Piper v ANZ National Bank Limited HC Auckland CIV 2008-404-2686

[2008] NZHC 2583

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2008-404-2686

BETWEEN  PATRICIA JANE PIPER IN HER CAPACITY AS REMAINING TRUSTEE OF THE PATRICIA PIPER FAMILY TRUST

First Plaintiff

ANDPATRICIA JANE PIPER Second Plaintiff

AND  ANZ NATIONAL BANK LIMITED Defendant

Judgment:      18 September 2008

COSTS JUDGMENT OF WINKELMANN J

This judgment was delivered by me on 18 September 2008 at 12.00 noon pursuant to

Rule540(4) of the High Court Rules.

Registrar/ Deputy Registrar

Graeme Skeates Law, Auckland

DLA Phillips Fox, Auckland

Counsel

Jan McCartney, Barrister, Ponsonby

PIPER V ANZ BANK HC AK CIV 2008-404-2686  18 September 2008

[1]      On 10 June 2008 (reasons 20 June 2008) I delivered judgment declining the application by the first and second plaintiffs for an interim injunction restraining the defendant bank from exercising a power of sale in respect of a property owned by the Patricia Piper Family Trust.  The power of sale was to be exercised to enable the Bank to obtain repayment of amounts owing to the Bank by the second plaintiff and interests associated with her.  I declined the application for injunction on the grounds that:

(a)The  plaintiffs  had  no  tenable  cause  of  action  which  in  any  way impeached that right of sale.

(b)The plaintiffs had been guilty of extensive delay in bringing the issues before this Court.

(c)      It  was  always  the  parties’  intention  that  the  property  would  be security for the  Bank’s loans to the second plaintiff and interests associated with her.

(d)      The second plaintiff has been in default under those loans since late

2006.

[2]      At the end of the judgment I asked the parties to file memoranda as to costs. The Bank now advises that it had deducted indemnity costs pursuant to what it claims is a contractual entitlement to do so, under the provisions of its mortgage document.  It says its right to deduct the costs from the sale proceeds is provided for in clauses 8 & 11 of the mortgage and s 185 of the Property Law Act 2007.

[3]      Clause 11 of the memorandum of mortgage provides in material part:

The customer must pay:

11.1Every cost and disbursement on a full indemnity basis (including legal costs) incurred by the Bank or the customer in relation to the

…  (b)  attempted  exercise  or  protection,  exercise,  protection  or

enforcement by the Bank if any of its rights under or in relation to

any transaction contemplated by this mortgage or any transaction document …

Amounts payable by the customer under this clause will, until payment, form part of the monies.  The Bank may debit any of the customer’s accounts to reimburse the Bank for any of these costs.

[4]      Clause 8 of the mortgage terms provide that following enforcement, the Bank may deduct from the proceeds of the sale of the property amounts including:

8.2Payment of all costs on a full indemnity basis (including legal costs), charges and expenses incurred by the Bank or a receiver (including their remuneration) in relation to the exercise of the respective rights and powers;

8.3      Payment of the Money to the Bank …

[5]      Section 185 of the Property Law Act 2007 provides in material part:

Application of proceeds of sale of mortgaged property

(1)       The proceeds arising from the sale by a mortgagee of mortgaged property must be applied -

(a)       first, to the payment of all amounts (if any) referred to in subsection (2), together with interest on those amounts at the agreed rate (if any) at which interest is payable on the principal amount secured by the mortgage:

(b)secondly, to the payment of amounts secured by any other mortgage,   encumbrance,   or   security   interest   over   the property   to   the   extent   that   it   has   priority   over   the mortgagee's mortgage:

(c)thirdly, to the repayment of all amounts (if any) paid or advanced by the mortgagee for the purpose referred to in paragraph (b), together with interest on those amounts at the agreed rate (if any) at which interest is payable on the principal amount secured by the mortgage:

(d)fourthly, to the payment of amounts secured by the mortgage (to the extent that those amounts have not been paid under paragraphs (a) to (c)):

(e)       fifthly,   to   the   payment   of   amounts   secured   by   any subsequent  mortgage,  subsequent  encumbrance,  or subsequent security interest over the property if -

(i)the subsequent mortgage, subsequent encumbrance, or subsequent security interest is registered; or

(ii)      the subsequent mortgage, subsequent encumbrance, or subsequent security interest is unregistered, but the mortgagee has actual notice of it:

(f)       sixthly,  to  the  payment  of  any  surplus  to  the  current mortgagor.

