Wanis v Lifestyle Residences Hobsons Bay Pty Ltd (No 2)

1. [1]

   In February or March 2019 (the precise date is unclear) the plaintiff entered into a Loan Agreement and General Security Agreement (“GSA”) to lend $150,000.00 to Millers Road Custodians Pty Limited. That company subsequently changed its name to Lifestyle Residences Hobsons Bay Pty Ltd, and as such is sued under that name as the first defendant. The loan was secured by a registered caveat over a property in Millers Road, Altona North, Victoria. The loan was also guaranteed by the second defendant, Peter Van and the third defendant, Dale Harrison. The second and third defendants were not only parties to the Loan Agreement as guarantors but they separately signed a Deed of Guarantee and Indemnity (“the Guarantee”) in respect of the loan to the first defendant. The second and third defendants are hereinafter referred to as “the guarantors”.

2. [2]

   The due date of repayment of the loan was the earlier of the settlement of the sale of the property in respect of which security had been taken, and 31 March 2020. In the event, the loan became due and payable on 31 March 2020.

3. [3]

   The loan was not repaid by that date or thereafter, resulting in demands being made in June or July 2021 (again, the dates are unclear), but the loan remained unpaid.

4. [4]

   The plaintiff commenced proceedings against the first defendant and the guarantors on 9 June 2022. The statement of claim named as the fourth defendant, ACapital Finance No 3 Pty Ltd, which subsequently became the first registered mortgagee of the land, and as the fifth defendant, Immuto Fleur Nominees Pty Ltd, which subsequently became the second registered mortgagee of the land. Neither of those defendants has taken an active part in the proceedings.

5. [5]

   On 16 September 2022 a receiver was appointed to the first defendant by the fourth defendant.

6. [6]

   The present iteration of the statement of claim is an amended statement of claim filed 31 October 2022. The first defendant has never filed a defence in the proceedings. The guarantors filed a defence on 30 November 2022.

7. [7]

   In a judgment on a notice of motion by the plaintiff for the determination of certain separate questions, Schmidt AJ helpfully summarised the defence of the guarantors as follows (Wanis v Lifestyle Residences Hobsons Bay Pty Ltd [2023] NSWSC 1066 at [20]):

8. [8]

   No cross-claim has been filed by the guarantors.

9. [9]

   Acting Justice Schmidt also made an order pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) that the following questions were to be determined separately from any other questions in the proceedings and before the trial of the other questions in the proceedings:

10. [10]

    The determination of those questions came before Wright J who gave judgment on 20 March 2024: Wanis v Lifestyle Residences Hobsons Bay Pty Ltd [2024] NSWSC 274. His Honour’s orders were these:

11. [11]

    It is clear from Wright J’s judgment at [41] and [42] that the reference to the “Facility Agreement” was a reference to the Loan Agreement.

12. [12]

    In his judgment, Wright J said:

13. [13]

    Following Wright J’s judgment, the plaintiff obtained default judgment against the first defendant in an amount of $1,570,897.02 made up of the loan amount of $150,000.00, interest of $1,420,879.02, filing fees of $1,169 and solicitor’s fees of $1,596.

14. [14]

    The plaintiff now seeks judgment for additional amounts said to be due by the first defendant totalling $417,881.78 and also to amounts said to be owing by the guarantors totalling $1,991,525.45. It will be noted from Wright J’s judgment that the judgment he gave against the guarantors for $150,000.00 was without prejudice to the plaintiff’s rights to claim further sums from the guarantors under the Guarantee.

15. [15]

    Although the guarantors appeared by solicitor and counsel at the hearing of the notice of motion before Schmidt AJ, and although the guarantors’ solicitor has not ceased to act for them in the proceedings subsequently, the only step taken by the guarantors subsequent to the judgment of Schmidt AJ was the filing on 3 October 2023 of a Notice of Intention to Appeal against the judgment of Schmidt AJ. No such appeal (it would in any event need to be an application for leave to appeal) has been filed, and the guarantors have not appeared subsequently, either before Wright J or at directions hearings before the Registrar on 7 May 2024 and 24 June 2024.

16. [16]

    On 24 June 2024, the Registrar made orders for the filing of evidence in the remainder of the proceedings and fixed the hearing of the remainder of the proceedings on 12 September 2024. No affidavits have been filed or served by the guarantors, nor have emails from the solicitor for the plaintiff to the solicitor for the guarantors been acknowledged or responded to.

17. [17]

    On 25 June 2024 the solicitor for the plaintiff sent an email to the solicitors for all of the defendants setting out the orders and directions made by the Registrar including the fixing of the matter for hearing on 12 September 2024.

18. [18]

    At the hearing before me on 12 September 2024 there was no appearance for the first, second, third or fourth defendants. I am satisfied from the affidavit of Christopher Chang of 12 July 2024 that the solicitors for all of the defendants were informed of the hearing date.

