Permanent Custodians Limited and Anor v King and Ors [2010] NSWSC 95 (25 February 2010)

Last Updated: 25 February 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Permanent Custodians Limited and Anor v King and Ors [2010] NSWSC 95


JURISDICTION:


FILE NUMBER(S):


HEARING DATE(S):
16 September 2009; 9 December 2009

JUDGMENT DATE:
25 February 2010

PARTIES:
Plaintiff - Permanent Custodians Limited
First Defendant - Paul David King
Second Defendant - Charles Stuart King
Cross Claimant - Charles Stuart King
First Cross Defendant - Permanent Custodians Limited
Second Cross Defendant - Pepper Finance Corporation Ltd
Third Cross Defendant - Bill Laskaris trading as Able Finance
Fourth Cross Defendant - Dion Vertzayas, Vertzayas Lawyers Pty Ltd
Fifth Cross Defendant - Paul King

JUDGMENT OF:
Schmidt J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Plaintiff - Mr Burke, counsel
First Cross Claimant - Mr JW Durack SC with Ms R Francois, counsel
Fourth Cross Defendant - Mr DR Pritchard SC with Ms S Callan, counsel


SOLICITORS:
Plaintiff - Hicksons
First Cross Claimant - Legal Aid Commission of NSW
Fourth Cross Defendant - Colin Biggers & Paisley


CATCHWORDS:
PROCEDURE - Judgments and orders - Amending, varying and setting aside - application to re-open case after judgment and before judgment or order entered - application to re-open refused - application for joinder - joinder granted - application for rectification of consent orders - rectification granted
DAMAGES - difficulty of assessing damages in relation to interest - damages ordered

LEGISLATION CITED:
Civil Procedure Act 1995
Legal Aid Commission Act 1979
Uniform Civil Procedure Rules

CATEGORY:
Principal judgment

CASES CITED:
Autodesk Inc v Dyason (No 2) [1993] HCA 6: (1993) 176 CLR 300
Maralinga v Major Enterprises Pty Limited [1973] HCA 23; (1973) 128 CLR 336
Maher v Network Finance Ltd (1986) 4 NSWLR 694
Multiplex Constructions Pty Limited v Irving [2005] NSWCA 1
Permanent Custodians Limited v King and Ors [2009] NSWSC 600
Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603
Wentworth v Wentworth [1999] NSWSC 638

TEXTS CITED:


DECISION:
Orders:
1. Permanent Custodians Limited is joined to the proceedings between the Cross-Claimant and the Fourth Cross-Defendant.
2. The Cross-Claimant's re-opening application is refused.
3. Order 6 of the Consent Orders made on 20 February 2008 ("the Consent Orders") is set aside.
4. In place of Order 6 of the Consent Orders the following order is made:
"No order as to costs. The Court notes that the plaintiff/cross-defendant is entitled to debit its enforcement expenses, including its legal costs, to the PCL Loan account pursuant to the terms of the PCL Loan.



JUDGMENT:

- 30 -

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

SCHMIDT J

THURSDAY, 25 FEBRUARY 2010

15433/06 PERMANENT CUSTODIANS LIMITED AND ANOR v KING AND ORS

JUDGMENT

1 HER HONOUR: Judgment was given in this matter in July 2009, with the parties being directed to bring in short minutes of order and liberty to approach in relation to costs. (See Permanent Custodians Limited v King and Ors [2009] NSWSC 600). Three issues have arisen. The first goes to the calculation of one aspect of damages. The second, a motion brought by Mr King to have the July judgment re-opened. The third, a motion brought by Permanent Custodians Limited ('Permanent'), to vary consent orders made in the proceedings in February 2009. It is convenient to deal with the two motions, before turning to the damages question.

Mr King’s application

2 By motion filed in July 2009, Mr King seeks the following orders:

1. The Court recall the second sentence of paragraph 167 and the whole of paragraphs 168 and 169 of the judgment handed down on 3 July 2009.

2. Permanent Custodians Limited (the "Mortgagee") be joined to the proceedings between the Cross-Claimant and the Fourth Cross-Defendant.

3. The Cross-Claimant be given leave to re-open his case to read the affidavit filed in support of this motion.

4. A declaration that the Mortgagee's entitlement to debit its enforcement expenses, including its legal costs, to the Cross-Claimant's account pursuant to clause 22.6 of the Housing Loan Contract made in March 2003 between the Mortgagee and the Cross Claimant (the "Loan") for the purpose of determining the current outstanding balance of the Loan under clause 13 of the Deed of Release between the parties dated 15 February 2008 (the "Deed") and order 8 of the consent orders made on 20 February 2008 (the "Consent Orders") is unaffected by the terms of order 6 of the Consent Orders.

5. In the alternative to 4, a declaration that the Mortgagee's entitlement to debit its enforcement expenses, including its legal costs, to the Cross-Claimant's account pursuant to clause 22.6 of Loan for the purpose of determining the current outstanding balance of the Loan under clause 13 of the Deed and order 8 of the Consent Orders is extinguished by the terms of order 6 of the Consent Orders.

6. The fourth cross-defendant pay the Cross-Claimant's and the Mortgagee's costs of an incidental to this motion.

7. Any other order the Court deems fit.

3 Mr King succeeded in the cross claim which he brought against his former solicitor Mr Vertzayas, in proceedings brought by Permanent to obtain possession of Mr King’s family home and to recover moneys owing under a mortgage which it held over that property. Those matters had been resolved between Permanent and Mr King and consent orders had been made by the Court, to give effect to the settlement.

4 Mr King had claimed that the damages order ought to include the costs incurred by Permanent in the proceedings, which he was liable to meet under the mortgage. Mr Vertzayas claimed that Mr King had not established that he was liable for such costs, relying on the Court’s earlier order that there would be no order as to costs in the proceedings between Mr King and Permanent. Mr Vertzayas succeeded on this point,

5 Mr King has appealed the decision, but seeks to have the judgment re-opened on this question. There was no issue as to the Court’s power to re-open a hearing after judgment, before the judgment or any order was entered (see Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 176 CLR 300 at 302 and Rule 36.16(1) of the Uniform Civil Procedure Rules), but the application was opposed by Mr Vertzayas.

