PIPER V ANZ BANK HC AK CIV 2008-404-2686

PIPER V ANZ BANK HC AK CIV 2008-404-2686 18 September 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-2686BETWEEN PATRICIA JANE PIPER IN HER CAPACITY AS REMAINING TRUSTEE OF THE PATRICIA PIPER FAMILY TRUST First Plaintiff AND PATRICIA JANE PIPER Second Plaintiff AND ANZ NATIONAL BANK LIMITED Defendant Judgment: 18 September 2008COSTS JUDGMENT OF WINKELMANN JThis judgment was delivered by me on 18 September 2008 at 12.00 noon pursuant to Rule540(4) of the High Court Rules. Registrar/ Deputy RegistrarGraeme Skeates Law, Auckland DLA Phillips Fox, Auckland Counsel Jan McCartney, Barrister, Ponsonby[1] On 10 June 2008 (reasons 20 June 2008) I delivered judgment declining the application by the first and second plaintiffs for an interim injunction restraining the defendant bank from exercising a power of sale in respect of a property owned by the Patricia Piper Family Trust. The power of sale was to be exercised to enable the Bank to obtain repayment of amounts owing to the Bank by the second plaintiff and interests associated with her. I declined the application for injunction on the grounds that: (a) The plaintiffs had no tenable cause of action which in any way impeached that right of sale. (b) The plaintiffs had been guilty of extensive delay in bringing the issues before this Court. (c) It was always the parties' intention that the property would be security for the Bank's loans to the second plaintiff and interests associated with her. (d) The second plaintiff has been in default under those loans since late 2006. [2] At the end of the judgment I asked the parties to file memoranda as to costs. The Bank now advises that it had deducted indemnity costs pursuant to what it claims is a contractual entitlement to do so, under the provisions of its mortgage document. It says its right to deduct the costs from the sale proceeds is provided for in clauses 8 & 11 of the mortgage and s 185 of the Property Law Act 2007. [3] Clause 11 of the memorandum of mortgage provides in material part:The customer must pay: 11.1 Every cost and disbursement on a full indemnity basis (including legal costs) incurred by the Bank or the customer in relation to the (b) attempted exercise or protection, exercise, protection or enforcement by the Bank if any of its rights under or in relation toany transaction contemplated by this mortgage or any transaction document Amounts payable by the customer under this clause will, until payment, form part of the monies. The Bank may debit any of the customer's accounts to reimburse the Bank for any of these costs.[4] Clause 8 of the mortgage terms provide that following enforcement, the Bank may deduct from the proceeds of the sale of the property amounts including:8.2 Payment of all costs on a full indemnity basis (including legal costs), charges and expenses incurred by the Bank or a receiver (including their remuneration) in relation to the exercise of the respective rights and powers; 8.3 Payment of the Money to the Bank [5] Section 185 of the Property Law Act 2007 provides in material part:Application of proceeds of sale of mortgaged property(1) The proceeds arising from the sale by a mortgagee of mortgaged property must be applied - (a) first, to the payment of all amounts (if any) referred to in subsection (2), together with interest on those amounts at the agreed rate (if any) at which interest is payable on the principal amount secured by the mortgage: (b) secondly, to the payment of amounts secured by any other mortgage, encumbrance, or security interest over the property to the extent that it has priority over the mortgagee's mortgage: (c) thirdly, to the repayment of all amounts (if any) paid or advanced by the mortgagee for the purpose referred to in paragraph (b), together with interest on those amounts at the agreed rate (if any) at which interest is payable on the principal amount secured by the mortgage: (d) fourthly, to the payment of amounts secured by the mortgage (to the extent that those amounts have not been paid under paragraphs (a) to (c)): (e) fifthly, to the payment of amounts secured by any subsequent mortgage, subsequent encumbrance, or subsequent security interest over the property if - (i) the subsequent mortgage, subsequent encumbrance, or subsequent security interest is registered; or(ii) the subsequent mortgage, subsequent encumbrance, or subsequent security interest is unregistered, but the mortgagee has actual notice of it: (f) sixthly, to the payment of any surplus to the current mortgagor. (2) The amounts are amounts reasonably paid or advanced at any time by the mortgagee - (a) for