Verhagen v Millard
[2012] QDC 196
•17 July 2012
DISTRICT COURT OF QUEENSLAND
CITATION:
Verhagen & Anor v Millard [2012] QDC 196
PARTIES:
PETER EDWARD ANTHONY VERHAGEN
(plaintiff)AND
WILLHELMINA VERHAGEN
(second Plaintiff)v
WAYNE STANLEY MILLARD
(defendant)FILE NO/S:
BD 5367/09
DIVISION:
Civil
PROCEEDING:
Trial
ORIGINATING COURT:
District Court of Queensland
DELIVERED ON:
17 July 2012
DELIVERED AT:
Brisbane
HEARING DATE:
25 and 26 May 2011, written submissions to 10 June 2011
JUDGE:
Andrews SC DCJ
ORDER:
Liberty to the parties to make further submissions on 23 July 2012. Adjourned to 23 July 2012 for submissions and final orders. Costs reserved.
CATCHWORDS:
CONTRACT–AGAINST PUBLIC POLICY – where the parties after judgment compromised – whether by compromise they agreed to re-litigate an issue previously decided –whether agreement to re-litigate against public policy –whether compromise void - where money paid into trust pursuant to compromise with a view to payer’s proving title to the money in further proceeding – whether title in issue in this proceeding-whether payer entitled to money
ESTOPPEL – where the mortgagee provided that the mortgagor pay the mortgagees’ costs – where the mortgagee applied for costs after judgment – whether the application was for only costs of the proceeding – where the mortgagor submitted that costs “in regards to the mortgage are not a matter for determination” – where the mortgagee did not seek other than costs of the proceeding – where orders made about costs of the proceeding-where in subsequent proceeding the mortgagees claimed costs pursuant to the mortgage – whether an Anshun estoppel arises to prevent them
ESTOPPEL – where the court in an earlier proceeding considered the mortgage and determined that the mortgagees’ costs of the proceeding should be assessed on standard basis-whether mortgagees estopped from claiming other costs to be assessed on indemnity basis
COSTS – where costs agreement silent about folio length-whether oral agreement between mortgagees and their solicitor about 72 word folio length – whether mortgagor bound by mortgagees’ oral agreement about folio length
COSTS – where costs agreement silent about uplift charge on professional costs-whether oral agreement between mortgagees and their solicitor about uplift charge – where mortgagees agree in writing to pay uplift charge on costs for professional services performed previously – where no consideration from solicitors-whether mortgagor bound to pay uplift
MORTGAGES – interpretation of mortgage-whether mortgagee obliged to pay interest on mortgagees’ legal costs before the mortgagees pay legal costs – whether mortgagor obliged to pay interest on mortgagees’ legal costs before judgment for costs
MORTGAGES – interpretation of mortgagee-where mortgage provided that mortgagor pay mortgagees’ costs incurred or paid by the mortgagee in consequence of default-whether implication that mortgagees’ costs are to be reasonably incurred
MORTGAGES – MORTGAGEE’S COSTS – where mortgagees paid and incurred costs in consequence of mortgagor’s default and demanded payment from mortgagee – whether mortgagor requested itemised bill of costs – whether mortgagees demanded correct or excessive amount-where mortgagee provided no itemised bill of costs – where mortgagor tendered an amount-where tender rejected-whether tender too little – whether mortgagor ready willing and able to tender correct amount-where after rejecting mortgagor’s tender and without responding to request for itemised bill of costs mortgagees incurred further legal costs pursuing costs – whether mortgagees’ legal costs incurred thereafter were paid or incurred in consequence of mortgagor’s default – whether mortgagees’ legal costs thereafter were reasonably incurred
MORTGAGES – MORTGAGEE’S COSTS – where mortgagees delivered notice of exercise of power of sale – whether notice was reasonable – whether cost of the notice reasonable-where mortgagees costs assessed included costs of notice of exercise of power of sale – where assessment those costs as payable – where mortgagor made no objection at time of assessment – whether assessment should be reviewed to exclude costs of notice of exercise of power of sale
Queensland Law Society Act 1952 (Qld) s 48(2),(4), (5) s 48B
Legal Profession Act 2007 (Qld) s 332, s 335 (7)UCPR r 679
D’Orta-Ekanaike v Victoria Legal Aid (2005) 223 CLR 1
Port of Melbourne Authority Ltd v Anshun Pty Ltd (1981) 147 CLR 589
Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) NSWSC Unreported Hodgson J, 14/12/1990 - BC9001610
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 597 at 607
W D Duncan and W M Dixon, The Law of Real Property Mortgages p168
Fisher and Lightwood, Law of Mortgages Australian ed 1995
[40.13]
Lewison Hughes The Interpretation of Contracts in Australia Lawbook Co 2012 [6.01] [6.02]COUNSEL:
Hackett for the plaintiff and second plaintiff
Ferrett for the defendantSOLICITORS:
Colwell Wright for the plaintiff and second plaintiff
Forbes Dowling Lawyers for the defendant
Introduction
After buying a business from Mr and Mrs Verhagen (“the vendors”), Mr Millard (“the buyer”) owed them money and gave them a mortgage to secure its repayment. If the buyer defaulted, the mortgage obliged him to pay the vendors’ costs in consequence of default. The buyer defaulted. After the default the vendors entered into a written costs agreement with their solicitors. The vendors incurred some costs because of the buyer’s default. Then, the vendors commenced proceeding BD1398/07 and claimed arrears from the buyer and the vendors incurred costs of the proceeding. There was a trial before his Honour Judge Tutt who gave judgment against the buyer for $16,382 plus interest.[1] The vendors asked for costs on an indemnity basis[2] arguing that the mortgage[3]provided for this.
[1]Millard v Verhagen [2008] QDC 182.
[2]Exhibit 1, pp 41-43.
[3]And a contract.
His Honour awarded costs on a standard basis and only of the proceeding.[4] The vendors were dissatisfied. To pressure the buyer to agree to pay costs on an indemnity basis the vendors threatened to exercise mortgagees’ rights[5]and to appeal the costs order. This pressure led to a compromise agreement by letters.
[4]Exhibit 1, pp 44-47.
[5]Pursuant to a mortgage Exhibit 1 pages 10-14.
The clauses of the agreement are in a letter[6] from the vendors’ solicitor. The letter was obtuse about the costs the vendors claimed. The buyer[7] accepted the obtuse terms without clarifying the meaning. The buyer’s case, until his counsel’s written submissions to me, was that the agreement was so obtuse that it was void for uncertainty. That argument is abandoned.[8]One clause of the compromise concerned the difference between the costs of the earlier proceeding on an indemnity basis and on a standard basis. That clause required the buyer to pay the difference into trust. Another clause gave the buyer liberty to commence a further proceeding to establish his right to the trust money.
[6]Exhibit 1, page 57-58.
[7]By letter from his former solicitor.
[8]Outline of defendant’s submissions [58].
After the buyer accepted the offer, there followed demands by the vendors’ solicitor to the buyer’s solicitors for indemnity costs. The demands were obtuse. There was no itemised bill of costs. The vendors’ solicitors continued to provide professional services to the vendors. The vendors incurred costs associated with their solicitors delivering a notice of exercise of power of sale which claimed a figure for debt which is still challenged as too high. The amounts demanded increased and still no itemised bill. The buyer tendered a bank cheque for less. Just before or after tendering the cheque, the buyer asked for an itemised bill. Without supplying the itemised bill in the next 10 weeks, the vendors then started this proceeding. They applied for summary judgment and on the return date for the summary judgment application, orders were made that the buyer pay the vendors an undisputed amount of $45,858.15 and pay into trust a disputed amount of $35,290.75. The vendors were ordered to provide a release of mortgage in return. It was ordered that a costs assessor make some relevant assessments.
Part of the disputed $35,290.75 depended upon proof of agreement between the vendors and their solicitors that the solicitors could charge an extra 30% of certain fees as “uplift” and could charge for a 72 word folio instead of the standard 100 word folio. The written costs agreement between the vendors and their solicitors made no reference to these rights. Arguably the solicitors could not enforce a claim for the uplift unless it was agreed in writing and arguably the buyer would not be liable for uplift. Two months after the interlocutory orders the vendors and their solicitor entered into a further written costs agreements by which the vendors agreed to pay a 25% uplift fee.