Permanent’s motion

6 By motion filed in September 2009, Permanent seeks orders that:

"1 Order 6 of the Consent Orders made on 20 February 2008 ("the Consent Orders") be set aside.

2 In place of Order 6 of the Consent Orders the following order be made:

"No order as to costs. The Court notes that the plaintiff/cross-defendant is entitled to debit its enforcement expenses, including its legal costs, to the PCL Loan account pursuant to the terms of the PCL Loan.

3 Costs"

7 Order 6 of the Consent orders provided:

"6. No order as to costs"

8 There was also no issue that the Court had the power to grant Permanent’s application, but it was also opposed by Mr Vertzayas. (See Maralinga Pty Ltd v Major Enterprises Pty Limited [1973] HCA 23; (1973) 128 CLR 336 considered in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at 122-143). Mr King’s position finally was that he neither opposed, nor consented to the application.

The position at trial

9 At trial there was no issue that Permanent had a contractual right under the mortgage to recover the costs it had incurred in the proceedings from Mr King. Permanent sought to recover those costs, by its statement of claim. It sought possession of the property and an order allowing it to recover what was outstanding under the mortgage, including the amount of the loan, interest, certain charges and enforcement expenses. Permanent and Mr King settled the proceedings, their agreement being reduced to writing, in the form of a Deed. The Deed also dealt with other aspects of the proceedings, to which others, including Mr Vertzayas were parties.

10 There was no question between Mr King and Mr Vertzayas that Permanent had agreed to compromise various of its rights under the mortgage. It had sought possession of the property, but under the Deed had agreed that Mr King could retain possession during his lifetime; Permanent had sought an order for what was outstanding under the mortgage, but had agreed that Mr King would only be required to pay an agreed amount; it had also agreed to accept anything recovered from Mr Vertzayas on the cross claim (other than in relation to Mr King’s costs), as further repayment of what was outstanding. It also agreed to recover anything remaining outstanding under the mortgage, when the property was sold, after Mr King’s death.

11 The Deed provided that the mortgage and loan were valid and enforceable until repayment of the loan, subject to the terms of Deed and the Terms of Settlement (cl 9). In its terms the Deed did not deal with Permanent’s costs of the proceedings. The Terms of Settlement appeared in annexure A to the deed. Consent orders were provided in annexure B. Those orders were directed to the settlement of Mr King’s cross claim against Peppers Home Loans Pty Ltd ('Peppers'). The ‘Terms of Settlement’, provided:

"1. The settlement is made without any admissions by the parties, in particular as to whether the mortgage and loan between the Plaintiff/First Cross-Defendant and Second Defendant/Cross-Claimant, as pleaded in the First Cross Claim filed on 13 December 2006;

1.1 were unjust; or

1.2 whether the PCL was relevantly "innocent" of any unjustness.

2. Judgment in favour of PCL against Charles King on the Statement of Claim filed by PCL on 8 November 2006.

3. Judgment in favour of PCL against Paul King on the Statement of Claim filed by PCL on 8 November 2006.

4. Judgment in favour of PCL against Charles King on the First Cross-Claim filed buy Charles King on 13 December 2006.

5. Judgment in favour of PCL against Paul King on the Second Cross-Claim filed by Paul King on 15 December 2006.

6. No order as to costs.

7. PCL not seek to enforce the judgments against Charles King and Paul King referred to in paragraphs 2 and 3 above by way of making an application for a Writ of Possession of the Property until:-

7.1 The death of Charles King; or

7.2 Charles King vacates the Property.

8. Without any admission of liability whatsoever, a declaration that the PCL Loan is valid and, subject to the orders above, enforceable until repayment of the PCL Loan.

9. Without any admission of liability whatsoever, a declaration that the PCL Mortgage is valid and, subject to the orders above, enforceable until repayment of the PCL Loan.

10. If Charles King succeeds in his claim against Vertzayas, any monies recovered by Charles King (excluding monies recovered pursuant to any costs order in favor of Charles King) will be applied in reduction of the outstanding balance of the PCL Loan and if such payments are sufficient to discharge the entire PCL Loan, PCL will provide a Discharge of Mortgage and consent to vacation of the judgments against Charles King and Paul King referred to in paragraphs 2 and 3 above."

12 Consent orders were made in terms of the Terms of Settlement in February 2009.

13 In issue between Mr King and Mr Vertzayas was whether by the Deed, Permanent and Mr King had modified Permanent’s right under the mortgage to recover the costs of the proceedings from Mr King. I held that:

"Damages

167 I do accept the fourth cross defendant’s case that Mr Vertzayas cannot be held liable for the amount originally owing to the NAB. I also accept that Mr Vertzayas cannot be held liable for the legal costs of the plaintiff, the mortgagee Permanent, in relation to these proceedings, given the terms on which they were settled as between Mr Charles King and Permanent, namely, on the basis of no order as to costs.

168 It is not in issue that Permanent had an entitlement under the contract to its reasonable enforcement expenses and that it incurred such expenses in bringing the proceedings. It may not be overlooked, however, that the enforcement proceedings were settled between Permanent and Mr Charles King on the basis that no order as to any costs of the proceedings was to be made. While there was no order that each side should bear its own costs, the effect of no order as to costs, is to leave the costs to lie where they fall. As discussed by Santow J in Wentworth v Wentworth [1999] NSWSC 638 at [29] by reference to Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 91, there is no question that this is the consequence of the settlement reached.

169 It is unnecessary to consider why such an agreement might have been reached in relation to costs. The parties to the mortgage having resolved their contractual rights in a particular way, it follows that there are no enforcement costs to be ordered against Mr Vertzayas, as damages suffered by Mr Charles King.

170 In calculating damage, I also accept, as was argued for Mr Charles King, that account has to be taken of the recent payment by Mr Charles King of $235,000, as well as the other payments earlier made in respect of the 2003 loan. Some calculations were undertaken for Mr Vertzayas, but not agreed for Mr Charles King. It follows that they will now have to be revisited in the light of the conclusions reached in the judgment."

