Supreme Court New South Wales Medium Neutral Citation: JKAM Investments Pty Ltd v Damien (No. 2) [2022] NSWSC 763 Hearing dates: 6 December 2021 Date of orders: 10 June 2022 Decision date: 10 June 2022 Jurisdiction: Equity Before: Slattery J Decision: See paragraph [121]. Catchwords: DAMAGES – plaintiff partially successful in claims for misleading and deceptive conduct and in a claim for indemnity under a mortgage during a hearing on issues relating to liability – damages hearing then takes place – plaintiff elects to pursue indemnity based on the mortgage and abandons an inconsistent remedy for misleading and deceptive conduct that would otherwise result in the mortgage being set aside – whether all the plaintiff's damages were caused by the misleading and deceptive conduct of the defendant – what particular legal costs and expenses are recoverable under the indemnity clause in the mortgage. COSTS – plaintiff successful on some but not all issues in the principal proceedings – what costs orders are appropriate in the circumstances – what costs order should be made in respect of the damages hearing. CIVIL PROCVEDURE – damages hearing after hearing on liability – during damages hearing plaintiff advances extensive claims for indemnity on a mortgage in respect to a range of legal costs and expenses which have not been the subject of detailed pleadings and were not the subject of specific determination during the liability hearing – whether the damages hearing is an appropriate vehicle for the determination of these claims. Legislation Cited: Civil Procedure Act 2005, s 98(4)(c) Cases Cited: Australian & New Zealand Banking Group Ltd v Pollard [2012] SASC 133 Credland v Potter (1874) LR 10 Ch App 8 JKAM Investments Pty Ltd ACN 159 084 018 v Damien [2021] NSWSC 70 Deeley v Loyd's Bank (No. 2) (1909) 53 Sol Jo 419 EMI Records v Wallace [1988] 2 All ER 980 Mead v Watson [2005] NSWCA 133 Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 11 Pearce v Watkins (1852) 64 ER 1132 Beddoe, In re; Downs v Cottam [1893] 1 Ch 547 Kyabram Property Investments Pty Ltd v Murray [2005] NSWSC 1202 Texts Cited: ELG Tyler, PW Young and CE Croft, Fisher and Lightwood's Law of Mortgages (3rd ed, 2014, LexisNexis Butterworths) Category: Costs Parties: Plaintiff/Cross-Defendant: JKAM Investments Pty Ltd Defendant/Cross-Claimant: Karl Damien Representation: Counsel: Plaintiff/Cross-Defendant: L. Katsinas Defendant/Cross-Claimant: C. Stomo Solicitors: Plaintiff/Cross-Defendant: K. Jakimoski, JK Solicitors Defendant/Cross-Claimant: D. Yakenian, Legal Edge Australia File Number(s): 2015/276373 Publication restriction: No Judgment 1. This is the Court's second judgment in these proceedings. The Court delivered its principal judgment on 19 February 2021: JKAM Investments Pty Ltd ACN 159 084 018 v Damien [2021] NSWSC 70 ("the first judgment"). This judgment should be read with the Court's first judgment. This judgment assumes a reading of the first judgment and does not summarise or re-explain the detailed history of the transactions between these parties that is set out in the first judgment. Events matters and persons are referred to in both judgments in the same way. 2. In the first judgment, the plaintiff, JKAM was successful on two of its claims, one in relation to misleading and deceptive conduct and the other in relation to the JKAM mortgage. Resulting from observations the Court made at [420] to [423] of the first judgment about the inconsistency of these two remedies in this case, JKAM elected to proceed only with its claim for indemnity under the JKAM mortgage and abandoned its claim for damages for misleading and deceptive conduct. 3. This judgment deals with JKAM's claim for indemnity under the JKAM mortgage arising from the Court's findings in the first judgment. JKAM claims a full indemnity under the JKAM mortgage in respect of the legal costs it has incurred in these proceedings and in many earlier proceedings in which it has been involved. 4. Mr Damien resists this claim. He submits that the claimed costs both in the present litigation and the earlier litigation were unrelated to the enforcement of the JKAM mortgage or the preservation of the Camden property the subject of the JKAM mortgage, or otherwise were futile or extravagant. He further submits that JKAM has claimed excessive costs of these various proceedings, without considering the appropriateness of the steps taken that incurred those costs. Moreover, he submits that a substantial part of the sums claimed is either outside the pleadings, or were unreasonably incurred, or were unnecessarily incurred or were unreasonable in amount. 5. As these reasons explain below, there are very substantial problems with the way that JKAM has advanced its claim for indemnity on the mortgage, which is with a few exceptions largely unpleaded. The Court has decided that it can only fairly deal with the parts of JKAM's claim for classes of pecuniary relief that are clearly pleaded or have long been identified. 6. Several directions hearings were required to prepare this matter for hearing on all the consequential issues including costs. The proceedings underwent directions hearings on 30 April 2021, 15 July 2021, 13 August 2021, 21 October 2021 and 2 November 2021 in preparation for the final damages hearing that took place on 6 December 2021. 7. At the damages hearing, Mr L. Katsinas appeared for the plaintiff, instructed by Mr K. Jakimoski of JK Solicitors. Mr C. Stomo continued to appear for the defendant, instructed by Mr D. Yakenian of Legal Edge Australia. Issues to be Decided on This Damages Hearing: An Overview 1. Before dealing with the individual items of JKAM's claim, an overview of the damages contest on this damages hearing took a course that substantially expanded the matters in issue beyond those pleaded and decided in the first judgment. This unexpected expansion of the matters in issue occurred by the actions of the plaintiff, JKAM, after the first hearing. As the Court explains in this section, this expansion of the issues has created serious impediment to the proper administration of justice in this case. 2. As a result, the Court has decided only to deal with the pleaded issues. The Court is considering dismissing the balance of the proceedings that the Court has not been able to resolve. But as the Court has not given the parties an opportunity to address the making of such an order for dismissal, it will afford the parties a further opportunity to put submissions on that question. 3. But to see how this problem arises it is necessary to look briefly to the issues presented for decision and decided in the first judgment and then to compare that with what JKAM presented for decision in the present damages hearing. Based on JKAM's the Court made the following determinations in the first judgment based on what it understood was in issue. "309. JKAM pursues two kinds of claim based on the terms of the mortgage. The first is a claim for declaratory relief, that certain costs and expenses incurred by JKAM are recoverable under the JKAM mortgage on an indemnity basis. The second is a contention that Mr Damien breached clause 6.15 of the lease, when Champion and Hotray lodged caveats over the Camden property. 310. (1) Indemnity under the JKAM mortgage. JKAM seeks declarations that the principal outstanding and various classes of costs and expenditure are part of the Secured Money under the JKAM mortgage and therefore recoverable on an indemnity basis pursuant to that mortgage. These classes of costs and expenditure are the following: 1. The principal sum of $138,000; 2. Interest on the principal sum as it became due and payable; 3. The costs of these proceedings; 4. The costs ordered against JKAM in the priorities judgment; 5. JKAM's own legal expenses in relation to the priorities judgment; and 6. Other legal costs said to be covered by the JKAM mortgage. 311. In the Further Amended Statement of Claim, JKAM claims damages for breach of the JKAM mortgage, an order for an inquiry as to damages and an order that Mr Damien pay the damages ascertained in the inquiry. No part of this claim seeks access to the proceeds of sale of the Camden property. These proceeds have been fully distributed, first to the NAB and then by Court order to Champion. Rather, JKAM now seeks an (unsecured) indemnity against Mr Damien for as much of JKAM's costs and expenditure as may be recoverable under the terms of the mortgage. 312. As to classes (1) and (2) of the costs and expenditure claimed, relief should be given. Mr Damien owes JKAM $138,000 as a result of the set off judgment. For the reasons which follow, that sum is also the part of the Secured Money under the JKAM mortgage. 313. The JKAM mortgage mortgages the Camden property as "the Secured Property" to secure Mr Damien's performance of "its Obligations and the payment by it of the Secured Money" (clause 3.1). The definition of "Secured Money" refers back to the definition of "Obligations", which encompass "all liabilities and obligations of the Mortgagor to the Mortgagee under or by reason of any Finance Document". And "Finance Document" is defined to mean "the Agreement and this Mortgage". 314. The "Agreement" is defined as the agreement between JKAM and Mr Damien "dated on or about the date of this document". This is a reference to the December 2012 deed executed some 11 days earlier. The December 2012 deed itself cross-refers in sub-clauses 2(h) and (i) to the creation of the JKAM mortgage to secure construction costs of $528,000 that are agreed to be owing to JKAM. The "Secured Money" therefore means the principal sum of $138,000, which is the balance of the $528,000 due as a result of the set off judgment. 315. The Secured Money becomes due in accordance with an agreement obliging the mortgagor to pay the Secured Money, namely here the December 2012 deed: the JKAM mortgage, clause 4.1. Otherwise, it is due on demand: the JKAM mortgage, clause 4.1. The principal sum was also due as a result of the set off judgment in March 2015. And it has been demanded, at least by service of the Statement of Claim in these proceedings. 316. Interest on the principal sum is payable under the JKAM mortgage, the rate being as agreed: the JKAM mortgage, clauses 5.1 and 5.2. The parties' submissions do not address the calculation of the quantum of interest and it is not clear to the Court what agreement is the source of the claim for interest. The December 2012 deed does not provide for the accrual of interest generally. It only provides for interest at 10% on the payment to Mr Damien of $300,000. In default of an agreed rate, the Court will make an order for interest up to judgment under Civil Procedure Act 2005, s 100. Directions will be made for the parties to calculate interest on the principal sum under the JKAM mortgage, less any interest already ordered to be paid by the set off judgment. 