Shepparton Projects Pty Ltd v Cave Investments Pty Ltd (No 2)
[2011] VSC 384
•9 September 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST C
No. 6305 of 2009
| SHEPPARTON PROJECTS PTY LTD (ACN 105 818 166) | Plaintiff |
| v | |
| CAVE INVESTMENTS PTY LTD (ACN 108 091 907) THE REGISTRAR OF TITLES | First Defendant Second Defendant |
| AND BETWEEN: | |
| CAVE INVESTMENTS PTY LTD (ACN 108 091 907) | Plaintiff by Counterclaim |
| v | |
| SHEPPARTON PROJECTS PTY LTD (CONTROLLERS APPOINTED) (ACN 105 818 166) | First Defendant by Counterclaim |
| PAUL GRANT LINSDELL | Second Defendant by Counterclaim |
| PETER THOMAS NOLAN | Third Defendant by Counterclaim |
| KEVIN MARTIN McGUIRE | Fourth Defendant by Counterclaim |
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JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 July 2011 | |
DATE OF JUDGMENT: | 9 September 2011 | |
CASE MAY BE CITED AS: | Shepparton Projects Pty Ltd v Cave Investments Pty Ltd (No 2) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 384 | |
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INTEREST – Construction of loan agreement – Principal sum upon which interest to be calculated – Basis of calculation of compound interest – Morton v Elgin-Stucynski (2008) 19 VR 294.
COSTS – Basis of calculation of costs entitlement under loan agreement – Relationship between bases of taxation of costs under Court rules and contractual entitlement – Supreme Court (General Civil Procedure) Rules 2005, Rules 63.28, 63.30, 63.59 and 63.61 (and 63.22 as to costs reserved) – Beckwith v Pedler [2000] VSCA 86 (CA) and Gomba Holdings (UK) Ltd v Minories Finance Ltd [1993] Ch 171 (CA).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff and Defendants by Counterclaim | Mr I.D. Martindale SC with Mr J.M. Ross | Altus Lawyers |
| For the First Defendant and Plaintiff by Counterclaim | Mr P. Tree SC with Mr Perry Herzfeld | Keith Cameron Solicitors |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 2
Principal sum and interest outstanding......................................................................................... 2
Indemnity Costs............................................................................................................................... 14
Reserved costs................................................................................................................................... 24
Nominal damages............................................................................................................................. 24
Third and fourth party claims........................................................................................................ 25
Orders................................................................................................................................................. 25
HIS HONOUR:
Introduction
This proceeding arose as a result of disputes between the parties in relation to the proper construction of two loan agreements. The issues between the parties in this respect were determined in favour of the first defendant, Cave Investments Pty Ltd (“Cave Investments”) for the reasons set out in my judgment delivered on 10 December 2010.[1] The background to this proceeding and the relevant provisions of the two loan agreements, and the variations to those agreements together with details of dealings between the parties are set out in my previous judgment and it is not necessary to repeat matters again now. On this basis, I have assumed this background for the purposes of this judgment and have also adopted the same abbreviations as appear in the earlier judgment.
[1]Shepparton Projects Pty Ltd v Cave Investments Pty Ltd [2010] VSC 504.
Judgment was given for Cave Investments for the whole of the principal sum remaining outstanding plus interest thereon under the 2006 Loan Agreement and associated securities for the obligations under that agreement. I did, however, as indicated in my earlier judgment, reserve the issue of the final calculation of the principal sum and interest remaining outstanding, the question of nominal damages payable by the plaintiff, Shepparton Projects Pty Ltd (“Shepparton Projects”) for breach of the 2006 Loan Agreement, and the question of costs. I heard the parties in relation to these matters on 29 July 2011 and was also provided with a written outline of submissions from each party.
Principal sum and interest outstanding
The extent to which these issues were addressed in my earlier judgment is set out as follows:[2]
“There is no dispute that the principal sum outstanding under the 2006 Loan Agreement as secured by the SPM mortgage to Cave Investments is $2.1 million. Cave Investments submitted that it appears from the definition of ‘principal sum’ that outstanding interest forms part of the principal and hence capitalises at six monthly rests. A calculation of that capitalised interest at 13 September 2010 is attached to the Defendant’s Summary of Argument and shows a total figure for interest calculated on this basis at $501,993.81. This produces a total amount due as at that date of $2,601,993.81. Shepparton Projects did not make any submissions indicating disagreement with these figures or the interest calculations as submitted by Cave Investments on the basis of its position as to the proper construction of the 2006 Loan Agreement; a construction which I have substantially accepted for the reasons indicated. I will, however, reserve the question of the final calculation of principal and interest due for further submissions, if necessary, by the parties.”
Further submissions were made by the parties in relation to these matters and it is to these that I now turn.
[2]Shepparton Projects Pty Ltd v Cave Investments Pty Ltd [2010] VSC 504 at [73].
The obligation to pay interest is contained in sub-clause 5(b) of the 2006 Loan Agreement:[3]
[3]A provision, at least with respect to sub-clause 5(b), in the same terms as sub-clause 5(b) of the 2004 Loan Agreement.
“5 The Borrower covenants with the Lender as follows:
…
(b)to pay interest to the Lender upon the Present Advance at the rate and at the times specified in Item 9 of Schedule I under the heading ‘Interest’ and, unless otherwise agreed, to pay interest upon any other monies forming part of the principal sum outstanding from the time or times that the same is advanced or paid or has become recoverable by the Lender at the rate payable in respect of the Present Advance such interest to accrue and be payable from day to day from the time on which it becomes payable in accordance with the said Item 9;
…”
Item 9 of Schedule I provides:[4]
“Item 9
Interest:Nil for the first 12 month period and thereafter 8% per annum payable six monthly in arrears.”
[4]The corresponding provisions of the 2004 Loan Agreement are as follows:
“Item 9
Interest:15% per annum of which 8% per annum shall be monthly in advance calculated on such of the principal sum as may have been advanced as at the time that each interest payment is due plus a further deferred amount being 7% of the amount repaid at the time that any repayment of the principal sum is made calculated from the date of the Present Advance until Repayment Date.”
The expression “Present Advance” is defined in 2006 Loan Agreement as the sum of $3.68 million. This follows from the provisions of Recital A which states that:
“The Lender has advanced to the Borrower the amount or amounts referred to in Item 5 of Schedule I as the present advance (hereinafter the ‘Present Advance’).”[5]
[5]See Shepparton Projects Pty Ltd v Cave Investments Pty Ltd [2010] VSC 504, at [7].