Mr King’s position

14 Mr King contended that the conclusion reached in the July judgment in relation to Mr Vertzayas’ liability for Permanent’s costs of these proceedings was erroneous in law, given the terms on which that matter was settled as between he and Permanent. That was because necessary consideration had not been given to the terms of the Deed and the case law. The correct position was argued to be that the Deed had effected no alteration to Permanent’s rights to recover its costs of the proceedings under the mortgage. This had been recognized in Maher v Network Finance Ltd (1986) 4 NSWLR 694 at 697 - 698, where McHugh JA observed:

" ... but a person may be answerable for legal costs as the result of contractual or statutory obligations as well as by a curial order. A curial order imposes an independent obligation of payment upon an unsuccessful party but it does not affect any other rights of the parties in relation to the costs of the proceedings.

When s 47(1)(b) says that "the legally assisted person shall not be liable for the payment of the whole or any part of these costs" it is speaking only of the costs which the legally assisted person is required to pay as the result of an order by a tribunal or court. Likewise, the direction in s 47(1)(a) to the Commission to pay the whole of the costs is a reference to the costs which a tribunal or court has ordered. No doubt in an accounting between the mortgagor and mortgagee the mortgagee is obliged to give credit for any payment received from the Commission: see s 47(8). But I am unable to see

the slightest indication in the section for holding that it operates to prevent the enforcement of the obligation in a covenant between the mortgagor and mortgagee to pay costs or, if it matters, Pt 52, r 65.

Mr Tamberlin submitted that the purpose of s 47 was to ensure that poor litigants with an arguable case are not effectively prevented from pursuing their rights by the threat of a large costs order. But I do not think that that submission is a proper characterisation of the purpose of s 47. By its very terms the section does no more than protect a legally assisted person from an obligation to pay costs which are the product of an order by a court or tribunal."

15 The conclusion reached as to the rights existing between Mr King and Permanent involved a construction of the Deed and the Terms of Settlement which were reflected in the orders which the Court made by consent. The effect of those orders was to expressly preserve Permanent’s entitlement to debit its enforcement expenses, notwithstanding what had been agreed in relation to costs. That position had not been recognised in the July judgment and hence, it was proper for the Court to exercise its power to recall the reasons earlier given, in order to correct an error of law. This would avoid Mr King suffering significant damage.

16 It was also argued that procedural fairness required that there be a re-opening so that Permanent could be heard. It should have been earlier notified and given an opportunity to be heard on the construction point which had arisen. The parties had erred in not taking the steps necessary to have brought that result about.

17 Permanent was now not bound by the July judgment and would continue to seek to recover its costs. Mr King thus had to pursue his appeal. In those circumstances, re-opening the case was consistent with the overriding purpose of the Civil Procedure Act 2005, to facilitate the just, quick and cheap resolution of the real issues in the proceedings. There was now an opportunity to avoid the possibility of this issue being resolved in different ways as between Mr King and Mr Vertzayas and Mr King and Permanent. Permanent had brought a rectification application which might succeed. It followed that the re-opening application should also succeed, so that all three parties might be bound to the one conclusion.

Mr Vertzayas’ position

18 For Mr Vertzayas, the power to re-open was not questioned, but it was argued that it ought not to be exercised in the circumstances of this case. The proper course was for Mr King to pursue the appeal which he had already instituted.

19 The orders sought were resisted on the basis that the arguments sought to be advanced in relation to Maher, were earlier put, but not accepted. The Court had not misapprehended the law in refusing to award Permanent’s costs of the proceedings as damages, given the terms of the settlement, which had merged into the judgment Permanent had earlier obtained.

20 A re-opening at this stage of the proceedings would be unfair, depriving Mr Vertzayas of the opportunity to cross examine Mr King in relation to the orders now sought. That Permanent was now seeking to apply for rectification of the consent orders made, was another reason for refusing the re-opening application.

21 Refusal of the leave would accord with the Civil Procedure Act, which requires that orders such as those here sought not be used to avoid proper appeal processes.

Permanent’s position

22 Permanent neither consented to nor opposed Mr King’s application, including in relation to joinder, but it wished to be heard on the re-opening application.

23 On its application, Permanent’s case was that the Deed to which it, Mr Vertzayas and Mr King were parties reflected an agreement between it and Mr King that there would be no variation to its right to recover its costs of these proceedings under the mortgage. The settlement on which the consent orders rested was the outcome of mediation. It was reached without admission of liability, on terms specified. The orders which the Court had made and the view reached in the July judgment as to their effect, did not properly reflect the terms of the agreement which had been reached, with the result that the consent orders should be rectified.

Mr King’s position on Permanent’s application

24 For Mr King it was submitted initially that he owed two duties. One was owed to Permanent under the mortgage and the settlement. Consistent with this obligation it had been his claim that he was obliged to pay Permanent’s costs of these proceedings, hence the appeal which he had lodged against the July judgment.

25 He also owed Mr Vertzayas a duty to mitigate his loss and thus was obliged not to take any step which might aggravate the damages he had to pay. Accordingly, while Mr King could see no proper basis for opposing the rectification application, he also took the view that Mr Vertzayas should be heard in opposition to that application, if he wished to be heard.

26 At one stage Mr King moved from that position, but finally, he neither consented to, nor opposed the orders sought, mindful of his conflicting obligations to Permanent and to Mr Vertzayas, in the circumstances.

Should Mr King’s application be granted?

27 I deal firstly with the joinder application. Having heard the parties, I am satisfied that joinder must be ordered. Permanent did not oppose joinder. Nor did Mr Vertzayas. Permanent sought to advance arguments in support of Mr King's submissions. There was also a considerable overlap between what was advanced in that respect and what was advanced in support of Permanent’s rectification application. Joinder is necessary in order that Permanent might be heard on the matters it wished to advance in support of Mr King’s motion.

28 I have otherwise come to the view that Mr King’s motion must be refused. It is unarguable that more detailed reasons could have been given for the conclusions reached in the earlier judgment. Nevertheless, I am not satisfied that the exceptional case which must be shown for a re-opening to be ordered, has been established.

