Benjamin & Khoury Pty Ltd v Rahme - [2023] NSWSC 1162 - NSWSC 2023 case summary — Zoe

NSWNSWSC

Benjamin & Khoury Pty Ltd v Rahme

[2023] NSWSC 1162

Supreme Court of NSW|2023-08-30|Before: Chen J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2023-08-30

Before

Chen J

Catchwords

[1993] FCA 585 Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 Bale v Mills (2011) 81 NSWLR 498
[1990] HCA 59 Majak v Rose (No 5) [2017] NSWCA 238 Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681
[2018] NSWCA 84 One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548
[2000] FCA 270 Oshlack v Richmond River Council (1998) 193 CLR 72

Source

Original judgment source is linked above.

Catchwords

[1993] FCA 585 Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 Bale v Mills (2011) 81 NSWLR 498[1990] HCA 59 Majak v Rose (No 5) [2017] NSWCA 238 Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681[2018] NSWCA 84 One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548[2000] FCA 270 Oshlack v Richmond River Council (1998) 193 CLR 72[1998] HCA 11 Price v Price [2020] NSWCA 312 Rahme v Benjamin & Khoury Pty Ltd (2019) 100 NSWLR 550ex parte Lai Qin (1997) 186 CLR 622

Judgment (26 paragraphs)

[1]

gainst Corruption (No 2) [2015] NSWCA 362 Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145 Category: Costs Parties: Benjamin & Khoury Pty Ltd (plaintiff) Dana Rahme (first defendant) John Sharpe (second defendant) Greg Walsh (third defendant) Representation: Counsel: T Robertson SC with M Castle (plaintiff) CJ Bevan with A Kaylinger (first defendant)

[2]

[3]

Introduction

This judgment is about costs.
The underlying proceedings were also about costs.
There are two costs applications requiring determination. The first is an application that arises out of the (by consent) dismissal of the proceedings (commenced by summonses filed on 19 November 2021) on 24 February 2023: the plaintiff submits that there should be no order as to costs, whereas the first defendant submits that the usual order for costs, argued to be reflected in r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ('the UCPR'), should be made. As part of that application, the first defendant - initially - sought an order not only that its costs be payable, but they be payable on an indemnity basis; however, during submissions, the first defendant abandoned any application for indemnity costs. The second is an application by the first defendant to vary a costs order made by Adamson J (as her Honour then was) on 29 August 2022: Adamson J made an order that the first defendant pay the plaintiff's costs in connection with a notice of motion that the first defendant filed, and the first defendant seeks to vary that order to the effect that those costs should be costs in the proceedings.
There are some troubling features of this litigation, and aspects of the applications themselves, that I feel compelled to record.
The applications (notably the principal one, dealing with the costs of the proceedings) have generated an extraordinary amount of material - extending to four volumes (some 1300 plus pages as well as some separately tendered material). Notwithstanding that I made it clear that I would not be fossicking and ferreting around this material without the specific assistance of the parties during the hearing, as it happens I was taken to but a mere fraction of it. Within the folders of material, or separately tendered, were 17 or so affidavits. Although cross-examination of all the deponents was threatened, mercifully that did not eventuate (nor, therefore, did the need to rule on whether that course is permitted, given the authorities to be shortly discussed). Again, I was only taken to confined parts of a limited number of those affidavits during the course of submissions. Further, the applications themselves took two days (less a handful of minutes). This, in and of itself, is concerning; it is particularly so given the underlying proceedings were themselves listed for hearing for two days. I have no doubt that the hearing of the appeal would have taken less time than the costs argument and involved appreciably less material.
At the commencement of the hearing, I expressed a measure of surprise not only about the volume of the material, but about the length of time the applications were anticipated to take. It would, for this purpose, have been useful if my attention was specifically drawn to the pointed remarks in decisions such as Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [3]-[10], [31]-[32] and [47] ('Nichols') and In the matter of Sunnyside Bettoni Pty Ltd (No 2) [2020] NSWSC 1886 at [9]-[17] ('Sunnyside Bettoni') (Leeming JA sitting at first instance) - or indeed any authority of a similar kind. Had it been so then I would undoubtedly have taken a distinctly different - not to mention firmer - approach to all aspects of, and relating to, the conduct of the hearing.
There are related issues. These decisions - there are many others - also set the parameters of how an application of this kind is to be determined by a Court and, in particular, some constraints on what is permissible, and what is not. The discussion of principle and approach in the decisions referred to above should be kept firmly in mind by any party involved in an application such as this. In my respectful view, insufficient regard was had to these principles in the way the costs application proceeded. One consequence of this is that, rather than a targeted approach to deal with the question of whether an order for costs should be made (or whether the Court should order otherwise) in line with r 42.20(1) of the UCPR, the application descended to a wide-ranging excursion across a seemingly endless number of issues and facts (many of which were at the periphery), often in microscopic detail: commonly the submissions assumed intimate understanding of the minutiae of all aspects of the extensive (and, it appears, ongoing) litigation, and satellite litigation, variously involving the plaintiff, the first defendant and her former solicitor Kekatos Lawyers (or 'KL').
I will illustrate some of the other consequences that follow on from the issues identified. Although the authorities clearly state that it is impermissible for the Court to undertake, under the guise of a cost application, a hypothetical trial of the matter so as to determine the likely outcome of the litigation (had it continued), I was both in substance and in form asked to not only become involved in - but to more or less decide - the merits of the summonses, by the first defendant. A further illustration is also useful. I was invited by the first defendant to make significant adverse credit findings against a witness "on the papers" - despite the absence of cross-examination and despite what had been said about that topic in Nichols at [47]. A final illustration relates to how the submissions descended into all manner of detail involving other aspects of the interlocutory and satellite litigation. A snapshot is what was contained in pars 6(l) and (m) of the first defendant's submissions: (l) in paras 25-27 of Mr Khoury's affidavit of 15 May 2022 in a Federal Court statutory demand proceeding filed by [the plaintiff] (now Supreme Court of New South Wales no 2022/215010), he sought to avoid [the plaintiff's] liability to the [first defendant], in the event of failure of its two appeals from the review panel to this Court, as a "fallback position", based on an "offsetting claim" for unqualified costs payable by [the first defendant] under an ex parte cost order against her obtained from Harrison AsJ by [the plaintiff] on 16 March 2022; (m) the reason for [the plaintiff's] recent capitulation of this "offsetting claim" is that, during the hearing of an appeal from Harrison AsJ to McNaughton J (19 October 2022), [the plaintiff's] counsel conceded he could not maintain the costs order of Harrison AsJ and sought a re-exercise of the costs discretion by McNaughton J (it was rejected on 23 March 2023 when [the first defendant's] appeal was allowed: see … [2023] NSWSC 244 at Orders 1-3), thereby rendering false the basis for this new "offsetting claim";
A difficulty that arises from the manner in which the costs application was conducted is that there is no clear demarcation between matters and material that should be considered on such application, and matters and material that should not be. In consequence it has extended the length of these reasons and unnecessarily increased the complexity of the application.
The concerning features extend beyond the applications but to the litigation itself: the entire dispute is about costs - that derived from orders being made by the Court of Appeal in 2019. There is more. The costs dispute itself has generated (or been part of) an extraordinary amount of interlocutory and "satellite" litigation, some of which has been mentioned in the extracted passages from the first defendant's submissions set out in [8], above. The reference to the interlocutory disputes, and the "satellite" litigation, is not the product of curiosity: the parties' submissions made considerable reference to it - and, as I have said, assumed intimate understanding of the fine detail of what was raised, argued and decided - such that it has been necessary to refer to them in order to gain of a degree of comprehension of the submissions advanced. There is more still. The wider dispute is yet to be quelled: there is, in the material, a reference to the first defendant filing an application for a review of the determination of the costs assessor, as well as filing an appeal from a decision of a judge of this Court in connection with a costs dispute between the first defendant and KL.

