Supreme Court New South Wales Medium Neutral Citation: Westlawn Finance Limited v Tagg (No 2) [2018] NSWSC 1762 Hearing dates: 12 November 2018 Decision date: 19 November 2018 Jurisdiction: Equity - Commercial List Before: Ball J Decision: (1) Judgment for the plaintiff against the first defendant in the sum of $2,273,459.79. (2) The plaintiff's claim against the second and third defendants be dismissed. (3) The first defendant's cross-claim be dismissed. (4) The first defendant pay the plaintiff's costs of the proceedings against the first defendant on the indemnity basis. (5) The plaintiff pay the costs of the second and third defendants. Catchwords: COSTS – Party/Party – Court's discretion – Where the parties have contracted on the question of costs – Whether costs should be paid on the indemnity basis – Orders when proceedings involve multiple parties – Bullock and Sanderson orders Legislation Cited: Australian Consumer Law Civil Procedure Act 2005 (NSW) Contracts Review Act 1980 (NSW) Legal Profession Uniform Law (NSW) Cases Cited: FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 Gould v Vaggelas (1985) 157 CLR 215 Great Lakes Shire Council v Dederer; Roads & Traffic Authority of NSW v Dederer (No 2) [2006] NSWCA 336 May v Christodoulou (2011) 80 NSWLR 462; [2011] NSWCA 75 MIS Funding No 1 Pty Limited v Beefeater Sales International Pty Limited [2015] NSWSC 1109 Westlawn Finance Limited v Tagg [2018] NSWSC 1491 Category: Costs Parties: Westlawn Finance Limited (Plaintiff | Cross-Defendant) Sally-Anne Mary Tagg (First Defendant | Cross-Claimant) Frank Bernard Tagg (Second Defendant) Circles of Gold Pty Ltd ACN 088 460 146 (Third Defendant) Representation: Counsel: JR Clarke SC (Plaintiff | Cross-Defendant) A Rogers (First Defendant | Cross-Claimant) S Docker (Second and Third Defendants) Solicitors: Esplins (Plaintiff) Legal One Services Pty Limited (First Defendant) Henry William (Second and Third Defendants) File Number(s): 2016/240865 Publication restriction: None Judgment Introduction 1. On 8 October 2018, I delivered reasons for judgment in this matter (see Westlawn Finance Limited v Tagg [2018] NSWSC 1491) in which I concluded that the plaintiff, Westlawn, was entitled to succeed against the first defendant, Mrs Tagg, but failed against the second defendant, Mr Tagg, and the third defendant, Circles of Gold. Two issues remain. The first is the amount for which judgment should be entered against Mrs Tagg. The second is costs. Background 1. The claim against Mrs Tagg, who was represented separately from Mr Tagg and Circles of Gold, was under a guarantee and indemnity she had given in respect of a loan Westlawn had advanced to Circles of Gold. The loan had also been guaranteed by Mr Tagg. Mrs Tagg's obligations were secured by a mortgage over the family home at Rose Bay, which was owned by Mrs Tagg. 2. By a deed of release dated 20 May 2015, Westlawn released Mr Tagg and Circles of Gold, but not Mrs Tagg, in respect of their liability in respect of the loan. Mrs Tagg signed the deed of release. The claim against Mrs Tagg was for the balance said to be owing in respect of the loan. 3. Mrs Tagg defended the claim against her on two grounds. First, she submitted that the effect of the release of Mr Tagg and Circles of Gold was to release her. Second, she claimed relief under the Contracts Review Act 1980 (NSW) (the CRA). Both defences failed. 4. A number of claims were brought against Mr Tagg and Circles of Gold. They fell into two categories. First, it was alleged that Mr Tagg had engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law (the ACL) by failing to disclose to Westlawn that the deposit payable in respect of a contract of sale of the Rose Bay property (which did not complete) would be paid to Mrs Tagg and not held by the agent acting on the sale until completion. Westlawn alleged, in effect, that had that matter been disclosed to it, it would have taken steps to ensure that the deposit was paid to it, not Mrs Tagg. Similar claims were put on the basis that Mr Tagg committed the tort of inducing a breach of contract by Mrs Tagg and the tort of conspiracy. 