(2)The amounts are amounts reasonably paid or advanced at any time by the mortgagee -

(a)for the protection, insurance, maintenance, preservation, or repair of the mortgaged property; or

(b)      for the payment of rates or other outgoings; or

(c)      to meet the expenses of the mortgagee in entering into possession, or in doing anything that a mortgagee in possession is required or entitled to do; or

(d)       with a view to the realisation of the security (including any additional amount referred to in section 120(2) or 129(2)).

…

[6]      The plaintiffs raise the following issues in relation to costs:

(a)Whether  the  Bank’s  election  to  take  the  costs  as  expenses  on  a mortgagee sale now prevents the Bank from now seeking the same as court costs;

(b)Whether the costs of the injunction can be claimed at this time as costs in enforcing the Bank’s security;

(c)If so, the reliability of the Bank’s accounting for costs and whether further discovery should be ordered;

(d)       The reasonableness of the costs sought;

(e)      The effect of a reference to the Auckland District Law Society for revision of all invoices which the Bank seeks to charge to the plaintiffs;

(f)       The overall exercise of the discretion of the court.

[7]      In relation to the first issue, the Bank has deducted its costs from the proceeds of sale.  I am satisfied that it has a contractual right to deduct legal costs associated with the sale.  This extends to the costs associated with resisting an application for injunction.  The words of clauses 8 and 9 plainly extend to such costs.

[8]      The Bank has clarified that it does not seek any order for additional costs from the court beyond those deducted, but it accepts that the deduction of costs from the sale proceeds is subject to any order as to the costs made by the court.  That is why it has addressed the issue of costs in its memorandum.   If the court were to reduce the defendant’s entitlement to costs, the defendant accepts that it might have to account to the plaintiffs for the amount of the reduction (but taking into account that following the sale there was, it says, a shortfall owing by the plaintiffs under the mortgage of $43,910.37).

[9]      The second issue is whether the costs of the injunction can be claimed as costs of enforcement of the Bank’s security.

[10]     The plaintiffs argue that although the application for interlocutory application has been declined, the substantive issues remain on foot in the proceedings, and may ultimately be resolved in the plaintiffs’ favour.

[11]     While it is true that the substantive issues in the proceeding remain on foot, if ultimately they are resolved in the plaintiffs’ favour the Bank will have to disgorge amounts it has deducted from the proceeds in accordance with the ultimate decision of the court.  I do not consider that there is any basis for putting the indemnity costs which the Bank is contractually entitled to deduct in a different category as against other amounts secured under the mortgage.

[12]     The  next  two  issues,  the  reliability  of  accounting  and  the  effect  of  the reference to the Auckland District Law Society, can be dealt with together.   The plaintiffs have referred the costs claimed by the Bank to the Costs Revision Officer at the Auckland District Law Society.  The plaintiffs submit that in circumstances where the reasonableness of the costs is challenged, the proper forum to determine such  reasonableness  is  the  Auckland  District  Law  Society.    I  agree  with  that

submission.  If further information is required to resolve issues of quantum, then that can be dealt with through the costs revision process.

[13]     The  final  matter  raised  by  the  plaintiffs  is  the  overall  exercise  of  the discretion of the court.  This is a reformulation of the earlier point, that the issue of costs  should  be  deferred  until  resolution  of  the  substantive  proceedings.    The plaintiffs indicate that they intend to seek declaratory orders on issues of priority between mortgagees and that this may impact on the deduction of costs.   Again, should the defendant ultimately be successful in some or all of their claims in this proceeding, then the Bank will be obliged to disgorge any amount it has deducted that it is not entitled to.  There is no realistic prospect that the Bank will not be in a position  to  do  so.    In  such  circumstances  I  consider  that  the  court  should  not intervene in the Bank’s contractual entitlement to deduct indemnity costs.

[14]     I order that the Bank is entitled to indemnity costs and disbursements on its opposition to the plaintiffs’ application for injunction.  The quantum of those costs is to  be  determined  pursuant  to  the  processes  now  set  in  train  by  the  plaintiffs’ reference of the costs to the Auckland District Law Society Costs Revision Officer.

Winkelmann J