29 On Mr Coorey’s evidence it only became apparent after the first day of the hearing, that there was an issue between the parties as to the effect of the Deed and Mr King’s right to recover Permanent’s costs of the proceedings, after Mr Vertzayas was advised of the basis of the damages order Mr King sought. At that stage Permanent was no longer participating in the proceedings. That Mr King did not then take steps to have Permanent joined to the cross claim, so that it could be heard on the construction question, was not a difficulty of Mr Vertzayas’ making. He had no obligation to join Permanent. There was unquestionably time available when that step could have been taken by Mr King. The onus to prove his damage fell on Mr King. That onus was not altered by the provisions of the Uniform Civil Procedure Rules as to joinder (see Rule 6.24). The situation which has resulted from the approach adopted by Permanent and Mr King cannot provide a basis for the re-opening now sought.

30 As between Mr King and Mr Vertzayas, there was never any question that Permanent was entitled to enforce its rights under the mortgage by bringing these proceedings; that under the mortgage it was entitled to recover the costs of the proceedings from Mr King; that it had claimed those costs in the case which it had advanced against him; and that the result of the agreement which had been reached, was that by consent the Court had made an order, that there would be no order as to costs. There was also no doubt that Permanent was entitled to arrive at such a settlement, even if it involved a compromise of its rights under the mortgage. The issue was whether there had been such a compromise.

31 It was common ground that had any order as to costs been obtained against Mr King in these proceedings, the provisions of the Legal Aid Commission Act 1979, would have been engaged. The maximum amount which could currently be recovered under s 47 of the Legal Aid Commission Act in respect of such an order was $15,000. It was also common ground, however, that these provisions would not have protected Mr King from having to meet Permanent’s costs under the mortgage, given what the Court of Appeal had determined in Maher.

32 While reliance was placed for Mr King on the decision in Maher, that case threw no light on what was in issue. In Maher what was in issue was ‘whether the provisions of the Legal Services Commission Act 1979, s 47, operate so as to prevent a mortgagee recovering costs in legal proceedings against a legally assisted mortgagor?"

33 It was concluded in Maher that the mortgagee was entitled to recover those costs, the section not operating to prevent the enforcement of the obligation in a covenant between the mortgagor and mortgagee to pay costs. In this case, there was no issue between the parties as to this question. What was rather in issue was the effect of a settlement arrived at between the parties to the mortgage as to recovery of the costs of the proceedings under the mortgage.

34 On the re-opening it was argued that in coming to the conclusions reached as to the effect of the order made, it was an error of law not to have had regard to the Court of Appeal’s judgment in Maher. I am unable to accept that submission. I took the view that it was unnecessary to refer to the judgment in Maher, because it was of no relevance to what here arose for determination. There was no disagreement as to what Maher decided. It was concerned with the impact of a costs order on rights to recover costs under a mortgage, given the impact of the Legal Aid Commission Act on the recovery of the costs ordered. This was not such a case. Here what fell to be decided was whether or not the order which it had been agreed that the Court would be asked to make, reflected an agreement on Permanent’s part to compromise its rights under the mortgage. That was not in issue in Maher, which threw no light on what the parties had here agreed.

35 The issue which fell to the Court to decide was whether or not Permanent had, as it was entitled to do, compromised its contractual rights under the mortgage in relation to the costs of the proceedings, by the settlement it had entered with Mr King.

36 While on the one hand, the Deed and Terms of Settlement contained terms reflective of Permanent’s rights under the mortgage, the Deed also expressly provided that those rights had been modified. In relation to the enforcement costs of these proceedings, which Permanent had sought to recover from Mr King by its statement of claim, it was agreed in the Terms of Settlement annexed to the Deed, that there be no order as to costs, but the Court was asked and did make an order as to costs, namely, an order that there be no order as to the costs of the proceedings. That was because, as Mr Burke submitted for Permanent, the Terms of Settlement document contained the orders which the parties intended asking the Court to make.

37 It was not in issue that in enforcement proceedings such as these, an order is usually made in favour of a mortgagee such as Permanent, reflective of its contractual right to recover the costs of the proceedings, typically on an indemnity basis. Permanent and Mr King did not, however, agree to the making of such an order. Such an order would have reflected Permanent’s unaltered contractual right to recover its costs. Given the Maher decision, the provisions of the Legal Aid Commission Act would have had no practical impact on Permanent’s enforcement of those costs against Mr King.

38 The same result could have been achieved, had the parties agreed that the Court would not be asked to deal with the matter of costs at all. It was common ground that in the absence of such an order, that Permanent was entitled to recover those costs from Mr King under the mortgage. That, however, was not what the parties did.

39 Instead, Permanent and Mr King asked the Court to make an order that there would be no order as to costs. As I observed in the earlier judgment, such an order has an effect – namely, that the costs incurred fall where they lie, with each party bearing their own costs, as Santow J explained in Wentworth v Wentworth [1999] NSWSC 638 at :

"Essentially his judgment and the reasoning upon which it depends made clear that the two appeals to the Court of Appeal, namely that of Ms Wentworth and of Mr Peter Wentworth by way of cross-appeal, should have "no order as to costs". That clearly means that a judicial decision has been made that there should be no costs ordered to either side and that necessarily means that costs are to lie where they fall; see Re Hodgkinson [1895] 2 Ch 190 followed by Taylor J in Trikas v Rheem (Australia) Pty Limited [1964] 81 WN 504 at 506 and more recently Oshlack v Richmond River Council [1998] HCA 11; [1998] 193 CLR 72 at 91 per Gaudron and Gummow JJ describing the effect of such an order in those terms."

40 As a matter of construction, I thus took the view that the Deed provided that Permanent and Mr King had intended that result as a modification to Permanent’s rights under the mortgage. The Deed expressly recognized that the parties had agreed that their rights and liabilities under the mortgage were modified in various ways, including by the Terms of Settlement. It was accepted by Mr King that Permanent could have agreed to compromise its rights in respect of costs. I concluded that the Terms of Settlement which contained the order which the Court was asked to make to give effect to that settlement, reflected an agreement as to the costs of the proceedings, on a basis which involved an alteration to Permanent’s right to recover those costs from Mr King under the mortgage.

