FEDERAL COURT OF AUSTRALIA
Stuart v Rabobank Australia Ltd (No 2) [2021] FCA 1626
File number(s): NSD 471 of 2021 Judgment of: HALLEY J Date of judgment: 22 December 2021 Catchwords: COSTS – application for indemnity costs by respondent – where respondent wholly successful in the proceedings and cross-claim – whether special or unusual features present to depart from r 40.01 of the Federal Court Rules 2011 (Cth) – where credit terms provided contractual entitlement to indemnity costs – whether indemnity costs clauses plainly and unambiguously expressed – where substantial overlap between applicants’ substantive case and the respondent’s cross-claim – whether costs incurred by respondent in defending claims brought by applicants fall within the indemnity costs clauses – application of ejusdem generis principle – whether respondent’s costs incurred in the proceedings arose directly or indirectly from entering into Deed with applicants – costs follow the event but not on indemnity basis Legislation: Federal Court of Australia Act 1976 (Cth) s 43
Federal Court Rules 2011 (Cth) r 40.02
Cases cited: AGC (Advances) Ltd v West (1984) 5 NSWLR 301
Amlin Corporate Member Ltd v Austcorp Project No 20 Pty Ltd [2014] FCAFC 78
Bank of Western Australia Ltd v Marsh [2000] WASC 208
Bendigo and Adelaide Bank Ltd v Grahame (No 2) (Costs Ruling) [2020] VSC 223
Chen v Kevin McNamara & Son Pty Ltd [2012] VSCA 229
Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; [2003] NSWCA 91
Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171
In re Adelphi Hotel (Brighton) Ld; District Bank Ld v Adelphi Hotel (Brighton) Ld [1953] 1 WLR 955
In re a Solicitor’s Bill of Costs (1941) 58 WN (NSW) 132
In the matter of an arbitration between Richardsons and M Samuel & Co [1898] 1 QB 261
Kayabram Property Investments Pty Ltd v Murray [2006] NSWSC 54
Leda Holdings Pty Ltd v Oraka Pty Ltd [1999] FCA 444
Lend Lease Real Estate Investments Ltd & Anor v GPT RE Ltd [2006] NSWCA 207
National Australia Bank Limited v Landy Chen-Conway & Anor [2008] NSWSC 485
Perpetual Trustees Australia Ltd & Ors v Barker (2004) 232 LSJS 400; [2004] SASC 58
Ruddock v Vadarlis (No 2) (2001) 115 FCR 229; [2001] FCA 1865
R v Regos and Morgan (1947) 74 CLR 613
Stuart v Rabobank Australia Ltd [2021] FCA 1388
Thorman v Dowgate Steamship Company Limited [1910] 1 KB 410
Walton v National Employers’ Mutual General Insurance Association Ltd [1973] 2 NSWLR 73
Wong v Hutchinson
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- AGLC
- Stuart v Rabobank Australia Ltd (No 2) [2021] FCA 1626
- Case
- [2021] FCA 1626
- Decision Date
CaseChat Overview and Summary
The court considered whether the contractual provision, which explicitly stated that the borrower would indemnify the lender "on a full indemnity basis," extended to cover costs incurred by the lender in both defending the borrower's claims and pursuing its cross-claim. The court also examined whether, despite the clear wording of the indemnity clause, the exercise of the court's discretion should lead to a refusal to enforce the clause. The court noted that while unambiguous contractual terms regarding indemnity costs are a significant factor in the court's discretion, they do not automatically mandate a particular outcome. Instead, the court must balance the terms of the contract with broader considerations such as public policy.
In delivering its decision, the court found that the indemnity clause was clear and unambiguous, extending to the costs incurred by the respondent in both defending the applicants' claims and pursuing its cross-claim. However, the court determined that public policy considerations did not warrant refusing to enforce the clause. The substantial overlap between the applicants' substantive case and the respondent's cross-claim meant that the respondent's costs in defending the applicants' claims were directly connected to the contractual relationship. Consequently, the court found that the respondent was entitled to indemnity costs.
The court ordered that the applicants pay the respondent's costs of the proceedings. This order was in line with the contractual terms and the court's discretion, considering the clear wording of the indemnity clause and the lack of overriding public policy reasons to deny enforcement.
Orders
Orders of the court
1. The applicants/cross-respondents pay the respondent’s/cross-claimant’s costs of the proceedings.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
An unambiguously worded contractual provision providing for the payment of legal costs on a “special” basis is only a factor informing the exercise of the Court’s discretion, it does not require the discretion to be exercised in a particular manner: Chen v Kevin McNamara & Son Pty Ltd [2012] VSCA 229 at [8] (Redlich JA, with whom Maxwell P and Robson AJA agreed).CONSIDERATIONContractual provisions relied upon by Rabobank Rabobank seeks to establish its entitlement to indemnity costs on clause P5 of the Standard Credit Terms. That clause relevantly provides that the following indemnities are to be provided to Rabobank:P. General Provisions…5. Account Owner’s indemnities(a) In addition to the Account Owner’s obligations to pay compensation under clauses I(1) or (2), the Account Owner indemnifies Rabobank against all actions, claims, demands, losses, damages, liabilities, costs, charges or expenses of any nature (including legal costs on a full indemnity basis) suffered or incurred at any time actually or contingently by Rabobank arising at any time directly or indirectly from:(i)the occurrence of any Event of Default or Rabobank exercising or attempting to exercise any right or option arising upon an Event of Default;…(iii)a claim or payment, obligation, settlement, transaction, conveyance or transfer in connection with an amount owing by any Relevant Person to Rabobank (or an amount which would be owing if the claim was not invalid) is void or voidable under any Insolvency Provisions or for any other reason;…(vi)Rabobank entering into any agreement or transaction in connection with the Account (including the Facility Agreement); … (b)The Account Owner’s obligations to indemnify Rabobank under this clause P(5) are absolute, irrevocable and unconditional and continue until an express release is given irrespective of closure of the Account or the discharge of any Security. Rabobank may debit the Account with any amount payable under this clause P(5). The Account Owner waives any right or claim which has or may have the effect of denying, reducing or impairing the indemnities given by it. I accept that clause P5 expressly extends to the “payment of legal costs on a full indemnity basis” and that the language of “arising at any time directly or indirectly”, “arising upon an Event of Default” and “in connection with an amount owing” is of wide import. I also accept that contractual provisions in mortgages and leases expressly providing for the payment of indemnity costs generally have been construed as giving rise to an entitlement to an order for the payment of legal costs on an indemnity basis. Here, the relevant questions are first, whether clause P5 on its true construction extends to costs incurred by Rabobank in connection with both defending the claims advanced by the Stuarts in the proceedings and in advancing its cross-claim against the Stuarts. Second, to the extent that the clause on its true construction does extend to the costs incurred by Rabobank in the proceedings should the Court, nevertheless on public policy grounds or otherwise in the exercise of its discretion, determine not to give effect to it.