Issues
The issues and my abbreviated findings on them follow. By a compromise agreement that required the buyer to establish his right to the difference between costs of the earlier proceeding assessed on the standard and indemnity bases did the parties agree to re-litigate the costs issue decided by Tutt DCJ? (Yes) If so, was the compromise agreement against public policy? (Partly) Did that make it void? (No) Was the vendors’ application to Tutt DCJ for indemnity costs an application about costs of the proceeding or about all costs due pursuant to the mortgage? (Of the proceeding) If the vendors did not apply to Tutt DCJ for all costs due under the mortgage, are they estopped from claiming them in this subsequent proceeding? (No) When Tutt DCJ rejected the indemnity basis for assessing costs, was it a ruling about costs of the proceeding or about all costs? (Of the proceeding) Are the vendors estopped from claiming indemnity costs for services which were not costs of the earlier proceeding? (No) Did the buyer’s solicitors orally request an itemised account before 31.03.09? (Yes) Did the vendors agree to treat a folio as 72 words instead of 100? (No) Is the buyer liable to pay for folios at the rate of 72 words per folio? (No) Did a costs agreement made on 29 October 2009 to pay 25% uplift on professional services previously rendered bind the vendors to pay it? (No) Must the buyer pay 25% uplift? (No) Does the mortgage oblige the buyer to pay interest at 12.5% pa on the vendors’ legal costs? (Yes, if the costs have been paid and there is a judgment that the buyer pay the costs) Are the vendors are bound by their pleading to the 10%pa claimed in respect of interest? (No) Is the buyer entitled to treat the costs related to giving a notice of exercise of power of sale as excluded from the calculation of the amount due to the vendors on 31 March 2009? (The amount is immaterial) Should the court order that the amount assessed by a costs assessor to 31 March 2009 be reviewed on the basis that no amount should be allowed for work related to issue of a notice to exercise power of sale? (No) What interest, costs and total sum was due on 31 March 2009 when the buyer tendered $42,949.72? (As much as $50,718.69) Was the buyer ready willing and able to pay the amount due on 31 March 2009? (He was willing and able) Must the buyer commence another proceeding to determine whether he is entitled to such money as remains in trust on account of the difference between standard and indemnity costs of the earlier proceeding? (No, it is an issue in this proceeding) Is the buyer entitled to such money as remains in trust on account of the difference between standard and indemnity costs of the earlier proceeding? (Yes) What sum is due to the vendors?
Orders Sought
The vendors seek judgment for $56,681.59 to the 21st day of October 2009 and seek their costs from the 21st day of October 2009 to be assessed on an indemnity basis and they seek a direction that funds in the trust account of their solicitors of $32,290.75, with any accretions, be dealt with as follows:
(a) $13,655.30 be retained in the trust account pursuant to paragraph 4 of the compromise agreement;[9]
(b) the balance be paid to the vendors in reduction of the judgment sum.
[9]The terms of the compromise being those at page 57 of Exhibit 1
The buyer seeks payment from the trust account of the vendors’ solicitors of $35,290.75 with any accretions and seeks an order that the plaintiffs account to the defendant for any amount paid in excess of the debt owing under the mortgage and an order that an amount assessed by a costs assessor be reviewed on the basis that no amount should be allowed for work related to issue of a Notice to Exercise Power of Sale.
Confusing references to “indemnity costs”
The submissions for both parties, like the correspondence between their solicitors, were often confusing when they referred to “indemnity costs” because they failed to specify the legal services to which the costs related. They tended to conflate legal services performed by the vendors’ solicitors for the proceeding before Tutt DCJ with legal services performed by the vendors’ solicitors that were not for that proceeding. A solicitor’s retainer to act in a proceeding differs from a solicitor’s retainer to act with respect to a sale, conveyance or mortgage.
“Costs of the proceeding” is and was at all material times a recognised legal term in Queensland. Its meaning appears in the UCPR at r 679:
“costs of the proceeding mean costs of all the issues in the proceeding and includes—
(a)costs ordered to be costs of the proceeding; and
(b)costs of complying with the necessary steps before starting the proceeding; and
(c)costs incurred before or after the start of the proceeding for successful or unsuccessful negotiations for settlement of the dispute.”
The legal costs a mortgagee incurs in relation to the mortgage and enforcing the mortgagee’s rights against the mortgagor may be “costs of a proceeding” if the mortgagee commences a proceeding in a court. But a mortgagee may have other legal costs of the mortgage which are not “costs of a proceeding” against a mortgagee. An example may be the legal costs of preparing the mortgage and of registering it. Those legal costs are not likely to be “of the proceeding” between the mortgagor and the mortgagee even where the dispute is about enforcing rights created by the mortgage.
Professional services rendered and outlays before a proceeding commences may fall inside or outside the description “costs of the proceeding”. Whether the costs are one or the other depends on the purpose for which the services and outlays were supplied.
The facts
On about 21 October 2003 the vendors sold to the buyer, a seafood business. The terms of the sale were in a written Business Sale Contract.[10]
[10]Exhibit 1, pp 1-9
The vendors and the buyer anticipated that $30,000 would remain owing on the date for completion and agreed some terms about repayment and about rights if the buyer defaulted. Relevantly they agreed about legal costs the vendors might incur recovering money from the buyer if he defaulted. Annexure B to the Business Contract of Sale provided, so far as seems relevant:
“… [T]he balance of $30,000 shall be paid in accordance with an agreement to be executed by the purchaser and to the satisfaction of the vendors prior to the settlement of this contract and that that agreement shall substantially provide for:
1.The balance of the purchase price to be paid at a rate of $200 per month … from 1st December 2003 …
3.A default interest rate of 12.5% per annum … on any outstanding amount of the purchase price …
4.The purchaser to pay all the vendors cost, in the event of default the vendor incurs recovering any outstanding balance of the purchase price. …”
On 14 November 2003, the agreed date for completion of the sale, the buyer paid the vendors $95,290 being $60,000 towards the $90,000 price of the business and $35,290 to cover perishable stock. $30,000 remained owing by the buyer pursuant to the written terms.
The vendors initially took security by lodging a consent caveat over land registered in the buyer’s name as proprietor. The caveat was a problem for the buyer who wanted to offer the land as security for a loan from an institutional lender. The vendors agreed to accept a mortgage over real property at Redcliffe instead of the caveat as security.
By that mortgage dated 24 November 2003[11] the buyer agreed to repay $30,000 to the vendors by 150 consecutive weekly instalments of $200 per week commencing on 1 December 2003. It was agreed pursuant to the mortgage, so far as seems relevant:
[11]Exhibit 1, pp 10-14
1.… If any such instalment … is … unpaid … the Mortgagor will pay interest … until payment at the rate of 12.5 per cent per annum.
2.The principal sum is not subject to interest at all.
…
4.The Mortgagor will upon demand pay the Mortgagee’s costs and all charges, expenses and outlays which may be incurred or paid by the mortgagee in or about the preparation, execution and registration of these presents and all securities collateral herewith and in and about the release or partial release of these presents and all or any such collateral securities … or in consequence of default in payment of any money intended to be hereby secured or the breach of any covenant … herein … and all charges expenses and outlays may be paid by the Mortgagee and in that event shall be forthwith payable by the Mortgagor to the Mortgagee pending such payment may be debited to the Mortgagor and shall be deemed to be further advances under this Mortgage payable on demand.
5.If the Mortgagee at any time obtains judgement for any of the moneys intended to be hereby secured such judgement shall until satisfied carry interest at the rate of 12.5 per cent per annum …
The mortgage was registered on 27 February 2004.
When the terms about interest on outstanding principal in the mortgage are contrasted with the terms about interest on outstanding principal in the earlier Annexure B to the Business Contract of Sale a difference appears. The mortgage’s interest term is arguably more favourable to the buyer as it expressly provides that the principal sum is not subject to interest at all.