5. Second, in the event that Mrs Tagg succeeded in her defence based on the CRA, Westlawn claimed that Mr Tagg and Circles of Gold were involved in a contravention of s 18 of the ACL by Mrs Tagg. That contravention consisted of giving what were said (assuming Mrs Tagg's defence based on the CRA succeeded) to be false declarations that she had received independent legal advice in connection with the guarantee she gave and her agreement to the release of Mr Tagg and Circles of Gold. 6. By their Commercial List Response, Mr Tagg and Circles of Gold relevantly raised two proportionate liability defences to Westlawn's claims. In the case of the claim in respect of misleading and deceptive conduct in relation to the deposit, it was alleged that the agent who acted on the sale of the Rose Bay property was a concurrent wrongdoer. In relation to the claims based on the declarations given by Mrs Tagg, it was alleged that the solicitors for Westlawn were concurrent wrongdoers. Those claims were abandoned prior to the hearing. Amount of judgment 1. The only outstanding question of quantification is whether Westlawn is entitled to include legal costs in the amount for which it obtains judgment. Those legal costs fall into two categories. First, there are the legal costs Westlawn incurred in enforcing its security over the Rose Bay property and ancillary costs incurred in connection with the loan on which it sues. Second, there are Westlawn's costs of these proceedings, some but not all of which were included in the amount claimed as owing by Mrs Tagg under her guarantee and indemnity. 2. Westlawn claims both types of costs on an indemnity basis, relying on cls 17.1 and 17.2 of the mortgage. Clause 17.1 relevantly provides that "The Mortgagor [that is, Mrs Tagg] shall pay and, if paid by the Mortgagee, reimburse to the Mortgagee … the Mortgagee's reasonable costs and expenses in relation to … the exercise or attempted exercise or the preservation of any rights of the Mortgagee under this Mortgage". Clause 17.2 provides: A reference to costs and expenses in this Mortgage includes without limitation reasonable legal costs and expenses on a full indemnity basis. Westlawn submits that, to the extent that it has included the costs of the proceedings in its claim, it was entitled to do so under those clauses. It accepts, of course, that it is not entitled to recover the same costs twice, so any order for costs in the proceedings cannot include costs that are included in its claim. 1. I do not accept Westlawn's submissions. In my opinion, it is necessary to separate the costs of the proceedings to recover amounts due under the mortgage from the other legal costs claimed by Westlawn, since the principles applicable to the two types of costs are quite different. 2. The costs of the proceedings are governed by s 98 of the Civil Procedure Act 2005 (NSW), which relevantly provides: 98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. … 1. Section 98(2) makes it clear that Westlawn is not entitled to recover costs of the proceedings otherwise than pursuant to an order of the Court. The reference to "an order of the court" is plainly a reference to an order of the Court in relation to costs. 2. Westlawn's right to recover other legal costs is governed by the terms of the mortgage, subject to any rights Mrs Tagg may have as a third party payer under Part 4.3 Division 7 of the Legal Profession Uniform Law (NSW) to have those costs assessed. 3. In the case of the costs of the proceedings, as I said in MIS Funding No 1 Pty Limited v Beefeater Sales International Pty Limited [2015] NSWSC 1109 at [62], the Court will normally exercise its discretion in relation to costs by giving effect to an agreement between the parties. The question in this case is whether Mrs Tagg agreed under the mortgage to pay the costs of the proceedings on an indemnity basis. I return to that question below. However, even assuming she did and the Court gives effect to that agreement, that does not relieve Westlawn of the obligation to have those costs assessed if costs cannot be agreed. 4. On the other hand, in the case of other costs incurred by Westlawn, if Westlawn is entitled to an indemnity in respect of those costs, the Court must give effect to that entitlement. It does not have a discretion in that respect and it is appropriate that the amount for which it should be indemnified be included in the amount for which judgment is given. However, that judgment does not extinguish any rights Mrs Tagg may have under s 198 of the Legal Profession Uniform Law (NSW) to have those costs assessed and to recover any disallowed costs from the firm to whom they were paid. 5. It follows that Westlawn is only entitled to judgment for an amount that excludes all the costs of the proceedings and for interest that is calculated in accordance with the mortgage on that amount. 