41 What was apparent from the arguments advanced for Mr King in support of the re-opening application, was that he wished to put a more refined and detailed argument as to the proper construction of the Deed and Terms of Settlement than had been advanced at the earlier hearing. By reference to various authorities not earlier referred to, as well as a detailed analysis of various provisions of the Deed which, for example dealt with the validity of the loan (cl 9); the validity of the mortgage (cl 10); continuing obligations under the loan and mortgage (cl 11) and modification of rights of PCL ('Permanent') (cl 12), all variously subject to the terms of the Deed and the Terms of Settlement, it was sought to establish that the conclusion as to the construction of the Deed reached in the July judgment was wrong in law.

42 I am not convinced that such an error was shown, given the terms of the consent orders made, in accordance with the agreement reflected in the Deed and Terms of Settlement. To my mind, the highest the argument climbed was that in annexure B to the Deed, Mr King had agreed with Peppers, that each party would bear their own costs. It followed, it was argued, that Permanent and Mr King must have intended something different, when they agreed that there would be no order as to costs made, as between them.

43 I am unable to accept that argument, having in mind the terms of the deed; what was otherwise agreed between Mr King and Permanent as to the variation of the rights and liabilities flowing from the mortgage; that the relationship between Mr King and Peppers was not that of mortgagor and mortgagee; that their agreement involved no variation to such a mortgage; and the effect of the costs order which was made by the Court.

44 The jurisdiction to re-open is one to be exercised with caution and only where the requirements of justice warrant it. The answer to the issue here lying between the parties is not to be found in s 56 of the Civil Procedure Act. An application such as this may not operate as an appeal from a trial judge’s conclusions to the trial judge, or a method by which an unsuccessful litigant may reargue its case. In Multiplex Constructions Pty Limited v Irving [2005] NSWCA 1 it was held:

"17 Royal, in opposing Multiplex’s argument, points out that Multiplex has not offered any explanation for its failure to raise the s 151E(3) argument. In regard to Multiplex’s reliance on Auto Desk Inc v Dyason (No 2), Royal points out that in that case (at 303) Mason CJ emphasised that the jurisdiction to reopen a judgment is not to be exercised “simply because the party seeking a rehearing has failed to present the argument in all its aspects or as well as it might have been put”.

18 Moreover, Royal draws attention to the fact that, in making the remarks relied upon by Multiplex, Mason CJ was in dissent. In this regard, Brennan J (at 309) in Auto Desk Inc v Dyason (No 2) observed:

“It is one thing to reopen an appeal after judgment if the Court has reached a conclusion by adopting a proposition of fact or law which the unsuccessful party has not had an opportunity to argue. In that event, natural justice is denied and it can be said that the Court’s jurisdiction to hear and determine the matter is not exhausted. But that is not the present case. Here the ground on which the appeal was determined had been argued in the courts below and had been the subject of submissions in this Court. The appeal was determined after it was fully heard. That being so, I find no jurisdiction to set aside the judgment already pronounced merely because it is submitted by the unsuccessful party that, on further argument, the Court would be satisfied that it had reached the wrong conclusion in law. In University of Wollongong v Metwally [No 2] (1985) 59 ALJR 481 (at 483) this Court said:

‘Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.’

The decision of this Court in the present case was not given in ignorance or forgetfulness of some statutory provision or of some critical fact. To entertain an application to reopen an appeal after judgment in order to consider further argument on an issue already decided would be to subvert the finality of litigation and to invite interminable arguments about the importance of the legal questions to be recanvassed and the correctness of the answers to those questions already given.”

19 Dawson J (at 317) expressed similar views and cited Wentworth v Woollahra Municipal Council [1982] HCA 41; (1982) 149 CLR 672 (at 684). His Honour stressed that the jurisdiction to reopen a judgment that had been pronounced would be exercised cautiously, bearing in mind the public interest in the finality of litigation.

20 In Wentworth v Woollahra Municipal Council the High Court said (at 684) that the circumstances in which the Court would reopen a judgment which it had pronounced were “extremely rare” and “[t]he public interest in maintaining the finality of litigation necessarily means that the power to reopen to enable a rehearing must be exercised with great caution”.

21 The English Court of Appeal in Robinson v Fernsby [2003] W.T.L.R. 529 has recently considered the scope of the Court’s discretion to reopen a judgment already handed down. In that case, May LJ followed the majority in Stewart v Engel [2000] EWCA Civ 362; (2000) 3 All ER 518 where it was held that the exercise of the jurisdiction required proof of exceptional circumstances. May LJ pointed out:

“Once a judgment has been handed down or given, there are obvious reasons why the Court should hesitate long and hard before making a material alteration to it.”

The “obvious reasons” to which his Lordship referred involved the strong public interest in the finality of litigation.

22 In Robinson v Fernsby May LJ said, further:

“The cases also acknowledge that there may very occasionally be circumstances in which a judge not only can, but should make a material alteration in the interests of justice. There may for instance be a palpable error in the judgment and an alteration would save the parties the expense of an appeal. On the other hand, reopening contentious matters or permitting one or more of the parties to add to their case or make a new case should rarely be allowed. Any attempt to do this is likely to receive a summary rejection in most cases. It will only very rarely be appropriate for parties to attempt to do so. This necessarily means that the Court would only be persuaded to do so in exceptional circumstances, but that expression by itself is no more than a relatively uninformative label. It is not profitable to debate what it means in isolation from the facts of a particular case.”

23 I would add that the Court of Appeal in Gravgaard v Aldridge and Brownlee (per May and Arden LLJ) Times, December 2, 2004 followed Robinson v Fernsby."

45 The July 2009 judgment has been appealed and, it seems to me, that is a course which Mr King must pursue if he wishes to challenge the conclusions on which he and Mr Vertzayas joined issue in relation to the construction of the Deed. In the circumstances, I am satisfied that the reopening sought by Mr King must be refused.

Should Permanent’s rectification application be granted?

46 It was accepted that it would only be necessary to consider this application, if Mr King’s motion failed. Given my conclusions, I now turn to consider Permanent’s application.

47 Mr Paul King, also a party to the mortgage and the Deed, consented to the order sought by Permanent. It was opposed by Mr Vertzayas.

48 It was candidly explained for Mr Vertzayas, that if the relief sought was granted, the result, so far as he was concerned, would be that the Court would make an order in favour of Mr King in respect of Permanent’s enforcement costs. This followed, because the effect of the rectification order remedied the problem, so far as Mr King was concerned, given that the rectification order took effect, as from the beginning. The result was that Permanent’s enforcement costs would then pass on to Mr Vertzayas.

49 Mr Vertzayas thus opposed the order sought, complaining that he would be materially prejudiced if the order was made. He would thereby have been deprived of available pre-trial procedures and the right to cross examine witnesses on relevant matters at the hearing. This case should have been put at an earlier time. Sections 57, 58 and 59 of the Civil Procedure Act all told against the relief sought being granted. The prejudice resulting to Mr Vertzayas could not be addressed by a costs order.

50 In support of its application Permanent led evidence as to the course of the negotiations which had led to the Deed which the parties executed. That evidence was submitted to establish that Permanent and Mr King had not agreed to any variation to Permanent’s rights under the mortgage to recover its costs of these proceedings, with the result that the rectification order sought would be made, so as to ensure that the Court’s order properly reflected the common intention of the relevant parties as to the rights under the mortgage, which they had not intended to compromise so far as recovery of enforcement costs was concerned.

51 The evidence was attacked for Mr Vertzayas as not establishing that such an intention existed. I am unable to accept that the evidence does not establish that Mr King and Permanent intended no variation to the rights which Permanent had under the mortgage to recover the costs of the proceedings from Mr King. The consent orders which were made do not reflect what the parties intended, with the result that the application to vary the consent orders must be upheld, notwithstanding the consequences which flow from that conclusion, for Mr Vertzayas.

52 Plainly, justice required that if there had been an agreement reached as to a compromise of Permanent’s rights to recover its enforcement costs from Mr King, Mr Vertzayas should have had the benefit of that compromise. If there was no such compromise, he should not be sheltered from the consequences of a rectification order, which ensures that the agreement reached between Permanent and Mr King is properly reflected by the Court’s order in these proceedings.

53 The evidence led was criticised in various ways. Firstly, because it was confined to evidence called from one of the solicitors who represented Permanent, rather than evidence being led from both solicitors who had been involved on its behalf. Various documents were in evidence. Some contained handwritten notes made during the course of negotiations as to the terms of the deed. It was also argued they were ambiguous as to author, meaning and time of creation and could not be accepted as reflecting the claimed common intention of the parties to the settlement continuing down to the final date of the settlement agreement. I am unable to accept those submissions.

54 A consideration of the evidence does not lead to the conclusions contended for. There were two solicitors acting for Permanent, Mr Cameron, who was supervising Ms Andrews. Mr Coorey acted on behalf of Mr King. Relevant contemporaneous documents annexed to the affidavits of Mr Coorey and Mr Cameron throw light on what the parties intended by the agreement contained in the Deed. After a mediation in August 2007, various written settlement offers were exchanged. For Mr King it was repeatedly proposed by Mr Coorey that it be agreed that ‘each party will pay their own costs’. Those offers were not accepted by Permanent, although an agreement in those terms was reached with Peppers. An offer of 28 September did not deal separately with costs, but proposed that the mortgage remain on foot until the loan was repaid. In November 2007, Mr Coorey was advised:

"8. You proposed that the settlement should state "each party pay their own costs". PCL's position is that consistent with ordinary practice, where it is agreed in the contract that the mortgagee is entitled to its costs of enforcing the mortgage then save where the mortgagee has been guilty of gross misconduct or where, without proper motive, the mortgagee has caused expenses to be incurred which cannot be justly thrown upon the mortgagor then the mortgagee is entitled to its costs of enforcing the mortgage. Accordingly the terms of settlement should make no reference to payment of costs."

55 In January 2008, terms of settlement proposed by Mr Coorey again included a term that each party pay their own costs. There were handwritten notes on the document in Permanent’s solicitors’ file, in two hands and the proposed term was struck through, with the words written in their place, those which later appeared in the Deed which the parties executed, ‘No order as to costs.’ Appearing in the same hand next to this provision were the words "not the agt reached at our office" and "do agree to 'No order as to costs'." Below them were:

"OK - 6 is going to cause issues because deal was that loan remain "on foot" and I thought PCL intended to ultimately change PLL's costs against the 'still-on-foot" loan and ultimate recover costs (pursuant to mortgage) on sale ppty."

56 In a file note of a telephone attendance of Mr Coorey on 10 January 2008, it was noted relevantly as to the ‘Terms of Settlement’ that:

' - Don't' agree to 6 --> do agree to "no order as to costs" '

57 In relation to ‘Consent Orders’ it was later noted ‘No order as to costs.’ Mr Coorey’s file note of 16 January also noted ‘No order as to costs’ and the Terms of Settlement were subsequently varied to reflect this. Both Mr Coorey and Permanent’s solicitors' file notes contained the words 'the Court won’t order this', but what that comment was directed to, is not clear. What is clear is that the result of the discussion was a provision at [6] of the Terms of Settlement - ‘No order as to costs’.

58 I am satisfied that the evidence established that while Mr Coorey was seeking an agreement that Permanent compromises its rights under the mortgage so that each side bear its own costs of the proceedings, that was rejected by Permanent’s solicitor as not reflecting the agreement which had been reached, that the loan was to remain on foot and that there was to be no order made as to costs. The Deed acknowledged that Permanent's rights under the mortgage had been modified by the Terms of Settlement. The Terms of Settlement annexed to the Deed were finally drafted to contain a term that there be no order as to costs. That was not a term consistent with Permanent's rights under the mortgage. It was intended that the Court would be asked to make consent orders in those terms. From the evidence it is apparent that attention was not paid to the effect of such an order being made. That involved a departure from what had earlier been agreed and from which Permanent had refused to depart.