The vendors fell into dispute with the buyer after the buyer failed to make payments due. The vendors entered into a costs agreement in writing,[12] dated 25 May 2007, with their solicitors relating to work described as:
“_ attend to all as necessary with regard to a Peter … Verhagen and Willhelmina …Verhagen Ats Wayne Stanley Millard”
The writing made no provision for care and consideration or for an uplift fee. It did not define a folio.
[12]Exhibit 1 pp 15-19
Mr Verhagen gave evidence that Mr Cooper, of the vendors’ solicitors, told Mr Verhagen about an uplift fee. He did not explain whether it was before or after the vendors entered into the client agreement dated 25 May 2007, but he implied that it was at about that time. Mr Cooper told him:
“…that instead of every telephone call or every conversation or fax or email there would be a consideration made at the end of the case for all of that rather than itemised bill…there was a 30 percent amount that was discussed.”
When the vendors entered into the client agreement in May 2007, the Queensland Law Society Act 1952 provided at s 48(2):
“Within a reasonable time after starting work for a client, a practitioner or firm must make a written agreement with the client expressed in clear plain language and specifying the following matters -
(a) the work the practitioner or firm is to perform;
(b) the fees and costs payable by the client for the work.
(3) The fees and costs payable by the client for work must specify –
(a) a lump sum amount; or
(b) the basis on which fees and costs will be calculated (whether or not including a lump sum amount).”
In compliance with s 48(4) of the Queensland Law Society Act, the vendors’ solicitors did supply a notice in the form in the Schedule to the Act.[13] That notice explained that the client agreement was the basis for determining how much the vendors were to pay for the work done by their solicitors.
[13]Exhibit 2.
Significantly, the client agreement made no provision for the solicitors to charge an uplift fee of 30% or any uplift. It made provision for calculating certain fees per folio. It did not define a folio or specify how many words constituted a folio. An expert costs assessor, Mr Bloom opined that under the UCPR a folio was 100 words and had been for more than two years before the client agreement was made and that treating a folio as 100 words was accepted practice at the time the client agreement was made.[14] I accept that. Despite the practice, a client could agree to a more costly basis and, subject to the solicitor’s compliance with the statutory obligation for writing to evidence the agreement, the client would be bound.
[14]Exhibit 1 p138.
Mr Verhagen gave evidence that before signing the client agreement there was a discussion about the number of words in a folio and that it was approximately 70 words. The number of words per folio was not an issue Mr Verhagen was called upon to reconsider for more than two years after making the written agreement. I am not satisfied that his memory of a discussion about the number of words in a folio is reliable. Mr Cooper’s memory of a matter so trivial that it did not warrant recording, no matter how honestly he may have strived to recall it, was susceptible to reconstruction and to confusion with memories of similar conversations about this issue in the course of his practice with other clients and at other times. There was no note to corroborate the discussion. It was not recorded in a client agreement at a date when the practice was to assess a folio as consisting of 100 words. I am not satisfied that there was an oral agreement made prior to the entry into the written costs agreement that a folio was 70 or 72 words.
In an earlier proceeding[15] commenced in 2007 between the vendors and the buyer, the vendors claimed $16,382.60 from the buyer comprising interest and a further amount for goods and services provided to the buyer. The further amount appears from the judgment to be $5,000 pursuant to an oral term about the sale of stock not covered by the written terms. The stock comprised consumables such as wrapping paper and cleaning supplies, as opposed to perishable stock.
[15]Millard v Verhagen& Anor [2008] QDC 182.
On 1 June 2008 there was a trial in the earlier proceeding before Tutt DCJ.
On 1 August 2008 Tutt DCJ gave judgment for the vendors against the buyer in the sum of $16,382 plus interest outstanding to the date of judgment and adjourned the question of costs awaiting submissions. The judgment does not identify the rate of interest, the source of the obligation to pay it or the date from which it was to accrue. As both parties have submitted to me that the interest was $308.57, the uncertainty is unimportant. A reader of the judgment cannot be sure whether the judgment sum included any part of the principal payable pursuant to the Business Contract of Sale. His Honour found:[16]
“(v)that the mortgage between Millard and Verhagens replaced the caveat to provide an alternative security to Verhagens for the balance of the contract price but was not in substitution of the terms and conditions of the respective parties’ rights under ‘Annexure B’ of the Business Sale Contract …”
[16]At [33](v).
His Honour reserved costs until the parties made submissions.
On 6 August 2008 the buyer’s solicitor wrote to the vendors’ solicitor setting out a proposal that:[17]
[17]Exhibit 1, p 36.
(1) the mortgage in favour of the vendors be removed immediately;
(2) the vendors’ indemnity costs be assessed;
(3) “these costs and the judgment amount be paid when our client’s house property settles. Our client presently has the house on the market for sale.”
On 6 August 2008 the vendors’ solicitors responded that the vendors “will seek all their costs in relation to the loan, and subsequent litigation … our clients will not release the mortgage without payment in full of all their costs”.[18]
[18]Exhibit 1, p 37.
On 7 August 2008 the vendors’ solicitors wrote to the buyer’s solicitors stating that provided the buyer’s proposal to pay indemnity costs includes:[19]
[19]Exhibit 1, p 38.
“… all legal costs relating to the litigation …
That the assessment is pursuant to a client agreement between this firm and our client, that the assessment includes a 30% care and consideration factor.
The costs of such assessment to be paid by the defendant.
All other costs in relation to your client’s obligations contained in Clause 4 of the mortgage … are due and payable in addition to the litigation costs.
The indemnity costs are paid within 30 days of the date hereof.
…
Should any extension of the 30 day period … be granted, then your client pay interest at 12.5%, calculated monthly on the judgment amount, indemnity costs …”
The vendors’ solicitor’s letter could have been clearer. The demand for “all legal costs relating to the litigation” must have meant “costs of the proceeding” which was tried by Tutt DCJ. The assertion that “All other costs in relation to your client’s obligations contained in Clause 4 of the mortgage … are due and payable in addition to the litigation costs” must have meant that in addition to claiming the costs of the proceeding, the vendors were claiming all their legal costs which were not “costs of the proceeding”. The vendors arguably were entitled to these other costs on the basis of clause 4 of the mortgage dated 24 November 2003[20]or clause 4 of Annexure B to the Business Contract of Sale of 21 October 2003.[21]
[20]Exhibit 1, pp 10-14.
[21]Exhibit 1, pp 1-9.
On 7 August 2008 the buyer’s solicitors submitted in writing to Tutt DCJ:[22]
“Any costs that may be incurred by the Plaintiffs in regards to the mortgage are not a matter for determination by the Court and therefore no order should be made in this regard.”
In hindsight, the objection to having these issues determined by Tutt DCJ has arguably led to four years of dispute.
[22]Exhibit 1, p 40.
The buyer’s solicitor’s letter’s terms reveal that the writer understood that costs incurred by the vendors with regard to the mortgage were not necessarily costs of the proceeding before his Honour and revealed that the solicitor contended that costs which were “in regard to the mortgage” should not be the subject of any order still to be made by his Honour in that proceeding.
On 8 August 2008 the vendors’ solicitors made submissions[23] to Tutt DCJ seeking costs on an indemnity basis. Whether the vendors applied for costs “of the proceeding” or of more than the proceeding is relevant to an estoppel point the buyer raises against the vendors. I consider it below when dealing with the Anshun estoppel issue.
[23]Exhibit 1, pp 41-43.
30 September 2008: The vendors’ solicitors at some unspecified date prepared an Excel spreadsheet purporting to set out costs for a variety of items to 30 September 2008.[24] It appears to be the basis for figures for professional fees appearing in a letter of demand sent on 9 October 2008. It is inconsistent with a trust statement dated 3 October. From the spreadsheet the totals were:
[24]Exhibit 22.
