Hillig v Darkinjung Pty Ltd & Ors

35 In the course of argument on the appeal, Mr D Murr of Senior Counsel, who appeared with Mr D Smallbone for the appellant, indicated that if the Court were to hold the Resolutions were effective, "it would then be an issue to determine whether or not Mr Cunliffe was properly retained". He did not suggest this Court should resolve that issue. He intimated that that issue may be relevant to the disposition of the Fund. He indicated that, the appellant's "thinking" at the time the appeal was heard had not "gone beyond the proposition that if a solicitor has not been properly retained in the sense that those retaining him who purported to retain him did not have the authority to do so then that solicitor would not be entitled to be paid" by his client. Thereafter Mr Murr's submissions addressed the question of the efficacy of the Resolutions. 36 Mr S Epstein of Senior Counsel who appeared for the second to seventh respondents informed the Court that they would contend "to the extent necessary" that the appeal should be held to be not competent and that leave to appeal should not be granted. He said, however, that he did not propose to move on the competency motion, nor make submissions in support of the orders sought therein: Hillig No 1 (at [28]). 37 Mr Epstein also said he wished that day to resist the order for costs the appellant sought against the second to seventh respondents. He did so apparently because the appellant's solicitors had written to Mr Cunliffe on 20 March 2007 advising that the appellant would be making submissions on costs at the hearing of the appeal and would not consent to a second hearing day for that issue to be canvassed. In response Mr Cunliffe advised that his "clients" would be represented at the hearing to resist any adverse costs order: see Affidavit of Ian George Cunliffe, 7 May 2007. As events transpired the Court determined that the issue of costs should be determined once the substantive appeal was resolved: Hillig No 1 (at [31]).

Consideration 38 In my view Mr Smallbone's submission that Mr Cunliffe pay the appellant and first respondent's costs should be rejected. 39 Subject to the rules of court, costs are in the discretion of the court which has full power to determine by whom, to whom and to what extent costs are to be paid: s 98(1), Civil Procedure Act 2005. The power conferred by s 98(1) is subject, inter alia, to UCPR 42.3 which relevantly provides: "(1) Subject to rule 42.27, the court may not, in the exercise of its powers and discretions under section 98 of the Civil Procedure Act 2005, make any order for costs against a person who is not a party. (2) This rule does not limit the power of the court: … (d) to make an order for costs against a person who purports, without authority, to conduct proceedings in the name of another person." 40 Mr Smallbone's submissions proceed on the premise that Mr Cunliffe was a "party" to the Interlocutory Process of 24 May 2006, the orders made by the primary judge and the appeal and, implicitly to the primary proceedings. In my view that submission is incorrect insofar as the primary proceedings are concerned. 41 There is no definition of "party" in the UCPR, although I note "active party" is defined in the Dictionary to the Rules, relevantly as meaning "a party who has an address for service in the proceedings". That definition reflects the ordinary understanding that a "party" is a "party to the record" (R v Murray; Ex parte Commonwealth [1916] HCA 58; (1916) 22 CLR 437 (at 469)), an understanding which is also reflected in UCPR Pt 6 Div 5 dealing with "Joinder of causes of action and joinder of parties". 42 Mr Cunliffe was not a party in that sense to the primary proceedings. As I have said, he was not named as a defendant in the Originating Process, nor in either the second or third applications considered in the primary judgment. He was first formally joined as a party on the record on 19 May 2008. Accordingly, prima facie, Mr Cunliffe is entitled to the benefit of UCPR 42.3(1). 43 However the concept of a "party" may not be confined to a person who is on the record. In Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 it was held that the Queensland Supreme Court had jurisdiction to make a costs order against a person who, while "not a party according to the record … was considered to be the 'real party' ": see (at 189 - 190) per Mason CJ and Deane J (Gaudron J agreeing). Such a person was someone who "… played an active part in the conduct of the litigation and …[who had] an interest in the subject of the litigation": Knight (at 193). 44 UCPR 42.3 reflects the rules adopted after Knight whose object was "to restrict the power of the court in making a costs order against a person who is not a party and "abolish several traditional categories of jurisdiction to order costs against non-parties discussed in Knight": see Wentworth v Wentworth [2000] NSWCA 350; (2000) 52 NSWLR 602 (at [162]) per Heydon JA (Davies AJA agreeing) where the history of the Supreme Court Rules on which UCPR 42.3 is based was traced. 45 It is not necessary to decide whether, assuming any part of the Knight jurisdiction survived UCPR 42.3 and its predecessors, such an order could be made against Mr Cunliffe. The appellant does not assert he was a "real party" in the Knight sense, save, perhaps, insofar as the Interlocutory Process is concerned, although as the following discussion demonstrates his claim in that respect more properly rests in UCPR 42.3(2)(d). 46 The effect of this Court's decision that the Resolutions were effective was that on and from the date they were passed (22 May 2006) the retainer of Messrs Norton White was withdrawn and he had no authority to continue to act for Darkinjung.

