Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Provident Capital Ltd v Papa (No 2) [2013] NSWCA 156
• Hearing dates: 8 May 2013
• Decision date: 06 June 2013
• Before: Macfarlan JA at [1]; Sackville AJA at [35]

Decision

(1) Dismiss with costs Mr Caramanlis' Notice of Motion filed on 14 March 2013.

(2) In lieu of order 5 made on 28 February 2013, order Mrs Papa to pay Provident Capital's costs, assessed on a solicitor and client basis, of its proceedings against her at first instance (including Mrs Papa's cross-claim against Provident Capital) and its appeal.

(3) In lieu of order 11 made on 28 February 2013, order that Mr Caramanlis pay to Mrs Papa:

(i) Her costs at first instance of Provident Capital's claim against her (including Mrs Papa's cross-claim against Provident Capital) and her claim against Mr Caramanlis;

(ii) Her costs of Provident Capital's appeal against the judgment in her favour;

(iii) Her costs of her appeal against the judgment in favour of Mr Caramanlis.

(4) If Mrs Papa and Mr Caramanlis are able to agree as to the amount of the damages to be awarded against Mr Caramanlis, direct those parties to file a form of consent order with the Court within seven days of the date of this judgment.

(5) If those parties are unable to so agree, direct that Mrs Papa cause her appeal to be listed before the Registrar of the Court of Appeal for the purpose of directions being made as to the filing of evidence of relevant costs and expenses incurred by Provident Capital after 4 July 2010 and the determination of the amount of the damages that should be awarded against Mr Caramanlis.

(6) Order Mr Caramanlis to pay the costs of Provident Capital and Mrs Papa of Provident Capital's Notice of Motion filed on 11 March 2013.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: BANKING AND FINANCE - financier proceeding for possession of mortgaged property not precluded from later claiming mortgage debt - whether costs of proceedings recoverable under security documents; CONTRACT - contract for lawyer to provide independent advice on security documents - whether client's costs of proceedings involving financier recoverable from lawyer as damages for breach of contract - whether damages entitlement could be reflected in costs order; APPEAL - client challenged judgment at first instance for lawyer on professional negligence claim - lawyer resisted appeal but did not raise on appeal alternative defences of contributory negligence and apportionment - whether lawyer should have filed notice of cross-appeal or contention - principle of finality - s 56-58 Civil Procedure Act - lawyer precluded from raising defences after decision on appeal delivered
• Legislation Cited: Civil Liability Act 2002; Civil Procedure Act 2005; Supreme Court Act 1970; Uniform Civil Procedure Rules 2005
• Cases Cited: Bonny Glen Pty Ltd v Country Energy [2009] NSWCA 26; D'Orta-Ekenaike v Victorian Legal Aid [2005] HCA 12; 223 CLR 1; Gray v Sirtex Medical Ltd [2011] FCAFC 40; 193 FCR 1; Hadley v Baxendale (1854) 9 Ex 341; Hammond & Co v Bussey (1888) 20 QBD 79; Laws v Collins Exposed Aggregate Pty Ltd (unreported, New South Wales Court of Appeal, 24 March 1997); Maher v Network Finance Ltd [1982] 2 NSWLR 503; Perpetual Trustee Ltd v Milanex Pty Ltd (in liquidation) [2011] NSWCA 367; Richards v Cornford (No 3) [2010] NSWCA 134; Riz v Perpetual Trustee Australia Ltd (Costs) [2007] NSWSC 1488; Skinner & Edwards (Builders) Pty Ltd v Australian Telecommunications Corporation (1992) NSWLR 567
• Texts Cited: E L G Tyler, P W Young and C E Croft, Fisher and Lightwood's Law of Mortgage, 2nd Australian ed (2005) LexisNexis Butterworths
• Category: Principal judgment
• Parties: Provident Capital Ltd (Appellant); Gina Giovanna Bortolin Papa (Respondent/Cross-Appellant); George Caramanlis trading as Daniels Lawyers (Cross-Respondent)
• Representation: Counsel: S B Docker (Appellant); C Harris SC (Respondent/Cross-Appellant); G Curtin SC (Cross-Respondent); Solicitors: Henry Davis York (Appellant); John Conti Solicitor (Respondent/Cross-Appellant); Colin Biggers & Paisley (Cross-Respondent)
• File Number(s): CA 2008/287567 and 2012/25187