The other expression relevant to the operation of sub-clause 5(b) of the 2006 Loan Agreement is the expression “Principal Sum”. This expression is defined in sub-clause 2(a) of the 2006 Loan Agreement to mean:[6]
“’Principal Sum’ means the Present Advance and each and all sums of money in which the Borrower may now or hereafter be indebted or liable or contingently indebted or contingently liable to the Lender on any account whatever including (without limiting the generality of the foregoing) any monies or damages now or hereafter owing or payable by the Borrower under, pursuant to or in connection with this agreement;”
[6]The corresponding provisions of the 2004 Loan Agreement are in the same terms.
On the basis of these provisions, Cave Investments submitted that the obligation to pay interest as imposed by the provisions of sub-clause 5(b) of the 2006 Loan Agreement imported two separate obligations, as follows:
“[(i)]to pay interest to the Lender upon the Present Advance at the rate and at the times specified in Item 9 of Schedule I under the heading ‘Interest’ and,
[(ii)]unless otherwise agreed, to pay interest upon any other monies forming part of the principal sum outstanding from the time or times that the same is advanced or paid or has become recoverable by the Lender at the rate payable in respect of the Present Advance such interest to accrue and be payable from day to day from the time on which it becomes payable in accordance with the said Item 9 …”
It was further submitted by Cave Investments that the second obligation contained in sub-clause 5(b), set out in limb (ii) (above), can be broken into four parts:
“[(A)]to pay interest upon any other monies forming part of the principal sum outstanding
[(B)]from the time or times that the same is advanced or paid or has become recoverable by the Lender
[(C)]at the rate payable in respect of the Present Advance
[(D)]such interest to accrue and be payable from day to day from the time on which it becomes payable in accordance with the said Item 9.”
As a result of the application of Item 9 of Schedule I to the 2006 Loan Agreement, the first interest payment therefore fell due on 21 June 2008, but was extended to 17 July 2008.[7]
[7]See Shepparton Projects Pty Ltd v Cave Investments Pty Ltd [2010] VSC 504, at [56].
Cave Investments submitted that the consequence of the operation of the first limb of sub-clause 5(b) of the 2006 Loan Agreement, as identified in its submissions, was that from 17 July 2008 interest was payable on $3.68 million at the rate of 8% per annum, every six months from 21 June 2008. This, it was submitted, constitutes an interest payment, a fixed six monthly fee, of $147,200.[8] It was further submitted that there is nothing absurd or unreasonable about the requirement that a borrower pay a fixed periodic fee to secure the entitlement to borrow money from a lender. It was said that even if it were thought to be more reasonable for the quantum of the six monthly interest to diminish as the quantum of the outstanding amount the subject of the 2006 Loan Agreement diminished, the words are unambiguous and cannot be rewritten by the Court.[9] Emphasising the point, it was submitted that interest under the first limb of sub-clause 5(b) of the 2006 Loan Agreement is on the “Present Advance”, not the “Principal Sum”.
[8]In its written submissions, Cave Investments noted that at the hearing on 13 and 14 September 2010, it had incorrectly submitted that the six monthly interest was calculated on the outstanding amount of $2,100,000.00, equating to six monthly interest of $84,000: transcript, pp 154, 157, 162; summary of argument, paras 34, 44, 60. It was submitted that this was reflected in my earlier judgment at [50] and [60]. It was further submitted by Cave Investments that the fact that the correct amount was $147,200.00 was not material to the earlier judgment: the significant point was that it was greater than the $70,000.00 that was tendered. It was submitted that Shepparton Projects and others, the defendants by counterclaim, were not prejudiced by that error, as no argument as to the calculation of interest took place at the hearing on 13 and 14 September 2010, as they have now had further opportunity to make submissions on this point.
[9]Referring to Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55]-[66] per Macfarlan JA (Young JA and Tobias AJA agreeing).
In relation to the entitlement of Cave Investments to compound interest, the second obligation, as referred to above, in sub-clause 5(b) of the 2006 Loan Agreement is said to be relevant. It was submitted that, by reference to the four parts of that obligation, as identified by Cave Investments, part (A) imposed an obligation to pay interest upon any “other monies”, that is other than the “Present Advance” which is the subject of the first limb of sub-clause 5(b), forming part of the principal sum outstanding. In this respect, reference was made to the definition of “Principal Sum”, set out above, which, it was submitted, includes each of the six monthly interest payments of $147,200 from when they fell due. It was submitted that each was a sum owing by Shepparton Projects “the Borrower” under the 2006 Loan Agreement and was therefore within the meaning of the expression “… all sums of money in which the Borrower may now or hereafter be indebted or liable … to the Lender on any account …”, as these words appear in the definition of “Principal Sum” as contained in sub-clause 2(a) of the agreement.[10] As will be noted, this definition also brings within its net further moneys as the result of its concluding part: “… including (without limiting the generality of the foregoing) any monies … now or hereafter owing or payable by the Borrower under, pursuant to or in connection with this agreement”.
[10]See above, paragraph 6.
Consequently, it was submitted by Cave Investments, that the six monthly interest payments became part of the “Principal Sum” when they fell due and if they were not paid on time, interest was to be applied to them under the identified second limb of sub-clause 5(b) of the agreement. It was said that this was, in substance, default interest on the six monthly fees. It was also said that part (B) of the second limb obligations contained in sub-clause 5(b) specified the time from which interest ran under this limb, such that interest ran on amounts falling due under the 2006 Loan Agreement from the time those amounts fell due. In the case of the six monthly interest payments of $147,200 that was, it was submitted, every six months. Further, part (C) of these obligations specified the rate of interest as the rate payable in respect of the “Present Advance”, that is 8% per annum. Additionally, it was submitted that part (D) of these obligations specified that the interest accrued and was payable from day to day. Thus it was said that each day’s interest as in the second limb of the sub-clause 5(b) obligations does form part of the “Principal Sum”, as defined, upon which interest was applied the next day under this second limb. In substance, it was submitted that default interest was compounded daily.
In summary, Cave Investments submitted that the operation of the second limb of the sub-clause 5(b) obligations (as identified) provided for under the 2006 Loan Agreement was as follows:
“(a)default interest was payable on each six-monthly payment of $147,200.00 from the time that amount became payable, ie every six months;
(b)the rate was the same as that in respect of the Present Advance, ie 8% per annum; and
(c)the default interest was payable from day to day and compounded daily.”
This, it was submitted, gives the 2006 Loan Agreement a commercial and businesslike operation[11] which provided an appropriate commercial incentive on Shepparton Projects to make timely payments of the six monthly interest due under the first limb of the sub-clause 5(b) obligations. It was submitted that the calculation of interest pursuant to this construction yields interest owing as at 29 July 2011 of $1,321,297 as detailed in the schedule to the Cave Investments outline of submissions for the hearing on 29 July 2011.
