Benjamin & Khoury Pty Ltd v Gabriel Rahme

Supreme Court of NSW|2021-08-24

Judgment

HER HONOUR: The first defendant seeks to set aside a judgment entered on 5 September 2014, relating to solicitor/client costs.
By amended notice of motion filed 5 August 2021, the first defendant seeks the following orders: 1. The judgment registered and entered on 5 September 2014 for $168,456.96 against the defendants on the application of the plaintiff pursuant to UCPR 36.10 be set aside as against the first defendant pursuant to UCPR 36.15(1). 2. Alternatively, the judgment registered and entered on 5 September 2014 for $168,456.96 against the defendants on the application of the plaintiff pursuant to UCPR 36.10 be set aside as against the first defendant pursuant to UCPR 36.16(2). 3. Alternatively, the judgment registered and entered on 5 September 2014 for $168,456.96 against the defendants on the application of the plaintiff pursuant to UCPR 36.10 be set aside as against the first defendant pursuant to UCPR 36.16(3).
The plaintiff is Benjamin & Khoury Pty Ltd, a Law Firm who acted for the defendants its former clients. The first defendant is Gabriel Rahme ("Mr Rahme"). The second defendant is Dana Rahme ("Mrs Rahme"). Mr C. Bevan of counsel is acting for only the first defendant. The parties relied upon a joint court book.

Background facts

In August 2005, D Tannous No 2 Pty Ltd ("Tannous") and J & J Rahme Pty Ltd ("J & J Rahme"), two companies controlled by Mr Gabriel Rahme, each entered into a Lease Indemnity Deed with Bevillesta Pty Ltd ("Bevillesta"). Bevillesta was a shopping centre landlord and Tannous and J & J Rahme were tenants. Under the Lease Indemnity Deed, Bevillesta agreed to indemnify those tenants in respect of any liability that they might incur to pay income tax on the amount of any fit-out contribution paid by the landlord to the tenants in connection with their leases.

The indemnity proceedings

In October 2008, after incurring but not paying such tax liabilities, Tannous sued Bellivesta for indemnity in proceedings commenced in the Common Law Division in Rahme v Satouris ("the indemnity proceedings").
Tannous claimed from Bevillesta indemnity under its Lease Indemnity Deed for a tax liability of $1,437,000.00. J & J Rahme was later joined as a plaintiff and also made a claim for indemnity for a tax liability of $1,035,681.90 under its Lease Indemnity Deed. Mr Rahme also made a separate claim however this was ultimately not pursued.
During the proceedings, Benjamin & Khoury Pty Ltd ("the Law Firm"), commenced to act for Tannous, J & J Rahme and Mr Rahme. Mr Dieb Khoury ("Mr Khoury") was a principal of the Law Firm with carriage of the proceedings on behalf of the plaintiffs.
In June 2010, Mr Rahme placed Tannous and J & J Rahme into administration. In October, Mrs Rahme entered into costs agreements with the Law Firm to assume responsibility for the Law Firm's past and future costs in relation to the indemnity proceedings and to give security to support that commitment ("the October costs agreements"). The Law Firm referred Mrs Rahme to Mr Michael Soulos (Mr Soulos), solicitor, for independent advice, Mr Soulos made it clear to Mrs Khoury and the Law Firm that he was not able to advise her about the prospects of success in the common law proceedings.
On 4 April 2012, a Deed of Settlement and Release was entered into as a result of which Mrs Rahme and the tenants released and discharged Bevillesta from all claims against it. In consequence, a Notice of Discontinuance of the indemnity proceedings was filed on 13 August 2012.

The costs assessment

On 19 June 2013, the Law Firm filed a Practitioner-Client Application for Assessment of its costs against Mr Rahme (as the client) and Mrs Rahme (as the third-party payer of costs) under the Legal Profession Act 2004 (NSW) ("Legal Profession Act").
On 21 July 2014, in 2013/187146 Benjamin Khoury Pty Ltd (as costs applicant) v Gabriel Rahme and Danna Rahme (as costs respondents), the Costs Assessor assessed as a fair and reasonable amount of costs to be paid to the costs applicant by the costs respondents was $202,216.14 and the costs respondents were to pay the costs applicant the sum of $168,456.96 (CB 1).
The process for the determination of this costs dispute is set out in Division 11 of the Legal Profession Act. The Legal Profession Act was replaced from 1 July 2015 by the Legal Profession Uniform Law ("Uniform Law"). As the costs assessment process occurred in 2013 and 2014 it is the Legal Profession Act that is the applicable law here.
Once a costs assessment is determined by an assessor, it is taken to be final and binding: s 372 Legal Profession Act. Section 368(5) Legal Profession Act provides that, upon filing, the certificate is, "with no further action, taken to be a judgment of the Court for the amount of the unpaid money". Section 70(5) of the Legal Profession Uniform Law Application Act 2014 (NSW) is the equivalent provision.
Mr and Mrs Rahme had the right to apply for a review of the costs assessment pursuant to s 373 Legal Profession Act within 30 days of the certificate being issued by the Costs assessor, but they did not exercise that right.
On 3 September 2014 the Manager, Costs Assessment, issued certificates of Determination of the Law Firm's costs for $6,704.47 (costs of assessor) and $202,216.14 (the Law Firm's costs).