6. The parties are agreed that that amount is $2,273,459.79. Costs 1. It is not disputed that Westlawn is entitled to an order that Mrs Tagg pay its costs of the claim against her. Four issues concerning costs remain. First, there is the question whether Mrs Tagg should pay Westlawn's costs of the claims against her on the indemnity basis. Second, Westlawn seeks an order that Mr Tagg also pay its costs of the proceedings against Mrs Tagg on an indemnity basis. Third, Westlawn seeks an order that Mrs Tagg pay its costs of the contingent claims against Mr Tagg and Circles of Gold. Fourth, Mr Tagg and Circles of Gold seek an order that Westlawn pay their costs of the proceedings. Westlawn accepts that it must pay Mr Tagg and Circles of Gold's costs of the claims that failed. However, it submits that Mr Tagg and Circles of Gold should pay its costs of the abandoned concurrent wrongdoer defences. Should Mrs Tagg pay Westlawn's costs on an indemnity basis? 1. Mrs Tagg does not seriously dispute that the Court should give effect to the terms of the mortgage in relation to the payment of the costs of the proceedings. However, she submits that the mortgage does not provide for the payment of the costs of the proceedings on an indemnity basis. Those costs are claimed under cl 17.1, which relevantly provides that Mrs Tagg will reimburse to Westlawn its "reasonable costs and expenses" in relation to "the exercise or attempted exercise or the preservation of any rights of the Mortgagee under this Mortgage". Under cl 17.2, the expression "costs and expenses" includes reasonable legal costs on a full indemnity basis. Mrs Tagg submits that the costs of the proceedings are not properly described as costs of exercising or attempting to exercise or preserve any rights of the mortgagee under the mortgage because they were not concerned with the exercise or preservation of the security given by the mortgage. 2. I do not accept that submission. Under cl 2.2 of the mortgage, Mrs Tagg agrees to "repay the Secured Moneys to the Mortgagee at the times and in the manner set out in the Loan Facility Agreements". The right to receive those payments is plainly a right under the mortgage. It is that right that Westlawn sought to exercise by these proceedings. Moreover, under cl 15.1 of the mortgage, Mrs Tagg agrees "to keep indemnified [Westlawn] … against any liability loss cost or expense caused or contributed to by … and Event of Default". The balance due under the mortgage was plainly a loss caused by an Event of Default, with the result that the costs and expenses incurred in pursuing an indemnity in respect of that right were costs and expenses covered by cl 17.2. Should Mr Tagg be liable for Westlawn's costs of the claim against Mrs Tagg? 1. In these proceedings, Westlawn relevantly sought to enforce its rights against Mrs Tagg. Mrs Tagg defended that claim. She was unsuccessful. Mr Tagg was, in substance, a third party to that claim; and the principles applicable to costs orders against third parties are equally applicable in this context. Consistently with those principles, a court will only make a costs order against a third party in exceptional circumstances: see May v Christodoulou (2011) 80 NSWLR 462; [2011] NSWCA 75 at [81]-[93] per Sackville AJA (with whom Macfarlan JA agreed), and the cases cited there. Normally, for the circumstances to be exceptional, the third party must fund the costs of the proceedings, the proceedings must be brought for the benefit of the third party and the party to the proceedings must be unable to pay the costs of the proceedings: see, for example, FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [198]ff per Basten JA. 2. Westlawn submits that there are a number of special features of this case which make the circumstances of the case exceptional. Those features are: 1. Mr and Mrs Tagg were at all times married; 2. Mr Tagg's income was the family's primary income; 3. The Rose Bay property was held for the joint benefit of Mr and Mrs Tagg; 4. Mr Tagg provided the funding for the Rose Bay property, made all the relevant decisions in relation to it and conducted all the negotiations for the sale of it on his wife's behalf; 5. The ability of Mrs Tagg to meet any costs order is within the capacity and control of Mr Tagg; and 6. In the proceedings, Mrs Tagg sought an order that the mortgage be set aside and that the proceeds of sale be paid to her. Had she been successful, that order would also have benefitted Mr Tagg. 1. The first four factors are irrelevant to the claim for costs against Mr Tagg. The mere fact that Mr and Mrs Tagg were married and that the primary source of income for the family was Circles of Gold, a company controlled by Mr Tagg, are not reasons for making Mr Tagg liable for Mrs Tagg's legal costs. There is nothing exceptional about those circumstances. No claim was made in respect of the Rose Bay property. That property had been sold. The claim against Mrs Tagg was for the balance of the amount owing to Westlawn. By her cross-claim, Mrs Tagg sought orders setting aside the mortgage and ancillary orders that the amount Westlawn realised from the sale of the property be paid to her. But that does not alter the fact that the claim was a claim for a monetary amount by Mrs Tagg. 2. In addition, there is no evidence that Mr Tagg was involved in Mrs Tagg's defence or claim under the CRA in the sense that he gave instructions in relation to the defence or claim. The fact that he and Mrs Tagg were separately represented suggests otherwise. 