Decision under appeal

• Jurisdiction: 9111
• Citation: Provident Capital Ltd v Bortolin Papa (No 1) [2011] NSWSC 460
• Before: Fullerton J
• File Number(s): 2008/287567

Judgment

1 MACFARLAN JA: The Court delivered judgment in this appeal on 28 February 2013 ([2013] NSWCA 36). Pursuant to their entitlement under r 36.11 of the Uniform Civil Procedure Rules 2005 ("UCPR"), Mrs Papa and Mr Caramanlis applied by Notices of Motion filed within 14 days of the date of the judgment for the variation of certain of the orders made by it. As Allsop P, who presided at the hearing of the appeal, is no longer a member of this Court, the parties have consented to Sackville AJA and myself dealing with the remaining issues on the appeal pursuant to s 45AA(1) of the Supreme Court Act 1970.

2 The issues between the parties and my resolution of them are as follows.

COSTS ISSUES

Provident Capital's costs of the proceedings against Mrs Papa

3 Provident's only claim in its proceedings against Mrs Papa was for possession of the mortgaged property. It did not seek judgment for the sum owing by Mrs Papa to it under the loan security documents. It is not uncommon for a financier to take that course. By taking it, Provident did not absolve Mrs Papa of her monetary liability to Provident, whether by reason of an Anshun estoppel or otherwise (E L G Tyler, P W Young and C E Croft, Fisher and Lightwood's Law of Mortgage, 2nd Australian ed (2005) LexisNexis Butterworths [16.7] and [17.12]).

4 Mrs Papa's claim against Mr Caramanlis for damages was not particularised in her cross-claim. However it is apparent from reading the cross-claim as a whole that her claim was intended to embrace her liability to Provident under the loan security documents. No attention was given in the submissions at first instance to the quantification of this liability but the loan security documents and an account statement current to 4 July 2010 were in evidence. The primary judge did not advert to the question of what damages would have been recoverable by Mrs Papa from Mr Caramanlis if, contrary to her Honour's view, Mrs Papa was entitled to succeed on her cross-claim against him.

5 As this Court found on appeal that Mr Caramanlis is liable to Mrs Papa for damages, it is now necessary for those damages to be quantified.

6 The only issue between the parties on that topic is whether Mrs Papa's liability to Provident (for which she can claim indemnity from Mr Caramanlis) includes the amounts of the costs and expenses incurred by Provident in proceeding against Mrs Papa and defending her claim for relief under the Contracts Review Act.

7 As a preliminary point on this issue, Mr Caramanlis submitted that it was not open to Mrs Papa and Provident to assert for the first time on appeal that this was the case. I reject this submission. Mrs Papa's claim for damages at first instance was general in form and therefore capable of embracing a liability that she had to Provident under the loan security documents to reimburse Provident for its costs of proceeding against her and defending her claim. Furthermore, the account statement to which I have referred contained substantial debits for legal fees, giving Mr Caramanlis notice that his liability for damages would be asserted to include responsibility for legal expenses incurred by Provident.

8 I also reject Mr Caramanlis' submission that the loan security documents did not entitle Provident to claim under them its expenses of proceeding against Mrs Papa and defending her Contracts Review Act claim. The following provisions of the Deeds of Loan and Guarantee relied upon by Provident in my view gave Provident that entitlement:

"1. Interpretation

...

1.2 In this document, unless the context otherwise requires:

'additional amount' means all money which you owe us in connection with this agreement (but excluding the loan amount), whether alone or with another person, examples of which include:

. money which we may become liable to pay another person in connection with you for any reason (eg, under a cheque or if you become insolvent);

. fees that we charge you under this agreement;

. expenses and losses which we incur:

. if a default event occurs; or

. if we exercise any of our rights or powers under this agreement; or

. concerning the making, perfecting, preserving or enforcing of this agreement or any related agreement (eg, stamp duty, registration fees, legal fees); or

. concerning the protecting or preserving of any property in which we have a security interest (eg, insurance premium, repairs, consideration for exercise of an option);

...