[5]

The original dispute and the subsequent costs dispute: a (very) short summary

In 2015, the first defendant (Dana Rahme) and her husband (Gabriel Rahme) brought proceedings against Benjamin & Khoury Pty Ltd ('the plaintiff') for breach of fiduciary duty - the plaintiff had previously acted as their solicitors. Those proceedings were unsuccessful: Rahme v Satouris [2018] NSWSC 1753 ('the underlying proceedings'). The orders made following the dismissal of those proceedings included orders that the first defendant and her husband pay the costs of the proceedings.
The first defendant and her husband appealed from this decision. The first defendant was partially successful on appeal: she succeeded in her claim against the plaintiff; the first defendant's husband's appeal was unsuccessful entirely: Rahme v Benjamin & Khoury Pty Ltd (2019) 100 NSWLR 550; [2019] NSWCA 211. The plaintiff was subsequently ordered to pay the first defendant's costs - of both the first instance hearing, and appeal: Rahme v Benjamin & Khoury Pty Ltd (No 2) [2019] NSWCA 239. Relevantly, the key orders made included the following: 1. Judgment for the first defendant against the plaintiff in the sum of $302,040.30 including interest to 6 September 2019 on which date the judgment is to take effect (order 5(a)). 2. An order that the plaintiff pay the costs of the first defendant (but not of Mr Rahme) of the proceedings in the court below on the ordinary basis (order 5(d)). 3. An order that the plaintiff pay the costs of the first defendant of the proceedings in the Court of Appeal on the ordinary basis (order 6).
In those proceedings, and on appeal, the first defendant was represented by KL and by other counsel.
The first defendant's costs of both proceedings - that is, the trial and appeal costs - were subsequently assessed by a costs assessor. By a Certificate of Determination of Costs dated 15 January 2021, the costs assessor assessed the costs of the appeal proceedings (excluding interest and the costs of the filing fee) in the amount of $164,875.82. When interest and the costs of the filing fee were added, the total payable was $179,442.84. In relation to the costs of the Supreme Court proceedings (for the trial), the costs assessor assessed those costs in the amount of $382,317.77 (excluding the costs of the filing fee; there was no allowance for interest). When the filing fee was added, the total payable was $387,496.43.
The plaintiff, being dissatisfied with these assessments, sought a review of them.
The application for review of the costs relating to the costs of the trial in the underlying proceedings was made on or around 28 May 2021 and referred to a review panel on 1 June 2021.
By Certificate of Determination of Review issued by the Review Panel and sent to the Manager, Costs Assessment on 26 August 2021, the Review Panel affirmed the costs assessor's determination of the trial costs. That certificate was sent by the Manager, Costs Assessment to the parties on 22 October 2021.
The application for review of the costs relating to the costs of the appeal in the underlying proceedings was made on or around 28 May 2021, and referred to a review panel on 1 June 2021.
By Certificate of Determination of Review issued by the Review Panel and sent to the Manager, Costs Assessment on 26 August 2021, the Review Panel affirmed the costs assessor's determination of the appeal costs. That certificate was sent by the Manager, Costs Assessment to the parties on 22 October 2021.
Pursuant to s 70(1) of the Legal Profession Uniform Law Application Act 2014 (NSW), the Costs Assessment Review Panel issued certificates determining the first defendant's costs to be $393,108.80 (at first instance) and $186,339.84 (on appeal).
Having received the determinations by the Review Panel, the first defendant filed the costs certificates in the registry of this Court on 9 November 2021. Upon that filing each became a judgment of the Court: s 70(5) of the Legal Profession Uniform Law Application Act. The judgments were: $393,108.08 (representing the trial costs) and $186,339.84 (representing the appeal costs). Based upon those judgments, the first defendant, on 21 December 2021, served statutory demands upon the plaintiff.
On 19 November 2021 the plaintiff commenced proceedings in this Court by summons appealing the two decisions of the Costs Assessment Review Panel pursuant to s 89 of the Legal Profession Uniform Law Application Act. By proceedings 2021/330107, the plaintiff appealed the trial costs of the underlying proceedings determined by the Costs Assessment Review Panel, and by proceedings 2021/330110, the plaintiff appealed the appeal costs of the underlying proceedings determined by the Costs Assessment Review Panel. Broadly, the appeal grounds contained within each summons were the same - evident from the grounds itself - and expressly accepted by both parties to be so. There is, therefore, no reason to distinguish between the respective appeals for the purposes of this judgment.
The evidence is not entirely clear about what happened following the service of the statutory demands - nothing turns on this - but ultimately the service of those demands resulted in the plaintiff filing notices of motion on 25 and 30 March 2022 seeking orders that the judgments, entered in this Court following the filing of the costs certificates, be stayed. It appears that there was an agreement in place that the statutory demands would not be enforced before 2 June 2022, although quite when that agreement was reached and the precise terms of it was not the subject of evidence; nothing turns on this either.
On 13 April 2022 the plaintiff issued notices to produce and subpoenas directed to KL, the first defendant's former solicitors, and the first defendant herself. The first defendant filed a notice of motion, on 21 April 2022, seeking to have the notices and subpoenas set aside. The hearing of that notice of motion occurred on 24 August 2022 and, by reasons delivered 29 August 2022, Adamson J dismissed the first defendant's notice of motion: Benjamin & Khoury Pty Ltd v Rahme (No 2) [2022] NSWSC 1143. Adamson J also made an order that the first defendant pay the plaintiff's costs of that notice of motion - an order that the first defendant seeks to have varied: see [129]ff, below, where that application is addressed. I return to some of the circumstances surrounding that application in the fourth part of this summary of the facts: see [41]ff, below.
The notices of motion seeking a stay of the "costs judgments" were heard by Davies J on 31 May 2022. The first defendant opposed the orders sought - albeit that the first defendant advised Davies J that steps would not be taken to enforce the statutory demands until after his Honour's judgment was delivered: Benjamin & Khoury Pty Ltd v Rahme [2022] NSWSC 766 at [9].
By reasons delivered, and orders made, on 14 June 2022, the "costs judgments" were stayed: Benjamin & Khoury Pty Ltd v Rahme. The stay ordered by Davies J was conditional on half of the assessed costs being paid into Court. Thus, in relation to the trial costs judgment, a stay was granted conditional upon the payment into Court of the amount of $196,554 by 12 July 2022; and in relation to the appeal costs judgment, a stay was granted conditional upon the payment into Court of $93,170 by 12 July 2022. The stay in each proceeding was until the determination of the appeal.

[6]