[11]Referring in this respect to McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589, [22] (Gleeson CJ).
Shepparton Projects, on the other hand, argued strongly against the submission that interest was payable on the sum of $3.68 million, rather than the sum of $2.1 million, which was the sum accepted by both parties as being the principal sum outstanding under the 2006 Loan Agreement.[12] In this respect, it was submitted that it was accepted on the pleadings that the amount owing under the agreement was reduced to $2.1 million by 21 December 2007[13] and that there was no interest payable under the 2006 Loan Agreement until after 21 December 2007 as a result of the operation of the provisions of Item 9 of Schedule I of that agreement (which applies as a result of the operation of the provisions of sub-clause 5(b), as set out above).
[12]See above, paragraph 3.
[13]Paragraph 10(b) of the Third Further Amended Defence in Counterclaim.
It was submitted that the construction advocated by Cave Investments is based on the definition of “Present Advance” and the absence of words limiting the obligation to so much of the “Present Advance” that remains outstanding. It was also submitted that there are no words terminating the interest obligation on repayment in full of the “Present Advance”, so on the Cave Investments construction of the 2006 Loan Agreement provisions, Shepparton Projects, as borrower, would remain liable to pay interest on $3.68 million forever and regardless of the extent to which that amount had been paid. It was submitted that reasonable commercial parties could not have intended this result and that, even if this is the literal effect of the provisions of the 2006 Loan Agreement, the Court would not apply the literal meaning of the words if it led to an absurd or irrational result.[14] It was also submitted that the Court may supply, omit or correct words where necessary to avoid absurdity or inconsistency.[15] Consequently, Shepparton Projects submitted that the only sensible construction of the 2006 Loan Agreement is that it is obliged to pay interest on the “Present Advance”, or so much of it that remains outstanding. It was submitted that this is supported by the following:[16]
[14]See Westpac Banking Corp v Tanzone Pty Ltd (2000) 9 BPR 17, 521; [2000] NSWCA 25 at [19] and [20] (Priestly, Fitzgerald JJA and Foster AJA).
[15]See Fitzgerald v Masters (1956) 95 CLR 420 at 426-427 (per Dixon CJ and Fullagar J).
[16]Outline of submissions of the Plaintiff and Defendants by Counterclaim (22 July 2011), para 12.
“(a)Schedule 2 of the 2006 Loan Agreement provides for immediate repayment of $1m and other transactions reducing the amount outstanding to $2.1m before 21 December 2007.
(b)The original (2004) loan agreement provided for a bullet repayment on the repayment date (2 years). The original loan agreement required payment of $60,000 out of the proceeds of each lot sale. Clause 5(b) was in the same terms as in the 2006 Loan Agreement and did not expressly apply only to the reducing balance.
(c)The first deed of variation of the original loan agreement re-defined the Present Advance by increasing the amount, with instalments to be advanced in the future. No change was made to clause 5(b) so that it did not apply only to the balance outstanding which was to increase by further advances and (at least theoretically) reduce on lot sales.
(d)The second deed of variation of the original loan agreement required the repayment of $1.5m (which was paid as part of the NAB re-finance). No change was made to clause 5(b) so that it did not apply only to the balance outstanding. Further advances were made subsequent to the second deed of variation.
(e)The evident intention of the parties was that interest should be paid on the amount outstanding from time to time. In these circumstances it would have required explicit words to require interest to be paid on a notional sum that was not in fact owing. Clause 5(b) is evidently a boilerplate clause that has received inadequate thought from the draftsman who acted for both parties.”
Finally, it was submitted that Cave Investments has not pleaded an entitlement to interest on $3.68 million.
Shepparton Projects then turned to the claim by Cave Investments that it was entitled to interest compounded daily under the 2006 Loan Agreement. It submitted that on a true construction of this agreement, interest compounded daily is not payable. It made these submissions in the context of the following observation of the Court of Appeal in Morton v Elgin-Stuczynski:[17]
“Whether interest is to be calculated on a simple or compound basis depends on the true construction of the contract, read in the light of surrounding circumstances.
Whatever may have been the case historically, today there is no presumption that interest payable on a loan made by a private lender is to be calculated as either simple or compound interest.”
[17](2008) 19 VR 294, at 300, [27] and[28] (Neave JA, with whom Kellam JA and Cavanough AJA agreed).
Against this background it was submitted that the true construction of the 2006 Loan Agreement is that interest is payable at the rate of 8% per annum capitalised every six months as follows:[18]
“(a)interest is payable on the Present Advance at the rate of 8% per annum six monthly in arrears (clause 5(b), Schedule 1 Item 9);
(b)interest is also payable on other monies forming part of the principal sum at the rate of 8% per annum (clause 5(b));
(c)interest only forms part of the principal sum once it has become due and payable – ie. at the end of each 6 month period – and if the interest is not paid when due. This follows from the definition of principal sum in clause 2 and from clause 5(b), which provides that interest is only payable on other monies forming part of the principal sum from the date such monies have become recoverable by Cave Investments. Interest is not recoverable except on or (as to arrears only) after each six monthly payment date or on any other date on which the loan is repaid in full.”
[18]Outline of submissions of the Plaintiff and Defendants by Counterclaim (22 July 2011), para 16.
Further, it was submitted that sub-clause 5(b) of the 2006 Loan Agreement, which provides that interest is to accrue and be payable from day to day, does not alter this construction. In Morton,[19] it was held that a reference to “accrued interest” was neutral in determining whether simple or compound interest was payable. Consequently, it was submitted that the reference to interest accruing from day to day means no more than if the lender was repaid in the middle of a six month period, it would then be entitled to interest that had accrued since the end of the last six month period. It was also said that although interest is to “accrue and be payable from day to day” under sub-clause 5(b) of the agreement, it only becomes due and payable at six monthly intervals. It follows, it was submitted, that until an interest payment date arrives and interest remains unpaid, there is nothing to add to the “Principal Sum”. It was, however, submitted that the difference between daily compounding and six monthly compounding is relatively small but that, nevertheless, daily compounding is not correct. It was also noted that Cave Investments had not pleaded an entitlement to compound interest.
[19](2008) 19 VR 294, at 303, [41] (Neave JA, with whom Kellam JA and Cavanough AJA agreed).