47 It is a common order, when a solicitor has taken unauthorised steps in litigation, to require the solicitor personally to pay the costs he has thereby caused other parties to incur: Hawksford v Hawksford [2005] NSWSC 463 (at [111]) per Campbell J (as his Honour then was). 48 Where a solicitor has acted without authority for one of several parties to proceedings, then, subject to discretionary considerations, the solicitor will be ordered to pay so much of the other party's costs as were attributable to the parties for which the solicitor purported to act being joined as parties: Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421 (at 430) per Powell J. 49 According to Yonge v Toynbee [1910] 1 KB 215 the Court's jurisdiction to make such an order was founded on the premise that "a solicitor who does not in fact have authority to represent a plaintiff is liable to other parties on an implied contract that he had authority": see Zimmerman Holdings Pty Ltd v Wales [2002] NSWSC 447 (at [5]) per Bryson J (as his Honour then was). 50 In Zimmerman (at [6]) Bryson J concluded the Yonge approach should not be applied both because of the discretionary power as to costs in s 76(1) of the Supreme Court Act 1970 (the predecessor of s 98(1)) and because he found the Yonge analysis unpersuasive. In his view there was "nothing in the nature of a contractual relationship between the plaintiff's solicitor and the defendant, or between the solicitor who purported to have but did not have the plaintiff's authority and the defendant". He concluded: "[8] In acting under subs 76(1) the court must exercise a discretion and should only order costs on the basis of some sound or positive ground for making the order, and on a review of relevant discretionary considerations to which its attention is directed. It would not be correct to regard the court as committed to some established outcome by earlier judicial decisions, or by analyses found in them, such as the treatment in Yonge v Toynbee of the situation as one of breach of warranty of authority." 51 Bryson J considered Young J's statement in AW & LM Forrest Pty Ltd v Beamish (1998) 146 FLR 450 (at 458) that "the ordinary rule [as to costs] is that the solicitors whose retainer is challenged pay all the costs of the proceedings up until the order is made" as referring to " the outcome which would usually be produced in a sound exercise of discretion" but not as "a legal rule". The reference to "the ordinary rule [was] an indication that, on adequate grounds, the ordinary rule may be departed from". His Honour ordered the solicitors to pay the costs of the defendants on the basis (at [11] - [17]) that they were aware from early in the peace that there was an issue as to the capacity of two directors properly to retain the solicitors and the latter were in a better position than the defendants to determine whether they were retained with authority. In his view the solicitors' responsibility was to determine whether those purporting to retain them were authorised to do so. An appeal from Bryson J's decision was dismissed: Massey v Wales [2003] NSWCA 212; (2003) 57 NSWLR 718. The appeal turned on an issue of ratification. The Court did not consider Bryson J's observations about Yonge. 52 In my view the approach Bryson J adopted in Zimmerman is the preferable one. The discretionary power to make costs orders pursuant to s 98 is absolute and unfettered: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 (at [34]) per Gaudron and Gummow JJ. UCPR 42.3(2)(d) is subject to that discretion. 53 The first question is whether Mr Cunliffe should be visited with the costs orders the appellant and the first respondent seek to the extent he conducted the proceedings on Darkinjung's behalf. In determining this question it should be taken into account that all three applications before the primary judge turned on the one issue: the efficacy of the Resolutions. This was not a case, such as Zimmerman, where the directors who purported to instruct solicitors on behalf of a company were not validly appointed due to the want of a quorum: Massey (at [18]) per Hodgson JA. Mr Cunliffe could not determine by reference to objective facts whether or not the Resolutions were effective and, therefore, whether or not Darkinjung, and ergo its directors, had authority to retain him. Rather, as the outcome of the primary proceedings demonstrated, there was at least an arguable case that the Resolutions were ineffective. 54 Darkinjung was always a necessary party to the primary proceedings, as too, were the second to sixth respondents. The issues on the three applications were so intertwined that it was appropriate for the primary judge not to resolve the 24 May Interlocutory Process challenging Mr Cunliffe's retainer until he had heard all of the argument and then, having regard to his conclusions, to dismiss it. It would be difficult, in such circumstances, to conclude that the costs of the proceedings were attributable to Darkinjung's joinder. 55 It was the appellant who commenced the proceedings and joined the first to sixth respondents as defendants. The principles concerning a solicitor acting without authority apply whether the party represented is a plaintiff or a defendant. However where the party represented is a defendant, and the question whether the defendant can retain a solicitor lies at the heart of the proceedings, a court would not readily order the solicitor to pay the costs of the proceedings even when the effect of its conclusion is that those the solicitor represented were not authorised to retain him or her. 56 A solicitor placed on notice of a challenge to retainer would do well to determine, as Zimmerman demonstrates, whether the client's authority to retain him or her can be objectively determined. Where that cannot be done, the court must be anxious to ensure that an order that the solicitor bear the costs is appropriate in all the circumstances. Those circumstances include, in my view, the public interest that citizens have legal representation for the purposes of the conduct of litigation: Orellana-Fuentes v Standard Knitting Mills Pty Ltd [2003] NSWCA 146; (2003) 57 NSWLR 282 (at [96]) per Ipp JA (Spigelman CJ and Handley JA agreeing).