19. [19]

    On 28 August 2024 a costs assessor’s certificate was issued in the sum of $50,115.91 in relation to the costs incurred by the plaintiff in respect of the hearings before Schmidt AJ and Wright J.

Claim against the first defendant

1. [20]

   The plaintiff seeks the following additional amounts against the first defendant:

2. [21]

   From that amount there should be deducted costs as assessed of $50,115.91 and amounts totalling $155,299.15 paid by the second defendant on or about 5 July 2024. The amount claimed against the first defendant is, therefore, $417,881.78.

3. [22]

   As noted above, when the plaintiff obtained default judgment against the first defendant, costs were limited to filing fees of $1,169 and solicitor’s fees of $1,596. That limitation derived from cl 24 of the Legal Profession Uniform Law Application Regulation 2015 (NSW) (“the Regulation”) and Sch 1 Pt 1 to the Regulation. Clause 24 was made pursuant to the power set out in s 59 of the Legal Profession Uniform Law Application Act 2014 No 16 (NSW) (“the Uniform Law”). Section 59(2) provides:

4. [23]

   The plaintiff pointed to cl 17.2 of the loan agreement and cl 8.8 of the GSA in support of his application to obtain indemnity legal costs against the first defendant. Clause 17 of the Loan Agreement relevantly provides:

5. [24]

   Clause 8.8 of the GSA relevantly provides:

6. [25]

   The plaintiff submitted that s 98 of the Civil Procedure Act 2005 (NSW) (“the CPA”) provides a discretion to the Court in relation to costs. The plaintiff pointed to what was said by Ward JA (as her Honour then was) in Tonab Investments Pty Ltd v Optima Developments Pty Ltd (2015) 90 NSWLR 268; [2015] NSWCA 287 at [42], that no costs were payable in the Small Claims Division of the Local Court, notwithstanding s 98, because Sch 1 to the Uniform Civil Procedure Rules 2005 (NSW) expressly excluded the operation of s 98 in the Small Claims Division of the Local Court. The plaintiff submitted, therefore, that since s 98 is not excluded in Sch 1 for any civil proceedings in this Court, the Court’s general discretion to award costs is preserved and that costs, other than scale costs, could be ordered. The plaintiff also pointed to such an order made by Kunc J in Saade v Rahme [2024] NSWSC 645.

7. [26]

   The plaintiff pointed to sub-cl (5) of cl 24 of the Regulation which provides:

8. [27]

   Section 101 of the CPA provides:

9. [28]

   In my opinion, the plaintiff is not entitled to costs beyond the scale costs in respect of the default judgment obtained against the first defendant. That is because the plaintiff’s solicitor is not entitled to be paid or recover costs beyond the scale costs provided in the schedule to the Regulation. Although s 98 of the CPA gives the Court a wide discretion concerning costs, the Uniform Law, enacted subsequently to the CPA, expressly gave power by Regulation to limit legal costs in defined situations. Further, the prohibition in s 59(2) of the Uniform Law must be seen as a limitation to the width of the power in s 98.

10. [29]

    In the light of s 59 of the Uniform Law and cl 24 of the Regulation, there is no basis for inferring that, because there is no exclusion of s 98 in Sch 1 to the UCPR, s 98 operates to override s 59 of the Uniform Law. The operative provision is cl 24 of the Regulation as empowered by s 59.

11. [30]

    It does not appear that Kunc J was referred to s 59 and cl 24 in the application made in Saade. In any event, there is a significant difference between those proceedings and the present proceedings. In Saade, the defendant against whom default judgment was obtained, had earlier filed a defence to the claim. It was only following the striking out of that defence that default judgment was given in open court. The proceedings were “contested” within the meaning of cl 24(5).

12. [31]

    The present proceedings against the first defendant are not, and have never been, contested proceedings. While a notice of appearance was filed on behalf of the first defendant, no defence was ever filed. The plaintiff could have obtained a default judgment against the first defendant from at least September 2022. The proceedings before Schmidt AJ and Wright J did not involve the first defendant.

13. [32]

    The provisions of the Uniform Law and the Regulation also prevent the plaintiff from obtaining a lump sum costs order, because such an order assumes that costs generally are recoverable by assessment or agreement.

14. [33]

    The plaintiff is not entitled to costs against the first defendant other than scale costs.

15. [34]

    It follows that the plaintiff is entitled only to interest on the scale costs allowable pursuant to the Regulation against the first defendant.

16. [35]

    It must next be determined whether the Court should make an order under s 101(5) for payment at any rate other than the prescribed rate.