59 While the evidence was criticised as not revealing the subjective intentions of either Permanent or Mr King as to costs, it seems to me that the evidence of the course of the negotiations between their respective legal representatives, showed that Mr King was seeking an agreement that each side bear its own costs and that was an agreement which Permanent was not prepared to make. It would not compromise its rights under the mortgage in that respect. That position was not, however, finally reflected in the Terms of Settlement which the parties' legal advisors drafted.

60 The proposal which Mr Coorey repeatedly made in relation to a compromise of Permanent's right to recover its costs was repeatedly rejected. There is no reason for supposing that the parties’ legal representatives were acting other than in accordance with their instructions. Those who gave affidavit evidence were not required for cross examination. That they were acting other than in accordance with their instructions was not suggested. These conclusions are confirmed by other evidence which shows that when advice was later given to Mr King by Mr Coorey as to what he would have to pay under the settlement arrived at, the sum clearly included Permanent’s costs. Had it ever been agreed that he was not to bear those costs, they would not have been included in that figure.

61 Contrary to the parties’ intention that there be no order inconsistent with Permanent’s rights under the mortgage as to its costs, the Court was asked to make a costs order, that there be no order as to costs. Once a court makes a costs order, it has effect, namely that which I earlier outlined. The result is not the same as if no costs order is made by the court. The evidence suggested that this had not been adequately considered and in reality, involved a departure from the agreement which the parties had reached. It had not been intended that the Court would make an order the effect of which was that Mr King and Permanent would each bear their own costs. That was repeatedly sought and rejected.

62 For Mr Vertzayas it was submitted that for the rectification application to succeed, it was necessary for the intentions of the other parties to the Deed also to be considered. There was no evidence as to Pepper’s position. I am unable to accept that submission. The evidence shows that the negotiating parties on this aspect of the settlement were Mr King and Permanent. The other parties had no ‘position’ in relation to their negotiations on this matter. It is Mr King and Permanent’s intentions as to the settlement as between them in relation to Permanent’s rights under the mortgage, which must be considered in determining the question of what the common intention of the parties to the Deed was, in this respect.

63 It follows, as a matter of justice that the rectification order sought by Permanent and not opposed by Mr King must be made. The mistake which here arose was as to the effect of the order which the Court was asked to make. That order plainly did not give effect to Mr King and Permanent’s established intention, that its right to recover its enforcement costs under the mortgage from Mr King would not be altered by the settlement.

64 The consequence is that the rectification order sought must be made. Mr Vertzayas accepts that in the event that such an order is made, the damages order must reflect the enforcement costs which Mr King must pay Permanent under the mortgage. The Court’s order will accordingly reflect that concession.

The calculation of damages

65 The aspect of the calculation of damages over which a disagreement has arisen is in relation to the debt which Mr Paul King originally owed to the National Australia Bank ('NAB'). Mr King had guaranteed approximately $212,000 in respect of that loan. It was repaid in 2002 when Mr King and his son borrowed some $353,500 from Peppers. I concluded that Mr Vertzayas had failed in his duty to Mr King when advising in respect of the Peppers loan and later, when advising in relation to a further loan of $450,000 obtained from Permanent, when the Peppers loan was repaid.

66 In his damages claim, Mr King sought to recover the entirety of his liability to Permanent from Mr Vertzayas. I concluded that he could not recover what he had originally borrowed from the NAB. In issue now is a sum of some $90,000, which relates to the interest payable in respect of that loan and how it should be treated, when calculating damages.

67 On Mr King’s approach, the calculations should proceed on the basis that both the principal and interest on the NAB loan would have been repaid by February 2008, when a payment of $235,000 was made in respect to the Permanent loan. Mr Vertzayas would be liable in respect of what then remained outstanding under the Permanent loan. On Mr Vertzayas’ approach, both the principal and the interest on the NAB loan would be deducted from what was owing in respect of the Permanent loan. Mr Vertzayas contended that it having been held that he was not liable for the NAB loan, he was also not liable in respect of interest under that loan. The respective calculations were based on slightly different interest rates, but that was not the point of contention between the parties. The difference focussed on how repayments made by Mr Paul King in respect of the Permanent and Peppers loans were to be treated.

68 It was Mr King’s case that the overwhelming evidence was that the entirety of the NAB loan would have been repaid, by the payments made by Mr King with the assistance of his sons. Mr Paul King serviced the loans until he was imprisoned. The voluntary administrator’s report in December 2002 was that his business then showed a healthy working capital and net shareholder funds, but that it had incurred losses of $594,000. His brother Anthony King then serviced the loans until advice was received from Legal Aid in 2005 that he should stop servicing the loan. The payments made would have more than repaid the NAB loan.

69 Some $309,556.98 in total was repaid in respect of the Peppers and Permanent loans after 2002. The NAB loan stood at some $217,734.23 when repaid in 2002. Mr King thus calculated damages by calculating the monthly interest payments due on the NAB loan ($1,774.53). By paying regard to the amounts actually paid in servicing the Peppers and Permanent loans, which were in excess of those monthly interest repayments and thus available to reduce the principal of the NAB loan, it was calculated that the principal of the loan would have been reduced by some $30,193.63, by April 2005, when repayment ceased. Mr King calculated that interest on the NAB loan, if serviced on an interest only basis after it was repaid in 2002, at the rate of 9%, for 4 and a half years, would have required additional repayments of some $91,822.75 (together with the $217,734.23 principal). On that approach, when the sum of $205,000 was paid off the Permanent loan in January 2007, after the settlement of Mr Paul King’s matrimonial proceedings, the NAB loan would have stood at $187,540.64. That payment would thus have overpaid the NAB loan by some $17,459.36. This had to be taken into account when calculating the damages order. It would not require any further factual findings. On one view, given the repayments actually made by Mr Paul King and Mr Anthony King and when money came into Mr King’s hands by him, Mr King’s home would have been unencumbered by January 2007, if the Peppers and Permanent loans had not been taken up, but Mr King did not press for orders on this basis. The parties had already joined issue on the question of how Mr Paul King’s payments were to be treated. There was no basis in the judgment for the approach now urged for Mr Vertzayas.