317. As to class (3) of the costs and expenditure claimed, relief should also be given. The costs of these proceedings are part of the "Secured Moneys" secured under the JKAM mortgage. They fall within the definition of "Obligations", because they accrue as a result of an "event of default". The term "event of default" is not defined in the JKAM mortgage but the term clearly enough encompasses Mr Damien's failure to pay the principal sum of $138,000. It was necessary for JKAM to commence these proceedings to (a) establish that the $138,000 due and unpaid after the set off judgment was Secured Money, (b) recover additional interest not recoverable under the set off judgment, and (c) to recover other mortgagee's costs on an indemnity basis under the JKAM mortgage. 318. The Obligations means "all liabilities of the Mortgagor to the Mortgagee…under or by reason of a Finance Document". The December 2012 deed is a Finance Document within the meaning of that term in the JKAM mortgage. Many of the issues in these proceedings involve determining Mr Damien's liabilities to JKAM under the December 2012 deed. The JKAM mortgage, clause 14.1(c) provides a comprehensive indemnity to JKAM for all its costs of these proceedings. That indemnity applies here because the costs of these proceedings are a "cost and expense" that is "caused or contributed to" by (c) the "exercise or attempted exercise of" a right by the Mortgagee [JKAM] "under any Finance Document", namely the December 2012 deed and the JKAM mortgage itself. 319. The issues in these proceedings, and therefore their costs, are wider than JKAM establishing that the balance of construction costs of $138,000 due after the set off judgment is secured under the JKAM mortgage. An important part of these proceedings concerns the proper interpretation of and then the exercise of rights under the December 2012 deed, a Finance Document, in the context of Mr Damien's default to the NAB, and the loss of JKAM's mortgage security by reason of the NAB's repossession and sale of the Camden property and the establishing of Champion's and Hotray's prior equitable securities. 320. These issues of the proper interpretation of and the exercise of rights under the December 2012 deed arise in the following way. The December 2012 deed, clause 2(d) stated that "JKAM will be responsible for all mortgage repayments" on and from 1 January 2013. JKAM argues that Mr Damien remained primarily liable to make payments to the NAB independently of JKAM, as he was the mortgagor, not JKAM. JKAM argues that because Mr Damien did not make payments to the NAB after 1 January 2013, JKAM was also entitled not to make such payments, and that the financial consequences of the default to the NAB therefore lay with Mr Damien, not JKAM. This contest is a step in JKAM's exercise of rights under the December 2012 deed. 321. As to classes (4) and (5) of the costs and expenditure claimed, relief should also be granted. Both the costs orders made against JKAM in the priorities judgment and JKAM's own costs in contesting the proceedings leading to the priorities judgment are "Secured Money" under the JKAM mortgage. These costs qualify as Secured Money because JKAM had to contest the priorities judgment proceedings to ascertain the relative priority of the interest created under the JKAM mortgage with the other competing equitable claims of Champion and Hotray before JKAM could recover the Secured Money. The costs of the set off proceedings probably also qualify as Secured Money on the same basis. The parties will be directed to attempt to agree upon these costs, or they will be referred for assessment. 322. Mr Damien argued that the costs now sought to be recovered under the JKAM mortgage on an indemnity basis did not result from JKAM attempting to enforce its rights under the JKAM mortgage. The submission was that the priorities judgment essentially affected third parties only. But this is not correct. Once Champion and Hotray intervened, the principal sum due on the mortgage could not be recovered from a limited pool of Secured Money until their priority claims were resolved. 323. As to class (6) of the costs and expenditure claimed, no other costs have as yet been identified. A direction will be made that any particulars of those costs should be provided." 1. This statement in the first judgment of the issues and the determinations was based upon the pleadings, which had been relatively clear about certain classes of relief that were being sought. Items (1) to (5) in this passage are quite clear. Item (6) was perceived by the Court to be an ancillary claim dealing with any incidental expenses. But on the damages hearing it is item (6) which was massively expanded beyond the Court's capacity to deal fairly with the issues it raises. 2. On the day the first judgment was delivered, 21 February 2021, the Court made orders based upon its understanding of the pleadings. Those orders relevantly provided as follows: "(2) Declare that the following are part of the Secured Money as defined in the mortgage made between the plaintiff as mortgagee and the defendant as mortgagor on 21 December 2012, namely (a) the sum of $138,000 found due by the defendant to the plaintiff in the set off judgment, (b) the plaintiff's own costs of these proceedings, and (c) the plaintiff's own costs of the proceedings resulting in the priorities judgment and the costs ordered against the plaintiff in the priorities judgment. (3) Direct the parties to agree upon the quantum of costs outstanding under the JKAM mortgage in the proceedings leading to the priorities judgment, as defined in these reasons, or upon an appropriate program for the assessment of those costs and in default of such agreement the parties shall relist this matter for further directions for these costs to be ascertained, including if necessary through the inquiry as to damages. (4) Direct the plaintiff to provide to the defendant a full list or summary of the plaintiff's costs of these proceedings, together with all memoranda of fees and other primary accounting materials reasonably required by the defendant to establish the incurring of the plaintiff's costs and disbursements, with a view to the plaintiff's costs of these proceedings being agreed or referred for costs assessment on the indemnity basis. (5) Direct the plaintiff to provide its calculations of interest due under the mortgage between the plaintiff and the defendant dated 21 December 2012, ensuring in such calculation that interest already claimed pursuant to the Court's judgment in Karl Damien v JKAM Investments Pty Ltd [2015] NSWSC 272 is not double counted. (6) Direct that JKAM provide to the defendant particulars of any further costs or expenses the plaintiff claims have not been dealt with in these reasons and which may need to be the subject of an inquiry as to damages, upon which issue the Court will reserve for further consideration. (7) Dismiss the plaintiff's claim for breach of the covenant for quiet enjoyment, clause 9.1 of the lease between the plaintiff and the defendant dated 1 September 2012. (8) Dismiss the plaintiff's claim for breach of clause 6.15 of the unregistered mortgage made between the plaintiff and the defendant on 21 December 2012. (9) Direct the parties to bring in short minutes of order providing for the procedural directions for a hearing as to damages in relation to the plaintiff's successful claims for misleading and deceptive conduct and on the JKAM mortgage and in relation to any other matters which the parties submit still require determination. (10) To the extent that these orders do not cover all the orders the parties seek as a result of the Court's reasons, further consideration is reserved and the parties are at liberty to bring in short minutes of order to give further effect to these reasons. (11) Direct the defendant/cross-claimant to file a Notice of Discontinuance of the Amended Statement of Cross-Claim filed 16 October 2017. (12) Adjourn these proceedings for further directions on 17 March 2021 in preparation for a hearing as to damages. (13) Grant liberty to apply." 1. In the first judgment the Court dismissed JKAM's claim for breach of the covenant of quiet enjoyment in the lease and clause 6.15 of the JKAM mortgage. By reference to the classes of costs and expenditure that had been itemised in the first judgment at paragraph [310], the Court had dealt in [433] with those issues the following way. 1. It declared all of the following items as Secured Money under the JKAM mortgage, namely item (1) the principal sum of $138,000, item (2) interest on that sum, item (3) the JKAM's own costs of these proceedings, and costs ordered against JKAM in the priorities judgment and JKAM's own legal expenses in relation to the priorities judgment: [433](2). 2. It made consequential orders in relation to ascertaining the quantum of costs in relation to the priorities judgment ([433](3)) and in relation to these proceedings ([433](4)) and made directions to ensure that in the calculation of interest there was no double counting ([433](4)). 3. But the Court did not determine anything in relation to item (6), other legal costs said to be covered by the JKAM mortgage. There was insufficient material to do so. So the Court made directions for further particulars in relation to that aspect of JKAM's claim: ([433](6)). material 1. It should also be noted that the Court did not make any costs orders in the proceedings. It was too early to do so given that remedy elections and the damages hearing were yet to take place. 2. The Court followed up its directions in [433](6) of the first judgment with further directions on 30 April 2021 for the provision of particulars of any further costs and expenses and damages claimed for breach of the mortgage, and Mr Damien was required to respond. JKAM provided those particulars in the form of a submission on 29 June 2021. This primary submission of JKAM contained the detail of the unpleaded claims. Mr Damien provided an extensive response on 29 July 2021. JKAM replied on 12 August 2021. 3. The basis for the Court recording (at [310]) the structure of JKAM's claim on the JKAM mortgage was prayer for relief 12 of the Further Amended Statement of Claim which provides as follows: "12. A declaration or order that the JKAM Mortgage and the JKAM Varied Mortgage secures: a. the principal sum of $138,000 (Principal Sum); and/or b. interest on the Principal Sum as it became due and payable following the decision of Justice Rein in Champion Homes Pty Ltd v JKAM Investments Pty Ltd; Hotray Pty Ltd v JKAM Investments Pty Ltd (JKAM Investments Pty Ltd v Karl Damien – First Cross-Claim; Karl Damien v JKAM Investments Pty Ltd – Second Cross-Claim) [2015] NSWSC 272 (Set Off Judgment); and/or c. the costs of these proceedings to a specified net sum (subject to evidence); and/or d. the costs ordered against JKAM in proceedings heard by Darke J in Champion Home Sales Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 (Priorities Judgment) to the sum of: i. $63,383 which was ordered against JKAM in favour of Champion Homes Sales Pty Ltd (Champion); and ii. a sum yet to be assessed and quantified for the costs ordered to be paid to Hotray Ptd Ltd (Hotray); and/or iii. interest on the above sums. e. JKAM's own legal costs and disbursements incurred with respect to the proceedings culminating in the Priorities Judgment (subject to evidence); and/or f. such other legal costs as the court deems covered in accordance with the evidence and the construction of the JKAM Mortgage and the JKAM Varied Mortgage." 