The "dismissed" summonses

By summonses filed 19 November 2021, the plaintiff appealed the two decisions of the Costs Assessment Review Panel: proceedings 2021/330107 and proceedings 2021/330110. It is necessary to cover some of the issues raised in those summonses, as well as outlining some of the arguments raised on the current application that are said to explain why the appeals ultimately did not proceed.
The summonses (as I have earlier noted) are not identical, but similar: both identify, as a ground of appeal, breach of the "indemnity principle" emerging from the decisions of the Cost Assessment Review Panel. Shortly stated, the indemnity principle provides that the costs required to be paid by an unsuccessful party to litigation cannot exceed the amount that the receiving party is liable to pay to their solicitors. Where the successful party "is under no legal obligation to pay lawyers' fees, no amount can be recovered from the unsuccessful party": Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145 at [46]-[48], [102].
By its amended summonses filed 8 April 2022 in proceedings 2021/330107 the plaintiff raised five grounds of appeal. Nevertheless, the plaintiff accepted that there were broadly two issues arising on each of the appeals. The first issue concerned the first defendant's attempt to obtain costs on a party/party basis, whilst at the same time seeking to avoid paying solicitor/client costs to the firm of solicitors (KL) who acted for her in the underlying proceedings. This issue was covered by ground 2 of the summonses. The second issue related to a failure of the costs assessor (in the first instance) and later the Review Panel, to properly apportion costs between the various litigants in the underlying proceedings. This issue was covered by ground 3 of the summonses. This ground was described as involving the principle (or, as was described in the decision, the 'rule of thumb') to be derived from the decision in Currabubula Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232 ('Currabubula Holdings').
Without intending to unduly simplify the issue that was the subject of detailed and elaborate submissions, the indemnity principle was at risk of being contravened because, on the one hand, the first defendant was propounding that she had a liability in costs to KL (in the costs dispute that she had with the plaintiff) yet, on the other hand, she was denying any liability to KL (in the costs dispute she had with them).
To signpost: the plaintiff's argument, in relation to the trial costs, was that the first defendant was taking inconsistent positions, with the consequence that if she was successful in denying her liability to KL (in relation to her liability to KL in connection with the trial costs) then the consequence of the indemnity principle would be that the first defendant would not be able to recover those costs from the plaintiff.
The circumstances giving rise to the alleged breach of the indemnity principle were explained in some detail by Davies J in Benjamin & Khoury Pty Ltd v Rahme, when his Honour granted a stay on the enforcement of the judgments entered by the first defendant on 9 November 2021 (pursuant to the certificates issued by the Costs Assessment Review Panel), at [42]-[48]: 42. After the Review Panel concluded its review of the costs, it appears that it came to the attention of B&K that Ms Rahme was disputing in whole or in part a liability to pay the fees of Kekatos Lawyers. B&K then wrote to Ms Rahme's lawyers asking if the fees of Kekatos Lawyers had been paid, whether Ms Rahme disputed that she had a liability to them for those fees, and if she intended to make an application for assessment of their costs. There was no response to that letter. However, after the present notice of motion was filed, B&K became aware of an exchange of correspondence between Kekatos Lawyers and Ms Rahme's lawyers, such correspondence being annexed to affidavits filed in relation to the present motion by Ms Rahme's lawyers. 43. In a letter from Kekatos Lawyers to Ms Rahme's lawyers dated 5 April 2022, the following appears: 4. It is concerning that Mrs Rahme has taken issue with our invoices and costs agreements, in circumstances whereby those invoices were relied upon for party/party cost assessments, and a fruitful costs determination has been made. The conduct proceeded on is an abuse of process in that an assertion is made on costs assessment that there is entitlement to money on the basis that Kekatos Lawyers is owed fees for the costs incurred for the Supreme Court and Appeal proceedings against BK, and on the other hand Mrs Rahme is claiming that Kekatos Lawyers is not owed any fees… 5. The abuse of process is furthered, in that, a third party, being BK is being required to pay party/party costs in circumstances whereby Mrs Rahme has no intention to pay any legal costs and disbursements amount to Kekatos Lawyers. 6. Needless to say, the conduct also flies in the face of indemnity principle. 44. The letter went on to say that Kekatos Lawyers would be proceeding with the costs assessment for their solicitor/client costs against Ms Rahme. The letter also said that they had advised Ms Rahme's solicitors that they maintained the solicitor lien over all judgment and costs determination proceeds recovered from B&K by Ms Rahme in connection to the orders made in the appeal proceedings. The letter said that B&K could not discharge its obligations imposed in the costs order without satisfying a lien. 45. The letter in reply from Ms Rahme's lawyers of 8 April 2022 said that costs billed before 8 April 2016 were statute-barred. They drew attention to s 352 of the Legal Profession Act 2004 (NSW) which precludes a law practice from applying for assessment unless it has given compliant bills of costs to the client at least 30 days beforehand. They asserted that the final bills and tax invoices did not comply with the Legal Profession Regulation 2005 (NSW). The letter went on to reiterate what had earlier been said in Local Court proceedings, That Mrs Rahme does not dispute that she has some liability to your firm for legal costs and that the only issues are whether the costs are payable by herself and the bankrupt estate of her husband jointly, to the intent that she is liable for only one-half of the costs, … (emphasis in the original) 46. In a letter from Ms Rahme's lawyers to the Manager of Costs Assessment dated 21 April 2022, similar points were made as had been made to Kekatos Lawyers. It was also asserted that there was an issue between Mr and Mrs Rahme and Kekatos Lawyers as to whether they were ever given the costs agreements which were relied upon to support the application for assessment. 47. In an affidavit sworn by Ms Rahme's solicitor on 27 April 2022 for the present hearing, Mr Soulos said (at paragraph 27): …[T]here is no dispute that Mrs Rahme is in dispute with her previous solicitors, Kekatos Lawyers, about the payment of their costs of acting for Mrs Rahme in her Supreme Court proceeding against B&K for damages for breach of fiduciary duty. (emphasis in the original) 48. It is apparent from all of this material that there are serious issues between Ms Rahme and Kekatos Lawyers concerning any liability she has to pay some or all of the costs of Kekatos Lawyers. It does not appear that this dispute was known to the costs assessor or the Review Panel. However, it is ultimately not for the costs assessor to determine whether the costs are payable or not: Basten JA in Wentworth v Rogers at [160]. It will be for a Court to determine whether those costs are payable to Kekatos Lawyers. If they are not, there is, at the very least, an arguable case that the indemnity principle will operate to mean that B&K is not ultimately required to pay some or all of the costs assessed and reviewed. There is a serious question to be tried on this issue.
The appeals (that is, both summonses) were listed for hearing before Rothman J on 3 November 2022. The matter did not proceed, and was adjourned: the plaintiff sought, and was granted, leave to file a further amended summons in each appeal. As it happens, although the subject of the grant of leave, the plaintiff did not file any amended summonses within the period of the grant of that leave and, at a later point, circulated a further revised amended summonses that was proposed to be relied upon during the hearing schedule to commence on 27 February 2023.
At a directions hearing on 24 February 2023 (that is, the Friday before the scheduled hearing), Ms Castle informed me that the costs assessor's determination - dealing with the costs which were the subject of a cost assessment of a costs dispute between the first defendant and KL - had recently become available, such that it had become clear to the plaintiff that "there is no breach of the indemnity principle" because the first defendant had been found liable to pay the fees of KL, which Ms Castle submitted was a "change of position because there was a time when [the first defendant] said she had no liability to pay the fees of Kekatos". Subsequently, the parties agreed upon a form of orders in both proceedings. Relevantly, the orders involved the dismissal of the amended summonses (order 9).
Given the detail involved so far - and the detail of what is to come - it is appropriate at this point to signpost: the (alleged) infringement of the indemnity principle in connection with the appeal costs was slightly different to the one relating to the trial costs. Put simply, the argument - and the issue relating to the appeal costs - was as follows.
The first defendant contested that there was a valid costs disclosure with KL. In those circumstances, as a law practice, KL was only entitled to its costs once those costs had been assessed: s 178(1)(b) of the Legal Profession Uniform Law 2014 (NSW). However, a law practice is required to submit any application for an assessment of the costs between it and its client, within 12 months: s 198 of the Legal Profession Uniform Law. This did not occur. Although it is open to a client - and defined others - to apply to extend the time to submit any application for assessment, the common position of the parties was that it was not open to KL, as a law practice, to seek such an extension: s 198(4) of the Legal Profession Uniform Law. As the first defendant was contesting her liability to KL, it was not in her interests to seek that extension, and she did not. The upshot was that KL was not able to have its solicitor/client costs assessed.
Nevertheless, as it happens, KL managed to receive payment for those appeal costs ($258,965.35). It did so on the basis that it received its costs, as part of its lien over the judgment monies received on behalf of the first defendant. This occurred on or around August 2022 (the receipt of the funds was the subject of an affidavit from Mr Kekatos sworn 30 August 2022 - an affidavit requested by the costs assessor), and the plaintiff became aware of this on or around 21 October 2022. Further, and as explained later (see [81]-[85], below), the plaintiff argues that it was only through the costs assessment issued on 14 February 2023 (the background to this is discussed in [64], below) - in connection with the trial costs - that the permissibility of what had occurred had been validated.
Following KL exercising its rights to the payment of its appeal costs via the lien, there was a dispute between KL and the first defendant - in effect, the first defendant challenged the power of KL to do this.
The plaintiff argued that it was not until the affidavit of the solicitor for the first defendant, sworn 20 February 2023, was served that it became clear that the first defendant accepted - at least at that time - the entitlement in KL to retain this money for the payment of its appeal costs. The relevant part of the affidavit relied upon by the plaintiff is par 8 - which, relevantly, was to the effect that: … I am also able to conclude that Kekatos Lawyers has not filed an application for assessment of its costs in respect of his retainer to conduct an appeal for [the first defendant] to the Court of Appeal because those costs have been paid in full, so that there is no dispute about quantum or payment of those costs.

[8]

The dispute between the first defendant and Kekatos Lawyers in connection with their legal costs

