 659 at 665:

“Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order was made to have subjected the innocent party to the expenditure of costs.”

31. Finally, as Woodward J said in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202 at [21]; (1988) 81 ALR 397 at 401, it is appropriate to award indemnity costs whenever:

“… it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established laws….”

Discernment

32. It is convenient to commence with the relief sought by way of reversal of the orders for costs of N Adams J and Registrar Bradford.

33. That claim must be rejected. There are two reasons for such a conclusion. First, there is no evidence or other material before this Court which is capable of supporting the submission that the orders were made in ignorance of some fact or facts, or of the circumstances relevant to the time. Nor is there evidence which suggests that any different order would have been made. The order of N Adams J was, if I may say with respect, the usual and entirely conventional one made when a party seeks to have a default judgment set aside in circumstances where their delay has been responsible for the entry of judgment. Registrar Bradford’s order was also of the kind usually made.

34. Secondly, it is not open to this Court to overturn such orders. Whilst the judgments were interlocutory ones, they were not subject to any appeal. Now that the proceedings are finalised, it is not in my view, even if I was persuaded that there was a proved basis (which I am not), open to this Court to now set aside or overturn such orders. No specific power in the Civil Procedure Act or the UCPR was identified as a basis for the Court to so act. The overturning of such orders is a matter to be dealt with on any appeal to the Court of Appeal, including after a grant of any leave which may be necessary.

35. The next issue to be dealt with is the application for indemnity costs to the extent that it depends upon the making of offers prior to the final determination of the proceedings.

36. It is convenient to commence with the application for indemnity costs to the extent that it depends upon the making of offers prior to the final determination of the proceedings.

37. The defendants admit in their submissions that the terms of the “offers” which they made were so vague and uncertain that there was nothing unreasonable in the plaintiff not accepting those purported offers.

38. The offers which were made were, in my view, uncertain and clearly required further negotiation and discussion to reach a final position. They were not offers which if accepted were capable, without more, of bringing the proceedings to finality. In my assessment, they were, rather, invitations to continue negotiations within the identified parameters. In those circumstances, whether or not those offers were capable of acceptance and as forming a basis for continuing negotiation, it cannot be said that it was unreasonable of the plaintiff not to have accepted them.

32. This conclusion is reinforced by the fact that at that time the plaintiff had the benefit of a default judgment, and the nature and extent of the proceedings that were in prospect to set aside the full judgment were entirely unclear.

33. In those circumstances, the fact that there were previous offers as relied upon by the defendants does not give rise to any sufficient reason to order that costs be payable on an indemnity basis.

34. The defendants seek an order for indemnity costs on the basis, variously put, that the plaintiff’s claim was hopeless, constituted an abuse of process, could not have succeeded on the basis of the evidence that was available, and that the only witness called could not express any opinion about the integrity of the underlying figures.

35. As the first judgment shows, at [146]-[167] inclusive, one of the principal issues relied upon by the plaintiff was the terms of an agreement of 2014, which had been reached after negotiation between the plaintiff and the defendants. The parties had differing interpretations of that agreement, which required resolution.

36. Although the Court found against the interpretation advanced by senior counsel for the plaintiff, it could not be said that the argument in this respect was hopeless, nor that the interpretation of that agreement contended for demonstrated any want of attention to proper principles in the litigation by the plaintiff.

37. The second principal issue considered by the Court was the accuracy and integrity of the loan account referring to the position of the defendants who were the borrowers. Mr Hooper, the only witness called by the plaintiff, expressed the view from his perspective as a Collections Manager for the plaintiff, that although he had not carried out any individual assessment of the integrity of the loan account, he was of the opinion that it was accurate, and his conduct in adjusting the outstanding balance as he did, demonstrated that the account was in arrears at the time the relevant default notice was issued.

38. Although the Court did not accept the substance of Mr Hooper’s evidence, it was nowhere put to him, and the Court did not find, that he was in any way being dishonest in the giving of his evidence and the expressing of his opinion, nor was it put to him that the plaintiff had conducted itself in a way inconsistent with its ordinary obligations as a litigant. It was also nowhere put to him that the plaintiff was engaged in the litigation for some collateral purpose or that in some other way the proceedings were an abuse of process.

39. Accordingly, I reject these arguments as a basis for a finding that the Court should order costs on an indemnity basis.

40. The claim was brought by the plaintiff. The evidence in support of that claim was put before the Court to support it. As the first judgment shows, ultimately the Court was not persuaded in light of the evidence and arguments from the defendants that it should uphold the plaintiff’s claim. That, however, does not give rise of itself and without more to a description of the proceedings of the kind advanced in the submissions for the defendants.

41. Accordingly, I am not satisfied on any of the bases advanced by the defendants that indemnity costs should be ordered.

42. The final issue is whether the Court ought make orders on this Notice of Motion which would have the effect of requiring the plaintiff to rectify the loan account with the defendants.

43. It must first be said that the orders sought in this respect fell outside the leave granted to the defendants by the Court to bring a Notice of Motion. Secondly, if such orders were to be sought, then they ought to have been sought as part of the substantive proceedings, and they were not. Thirdly, what is in effect being sought is the taking of an account between the plaintiff and the defendants with respect to the entirety of the loan. If that is in truth the relief which is appropriate, then a Notice of Motion after judgment is not the way to go about it. There are other means by which such steps can be taken.

44. Finally, the Court has made findings with respect to the reasonableness of some entries in the defendant’s loan account. It has made findings with respect to whether the plaintiff was entitled to make some entries. The taking of an account would go well beyond these factual findings, which have not been canvassed in the evidence to date, and in support of which there is no additional evidence.

45. It follows that these orders in the Notice of Motion ought be dismissed.

Conclusion

53. For the reasons described above, the whole of the defendants’ Notice of Motion ought be dismissed and the orders made by the Court on 29 June 2018 with respect to costs ought stand.

54. I see no reason why costs of the Motion should not follow the event. I order the defendants to pay the plaintiff’s costs of the Motion filed 16 July 2018.

Orders

55. I make the following orders:

1. Defendants’ Notice of Motion filed 16 July 2018 dismissed.

2. Orders made by the Court on 29 June 2018 with respect to costs stand.

3. Order the defendants to pay the plaintiff’s costs of the Notice of Motion filed 16 July 2018.

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Decision last updated: 13 November 2018