THE COURT ORDERS THAT:

1.         The respondent to pay the applicant’s costs on a party-party basis from the fund held in Australia.

2.         The application for costs on an indemnity basis is dismissed.

3.         The applicant pay the respondent’s costs of the application for indemnity costs.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

In this matter I delivered judgment on 19 May 1998.  At the conclusion of my reasons for judgment I expressed the prima facie view that costs should follow the outcome and that costs and disbursements awarded to Mr Rolfe should be paid out of the funds held in Australia before any balances be remitted to Belgium.

Mr Rolfe now seeks an order that costs of the proceedings be paid on an indemnity basis.  The foundation for this submission is that Mr Rolfe is entitled to indemnity costs because of the nature of the agreement found to exist between the parties; namely, that there was a binding contract that Tansworld would pay Mr Rolfe’s commission and expenses and that such commissions and expenses would be satisfied from a specific identified trust.

It is further submitted that the agreement is one of indemnity so that if successful Mr Rolfe would not be out of pocket in any way and that, therefore, it follows he should not be out of pocket by reason of having incurred legal costs to enforce the agreement.  Reference is made to a number of cases relating to mortgages and guarantees, which are said to support a proposition that in relation to such transactions the courts will enforce a contractual right to indemnity against costs.  It is said that as the agreement in the case is properly considered to be a contract of indemnity, then costs incurred in its enforcement should be ordered to be paid on an indemnity or solicitor-client basis.

Counsel for Transworld submits that the ordinary principle should apply that in the absence of special circumstances, costs should be on a party-party basis and that in the present case there were no special circumstances, such as knowingly making allegations of fraud without a proper factual foundation; bringing vexatious proceedings or bringing proceedings for an ulterior purpose.

Transworld has referred to the statement of principle in Coote’s, Treatise on the Law of Mortgages (8^th ed, 1912) that:

“A mortgagee does not in terms contract for costs, but the rule is, that all costs which he, as mortgagee, properly incurs in relation to his security are to be allowed to him.  Such costs will be added to the principal and interest secured by the mortgage and form one debt, which as between the particular mortgagee and other encumbrances, will rank in priority as if such costs had formed part of the moneys originally secured by that mortgage.”

In National Provincial Bank of England v Games (1886) 31 Ch D 583 at 592-593, Cotton LJ said:

“If a proceeding is taken to enforce the contract against the mortgagor, those costs, if properly incurred, come within the rule, being costs properly incurred in attempting to enforce the rights given by the mortgaged contract.”

Another decision of this Court, which is to the same effect, is Elders Trustees & Executive Company Limited v E G Reeves Pty Ltd (1988) 20 FCR 164 at 169-174.

A similar principle has been held to apply in relation to an action by a surety against a principal to recover legal costs incurred by the surety in resisting the creditor’s claims.  This is said to arise out of an implied contract: see McColl’s Wholesale Pty Limited v State Bank of New South Wales [1984] 3 NSWLR 365 at 376-377.  The underlying principle is that where a contract implies an indemnity for the benefit of a surety, interest is allowed by way of damages on payments made by the surety because the surety should be placed in the same position as if the obligation of the principal had been performed: see Ex parte Bishop; Re Fox Walker & Co (1880) LR 15 Ch D 400 at 421-422.

As Woodward J pointed in Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Limited (1988) 81 ALR 397 at 400-401, the Court suggests that the discretion to award solicitor-client costs is absolute and unfettered but must be exercised judicially and that such costs can properly be awarded in appropriate cases, where there is some special or unusual feature in the case to justify the Court exercising its discretion in that way.  However, in the present case, there is nothing in the nature of conduct on behalf of Transworld, which would amount to unusual or special circumstances.

There does not appear to be any case directly in point on the question presently before me.  In my view, the circumstances do not warrant the implication of any right to an indemnity costs order.  The relationships of mortgagor-mortgagee and principal-surety come within the special category of transactional.  In principle I can see no reason why Mr Rolfe should recover costs on an indemnity basis.  The contractual arrangements between the parties were of some degree of complexity and called for analysis and determination after a review of a great deal of evidentiary material both oral and documentary.  There was nothing vexatious or untoward in the conduct of Transworld in defending the claim of Mr Rolfe.  In these circumstances, I see no reason to depart from the normal rule that costs should be awarded on a party-party basis.

Accordingly, I order that the respondent should pay the applicant’s costs on a party-party basis from the fund held in Australia.  The application for costs on an indemnity basis should be dismissed.  The applicant should pay the respondent’s costs of the application for indemnity costs.

Associate:

Dated:              25 September 98