I accept the submissions of Cave Investments that there is nothing necessarily absurd or unreasonable about a requirement that a borrower pay a fixed periodic fee to secure the entitlement to borrow money from a lender. I also accept its submission that even if it might be thought more reasonable for the quantum of interest to diminish as the quantum of the outstanding amount under the 2006 Loan Agreement diminished if the words of the agreement are unambiguous, they cannot be rewritten by the Court.
The authorities are clear in indicating that this issue is one which is to be resolved by applying ordinary principles of construction to the provisions of the 2006 Loan Agreement as a commercial document. Further, there is no basis, in my view, for undertaking this process on the basis that any assumption or presumption of common commercial practice with respect to the charging of interest on reducing principal exists or is relevant and applicable. Consequently, the words relied upon by Cave Investments must, according to the ordinary principles of construction, be considered in the context of the provisions of the whole of the 2006 Loan Agreement and not in isolation, viewed through the narrow lens of sub-clause 5(b) of that agreement and the immediately related provisions.[20] Another principle of construction relevant in the present circumstances is that “[a] concluded antecedent agreement may be relied upon in interpreting a later instrument made pursuant to that agreement”.[21] In support of this proposition, Lewison LJ (as his Lordship is shortly to take up his appointment to the Court of Appeal) makes reference to various authorities:[22]
[20]See Lewison, The Interpretation of Contracts (Sweet & Maxwell, London, 4th ed, 2007), paragraph 7.02.
[21]See Lewison, The Interpretation of Contracts (Sweet & Maxwell, London, 4th ed, 2007), paragraph 3.05 (pp 66-68).
[22]See Lewison, The Interpretation of Contracts (Sweet & Maxwell, London, 4th ed, 2007), paragraph 3.05 (pp 67-68).
“In KPMG LLP v Network Rail Infrastructure Ltd[23] the Court of Appeal looked at an agreed draft lease annexed to an agreement for lease in interpreting the completed document. Carnwath LJ said:
[23][2007] EWCA Civ 363 [[2007] All ER (D) 245 (Apr); [2008] 1 P & CR 187].
‘In my view, the 1974 agreement, including the form and content of the draft lease attached to it, was an important part of the background and is a permissible aid in the construction of the lease in its final form.’
Where a contract expressly purports to vary another contract, there can be no reason for excluding the varied contract from consideration. In such a case the parties can be taken to have had the common intention that the contract as varied should not mean the same as the contract before the variation. Consequently, the case is far stronger than that of looking at words deleted from printed forms, for in the case of a variation there are two expressions of common intention to which to appeal. Since it may be assumed that each expression bears a different meaning, valuable light and shade may throw a problem of construction into sharper relief. Thus in Punjab National Bank v de Boinville[24] Staughton LJ said:
[24][1992] 1 WLR 1138 at 1149, CA.
‘… if the parties to a concluded contract subsequently agree in express terms that some words in it are to be replaced by others, one can have regard to all aspects of the subsequent agreement in construing the contract, including the deletions, even in a case which is not, or is not wholly, concerned with a printed form.’
In HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co[25] Rix LJ said:
‘In principle it would seem to me that it is always admissible to look at prior contracts as part of the matrix or surrounding circumstances of a later contract. I do not see how the parol evidence rule can exclude prior contracts, as distinct from mere negotiations. The difficulty of course is that, where the later contract is intended to supersede the prior contract, it may in the generality of cases simply be useless to try to construe the later contract by reference to the earlier one …
Where, however, it is not even common ground that the later contract is intended to supersede the earlier contract, I do not see how it can ever be permissible to exclude reference to the earlier contract.’”
Further, in the First Supplement to the Fourth Edition of this text, it is noted that in St Ivel Ltd v Wincanton Group Ltd,[26] the English Court of Appeal reaffirmed that an antecedent agreement may be relied upon in interpreting a later agreement.[27]
[25][2001] 2 Lloyd’s Rep 161.
[26][2008] EWCA Civ 1286.
[27]See The Interpretation of Contracts (First Supplement to the Fourth Edition, Sweet & Maxwell, London 2010), 18.
Applying these principles in the present circumstances, I am of the opinion that the proper construction of the 2006 Loan Agreement is that interest is payable on the “Present Advance” or so much of it that remains outstanding; for the reasons which are advanced in the submissions by Shepparton Projects, as set out above.
Additionally, the provisions of the 2004 Loan Agreement with respect to the entitlement to and payment of interest are also indicative of the approach taken in the provisions of the 2006 Loan Agreement which has regard to the actual state of accounts from time to time between the parties. It is quite correct that the words of sub-clause 5(b) of the agreement do expressly refer to the “principal sum outstanding from the time or times …” and do not similarly qualify the expression “Present Advance”. The omission of any qualification with respect to the sum constituting the “Present Advance” is, however, explicable on the basis of the history of the 2006 Loan Agreement, particularly as outlined in the submissions of Shepparton Projects.[28] The lack of any qualification with respect to the “Present Advance” may have, under the terms of the 2004 Loan Agreement, meant that no reduction in interest would apply if that sum was repaid early, that is before the “repayment date” according to the right to early repayment provided for in sub-clause 5(a) of that agreement, with reference to Item 7 of Schedule I.[29] Although the effect of early repayment on interest liability is not an issue, the operation of these provisions do, in my view, shed light on the operation of the 2006 Loan Agreement provisions in a manner consistently with the authorities with respect to the effect of provisions in antecedent agreements, to which reference has been made and consistently with the submissions of Shepparton Projects.
[28]See Shepparton Projects Pty Ltd v Cave Investments Pty Ltd [2010] VSC 504, at [6]-[18].
[29]See Shepparton Projects Pty Ltd v Cave Investments Pty Ltd [2010] VSC 504, at [8].
I turn now to the manner in which interest is to be calculated and the argument by Cave Investments that it is to be compounded daily under the 2006 Loan Agreement. Again, the arguments in this respect highlight the “unhappy” drafting of the various loan agreements.
As Shepparton Projects submitted, the Court of Appeal has made it clear that there is no presumption that private loan arrangements will yield either simple or compound interest.[30] In spite of the detailed arguments mounted by Cave Investments with respect to the operation of the, so identified, second limb of sub-clause 5(b) of the 2006 Loan Agreement, I am of the opinion that its arguments fail on the basis of the arguments contained in the Shepparton Projects submissions, set out above. In my view, the arguments advanced by Cave Investments could only succeed if interest was not only calculated on a daily basis but also payable on a daily basis. This is not the position. The provisions of sub-clause 5(b) of the 2006 Loan Agreement and Item 9 of Schedule I of that agreement make it clear that interest, though calculated on a daily basis, is only payable at six monthly intervals. Consequently, this produces “bi-annual compounding” as submitted by Shepparton Projects.