Given the plaintiff's arguments - and at least some of the first defendant's responses to those arguments - it is necessary to outline the dispute that the first defendant had with KL.
The first defendant and KL have been - and apparently still remain - in dispute about costs. It is unclear, precisely, when that dispute first erupted. Given that Local Court proceedings involving the first defendant and KL were commenced by KL at some point during 2020 (the pleadings were not in evidence), the dispute dates back until at least then.
What is clear, however, is that that dispute was in full flight by at least the beginning of 2022. And it involved litigation between them in the Local Court (which apparently included the husband of the first defendant).
The Local Court pleadings were not in evidence (as I have mentioned), although several hundred pages of the transcript of those proceedings were.
The submissions did not deal, at least not precisely, with the nature and extent of the issues raised by the first defendant in those proceedings, nor the detail of the relief sought by KL and its overlap with the current proceedings. It is presently sufficient to note that the proceedings appear to have involved a claim by KL (as plaintiff) for money allegedly outstanding in consequence of the retainer that it had with the first defendant and her husband (as defendants).
The matter was heard by Magistrate Hosking on 28 and 29 March 2022 and, by reasons delivered on 29 March 2022, her Honour entered judgment for both defendants.
This decision did not abate the dispute: KL appealed from the decision and orders of Magistrate Hosking.
I pause in this narration of the chronology to signpost: the appeal was heard by Schmidt AJ on 20 April 2023 - and, by reasons delivered 18 May 2023, Schmidt AJ allowed the appeal, set aside the orders of the Magistrate and, in lieu thereof, entered judgment for KL on their claim (Kekatos Lawyers Pty Ltd v Rahme [2023] NSWSC 528). Neither side addressed Schmidt AJ's reasons, or the orders made in consequence - albeit that both the principal, and the subsequent, judgments were tendered. It is evident, from the reasons for judgment, that KL claimed an amount of slightly over $35,000 from the first defendant in the Local Court proceedings.
I also pause in this narration to note the following. An insight into the nature of the dispute was identified by Davies J at [48] of his Honour's judgment - which I have set out in [33] above. The key finding made by Davies J - namely, the finding that "there is, at the very least, an arguable case that the indemnity principle will operate to mean that [the plaintiff] is not ultimately required to pay some or all of the costs assessed and reviewed. There is a serious question to be tried on this issue" - built upon a submission that had been put to his Honour by counsel for the plaintiff, which was in these terms (at [10]): … [The first defendant] denies that she is liable to pay some or all of the amounts claimed by Kekatos Lawyers for acting for her. This appears to be because Kekatos Lawyers did not provide proper costs disclosures to her. [The plaintiff] say that they did not know of this dispute between [the first defendant] and Kekatos Lawyers when the costs were being assessed or reviewed.
On 25 May 2022 - there being a dispute between the first defendant and KL in connection with its legal costs - KL filed an application for the costs to be assessed. There was a dispute, at least initially, in connection with those costs representing the trial costs of the underlying proceedings, as well as the appeal.
I cover off some of the key findings and conclusions of Schmidt AJ in the appeal judgment shortly, but it is presently important - in order to give some further context to the dispute between the first defendant and KL - to note a number of matters about how the first defendant sought to defend the claim brought by KL in the Local Court (drawing upon the reasons of Schmidt AJ; the paragraph references are to her Honour's judgment), as follows. First, the first defendant accepted that the invoices that had been rendered by KL were successfully pursued as damages in the underlying proceedings - that is, the costs invoices over which the first defendant secured damages were the same as those relied on by KL in the Local Court (at [5]). Secondly, the first defendant had been paid those damages (at [5]). Thirdly, the first defendant had neither paid KL nor sought to have any disputed costs assessed (at [5]). And, fourthly, contrary to her successful claim in the Court of Appeal, the first defendant's evidence in the Local Court was "that she had never received or accepted the costs agreement on which [KL] relied, was preferred over that of Mr Kekatos, that an agreement had been entered" (at [6]).
The upshot of what was argued by the first defendant, and accepted by the Magistrate, was that despite the first defendant recovering KL's disputed costs as part of the damages awarded in the underlying proceedings, she had not had to pay KL for work that it had performed. Nevertheless, although advancing that case below - and seeking to defend it in the appeal before Schmidt AJ - ultimately the first defendant accepted before Schmidt AJ (at [25]) … aspects of the written submissions filed not being pressed, that the Court of Appeal had undertaken an exercise of quantifying of her damages and that she had succeeded on the quantum of the damages she had claimed, including in relation to the costs which Kekatos pursued in the Local Court, which she had not paid, despite the damages she had sought and recovered.
The first defendant also sought to uphold the judgment in her favour on multiple other grounds - being: (a) the basis that there had been some non-compliance, on the part of KL, with the Legal Profession Uniform Law (at [26]); (b) that KL had no "standing to enforce the finding that resulted in the award of its costs as damages in favour of [the first defendant]" (at [27]); (c) that the Magistrate was correct in finding - amongst a range of findings made against KL - that it was somehow a conflict of interest in claiming as damages in the underlying proceedings the costs that it "had billed by statutorily non-compliant tax invoices based on a non-existent costs agreement"; and (d) "that [KL] did so without informing [the first defendant], the trial judge or the Court of Appeal of that fact" (at [28]).
In a judgment delivered on 18 May 2023, Schmidt AJ allowed the appeal. Formal orders were not pronounced on that occasion - a direction was given for the parties to confer with a view to preparing orders reflecting the reasons and conclusions reached. In relation to her Honour's reasons the following matters should be noted: 1. The first defendant conceded that the Magistrate fell "into error in relation to what the Court of Appeal had decided, by which [the first defendant] was undoubtedly bound, despite what the parties had advanced below" (at [32]). 2. The Magistrate misunderstood the Court of Appeal's judgment because (at [44]-[45]): 44. … she did not appreciate that the case which [the first defendant] had successfully pursued in those proceedings, was inconsistent with the evidence in the Local Court and the case she there advanced, that she had not had any binding costs agreement with [KL] and was not obliged to pay the disputed invoices. That was only claimed for the first time in the Local Court. 45. Had that been revealed to the Court of Appeal, [the first defendant] could not have recovered the disputed costs as damages from Benjamin & Khoury, as she did. But that was neither appreciated, nor considered by her Honour, as it had to be, in resolving the credit issues which arose. This also establishes relevant error. 1. In furtherance of the finding that there had been inconsistent positions adopted by the first defendant (at [49]): Given the case [the first defendant] had already successfully advanced in the Court of Appeal against Benjamin & Khoury, about what she was bound to pay [KL], there could later logically be no suggestion that these obligations had not been met, as the 2014 Act required. What her Honour did not appreciate, however, was that [the first defendant's] case in the Local Court was entirely contrary to the case she had earlier successfully pursued, which was premised on there being a binding agreement between her and [KL].
Schmidt AJ's conclusions were (at [59]-[61]): 59. … it was [the first defendant] who successfully pursued and obtained orders in respect of the damage she had suffered when she incurred the legal costs which she was bound to pay [KL], having retained it to act for her as she did in relation to her caveat dispute with Benjamin & Khoury. Her successful claim necessarily depended on her having a legal obligation to pay [KL] its invoiced costs for that work, under a valid agreement regulated by the 2014 Act, as I have explained. 60. Given the case Benjamin & Khoury advanced, the details of that agreement did not need to be examined by the Court of Appeal. But the result, which was accepted by the Court, was that [the first defendant] was bound to pay [KL] the invoices it later pursued in the Local Court. That was an outcome from which she could not later resile. 61. It follows that what her Honour also failed to recognise, given her errors about what the Court of Appeal had decided, was that the cost agreement on which [the first defendant's] successful recovery of the disputed costs had rested, was not void. The case she had successfully advanced necessarily admitted her binding legal obligation to pay [KL's] invoices for the work it had performed, with the result that she could not later resile from the Court of Appeal's conclusions.
Schmidt AJ considered the fact that the first defendant "was successful in resiling from those successful claims in the Local Court is, in the circumstances, inexplicable" (at [65]).
I return now to the application for an assessment of the costs between the first defendant and KL in connection with its legal costs. As I have earlier noted, KL filed an application for its costs to be assessed on 25 May 2022. The application for assessment was referred to a costs assessor.
In that application for assessment, the amount of $518,366.27 was claimed, although it was noted that an amount of $113,190.19 had been paid by the first defendant: the application therefore was for $405,176.08. The costs assessor assessed the costs at $396,597.27. When the amount of $113,190.19 was subtracted (being the amount that had been previously paid) the total cost outstanding were assessed at $283,407.08. When the filing fee ($5,183.66) was added, the total amount specified in the certificate of determination of costs was $288,590.74. That certificate was issued by the Costs Assessor and sent to the Manager, Costs Assessment on 4 November 2022 and was sent by the Manager, Costs Assessment to the parties on 14 February 2023. The explanation for why the certificate was issued approximately three months later appears to lie in the fact that, until the costs of the assessment process have been paid, the certificate does not issue.
I note that the first defendant, by application dated 9 March 2023, filed an application for review of the costs assessor's determination.

[10]

Introduction

The plaintiff submits that the "appropriate" order to be made is that the parties bear their own costs of the proceedings (plaintiff's submissions at [1]). In furtherance of this ultimate submission, the plaintiff submitted that it acted reasonably in commencing and maintaining the litigation until there were "significant changes" in the position of the first defendant and, further, as the Court did not have the benefit of determining the proceedings on their merits, the order proposed was an appropriate exercise of the costs discretion (plaintiff's submissions at [14]). The plaintiff's written submissions did not identify any rule as relevant to the application that had been made, although during oral submissions the plaintiff made reference to r 42.20 of the UCPR.
The first defendant sought an order that the plaintiff pay her costs of the dismissed proceedings and relied upon r 42.1 of the UCPR. Further, the first defendant submitted that there were no reasons why this rule ought not apply, and positive reasons why it should. In response to the plaintiff's submissions, the first defendant argued that the proceedings were neither reasonably commenced nor maintained, with the consequence that there was no basis upon which the plaintiff could reasonably be found to have displaced the presumption, contained within r 42.1 of the UCPR, that costs should be payable by the plaintiff in connection with both summonses (first defendant's submissions at [2]).
Before dealing with the substance of what was argued, I will deal at once with the submission of the first defendant that the relevant costs rule, in the circumstances applicable here, is r 42.1 of the UCPR.
Put simply, the first defendant's position is that that rule is the starting point for the exercise of the costs discretion, and the "event" for the purposes of that rule was the dismissal of the proceedings. The first defendant called in aid a range of authorities to support this submission, including Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 and Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (first defendant's submissions at [2]). I do not accept this submission, for the following reasons.
The formal order (order 9) made on 24 February 2023 was an order - made by consent without any hearing - dismissing the proceedings (that is, both summonses). In that situation, the relevant rule engaged is not, as the first defendant argued, r 42.1, but r 42.20(1) - viz., the rule that deals with costs in connection with the dismissal of proceedings. The first defendant's submission is contrary to a clear line of authority that establishes as much: see, by way of example, Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [54] ('Australiawide Airlines'); Nichols at [2]; and Price v Price [2020] NSWCA 312 at [32]. Drawing upon those decisions, that is because "for there to be an 'event' there must have been a contest in which the applicant for costs has succeeded" and that where there is consent "that litigant will not however have the benefit of the presumption created by r 42.1": Price at [32]; Nichols at [2].
Before dealing with the detail of the broad thrust of the submissions put by each side, I will deal with the relevant rule relating to costs where proceedings have been dismissed, and the background principles.