1. Although the balance of the pleading in the Further Amended Statement of Claim was an imperfect exposition of how JKAM was entitled to this relief, it was clear enough that JKAM sought a declaration that items 12(a) to (f) were part of the Secured Money under the JKAM mortgage and the Court conducted the first hearing on that basis. 2. But when the damages hearing commenced JKAM propounded a far wider case, seeking to bring within the Secured Money in the JKAM mortgage a range of costs and expenditure that had never been mentioned in the pleadings, or in the first judgment. JKAM did this under the colour of prayer for relief 12(f) and item (6), namely other legal costs said to be covered by the JKAM mortgage. 3. The evidentiary task which JKAM has sought to present to the Court in this damages hearing is not properly authorised within the scope of the current pleadings, is not fairly able to be done in the way the current materials have been organised and presented to the Court, and risks producing unfairness to one party or the other with the Court to attempt to embark upon it. 4. In its submissions of 29 June 2021, supplemented by its reply submissions of 12 August 2021 JKAM claims $3,489,527.33 in respect of multiple legal proceedings that have little relationship to the primary hearing that has been conducted by the Court, resulting in the first judgment. JKAM now seeks to recover as Secured Money its legal costs and expenses not just associated with the priorities judgment but covering a whole range of proceedings, judgments, motions, and enforcement actions arising out of the priorities judgment, the set-off judgment, the estoppel judgment, the possession judgment, and various other ancillary and appeal proceedings that this Court briefly surveyed in the Court's first judgment (at [10] to [15]). JKAM also sought to bring within Secured Money costs and expenses associated with proceedings in the Federal Circuit Court, mostly in bankruptcy and various winding up proceedings. For convenience of reference in these reasons these additional legal costs and expenses now being claimed by JKAM will be described as JKAM's "unpleaded claims". 5. The claims for indemnity under the JKAM mortgage for JKAM's unpleaded claims was never contemplated by the Court on the current pleadings. The current pleadings constituting these proceedings are a wholly inappropriate vehicle for the determination of any issues beyond the Further Amended Statement of Claim, prayer for relief 12(a) to (e) and items (1) to (5) in the first judgment, at [310]. 6. This is so for several reasons. First, whether these unpleaded claims come within the definition of Secured Money in the JKAM mortgage depends upon why each class of costs and expenditure was incurred. The Court does not have clear evidence before it is to see why most of this expenditure was incurred. The submissions of both sides contained assertions and counter assertions about the reasons for the incurring of the costs and expenditure. But the Court cannot verify for itself on the materials provided which of the parties competing assertions has validity. The only proper way for this kind of case to have been advanced would have been for the circumstances of each class of cost and expenditure in the unpleaded claims for each action, proceeding, motion or other act of enforcement to be specifically pleaded. Then the pleadings would also need to identify with clarity the precise alleged connection between each item of costs and expenditure and the powers conferred on JKAM under the JKAM mortgage and its coverage by the JKAM mortgage clauses 13 and 14. Then the defence to such a pleading could then identify with clarity exactly what was being contested in respect of every part of the unpleaded claims. 7. None of that has been done in this case. For the Court to attempt to do this exercise now risks perpetrating real injustice upon one other party. This is not a course the Court should or will take. 8. Sometimes submissions can cure such problems. But not in this case. This leads to the second reason why these proceedings as presently constituted are inappropriate vehicle to determine these questions. The Court is ill-equipped on the submissions and the materials provided to it to be able to determine the question. This is partly because of the preparation of materials in this case. The Court has repeatedly said to the parties in this case that the bundle of materials presented to the Court in this case is unstructured, poorly organised, and so lacking in a naturally logical order that it is very difficult to find primary documents. Moreover, the submissions are poorly cross-referenced to the bundle. In relation to the first judgment and to this judgment, that has severely lengthened time required to complete the Court's reasons. As a result, when reading the parties submissions the Court cannot have confidence that it can find and act on all the relevant materials. Without a fully disciplined reorganisation of the bundle in addition to the pleading of the unpleaded claims, the parties written submissions do not suffice to allow these claims to be determined in this judgment. 9. The situation that has arisen is presently the responsibility of JKAM for advancing the unpleaded claims. This may have consequences when the Court is asked to determine costs issues in these proceedings. It is unclear who is responsible for the bundle of documents presented to the court in these proceedings. It is no excuse for the chaotic materials provided to the Court that there have been multiple prior proceedings over 10 years. Organising material generated in different proceedings over a long period simply requires greater organisational discipline, which regrettably has been lacking in this case. That may have cost consequences if the Court takes the course that is clearly open to it now, which is to dismiss the unpleaded claims from these proceedings, so that JKAM can decide if it wishes to pursue those claims in a separate and properly organised action. 10. But some of JKAM's claims can be determined in this second judgment based on the damages hearing. And these reasons deal with those claims after separating them out from JKAM's unpleaded claims. Once that is done, the Court can decide what costs should be referred for costs assessment. As it turns out, as was contemplated by the Court's directions of 30 April 2021 it is only JKAM's costs of these proceedings and of the priorities proceedings which should be sent to costs assessment. 11. Before anything is to be sent to costs assessment it is necessary to consider whether orders should be for a specified gross sum instead of assessed costs under Civil Procedure Act 2005, s 98(4)(c). The parties at various times urged this course upon the Court. But with one minor exception applying s 98(4)(c) in this case does not achieve any efficient purpose in this case. The section is designed to save a party being vexed by a costs assessment where the Court is able fairly to determine costs on a specified gross sum basis. But here even if the Court does apply the section, it could only do so with respect to specific items of costs which would not avoid a cost assessment, undermining the purpose of the exercise. JKAM's Claims 1. In the damages hearing JKAM organised its schedule of claims under the following headings which will be used as the headings throughout the balance of these reasons. 1. Claims Other Than Legal Costs – Breach of Mortgage Damages. 2. Legal costs ordered in favour of other parties in various proceedings. 3. JKAM's legal costs incurred in various other proceedings. 4. Costs of the current proceedings. 5. Costs associated with the priorities judgment and set-off judgment. 1. This schedule of claims does not include any damages for misleading and deceptive conduct. In the first judgment (at [420] – [422]) the Court indicated that before an enquiry as to damages took place that the plaintiff would have to elect whether or not it was seeking damages for misleading and deceptive conduct as well or whether it was seeking damages based upon a mortgage document, but that it could not do both. In a subsequent directions hearing, JKAM elected to seek damages for breach of the mortgage or for recovery under the terms of the mortgage rather than damages for misleading and deceptive conduct. This clarified the issue for the purposes of the present damages hearing. 2. JKAM's claims are dealt with below in the order in which they were presented. Their determination requires the Court frequently to apply the legal principles defining the scope of a mortgagee's right of indemnity, particularly in relation to the incurring of legal costs. It is convenient to restate those principles first. Applicable Legal Principles: Mortgagee's Right of Indemnity 1. The first judgment (at [21] – [28]) contains a summary of the applicable legal principle concerning the scope of a mortgagee's right of indemnity which is not repeated here. To those statements of principle, the following can be added. 2. The Court of Appeal in Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 at [62] (per Hodgson JA, Handley and Stein JJA agreeing) considered the recovery of litigation-related mortgagee claims: "In my opinion, costs incurred by a mortgagee in making a claim that the mortgage includes debts which the mortgage on its true construction does not include, even if this claim has some support in the text, are not necessarily incurred in the capacity of a mortgagee, or in respect of the mortgage, or in respect of something that the mortgagee is permitted to do under the mortgage. The more doubtful the question, and the more reasonable the claim, the readier the Court would be to find in the mortgagee's favour on this matter. On the whole, although I think the appellant's arguments were not entirely without merit, in my opinion the costs it incurred in seeking to have the mortgage extend to debts that it did not in fact cover are not properly regarded as costs incurred in the capacity of a mortgagee, or in respect of the mortgage, or in respect of something that the mortgagee is permitted to do under the mortgage." 