70 For Mr Vertzayas’ part, it was argued that the Court should hear the parties only on the question of the mathematics of the calculation of damages. Mr King’s approach depended on a loss of chance claim which was not raised in his pleadings, all that had been pleaded was an indemnity. Even if the claim had been made, Mr King should not be permitted to re-open on the point. Mr King was on notice that this aspect of his claim was resisted, when final written submission were filed. The leave given in the judgment to address on quantum was not sufficient to allow submissions on his claim for entitlement to this aspect of damages, now to be advanced.

71 On the approach urged for Mr Vertzayas, it was accepted that it had been decided that if Mr King had not entered the Peppers loan, that he would have kept the loan on foot, possibly come to some arrangement with the NAB about repayment terms and either he or someone on his behalf, could and would have serviced the loan, including in respect of interest, which would have accumulated. Nevertheless, account would not be taken of repayments made by Mr Paul King in relation to the Peppers and Permanent loans.

72 By necessary implication from the finding that Mr Vertzayas could not have been liable for the amount owing to the NAB, he could not be held liable for interest owed to the NAB. It was submitted that the calculations which were proposed for Mr Vertzayas took account of payments actually made and interest which would have been accrued and paid in respect of the NAB loan. The overwhelming probability was that the NAB loan would have been repaid at the same pace and amount as the actual repayments made in respect of the Peppers and Permanent loans and that repayments would have ceased in 2005, so that interest had to be calculated in respect of the NAB loan to that point. What would not be included in the calculations was any repayments made by Mr Paul King. This followed the evidence of the consequences of a fundamental breakdown in the relationship between he and Mr King, if Mr King had not agreed to enter the Peppers loan. The NAB loan would not then have been repaid and it could not now be concluded that Mr Paul King would have continued servicing the NAB loan. The interest calculation sought for Mr King would require the making of further factual findings in relation to this issue. It followed that the Court should find that the amount owed to Mr King should be reduced by the amount of interest on the NAB loan, on the approach urged, without paying regard to repayments made by Mr Paul King.

73 For Mr King it was argued that his was not a loss of chance claim, but a claim for damage and indemnity for actual losses suffered as a result of Mr Vertzayas’ breaches of duty. It had been concluded that Mr Vertzayas was liable for the damages which flowed from the Peppers and Permanent loans. What was in issue was how that damage is to be calculated. Given the conclusions reached in the July judgment, the calculation must have regard to the repayments actually made in relation to the Permanent and Peppers loans. It was possible to calculate those damages on more favourable bases to Mr King than he urged, but Mr King did not press that basis of calculation

74 I am satisfied that the resolution of the issue which has arisen between the parties as to the calculation of damages does not require any re-opening of the case, nor does it depend on further findings of fact or principle. The parties have already joined issue on the point and it has been dealt with.

75 It was held in the July judgment that Mr Vertzayas could not be held liable for the amount originally owing to the NAB (at [167]). I also held that it could not be concluded that the NAB loan would not have been serviced, if it had not been repaid in 2002 when the Peppers loan was taken out (at [159]). Mr Paul King had serviced the NAB loan until it was repaid. I found that Mr Paul King intended to service the Peppers and Permanent loans and did so, even after his business went into administration in 2002, until he was imprisoned in 2003 (at [151]). I rejected the submission that his business would have failed earlier, if the Peppers loan had not been taken out (at [158]). I also concluded that account had to be taken of the fact that the business continued with Mr Paul King servicing significantly increased borrowings in 2002, despite the problems the business was then facing (at [159]). When Mr Paul King ceased servicing the loan, Mr Anthony King serviced the loan until April 2005, when he was advised by Legal Aid to cease making payments, paying some $50,000. I also concluded that these payments could not be ignored (at [160]).

76 I thus concluded that in calculating damages, account had to be taken of the repayments of the Peppers and Permanent loans which were made after the NAB loan was paid out, including the repayment of $235,000 in respect of the Permanent loan (which came to Mr King out of the matrimonial proceedings between his son Mr Paul King and his wife and from the settlement with Peppers) (at [170]). In the light of these conclusions, the parties were directed to confer on the calculation of the damages order.

77 The difficulty which has arisen is not a matter of mathematics, which the parties were confident they could resolve, but whether the conclusions which have been reached encompass the way in which Mr Paul King's repayments of the Peppers and Permanent loans should be treated.

78 I am satisfied that the conclusions to which I came in the earlier judgment support the approach to the calculation of damages now urged for Mr King. It was concluded that the NAB loan would have been serviced if it had not been repaid in 2002 and that in calculating damages, account had to be taken of the payments in fact made in respect of the Peppers and Permanent loans by both Mr King, Mr Paul King and Mr Anthony King. Repayment only ceased following the advice of the Legal Aid Commission. As a matter of mathematics, that means that both the principal of the NAB loan and interest, would have been repaid with the result, as was Mr King’s case, that his home would have been unencumbered by February 2008. The damages order must therefore be calculated on the basis Mr King proposed.

Conclusion

79 For these reasons, the damages order should thus include Permanent’s costs of the proceedings and must otherwise be approached on the basis proposed for Mr King. In the event that this conclusion was reached and his approach to the calculation of costs was accepted, the parties accepted that they could agree on the mathematics of those calculations. They should now finalise these calculations.

Costs

80 Mr King failed on his re-opening application and should thus in the ordinary course bear the costs of his motion. Costs of Permanent’s motion should ordinarily follow the event. The parties were earlier given liberty to approach on the question of costs, if it needed to be addressed. That liberty has not yet been exercised. The parties should approach within 14 days if there is any question as to costs.

Orders

81 The parties should now finalise the short minutes of the orders to be made. I order that :

1. Permanent Custodians Limited is joined to the proceedings between the Cross-Claimant and the Fourth Cross-Defendant.

2. The Cross-Claimant's re-opening application is refused.

3. Order 6 of the Consent Orders made on 20 February 2008 ("the Consent Orders") is set aside.

4. In place of Order 6 of the Consent Orders the following order is made:

"No order as to costs. The Court notes that the plaintiff/cross-defendant is entitled to debit its enforcement expenses, including its legal costs, to the PCL Loan account pursuant to the terms of the PCL Loan.

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LAST UPDATED:
25 February 2010