3. As to Westlawn's fifth point, it is accepted that Circles of Gold has paid legal fees incurred by Mrs Tagg to date, although whether those payments have the character of a loan or a gift is unclear. It may be assumed that Mr Tagg caused Circles of Gold to make those payments. But again, it could not be said that there is anything exceptional in that which would justify a costs order against Mr Tagg. Even accepting that, in substance, the assistance was provided by Mr Tagg, it is not uncommon for family members to assist one another with the payment of legal costs in the form of either loans or gifts. But that is not a reason for placing on those family members an obligation to meet any costs orders against the party to whom assistance is given. 4. Westlawn places considerable emphasis on the fact that Mrs Tagg's claim under the CRA included a claim that the mortgage be set aside and that the amount Westlawn recovered under the mortgage should be paid to her, which was said to be for the benefit of both her and Mr Tagg. 5. However, two points may be made about that submission. First, although it is true that Mrs Tagg's claim under the CRA included a claim that the mortgage be set aside, the claim was essentially defensive in nature. It was brought in response to Westlawn's claim to recover the balance of its loan. Insofar as Mrs Tagg sought to resist the claim against her, she clearly did so for her own benefit and not for the benefit of Mr Tagg. There is no reason why Mr Tagg should be liable for those costs. 6. Second, it is not correct to say that the claim to recover the amount Westlawn received from the sale of the Rose Bay property was brought for the benefit of both Mr and Mrs Tagg. The claim was brought by Mrs Tagg. Had it been successful, the amount claimed would have been paid to her. There is no evidence that she was under any obligation to account to Mr Tagg for all or any part of it. The fact that they continue to be married and that, in the ordinary course of events, it might be expected that Mr Tagg might benefit indirectly from the payment in one way or another because of decisions made subsequently by Mrs Tagg is not sufficient to show that the proceedings were brought wholly or partly for the benefit of Mr Tagg. 7. Westlawn submits that it would be unjust if Mr Tagg were permitted to recover his costs from Westlawn but Westlawn were unable to recover its costs from Mrs Tagg because she does not have the financial capacity to pay them. That is said to be particularly so in circumstances where there was no reason for them to be represented separately. 8. I do not accept that submission. In my opinion, it was reasonable for Mrs Tagg to be represented separately from Mr Tagg and Circles of Gold. Even if no conflict ultimately emerged, there was a potential conflict between the positions of Mr Tagg and Mrs Tagg since Westlawn made claims against Mr Tagg and Circles of Gold which were contingent on it failing in its claim against Mrs Tagg. 9. In any event, no injustice arises from the fact that Mr Tagg and Circles of Gold may be successful in recovering their costs from Westlawn but Westlawn may not be successful in recovering its costs from Mrs Tagg. Westlawn chose to join Mr Tagg and Circles of Gold as parties to the proceedings. In doing so, it took the risk that it would fail and that a costs order would be made against it. There may be a question whether, having regard to any connection between the claims, those costs should be recoverable from Mrs Tagg and whether an order should be made that they be paid by Mrs Tagg rather than Westlawn. But any connection between the claims is not a reason for making Mr Tagg liable for the costs payable by Mrs Tagg in circumstances where Mr Tagg was successful. Costs of the contingent claims 1. Westlawn seeks an order that Mrs Tagg pay its costs of the contingent claims against Mr Tagg and Circles of Gold. 2. As the Court of Appeal pointed out in Great Lakes Shire Council v Dederer; Roads & Traffic Authority of NSW v Dederer (No 2) [2006] NSWCA 336 at [4], the order sought by Westlawn is commonly referred to as a "Sanderson order". It is to be contrasted with a Bullock order, which is an order that the unsuccessful defendant pay the plaintiff the costs that the plaintiff is ordered to pay the successful defendant. The principles governing whether one or