'related agreement' means any agreement, document or arrangement under which:

. we lend money or incur any obligation or liability; or

. we have any security interest;

and which relates to you; this includes the mortgages and other securities;

...

3. Repayment of Loan Balance

3.1 You must repay the loan balance to us on the repayment date.

...

3.4 You must pay us the additional amount on demand.

...

14. Default Events

...

14.3 If a default event occurs you indemnify us against all expenses and losses which we incur in connection with that default event; examples of these include:

14.3.1 our exercising or declining to exercise any of our rights or powers under this agreement or any related agreement;

14.3.2 concerning the protection or preservation of any property in which we have a security interest;

14.3.3 legal expenses on a full indemnity basis".

9 The relevant costs and expenses constitute "additional amount[s]" as defined, they being expenses and losses incurred by Provident following, and as a result of, Mrs Papa's default and Provident's consequent exercise of its powers (see the definition of "additional amount" in clause 1.2). Further, clause 14.3 leads to the same result as the costs were incurred "in connection with [a] default event". "Legal expenses on a full indemnity basis" is given as a specific example of recoverable expenses (clause 14.3.3). These views conform to those expressed by McLelland J in relation to the similarly worded provisions in the mortgage considered in Maher v Network Finance Ltd [1982] 2 NSWLR 503 at 507 (compare Riz v Perpetual Trustee Australia Ltd (Costs) [2007] NSWSC 1488 which dealt with narrower provisions).

10 At the hearing of the present Notices of Motion, counsel for Provident indicated, without contradiction, that the only differences between the balance contained in the account statement to which I have earlier referred and the figure for which judgment is now sought are legal fees incurred after the date to which the statement related, and further interest. I see no reason why Mrs Papa and Provident should not be entitled to update the evidence as to the quantum of Mrs Papa's liability under the loan security documents. Counsel for Mr Caramanlis indicated that there is mathematical agreement on the amount asserted to be owing but that his client sought the opportunity to check some of the additional amounts claimed for legal fees. This is reasonable. Indeed, the position is that Provident will need to adduce evidence of the updated amounts unless the agreement of Mr Caramanlis to the figures is forthcoming. The orders that the Court will make will address this point.

11 Although Mrs Papa's liability to Provident under the loan security documents includes Provident's costs of the proceedings against her (on a solicitor and client basis as the costs are not said to be recoverable on a limited basis), no judgment will be entered against Mrs Papa to reflect that liability, as Provident has not sought such a judgment in the proceedings. It is appropriate, however, that a costs order be made in favour of Provident as the successful party in the exercise of the Court's general discretion as to costs. As Mrs Papa's liability under the loan security documents is for solicitor/client costs, the costs order made against her should be on the same basis. Provident will not of course be entitled to recover its costs more than once.

12 It is unnecessary to consider whether costs orders, in the nature of Bullock or Sanderson orders, or otherwise, should be made requiring Mr Caramanlis to pay Provident's costs for which Mrs Papa is liable. Provident's costs form part of the debt owed by Mrs Papa under the security documents and, as such, form part of the damages recoverable by her from Mr Caramanlis.

Mrs Papa's costs of the proceedings between her and Provident

13 Mrs Papa submitted that her costs of defending Provident's claim and of advancing her claim for relief under the Contracts Review Act were recoverable by her from Mr Caramanlis by way of damages for Mr Caramanlis' breach of the contract with her for the provision of legal advice. In my view this submission should be accepted. It conforms with the principles applied, in my view correctly, in Hammond & Co v Bussey (1887) 20 QBD 79.

14 In that case the defendant sold steamer coal to the plaintiffs who resold to sub-buyers. The plaintiffs sued the defendant for damages for breach of contract, including their costs in defending an action brought by the sub-buyers. The Court of Appeal held that these costs could be recovered as damages, Lord Esher MR stating at 93:

"To my mind it is perfectly clear that, according to a reasonable business view of the reasonably probable course of business, the parties may be supposed to have contemplated, at the time when the contract was made, as the inevitable or at any rate the highly probable result of a breach of it, that there would be a lawsuit between the plaintiffs and their [sub-buyers], in which it would be reasonable for the plaintiffs to defend, and in which, if it turned out that there was a breach of the warranty, the plaintiffs would lose, and that they would thereby necessarily incur costs. Costs incurred under such circumstances appear to me to fall within the second branch of the rule in Hadley v Baxendale."