Professional costs $21,320.45
30% uplift on that item $6,396.14
Total professional costs including uplift $27,716.59
10% GST $2,771.66
Total $30,488.24
Outlays $579.50
GST on outlays $57.95
Taxis, emails and photocopying $538.00
GST on that item $53.80
Total $31,717.49
Barristers $9,020.00
Judgment $16,382.00
Interest $552.05
Total $57,671.54
A trust statement[25] created by the trust account manager of the vendors’ solicitors and dated 3 October 2008 sets out the monies paid by the vendors to their solicitors from 24 May 2007 to 3 October 2008. The statement shows that the vendors, in that period, paid $22,000. It shows professional costs and outlays of $22,000 and a nil balance. Among the outlays is a total of $6,765 for barristers’ accounts. Accordingly, $15,235 appears to be for solicitor’s professional costs and other outlays to 12 June, almost two weeks after the trial. The last entry for solicitor’s costs and outlays appeared for 12 June 2008 and made clear that it was for part of the costs and outlays. If work was done after 12 June 2008 one would expect that professional costs and outlays for that work would be an additional amount. Between 12 June and 3 October 2009 the vendors’ solicitors had written at least the two letters set out above, possibly attended to collect the reserved judgment and may have prepared the submissions on costs. A handwritten note appears on the trust statement. The buyer’s counsel submitted that it reads “Owes $274.01 currently”. The vendors’ counsel does not submit otherwise.[26] It is probable that it reads as the buyers’ counsel submitted. It suggests that someone in the office of vendors’ solicitors, on about 3 October 2008, calculated that the balance then due for professional costs and outlays was about $274.01. The document gives no indication that there is to follow an adjustment for uplift of 30% on professional costs or for GST on professional costs and outlays.
[25]Exhibit 15.
[26]Plaintiffs Outline in Reply [20].
On 3 October 2008 Tutt DCJ ordered that the buyer pay the vendors’ costs of and incidental to the proceeding including the counter-claim and originating application on the standard basis under the District Court Scale.[27] His Honour considered the vendors’ arguments based on the business contract, on the mortgage and UCPR r 360 for ordering an assessment on an indemnity basis and rejected those arguments.[28]Assessments have since been done of the costs of the proceeding on a standard basis of $22,711.20 and costs pursuant to the mortgage which were not of the proceeding of $2,654.60. It seems that the amount then due by the buyer[29] was $25,365.80 for costs, $16,382.00 for the claim, and interest to 1 August 2008 of $308.57 and further interest to 3 October 2008 a further $353.46. The total then due was $42,409.83, though without the benefit of assessments that figure could not have been calculated with certainty that day.
[27]Exhibit 1, pp 44-47.
[28]Exhibit 1, [6] – [7].
[29]having regard to my findings below
On 9 October 2008[30] the vendors’ solicitors wrote to the buyer’s solicitor in respect of the costs decision:
[30]Exhibit 1, p 48.
“… Our client is of the view that His Honour has erred in his decision, our client is currently considering an appeal against the decision.
In paragraph 13(v) of His Honour’s judgment His Honour states ‘.. to substitute alternative security to the Verhagens’ … but was not in substitution of the terms and conditions of the respective party’s rights under Annexure B of the Business Sale Contract.
Paragraph 4 of the Business Sale Contract provides ‘The purchaser to pay all the vendors costs in the event of a default of the vendor incurs in recovering any of the outstanding balance purchase price’.
It is the [vendors’] position that they are entitled to costs of the proceedings an indemnity basis for all costs over and above the standard basis.
We have calculated our clients’ costs pursuant to a client agreement from the commencement of recovery of the interest as a result of the default, and the proceedings.
As at the 6 October 2008 the (vendors) claim $59,389.04.
On a without prejudice basis, we provide a breakdown of our calculations.
Professional costs $27,716.59
GST $2,271.66
Outlays and photocopying $1,117.50
GST $117.50
Total professional costs $31,717.49
Outlays, barristers fees $9,020.00
Judgment $16,382.00
Interest to judgment $1,717.50
Interest from judgment (at the rate of $4.49 per day) $552.05Total amount required to release the mortgage is $59,389.04 plus $4.49 per day until settlement, and all other legal costs incurred by the vendors until settlement.
Should you client reject our clients the basis on which our client has assessed their professional costs, our client will be advised to appeal the decision to assess costs of an indemnity basis from 23 August 2007 …”
That letter did four things adequately. It argued that the vendors were entitled on an indemnity basis to “costs of the proceeding”. It demanded for release of the vendors’ mortgage “$59,389.04 plus $4.49 per day until settlement, and all other legal costs incurred by the vendors until settlement”. It advised that the calculation was pursuant to a clients’ cost agreement. It threatened that if the buyer refused, the vendors’ solicitors would advise the vendors to appeal. The amount demanded was about 140% of what was owed, having regard to my findings below about costs and bearing in mind that the vendors abandoned their claim for GST as unjustified.
When contrasting the figures in the trust statement[31] created by the trust account manager of the vendors’ solicitors and dated 3 October 2008 with the demand made by letter of 9 October the figures increase substantially. If solicitor’s professional costs and other outlays to 12 June were $15,235 and to 3 October had increased by $274.01 to $15,509.01 then they more than doubled to $31,717.49 in the next three days to 6 October. That cannot be. There is no obvious explanation for a doubling in those 3 days or in the post trial period between 12 June and 3 October 2009. Attendances on the vendors were, according to Mr Cooper, to be charged by way of 30% uplift and cannot be the explanation for a doubling. If one assumes that the 30% uplift adjustment had not been performed when the trust statement of 3 October 2008 was produced, the professional costs and outlays would need adjustment upward by $4652.7. That exercise would take the professional costs and outlays to $20,161.71, but still well short of the amount in the breakdown supplied on 9 October.
[31]Exhibit 15
The buyer retained a new solicitor. On 14 October 2008 Rb Lawyers for the buyer replied to the vendors’ solicitors:
“… We note … that you consider that your clients should have costs on a ‘full indemnity basis’. With respect … your client has absolutely no prospect … of obtaining an award for costs in this regard.
Our clients’ proposal … for payment of costs … follows:
(a)that same be assessed by …. DG Thompson in that regard;
(b)our client be allowed to sell his property (over which your client still retains a mortgage) with the agreed or assessed cost amount being paid at settlement in return for the relevant Release of mortgage;
(c)each party bear their own costs of and incidental to the matter since the date of the delivery of the said Judgment on 3 October 2008.”
On 16 October 2008 the vendors’ solicitors replied to Rb Lawyers:
“… [W]e … received our clients’ instructions that to release their mortgage over your clients’ property they will require payment of all their legal costs in relation to recoveries of money pursuant to the sale of business contract, and the mortgage.
Our clients agree that their legal costs can be assessed by a cost assessor at your client’s cost and calculated on the Client Agreement with our clients, and not on the District Court Scale.
Our clients do not agree to each party pay their own costs from 3 October 2008, your client is liable for our client his costs until the date of settlement on sale of his property.
Should your client reject … our client requirements … we are instructed to:
Proceed with the appeal of His Honour’s decision in relation to the findings contained paragraphs 6, 7, and 8 of his judgment.
And commence the process of our clients, becoming mortgagee in possession, sale of this property, payment of the first mortgagees and second mortgagees’ security, together with all sale costs and legal costs.”
This letter was obtuse but did some things adequately. It demanded all of the vendors’ legal costs in relation to recovering money. An implication was clear. The vendors demanded more than the costs of the proceeding on a standard basis ordered by Tutt DCJ and offered by the buyer’s solicitor. They demanded “payment of all their legal costs in relation to recoveries of money” and explained the basis of the demand was “pursuant to the sale of business contract, and the mortgage”. The letter was a demand for at least indemnity costs of the proceeding. It demanded that the costs be calculated on the basis of a client agreement between the vendors and their solicitors. It threatened: unless the buyer agreed to the vendors’ demand within six days, the vendors would (1) appeal the costs order and, (2) take possession of the buyer’s property as mortgagees and sell it.
On 21 October 2008, the fifth day of the six days to the deadline, the buyer’s solicitor responded:[32]
“There is no basis for your client to claim ‘all of its costs’. The Judgment of His Honour is correct and your clients are entitled to their costs on a standard basis as per His Honour’s Judgment in this regard.”
[32]Exhibit 1, p 53.