[30]See Morton v Elgin–Stuczynski (2008) 19 VR 294 at 300, [27] and [28] (Neave JA, with whom Kellam JA and Cavanough AJA agreed).
Accordingly, interest is payable on the sum of $2.1 million, calculated daily with bi-annual compounding.
Indemnity Costs
The issue in this respect was whether Cave Investments should be awarded costs on its counterclaim on an indemnity basis. In support of its position, Cave Investments relied upon clause 8 of the 2006 Loan Agreement and the definition of “costs” contained in sub-clause 2(a) of that agreement. These provisions are as follows:
“8 Costs
The Borrower shall pay to the Lender all the Lender’s expenses and costs of and incidental to the preparation, execution, stamping and registration and enforcement of this agreement and other transactions under or pursuant to this agreement and shall indemnify the Lender against any expense or liability the Lender may incur or pay 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 Ac 2000 (as amended) and from time to time hereafter.”
The definition of “costs” contained in sub-clause 2(a) is as follows:
“2 Interpretation and Definitions
(a)In this agreement unless the context otherwise requires the following words and expressions shall have the following meanings:
…
‘costs’ shall without limiting the generality thereof include solicitor and own client costs;”
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[31] and that the Court should ordinarily exercise its discretion in accordance with the agreement.[32] 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.[33] 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.[34]
[31]See recently Perpetual Trustees Australia Ltd v Schmidt (No 3) [2010] VSC 261 at [38]-[41] (J Forrest J).
[32]Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [12]-[14] (Beazley JA, Ipp and Hodgson JJA agreeing); Reading Entertainment Australia Pty Ltd v Burstone Victoria Pty Ltd (No 2) [2005] VSC 137 at [23], [25] (Whelan J); Taree Pty Ltd v Bob Jane Corp Pty Ltd [2008] VSC 228 at [43]-[44] (Vickery J).
[33]Reading Entertainment Australia Pty Ltd v Burstone Victoria Pty Ltd (No 2) [2005] VSC 137 at [22] (Whelan J).
[34]Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [12] (Beazley JA, Ipp and Hodgson JJA agreeing); Taree Pty Ltd v Bob Jane Corporation Pty Ltd (No 2) [2008] VSC 228 at [47]-[48].
The position that the general discretion will ordinarily be exercised to reflect a contractual right to costs is made very clear in the decision of the English Court of Appeal in Gomba Holdings (UK) Ltd v Minories Finance Ltd.[35] In that case, Scott LJ, in delivering the judgment of the Court, said:[36]
[35][1993] Ch 171.
[36][1993] Ch 171 at 192-4; and see Civil Procedure (“the White Book”) (2010), Vol 1, [48.3.1] (p 1378-9) where the principles stated at the conclusion of this consideration of the authorities is set out and relied upon.
“As to the interaction between a contractual right to litigation costs and the court’s discretionary power under section 51(1) of the Supreme Court Act 1981,[37] there are several judicial dicta to which reference should be made.
[37]Section 51(1) of the English Supreme Court Act 1981 then relevantly provided:
“Subject to the provisions of this or any other Act and to rules of court, the costs of and incidental to all proceedings in the civil division of the Court of Appeal and in the High Court … shall be in the discretion of the court, and the court shall have full power to determine by whom and to what extent the costs are to be paid.”
Section 24 of the Victorian Supreme Court Act 1986 is in substantially the same terms.
In Bank of Baroda v Panessar [1987] Ch 335, a mortgage case, Walton J said, at p 355:
‘it seems to me that it is not possible for a person in the position of the bank to exclude the discretion of the court, but one nevertheless starts from the position that the contractual position between the parties is that the costs will be paid on an indemnity basis. I cannot think that the words “all costs” mean anything other than that. So one starts from the position that that is the contractual position but not, as I venture to think, binding on the court.’
In ANZ Banking Group (New Zealand) Ltd v Gibson [1981] 2 NZLR 513, also a mortgage case, Holland J said, at p 531:
‘The court is given a discretion as to the costs to award. I am satisfied that the fact that the parties have by contract agreed to pay costs on a solicitor/client basis is a factor to be taken into account by me in the exercise of my discretion.’
Vinelott J in his judgment of 19 December 1991 said:
‘If the parties have agreed the basis of taxation it would, I think, be an improper exercise of the court’s discretion to direct the taxation on some other basis, unless satisfied that there had been some conduct on the part of the mortgagee disentitling him to costs or to costs on the agreed basis.’
On the other hand, in Mansfield v Robinson [1928] 2 KB 353 the parties to an arbitration had agreed beforehand that the successful party should have costs on the High Court scale. The arbitrator, not knowing of this agreement, made no order as to costs. An action was then brought to enforce the costs agreement. The county court judge held that in view of certain statutory provisions which provided that the costs of the arbitration were to be in the discretion of the arbitrator, the costs agreement was invalid. An appeal to the Divisional Court succeeded.
Salter J posed the question ‘whether it is allowable to parties to an arbitration of this kind to make their own agreement as to costs,’ and said: ‘I am unable to distinguish the position of such an arbitrator from that of a judge in this respect,’ and, at p 359, said:
‘With regard to the discretion of a judge as to costs, which is given by Order LXV, r 1, of the Rules of the Supreme Court, it is, I think, common practice for parties to make their own agreements as to the costs … and such agreements are perfectly valid and enforceable.’
Talbot J agreed. The costs agreement was held to be valid and enforceable.
In In re Shanahan (1941) 58 WN(NSW) 132, another mortgage case, Street J said, at p 134:
‘the parties are free to make any arrangements which they like dealing with the subject matter of costs; and it seems to me to make no difference whether that agreement is made before or after the court takes the matter into its consideration … It has been held that even if a court, having full discretion in the mater of the costs of any proceeding, deals in its order with such costs, a party can still enforce an antecedent agreement in relation thereto inconsistent with the court’s order: Mansfield v Robinson.’
These dicta are not entirely reconcilable. In any event, none binds this court.
There is, however, a recent decision of this court in Seavision Investment SA v Evennett [1992] 2 Lloyd’s Rep 26 in which Parker LJ expressed the opinion, concurred in by the other members of the court, that a contractual right of one party to an action to have the costs of the action paid by another party to the action could not override the discretion as to costs given to the court by Ord 62, r 3(2) and section 51(1) of the Act of 1981, but that where an order for payment of the costs was sought, the discretion should ordinarily be exercised so as to reflect the contractual right. This opinion accords with that of Vinelott J that I have cited.
In our opinion, the following principles emerge from the cases and dicta to which I have referred.