This principle was accepted in Gray v Sirtex Medical Ltd [2011] FCAFC 40; 193 FCR 1 at [37], and in this Court in Skinner & Edwards (Builders) Pty Ltd v Australian Telecommunications Corporation (1992) 27 NSWLR 567 at 578D and Laws v Collins Exposed Aggregate Pty Ltd (unreported, New South Wales Court of Appeal, 24 March 1997).

15 Whilst there was no evidence that Mr Caramanlis encouraged Mrs Papa to make a claim against Provident for relief under the Contracts Review Act, he strongly supported that claim at the hearing at first instance through substantial cross-examination of the principal Provident witness and by submissions at the conclusion of the hearing. It was not suggested on the present motion that it was unreasonable for Mrs Papa to bring the claim and its argubility is demonstrated by the primary judge's upholding of it. It was a reasonable step taken by Mrs Papa which would, if successful, have avoided her suffering the loss for which she is entitled to have Mr Caramanlis compensate her. It was thus a reasonable step taken by Mrs Papa to mitigate her loss.

16 Furthermore, it was closely connected with Mr Caramanlis' retainer because his failure to draw Mrs Papa's attention to the risks involved in her transactions with Provident and to recommend that she obtain independent financial advice (Principal Judgment [80]) gave her a basis for pursuing her Contracts Review Act claim which asserted, inter alia, that she had not received adequate legal advice (Further Amended First Cross-Claim [38]). In these circumstances, to use the language of Hadley v Baxendale (1854) 9 Ex 341 at 354, the costs that Mrs Papa incurred may fairly and reasonably be considered to have arisen naturally, "ie, according to the usual course of things", from Mr Caramanlis' breach of contract.

17 To obviate the need for this Court to be involved in the quantification of those costs for the purpose of determining the amount of damages to be awarded to Mrs Papa, it is appropriate, as Mrs Papa sought, that her entitlement to reimbursement be reflected, not in an award of damages, but in an order that Mr Caramanlis pay Mrs Papa's costs of Provident's proceedings and her Contracts Review Act claim. This recoupment should be on a solicitor and client basis as that is the basis upon which the relevant damages would have been calculated. The matters to which I have referred that justify the award of damages sought by Mrs Papa in respect of her legal costs are considerations which are able to be taken into account by the Court in the exercise of its general costs discretion (compare Perpetual Trustee Company Ltd v Milanex Pty Ltd [2011] NSWCA 367 at [121]) with the result that a costs order should be made as I have indicated.

CONTRIBUTORY NEGLIGENCE AND APPORTIONMENT

18 In response to Mrs Papa's cross-claim against him, Mr Caramanlis pleaded, inter alia, that any judgment in favour of Mrs Papa should be reduced by reason of her contributory negligence in:

"[a]greeing to mortgage her property without making any inquiry as to the amount secured against it, the repayments, and the ability of her son or his company to make the repayments" (Defence to Cross-Claim [45]).

19 Mr Caramanlis also pleaded that any judgment in favour of Mrs Papa should be reduced pursuant to the provisions of Part 4 of the Civil Liability Act 2002 by reason of the breach by Mrs Papa's son, Mr Peter Bortolin, of a duty of care that he owed to her. Mr Caramanlis summarised his allegation as "Bortolin knew how financially precarious was his ability to make the repayments, yet (by his own admission) lied to his mother and told her the gym was going well financially" (written submissions dated 8 April 2013, [8]).

20 However, at first instance, no party referred in their submissions to the pleaded apportionment defence or, other than a brief reference by counsel for Mr Caramanlis in oral submissions, to the contributory negligence defence. Further, the primary judge did not refer to the apportionment or contributory negligence defences, no doubt because those defences did not arise for consideration in light of her Honour's finding in favour of Mr Caramanlis on liability.