On 22 October 2008, the day of the deadline, the vendors’ solicitors sent two letters offering compromise. The second of them was accepted. The earlier letter is relevant despite the importance of the second. The first letter provided:[33]
[33]Exhibit 1, pp 54-55.
“…The outcome of the proceedings does not affect your client’s obligation pursuant to the Sale of Business Contact or the mortgage.
Our client is not going to enter into prolonged correspondence with you as they are entitled to the benefit of their judgment forthwith.
Our client will sign the necessary release on the following basis.
1.Your client pays our client’s the sum of $16,382.00.
2.Interest to Judgment $1717.50.
3.Plus interest of $4.49 per day from 9 October 2008.
4.Professional costs, and outlays until settlement $40,739.49 (as at 9 October 2008 and continuing).
5.The payment is made in full within 14 Days from the date hereof.
6.The payment will then be in full and final settlement of all matters between the parties.
In exchange for a bank cheque for that amount our client’s will execute a Release of Mortgage.
Our clients maintain their right have all of the costs they incur, to recover the debt, pursuant to the Sale of Business Contract and the Mortgage, (The loan agreements) payable on the basis of a client agreement we have with our client’s.
As the time for our client can Appeal ends 30 October 2008, our clients have elected to exercise their rights pursuant to the loan agreements rather than incur further costs, and considerable delays to take the above course.”
The letter was arguably wrong in its assertion of law. It asserted that the outcome of the proceedings did not affect the buyer’s obligation pursuant to the Sale of Business Contract or the mortgage. Tutt DCJ had considered the Sale of Business Contract and the mortgage and referred to them in his reasons. His Honour had rejected the vendors’ arguments that each of the Sale of Business Contract and the mortgage justified an order that the buyer pay indemnity costs of the earlier proceeding. A strong argument existed for the buyer that without a successful appeal by the vendors against the costs order, the vendors could not again argue that the buyer should pay indemnity costs of the earlier proceeding. The letter continued to demand well in excess of the proper amount which later assessments would reveal to be due.
The letter was also obtuse and in places ungrammatical but it did four things adequately:
· Firstly, it indicated that the vendors had decided not to appeal. That decision was not expressed to be conditional upon any act by the buyer.
· Secondly, it made an offer. It offered a release of mortgage as part of a compromise.
· Thirdly it made a demand. The letter demanded in exchange for the compromise: a bank cheque for judgment, interest and for “professional costs and outlays until settlement $40,739.49 (as at 9 October 2008 and continuing)”.
· Fourthly, it set out the vendors’ argument that “they maintain their right have all of the costs they incur, to recover the debt, pursuant to the Sale of Business Contract and the Mortgage, (The loan agreements) payable on the basis of a client agreement we have with our client’s.” The argument was expressed ambiguously in that sentence. It was not clear from that sentence alone whether the vendors contended that they were entitled to indemnity costs of the earlier proceeding, notwithstanding the order of Tutt DCJ. If the writer chose words carefully, the writer’s reference in the sentence to “costs they incur” impliedly excludes costs they have incurred. But the letter’s poor punctuation, grammar, and editing make it difficult to conclude that the writer carefully chose words. If one reads only the letter it is difficult to decide whether the vendors maintained a right to indemnity costs of the proceeding decided by Tutt DCJ or maintained a right to indemnity costs other than the costs of the proceeding. Because the letter had earlier asserted “The outcome of the proceedings does not affect your client’s obligation pursuant to the Sale of Business Contact or the mortgage” and because of assertions in earlier letters it is probable that this letter, interpreted in context with prior correspondence, was asserting that the vendors maintained that they were entitled to more costs of the earlier proceeding than costs assessed on a standard basis.
The settlement to which the letter referred was to occur at a future undetermined date. The settlement was a settlement of a contract of sale of the land mortgaged to the vendors. The buyer as a seller wanted to complete a sale of that land to a third party as purchaser.
On 22 October 2008 the vendors’ solicitors wrote another obtuse and problematic letter marked “without prejudice save as to costs”.[34] It contains the terms of the compromise agreement:
[34]Exhibit 1, pp 57-58.
“This letter is written on a Without Prejudice basis … Our clients maintain their right have all of the costs they incur, to recover the debt, pursuant to the Sale of Business Contract and the Mortgage, (The loan agreements) payable on the basis pursuant to a client agreement we have with our client. (Full indemnity costs).
Our client is prepared to allow your client to refinance or sell the property, (providing of course there is sufficient to pay the first, and second mortgagee). On the following basis:
1. Your client pays our clients judgment and the interest as per the Order.
2. Your client arranges and pays for an assessment of the costs of proceedings on the District Court Scale. (The scale costs).
3. Your client pays all other costs on the Full indemnity costs basis.
4. The difference between the scale costs and the full indemnity costs for the proceedings is paid on settlement to into the Trust account of Colwell Wright. (The retained amount).
5. The balance being paid to our client on settlement.
6. Your client will then at liberty to give Notice and commence further proceedings pursuant to the Trust Act. For a determination as to whether the Mortgagee’s are entitled to the retained amount.
This offer remains open for 14 days from the date hereof.”
On 28 October 2008 the buyer’s then solicitors replied:[35]
“We refer to your Without Prejudice letter of 22 October 2008 and advise that we are agreeable to proceed on that basis.
Would you kindly now confirm the arrangement by return.”
[35]Exhibit 1, p 59.
On 4 November 2008 the vendors’ replied:[36]
“… We confirm the acceptance of our clients’ proposals contained in correspondence 22 October 2008 … In relation to the assessment of our clients’ file to assess the costs of the proceedings on the District Court Scale. We will make the file available to D G Thompson Legal Costs Assessors for them to assess the file … At a time convenient to both parties. …”
[36]Exhibit 1, p 60.
On 25 November 2008 the buyer’s solicitor wrote:[37]
“… Please advise the amount that your consider is owed as soon as possible as it may be possible for our client to effect a refinancing to pay out your client.”
[37]Exhibit 1, p 63.
On 8 December 2008 the vendors’ solicitors, consistently with their earlier erroneous estimates of their allowable costs and their right to GST replied:[38]
[38]Exhibit 1, p 64.
“… We have calculated an amount that will finalise the matter as at 8 December 2008.
As at 6 October 2008 $59,389.04
Interest at $4.49 per day $269.40
Professional costs $1,089
GST on Professional Costs $108.90
Total amount $60,856.34
On receipt of your clients’ payment for that amount our client will sign a release of mortgage. This amount does not include any further legal work.
We are still yet to receive a request for a cost assessor to cost our clients’ file as per the settlement agreement.”
December 2008: Mr Cooper gave evidence that in December 2009 his computer crashed and he lost all of the information in his Excel spreadsheets relating to costs. He said that from this date he decided to adopt the process of accounting which appears in the tax invoice[39] dated 27 April 2009. It seems probable that Mr Cooper meant to say that the computer crashed in December 2008.[40]I so find.
[39]Exhibit 1, p 108.
[40]T 2-75, ll 1-20.
On 11 December 2008 the buyer’s solicitor wrote:[41]
“Our client requires your costs to be assessed before he will take the matter further. We nominate D G Thompson to carry out the assessment. If you are agreeable, please advise.”
[41]Exhibit 1, p 65.
On 16 December 2008 the vendors’ solicitors replied:[42]
“Our client has previously agreed to a cost assessor nominated by your client, at your client’s expense can assess our client’s file to determine the scale costs for the proceedings …”
[42]Exhibit 1, p 66.
On 30 January 2009 Adam Bloom of D G Thompson Legal Costs Lawyers wrote to the buyer’s solicitor[43] confirming that there had been an assessment of the vendors’ costs of and incidental to the earlier proceeding including the counter-claim on the standard basis District Court Scale for the period approximately December 2006 to October 2008 inclusive. The assessment of standard costs in summary was:
[43]Exhibit 1, p 72.
Standard professional costs (including $3,150 care and conduct assessed at 30%) $13,641.20
Standard outlays (including counsel’s fees) $9,070
Total $22,711.20.