1. Most of the money JKAM claims to recover in this case is for legal costs. Whether or not that money is recoverable will depend in part upon scrutiny of the reasonableness of the legal decision-making of the lawyers acting for JKAM. Although the law relating to the indemnity of trustees is not the same as that relating to indemnity of mortgagees, some of the case law in relation to trustee indemnity gives useful insights into legal costs that may become irrecoverable because of lawyers' conduct. Such a statement appears in Mead v Watson [2005] NSWCA 133 at [11] – [13] ("Mead"), in which the Court of Appeal discussed the statements of principle in Beddoe, In re; Downs v Cottam [1893] 1 Ch 547 at 562 ("Beddoe") in the following terms. "A trustee can only be indemnified out of the pockets of his cestui que trust against costs, charges, and expenses properly incurred for the benefit of the trust – a proposition in which the word 'properly' means reasonably as well as honestly incurred. While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is not the test, and that it is no answer in the mouth of a trustee who has embarked in idle litigation to say that he honestly believed what his solicitor told him, if his solicitor has been wrong-headed and perverse. Costs, charges, and expenses which in fact have been unreasonably incurred, do not assume in the eye of the law the character of reasonableness simply because the solicitor is the person who was in fault. No more disastrous or delusive doctrine could be invented in a Court of Equity than the dangerous idea that a trustee himself might recover over from his own cestui que trust costs which his own solicitor had unreasonably and perversely incurred merely because he had acted as his solicitor told him." (Emphasis added) 1. What are reasonable costs are to be assessed against the particular facts of the case and what is reasonable in one case may not be reasonable in another: Australian & New Zealand Banking Group Ltd v Pollard [2012] SASC 133 at [7] (Lunn J). 2. The principal case that JKAM relies upon, Kyabram Property Investments Pty Ltd v Murray [2005] NSWSC 1202 does not state the applicable principles differently to the way that they are set out in the Court's first judgment and in here. 3. The mortgagee may be deprived of costs where the mortgagee's claim is unfounded (although bona fide) but a claim will not be classed as "unfounded", if it is fairly arguable: Credland v Potter (1874) LR 10 Ch App 8 and Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 11 and ELG Tyler, PW Young and CE Croft, Fisher and Lightwood's Law of Mortgages (3rd Ed, 2014, LexisNexis Butterworths) ("Fisher and Lightwood") at [40.11]. 4. It is the duty of the mortgagee to pursue its remedies, so as not to incur unnecessary costs. Therefore the mortgagee, for example, must bear the costs of proceedings insofar as they are mistaken or useless. Where, for example, an action was not originally commenced as a foreclosure action but was later turned into a foreclosure action, the costs incurred before it assumed that form were ordered are to be borne by the mortgagee: Fisher and Lightwood at [40.13]. 5. There are other examples of wasted costs being born by the mortgagee. Costs incurred by an improper joinder of parties, whether as plaintiffs or defendants must be paid by the mortgagee: see Pearce v Watkins (1852) 64 ER 1132 and Fisher and Lightwood [40.13]. 6. In the context of a mortgage, the application of the Beddoe principle in relation to the expenditure of legal costs was put in somewhat colourful terms by Sir Robert Megarry VC in EMI Records v Wallace [1988] 2 All ER 980 at 990 where his Lordship said: "Where, on the other hand, the costs are to be paid not by the client to his own solicitor but by another party to the litigation, these provisions seem entirely inappropriate. It would be monstrous if the loser could complain of nothing that the winner had authorised. Confident of success (as many are, when moving for contempt), the winner may have authorised half a dozen conferences with three expert witnesses, went conferences with a single expert would plainly have been ample. He may have needlessly employed the most expensive experts, two of the most fashionable silks and a pair of juniors. He may throughout have insisted on his case being conducted by two of the senior partners in his solicitor's firm, instead of one. You may have done dozens of other things which to a greater or lesser extent were costs unreasonably incurred to an unreasonable amount. Some of these matters (such as the array of counsel) may be visible to the judge when he makes his order, so that he could insert some appropriate provision in his order; but much may lie concealed until disclosed on taxation." 1. But it is always to be remembered that what is are reasonable costs is to be assessed against the particular facts of the case. What is reasonable in any one case may not be reasonable in another case involving a mortgage indemnity: Australian & New Zealand Banking Group Ltd v Pollard [2012] SASC 133 (at [7]). 2. The contest in relation to the recoverability of JKAM's costs and its broader indemnities were principally based on the JKAM mortgage, clauses 13 and 14. 3. In common law mortgagees are entitled to costs incurred in the enforcement of a mortgage, and the taking of accounts and to all costs, charges and expenses reasonably and properly incurred: Fisher and Lightwood at [40.3]. The principal covers costs incurred by the mortgagee in ascertaining or defending its rights, in preserving the security, or in recovering the mortgage debt: Fisher and Lightwood at [40.3]. 4. The Court may exempt from a general costs order the cost of a particular issue on which the mortgagee has failed, although the remainder of the action was otherwise justified: Deeley v Loyd's Bank (No. 2) (1909) 53 Sol Jo 419 and Fisher and Lightwood at [40.13]. 5. The cost of litigation relating to the security needs to be closely scrutinised. At common law a mortgagee is not entitled to the costs of defending the mortgagee's title to the mortgage against persons other than the owner of the equity of redemption, as distinguished from defending the title to the estate: Fisher and Lightwood at [40.23]. This position may be altered by the terms of the mortgage and in the case of the JKAM mortgage, clauses 13 and 14, it is probably wider. 6. These general principles are applied many times throughout these reasons and are referred to for convenience with the shorthand term, the "mortgage indemnity principles". (1) Claims Other Than Legal Costs – Breach of Mortgage Damages 1. The first group of JKAM claims to be considered did not involve legal costs. The claims are what are described as: (a) the payment of remedy proceeds of $691,000, together with interest; and (b) fit out costs in the sum of $123,066.90 (being actual fit out costs of $651,066.90, less the parties' agreement on that account of $528,000). 2. Remedy Proceeds of $691,000. JKAM argues that it is entitled to $691,000 as falling within the definition of "Remedy Proceeds" in clause 1.1 of the JKAM mortgage. JKAM argues that Mr Damien had an obligation under the JKAM mortgage to deal with "Remedy Proceeds" derived from the settlement of the sale of the Camden property on 18 February 2016, by reason of the December 2012 deed, clause 2(p). The plaintiff contend that any monies received pursuant to clause 2(p) fall within the definition of "Secured Money" under the JKAM mortgage because the December 2012 deed is a Finance Document within the meaning of that term in the JKAM mortgage. 3. JKAM admits that it has not pleaded this claim. This is one of its many unpleaded claims. But for this particular unpleaded claim JKAM seeks to amend its pleadings at this late stage after the first judgment. That issue will be dealt with shortly. But a consequence of it not being pleaded is that the definition of "Remedy Proceeds" in clause 1.1 of the JKAM mortgage was not reproduced in the first judgment. That definition provides as follows: "'Remedy Proceeds means money received from the exercise of any right against the secured property". 1. JKAM expounds its argument in support of its claim for this $691,000 as Remedy Proceeds as follows (omitting certain cross-referencing to other submissions): "(i) The Plaintiff says that the liability of the defendant under the deed to pay the plaintiff any money payable under the mortgage was merged with the deed. The JKAM mortgage was to secure performance of Mr Damien's obligations and more particularly arising from his failure to pay his "Obligations" as defined (clauses 1.1 and 6.1 of the mortgage) to JKAM under the Deed and Mortgage Instruments (as pleaded at paragraph's [26](first sentence) & [34) of the FASOC). The definition of "Secured Money" is defined to mean all money the payment of which from time to time forms part of the Obligations and refers back to the definition of "Obligations", which encompass "all liabilities and obligations of the Mortgagor (Defendant) to the Mortgagee (Plaintiff) under or by reason of any finance document. And "Finance Document" is defined to mean "the Agreement and the Mortgage". (ii) The Plaintiff claims $691,000.00 ("Remedy Proceeds"), means money received from the exercise of any right against the Secured Property (clauses 1.1 of the mortgage). The Plaintiff says that this was an obligation of Mr Damien and the remedy proceeds pursuant to clause 2(p) of the Deed, fall within the definition of secured money under the JKAM Mortgage.(see plaintiffs submissions in reply at paragraph's (iii) The December 2012 deed, is a finance document within the meaning of that term in the JKAM Mortgage, many of the issues in the proceedings involve determining Mr Damien's liabilities to JKAM under the December 2012 deed, a finding by His Honour at paragraph [318] of the Judgement. (iv) The plaintiffs willingness to undertake the finishing of the construction work meant that if the property was sold to a third party, JKAM would get the benefit of any higher price (clause 2p) of the deed, a finding by His Honour's at paragraph [164) of the judgement. (v) The property was sold by the NAB receivers by private treaty to MAMI Property Investments Pty Ltd ("a third party") with settlement effected on 18 February 2016 ("Settlement Date"). (vi) His Honour at paragraph [167] made findings that, "the effective purchase price of the Contract for Sale between JKAM became $2,609,000", and the amount paid by the third party at settlement was $3,300,000.00. The Defendant pursuant to (clause 2(p)) of the Deed was required to pay the Plaintiff on the settlement date $691,000.00, effective of the balance in the amounts between Nett Proceeds ($3,300,000 minus $2,609,000). (vii) The Plaintiff claims Interest under Civil Procedure Act 2005, s 100 on the Remedy Proceeds $691,000.00 and clause 5.1 of the Mortgage." 1. As well as pointing to the fact that this claim is unpleaded, Mr Damien says that as a matter of substance it is not maintainable. Both of Mr Damien's submissions in answer to this claim are successful. It is convenient to set out the substantive answer to JKAM's submission and then to explain why Mr Damien's point that the claim has not been pleaded also succeeds, the latter being better understood once the nature of the substantive contest has been explained. 2. Several difficulties confront JKAM's substantive argument for the Remedy Proceeds. First, the December 2012 deed, clause 2(p) does not give JKAM the right to any excess received over $2,000,000 in all circumstances. Clause 2(p) should be read in conjunction with, clause 2(o) which immediately precedes it, in which Mr Damien authorises JKAM "to advertise the property for lease and for sale" and is followed by the word "and" joining it with clause 2(p). These two clauses apply to a sale under the control of Mr Damien or JKAM, not a sale under the control of a third-party such as the NAB, where the proceeds are likely to be dealt with by the bank and not by the parties. Mr Damien authorises JKAM to sell the property and the words in clause 2(p) "in the event that the property is sold" should be construed by reference to the conduct of a clause 2(o) sale by Mr Damien and JKAM. The property was sold by NAB and clause 2(p) therefore does not apply. 3. To the extent that paragraph [164] of the Court's first judgment may have been expressed in slightly wider terms, the paragraph is to be understood in a context where this argument was not pleaded and not debated before the Court, as it has only been raised for the first time in the damages hearing. 4. The second substantive problem with JKAM's contention that it should have the $691,000 as Remedy Proceeds, is that the contention depends upon proof that Mr Damien received $691,000 after the NAB sold the Camden property. Clause 2(p) does not expressly require Mr Damien to receive the money before it becomes payable to JKAM, but so much must be implicit in the clause because it operates in an environment in which either Mr Damien or JKAM have control of the sale proceeds to pay them to JKAM. 5. But the Court has not been directed to any evidence in this hearing to suggest that Mr Damien received an exact sum of $691,000 because the property was sold for $3,300,000. JKAM's submissions are predicated upon an assumption that the money was received. But this is not evident from material which has been drawn to the Court's attention on this hearing. And such evidence as is available from the estoppel judgment of Kunc J is a basis to infer that is that at least $365,319.82 of the $691,000 was paid to Champion and that the difference between $365,319.82 and $691,000 was probably paid to the NAB for further legal fees and expenses. 6. But a more profound difficulty for JKAM is that this claim has not been pleaded. 7. JKAM appears only to have conceived this argument after the Court's first judgment in part because of the Court's reasoning concerning the commercial sense of the December 2012 deed: first judgment, paragraphs [161] – [169]. But the Court will not allow JKAM's pleadings to be amended to accommodate this new claim, because it is evident from JKAM's own submissions that the hearing is likely to have been conducted on a different basis by both parties if this amendment had been advanced before judgment. 8. A timely amendment of the pleadings to add this claim before the first judgment would have opened the following contests between the parties. Exactly what net benefit that Mr Damien received from NAB's sale from the Camden property for $3.3 million compared with the price provided for in the 2012 deed, clause 2(p) of $2,081,000 is quite unclear on the evidence brought to the Court's attention. If this claim had been pleaded the Court would have been able to focus on that issue. 9. In JKAM's submissions in reply of 12 August 2021 (paragraph [133]) JKAM submits that non-payment of the $691,000 was a repudiation of the JKAM mortgage and this was one way that the sum was said to be payable to JKAM. Whether or not a contract has been repudiated is a conclusion, which is susceptible to debate depending upon the way that the facts emerge before the Court both in evidence in chief and in cross-examination. 10. One of Mr Damien's potential defences to this claim is that if clause 2(p) were otherwise applicable, that the mutually agreed termination in March 2015 of the December 2012 deed before the sale proceeds of the Camden property were received in February 2016 makes clause 2(p) incapable of controlling the receipt of those proceeds of sale. The agreed termination took place during the proceedings before Rein J, leading to the set-off judgment and were recorded in writing on 11 March 2015: see the first judgment at [301] and [307]. Thus, long before the proceeds of the NAB sale were available the December 2012 deed, clause 2(p), Mr Damien argues that the provision no longer existed to control the allocation of those proceeds. 11. In response to this contention JKAM contends that each indemnity in the JKAM mortgage is a continuing obligation, which survives termination (JKAM Mortgage, clause 14.4) and that when the sale proceeds of the Camden property were received in early 2016 clause 2(p) was still operative. But the continuing operation of a clause such as this may be subject to estoppels that would depend upon the evidence. 12. JKAM's pleading amendment to allow the claim for $691,000 could not be fairly accommodated. At this stage of multiple proceedings which have taken 10 years such course should not be taken. No explanation has been provided as to why this claim has not previously been pleaded. In proceedings as complex and as long-running as these it is difficult to escape the conclusion that it is an opportunistic afterthought, which the Court should not indulge. 13. The application for leave to amend should be refused. This claim and its associated claim for interest fail. The Fit-Out Costs 1. JKAM also claims recovery of $651,006.90 under the JKAM mortgage for the costs of fit-out and alteration of the Camden property. JKAM claims these fit-out costs as necessarily expended by it, so it could subdivide and sublease the Camden property. 2. This claim is also unpleaded. To be maintained it would need to be the subject of a pleading amendment which the Court would disallow because the proceedings could well have been conducted differently had the amendment been made earlier. 3. The claim would also have failed on substantive grounds. The claim depends upon several provisions of the JKAM mortgage, which have not been referred to in the first judgment because this claim has also not previously been pleaded. 4. And for the purposes of analysis, it can be accepted that these fit-out and alteration costs were incurred, as the claim would fail on other grounds. But if the claim would not have otherwise failed, one reason to decline to allow an amendment to the pleadings is that the damages hearing would have been conducted differently at least to allow any challenge to the incurring of these fit-out and alteration costs. 5. But it is useful to examine the substance of this unpleaded claim. The additional provisions of the JKAM mortgage that JKAM relies upon to advance this claim are the following: the definition of "Building Works" in clause 1.1, clause 6.20(c)(x), parts of clause 7.5 and parts of clause clause 7.9. 6. Those provisions of the JKAM mortgage are as follows. Clause 1.1 with the definition of Building Works is as follows: "Building Contract" means any contract for the provision of services or property relating to the carrying out of any Building Works. "Building Documents" means any records, books of account, approvals, plans, drawings, specifications, schedules, feasibility studies, reports, certificates and other documents relating to any Building Works, including the Mortgagor's copy or counterpart of any Building Contract and any Approved Plans and any consent, approval, permit, licence, authorisation, certification, order or direction granted or issued under any Environmental Law. "Building Works" means any physical activity involved in: (a) the erection of a building or structure on the Secured Property; (b) the rebuilding of, the making of alterations to, or the enlargement or extension of a building or structure on the Secured Property; (c) the placing or relocating of a building or structure on the Secured Property; or (d) the demolition of a building or structure on the Secured Property." 1. Clause 6.20 provides as follows: "6.20 Building Works (a) The Mortgagor must ensure that not Building Works are carried out without the consent of the Mortgagee and then only in accordance with any conditions subject to which the Mortgagee's consent is given. (b) This clause 6.20 applies if the Mortgagor carries out any Building Works except to the extent that it may be inconsistent with any condition on which the Mortgagee's consent may be given pursuant to clause 6.20(a). (c) The Mortgagor must: (i) carry out the Building Works with reasonable speed, with due care and skill and in accordance with Approved Plans; … (viii) on demand give to the Mortgagee or its Representatives any information relating to the Building Works it reasonably requires including copies of the Building Documents; (ix) give at least five Business Days' notice to the Mortgagee of any proposed material variation to or replacement of any Building Contract or Approved Plan and obtain the Mortgagee's consent to any variation or replacement; and (x) indemnify the Mortgagee on demand against any claim, liability, cost or expense caused or contributed to by any inspection, approval or acceptance of the Building Documents or the carrying out of the Building Works. (d) (i) The Mortgagee assumes no liability to the Mortgagor for any matter relating to the Building Documents or the carrying out of the Building Works notwithstanding that the Mortgagee may have purported to approve the Building Documents or any variation or replacement of them or to inspect and approve or accept any aspect of the Building Works. (ii) Any approval or acceptance by the Mortgagee will not imply the exercise by or on behalf of the Mortgagee of any care or skill and not relieve the Mortgagor from the Mortgagor's obligations to ensure good design and workmanship and proper carrying out of the Building Works." 1. Clause 7.5 provides as follows: "7.5 General Dealings The Mortgagee may: (a) enter, take possession of, take control of and get in the Secured Property and any Licence; (b) manage, develop, quietly enjoy and otherwise deal with the Secured Property and any Licence; (c) exercise the rights of the Mortgagor and comply with the Mortgagor's obligations in respect of the Secured Property and any Licence and allow any other person to comply with the person's obligations in respect of the Secured Property and any Licence; … (e) carry our or complete, in any form, the construction of any works on the Secured Property; (f) lease or hire out the Secured Property and any Licence; (g) exchange any part of the Secured Property for any other property and, if there is a difference in value between the property exchanged, give or receive, as the case may be, any money or other consideration equal to the difference in value in order to give or receive equal value for the exchange; (h) acquire or grant easement, profits a prendre, covenants or other rights which benefit, burden or relate to the Secured Property and dedicate for any public purpose any part of the Secured Property; (i) subdivide or consolidate the Secured Property; (j) grant options and rights of refusal to acquire the Secured Property and any Licence;" 1. Clause 7.9 provides as follows: "7.9 Building Works (a) The Mortgagee may: (i) carry out any Building Works in any manner the Mortgagee thinks fit and in doing so may: (A) adhere to or vary the Building Documents; and (B) increase or reduce the estimated costs of carrying out the Building Works; (ii) use any materials, plant and equipment of the Mortgagor on the Secured Property in the carrying out of the Building Works; (ii) enter into any contracts or arrangements in relation to the Building Works; and (iv) expend the balance of any money held by the Mortgagee and intended to form part of the Secured Money towards the carrying out of the Building Works. (b) The Mortgagor must ensure that the Building Documents are delivered to the Mortgagee. (c) The Mortgagee will not be liable to the Mortgagor if the Mortgagee does not carry out or complete any Building Works or, having begun to do so, stops." 1. JKAM's written submissions in chief of 29 June 2021 described JKAM's claim for fit-out and alteration costs in the following terms: "(i) Moreover, by reason of Mr Damien's breaches with NAB, the plaintiff says it has also incurred Fit-out and alteration costs. The plaintiff says these Fit- out costs are also secured by the Mortgage. (ii) The JKAM Fit-out and alteration costs fall within the definition of "building works" as defined at (clause 1.1 & clause 6.20) of the Mortgage, means any physical activity involved in the rebuilding of, the making of alterations to, or the enlargement or extension of a building or structure on the Secured Property. The Defendant at (clause 6.20 (c)(x)) of the mortgage indemnified the Plaintiff on demand against any claim, liability, cost or expense caused or contributed to by any inspection, approval or acceptance of the building documents or the carrying out of the Building Works. The building approval exhibited in the Court Book (CB. Vol 1,TAB 5, page148). (iii) It was a term of the Mortgage at (clause 7 .5), the plaintiff may, carryout out or complete, in any form, the construction of any works on the Secured Property (clause 7.5 (e )), lease or hire out the Secured Property and any license (clause 7.5(f )) and subdivide or consolidate the Secured Property (clause (i)). And building works as defined at (Clause 7.9 (a) (B)) of the mortgage allowed the Mortgagee to increase or reduce the estimated costs of carrying out the Building Works. (iv) For the Plaintiff to subdivide and sublease the Camden Property, it was necessary for JKAM to undertake and incur the fit-out costs. The plaintiff's fit out costs involved the division and alteration of the building into six individual tenancies and the submission of a Section 96 development application to include a cafe and juice bar tenancy. And "Building documents" is defined in the mortgage at (clause 1.1) as any records, approvals, plans drawings, specifications, schedules and other documents relating to any building works. And "Improvements" means any improvements, fixtures, plant or machinery affixed to or used with, or structures (including fences) included on, the land which is part of the Secured Property (clause 1.1). A copy of the Camden Council Section 96 Development approval is at (CB. Vol 4 TAB 68, pages 981). (v) The JKAM Building Works previously determined by His Honour Rein J in the (Set off Proceedings) and assignment of Debt related to the "base building works" and independent to the JKAM fit-out and alteration costs. (vi) The JKAM Fit-out costs total $651,066.90 (GST Inclusive), and the Mortgagor must pay to the Mortgagee an amount equal to the GST payable on the supply. The fit-out costs are exhibited in the CB evidence- see affidavit of Joseph Elia 18 April 2018 (JE) at paragraph's [133] to [134]. A copy of the Tax invoices exhibited at TAB 55 of JE 18 April 2018 Affidavit (Court Book Vol 2 Tab 4 & exhibits Vol 6.6, 6.7 & 6.8); (vii) The JKAM Fit-out Costs are also referred to in the Independent Expert report of Chris Katehos annexed to the affidavit of 28 August 2018 at item 6.11.19 (page 15) of the report ( see Court Book Volume 2 Tab 6, Exhibit book Volumes 6.10, 6.11 &6.12)." 1. Mr Damien's submissions in response to this argument were persuasive and were not answered by JKAM's submissions in reply. The Court's reasoning below draws upon Mr Damien's answers to JKAM's claim for fit-out costs. 2. If pleaded this claim would have failed. JKAM's claim to the fit-out works is incompatible with the terms of the December 2012 deed, clause 2(h), which records an agreement as to the value of the construction works undertaken by JKAM at the Camden property of $480,000 plus GST, namely $528,000 ($480,000 plus $48,000). The quantum of the construction works had been a source of dispute between the parties. The December 2012 deed resolved that dispute with a consensus as to the "Construction Works Amount" of $528,000. It is incompatible with that agreement that JKAM should now seek more for the construction costs. 3. JKAM also argues in the alternative that these fit out and alterations costs may be recovered under other clauses of the JKAM mortgage notwithstanding clause 2(h) of the December 2012 deed. But general words conferring powers on the mortgagee are not applicable to the circumstances here nor can they displace the very specific agreement reached between these parties about the camp on building works on this Camden property recorded in clause 2(h). 4. Second, the Court does not accept that JKAM itself has expended the additional fit-out costs and expenses. The fit-out and alterations in question were carried out by Casa Nostra Construction Pty Ltd ("Casa Nostra"), which submitted invoices for what it described as a "tenancy fit-out." These Casa Nostra invoices are a basis to infer that the building work was to subdivide and fit-out the premises to allow for subtenancies. The invoices referred to some of the work as being for "specific tenants' requirements", indicating that the works were carried out not for JKAM but for the tenants subletting from JKAM. 5. Nothing under the provisions of the JKAM mortgage entitles JKAM to recover from Mr Damien the cost of building works undertaken for JKAM's subtenants under the September 2012 lease. JKAM claims that the JKAM mortgage, clause 6.20(c)(x) assists it to recover these sums. But this is not correct. The indemnity provided for in that provision is only against liabilities "caused or contributed to by any inspection, approval or acceptance of the building documents for the carrying out of the building works". Clause 6.20(c)(x) is not a general authorisation for JKAM to carry out works to the mortgaged Camden property for its own ultimate benefit once it had completed the December 2012 contract for sale. But for the contract for sale and the December 2012 deed, JKAM had no interest as mortgagee in improving the property. But to the extent it was improving the property the expenditure was closely controlled by the December 2012 deed. 6. The mortgage, clause 6.20(c)(x) has an entirely different purpose. The clause relates to any works which the mortgagor, Mr Damian, might desire to carry out to the premises with the written consent of the mortgagee. Clause 6.20(b) makes clear that the rest of the clause applies, "If the mortgagor carries out any building works", thus sub-clause (c) applies to mortgagor's building works, not those in this case carried out by JKAM. 7. JKAM also seeks to rely upon clauses 7.5 and 7.9 of the JKAM mortgage. But neither of these provisions assist its case. A proper reading of clause 7.5 is that it generally empowers the mortgagee to undertake certain kinds of activity on the secured property when the mortgagor defaults. But apart from conferring those general powers, it does not, without more, authorise any such activity to take place at the sole expense of the mortgagor. 8. Clause 7.5 serves an entirely different purpose to the circumstances existing here. Clause 7 of the mortgage is headed "Default Powers" and deals with the powers that are conferred upon the mortgagee in the event of default by the mortgagor. The purpose of clause 7.5 is to enumerate the various powers which a mortgagee may exercise in taking possession of the property and spending money for the purposes of realising the security upon default. None of the work in question here was for that purpose. Some of the invoices the subject of the fit-out claim here are dated November 2012, which is even before the execution of the JKAM mortgage and therefore long before any possible default under the mortgage. Moreover, the invoices are for tenancy fit-out contract works in the form of six progress claims between 13 November 2012 and 31 May 2013. On their face they are not related to JKAM as mortgagee exercising any default powers under the mortgage. 9. As to clause 7.9, it appears to be directed to a situation which does not apply here. The clause is directed to authorising the mortgagee to complete building works which may have been commenced by or on behalf of the mortgagor. Moreover, any words expressed in general terms such as those in clause 7.9(a)(i)(B), authorising the mortgagee to "increase or reduce the estimated cost of carrying out the building works" would give no authority to JKAM to vary the precise agreement as to the Construction Works Amount which was reached in relation to building works on the Camden property by the December 2012 deed, clause 2(h). This is a case of general non-specific words giving way to a specific agreement about this site between these parties. 10. Finally, JKAM argued that in this case the mortgagee had consented to the mortgagor undertaking the building works under clause 6.20(a). But even if that consent is established it does not enliven clause 6.20(o) at the suit of JKAM. But another difficulty with the argument is that there is no express consent to the whole of the works of the mortgagee JKAM beyond the December 2012 deed, clause 2(h) and clause 2(m). Clause 2(m) does give permission to do the fit-out to JKAM but it does not impose the cost of the fit-out upon Mr Damien. 11. This claim fails because it is not pleaded and would have failed had it been pleaded. (2) Legal Costs Ordered in Favour of Other Parties in Various Proceedings 1. The plaintiff has paid Champion a total of $230,613.36 in relation to various costs orders of the Court in favour of Champion in the priorities proceedings and for enforcement orders consequent upon those orders. In the first judgment (at paragraphs [321] and [322]). The Court found that JKAM's own costs of the proceedings resulting in the priorities judgment and the costs orders against JKAM in the priorities judgment were all recoverable under the JKAM mortgage and made a declaration to that effect: first judgment at [433](2). But it is now necessary for the Court to determine what challenged costs and expenses come within the Secured Money of the JKAM mortgage the subject of declaration [433](2)(c) in the first judgment. 2. In this damages hearing Mr Damien challenges a number of the subcomponents of that claim of $230,613.66. The total claim for $230,613.66 was fully itemised in table 1.1 of JKAM's 29 June 2021 submissions. The figure is comprised of nine individual certificates of determination of costs in respect of costs orders made in favour of Champion, together with a claim for interest. It is not necessary to reproduce all of these in this judgment. Only some of the nine items in table 1.1 are in dispute. Each of them will be dealt with below. 3. Item 1 – $63,383.01. This item is based upon a 24 June 2015 certificate of determination of costs in the amount of $63,383.01 to Champion's primary costs orders in the priorities judgment. Mr Damien does not dispute the reasonableness or the recoverability of this sum under the JKAM mortgage. 4. Item 2 – $3,300. This item relates to certificate determination of costs dated 18 May 2016 in respect of a costs order made by Brereton J against JKAM because JKAM was not able to proceed on the day fixed for the hearing and as a result Brereton J made this costs order against JKAM. Because of the circumstances in which they were incurred this is clearly an unnecessary cost arising from JKAM's conduct of the priorities proceedings and was not necessarily incurred in its capacity as a mortgagee in accordance with the mortgage indemnity principles. It is not Secured Money under the JKAM mortgage. 5. Item 3 – $28,285.67. This item is based on a certificate of determination of costs dated 6 November 2017, which was based upon orders made on JKAM's unsuccessful application to have a statutory demand that Champion made against it set aside. The statutory demand was founded directly upon the costs orders in the priorities judgment and was an attempt to enforce the priorities judgment orders and so will be considered here as within the declaration in [433](2)(c) of the first judgment. The costs orders comprising item 3 in question arise out of the decision of Black J referred to in the Court's first judgment (at [13]), where his Honour declined to set aside the statutory demand brought by Champion preliminary to the winding up of JKAM. A costs assessor had fixed Champion's costs in the amount of $63,383.01 (item 1) as Champion's recoverable costs associated in obtaining the priorities judgment. The statutory demand was based upon the cost assessment determination. 6. JKAM's application to set aside the statutory demand was an unsustainable attempt to resist the payment of those assessed costs. The sum of $63,383.01 should have been paid by JKAM without the expenditure of these further costs to delay payment. Item 3 is not a cost necessarily incurred in JKAM's capacity as a mortgagee under the JKAM mortgage and is not recoverable in the application of the stated mortgage indemnity principles. The Court can deal with this matter also because Black J's judgment is a sufficient basis for the Court to proceed. Mr Damien also raises quantum issues in relation to item 3 in the alternative but those quantum issues need not now be considered. 7. Item 4 - $35,577.50 and Item 5 - $1,288.55. Item 4 is a certificate of determination of costs in respect of the notice of motion heard by Kunc J and Item 5 is the costs assessor's costs of that determination. The two items should be dealt with together. The costs in Item 4 relate to a motion that Champion brought to have monies that had been paid into Court by the NAB following the sale of the Camden property, released to Champion as the next ranking priority holder under the priorities judgment. These costs are sufficiently closely related to Champion's enforcement of the priorities judgment that they can be considered now. 8. The money was paid into Court by a motion in the proceedings brought by Champion. The decision of Kunc J is referred to in the Court's first judgment in these proceedings and (at [15]) and is referred to there as "the estoppel judgment", in which Kunc J ordered the payment out-of-court to Champion of the sum of $365,319.82 being the balance of proceeds of sale of the Camden property that NAB paid into Court after its exercise of the power of sale. 9. When Champion's motion for payment out of Court was heard, JKAM argued that the money should not be paid out to Champion because nothing was owing to Champion. In substance, JKAM was seeking to re-contest the determination which Darke J had made in the priorities judgment, as to the validity of Champion's charge. But Kunc J concluded in the estoppel judgment (at [28]) that Darke J's decision in the priorities judgment had determined as between the parties Champion's status as an equitable chargee over the Camden property which could no longer be disputed by JKAM. 10. JKAM's attempt to contest the estoppel created by the priorities judgment to resist its enforcement was without any merit. It is very clear from Kunc J's reasoning that the argument was doomed to failure on the strength of the priorities judgment. And in pre-trial directions before Robb J and Stevenson J sufficient directions were made to elucidate the estoppel issue that the meritless nature of this argument should have been obvious well before the hearing before Kunc J. 11. Applying the mortgage indemnity principles these costs are not recoverable. Mr Damien also takes issue in the alternative with the quantum of these costs, but it is now unnecessary for the Court to address those alternative submissions. 12. Item 6 – $23,147.17 and Item 7 – $798.87. Item 6 is a certificate of determination of costs in favour of Champion against JKAM and Item 7 is the costs assessor's fees in relation to the determination of Item 6. The costs assessment determination, Item 6, is in respect of a costs order against JKAM in favour of Champion for costs thrown away by JKAM abandoning its original claim in these proceedings (number 2015/27637C3) and amending its pleadings pursuant to liberty do so that Pembroke J granted on 19 February 2016. 13. The costs orders assessed in this determination were made on 19 December 2016, which was the date upon which JKAM withdrew its action against Champion and suffered a costs penalty associated with the discontinuance of its action against Champion. Mr Damien says that it follows from the discontinuance of the claim against Champion that JKAM accepted that the claim did not have merit. But JKAM says that the claim against Champion had arguable merit, although it was discontinued. 14. The Court has had an opportunity to look at the discontinued pleading against Champion in these proceedings. It is wholly without merit. Much of it seeks to re-contest the outcome of the priorities judgment and if not discontinued would probably have been barred as a result either of an issue estoppel or Anshun estoppel. The substantial part of the claim should never have been brought. An ordinary application of the stated mortgage indemnity principles to this claim for costs should be disallowed and should not proceed to the costs assessor. 15. Item 8 – $22,879.54 and Item 9 – $1,174.25. Item 8 represents a certificate of determination of costs and item 9 represents the costs of the costs assessor. These costs were awarded against JKAM for an action commenced against Champion which was dismissed. JKAM has not established that these proceedings had merit or arguable purpose. They were commenced by a company, JKAM, without the intervention of a solicitor contrary to Uniform Civil Procedure Rules 2005, r 7.1 and r 7.2. They were prolix, embarrassing and did not disclose a reasonable cause of action. The Court is in a sufficient position to apply the mortgage indemnity principles and determine that these costs are not recoverable. 16. Summary. The Court will therefore allow item 1 in table 1.1 of the legal costs assessed in favour of Champion of the Secured Money under the JKAM mortgage. Otherwise, the Court will disallow the balance of JKAM's claims in this category. (3) JKAM's legal costs incurred in various other proceedings. 1. JKAM next made a claim for its legal costs in respect of a range of proceedings, including its legal costs in defending proceedings brought by Champion, Hotray and the NAB and Mr Damien in this Court and against Mr Damien in the Federal Circuit Court. The costs included bankruptcy proceedings in the Federal Circuit Court and proceedings in the Corporations List of this Court. JKAM's legal costs claimed under this heading include solicitors' fees, counsel's fees and court fees, searches, memoranda and the fees of experts and other costs and expenses. JKAM maintains that these costs are all recoverable under the mortgage. Mr Damien disputes that claim. 2. Many of these costs are not recoverable by the application of the mortgage indemnity principles but some of them may perhaps be recoverable. It is difficult to tell on the materials available in the way they have been organised. Aspects of cost orders made against JKAM in some of these proceedings have been dealt with under the previous heading. But when it comes to JKAM's own costs the situation is more complex and difficult to assess. For example it may have been legitimate for JKAM to commence some proceedings for a short period of time but when properly advised it should not have maintained those proceedings which ultimately led to judgements for costs against it. 3. With one exception related to the priorities proceedings, this Court is not in a sound position in this damages hearing to determine what of these costs and expenses JKAM should recover as Secured Money under the JKAM mortgage. This is for the reasons which have been stated above. The proper determination of such questions would require pleadings of each of these costs and expenses and how each was a necessary expense of the mortgagee under the JKAM mortgage. It is a matter which would require analysis of each category of costs claimed by reference to each piece of the named litigation and for a view to be formed about whether it is recoverable under the mortgage indemnity principles. But the Court is not in a good position to undertake this exercise in some 12 cases without close analysis of the conduct of each of these cases which is not appropriate in a judgment such as this. 4. The Court is not prepared to deal with the set-off proceedings for the reasons already stated. But the exception is that the Court will deal with JKAM's legal costs and expenses in the priorities proceedings as these were clearly flagged before the first judgment and the Court has declared they are recoverable in the first judgment: at [433](2)(c). The Court can fairly make a specified gross sum costs order in respect of these costs. This is the only limited area in which the Court is prepared to make such an order. But it can and will do so because it has the relevant invoices and it knows enough about the conduct of the priorities proceedings to equip it to make such a determination. 5. But the difficulty is that JKAM's costs of the priorities proceedings are combined in a single invoice for $202,528.50 (inclusive of GST) with JKAM's costs in the set-off proceedings. But JKAM has attempted in its submissions to separate out from that invoice its professional fees associated with the priorities judgment, which are said to be $143,444.94. Relative to the set-off proceedings this seems to be an appropriate proportion of these total costs for the conduct of the priorities proceedings. On top of that JKAM claims another invoice of $7,763.80 for the priorities proceedings, subsequent to the early invoice, which the Court accepts. This makes a total for professional fees of $151,208.74 (being $143,444.94 plus $7,763.80). The Court will allow 70% of this sum under s 98(4)(c) namely $105,846.11 plus the full amount of various claimed disbursements of $6533.17 making a total of $112,379.28. (4) Costs of the Current Proceedings 1. In the first judgment, the Court dealt with the costs of these proceedings (at [317] to [320]) and made a declaration (at [433](2)(b)) that JKAM's own costs of these proceedings were part of the Secured Money as defined in the JKAM mortgage. But by that declaration the Court was not concluding that every item that JKAM claimed as part of its costs in these proceedings was automatically recoverable as part of the secured money. It is evident from the Court's supplementary direction in [433](4) that those costs needed to be itemised and thereafter either agreed or referred for costs assessment for indemnity under the JKAM mortgage. 2. But the itemisation of the legal costs and expenses of these proceedings which has taken place since the first judgment has revealed very substantial disagreements between JKAM and Mr Damien about whether or not many of those individual items of costs are recoverable under the JKAM mortgage. All the quantum disputes in that category should soon be referred to a costs assessor. 3. But before that occurs some preliminary matters should be addressed. 4. The first preliminary matter relates to the making of costs orders in these proceedings. An important feature of the Court's orders made with the first judgment is that they do not include a general order for costs in favour of JKAM. All that was done was to declare that the plaintiff's costs would come within the Secured Moneys in the JKAM mortgage (at [433](2)), direct the provision of a full itemisation of costs (at [433](4)) and seek for JKAM to provide any further costs or expenses the Court will need to deal with (at [433](6)). 5. But the Court has not yet approached the costs in these proceedings as it normally would on a post hearing costs argument. The question of what costs order should be made in these proceedings on an inter partes basis has to some extent been subsumed in argument about what is "Secured Money" in the JKAM mortgage. But it is nevertheless appropriate to make a general costs order in the proceedings as it will better inform the costs assessors task. 6. For example, there can commonly be argument, which has not yet taken place in these proceedings and which should not be overlooked, about whether an order for only a certain proportion of the costs of the proceedings should be recoverable, because JKAM was successful only in some parts of the proceedings and not successful in others. Notwithstanding that JKAM may be entitled to indemnity costs, this Court should hear argument of the usual kind about what is the scope of the indemnity costs order that should be made in the current proceedings. 7. But the parties have not focused upon this issue in their submissions. To assist them the Court can highlight some potentially relevant issues. Looked at on an ordinary party/party basis JKAM has been largely successful in these proceedings but not on all issues. JKAM has failed in relation to the breach of clause 6.15 of the mortgage, the breach of the lease, the Denham Court misleading conduct, the Hotray equitable mortgage, misleading conduct, the No Debts To Champion Misleading Conduct and the Plus Fitness Misleading Conduct. Taken together these failures represent a clearly identifiable proportion of the time and cost of these proceedings. It is potentially open for it to be argued that JKAM should not have its costs against Mr Damien in respect of those matters, assessed either by issue or as a percentage of the costs of the proceedings. The parties will be given a short opportunity to put further submissions on this question before the proceedings are referred to a costs assessor. 8. The other preliminary matters relate to some matters of general subcategories of costs. It may assist the parties and the costs assessor or if the Court makes general observations about some categories of costs that have been claimed. 9. Costs Incurred Prior to 25 September 2017. These proceedings came on for hearing on 8 September 2017 before Kunc J. Counsel for JKAM made very substantial concessions on that day that JKAM's claim needed to be changed and that certain pleaded claims could not be advanced and that the pleadings needed to be amended so that JKAM could "start again" following those concessions. Where such candid concessions are made by counsel that the pleadings have taken a wrong direction. It is likely that many of the legal costs preceding that date were wasted, were unnecessarily incurred and will not satisfy the mortgage indemnity principle. The principle does not require indemnity expenses incurred whilst lawyers and clients bring misdirected proceedings. 10. An amended pleading, the Amended Statement of Claim was filed on 25 September 2017. During the hearing leading to the first judgment the Court directed that this document was so dense with amendments that another clean copy should be filed which was called the Further Amended Statement of Claim but which was essentially identical to the former pleading. 11. Mr Damien has urged the Court to rule that no legal costs before 25 September 2017 should be allowed and has contended that they were all wasted. But the Court is not prepared to do that as there may well have been some costs preceding 25 September 2017 that could have been of some value in the later proceedings. Just what those costs are, however, will need to be determined on an individual basis, which is clearly the appropriate province of a costs assessor. The detailed submissions that have been lodged by both parties in relation to these issues will not be wasted. They can be redeployed before the costs assessor, as they go to the issue of whether or not these early costs satisfy the mortgage indemnity principle. 12. A reason not to accede to Mr Damien's contention that all these earlier costs be disallowed is that some of the original pleading did survive the amendments of September 2017. There is real controversy in this respect about the reports of Ms Suellen McCallum, Mr Chris Kehatos and Mr Con Moutevelis. The challenged costs in relation to those reports not only relate to the cost of the reports themselves but the professional costs of solicitors associated with the production of the reports. The costs assessor can deal with all of these matters. 13. Subpoenas Issued. Another issue between the parties is the high number of subpoenas issued by JKAM. Many of them appear to be an exercise in attempting to ascertain the financial position of Mr Damien. Whilst that may have had some relevance to the assumed viability of maintaining these proceedings, it would be expected that a costs assessor would closely scrutinise the numbers of these subpoenas, which do seem to be high. 14. The balance of Mr Damien's issues in relation to the costs of these proceedings can be dealt with by costs assessor as they relate to questions of the reasonableness of costs both as the time taken and the cost to be incurred and charge out rates, all of which are matters appropriate for a costs assessor. 15. Finally, when the costs of these proceedings are considered, attention will need to be given to which party has been successful on this damages hearing and what costs order should be made in respect of it. (5) Costs Associated with the Priorities Judgment and Set-Off Judgment 1. The parties' submissions provided for argument under this heading. But the Court's reasons above have already indicated that the Court will only deal with the costs and expenses associated with the priorities judgment and not the set-off judgment. And these costs and expenses have now been dealt with in these reasons to the extent that they can be at this stage. Conclusions and Orders 1. The parties should now have an opportunity to provide to the Court short minutes of order setting out the next steps that they propose be taken in these proceedings. Those short minutes should address each of the matters which are required to be addressed by the parties resulting from these reasons. The parties should attempt to agree as much as possible upon those short minutes of order. But if they cannot agree on all orders, a marked up set of orders should at least be provided. The parties will then have an opportunity to address the Court on the remaining issues in the proceedings. 2. The short minutes of order should at least address the following subjects: any judgments for any money amounts that have been determined in these reasons, the dismissal of any claims determined in these proceedings to be dismissed, the dismissal of the balance of the proceedings not determined by these reasons, any further costs orders in these proceedings, the costs of the damages hearing, and the timing of the referral of the costs of these proceedings to a costs assessor. 3. For these reasons, the Court will make the following orders and directions: 1. Direct the parties to bring in agreed short minutes of order to give effect to these reasons and if they cannot agree marked up a short minutes showing their differences and to do so by 11 July 2022 at 4.00 pm; 2. List the proceedings for further directions on 13 July 2022 at 9.00 am or at such other time as is convenient to the parties as can be arranged in consultation with to the chambers of Slattery J; and 3. Grant liberty to apply. ********** Amendments 20 October 2022 - [17] second line, after the word 'entitled' replace the comma with 'to' [17] second line, insert comma after the word 'relief' [116] first line, replace 'exceed' with 'accede' DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 October 2022