57 In my view, Mr Cunliffe was entitled to proceed on the basis that the efficacy of the Resolutions and the question whether Darkinjung could retain him, was an issue of law which should properly be determined by the Court and that the defendants should have legal representation for the purposes of that contest. Accordingly I would not exercise the UCPR 42.3(d) power against him in relation to the trial. 58 As Mr Cunliffe was not a "party" to the primary proceedings, the Court cannot order him to pay the costs of the trial: UCPR 42.3(1). 59 I turn then to the costs of the appeal. 60 Insofar as the appellant relies on UCPR 42.1 to argue that he should have his costs because the event has gone his way, it should be recalled that while the costs discretion is generally exercised in favour of the successful party, there is no automatic rule that costs always follow the event: Oshlack (at [40] - [41]) per Gaudron and Gummow JJ; Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 82 ALJR 173 (at [26] - [27]) per Gleeson CJ, Gummow, Hayne and Crennan JJ. 61 Mr Cunliffe was a party to the appeal. Contrary to his submissions, the appointment of the liquidator to Darkinjung did not render the appeal moot. While the effect of Barrett J's decision removed the substratum of the controversy insofar as the efficacy of the Resolution was concerned (Hillig No 1 (at [118])), the appropriate costs orders of the primary proceedings and the appeal remained live issues. The Court could not deal with those issues without determining whether the primary judge's orders were "the result of some legal, factual or discretionary error": Allesch v Maunz [2000] HCA 40; (2000) 203 CLR 172 (at [23]). 62 Just as an appellate court cannot make orders by consent disposing of a substantive appeal unless satisfied the primary judgment was affected by such an error (Telstra Corp Ltd v Minister for Broadband, Communications and Digital Economy [2008] FCAFC 7 (at [43]) per French, Weinberg and Greenwood JJ), so, too, this Court could not interfere with the primary judge's orders merely because the respondents had all filed submitting appearances. An appellate court may hear a case where the only live issue is costs: see Bonan v Hadgkiss [2007] FCAFC 113; (2007) 160 FCR 29 (at [8], [10] - [11]); Harrington v Rich [2008] FCAFC 61 (at [21] - [22]). 63 There may well have been an argument, absent the mediation agreement, that the first to sixth respondents should pay the costs of the appeal at least until the filing of their respective submitting appearances. In my view, Mr Cunliffe should not be burdened with the costs of the appeal prior to the filing of his submitting appearance. The reasons for this conclusion include those I have reached on the UCPR 42.3(d) point. In addition while Mr Cunliffe was the seventh respondent, he was not an "active" party to the appeal in the same sense as the first to sixth respondents. While he may well have had a "downstream" interest in the outcome of the appeal in the sense of any claim he may wish to make on the Fund, his was an indirect interest as opposed to the direct interest of the first to sixth respondents in retaining the benefit of the primary judgment at least so far as costs were concerned.