other of the orders should be made are in substance the same. They were stated by Gibbs CJ in Gould v Vaggelas (1985) 157 CLR 215 at 230 in these terms: In my respectful opinion the true position was clearly stated by Blackburn C.J. in Steppke v. National Capital Development Commission [(1978) 39 LGRA 94 at 100], when he said that "there is a condition for the making of a Bullock order, in addition to the question whether the suing of the successful defendant was reasonable, namely that the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on it for the costs of the successful defendant". See Great Lakes Shire Council v Dederer; Roads & Traffic Authority of NSW v Dederer (No 2) [2006] NSWCA 336 at [5] per Ipp JA (with whom Handley and Tobias JJA agreed). 1. In my opinion, the contingent claims were weak and it would not be fair to impose liability on Mrs Tagg for the costs of those claims. 2. The principal contingent claims were claims that Mr Tagg and Circles of Gold were knowingly involved in Mrs Tagg's misleading and deceptive conduct in signing the declarations she did. Those claims were weak because they depended on a finding that Mr Tagg was knowingly involved in what were said to be misrepresentations by Mrs Tagg. However, it was Mrs Tagg who signed the declarations that were said to be misleading and it was never clearly articulated what conduct Mr Tagg and Circles of Gold engaged in that made them knowingly involved in any misleading conduct by Mrs Tagg. A third contingent claim alleged that Mr Tagg and Circles of Gold engaged in unconscionable conduct. However, as I pointed out in para [132] of my earlier judgment, that claim was difficult to follow and no substantive submissions were advanced in support of it. For those reasons alone, the costs of those claims should not be visited on Mrs Tagg. 3. In addition, it would not be fair to impose the costs of the contingent claims on Mrs Tagg because there was an insufficient connection between her defence and claim under the CRA and the contingent claims. 4. Mrs Tagg's claim under the CRA was a claim that, in all the circumstances, including the circumstances in which she executed the declaration that she had received independent legal advice, she should be relieved of her obligations under the mortgage. It is not easy to see how that claim led to the joinder of Mr Tagg and Circles of Gold. Normally, a Bullock or Sanderson order is made when one defendant, who is ultimately unsuccessful, raises a defence which suggests that someone else is responsible and the plaintiff then joins that party as a defendant, who is ultimately successful. It is fair in those circumstances that the unsuccessful defendant be liable for the successful defendant's costs because the unsuccessful defendant brought about the joinder of that party. But in the present case, the defence raised by Mrs Tagg did not suggest that it was Mr Tagg or Circles of Gold who were the responsible defendants. They were joined quite independently by Westlawn. 5. It follows that the order sought by Westlawn should not be made. Costs of the abandoned claims 1. The contentions that were added and then abandoned by Mr Tagg and Circles of Gold were dealt with at a directions hearing on 28 August 2018 by Hammerschlag J. The record of the orders made on that day does not include an order in relation to costs. However, the transcript of the directions hearing records the following exchange between Mr Clarke SC, who appeared for Westlawn, and Hammerschlag J: CLARKE: Should I just check, is that your Honour's way of saying "don't bother asking for costs thrown away by the deletion"? HIS HONOUR: Don't bother asking for costs. CLARKE: I just wanted to check. HIS HONOUR: All costs will be costs in the cause. That exchange followed a statement by Hammerschlag J that "the history of the matter is a bit each way", meaning that both parties had raised issues that had put the other side to unnecessary expense. 1. It is plain from this interchange that Hammerschlag J ordered that the costs of the abandoned claims be costs in the cause at the time the claims were abandoned. There is no reason to depart from that order; and it should stand. Orders 1. It follows that the orders of the Court are: 1. Judgment for the plaintiff against the first defendant in the sum of $2,273,459.79. 2. The plaintiff's claim against the second and third defendants be dismissed. 3. The first defendant's cross-claim be dismissed. 4. The first defendant pay the plaintiff's costs of the proceedings against the first defendant on the indemnity basis. 5. The plaintiff pay the costs of the second and third defendants. ********** 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: 19 November 2018