[11]

Costs where proceedings have been dismissed: r 42.20(1) of the UCPR

Where proceedings have been dismissed - the case here - then r 42.20(1) of the UCPR is engaged. That rule provides: If the court makes an order for the dismissal of proceedings, either generally or in relation to a particular cause of action or in relation to the whole or part of any claim, then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed.
The background principles relating to this rule (and the similarly worded r 42.19(2)) are not in doubt, although neither side referred to them (or the rule) at all in their written submissions. (As I earlier noted, the plaintiff during oral submissions did, however, identify the relevant rule). Little was said about this rule - or the background principles that inform its operation - by either party during oral submissions; indeed, the first defendant did not mention it at all (perhaps that is a consequence of the first defendant's reliance upon r 42.1 of the UCPR) during the course of submissions.
The relevant principles that inform the operation of r 42.20(1) may be summarised relevantly as follows.
Rule 42.20(1) is not an inflexible rule: it is to apply "unless the court otherwise orders". The rule does not give rise to a presumption that costs will be ordered against the discontinuing party or against the party whose claim is dismissed (Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 at [84]). In that respect it "goes no further than to state the first point of consideration; there is no presumption which must be outweighed; what the rule says is what the order for costs is to be unless there is a discretionary decision to order otherwise": Australiawide Airlines at [53]. Nevertheless, the plaintiff must demonstrate a "sound positive ground or good reason" for making a different costs order: Australiawide Airlines at [53]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [53]-[54], [70]-[71].
Not unexpectedly, although "there is no close control over the discretion of the Court to order otherwise" (Australiawide Airlines at [54]), there are circumstances that have been accepted as bearing upon whether a court should order otherwise that the plaintiff pay the defendant's costs of the dismissed proceedings. Those circumstances include (but are not limited to) the following. First, generally speaking, where a party litigates for a period and then, in effect, surrenders or capitulates to the other, that will usually be a basis to award costs against the party that surrendered or capitulated: One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 at [6] ('One.Tel'); Nichols at [27]-[29]. Secondly, cases where some supervening event removes or modifies the subject of the dispute such that proceeding further would be inutile: One.Tel at [6]. How that "event" might inform the costs discretion - one way or the other - depends upon its nature. Thirdly, a "marked difference in the reasonableness of the actions taken by the parties": Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 at [5]. That is, if one party has acted "so unreasonably" that may justify a particular costs order, or the discretion on costs being exercised against that party: Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622, 624; [1997] HCA 6 ('Lai Qin'). Fourthly, even if both parties have acted reasonably, where the Court can be confident of the outcome - where a party would have "almost certainly" succeeded - that may also justify the favourable exercise of the discretion: Shellharbour City Council v Minister for Local Government [2017] NSWCA 256 at [6]-[7] ('Shellharbour City Council'); In the matter of Cartwright Transport Pty Ltd (in liquidation) (No 2) [2019] NSWSC 1381 at [12] (Gleeson JA sitting at first instance).
It is also, at this point, necessary to say something about how the Court is to approach the task of determining whether it should otherwise order that costs be payable by the plaintiff. I have touched upon these matters, earlier in these reasons.
Some matters are clear. It is not, on an application of this kind, permissible for the Court to undertake a hypothetical trial of the matter, under the guise of a costs application, in order to determine the likely outcome of the litigation: Nichols at [3], [31]-[32]; Tomra Collection Pty Ltd v Minto [2021] NSWSC 1323 at [56] ('Tomra'). These decisions drew upon what was said to that effect in Lai Qin at 624. See also Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194, 200; [1993] FCA 585.
When considering whether there has been "unreasonable" conduct, in Nichols at [8], Basten JA said that an order … should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon.
The directive of Basten JA has been repeatedly endorsed: see, for example, the decisions in Sunnyside Bettoni at [14] and In the matter of Cartwright Transport Pty Ltd (in liquidation) (No 2) at [12].
The reasons of Payne JA at [33] and [47] in Nichols were to similar effect. Specifically, in the context of making findings about the "reasonableness of the conduct" of a party in prosecuting an action and the unreasonableness of a party in defending it, Payne JA (Meagher JA agreeing) said the following about the manner in which this issue was to be approached at [47]: The finding that the statement was "prima facie" untrue should not have been made. Any finding of potentially serious misconduct, such as that Mr Nichols made an untrue statement, could only have been made after permitting cross-examination of all the witnesses, in particular Mr Casey and Mr Nichols. That exercise, permitting the cross-examination of witnesses to determine costs issues in a case determined other than on the merits, is antithetical to the principles explained in Lai Qin and adopted repeatedly by this Court since. Such a course would also be contrary to the principles in Pt 6 Div 1 of the Civil Procedure Act 2005 (NSW) which encourages the settlement of litigious disputes.
Despite these principles defining the manner in which the application was to be determined, a large portion of the submissions ranged widely and invited, depending upon whether the order for costs was sought or resisted, deep consideration of an impossibly large range of factual matters and material - submissions which were said to inform a consideration of the "reasonableness" (or lack thereof) of the plaintiff or the first defendant. (The volume of material that was tendered on the application is, perhaps, a practical illustration of the approach adopted). Yet that is what Nichols - and the decisions that have endorsed that approach - establishes should simply not occur.

[12]

Discussion and consideration

The plaintiff's essential submission is that it acted reasonably in commencing and maintaining the litigation until there was a significant change in position by the first defendant which "removed the major substrate of the dispute" (plaintiff's submissions at [14]).
The plaintiff argues that the circumstances are such that there was, on the part of the first defendant, conduct that demonstrated "a sustained determination to recover as much as possible from [the plaintiff] and to pay as little as possible to [KL]" (plaintiff's reply submissions at [2]) and that there was a "very real risk that the indemnity principle would be breached" by the manoeuvrings of the first defendant - a submission which may be taken to be that the proceedings were justified until that risk dissipated (plaintiff's reply submissions at [16]).
The essential conduct of the first defendant, as relied upon by the plaintiff, involved the failure of the first defendant to adopt consistent positions as to her liability to KL in connection with solicitor/client costs.
The specific arguments were as follows. In relation to the trial costs in the underlying proceedings, the plaintiff argued that the first defendant had, in substance, adopted a position in connection with the assessment of those costs (the subject of an application by KL dated 25 May 2022) that extended to contesting her liability to KL but asserting that she had such a liability in connection with the assessment of costs on a party/party basis. The first defendant's position was, again in substance, rejected by the costs assessor in a determination that issued on 14 February 2023, but only received by the plaintiff shortly prior to the scheduled hearing. In relation to the appeal costs in the underlying proceedings, the plaintiff argued that it did not become aware that KL had received payment until late October 2022 and, further, it was not until the first defendant had formally confirmed, by the service of an affidavit of her solicitor dated 20 February 2023 - to the effect that there was no dispute about those costs (on a solicitor/client basis) and that they had been paid in full - that the plaintiff was placed to know that there was no breach of the indemnity principle. In addition, as set out in [36]-[40], above, the costs assessor accepted the evidence from Mr Kekatos and confirmed the acceptability of what had transpired.
The plaintiff's essential submission was that, the first defendant having adopted inconsistent positions in connection with the party/party and solicitor/client costs assessments, the plaintiff was entitled to rely upon the prospect of a breach of the indemnity principle and acted reasonably in the commencement and maintenance of the appeal proceedings. Further, once a consistent position had been taken by the first defendant (or determined), thereafter, the plaintiff acted reasonably in consenting to the dismissal of the proceedings (plaintiff's submissions at [50]-[51]).
The first defendant argued that the costs assessment could not justify the plaintiff's position and, in support of this contention, advanced - somewhat remarkably - 22 separate detailed reasons in her written submissions, traversing (commonly with footnotes) an enormous amount of factual material (first defendant's submissions at [6]). As to those 22 matters it is important to initially observe the following.
First, by and large, I was not taken to any of the material referred to in those submissions during the course of the hearing - in circumstances where I stressed given the quantity of material that was proposed to be (and was) tendered, that I expected counsel to take me to all relevant material on which they sought to rely. As I earlier noted, I was taken to only a fraction of this material.
Secondly, tucked away within these submissions, the first defendant sought adverse credibility findings by suggesting that explanations proffered were - inter alia - "not a candid explanation" (first defendant's submissions at [4]) and that the plaintiff's "indemnity principle ground is a true recent invention" (first defendant's submissions at par 6(g)). There are obvious difficulties in acceding to these submissions, to which it will be necessary to return.
Thirdly, the first defendant invited a granular assessment of the prospects of the plaintiff's summonses suggesting that, by way of example, the grounds themselves were without prospect and, during submissions, attempts were made to go through all grounds in the summonses, and through each iteration of those summonses. By way of further example, the first defendant submitted that the "indemnity principle" submission/argument "stood no arguable chance of success in the appeals" (first defendant's submissions at paragraph 4) - and, by the arguments raised, inevitably required a journey into the minutiae of the matter, as well as the satellite litigation. I will illustrate this further example (and as noted earlier in these reasons) by reference to some of the submissions contained within the 22 sub-paragraphs of par 6 of the first defendant's submissions: (l) in paras 25-27 of Mr Khoury's affidavit of 15 May 2022 in a Federal Court statutory demand proceeding filed by [the plaintiff] (now Supreme Court of New South Wales no 2022/215010), he sought to avoid [the plaintiff's] liability to the [first defendant], in the event of failure of its two appeals from the review panel to this Court, as a "fallback position", based on an "offsetting claim" for unqualified costs payable by [the first defendant] under an ex parte cost order against her obtained from Harrison AsJ by [the plaintiff] on 16 March 2022; (m) the reason for [the plaintiff's] recent capitulation of this "offsetting claim" is that, during the hearing of an appeal from Harrison AsJ to McNaughton J (19 October 2022), [the plaintiff's] counsel conceded he could not maintain the costs order of Harrison AsJ and sought a re-exercise of the costs discretion by McNaughton J (it was rejected on 23 March 2023 when [the first defendant's] appeal was allowed: see … [2023] NSWSC 244 at orders 1-3), thereby rendering false the basis for this new "offsetting claim";
Again, there are obvious difficulties (not to mention well-established authority) that stand in the way of accepting these submissions, which I explain a little later in what follows.
I return now to the first defendant's arguments.
Within the overarching submission - essentially that the costs assessment could not justify the plaintiff's position - the first defendant also argued a range of other matters that informed that outcome, including the following: first, that any explanation proffered was "not candid", "not credible", a "true recent invention" or was "untrue" (first defendant's submissions at [4], 6, (g) and (n)); secondly, that the summonses themselves either "lacked arguable merit" or "stood no arguable chance of success" in connection with the apportionment and indemnity principle arguments (first defendant's submissions at 6 and (i)); thirdly, that the dispute that the first defendant had in connection with the solicitor/client costs relating to KL's "retainer" was confined - a fact that was said to be apparent because of what transpired in the Local Court proceedings (first defendant's submissions at 6 and (k)); and, fourthly, that the plaintiff accepted that the first defendant only disputed her present liability to KL, with the consequence that any reliance upon the indemnity principle was misplaced (first defendant's submissions at 6 and (s)).
I have attempted to summarise the first defendant's submissions albeit that there were slight variations to some of them. I will deal with these submissions (and the variants to them) in order.

[15]

The "there was no dispute between the first defendant and KL which was 'known by the plaintiff'" submission

The first defendant argued that the dispute that she had with KL was rather more confined and the confined nature of that dispute was readily apparent from the hearing of the action in the Local Court. It was submitted that, because the solicitor for the plaintiff was present during the course of that hearing (a fact that was not disputed), he would - or should - have known about that limitation, with the consequence that, so far as I understood the argument, the solicitor for the plaintiff should have known that there was no realistic prospect of there being any question of infringement of the indemnity principle.
I do not accept that submission. I must emphasise that notwithstanding the broad subject matter of that submission, I was not: (a) taken to any part of the 200 plus pages of Local Court transcript by the first defendant to make good these submissions; (b) taken to the judgment of the Local Court Magistrate; or (c) taken to the judgment of Schmidt AJ - which allowed an appeal, by KL, from the decision of the Magistrate. I raise this to emphasise, at least practically, two matters: first, that if, as was submitted, there was an unequivocal statement of position by the first defendant in and during the course of the Local Court proceedings, then presumably that would have been readily discernible and capable of simple identification in the material: but that task was eschewed by the first defendant; secondly, a confounder to the submission is what was found to have occurred by Schmidt AJ - a judgment, I emphasise, that I was not taken to by the first defendant. I have set out large parts of this judgment earlier: see [52], [55]-[60], above. Schmidt AJ in fact found that the positions that had been adopted by the first defendant in the Local Court, in connection with solicitor/client costs were inconsistent with those adopted in the Court of Appeal proceedings.
Given these matters I am quite unprepared to find that the solicitor for the plaintiff somehow acquired a clear understanding of the first defendant's position in connection with the costs payable to KL from whatever occurred in the Local Court. I add the following. Quite how the first defendant's submission fits with the matters referred to in the judgment of Davies J was simply not addressed. On the face of it, the submission sits inconsistently with what is referred to in the various letters (that post-date the Local Court hearing) set out in his Honour's judgment. Nor was any attempt made to explain how this submission fits with the finding made by Davies J, set out above, to the effect that there was a "serious question" in connection with the indemnity principle.
The first defendant made a related submission, to the effect that the first defendant "admitted" to Adamson J that she was liable to KL - thereby negating the force of the "indemnity principle" argument. I took this to be a submission that meant that the plaintiff knew there was no possibility of any breach of the indemnity principle. I do not accept this further submission by the first defendant for the following reasons. First, it should be noted that what was said by the first defendant's counsel before Adamson J was not a formal admission in the dispute between the first defendant and KL, but was a submission made by the first defendant (which was not accepted by Adamson J: judgment at [24]). Secondly, the suggested "admission" is, in any event, ambiguous: absent clear and precise identification of what was admitted by that liability to KL, the supposed admission says very little, in my view. (A submission to that broad effect was made independently of the present context: the response is the same). Thirdly, the submission made before Adamson J sits somewhat uneasily with the approach taken by the first defendant in the costs assessment process itself - as set out in the judgment of Davies J: see [33] above, where the relevant passages are set out. For example, in the letter dated 8 April 2022, which is referred to by Davies J, the solicitor for the first defendant in fact advised KL that their application for assessment of their costs "is doomed to fail". Further, based upon the reasons of the costs assessor, it is apparent that the first defendant did not withdraw any of its submissions made to the effect that the first defendant was contesting that she was liable to KL - that is, the first defendant did not admit, without qualification, that she was liable to KL for the amount claimed by them: the reasons of the costs assessor dealt with a multitude of arguments raised by the first defendant - which extended to a submission that the costs assessment should not in fact proceed pending determination of the plaintiff's appeals.

[16]

The "plaintiff's explanation is contrary to a finding by Adamson J" submission

The first defendant went on to argue that Adamson J made a positive finding (in the judgment at [26]) that the plaintiff "was determined to propound its indemnity principle ground notwithstanding any determination" by the costs assessor, following on from the application for the assessment of costs filed on 25 May 2022 (first defendant's submissions at 6): the logic of the submission appeared to be that what occurred in connection with the costs assessment was immaterial to the plaintiff.
I do not accept that submission. In my respectful view, Adamson J did not make this finding: her Honour merely recorded a rejection of the submissions made by the first defendant and thereafter identified a matter that, in her Honour's assessment, necessarily followed. Furthermore, it is clear that her Honour's judgment proceeds on the footing that the first defendant, contrary to what was submitted during the course of that application on her behalf, did "dispute her liability" to KL: see the judgment at [25], by way of example. Adamson J also noted the passage extracted from the judgment of Davies J, to the effect that there was "material which tends to indicate that [the first defendant] disputes her liability" to KL: see the judgment at [22] and [12], which is to the same effect. In this respect it is worth observing that Adamson J noted the following (at [12]): Mr Bevan, who appeared on her behalf, contended that she accepted that she was liable to pay Kekatos Lawyers. However, this submission would appear to be inconsistent with at least some of the written material emanating from [the first defendant] through her present solicitor, Michael Soulos, which came to the notice of B & K in April 2022 …
Further, that part of the judgment, upon which the first defendant placed much emphasis in her submission ([20]-[26]), solely dealt with the arguments that the first defendant raised, not the plaintiff's arguments: it is, therefore, wrong to seek to attribute them to the plaintiff, as the first defendant submitted. That is plain from the judgment of Adamson J at [19], which notes: "In coming to this conclusion I have considered and rejected the arguments put to the contrary by Mr Bevan, which I will summarise below".

[17]

The indemnity principle explanation was a "true recent invention" submission

The first defendant was somewhat critical of the "indemnity principle" ground, submitting that it was a "true recent invention" - pointing out that the matter had never been raised before the assessor or the Review Panel (first defendant's submissions at 6). I have already addressed the difficulty in making, contrary to what the first defendant submitted, adverse credibility findings in the circumstances of this application. But the first defendant's submission, in my view, is wrong in any event. That is because it overlooked, and therefore failed to confront, the finding made by Davies J that it was only after the Review Panel conducted its review of the costs assessment that it came to the attention of the plaintiff that the first defendant "was disputing in whole or in part a liability to pay the fees of" KL: see the judgment of Davies J at [42], which I have earlier set out in [33], above. (That finding, I should add, is one made following on from an identical submission made by the first defendant to Davies J - viz., the first defendant argued before Davies J that the "indemnity principle" point had not been raised before the costs assessor and the Review Panel, and that stood against granting the plaintiff the relief sought: judgment at [18]). Subsequently, after the filing of the notices of motion on 25 and 30 March 2022 (being the ones that were filed that sought an order staying the costs judgments entered based upon the costs certificates that issued), as Davies J found, the plaintiff became aware of an exchange between KL and the first defendant's lawyers where it was evident that the first defendant contested her liability to KL for the fees - and in fact did so in correspondence to the Manager, Costs Assessment.
So, for those reasons, it is simply not correct to submit, as the first defendant did, that this was a "true recent invention" based upon the fact that the "indemnity principle" argument was not raised in the costs assessment, nor before the Review Panel: the plaintiff only discovered that there was such a dispute after the costs assessment had been performed and the Review Panel had rejected the plaintiff's application to review the underlying costs assessments.
It is also relevant to note, as Davies J did at [42]ff of his Honour's judgment, that following the plaintiff acquiring the knowledge of that dispute, the plaintiff wrote to the first defendant's solicitors asking for them to confirm matters such as whether KL had been paid; whether the first defendant disputed that she had a liability to KL for the fees etc - but Davies J found the solicitors for the first defendant did not respond to that letter.

[18]

The apportionment ground of appeal

It is true that the plaintiff's appeals concerned not only the indemnity principle, but also a challenge to what was described as the failure of the costs assessor, and later the Review Panel, to properly apportion costs between the various litigants in the underlying proceedings - a ground that was described as involving the "principle" (perhaps, more accurately, a "rule of thumb") derived from the decision in Currabubula Holdings (see [30], above). That argument was a secondary one on the appeal. As explained by the plaintiff's counsel during submissions, given that characterisation and that the primary ground had fallen away, that explained why, irrespective of what occurred in connection with the indemnity principle, the ground of appeal that covered this issue was not separately prosecuted.
As to that ground (which is reflected in ground 3 of each summons), it was not suggested by the first defendant that it was not arguable: to the extent that, implicitly, it was, I do not accept the submission, and no substantive reason was advanced, in my view, to justify that finding: it is contrary to the finding made by Davies J - viz., that there is a "serious question" involved in the ground: judgment at [49]-[54], [74]. Beyond this, in my view, it is not "possible to identify success which is manifest on the face of the record" nor is it a case where the first defendant "almost certainly" would have succeeded. Nor did the first defendant challenge what was said by the plaintiff's counsel during the course of submissions. Nor, finally, was any argument raised by the first defendant that this aspect of the matter should be dealt with differently to the "indemnity principle" argument - that is, the costs application (whether there should be an order in favour of the first defendant or whether there should be no order as to costs) was argued on an "all or nothing" basis. There is no requirement, therefore, in connection with this application, to differentiate between any of the respective grounds, in those circumstances.

[19]

The reasonable commencement and maintenance of the appeal proceedings

I turn now to address whether the proceedings were reasonably commenced and maintained. In my view, they were.
There is, in relation to this issue, a close relationship to the merits of the appeal proceedings: to determine the reasonableness of the plaintiff in relation to the commencement and maintenance proceedings would, in substance, require a careful consideration of the merits of those proceedings. As I have indicated above, to undertake that enquiry based upon all aspects of what the parties argued would be contrary to the principles that I have earlier identified. Nevertheless, I have endeavoured to deal with the first defendant's arguments (set out above), where that was possible and consistent with authority.
To the extent that it was possible to make findings about the reasonableness of the plaintiff (because it is based upon "known circumstances, not in dispute between the parties": Nichols at [8]), then I accept that, particularly given the findings made by Davies J and Adamson J, the proceedings were not only reasonably commenced, but maintained.
In relation to the reasonableness of the conduct of the plaintiff in commencing the proceedings, and of the first defendant defending it, the submissions of the first defendant did not - at least squarely - address either issue. The argument of the first defendant was focused upon those matters that I have earlier dealt with. Some matters should be noted in connection with this broad issue.
First, the plaintiff, prior to filing the summons, sent a letter to the solicitor for the first defendant, dated 1 September 2021 that, inter alia, sought confirmation of matters that plainly went to the potential contravention of the indemnity principle. There was no response to that letter. It was sent again, on 4 November 2021, but again there was no response. The summonses were, as I have earlier noted, filed on 19 November 2021.
The solicitor for the first defendant, in an affidavit sworn 30 August 2023, provided some partial response to why neither he, nor his office, responded to those letters. (Neither party made any substantive submissions about what followed from that evidence nor what factual findings - if any - should be made about it, or findings in connection with this topic more generally). On the face of it, the affidavit does not appear to me to be responsive, or at least fully so, to why there was no response to each of the specific requests that were made in the letter dated 1 September 2021. For example, it is clear that the letter from the solicitor for the plaintiff sought to ascertain whether there was a dispute between the first defendant and KL in connection with its fees. That is quite apparent from questions 1 and 2. The affidavit, however, seems to suggest that there was insufficient information available at the time to "meaningfully respond" because of an absence of documents that had been sought from KL (pars 4 and 5). It is not obvious to me why documents would be needed to determine whether there is a dispute or not. (And if that was the position, why that was not communicated to the plaintiff). The first defendant's solicitor then, in substance, appears to suggest that the solicitor for the plaintiff had, in practical terms, a response to that letter because he was present at the hearing in the Local Court and there were some discussions that apparently took place at that time (pars 8 and 9) - and "sometime after 8 April 2022" the solicitor for the plaintiff was sent some material and then further material in around November 2022.
In my view, the letter sent by the solicitor for the plaintiff on 1 September 2021, and sent again on 4 November 2021, and the absence of any response prior to the commencement of the appeals, are "known circumstances, not in dispute between the parties" (Nichols at [8]). Given the nature of the dispute, they satisfy me that the appeals were reasonably commenced particularly in circumstances that have been the subject of findings made by Davies J and Adamson J: see [97]-[99], above.
To recap here - in order to put these dates into some context: Davies J, in his judgment delivered on 14 June 2022, had made reference to the nature and extent of the dispute between the first defendant and KL, and the correspondence that gave content to that dispute including those from early April 2022: see [33], above. Adamson J also made reference to that dispute in her Honour's judgment delivered on 29 August 2022: see [42], above. These findings, in my view, support the reasonableness of the conduct of the plaintiff in not only commencing, but also maintaining, the appeals following their commencement.
Secondly, unless the assessment of whether the proceedings were reasonably commenced and maintained is constrained to a consideration of the actions of the parties "manifested by reference to known circumstances, not in dispute between the parties" (Nichols at [8] - see the discussion at [77], above), any assessment would necessarily involve pouring through the many volumes of evidence in order to make some finding about the reasonableness of each side. The approach of the first defendant, however, failed to have regard to these principles of restraint.
Thirdly, and related to the second matter, as I have earlier noted, it is difficult to embark upon such a task dealing with the "reasonableness" of a party without, in effect, addressing the merits of the appeals themselves: there is, in my respectful view, an obvious overlap between these two matters (viz., an examination into the merits and examination into the reasonableness of the conduct of the parties). These interrelated difficulties were captured in Gogo v Attorney-General (Cth) [2022] FCA 70 at [70]-[71] in these terms: 70. It can readily be seen that to decide whether the parties acted reasonably in respect of the judicial review proceedings, the Court would have to essentially decide the central issue in those proceedings. It would also have to do so on the basis of all of the voluminous evidence filed by the parties in the proceedings and in the absence of any cross-examination in respect of contentious factual issues. 71. It would, in all the circumstances, be plainly contrary to the principles identified in Lai Qin and, more recently, in Nichols, for the Court to undertake the inquiry proposed by the applicants for the purposes of determining their costs application. To do so would be to conduct a hypothetical trial of the judicial review applications in circumstances where there was voluminous and contentious evidence and no scope for cross-examination.
In my view the plaintiff cannot be said to have acted unreasonably in commencing the proceedings given the letter that was sent dated 30 September 2021 (and the follow up letter on 4 November 2021) received no response - particularly given the findings made by Davies J and Adamson J. Further, again given those findings, I am not prepared to find that, during the course of 2022 and leading up to the dismissal of the appeals by consent, the plaintiff unreasonably maintained the proceedings: my finding is that the plaintiff did not unreasonably maintain them. I deal with these issues in some more detail in what follows.
In relation to the appeal concerning the costs of the trial in the underlying proceedings, the plaintiff's position is that it was only following the receipt of the determination of the costs assessment between the first defendant and KL that the substance of appeal - relating as it did to a contravention of the indemnity principle - fell away because the assessment demonstrated that there would be no infringement of the indemnity principle. I do not accept that the circumstances advanced by the plaintiff amount to a capitulation, as the first defendant submitted; rather, in my view, and as the plaintiff submitted, external events removed the subject of the dispute, with the consequence that the pursuit of the summonses following those events would be inutile. In circumstances where that explanation is directed to a finding that the plaintiff did not unreasonably pursue the litigation (or, as the first defendant would have it, a finding that the plaintiff unreasonably pursued the litigation), that issue is contested or in dispute between the parties, and the position identified in Nichols at [8] pertains - namely, that that question "cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact". It also could not properly be answered without a careful investigation into the merits of the appeal itself.
To the extent that a consideration of the reasonableness of the plaintiff is based on "known circumstances" etc, then I would simply observe the following. First, the plaintiff wrote to the first defendant prior to commencing the appeal proceedings seeking details that, inter alia, were relevant to the "indemnity principle" ground - and there was no response to that letter, nor a follow-up one. Secondly, it is apparent, from the judgments of Davies J and Adamson J, that there remained a dispute between the first defendant and KL in connection with their fees (some of the correspondence relating to this dispute was set out in the judgment of Davies J, and extracted in an earlier part of these reasons) during 2022. Thirdly, findings were made by Davies J and Adamson J that the grounds of appeal raised involved a "serious question" in connection with, inter alia, the "indemnity principle".
In relation to the appeal concerning the costs of the appeal in the underlying proceedings, the plaintiff's position is that it did not become aware that the appeal costs had been paid in full until on or around 21 October 2022 and, further, only became aware that the first defendant accepted this position when it was served with the affidavit from the solicitor for the first defendant sworn 20 February 2023 (see [36]-[40] and [84]). Specifically, as earlier outlined (see [40], above), that affidavit deposed to the fact that there was no application to have, as between the first defendant and KL, an assessment of KL's costs in respect of its retainer to conduct the appeal to the Court of Appeal "because those costs have been paid in full, so that there is no dispute about quantum or payment of those costs". Again, as with the costs of the trial in the underlying proceedings, in circumstances where that explanation is directed to a finding that the plaintiff did not unreasonably pursue the litigation, and is contested or in dispute between the parties, then the position identified in Nichols at [8] pertains - namely, that that question "cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact". It also could not properly be answered without a careful investigation into the merits of the appeal itself.
To the extent that a consideration of the reasonableness of the plaintiff is based on "known circumstances" etc, then I would simply observe the following. First, the findings made by Davies J and Adamson J about the appeals (the grounds in particular) involving a "serious question" relating to the indemnity principle issue (and the other grounds) were made in both appeals. Secondly, Davies J specifically dealt with the basis for the dispute in connection with the costs of the appeal in the underlying proceedings - which Davies J noted had, at least in part, its genesis in the first defendant contesting that there was no proper costs disclosure between her and KL (judgment at [10]). In relation to that aspect of the dispute, the first defendant specifically argued before Davies J that there "was no basis for the assertion that [KL] has a 'fruits of the action' lien over the judgment debts necessitating [the plaintiff] paying any costs to [KL], rather than to [the first defendant]": judgment at [19]. Davies J did not accept that argument. On the contrary, Davies J found, as I have earlier noted, that this (and the other grounds of appeal) raise "serious issues for the determination of the appellate court": judgment at [37], [69]-[73].
In my view, for the above reasons, I consider the proper exercise of the costs discretion is to make no order as to the cost of the proceedings such that each party is to bear her or its own costs.