21 Mrs Papa's Notice of Appeal filed in this Court challenged the primary judge's finding in favour of Mr Caramanlis on liability and sought entry of judgment in her favour, naturally, without any qualification referable to the apportionment or contributory negligence defences. Mr Caramanlis did not file a Notice of Cross-Appeal or Notice of Contention and no reference was made by any party in their submissions on appeal to the defences of contributory negligence and apportionment. As a result, in its judgment of 28 February 2013 this Court did not deal with those defences and, having found against Mr Caramanlis on liability, made orders for steps to be taken to quantify his liability.

22 By Notice of Motion filed on 14 March 2013, Mr Caramanlis sought an order setting aside those orders. He also sought an order as follows:

"2. In lieu thereof, the court remit the matter to Fullerton J to hear and dispose of the defences of the defendant to the Further Amended Second Cross-claim relating to contributory negligence and proportionate liability as pleaded in paragraphs 45(b) and 47 - 54 of the Defence to the Further Amended Second Cross claim filed on 16 September 2010, such remitter to be limited to such issues, by way of completion of the hearing before the Supreme Court."

23 Whilst UCPR r 36.16(3) confers power on this Court to make the orders sought by Mr Caramanlis, there is an issue as to whether it should exercise its discretion to do so. Both Provident and Mrs Papa oppose the making of the orders. They submit that it is too late for Mr Caramanlis to raise his pleaded defences on appeal for the first time after disposal of the appeal by this Court's judgment of 28 February 2013.

24 On his Notice of Motion, Mr Caramanlis contended that neither a Notice of Cross-Appeal nor a Notice of Contention was an appropriate means by which he could and should have raised these defences in this Court. I do not accept that this is so.

25 UCPR r 51.17 permits the filing and serving of a Notice of Cross-Appeal by a respondent "who wishes to seek the discharge or variation of the decision below (or part of the decision below)". As Hodgson JA (with the concurrence of Ipp JA and myself) pointed out in Bonny Glen Pty Ltd v Country Energy [2009] NSWCA 26 at [84], the word "decision" is defined widely in UCPR r 51.2. As it includes a "determination", it was open to Mr Caramanlis to file a Notice of Cross-Appeal indicating his disagreement with the primary judge's omission to record that if she had found in Mr Caramanlis' favour on liability that Mrs Papa's damages would have been reduced by reason of contributory negligence and apportionment.

26 Likewise, it would have been open to Mr Caramanlis to file a Notice of Contention pursuant to UCPR r 51.40 which is relevantly in the following terms:

"(1) A respondent who wishes to contend that the decision below should be affirmed on grounds other than those relied on by court below, but does not seek a discharge or variation of any part of the orders of the court below:

(a) need not file a notice of cross-appeal, and

(b) must, within 28 days after service on the respondent of the notice of appeal, file and serve on each interested party notice of that contention stating briefly, but specifically, the grounds relied on."

27 To preserve his partial defences of contributory negligence and apportionment, Mr Caramanlis should have filed a Notice of Contention indicating that the primary judge's decision in his favour was, at least in part, to be justified on the basis of those defences, in the alternative to her decision in his favour based on an absence of negligence. As contemplated by the rule, Mr Caramanlis did not seek any different order than the judgment in his favour. If he had filed a Notice of Contention it would, in accordance with the express terms of r 51.40(1)(a), have been unnecessary for him to file a Notice of Cross-Appeal.

28 Whether or not Mr Caramanlis was able to file a Notice of Cross-Appeal or a Notice of Contention, it was in any event incumbent upon him, if he wished to preserve his defences of contributory negligence and apportionment, to raise them in this Court on the appeal. If he had, it is likely that each party would have made detailed submissions concerning them, including as to whether they should be determined by this Court or remitted to the primary judge for consideration. As he did not do this, the appeal was heard and determined on the basis that if Mr Caramanlis had any liability it was unqualified by any issue of contributory negligence or apportionment. Subject to quantification of the debt owed by Mrs Papa to Provident, which is to be reflected in the quantum of the damages to be awarded against Mr Caramanlis, the proceedings were finally determined by the judgment of 28 February 2013.