17. [36]

    The plaintiff points to item 6 in the Schedule to the Loan Agreement which relevantly provides:

18. [37]

    There is no bar by reason of r 36.16(3A) on the basis that the application for interest on costs is made more than 14 days after the judgment (in the present matter, it is far from clear, in any event, when the application was first made by reason of the way this matter has come before me): Grace v Grace (No 9) [2014] NSWSC 1239 at [28]-[56]; Gray v Richards (No 4) [2017] NSWSC 1714 at [25].

19. [38]

    At the present time, by virtue of s 101(4) interest is payable at the prescribed rate on the costs incurred. The plaintiff seeks, however, to have the Court order a different rate under sub-s (5) by reason of para 3 of item 6. In my opinion that item is dealing only with monies due under the Loan Agreement in contradistinction from costs.

20. [39]

    The borrower only becomes liable for costs and expenses pursuant to cl 17 “in the event that the borrower defaults in making a payment due under this loan agreement”. It is only pursuant to para 3 of item 6 of the Schedule, if “any monies remain unpaid following the due date (and thereby the borrower being in default)”, that interest accrues at 50% on “all outstanding monies”. The “monies” referred to in para 3 are the principal and interest payable pursuant to the Loan Agreement. The costs are not outstanding monies at the time of the default. When that default occurs, then the Lender will be entitled to charge the legal costs etc. It follows that para 3 does not deal with costs.

21. [40]

    I can see no other provision in the Loan Agreement which entitles the Lender to charge interest on the costs. In that way, the plaintiff is only entitled to interest on costs at the prescribed rate pursuant to s 101(5).

22. [41]

    In a similar manner to interest on costs, it is clear that, in the absence of any order, interest is payable on the judgment pursuant to s 101(1). However, that is interest at the prescribed rate unless the Court otherwise orders. What the plaintiff seeks is post-judgment interest at the rate referred to in para 3 of item 6 of the Schedule to the Loan Agreement.

23. [42]

    Item 6 para 3 provides for contractual interest on outstanding monies at 50% per annum compounded monthly.

24. [43]

    Subsection 101(6) of the CPA provides:

25. [44]

    Equity and Admiralty have long provided for interest but the common law has resisted the approach in those jurisdictions: Hungerfords v Walker (1989) 171 CLR 125 at 148-150 (Mason CJ and Wilson J); see also Brennan and Deane JJ at 152. The judgment of Mason CJ and Wilson J noted (at 150) that,

26. [45]

    It is likely, therefore, that a creditor suing for a debt is only entitled to interest on a judgment by virtue of s 101; that is, there is no common law right to interest on a judgment. Section 101 would now appear to be the governing provision for the award of post-judgment interest, at least in a claim of debt. That means that any interest on the judgment, whether automatically at the prescribed rate or at some other rate if ordered, is payable under section 101, with any limitations that section imposes. The result is that subs (6) prohibits interest on interest in all cases. In those circumstances the Court cannot make an order that the interest is to be “compounded monthly” because that would “authorise the giving of interest on any interest payable”.

27. [46]

    The plaintiff is entitled to simple interest only on the judgment at 50% per annum.

28. [47]

    The additional costs and expenses arise from the appointment of the plaintiff’s solicitor, Christopher Chang, as the authorised officer and attorney of the borrower under cl 18 of the GSA. This appointment was made in a letter to the plaintiff dated 28 June 2021.

29. [48]

    The additional costs and expenses claimed at $44,783.72 are effectively legal fees not billed to the first defendant, as appear in the costs assessment.

30. [49]

    For the reasons given above, the plaintiff is not entitled to additional costs and expenses by reason of the Uniform Law and the Regulation.

Claim against the guarantors

1. [50]

   The plaintiff seeks the judgment sum of $1,573,644.02 plus the amount of $417,881.78, making a total $1,991,525.80.

2. [51]

   The Loan Agreement relevantly provides:

3. [52]

   The Guarantee relevantly provides:

4. [53]

   The GSA relevantly provides:

5. [54]

   The calculation of the amount owing under the Loan Agreement is set out in the affidavit of the plaintiff of 3 April 2024, and the updated figure is found in the affidavit of the plaintiff of 11 July 2024. Default judgment was entered in the sum of $1,573,644.02. The plaintiff is entitled to that sum from the second and third defendants pursuant to cl 15 of the Loan Agreement and cls 2.2, 2.3 and 6.1 of the Deed of Guarantee.

6. [55]

   There must be deducted from that figure the amounts paid by the second defendant totalling $155,299.15. There should be judgment for $1,418,344.87 against the guarantors.

7. [56]

   The plaintiff is not restricted to scale costs against the guarantors because the proceedings against them were contested. A defence was filed, and that led to the application for the hearing of separate questions to determine the guarantors’ liability in principle to the plaintiff. The evidence of these expenses is contained in the annexures to the plaintiff’s affidavit of 11 July 2024. Exhibit C is a summary of those costs and expenses.

8. [57]

   The costs assessor assessed the recoverable costs at $50,115.91. That should be deducted from the total of the legal costs and expenses (because it is separately registrable as a judgment) leaving a balance owing of $196,485.40.

9. [58]

   For similar reasons as concerned the first defendant, there is nothing in the Loan Agreement or the GSA entitling the plaintiff to interest on costs. Further, cl 7.4 of the Guarantee entitles the plaintiff all costs and expenses, but says nothing about interest on costs. The plaintiff is therefore entitled only to interest at the prescribed rate as s101(1) and (5), and no order is necessary.

10. [59]

    Post-judgment interest at the rate set out in paragraph 3 of item 6 of the Schedule to the Loan Agreement is claimed against the guarantors.

11. [60]

    The amount is calculated in two tranches. The first tranche is from the date of the default judgment, 7 May 2024 to 5 July 2024. The latter date is when the second defendant paid the sum of $150,000.00. The second tranche is the period from 6 July 2024 to the date of hearing, 12 September 2024. The plaintiff is, further, entitled to post-judgment interest up to the date of this judgment.

12. [61]

    The limitation in s 101(6) applies, so that simple interest at 50% per annum is payable.

13. [62]

    Clause 20.1 of the GSA relevantly provides:

14. [63]

    As noted above at [47]-[48], these additional cost and expenses are effectively unbilled legal costs incurred by the plaintiff’s solicitor acting as the Attorney pursuant to his appointment under cl 18 of the GSA. Clause 20.1 of the GSA makes the first defendant and the guarantors liable for such costs and expenses. For reasons given earlier, the first defendant is not liable for them because legal costs against him are limited by the Uniform Law and the Regulation. The guarantors are, however, liable for such costs and expenses.

Gross sum costs order

1. [64]

   The plaintiff seeks a gross sum costs order in respect of the legal costs and expenses. That includes what have been described as “additional costs and expenses”.

2. [65]

   The principles for ordering a lump sum costs order are well known and are found in such cases as Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]-[22]; Hamod v State of New South Wales [2011] NSWCA 375 at [813]-[820] and Bobb v Wombat Securities Pty Ltd & Ors (No 2) [2013] NSWSC 863 at[6]-[8]. The principles have been helpfully summarised by the Court of Appeal (Beazley P, Meagher and Payne JJA) in Bechara trading as Bechara and Company v Bates [2016] NSWCA 294 as follows:

3. [66]

   The extent of the discount referred to at [15] in Bechara is ordinarily in the range of 20% to 30% (see a detailed list of discounts provided in Ritchie’s Uniform Civil Procedure NSW at [98.65.1]).

4. [67]

   Although the application for a gross sum costs order was not made until a supplementary submission was lodged with leave after the hearing, r 36.16 does not apply to limit such an application being made within 14 days of any costs order earlier made: Beau Timothy John Hartnett trading as Hartnett Lawyers v Anthony Robert Bell as Executor of the Estate of the late Mabel Dawn Deakin-Bell (No 2) (2023) 113 NSWLR 381; [2023] NSWCA 311 at [21].

5. [68]

   In my opinion, the proceedings are appropriate for making a gross sum costs order. Although a defence was filed, the guarantors failed to file a cross-claim to which the defence had made reference. Despite still having a solicitor on the record, the guarantors did not appear before Wright J. They have not appeared thereafter before the Registrar nor before me, and emails to their solicitor have gone unanswered. That makes it likely that co-operation will not be received to agree on amounts for costs, and the plaintiff will be put to extra delay and expense in having the further costs assessed.

6. [69]

   In the present case, the plaintiff is entitled to indemnity costs against the guarantors, and detailed information is provided about those costs in the document prepared by the costs consultant for the purposes of the costs assessment.

7. [70]

   In Hancock v Rinehart (Lump sum costs) [2015] NSWSC 1640, Brereton J (as his Honour then was) said:

8. [71]

   I must have some regard to the fact that the costs were assessed in the sum of $50,115.91 on a total claim of $186,761.23. That might suggest that the plaintiff’s claim has “erred on the side of excessiveness”. In all the circumstances, I consider that a discount of 25% is appropriate.

9. [72]

   The total of the legal costs and expenses together with the additional costs and expenses is $291,385.03. From that must be subtracted the figure assessed by the costs assessor of $50,115.91 leaving an amount outstanding for costs and expenses in the sum of $241,269.12.

10. [73]

    The plaintiff is entitled to a gross sum costs order of $180,951.84 together with interest on costs at the prescribed rate.

Conclusion

1. [74]

   The plaintiff should bring in short minutes to reflect these reasons. The plaintiff should also separately provide calculations of the amounts leading to the figure for judgment against the first defendant and the figure for judgment against the guarantors. That will involve calculating the interest on the scale costs, the interest on the gross sum costs order and post-judgment interest, all up to the date of judgment. A daily rate for each sum should also be provided.