[23]

Varying an earlier order of another judge: legal principles

The first defendant submitted that "every judge of this Court has power to vary, discharge or suspend any interlocutory order of any other judge as an aspect of inherent jurisdiction of this Court" (first defendant's submissions at [27]). In advancing this submission, the first defendant relied upon Hutchinson v Nominal Defendant [1972] 1 NSWLR 443, 447-448 ('Hutchinson'). It is convenient to set the relevant passage out in full: A preliminary matter which was raised before me was whether I had power to vary discharge or suspend the order of his Honour of 1st December, 1969, by reason of any change of circumstances, if such were established, and whether the application ought not to have gone back to Taylor J. Both parties however agreed that I had such power and it seems to me that they were correct. A judge has power to vary, discharge or suspend any order made by any other judge where, for example, the order was conditional and the circumstances have been fulfilled, necessitating some formal order, or circumstances arise which warrant in the judge's view a cessation of the continuance of the order as earlier made. Such power is an inherent power of the court or judge and any such variation, discharge or suspension is not in any sense an appeal from the order made by the earlier judge, because it does not proceed upon any supposed error in the initial making of the order. It predicates the validity of such an order and deals solely with the question as to whether there is established such change of circumstances that it is just and proper and that the further continuance of the order should be varied, suspended or discharged.
To the same end, the first defendant further submitted that it was permissible for a judge to vary an order of another judge of equal standing so long as "changed circumstances [make] it just and proper to do so": Douglas v John Fairfax & Sons Ltd (1983) 3 NSWLR 126, 134 ('Douglas').
Before dealing with the first defendant's application, a number of matters should be noted. First, the first defendant specifically eschewed reliance upon r 36.16 of the UCPR - the first defendant relied upon what was argued to be the inherent power of the Court to vary an interlocutory order. Secondly, the first defendant did not identify any authorities that deal with the interplay between any inherent power and r 36.16 of the UCPR, nor any contemporary authorities that might otherwise seek to confirm, refine or constrain the approach argued by the first defendant. Thirdly, aside from the identification of the principle from the decisions in Hutchinson and Douglas, the first defendant argued that the power to vary Adamson J's order was otherwise unconstrained in any way. Fourthly, it is to be emphasised that the present situation does not concern (nor was it argued to concern) what might be described as an order relating to practice and procedure: rather, it concerns an order for costs made following the first defendant unsuccessfully seeking to set aside notices to produce served upon her, and subpoenas served on KL, by the plaintiff. Fifthly, the costs orders made were entered - and the first defendant did not suggest to the contrary.
In my respectful view, the authorities cited and relied upon by the first defendant do not fully identify the manner and circumstances in which a judge can vary an order of another judge. It is unnecessary, in the circumstances and particularly given the view I have reached, to attempt that task, but some important guiding principles should be recognised. Some of them were identified in Majak v Rose (No 5) [2017] NSWCA 238 - a case that concerned r 36.16 of the UCPR but nevertheless dealt with the matter by reference to general principle - at [12]-[13]: 12. The rule is, like all rules made under the Uniform Civil Procedure Act 2005 (NSW), subject to the "overriding purpose" of facilitating the "just, quick and cheap resolution of the real issues" between the parties to litigation (s 56). It does not give a licence to disgruntled litigants to re-agitate, in the hope of obtaining a more favourable outcome, issues that have been determined against them. Nor does it make of a court some sort of magic pudding from which unsuccessful litigants may take slice after slice, ever hopeful that the next will be more palatable than the last. The rule has a serious, but limited, purpose which is to permit readily identifiable, readily rectifiable, inadvertent errors to be corrected without the complication and expense of an appeal (or, in the case of this Court, an application for special leave to the High Court). Abuse of the rule is detrimental to the administration of justice in unnecessarily and unfairly (to other litigants) taking up the time of the court. Nor does abuse of the rules facilitate the just, quick and cheap resolution of the issues between parties. On the contrary, unwarranted reliance on r 36.16 is oppressive to the successful party and a drain on the Court's resources. 13. It is well established that a court's jurisdiction to set aside orders should be exercised sparingly and with caution, having due regard to the importance of the finality of litigation (see, for example, Wentworth v Woollahra Municipal Council (No 2) (1982) 149 CLR 672 at 684; [1982] HCA 41; State Rail Authority of NSW v Codelfa Construction Pty Ltd (1982) 150 CLR 29 at 38; [1982] HCA 51; Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 302; [1993] HCA 6; Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd (No 2); Carelli v FS Architects Pty Ltd (No 2) [2008] NSWCA 205 at [9]).
See also Waterhouse v Independent Commission Against Corruption (No 2) [2015] NSWCA 362 at [15]-[17] ('Waterhouse') and Johnson v Mackinnon (No 2) [2022] NSWCA 22 where at [6] the following was said: The court's inherent powers to set aside judgments in certain circumstances are subject to at least the same constraints, imposed by the public interest in the finality of litigation, as is the statutory power to re-open on an application made on motion filed within 14 days after entry of judgment, which has been addressed above.
Further, as emphasised in Waterhouse at [17], there … is a distinction to be drawn between the court acting upon a misapprehension as to the facts or the relevant law, on the one hand, and, on the other, the court reaching a conclusion which, in the view of the applicant for re-opening, involves a mistake …

[24]

Discussion and consideration

In my view, the first defendant's application should be rejected, for the following reasons.
First, in substance the complaint of the first defendant is not that there has been a misapprehension of any kind; rather, the complaint is that Adamson J erroneously accepted that there was an arguable case in connection with the indemnity principle (a finding that included Adamson J specifically agreeing with the substantively same finding made by Davies J). That is apparent from the first defendant's contention that the plaintiff's "case theory creating [the] evidentiary basis is not even arguable". No attempt was made by the first defendant to demonstrate any form of misapprehension. Put simply, the first defendant's argument is that the conclusion reached by Adamson J involved error. The first defendant's submission also involved re-arguing the arguments that were fully ventilated before Adamson J relating to the apparent relevance of the material sought (by the subpoenas and the notices to produce) to the indemnity principle argument (judgment at [18]-[19]). Adamson J accepted that they did have that relevance, and accordingly declined to set aside the subpoenas and notices to produce.
Secondly, in the context of the substantive costs application I have made findings that involve rejection of the submissions made by the first defendant to the effect that the appeals were without merit: see [97]-[99], above. I have not accepted those submissions and I similarly do not accept, in the present context, that the plaintiff's case theory "is not even arguable", as the first defendant submitted.
Thirdly, I do not accept, as was submitted, that Adamson J was "misled" by the evidence of the solicitor for the plaintiff. In relation to this submission I would, as I did in relation to a similar submission made in the context of the substantive costs application, draw attention to the seriousness of that allegation and the absence of any cross-examination by the first defendant of that witness: see [94]-[96], above. In a sense, the fact that the first defendant suggests that Adamson J was misled by the evidence tends to emphasise why it is not appropriate for there to be any variation to this order: to suggest that Adamson J acted upon evidence provides practical demonstration that her Honour did not proceed upon any misapprehension of the facts.

Benjamin & Khoury Pty Ltd v Rahme

At a glance

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