Mr Bloom noted in an accompanying letter that:[44]
(a)The vendors’ solicitors’ file did not “readily support many of the costs that they claim to have incurred in the matter in that there are no time records; there are very few file notes as to what work was undertaken; and surprisingly, there are hardly any notes evidencing what preparation work was done prior to the hearing in June 2008, and concerning the subsequent costs arguments”;
(b)“[t]he accounts contained in the file provide brief descriptions of the work undertaken, however, do not provide any time basis for the claimed costs of some $18,000 by my calculation”.
[44]Exhibit 6 (exhibit WSM3 to the affidavit of Millard).
On 5 February 2009 the vendors’ solicitors wrote:[45]
“… We note our client’s claim for legal costs of all matters on a solicitor own client basis/indemnity costs as at 9 October 2008 was $40,737.49 be assessed plaintiff’s costs of and incidental to the proceeding $22,711.20. … Our clients’ are prepared to accept as full and final payment the amount set out in the correspondence 8 December 2008 of $60,856.34 plus costs plus interest until date of settlement, provided settlement takes place on or before 24 February 2009 …”
The demand was for an amount well above the amount then due, even if one included the indemnity costs of professional services since the judgment on 3 October 2008.
[45]Exhibit 1, p 74.
On 11 February 2009 the buyer’s then solicitor wrote:[46]
[46]Exhibit 1, p 76.
“We … note the Assessment of Costs of D G Thompson … is … $22,711.20.
The judgment sum … was … $16,382 plus interest.
Our client is presently making … efforts to raise … the total debt to you which is estimated to be in the vicinity of $40,000. Would you kindly confirm the amount of interest you say accrues to the current day.
There is no basis for your suggestion … that your client is entitled to indemnity costs …”
The letter was wrong about costs. The vendors were entitled to certain costs on an indemnity costs according to the agreement made 22 October 2008.
On 12 February 2009 the vendors’ solicitors sent to the buyer and his solicitor a Notice of Exercise of Power of Sale which set out the amount the vendors then alleged to be owed[47] as follows:
[47]Exhibit 1, p 77
Arrears of principal and interest as at
13 February 2009 $18,844.84
Legal costs and outlays $49,392.98
Total amount owing $68,237.82
I have the benefit of assessments for costs and outlays to 31 March 2009. They total $30,764.90 to 31 March. The amount owing for costs and outlays to 12 February must have been less than $30,764.90 owed to 31 March almost 7 weeks later. The demand for costs and outlays was for much more than was due.
On 11 March 2009 the vendors’ solicitors wrote to the buyer and his solicitor advising:[48]
“… Our client requires full payment of the arrears and enforcement expenses as at 11 March 2009 in the sum of $69,437 …”
No explanation for the calculation of the amount was given.
[48]Exhibit 1, p 82
On 12 March 2009 the vendors’ solicitors replied:[49]
“The offer by your client to settle … by payment … of $42,000 is rejected … our clients’ are prepared to reduce the amount contained in the Notice of Intention ($69,437) by $3,000 plus all further costs to date and including settlement...
For your information we estimate the difference between the scale costs and the full indemnity costs of the proceedings (paragraph 4) is less than $3000.00…
This offer of $66,437 plus ongoing costs as full and final settlement of all matters …”
[49]Exhibit 1, p 83
On 17 March 2009 new solicitors for the buyer had been appointed and wrote that they had been instructed that payment of the amount due to the vendors would be made at the end of the month.[50]There was reference to a telephone conversation between Mr Cooper for the vendors and Mr Myrteza for the buyer.
[50]Exhibit 1, p 88
On 20 March 2009 the buyer’s partner authorised trustees who held in trust monies from a deceased estate to distribute the funds as follows: $44,316.63 to her and $46,316.63 to the buyer’s brother, Mr Capes, also known as Mr Hill.
On 25 March 2009 there was a telephone discussion between the solicitors. For the reasons below, I find that Mr Myrteza asked for an itemised bill. Section 332 of the Legal Profession Act 2007 obliged the vendors’ solicitors to give an itemised account within 28 days after the request. That 28 days provided by statute to the vendors’ solicitor a period within which he was to fulfil his personal statutory obligation. The vendors’ obligations are not the subject of s 322. The statute did not give the vendors liberty to withhold an itemised account for 28 days. It does not follow from the fact that the vendors’ solicitors had 28 days before breaching his statutory duty that all legal services he provided on account of the vendors’ file for 28 days thereafter would be incurred “in consequence of default in payment of any money intended to be secured” by the mortgage.
On 26 March 2009 the vendors’ solicitors wrote to the buyer’s solicitors:[51]
[51]Exhibit 1, p 89
“We refer to … our without prejudice discussion 25 March 2009.
(a)We have received our clients’ instructions in relation to the preparation of an account for professional services for consideration by your client. Further, you requested a copy of the client agreement between us and our client at the commencement of this matter …
(b)Our calculation of the professional fees payable by our clients pursuant to that agreement. We calculate the total costs and outlays incurred by our client to date is $65,948.66.
(c)The amount of the judgment and interest. Judgment $16,382, interest on the Supreme Court scale to 1 April is $1,368.91.
We calculate total amount to release the mortgage is $83,699.57 …our client is prepared to negotiate a compromise amount to release the mortgage provided it is paid on or before 31 March 2009…if the … amount is not paid on…31 March 2009, we are to file proceeding for recovery of the secured property.
We … remind your client that the mortgage provides for an interest rate of 12.6% payable monthly and the above interest is calculated on the current Supreme Court rates …”
I note that with respect to the last sub-paragraph of the letter, the assertions that the mortgage provided for interest at 12.6%, that it was payable monthly and the implied assertion that it was payable on all claims were each wrong. Assessments for costs were done subsequently. I consider them below. I find below that costs payable to 31 March 2009 total $30,764.90. That sum is comprised of the standard costs of the earlier proceeding ($22,711.20), costs that can be claimed under clause 4 of the mortgage up to and including 3 October 2008 excluding costs of the earlier proceeding ($2,564.60) and costs from 3 October 2008 to 31 March 2009 ($5,489.10). It can be seen that the costs and outlays calculated by Mr Cooper were more than double the amounts assessed even though the assessment was to quantify “costs that can be claimed under clause 4 of the mortgage”.
The requests made for an account for professional services for consideration and a copy of the client agreement were requests for information which would have allowed the buyer to consider making an application to assess the costs claimed from him. Arguably, the requests were oral requests of the kind contemplated by the Legal Profession Act s 335 (7) which provided:[52]
(7) If the third party payer is a non-associated third party payer,
the law practice must provide the third party payer, on the
written request of the third party payer, with sufficient
information to allow the third party payer to consider making,
and if thought fit to make, a costs application.
[52]Reprint 1A
However, because the requests made were not in writing, the statutory obligation which the Legal Profession Act s 335 (7) can impose on a law practice, was not imposed on the vendors’ solicitors.
On 27 March 2009 the buyer’s solicitors wrote without prejudice that by their calculations the amount not in dispute was approximately $40,000 and the amount in dispute approximately $45,000.[53] By a second letter[54] of the same date they asked the vendors’ solicitors to “confirm the basis upon which your clients claimed an entitlement to indemnity costs of some $65,000”.
[53]Exhibit 1, p 91
[54]Exhibit 1, p 92
On 30 March 2009 the vendors’ solicitors replied that the “costs entitlement was settled between the parties by correspondence. A proposal was put to your client’s original solicitor … 22 October 2008 … this proposal was agreed to by your client …”
On 31 March 2009 the buyer’s solicitors wrote two letters to the vendors’ solicitors[55] referring to the terms of the compromise agreement and advising that the buyer did not accept that a binding agreement had been made, that the terms of the letter were uncertain, that the vendors’ solicitors had not delivered the costs agreement but only a scale of fees and had not delivered any assessment or itemised cost statement which could properly form a basis for payment of costs pursuant to clause 4 of the mortgage. They calculated indemnity costs from 3 October 2008 to 31 March 2009 at $2,184.80 and advised that the buyer would tender that afternoon by way of bank cheque the following amount:
[55]Exhibit 1, pp 94-100
Judgment debt $16,382.00
Interest on judgment at 12.5% $1,671.92
Costs assessed by D G Thomson $22,711.00
Indemnity costs from 3 October 2008 $2,184.80
_________
TOTAL $42,949.72
A bank cheque for that amount was tendered that day by the buyer. The tender was rejected. The assertions that a binding agreement had not been made and that the terms of the letter were uncertain were both wrong.