the protection, insurance, maintenance, preservation, or repair of the mortgaged property; or (b) for the payment of rates or other outgoings; or (c) to meet the expenses of the mortgagee in entering into possession, or in doing anything that a mortgagee in possession is required or entitled to do; or (d) with a view to the realisation of the security (including any additional amount referred to in section 120(2) or 129(2)). [6] The plaintiffs raise the following issues in relation to costs: (a) Whether the Bank's election to take the costs as expenses on a mortgagee sale now prevents the Bank from now seeking the same as court costs; (b) Whether the costs of the injunction can be claimed at this time as costs in enforcing the Bank's security; (c) If so, the reliability of the Bank's accounting for costs and whether further discovery should be ordered; (d) The reasonableness of the costs sought; (e) The effect of a reference to the Auckland District Law Society for revision of all invoices which the Bank seeks to charge to the plaintiffs; (f) The overall exercise of the discretion of the court.[7] In relation to the first issue, the Bank has deducted its costs from the proceeds of sale. I am satisfied that it has a contractual right to deduct legal costs associated with the sale. This extends to the costs associated with resisting an application for injunction. The words of clauses 8 and 9 plainly extend to such costs. [8] The Bank has clarified that it does not seek any order for additional costs from the court beyond those deducted, but it accepts that the deduction of costs from the sale proceeds is subject to any order as to the costs made by the court. That is why it has addressed the issue of costs in its memorandum. If the court were to reduce the defendant's entitlement to costs, the defendant accepts that it might have to account to the plaintiffs for the amount of the reduction (but taking into account that following the sale there was, it says, a shortfall owing by the plaintiffs under the mortgage of $43,910.37). [9] The second issue is whether the costs of the injunction can be claimed as costs of enforcement of the Bank's security. [10] The plaintiffs argue that although the application for interlocutory application has been declined, the substantive issues remain on foot in the proceedings, and may ultimately be resolved in the plaintiffs' favour. [11] While it is true that the substantive issues in the proceeding remain on foot, if ultimately they are resolved in the plaintiffs' favour the Bank will have to disgorge amounts it has deducted from the proceeds in accordance with the ultimate decision of the court. I do not consider that there is any basis for putting the indemnity costs which the Bank is contractually entitled to deduct in a different category as against other amounts secured under the mortgage. [12] The next two issues, the reliability of accounting and the effect of the reference to the Auckland District Law Society, can be dealt with together. The plaintiffs have referred the costs claimed by the Bank to the Costs Revision Officer at the Auckland District Law Society. The plaintiffs submit that in circumstances where the reasonableness of the costs is challenged, the proper forum to determine such reasonableness is the Auckland District Law Society. I agree with thatsubmission. If further information is required to resolve issues of quantum, then that can be dealt with through the costs revision process. [13] The final matter raised by the plaintiffs is the overall exercise of the discretion of the court. This is a reformulation of the earlier point, that the issue of costs should be deferred until resolution of the substantive proceedings. The plaintiffs indicate that they intend to seek declaratory orders on issues of priority between mortgagees and that this may impact on the deduction of costs. Again, should the defendant ultimately be successful in some or all of their claims in this proceeding, then the Bank will be obliged to disgorge any amount it has deducted that it is not entitled to. There is no realistic prospect that the Bank will not be in a position to do so. In such circumstances I consider that the court should not intervene in the Bank's contractual entitlement to deduct indemnity costs. [14] I order that the Bank is entitled to indemnity costs and disbursements on its opposition to the plaintiffs' application for injunction. The quantum of those costs is to be determined pursuant to the processes now set in train by the plaintiffs' reference of the costs to the Auckland District Law Society Costs Revision Officer. Winkelmann J