(i) An order for the payment of costs of proceedings by one party to another party is always a discretionary order: section 51 of the Act of 1981.
(ii) Where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that contractual right.
(iii) The power of the court to disallow a mortgagee’s costs sought to be added to the mortgage security is a power that does not derive from section 51 but from the power of courts of equity to fix the terms on which redemption will be allowed.
(iv) A decision by a court to refuse costs, in whole or in part, to a mortgage litigant may be a decision in the exercise of the section 51 discretion or a decision in the exercise of the power to fix the terms on which redemption will be allowed or a decision as to the extent of a mortgagee’s contractual right to add his costs to the security or a combination of two or more of these things. The pleadings in the case and the submissions made to the judge may indicate which of the decisions to which we have referred has been made.
(v) A mortgagee is not, in our judgment, to be deprived of a contractual or equitable right to add costs to the security merely by reason of an order for payment of costs made without reference to the mortgagee’s contractual or equitable rights and without any adjudication as to whether or not the mortgagee should be deprived of those costs.”
This passage from Gomba Holdings also brings me to a further argument which was raised by Shepparton Projects during the course of the 29 July 2011 hearing of the matter; an argument not referred to in its written submissions. As I understood that argument, which was advanced quite briefly, it was to the effect that the present proceedings are in the nature of a redemption action by Shepparton Projects as mortgagor and, accordingly, Cave Investments, as mortgagee, is not entitled to recover its costs; at least not directly. Presumably, this was intended as a reference to the following principles as set out in the Australian edition of Fisher and Lightwood’s Law of Mortgage (a work referred to in the course of these submissions, but only obliquely):[38]
“40.4 The general rule is that costs, whether costs of an enforcement or a redemption action or included in ‘costs, charges and expenses’, are not recoverable from the mortgagor personally, but both as against the mortgagor and other persons interested in the equity of redemption, they are added to the amount due under the mortgage and must be paid as a condition of redeeming: Re Sneyd; Ex parte Fewings (1883) 25 Ch D 338; Re Wallis; Ex parte Lickorish (1890) 25 QBD 176; Sinfield v Sweet [1967] 3 All ER 479. With the principal and interest they form a single debt and are payable in the same priority: Barnes V Racster (1842) 1 Y & CCC 401; 62 ER 944; Harpham v Shacklock (1881) 19 Ch D 207 at 215. The mere fact that the mortgage contains a declaration that ‘the total amount to be recovered by the mortgagees under these presents shall not exceed’ so much, does not preclude the mortgagee from adding arrears of interest and costs beyond that sum since the proviso is construed to relate exclusively to principal: White v City of London Brewery Co (1889) 42 Ch D 237.
The general rule does not apply where the terms of the mortgage provide that the mortgagor shall be personally liable to pay such costs: see Shercliff v Engadine Acceptance Corp Pty Ltd (No 2) (1982) 3 BPR 9207; Justelius v Douglass (1985) Conveyancing Service (NSW) [92263]; Gomba Holdings UK Ltd v Minories Finance Ltd (No 2) [1993] Ch 171; [1992] 4 All ER 588.”
[38]Tyler, Young and Croft, Fisher and Lightwood’s Law of Mortgage (Lexis Nexis, 2nd Aust ed, 2005) para 40.4 (p 832).
Although Shepparton Projects sought to characterise the proceedings as a redemption action in order to attract the application of this principle, I think to do so would, in the present circumstances, be highly artificial. In my opinion, as a matter of language and content, the 2006 Loan Agreement is, in this context, to be regarded primarily as a loan agreement, though secured. Additionally, even if it were to be regarded as a mortgage and the present proceedings a redemption action, the general rule does not apply on the basis of the authorities which establish the exemption where the mortgage provides that the mortgagor shall be personally liable to pay the costs. Clause 8 of the 2006 Loan Agreement, as set out, discussed and construed previously, is such a provision. In any event, the general position is that a mortgagee is entitled as of right to the costs properly incurred in an action for foreclosure or other action to enforce the mortgage and in an action against him for redemption. This position was established by Detillin v Gale.[39] This proposition has been quoted on many occasions and, more recently, by Fullagar J in Perry v Rolfe.[40]
[39](1802) 7 Ves 583 at 584-5; 32 ER 234 at 235 (Lord Chancellor Eldon).
[40][1948] VLR 297 at 301; and see Fisher and Lightwood’s Law of Mortgage (Lexis Nexis 2nd Aust ed, 2005), paragraph 40.1.
Shepparton Projects also submitted that if a party intends to seek a special costs order, it should be specifically pleaded, referring to the decision of Vickery J in Taree Pty Ltd v Bob Jane Corporation.[41] This decision does, however, make clear that the issue is one of procedural fairness in that a party is entitled to be given notice of an intended application against it for costs other than on the usual party-party basis. This might be achieved by way of pleadings or, as in the present case, by way of other forms of notice, such as a written outline of submissions provided sufficiently in advance of the hearing of the application. This occurred in the present case and, accordingly, no issue of notice, by way of pleadings or otherwise, arises with respect to the Cave Investments applications for indemnity costs.
[41][2008] VSC 228 at [53].
Turning now to the provisions of the 2006 Loan Agreement and the guarantee dated 21 December 2006, Shepparton Projects submitted that they do not “plainly and unambiguously” entitle Cave Investments to indemnity costs. Referring to clause 8 of the 2006 Loan Agreement, it was submitted that its provisions contain a covenant by Shepparton Projects to pay costs and expenses and an indemnity to pay expenses but not costs. Reference was then made to the definition of “costs” contained in sub-clause 2(a) of that agreement, erroneously quoting the provisions of this definition in its written outline of submissions as referring to “solicitor and client costs”, rather than “solicitor and own client costs”, as the terms of the agreement actually provide.[42] This error was corrected at the 29 July 2011 hearing and on this basis, it was submitted that “by including solicitor [and own] client costs the definitions stop short of indemnity costs and should not be construed as leaving the door open by default”. Further, it was submitted that to the extent that Cave Investments relies on the indemnity contained in clause 8, it is to be construed contra proferentem in favour of Shepparton Projects if there is any ambiguity.[43] Continuing, it was submitted that the indemnity must be limited to expenses as clause 8 draws a distinction between costs and expenses by reference to the indemnity.
[42]See Outline of Submissions of the Plaintiff and Defendants by Counterclaim (22 July 2011), paragraph 23.
[43]See Outline of Submissions of the Plaintiff and Defendants by Counterclaim (22 July 2011), paragraph 24, referring to Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 at 561 (where the plurality (Mason ACJ, Wilson, Brennan and Dawson JJ) said:
“At law, as in equity, the traditional view is that liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety”.
In my opinion, the submissions of Shepparton Projects in this respect should be rejected. Cave Investments is correct, in my view, in submitting that these provisions of clause 8 and sub-clause 2(a) of the 2006 Loan Agreement do evince an intention to afford a complete indemnity for expenses and costs, at least to the extent of providing for payment of “solicitor and own client costs”.[44] Clause 8 refers to ”all” the lender’s “expenses and costs”. The definition of “costs” in sub-clause 2(a) is expressed to be inclusive and it thereby expands, rather than limits, the scope of the indemnity provided for. In my opinion, this position is not affected by the nature or extent of the indemnity provisions contained in the latter part of clause 8, focused upon by Shepparton Projects. Had these provisions been more clearly drafted, one might have expected to see a distinction drawn between inter-parties “expenses and costs” in the first part of that clause and an indemnity covering “expense or liability” incurred by Cave Investments, as the Lender, in what might be conveniently described as third party transactions or events. Nevertheless, the first part of clause 8 is, in my view, sufficiently clear in terms of the covenant to pay “expenses and costs”, the latter drawing meaning from the definition of “costs” contained in sub-clause 2(a). Consequently, the scope of any further provisions of clause 8 with respect to indemnity are not presently relevant. In any event, Cave Investments does not rely upon the indemnity provision contained in the latter part of clause 8.
[44]Perpetual Trustees Australia Ltd v Schmidt (No 3) [2010] VSC 261 at [40] (J Forrest J).
The provisions of the guarantee contain an indemnity in favour of Cave Investments, as the Lender, “… against all loss, damage, costs and expenses suffered or incurred by the Lender as a result of any failure by the Borrower to pay in a due and punctual manner any liability under the said agreement or as a result of any breach of any of the covenants and conditions contained or implied in that agreement”. Shepparton Projects submitted that the provisions of the guarantee placed Cave Investments in no better position than under the 2006 Loan Agreement. It is not necessary to express any view on this as a general proposition, but in the context of the claim by Cave Investments for costs this is correct, but, for the reasons indicated previously, does not detract from its entitlement to indemnity for costs, at least on a solicitor and own client basis.
Shepparton Projects also submitted that even if a party establishes that a contract entitles it to a special costs order, the Court still retains a discretion as to the appropriate award of costs.[45] As I understand this submission, it is put on both a general basis and also on the basis that the provisions of Rule 63.28 of Chapter 1 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”) do not contemplate an award of costs in the present circumstances on a solicitor and own client basis. This follows, as I understand these submissions, on the basis of the provisions of Rule 63.28, which provides:
[45]See Outline of Submissions of the Plaintiff and Defendants by Counterclaim (22 July 2011), referring to Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [14]; Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228 at [40].
“Subject to this Part, costs in a proceeding which are to be taxed shall be taxed on –
(a) a party and party basis;
(b) a solicitor and client basis; or
(c) an indemnity basis; or
(d) such other basis as the Court may direct.”
Rule 63.30 provides for taxation on a solicitor and client basis:
“On a taxation on a solicitor and client basis all costs reasonably incurred and of reasonable amount shall be allowed.”
The above rules are directed at costs in a proceeding. Provisions with respect to taxation between a solicitor and his or her own client are to be found in Rules 63.59 and 63.61, particularly.
The distinction between solicitor-client costs and solicitor-own client costs was referred to by the Court of Appeal in Beckwith v Pedler.[46] In relation to this distinction, the Court of Appeal said:[47]
“25. It cannot be denied that the Chapter I of the Rules which came into force on 1 January 1987 sought to simplify such questions of costs: see for example Rule 63.28.[48] But the distinction between solicitor-client costs and solicitor-own client costs persists.[49] For example, when the plaintiff obtained in the litigation an order for taxation of his costs on the basis of solicitor and client Rule 63.30 was called into play. When the solicitor taxes a bill against his own client, it is Rules 63.59 and 63.61 that come into play. It is true that Rule 63.30 is in like terms to Rule 63.61(1), but the first is called into play on a taxation between opposing parties and the second on a taxation as between the solicitor and his own client. That very difference may lead to very different results on taxation, as Phillips. J.A. pointed out in Re National Safety Council of Australia Victorian Division (No.2)[50] at 518. What is reasonable in the one set of circumstances may not be all that is reasonable in the other. Further, the very different provision made by Rule 63.61(2) on a taxation between the solicitor and his own client cannot be ignored.
26. In short, for any number of reasons a plaintiff’s entitlement in litigation to his costs on the basis of solicitor and client cannot be equated with the solicitor’s entitlement to costs on a solicitor-own client basis. That is not to say that in the litigation a special order might not be made to bring the former more into line with the latter[51]; nor is it to say that without any further or other order, the latter might not be the same as the former, if it so happens in a particular case. But if the costs to which a solicitor is entitled as against his client are the same as the costs to which the client, as a party to litigation, would be entitled were his costs to be taxed on a solicitor and client basis against the other party to that litigation, that will be the product of chance (in the absence of any order in the litigation bringing the two into line). To say that the two may in certain circumstances be like is far from equating the one entitlement with the other.”
In Beckwith, the Court of Appeal makes clear that the distinction between solicitor-client costs and solicitor-own client costs persists and is maintained; and that the latter remains a known and accepted basis of taxation or calculation of costs which may, in the general discretion of the Court, under Rule 63.28 or otherwise be applied in a particular case.
[46][2000] VSCA 86.
[47][2000] VSCA 86 at [25] and [26] (Phillips, Charles and Buchanan JJA).
[48]See also Re National Safety Council of Australia Victorian Division (No.2) [1992] 1 VR 485 especially at 513-4, 518-9 (JD Phillips JA).
[49]Armstrong v. Boulton [1990] VR 215 at 222 (Kaye, King and Gobbo JJ).
[50][1992] 1 VR 485.
[51]This might be the result of an order for what are sometimes called in other jurisdictions “indemnity costs”.
In relation to costs and the general discretion with respect to the award of special costs, Shepparton Projects submitted that in the particular circumstances of these proceedings, that discretion ought not to be exercised in favour of Cave Investments. In summary, it submitted that Cave Investments caused significant delay at the trial and behaved in a manner that should not be rewarded. In my opinion, the matters raised by Shepparton Projects in this respect do not, in the present circumstances, go to the basis upon which a costs order ought to be made in favour of Cave Investments, but rather whether certain costs were reasonably incurred. For the reasons indicated, I am of the opinion that the effect of the agreement as to costs contained in the 2006 Loan Agreement is that Cave Investments is entitled to the costs of this proceeding on the same basis of taxation of costs as would be applied as between a solicitor and his or her own client under Rule 63.61 (though that regime or basis of taxation was, of course, adopted and applied as a result of the operation of clause 8 and the related provisions of the 2006 Loan Agreement rather than directly by the operation of the Rules). The basis of taxation, “solicitor and own client costs”, is a basis recognised in the authorities. Although, as the authorities indicate, the Court retains discretion as to the basis upon which costs might be awarded in spite of any express agreement between the parties the weight of authority indicates that the discretion should be exercised consistently with the agreement of the parties unless there is good reason not to do so.