On 1 April 2009 the vendors’ solicitors wrote:[56]
“Our client first consulted this firm on 24 January 2007, and incurred costs from that time. The term indemnity costs…To our clients… means the costs they incurred from that date…pursuant to clause 4 of the Business Agreement Loan and Mortgage…
In a telephone conversation on 17 March 2009 you informed the writer that you are winding-up an estate and you irrevocably guaranteed that (the winding-up of the estate) should provide sufficient funds to pay our clients’ and their costs … The point being at that time 17 March 2009 your client was well aware of the amount required to remedy the default in the mortgage …”
[56]Exhibit 1 p 105-103
On 1 April 2009 the buyer’s solicitors offered to settle in exchange for a release of mortgage by payment of:
Judgment debt $16,382.00
Interest on judgment (at 12.5%) $1,677.53
Costs assessed by D G Thomson $22,711.00
Indemnity costs from 3 October 2008 $5,000.00
________
TOTAL $45,770.53
The offer was made on the basis that the vendors had no entitlement to indemnity costs prior to 3 October 2008. The letter noted that the buyer had not been given any documentation to support the costs claimed.[57]
[57]Exhibit 1, p 106
On 7 April 2009 the buyer’s solicitors wrote tendering a bank cheque for $42,949.72 and observed:[58]
[58]Exhibit 8
“In our view, a mortgagee that is in your clients’ position has an obligation to properly account for costs that are claimed and there has been no attempt made to provide either an itemised account of the costs let alone a copy of the account of your legal costs rendered to your client (which you have stated to us has not been rendered at this time in any event).
… we are instructed to formally request a tax invoice that you have rendered to your client and an itemised cost statement pursuant to the Legal Profession Act in respect of costs that are claimed.”
The letter enclosed a bank cheque for $42,949.72 tendered without condition but on the basis that the buyer considered it to be payment in satisfaction of:
(1) the judgment on 6 June 2008;
(2) interest on the judgment;
(3)payment of the vendors’ costs as assessed by D G Thompson;
(4)payment of indemnity costs from 3 October 2008 pursuant to clause 4 of the mortgage.
On 8 April 2009 the tender was rejected.
By 22 April 2009, 28 days had passed since the vendors’ solicitors were asked to provide an itemised bill to the buyer’s solicitor in response to the request made orally on 25 March 2009. They had not provided it.
A tax invoice bearing date 27 April 2009 was created by the vendors’ solicitors[59] for $61,551.07 for professional costs from 24 January 2007. A copy was not sent to the buyer’s solicitor. When Mr Cooper prepared the invoice he realised he was preparing a document that would form the basis of a statement of claim.[60] Mr Cooper created a three page Excel spreadsheet[61] at some unspecified date which set out a record purporting to contain dates with a code for services provided on those dates, professional costs for those services and outlays between 24 January 2007 and 30 September 2008. There were differences between the records in the spreadsheet and the tax invoice. For 24 January 2007, the spreadsheet suggested professional costs of $300 while the tax invoice suggested professional costs of $450. The spreadsheet had nothing recorded in respect of perusing loan and mortgage documents. The tax invoice had a figure of $1,320. For 25 January, the spreadsheet had an item of $25 while the invoice had an item of $45 for the professional costs for sending a facsimile. For 7 February, professional costs in the spreadsheet were $130 while in the invoice they were $150. On 5 March, the spreadsheet showed professional costs of $260 while in the invoice they were $300. On 7 March, professional costs in the spreadsheet were $50 while in the invoice they were $55. Generally, the figures in the invoice which was to form the basis of the statement of claim against the buyer were higher than the figures in the spreadsheet. The spreadsheet was probably a record of the costs which Mr Cooper was considering claiming at one stage. The date on the tax invoice, 27 April 2009, cannot be the date it was created. The invoice purports to include charges for services performed until almost 4 weeks later to 21 May 2009 and for counsel’s fees for services to 21 May 2009.
[59]Exhibit 1, pp 108-113
[60]T 2-75, l 15
[61]Exhibit 22
The buyer’s first and second submissions are each consistent with the observation in Fisher and Lightwood Law of Mortgages Australian ed 1995:
[40.13] It is the duty of the mortgagee to pursue his remedies as not to incur unnecessary costs. Hence he must bear the costs of proceedings so far as they are mistaken or useless…The court may except from the general costs the costs of a particular issue on which the mortgagee has failed…
“[6.01] The implication of a term into a contract depends on the presumed intention of the parties. In some cases that intention is…collected from the legal nature of the relationship into which the parties have entered…[6.02] Where the court is asked to imply a term as a legal incident of a particular legal relationship, the test is whether, having regard to broader questions of policy, the term is a necessary incident of the particular class of legal relationship. The answer is likely to be affirmative if, unless such a term is implied, the enjoyment of rights conferred by the contract would or could be rendered nugatory, worthless or seriously undermined.” Lewison, Hughes The Interpretation of Contracts in Australia.[128]I accept those propositions.
[128]Lawbook Co 2012
The nature of the relationship of mortgagor and mortgagee does have necessary incidents that the mortgagees will correctly calculate the amount due under the mortgage and substantiate the amount due when called upon by the mortgagor to do so. As a result of that it is appropriate to read clause 4 of the mortgage as containing the word “reasonably” before the word incurred.
I accept that the vendors had a duty to correctly calculate what was owed and a duty, once a request for an itemised bill and the costs agreement was requested, to supply both, in the circumstances of this case.
I accept that the vendors’ insistence by their solicitor on payment of unjustifiable amounts and their failure to supply an itemised account and a copy of the costs agreement when requested were breaches of those duties. By the combination of those breaches the vendors prevented the buyer from knowing and thus from tendering what was due on 31 March 2009. The failure to supply an itemised account persisted until after this proceeding commenced on 21 May 2009. The first supply of an itemised account was by the supply of a copy by the Legal Services Commissioner on 18 June 2009.
There is no evidence as to when a costs agreement was supplied. I infer that the vendors’ solicitors’ reluctance to supply the itemised bill of costs after 31 March 2009 extended also to the costs agreement until it would have been disclosed after this proceeding commenced.
The buyer maintains his pleaded case that the buyer is not liable to pay such costs as had been incurred after 31 March 2009 for reasons pleaded. Mostly, I have found in the buyer’s favour on the issue of the costs that were owed on 31 March 2009. In one respect I do not. It was alleged by the buyer in the defence that the total owing on 31 March was, in effect, the judgment, costs of the proceeding, reasonable costs since 3 October 2008 and interest. Notably it wrongly omitted to accept liability for costs to 3 October 2008 which were not costs of the proceeding. Those costs were owed to the vendors despite the fact that they were for services unrelated to the earlier proceeding. To that extent, the buyer’s allegation is wrong. Those costs were later assessed on 21 October 2009 at $2,564.60 pursuant to an order made in this proceeding. It would not have been obvious on 31 March 2009 or at any time before the assessment on 21 October 2009 that $2,564.60 or any particular amount was due for this component of the vendors’ costs. The itemised bill from the vendors’ solicitors and obtained by the buyer from the Legal Services Commissioner on 18 June 2009 did not break the costs into components which would alert the buyer to whether costs in the bill were alleged to be “of the proceeding” or not. I make this finding on two bases. The first is that costs can be of a proceeding though the services for which the costs were incurred have preceded the filing of originating process. The second is that the costs which appear in the itemised bill[129] to have been for services rendered before filing of originating process in the earlier proceeding would have appeared to a reader to be infected with the same unexplained inflation as infected the vendors’ solicitors’ earlier demands for costs. The subsequent assessment shows reduced the costs in the itemised bill claimed for services prior to the earlier proceeding from $3125 to $2564.60.