The Judgment

On 5 September 2014, in 2014/262387 Benjamin Khoury Pty Ltd (as plaintiff) v Gabriel Rahme (as first defendant) and Dana Rahme (as second defendant), judgment was entered that the first and second defendants pay the plaintiff the sum of $168,456.96 for assessed but unpaid costs after credit was given for part-payment. On 5 September 2014 the judgment was registered and became a judgment of this court by virtue of s 368(5) Legal Profession Act ("the Judgment").

The common law proceedings

In 2015, Mrs and Mrs Rahme commenced proceedings against the Law Firm in the Supreme Court seeking damages (the costs they had paid to the Law Firm) for negligence, breach of contract, breach of fiduciary duty and contraventions of the Australian Consumer Law and Contracts Review Act 1980 (NSW).
On 14 June 2018, Mrs and Mrs Rahme amended their claim against the Law Firm to make two complaints. First that the Law Firm and Mr Khoury breached their fiduciary obligations owing to Mrs Rahme in entering the October Costs Agreement and taking security for her liability under that Costs Agreement, and second that the Law Firm and Mr Khoury gave negligently wrong advice on the prospects of success of the Bellavista Proceedings and the effectiveness of the Deed of Sale of the chose in action for those proceedings.
The trial before Emmett AJA (the primary Judge), ran for a number of days, namely 27, 28, 29, and 30 August and 11 September 2018. On 21 November 2018, the primary judge handed down his judgment in Rahme v Satouris [2018] NSWSC 1753. The primary judge rejected Mr and Mrs Rahme's claims and gave judgment for the defendants.

The appeal proceedings

In the appeal Rahme v Benjamin & Khoury Pty Ltd [2019] NSWCA 211 ("Rahme 1") per MacFarlan JA (with Bathurst CJ and McCallum JA agreeing) there were 4 issues raised. The last issue is not relevant here. The first issue was whether the Law Firm owed fiduciary duties to Mrs Rahme. The Court held that by signing the costs agreements with the Law Firm, Mrs Rahme agreed to pay the Law Firm's past and future fees for it acting on her behalf as solicitor for the plaintiffs in the indemnity proceedings and she agreed to give security for that commitment. In these circumstances the Law Firm owed Mrs Rahme fiduciary duties in relation to her entry into those agreements.
The second issue was whether the Law Firm breached the fiduciary duties that it owed to Mrs Rahme. The Court held that the Law Firm breached its fiduciary duties because it entered into agreements with Mrs Rahme under which its interests conflicted with those of Mrs Rahme, and Mrs Rahme did not give her fully informed consent. To ensure that consent is fully informed, independent advice must be "meaningful" advice enabling the person who is advised to make an independent, intelligent choice concerning the transaction. Mrs Rahme did not receive from Mr Soulos, sufficient advice to warrant the conclusion that she entered into the cost agreements with fully informed consent.
The third issue was whether Mr Khoury owed fiduciary duties to Mrs Rahme. The Court held that Mr Khoury did not personally owe fiduciary duties to Mrs Rahme.
In summary, in Rahme 1, the Court of Appeal allowed an appeal brought by Mrs Rahme from a decision of the primary judge finding that the Law Firm, an incorporated legal practice, did not owe her fiduciary duties. The Court of Appeal held that the Law Firm did owe Mrs Rahme such duties and had breached them. At [138]-[139] the Court of Appeal made the following orders: "[138] Having succeeded in her claim against B&K for breach of fiduciary duty, Mrs Rahme is entitled to have an amount equivalent to the legal costs that she paid B&K paid back to her by way of restitution and to obtain from B&K equitable compensation for the amount she paid to third parties in consequence of B&K's breaches of fiduciary duty. If she incurred liabilities to third parties in such circumstances, she is entitled to compensation in respect of the liabilities also even if she has not yet satisfied them. These amounts appear to total $342,193.69, plus interest. As noted earlier, the primary judge said that he did not believe that there were any outstanding issues in respect of the quantum of Mrs Rahme's claim."
The parties were ordered to bring in Short Minutes of Order providing for judgment for this amount and any orders setting aside costs agreements or judgments that are necessary (at [139]).
There was some dispute between the parties as to the content of the short minutes of order. That dispute was dealt with by the Court of Appeal by way of written submissions.
On 8 October 2019, the Court of Appeal in Rahme v Benjamin & Khoury Pty Ltd (No 2) [2019] NSWCA 239 ("Rahme 2"), in relation to Mrs Rahme, made the following orders: "As between Mrs Rahme and B&K: (a) Judgment for Mrs Rahme against B&K in the sum of $302,040.30 including interest to 6 September 2019 on which date this judgment is to take effect. (b) Order that, as between Mrs Rahme and B&K, the Deed of Equitable Charge Over Land dated 13 September 2010 as varied by Deeds dated 13 September 2010, 5 October 2010 and 14 October 2010 to be set aside. (c) Order that, as between Mrs Rahme and B&K only, the Costs Agreement dated 5 October 2010 be set aside. (d) Order that B&K pay the costs of Mrs Rahme (but not of Mr Rahme) of the proceedings in the court below on the ordinary basis. (6) Order that B&K pay the costs of Mrs Rahme of the proceedings in the Court of Appeal on the ordinary basis. (7) Note that there is no order for costs in the Court of Appeal as between Mrs Rahme and Mr Khoury."