It follows that, on the basis of Rule 63.31, that Cave Investments is entitled to costs reasonably incurred and of reasonable amount, plus any costs that would be allowed under Rule 63.61(2). In a taxation of costs between a solicitor and his or her client the onus under Rule 63.31 is on the solicitor to show that the costs are reasonable or that the exceptions apply under Rule 63.61(2). In the present context, a party and party taxation, the onus will be on Cave Investments. It may be that an award of costs on an agreed indemnity basis would be considered inappropriate where the result is to cast the onus of establishing some or all of the costs were of an unreasonable amount or were unreasonably incurred. The position under the 2006 Loan Agreement is that the onus to show that the costs are reasonable on a “solicitor and own client basis” is on Cave Investments. In my view, this is the appropriate position in the present circumstances having regard to the matters raised by Shepparton Projects going to reasonableness (and possibly amount).
As indicated below, I am of the view that the assessment of who should pay reserved costs is a matter that should be referred to the Costs Court under Rule 63.22. It is also appropriate that I refer the quantification of costs more generally to the Costs Court for consideration of the issues raised by Shepparton Projects which go to whether they were reasonably incurred and of reasonable amount.[52] The authorities considered establish that there is no obstacle to this course imposed by court rules or applicable legislation, provided the basis upon which the taxation of costs is to be conducted is clearly specified by the court. Indeed, Rule 63.28(d) which provides for taxation on “such other basis as the Court may direct” clearly contemplates this possibility.
[52]See Outline of Submissions of the Plaintiff and Defendants by Counterclaim (22 July 2011), paragraphs 32-39 in relation to the general discretion and paragraphs 40-42 in relation to reserve costs.
Reserved costs
Shepparton Projects submitted that Rule 63.22 provides that the Costs Court can make an individual assessment of who should pay the reserved costs and that it is in as good a position to do so as the trial judge because the pre-trial and interlocutory proceedings were mainly conducted under the direction of others, namely Byrne J and Davies J, on various occasions. Cave Investments did not oppose this course and, on this basis and having regard to the position I have reached in relation to the award of costs and the basis upon which they are to be taxed, it is appropriate that such a reference should be made to the Costs Court.
Nominal damages
Cave Investments submitted that as Shepparton Projects was found to have breached the 2006 Loan Agreement by failing to pay interest when due and failing to render monthly reports, Cave Investments is entitled to damages. However, it submitted that apart from the non-payment of interest, which will be remedied by that component of the judgment already discussed, no additional loss was alleged by Cave Investments as a result of these breaches. Accordingly, it was submitted that an award of nominal damages should be made. Cave Investments indicated that it was content with whatever amount was considered by the Court to be appropriate and, in this respect, suggested an amount of $1.
In response, Shepparton Projects referred to the nature of nominal damages as described by Lord Halsbury in The Mediana:[53]
“’Nominal damages’ is a technical phrase which means that you have negatived anything like real damage, but that you are affirming by your nominal damages that there is an infraction of a legal right which, though it gives you no right to any real damages at all, yet it gives you a right to the verdict or judgment because your legal right has been infringed. But the term ’nominal damages’ does not mean small damages.”
[53][1900] AC 113 at 116; see also Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65 at [6] (McLure P).
As the cases indicate, nominal damages does not necessarily indicate small damages but, rather, that the damages awarded are not intended to compensate and are predicated on the plaintiff not having proved real damage. As submitted by Shepparton Projects, a survey of recent cases suggests a nominal damages award of $1 is appropriate:
(a)In Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65 at [92],[54] the Western Australian Court of Appeal awarded nominal damages, which it fixed at $100.
(b)In Simply Irresistible Pty Ltd v Couper & Ors [2010] VSC 601 at [401]-[403] the defendant was ordered to pay nominal damages fixed at $1.
(c)In Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 348 at [10] the New South Wales Court of Appeal awarded nominal damages of $1, albeit this appeared to be by consent.
[54]The order is at [2011] WASCA 65 (Judgment) at [15].
Accordingly, I will award nominal damages of $1.
Third and fourth party claims
At earlier stages of the proceeding, Cave Investments joined a third party and the third party, in turn, joined fourth parties. The third and fourth party claims were compromised. The present parties agree that I should order that Cave Investments have leave to discontinue its third party claim with no order as to costs and that the third party’s fourth party claim be dismissed with no order as to costs.
Orders
Shepparton Projects sought a 30 day stay on the execution of the judgment at the hearing on 29 July 2011. Cave Investments did not make submissions on this issue. In all the circumstances and having regard to the sum involved, this request does not seem unreasonable, so I have made the order requested.
On the basis of the preceding reasons, I will make the following orders (subject to any requests from the parties for any amendments and revisions as to form) –
(1)The plaintiff’s claim be dismissed.
(2)Subject to paragraph (7), the plaintiff pay the first defendant’s costs of and incidental to the plaintiff’s claim, (including reserved costs) as the Costs Court may by order so direct.
(3)The first defendant has leave to discontinue its third party claim with no order as to costs.
(4)The third party’s fourth party claim be dismissed with no order as to costs.
(5)Judgment be given for the plaintiff by counterclaim against the defendants by counterclaim for the sum of $2,786,474.00, constituted by the sum of $2,100,000.00 plus interest of $686,473.00 plus nominal damages of $1.00.
(6)Subject to paragraph (7), the defendants by counterclaim pay the plaintiff by counterclaim’s costs of and incidental to the counterclaim (including any reserved costs) on solicitor and own client basis.
(7)Costs, including the extent to which the first defendant or the plaintiff by counterclaim is entitled to reserve costs, are to be determined and orders made accordingly by the Costs Court constituted by an associate judge.
(8)Execution of the judgment be stayed until 10 October 2011.
Insofar as it may be necessary to enable the Costs Court so constituted to make such determinations and orders for the purposes of paragraph (7), I will, if requested, refer all matters under or with respect to such determinations or orders to an associate judge under Rule 77.05 of the Supreme Court (Civil Procedure) Rules 2005.
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