[129]Exhibit 20
The vendors’ counsel made other related submissions:
33. First, that the plaintiffs were unable to state what amount was actually owed to them under the mortgage as their solicitor had undertaken no efficacious assessment or calculation.[130] That is untrue as the correspondence reflects the following amounts were advised to the defendants (in circumstances where we now know with precision the amount was either $64,349.16 or $67,313.06):
$59,329.04 plus $4.49/day until settlement on 9 October 2008;[131]
$60,856.34 on 8 December 2008;[132]
$68,237.82 on 12 February 2009;[133]
$69,437 on 11 March 2009.[134]
The allegation also ignores clause 7 of the mortgage which provides:[130]Paragraph 15(a) of the Defence
[131]Paragraph 9(a) and 18(a) Reply and Ex 1 page 48-50
[132]Paragraph 9(e) and 18(a) Reply and Ex 1 page 64
[133]Ex 1 page 77-79
[134]Paragraph 10(a) and 18(a) Reply and Ex 1 page 81-82
7. A statement in writing signed by the Mortgagee, his Solicitor, Agent or Attorney of the amount due or owing upon or secured by this Mortgage at the date set out in such statement shall be prima facie evidence that such amount is so due and owing or secured.
Each of the documents in paragraphs (a) to (d) above are statements for the purposes of clause 7 of the mortgage and therefore prima facie evidence of the amount owing and secured by the mortgage. Further, Mr Cooper gave evidence of his method of assessment on each occasion he gave an estimate was in accordance with the client agreement and the work preformed…
39. Finally, that the plaintiffs’ solicitors’ failure to properly assess the amount owing or to truly state the amount owing prevented the defendant from tendering the correct amount.[135] Once again, the plaintiffs rely upon the statements of the amount due and notifications in paragraph 33 above and the defendant’s inability to tender the amount required pursuant to the mortgage and the subject of the agreement.
In the above circumstances, the further allegation that the fees incurred after the tender were unreasonable[136] is not maintainable.
[135]Paragraph 16(d) and (e) Defence
[136]Paragraph 17 Defence
Notably, the vendors’ submissions did not argue against the buyer’s pleaded allegation that if on 31 March 2009 the vendors could not say what was owed, and failed to deliver an itemised bill and if the buyer was ready willing and able to tender all that was owed then legal costs incurred by the vendors thereafter are not recoverable from the buyer pursuant to the mortgage. The vendors’ argument was that the buyer’s pleaded case must fail because the correct debt had been identified at $64,349.16 and the buyer could not pay it.
When considering clause 4 of the mortgage to determine whether the vendors have satisfied their onus of proof that their solicitors’ costs are payable: I am not satisfied that the vendors have established that the costs assessed for professional services and outlays after 31 March were paid by the vendors. I accept that services were performed and outlays incurred. It was not suggested to Mr Cooper that they were not performed and incurred.
I am not satisfied that they were performed and “incurred in consequence of default in payment”. They were incurred in consequence of an election to incur them unnecessarily, in spite of the fact that an itemised bill of costs had been requested and the request was not complied with and where the demand was significantly inflated by a claim for folio and uplift costs which the vendors had not incurred because their solicitor could not legally enforce his claim to them. I am not satisfied that it was reasonable to incur the costs which were incurred by provision of legal services after 31 March 2009. Without resort to the implied term, I am not satisfied that those costs are recoverable.
I accept that it is implied in clause 4 of the mortgage that the buyer’s obligation to pay costs incurred in consequence of default in payment of money is for costs reasonably incurred by the vendors.
I am not satisfied that the professional services performed for the vendors after 31 March 2009 in pursuit of the costs due to the vendors for services to 31 March 2009 were reasonably incurred.
As for the vendors’ claims for costs and outlays between 1 April 2009 and 21 October I reject the amounts claimed as wrongly containing uplift and improper folio amounts and as not being assessed costs. Though the assessed amounts for the period are not inflated by those items the assessed amounts relate to costs and outlays for services not established to be recoverable pursuant to clause 4 of the mortgage.
Must the buyer commence another proceeding to determine whether he is entitled to such money as remains in trust on account of the difference between standard and indemnity costs of the earlier proceeding?
For reasons explained above, this issue is before me. I may determine it. The vendors could have made a binding agreement with the buyer on 22 October 2008 that the buyer pay to them the difference between assessments of costs of the earlier proceeding on an indemnity basis and on a standard basis. They did not. When the compromise agreement provided that the buyer must pay funds into trust it was not provided that the buyer would lose his beneficial interest in the funds. The compromise agreement itself did not give the vendors any arguable interest in the funds. If the mortgage once gave the vendors a right to claim costs of the earlier proceeding on an indemnity basis, the right was lost when the appeal period expired after Judge Tutt determined the costs issue against them. If funds remain in trust on account of the increment between assessed costs of the first proceeding and indemnity costs of the first proceeding, the buyer is entitled to them and the vendors are not.
The buyer’s application for an account for any amount paid in excess of the debt owing under the mortgage does not seem to have been pursued in submissions by either side. As I find that the vendors have received less than was due to them, no such account appears necessary.
What sums are due and to whom?
The vendors were paid $45,858.15 on 16.09.09 on the basis that such amount was to be appropriated to the debt owing pursuant to the mortgage. The parties provided no explanation of how that sum was calculated or to what it was applied. The debts to which it was applied might affect the outstanding amount due to the vendors.
As I anticipate limited assistance from further submissions unless I set out the likely application of the $45,858.15 that was paid to the vendors and the interest consequences flowing on that hypothesis. After 31.3.09, interest arguably continued to accrue at 12.5% pa for 178 days on two outstanding sums. They were the amounts of $16,382.60 and $19,435.40 (total $35,818). To 16.10.09 (178 days) that interest would have been $2,183.43. The amount of $45,858.15, if applied to satisfy the oldest debts, but ensuring that the vendors’ out of pocket expenses and judgment were paid first and with interest, would have satisfied the following:
1. $16,382.60 being the judgment sum from the earlier proceeding
2. interest on $16,382.60 to 1.8.08: $308.57
3. interest on $16,382.60 from 1.8.08 to 31.3.09: $1711.74
4. costs of the earlier proceeding paid by vendors $19,435.40
5. interest on $19,435.40 of the costs of the earlier proceeding at 12.5%pa 3.10.08 to 31.3.09: $1,191.42
6. interest at 12.5% pa on $35,818 from 31.3.09 to 16.09.09: $2,183.43
7. costs paid to 3.10.08 excluding costs of the earlier proceeding: $2,564.60
and it would have left a balance of $2,080.39 to apply to the $3,275.8 costs of the earlier proceeding which had been incurred but which the vendors had not paid. There was insufficient to apply to other costs of $5,489.10 incurred but unpaid by the vendors.
On that hypothesis the amounts owing to the vendor would be:
1. Costs incurred but unpaid by the vendors for services from 3.10.08 until 31.3.09: $5,489.10
2. $3,275.8 on account of costs of the earlier proceeding.
And the outstanding issues would be the buyer’s costs of this proceeding, the vendors’ costs of this proceeding from 21.10.09, the orders relating to disposition of the sum in trust with accretions, whether either party is entitled to interest and on what sums, from what date and at what rate.
On my hypothesis as to the likely application of the $45,858.15 the claims for interest under the Supreme Court Act could be justly resolved by setting off on account of the vendors interest at 10% per annum on $2,564.60 from 7 June 2007 to 16.09.09 against the buyer’s claim for interest at 10% per annum from 16 September 2009 on that portion of the $35,290.75 paid into court by the buyer on the calculations of the vendors and which was an overpayment according to these findings. The vendors’ entitlements to $5,489.10 and $3,275.8 would then be subject to a set off in favour of the buyer for the interest balance in favour of the buyer. I invite submissions as to this approach.
Many findings differ from the findings contended for by each party. My calculations have been based upon my findings. I propose to give the parties time to verify my arithmetic, and to make submissions on interest, on the appropriate orders with respect to the fund in trust, and on costs. The trustees of the sum in trust are not parties to the proceeding. I infer from trial counsels’ submission a mutual intention that an order would be made that the funds be paid in accordance with the findings. Without the consent of the trustees, or unless they become parties, the court cannot make an order against the trustees.
: