Supreme Court New South Wales Medium Neutral Citation: Sutherland v Ghougassian (No. 2) [2012] NSWSC 325 Hearing dates: 14 March 2012 Decision date: 14 March 2012 Jurisdiction: Equity Division - Corporations List Before: White J Decision: Direct the parties to prepare fresh calculations in accordance with these reasons and an order for costs in accordance with these reasons. Catchwords: COSTS - statutory discretion in relation to costs - mortgagee contractually entitled to indemnity costs - contractual right to have costs paid out of secured property as between solicitor and client MORTGAGE - mortgages and charges - calculation of interest on moneys secured by mortgage - question as to whether a default interest rate should be applied - relevant contentions not advanced at hearing - interest to be calculated as simple interest at defined "Interest Rate" Legislation Cited: Civil Procedure Act 2005 Cases Cited: Gomba Holdings (UK) Limited v Minories Finance Limited (No. 2) [1993] Ch 171 Category: Costs Parties: Roderick Mackay Sutherland (as liquidator of St. Gregory's Armenian School Inc (in liquidation) - Applicant (2010/66795) Michael Ghougassian - 1st Respondent Daniel Ghougassian - 2nd Respondent Nareg Internet Pty Limited - 3rd Respondent; St. Gregory's Armenian School Inc - Applicant (2011/10869) Daniel Ghougassian - 1st Respondent Michael Ghougassian - 2nd Respondent Norwest Legal Services Pty Limited - 3rd Respondent Representation: Counsel: J Taylor (Plaintiff) J Loxton (Defendants) Solicitors: Addisons Lawyers (Applicants) Robert Balzola & Associates (Respondents) Matthews Dooley & Gibson (Norwest Legal) File Number(s): 2010/66795; 2011/10869 Judgment 1HIS HONOUR: The questions raised are, in substance, two. 2The first is what costs order should be made. 3Counsel for the liquidator contends that having regard to the claims made by Dr and Mr Ghougassian, judged against my findings, there should be no order as to costs. 4Counsel points to the fact that the Ghougassians failed on many of the issues which they raised. 5If the only question were what is the appropriate costs order to be made under s 98 of the Civil Procedure Act 2005, having regard to the position taken by the parties in the litigation, there would be considerable force in that submission. 6However, the statutory discretion in relation to costs should ordinarily be exercised so as to reflect the contractual right of the mortgagee to costs. (See Gomba Holdings (UK) Limited v Minories Finance Limited (No. 2) [1993] Ch 171 at 194.) 7Even where a mortgage does not make express provision, it would be implied that costs properly incurred by a mortgagee in an action for an account to determine what amount is secured by the mortgage would be added to the secured debt. 8 Here the mortgage makes express provision that: "In addition to all costs and expenses which the mortgagor may be liable at law or in equity to pay in respect of this security ... the mortgagor will upon demand pay all costs and expenses, including costs as between solicitor and client, incurred by the mortgagee ... in any manner in reference to this security". 9Accordingly the mortgagees have a contractual right to have their costs paid out of the secured property, as between solicitor and client. 10The closest analogy now to costs as between solicitor and client is costs on the indemnity basis. On an assessment of such costs, an assessor should allow all costs of Dr and Mr Ghougassian of the proceedings other than those that appear to have been unreasonably incurred, or appear to be of an unreasonable amount (Uniform Civil Procedure Rules, r 42.5(b)). 11Doctor and Mr Ghougassian are thus entitled to an order for the payment of their costs on the indemnity basis. 12The second question is in relation to the calculation of interest and raises two further questions. 13The first is as to the selection of the interest rate. The liquidator has prepared a second set of calculations using interest calculated on an Iden Group Equity Line of Credit Account for Mr Michael Ghougassian and on the Westpac Equity Access Account in the case of Dr Daniel Ghougassian. 14The liquidator's calculations using interest rates based on those lines of credit have been calculated only up to 3 December 2010 in the case of Mr Michael Ghougassian and to 12 May 2010 in the case of Dr Daniel Ghougassian. The reason for not continuing those calculations after those dates is that the liquidator has not been supplied by Mr and Dr Ghougassian with later interest rates. Nor have I been provided with such a calculation by Mr Michael and Dr Daniel Ghougassian. 15I understand it to be common ground that interest should be calculated based on those rates up to date. 16I will have to adjourn the matter further so that the interest rates and evidence of them can be provided for that calculation to be made. 17The other question is as to the rate to be applied, in particular, whether a Default Interest Rate should be applied and whether interest should then be compounded monthly. 18In my reasons for judgment I said that interest should be calculated as simple interest. 19Counsel for Dr and Mr Ghougassian refers to cl 3.2 of the Deed of Loan that provides that: "Where any payment made under this Agreement is not paid on or before the due date for payment, the Borrower must pay interest on [sic] the Default Interest Rate calculated from the due date for payment. Default interest will be calculated on a daily basis and will be compounded on the last day of each month". 20Clause 3.1 provides: "The Borrower must pay interest at the Interest Rate on the Amount Owing by monthly instalments on each Interest Payment Date". 21Counsel for Dr and Mr Ghougassian argues that interest (unlike principal) was payable without demand and hence under cl 3.2 compound interest at the Default Rate is payable. 22No such contention was advanced at the hearing. I think it is too late to be raised now. 23The contention raises a question whether or not the parties agreed to vary cl 3.2, and whether such an agreement might be implied by their conduct, or whether Mr and Dr Ghougassian are estopped from claiming interest in accordance with cl 3.2. 24There is no evidence that any interest had been paid from the inception of the loans. Nor, so far as the evidence revealed, had any demand been made for the payment of interest each month or at all. 25A question as to whether or not the parties had acted in a way inconsistently with cl 3.2 so as to preclude Dr and Mr Ghougassian from relying upon the clause could well have been the subject of evidence, or further evidence, as well as submissions, had it been raised as an issue. 26In my view it is too late for it to be raised as an issue now. 27For these reasons, I adhere to my determination in my reasons of 29 February that interest should be calculated as simple interest at the "Interest Rate" as defined in the Deed of Loan and not at the Default Interest Rate. 28The parties should prepare fresh calculations in accordance with these reasons and an order for costs in accordance with these reasons. 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: 05 April 2012