29 As observed by the plurality in D'Orta-Ekenaike v Victorian Legal Aid [2005] HCA 12; 223 CLR 1 at [34] and [35], "[a] central and pervading tenet of the judicial system is that controversies, once resolved, are not to be reopened except in a few, narrowly defined, circumstances" and "the importance of finality pervades the law". To permit Mr Caramanlis now to raise on appeal his defences of contributory negligence and apportionment would in my view be to permit a substantial encroachment on those principles, as well as those embodied in ss 56 - 58 of the Civil Procedure Act 2005. These sections identify the overriding purpose of the Act and the rules of court as one "to facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings" and require parties to the proceedings and their lawyers to co-operate in the fulfilment of that purpose. The importance and effect of these provisions was described in detail by Allsop P (with the concurrence of McColl and Basten JJA) in Richards v Cornford (No 3) [2010] NSWCA 134 at [98] - [110]. I gratefully adopt his Honour's analysis.

30 On the present motion no explanation was given for the defences not previously being raised on the appeal other than an explanation from the bar table that those concerned with Mr Caramanlis' case thought or assumed that the defences could be raised after the appeal was determined, if it became necessary to do so. This is not in my view an adequate explanation. It did not justify Mr Caramanlis permitting the Court to hear and determine the appeal on what, on his approach, was an erroneous basis and did not conform with the duty imposed on parties by s 56(3) of the Act.

31 Relevant to the course to be taken by this Court is also the impact that allowing the defences now to be raised would have on the other parties. If they were allowed to be raised, either this Court would have to receive further submissions, possibly both written and oral, concerning the merits of the defences or it would have to remit the issues raised by the defences to the primary judge for determination. Either course would result in considerable delay in the final resolution of these proceedings. It can be inferred that this delay would cause hardship to one or both of Mrs Papa and Provident.

32 There would be obvious prejudice to Mrs Papa if, because the amount of her judgment against Mr Caramanlis awaited determination, Provident proceeded to sell her home and place of business. Even if this did not happen until Mr Caramanlis' defences were determined, Mrs Papa would be subjected to continuing uncertainty, with the anxiety that could be expected to flow from that, about her ability to retain her home and workplace (see Richards v Cornford at [118]). That would not be compensable by costs. If Provident refrained from selling the property, or was prevented by court order from doing so, it would suffer the prejudice of further delay in receipt of its just entitlement.

33 I consider that these circumstances require that the Court decline to make the orders sought by Mr Caramanlis in his Notice of Motion.

ORDERS

34 In light of the consent given by the parties to certain variations of the orders made on 28 February 2013 and the conclusions on the matters in issue that I have expressed above, I propose that the following orders be made in addition to those made on that date:

(1) Dismiss with costs Mr Caramanlis' Notice of Motion filed on 14 March 2013.

(2) In lieu of order 5 made on 28 February 2013, order Mrs Papa to pay Provident Capital's costs, assessed on a solicitor and client basis, of its proceedings against her at first instance (including Mrs Papa's cross-claim against Provident Capital) and its appeal.

(3) In lieu of order 11 made on 28 February 2013, order that Mr Caramanlis pay to Mrs Papa:

(i) Her costs at first instance of Provident Capital's claim against her (including Mrs Papa's cross-claim against Provident Capital) and her claim against Mr Caramanlis;

(ii) Her costs of Provident Capital's appeal against the judgment in her favour;

(iii) Her costs of her appeal against the judgment in favour of Mr Caramanlis.

(4) If Mrs Papa and Mr Caramanlis are able to agree as to the amount of the damages to be awarded against Mr Caramanlis, direct those parties to file a form of consent order with the Court within seven days of the date of this judgment.

(5) If those parties are unable to so agree, direct that Mrs Papa cause her appeal to be listed before the Registrar of the Court of Appeal for the purpose of directions being made as to the filing of evidence of relevant costs and expenses incurred by Provident Capital after 4 July 2010 and the determination of the amount of the damages that should be awarded against Mr Caramanlis.

(6) Order Mr Caramanlis to pay the costs of Provident Capital and Mrs Papa of Provident Capital's Notice of Motion filed on 11 March 2013.

35 SACKVILLE AJA: I agree with Macfarlan JA.

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Decision last updated: 06 June 2013