The present proceedings

On 9 September 2020 a notice of motion to set aside the judgment against Mr and Mrs Rahme made on 5 September 2014 was filed in this Court. On 5 August 2021, that motion an amended version of that notice was filed in this Court, the forensic effect of the amendment being to remove Mrs Rahme as an applicant and to make her the second respondent.
In seeking to set aside the judgment entered on 5 September 2014, Mr Rahme made a number of written and oral submissions, some of which are intertwined. They are firstly that the costs assessor made no findings as to the liability of Mr Rahme but rather only determined the fair and reasonable amounts for costs and that liability needs to now be determined, secondly that the Court of Appeal decisions and orders in Rahme 1 and Rahme 2 constitute supervening events which preclude the enforcement of the judgment until it is reconsidered by a review panel, and thirdly that the judgment is a deemed judgment that was entered irregularly as it was entered during the 30 day period for review.

The Supreme Court's power to set aside judgment

Mr Rahme relies on the Supreme Court's inherent jurisdiction, and its statutory jurisdiction pursuant to rr 36.15 and 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), in seeking to set aside the judgment.
UCPR 36.15 and 36.16 relevantly read: "36.15 General power to set aside judgment or order (1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith. (2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent." 36.16 Further power to set aside or vary judgment or order (1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order. (2) The court may set aside or vary a judgment or order after it has been entered if: (a) it is a default judgment (other than a default judgment given in open court), or (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or … (3) In addition to its powers under subrules (1) and (2), the court may set aside or vary any judgment or order except so far as it - (a) determines any claim for relief, or determines any question (whether of fact or law or both) arising on any claim for relief, or (b) dismisses proceedings, or dismisses proceedings so far as concerns the whole or any part of any claim for relief. (3A) If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered. (3B) Within 14 days after a judgment or order is entered, the court may of its own motion set aside or vary the judgment or order as if the judgment or order had not been entered. (3C) Despite rule 1.12, the court may not extend the time limited by subrule (3A) or (3B). (4) Nothing in this rule affects any other power of the court to set aside or vary a judgment or order."
UCPR 36.10 is also relevant as it concerns the filing of costs assessor's certificates. It relevantly reads: "36.10 Filing of cost assessors' certificates (1) A cost assessor's certificate-- (a) may be filed in the proceedings to which it relates, or (b) may be filed in fresh proceedings, whether in the same court or another court."

Calandra v Murden [2015] NSWCA 231

Counsel for Mr Rahme referred to Calandra v Murden [2015] NSWCA 231 ("Calandra"), where at [11]-[13] and [20]-[22] (per Beazley P, Meagher, and Leeming JJA) it was stated: "[11] The respondent's claim against Mr Calandra was subsequently settled and a Deed of Release and Indemnity dated 14 February 2012 was executed to record the terms of that settlement. The release given by cl 2.8 included that "the Releasor releases the Releasee from any claim for costs in any other proceedings including the security proceedings in the Supreme Court of New South Wales". The learned magistrate found that the subject matter of that release included the costs ordered to be paid on 7 July 2010. In the appeal to the primary judge and in this Court that conclusion was not contested. That release, although only given in favour of Mr Calandra, also operated to release Mrs Calandra as a joint obligor. The relevant principles are referred to in Carr and Purves v Thomas [2009] NSWCA 208 at [14]. [12] The applicants were advised of the respondent's application for an assessment of the party/party costs. They objected to that assessment on the basis that his entitlement to those costs had been released. The costs assessor considered that objection but rejected it on the basis that her jurisdiction was limited to determining the fair and reasonable amount of the costs. On 3 December 2012 the assessor issued the two certificates later attached to the Filing of Certificate of Order form. That form did not disclose that the liability to pay the assessed party/party costs had been, or was claimed to have been, released. [13] In argument before the magistrate the applicants submitted that the Local Court had power under UCPR, r 36.15, as well as implied power, to set aside the judgment entered on 15 January 2013 and to correct its record by setting aside the form by which the certificates were filed. UCPR, r 36.15(1) provides: A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith." … [20] The learned magistrate plainly had power to set aside the "judgment" and the filing of the form attaching the costs certificates. The judgment of the Court in the proceedings constituted by the filing of that form (see r 36.10) was, in the language of UCPR, r 36.15, entered "against good faith". That judgment was also entered "irregularly" because there was no amount of unpaid costs in respect of which the respondent was entitled to judgment as provided by s 368(5). In Hughes v Justin [1894] 1 QB 667 at 670 Lopes LJ described as "irregular" a default judgment signed for an amount to which the plaintiff was not entitled. [21] The Local Court has such implied powers as are necessary to enable it properly to exercise its jurisdiction: see Grassby v The Queen [1989] HCA 45; 168 CLR 1. Those powers extend to correcting its record, which in this case required setting aside the judgment entered and the Filing of Certificate of Order form. Authority supporting the existence of that power is to be found in the decisions of this Court in Doyle at [53] and Frumar at [44]. The form should not have been filed and ought not to have been accepted, had the respondent disclosed at the time of its filing that there was no amount of unpaid costs due. [22] Leave to appeal should be granted because the questions raised are of general application and because it is in the interests of justice that the error of the primary judge be corrected. The appeal should be allowed and the respondent must pay the applicants' costs of both appeals. The effect of dismissing the appeal from the Local Court to the Supreme Court is to leave in place the orders obtained by the applicants on 22 October 2013."
As in Calandra, I accept that this Court has power to set aside judgment under UCPR 36.15 and pursuant to the inherent power of the Court. However, UCPR 36.16 does not apply as the notice of motion was filed 8 years after the judgment was entered, well outside the stipulated period in UCPR 36.16(3A) and 36.16(3B).
Mr Rahme also relies upon UCPR 30.1 referred to in Calandra at [20] reproduced above, it reads: 30.1 Damages under judgment (1) This rule applies to proceedings in which judgment against a party has been given for damages to be assessed. (2) Subject to subrule (3), the proceedings are to proceed to trial for assessment of damages. (3) If the proceedings are carried on against the party on any claim for relief not determined by the judgment, or against any other party, the trial for assessment of damages is to be held together with any other trial in the proceedings.

The Legal Profession Act 2004 (NSW)

As stated previously in this judgment, as the costs assessment process occurred in 2013 and 2014 it is the Legal Profession Act and not the Uniform Law that is the applicable law.
The Legal Profession Act relevantly reads: "368 Certificate as to determination (1) On making a determination of costs referred to in Subdivision 2 or 3 of this Division, a costs assessor is to issue a certificate that sets out the determination. … (5) In the case of an amount of costs that has not been paid, the certificate is, on the filing of the certificate in the office or registry of a court having jurisdiction to order the payment of that amount of money, and with no further action, taken to be a judgment of that court for the amount of unpaid costs, and the rate of any interest payable in respect of that amount of costs is the rate of interest in the court in which the certificate is filed. … 372 Determination to be final A costs assessor's determination of an application is binding on all parties to the application and no appeal or other assessment lies in respect of the determination, except as provided by this Division. 373 Application by party for review of determination (1) A party to a costs assessment who is dissatisfied with a determination of a costs assessor may, within 30 days after the certificate under section 368 (Certificate as to determination) or 369 (Recovery of costs of costs assessment) has been forwarded to the parties that sets out the determination of the costs assessor or within such further time as the Manager, Costs Assessment may allow, apply to the Manager, Costs Assessment for a review of the determination."

Branson v Tucker [2012] NSWSC 310

Both parties referred to Branson v Tucker [2012] NSWSC 310 ("Branson'). In Branson, Campbell JA wrote the main judgment which starts at paragraph [2]. At [121] Barrett JA agreed with Campbell JA and then added some additional reasoning at [126]-[131].
In Branson at [127]-[131] the Court of Appeal stated: "[127] The assessment process created by the Legal Profession Act, as it applies in a case of this kind, is no more than a means of quantification made available to the billing practitioner and the person billed. Either of them may resort to it or not as he or she chooses. The objective is to provide an efficient method of objective quantification by experienced practitioners and, in that way, to protect those upon whom lawyers impose charges and to regulate the conduct of lawyers. [128] If advantage is taken of the assessment procedure, the quantification it produces may, by the simple procedural step of filing the assessor's certificate of assessment in a court registry, be translated into a deemed judgment debt under s 368(5); and such a deemed judgment debt will supersede or operate to satisfy the contractual entitlement. Once a deemed judgment debt arises, there no longer exists any possibility of an action in contract to recover the lawyer's fees. [129] If, on the other hand, there is, for any reason, no quantification by means of the statutory assessment process, the matter falls to be dealt with in the same way as any other contractual claim or, if there is no costs agreement, on the basis of the statutory form of quantum meruit created by s 319(1)(c). [130] In the recent case of Coshott v Barry [2012] NSWSC 850, McCallum J succinctly described the interaction of the assessment system with contractual rights and obligations. She said (at [41]): "A solicitor's entitlement to lodge an application for a costs assessment is not a source of right or title in itself. It is an aspect of the regulation of the legal profession under the Legal Profession Act 1987. The Act creates an administrative mechanism for quantifying legal costs in a variety of circumstances ... To the extent that it provides for the assessment of costs payable under contract, I do not think it alters the fundamental nature of the right and title to those costs." [131] I agree with Campbell JA that this is not an appropriate occasion to revisit this Court's decision in Attard v James Legal Pty Ltd [2010] NSWCA 311. It is sufficient to say that, as was there recognised, where a question of the amount recoverable by a legal practitioner for costs arises, the mere existence of the assessment process under the Legal Profession Act does not preclude the deployment of the court's general jurisdiction in addressing the question according to the way in which it arises. It is only when the statutory mechanism has been put into operation and has resulted in quantification that the existence of the mechanism has a bearing on the determination of the recoverable amount."

Civil Procedure Act 2005 (NSW)

Mr Rahme also relies on the Civil Procedure Act 2005 (NSW) ("Civil Procedure Act"). The Civil Procedure Act relevantly reads: "133 Judgments and orders unenforceable until entered (1) A judgment or order of the court may not be enforced until it has been entered in accordance with the uniform rules. (2) This section extends to - (a) any judgment, order, determination or decree of a court, and (b) any adjudication or award of a person having authority to make an adjudication or award, that may be filed or registered in the court, or of which a certificate may be filed or registered in the court, under any other Act or law."

The substantive matters

The simple basis on which Mr Rahme seeks relief is that the costs agreements between Mr and Mrs Rahme and the Law Firm which were the foundation for the Certificates of Determination dated 3 September 2014, which were registered as a deemed judgment of this Court on 5 September 2014, were set aside by the Court of Appeal on 30 August 2019 on the ground that entry into the agreements by Mrs Rahme was procured by breach of fiduciary duty. Accordingly, it is Mr Rahme's submission that the contractual basis for liability for costs supporting the certificates, and in turn the deemed judgment ceased to exist on 30 August 2019.

Mr Rahme's Submissions

Counsel for Mr Rahme made a number of submissions in relation to Mr Rahme's liability in respect of the judgment. He submitted that the liability of the defendants for costs to the Law Firm arose under what the Court of Appeal called "the Third Costs Agreement". See: the Court of Appeal's judgment (dated 13 September 2010) at [35]-[47] and [113]-[117] (breach of fiduciary duty). The Fourth Costs Agreement (dated 5 October 2010) was in identical terms as the Third Costs Agreement, save that Mr Rahme's new company, had ceased to be a party to it.
These costs agreements were the sole basis for the application for costs assessment by the Law Firm because the latter costs agreements necessarily displaced the former agreements. Only the latter agreements made Mrs Rahme liable together with Mr Rahme for past and future legal costs incurred to the Law Firm by Mr Rahme as the Law Firm's client, and only the liabilities for costs created by these latter costs agreements were secured by the charges over her land granted by Mrs Rahme to the Law Firm.
The Law Firm's application for assessment and its supporting submissions made in support themselves establish the centrality of the latter costs agreements that were set aside by the Court of Appeal on 30 August 2019. The Costs Assessor's Reasons for determination also reinforce the centrality of the latter costs agreements set aside by the Court of Appeal. (It is to be noted that the only statutorily-compliant costs agreement that was ever entered into by Mrs Rahme and Mr Rahme which was enforceable by the Law Firm under the Legal Profession Act was the 13 September 2010 agreement, as found by the Court of Appeal in its judgment dated 30 August 2019, being the agreement which that Court set aside).
In oral submissions, Counsel for Mr Rahme stated that there cannot have been a determination of liability on the costs agreement because otherwise a proceeding before the primary judge and the appeal in the inherent jurisdiction of the court in respect of the setting aside of the costs agreement and damages for breach of fiduciary duty would not have been possible.
Counsel for Mr Rahme further submitted (at T14.11-30), that in paragraphs [52] and [53] of the assessor's decision and certification, "to pay" and "is to pay" are not findings of liability but merely an adoption of the statutory formula for expressing the amount payable if and when the contractual dispute about entitlement and liability is determined by a court of competent jurisdiction, because that's the format in the regulations for expressing the certification of what is payable. The costs assessor made the absolute minimum findings about the terms of various costs agreements in play, only decided what was necessary to quantify the Law Firm's fair and reasonable costs and was careful not to embark on a binding exercise of contractual entitlement and liability.
According to Mr Rahme (at T15.43-T17.35), Mr Khoury got this finding of quantification converted into a judgment, by virtue of a combination of 368(5) Legal Profession Act, 133(2)(b) Civil Procedure Act and UCPR 36.10. He submitted that the mere Ministerial procedure does not convert a determination of quantification in the event of liability and entitlement into a judgment, as that would be to see a res judicata on liability, and that the mere Ministerial act of registering the certificates as a deemed judgment, without more, does not establish either an entitlement in the Law Firm to the assessed costs or a liability in Mr and Mrs Rahme to pay the assessed costs.
Counsel for Mr Rahme referred to Wende v Horwath (No 2) [2015] NSWCA 416 (per Beazley ACJ with whom Basten JA and Adamson J agreed) where at [35]-[41] the Court considered the effect of the issue of costs certificates: Effect of the issue of the costs certificates [35] The applicants' submission, that the determination made by the costs assessor, as varied by the review panel, "merged in the certificate", was presumably a reference to the legal principle that a cause of action merges in a judgment so as to create a res judicata: see Blair v Curran [1939] HCA 23; 62 CLR 464 at 532; Tomlinson v Ramsey Food Processing Pty Limited [2015] HCA 28. In my opinion, this submission involves a misapprehension both of the principle of res judicata and the doctrine of merger and of the effect of the issue of a costs certificate. [36] It needs to be observed at the outset that the principle of res judicata relates to the exercise of judicial power. The effect of a judgment or order made or given by a judicial officer is that the rights asserted by a party in a cause cease to have effect and merge in the final judgment: see Tomlinson v Ramsey Food Processing at [20]. A costs assessor is not a judicial officer. Nor is there any proceeding or judicial process involved in a costs assessment unless and until there is an appeal to the District Court. Rather, so far as is relevant to this matter, the costs assessment process is a non-judicial process whereby there is a determination of the fair and reasonable costs of a proceeding in a court, or an aspect of a proceeding in a court, in respect of which a costs order has been made. At the costs assessment or review stage, therefore, there was no 'merger', as that doctrine properly operates. That then raises the question as to the effect accorded by statute to the issue of a costs certificate. [37] Pursuant to s 367 of the 2004 Act, a costs assessor was required to determine an application for costs assessment. Of its own, that determination created no enforceable right. Section 368 directed the costs assessor to issue a costs certificate. The certificate was a statement of the costs assessor's determination, relevantly in this case, of the fair and reasonable amount of the party/party costs of the proceedings subject of the costs order. The issue of the certificate was thus a statutory act, which again, of itself is of no force and effect beyond being a statement of the determination. [38] Operative effect was given to the certificate, and thus to the underlying determination by s 368(5), which provided: "368 Certificate as to determination … (5) In the case of an amount of costs that has not been paid, the certificate is, on the filing of the certificate in the office or registry of a court having jurisdiction to order the payment of that amount of money, and with no further action, taken to be a judgment of that court for the amount of unpaid costs, and the rate of any interest payable in respect of that amount of costs is the rate of interest in the court in which the certificate is filed." [39] The statutory effect of registration of the certificate was recognised in Frumar v The Owners of Strata Plan 36957 [2010] NSWCA 182 at [8] per Giles JA. Handley AJA, at [42], considered that entry of judgment on a filed certificate was a ministerial act. In Calandra v Murden [2015] NSWCA 231, at [5], this Court, in considering the process of costs assessment for which the 2004 Act provided, explained the operation of s 368(5) in the following terms: "Section 368(5) is a deeming provision. Where its premise is satisfied and a certificate assessing costs is filed there is deemed 'with no further action' to be a judgment of the court whose jurisdiction has been invoked: see Frumar v The Owners of Strata Plan 36957 [2010] NSWCA 172 at [8] (per Giles JA), [42] (per Handley AJA, Macfarlan JA agreeing). Section 133 of the Civil Procedure Act and provisions of the UCPR give effect to that deeming. Subsection 133(1) provides that a judgment of the court, here the Local Court, may not be enforced until it has been entered in accordance with the UCPR. As there used, 'judgment' includes a determination of a costs assessor as an 'adjudication or award of a person having authority to make an adjudication or award' (s 133(2)). UCPR, r 36.10 provides that the costs assessor's certificate may be filed in the proceedings to which it relates, or in 'fresh proceedings', whether in the same or another court. The approved form, Form 45, requires the filing party to provide details of any payments made or credits accrued since the relevant assessment and to state the total amount 'to be enforced as at date of filing'. UCPR, r 36.11, which makes clear by r 36.11(3) that a judgment includes a determination that has been filed in the court, provides that a judgment is taken to have been entered when it is recorded in the court's computerised court record system." [40] As is apparent from this passage, nothing 'merged' in the costs certificate. The certificate was a statement of the fair and reasonable costs ordered to be paid by one party to another. It did not, of itself, determine the amount that one party presently owed to another pursuant to a costs order. At the time of filing, the enforcing party was required, in accordance with District Court Form 45, to state any amounts paid or credits accrued in respect of such costs. Upon filing, there was a deemed judgment for the amount that was thereby due. That may or may not have been the amount of the determination specified in the costs certificate. It was only upon the entry of judgment, following the filing of the certificate and Form 45, that there could be said to be a merger of the amount of costs that was owing pursuant to this process in the deemed judgment of the court. [41] It follows, in my opinion, that even after this Court ordered that the certificates of costs assessment be set aside, there remained extant the determination of the review panel. That then raised the question of the effect of this Court's orders in the 2014 Judicial Review Decision."

The Law Firm's submissions

In the Court of Appeal both Mr and Mrs Rahme sought to overturn the entirety of Emmett J's decision, including to set aside the judgement with which this motion is concerned. Mrs Rahme was successful, however Mr Rahme was not. What is important is that the costs agreement which is the basis of liability which Mr Rahme had was not set aside. It subsists and was specifically not set aside by the Court of Appeal, and insofar as there is any argument about liability under that costs agreement, Mr Rahme is liable.
The question of liability is not in dispute. The costs agreement between Mr Rahme and the Law Firm was specifically not set aside by the Court of Appeal so this issue falls away. The issue of liability has not been changed by any so-called supervening events, nor has the structure or the reasonableness of costs changed by any supervening event.
The second proposition that had there been a determination of liability the Supreme Court and the Court of Appeal would not have had the jurisdiction to deal with the issues they have dealt with falls away for a similar reason.
The final proposition is that the assessor made minimal findings as to the costs agreement and didn't make any findings in relation to the contractual entitlement. This issue also falls away because there is nothing that remains in dispute about contractual entitlement.

Supervening events and registration of the judgment during the review period

Mr Rahme's submissions

Counsel for Mr Rahme's main argument is that pursuant to UCPR 36.15, and the Court's inherent jurisdiction, this Court has the power to set aside a judgment, including a deemed judgment, pursuant to 368(5) Legal Profession Act and 133(2) of the Civil Procedure Act when either its entry or its enforcement is overtaken by supervening events which affect either the entitlement and liability of the costs or the quantum of the costs assessed.
Mr Rahme contends that the Court of Appeal's decisions and orders in Rahme 1 and Rahme 2 are 'supervening events' which preclude any enforcement of the judgment entered on 5 September 2014 until they are reconsidered by a review panel under subdivision 5 of division 4 Legal Profession Act. (T20.41-44)
The Court of Appeal decision followed registering of the deemed judgment on 5 September 2014, and culminated in final orders made on 8 October 2014, including the setting aside of Mrs Rahme's costs agreement, finding that much of the work was performed in breach of fiduciary duty. Mr and Mrs Rahme were therefore billed for costs on documentation which the Court of Appeal has set aside.
Mr Rahme cannot be liable for costs to a solicitor in respect of the performance of a retainer by the Law Firm for Mrs Rahme alone, being work performed in breach of the Law Firm's fiduciary duty to Mrs Rahme for which the Law Firm has been ordered to pay damages. The ability of the Law Firm to enforce against Mr Rahme alone the entire debt, arising from the deemed judgment entered on 5 September 2014 against Mr and Mrs Rahme, defeats the benefit of the judgment given in favour of Mrs Rahme because it means that her husband is reimbursing the Law Firm for damages which are payable to her. Enforcement of that judgment is therefore irregular and against good faith.
Mr Rahme's fall back proposition is that the deemed judgment should be set aside against him pursuant to either UCPR 36.15 or 36.16 as it was entered irregularly or in breach of good faith due to the timing of the registration of the judgment.
The judgment was entered on 5 September 2014 during the period permitted for filing an Application for Review (30 days) and is a "deemed judgment": see Branson v Tucker [2012] NSWCA 310.
A "deemed judgment" which was entered ex parte during the period for a review of the administrative decision which it has converted into a "deemed" judgment debt is all the more readily set aside. In present case, that applied conclusion follows with greater force because the judgment against two judgment debtors was set aside on appeal five years later, albeit without prejudice to apply to have it re-entered against one of the two judgment debtors on making a fresh application.
There is self-evident injustice in this case from the continued maintenance of the Judgment entered ex parte on 5 September 2014 to give effect to the Certificate of Determination which was issued to the Law Firm and the Rahmes two days before that judgment was entered by the Law Firm.
The correct course was to apply after 8 October 2019 to re-enter the Certificate of Determination dated 3 September 2014, with notice as a new deemed judgment of the Court as against one judgment debtor, Mr Rahme. Had that occurred, Mr Rahme would have opposed it on the ground that he wished to pursue his right of review out of time pursuant to s 373(1) Legal Profession Act "within 30 days... or within such further time as the Manager, Costs Assessment, may allow".
The first reason for that expected different outcome upon a review is that Mr and Mrs Rahme were unrepresented respondents to the first application for costs assessment made by the Law Firm in early 2014 whereas they have been represented by a firm of solicitors in pursuing the costs invoiced by the Law Firm which are recoverable from the Law Firm as damages for breach of fiduciary duty.
It also is expected that there would be different outcome on review as a significant portion of the costs invoiced by the Law Firm which have been certified as fair and reasonable by the costs assessor on 3 September 2014 in the Certificate of Determination relate solely to the retainer of the Law Firm by Mrs Rahme and the documentation of its Costs Agreement, her Deed of Equitable Charge to secure it and documentation in respect of her liability for costs incurred by her alone as its client.
The Court also has inherent jurisdiction to set aside the Certificates of Determination dated 3 September 2014 themselves, as they are founded on the set aside later Costs Agreements. Setting them aside will give full effect to the orders of the Court of Appeal dated 30 August 2019 which set aside the costs agreements supporting the Certificates of Determination. See Cosholt v Barry [2012] NSWSC 850 at [41] and Attard v James Legal Pty Ltd [2010] NSWCA 311, as approved of in Branson, which affirmed the existence of this Court's general (i.e. inherent) jurisdiction over costs and legal practitioners and the appropriateness of exercising it in unusual cases such as this.
For these reasons, Mr Rahme submitted that the deemed judgment entered on 5 September 2014; and the Certificates of Determination (which the deemed judgment gave effect to) dated 3 September 2014, should each be set aside, and an order should be made precluding any steps from being taken by the Law Firm, as the alleged judgment creditor, from enforcing those Certificates of Determination or otherwise registering them as deemed judgments of the Court.
These orders of the notice of motion should be made without prejudice to the Law Firm's right to file a fresh application for assessment of costs against Mr Rahme, as the sole costs respondent, founded on the superseded costs agreements to which he alone was liable for costs as the Law Firm's client. This concession is made assuming that the Law Firm can somehow convince the next Costs Assessor that the superseded costs agreements to which Mr Rahme was a party but Mrs Rahme was not a party can be "resurrected" or otherwise brought back to life as enforceable agreements at common law for the purposes of enforcing them in a fresh Application for Assessment of the Law.

The Law Firm's submissions

A default judgment or a judgment made in the absence of a party before the 28 day period for any review of the cost's assessment had expired, is a "deemed judgment".
Counsel for the Law Firm submitted that it was always open to the Law Firm to file the certificate within 30 days from its issuing, and it did so. There is no irregularity. That Mr Rahme never exercised his right to a review further undermines, as a matter of substance and merit, his position on this application. There is nothing wrong with a party who has been granted a certificate of costs assessment on day one registering it on day two. As the legislation and Cosholt demonstrates, there was no impediment to the Rahmes making an application to an appeal panel post the entry of the judgment, they just didn't do so.
Counsel for the Law Firm submitted that Mr Rahme's reliance on the Court of Appeal judgment in Rahme 2 involves a misreading of that decision and would be rejected. The Court of Appeal did not set aside the Costs Agreement in relation to Mr Rahme. In terms, it set aside the Costs Agreement in relation to Mrs Rahme only. The orders of the Court of Appeal [reproduced earlier in this judgment] and its findings could hardly be clearer.
The Law Firm contends that Mr Rahme is bound by the Court of Appeal decision which he did not appeal. The judgment stands. He is estopped from further contending the judgment should be set aside. The costs agreement which is the basis of the liability that Mr Rahme had was also not set aside. It subsists in relation to Mr Rahme and it was specifically not set aside by the Court of Appeal. Insofar as there as there is any argument about liability under that costs agreement, Mr Rahme is liable. The issue of liability has not been changed by any so-called supervening events, nor has the structure or the reasonableness of costs changed by any supervening event.
Counsel for the Law Firm submitted that Mr Rahme has cited no basis for the Court to exercise its discretion in favour of setting aside a 7-year-old judgment. To the contrary, setting aside that Judgment against the first defendant would stand in direct opposition to the clear orders and reasons of the Court of Appeal in Rahme 2 at orders 3 and 4(a)(ii) and at [7]. In Rahme 2, in the context of a costs debate about an offer by the defendants that included a term to release, inter alia, the Court of Appeal stated: "[7] …Moreover, it was not simply an offer made on behalf of Mrs Rahme. It was also made on behalf of Mr Rahme and acceptance of it by B&K would have involved B&K foregoing the judgment against Mr Rahme which it had, and which it was found by this Court to be entitled to retain. It is not therefore possible to conclude that acceptance of the offer would have put B&K in a better position than it subsequently achieved under this Court's judgment."
Finally, counsel for the Law Firm submitted that in light of the fact that the first defendant's first attempt to set aside the Judgment before a Judge of this Court sitting in the trial division and the Court of Appeal, the bona fides of the Application - especially given it was made in light of the issuance of a bankruptcy notice - is questionable and the circumstances give rise to the application of the principles of res judicata and issue / Anshun estoppel. Alternatively, the Court would likely consider the Application as amounting to an abuse of process.

Mr Rahme's submissions in reply

Mr Rahme submitted in reply that the contentions made in the Law Firm's submissions about the absence of any "irregularity" of the Judgment, as the adverb 'Irregularly" is employed in rule 36.15(1), are wrong on two grounds. First, the judgment was entered irregularly because it was entered on 5 September 2014 without notice to two putative judgment debtors who had a statutory right to apply for a review of the determination of the assessed costs made on 3 September 2014 for a period of 28 days after the Judgment was entered against them.
Secondly, the substance of the judgment (or, more accurately, the superseded copy of the Judgment held by B&K) as from 8 October 2019, when it was set aside on appeal (see order (4)(a)(ii)), albeit without prejudice to apply to re-enter it against Mr Rahme alone, made the continued assertion of rights against either Mr or Mrs Rahme as from 8 October 2019 in reliance upon the Judgment, relevantly seeking the bankruptcy of one of them, either irregular or against good faith.

Resolution

I have taken into account Mr Rahme's submission that the judgment against him includes the Law Firm's costs in securing the equitable charge over Dana Rahme's land for which he received a benefit and that he should not be liable for those costs.
As previously stated, UCPR 36.16 stipulates that the defendant had 14 days to apply to set aside the application from the date of entry of the judgment. The application was filed nearly six years out of time. Hence r 36.16 does not apply and therefore does not entitle Mr Rahme any relief.
That leaves UCPR 35.15 where a court may on sufficient cause being shown, set aside by order of the Court of the judgment was given or entered, or the order was made, irregularly or against good faith and the inherent power of the Court. As stated earlier, I accept that this Court has power to set aside the judgment under UCPR 35.15 and or the inherent power of the Court. The issue is whether the Court should exercise its discretion to set aside the judgment.
The Court of Appeal in Rahme 2 could have set aside the judgment against Mr Rahme. As Mr Rahme was unsuccessful in his appeal the Court of Appeal did not do so.
With regards to Mr Rahme's submissions as to whether there was an irregularity and lack of good faith when the Law Firm entered judgment before the 30 day period to lodge any application for review are concerned, the judgment that was entered was correctly entered for the amount due and owing. That judgment was entered by virtue of s 384 of the Legal Profession Act 2004. There was no irregularity and lack of good faith. Mr and Mrs Rahme had the opportunity to put in submissions to the costs assessor that liability for the costs should be determined by the Court and not the costs assessor. That submission was not made.
In relation to the Law Firm filing for judgment within the 30 day period, in Coshott v Parker [2015] NSWSC 197, Hall J held that a party may file a certificate of determination as a judgment within the 30-day period that it is open to apply for a review. Further, the Court held that a party can file the certificate of determination as a judgment even if a party has actually applied for review (see [34] to [43]). This is the situation that applied in these current proceedings. The Law Firm was entitled to file an appeal for judgment within the 30 day period. Had Mr Rahme and Mrs Rahme lodged an appeal to review the costs assessor's decision, the review could have taken place.
There is no irregularity nor was there a lack of good faith. The costs assessment against Mr Rahme was not set aside in Rahme 2. It remains a judgment that is enforceable.
If the costs assessor's reasons were inadequate, as it is here alleged as being the "absolute minimum findings", the remedy was to file an application for review of the costs assessor's decision within 30 days. I have read the decision of the costs assessor and his reasons given for his decision are satisfactory.
The judgment was entered some 7 years ago. Mr Rahme was unsuccessful in Rahme 1 and Rahme 2. The judgment has been entered regularly and in good faith.
Taking these matters into account, in the exercise of my discretion, and in the interests of justice, I decline to set aside the judgment against Mr Rahme entered on 5 September 2014.

Result

The result is that the first defendant's notice of motion filed 5 August 2021 is dismissed.

Costs

Costs are discretionary. Costs normally follow the event. The first defendant is to pay the defendant's costs on an ordinary basis, if the plaintiff does not seek an alternative order from the Court within 7 days. If the plaintiff does seek an alternative order I will give directions for the filing of written submissions.

The court orders 1. The first defendant's amended notice of motion filed 5 August 2021 is dismissed. 2. The first defendant is to pay the plaintiff's costs on an ordinary basis, if the plaintiff does not seek an alternative order from the Court within 7 days. If the plaintiff does seek an alternative order I will give directions for the filing of written submissions.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 October 2021

Legal Profession Act 2004(NSW)

Australian Consumer Law and Contracts Review Act 1980(NSW)

At a glance

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Judgment (25 paragraphs)

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Legislation Cited (5)

Cases Cited (16)

Cited By (1)