64 Further, during the period the primary judge's orders were in effect, and, until the appointment of the liquidator, Mr Cunliffe was, in my view, entitled to proceed on the basis that the second to sixth respondents had authority to retain him to act for Darkinjung: Hillig No 1 (at [33]). 65 In my view it would not be a just exercise of the costs discretion to order Mr Cunliffe to pay either the appellant's or the first respondent's costs of the appeal. 66 Turning to Mr Cunliffe's application for costs, in my view, the usual rule which, as I have noted (at [5]) the appellant concedes would ordinarily be applicable, should apply, in the first instance, to Mr Cunliffe's costs of filing his submitting appearance. Next, it is necessary to consider whether any conduct in which Mr Cunliffe engaged after the filing of that document exceeded the role of a submitting party. In my view, it did not. Rather, counsel for the second to seventh respondents appeared on the appeal in response to peremptory correspondence from the appellant's solicitors demanding their attendance so that any issue as to costs might be resolved on that day. Inevitably, having regard to the second to seventh respondents' submitting appearances, the Court inquired of Mr Epstein about the purpose of his attendance. While he said, somewhat Delphically, that those who he represented "would contend to the extent necessary that the appeal should be held to be not competent and leave should not be granted", he did not move on the competency application and, apart from responding to inquiries from the Court, did not make submissions either on the competency motion or the substantive appeal. Accordingly, in my view, the appellant should pay Mr Cunliffe's costs of 9 May 2007 as well. The combined effect of this paragraph is that the appellant should pay Mr Cunliffe's costs of filing his submitting appearance and the costs he incurred thereafter in that role.

Conclusion 67 It remains only to observe that it was incumbent upon the appellant to inform the Court immediately the matter was mediated successfully on 9 May 2008. The appellant was then under an obligation to file and serve submissions in reply by 14 May 2008. No explanation was given in the reply submissions as to why the appellant was in default of that order, or why he waited until 29 May 2008 to draw to the Court's attention the outcome of the 9 May 2008 mediation. As I have indicated, I was already substantially advanced in preparing a judgment on the basis of the submissions which had been filed and on the assumption that the appellant did not intend to file any submissions in reply. I would also observe that, contrary to the assumption in the reply submissions, it is not appropriate for counsel to arrogate the Court's role as to whether other parties should file submissions. 68 After this judgment had been completed further submissions were received from counsel for the seventh respondent. The Court had not directed such submissions be filed. The submissions contended for the order I had already decided to make. They largely rehearsed arguments addressed in the second to seventh respondents' 7 May 2008 submissions, with a heightened tone of indignation arising from the outcome of the mediation. While Mr Cunliffe's concern to make submissions more specifically addressed to his own position than those prepared when the appellant's target was a larger group is understandable, it was inappropriate for submissions to be delivered without the Court's leave. 69 The appellant has failed in his costs application and should pay Mr Cunliffe's costs. The first respondent should bear its own costs.

1. As between the claimant/appellant and the first to sixth respondents there be no liability of each to the other as to the costs of the proceedings.

2 Any existing costs orders be vacated between those parties.

3. Appellant to pay the seventh respondent's costs of filing his submitting appearance on 13 March 2007 and the costs he incurred thereafter in that role.

4. Appellant to pay the seventh respondent's costs of the costs application.

5. First respondent to bear its own costs of the costs application.

6. Save as aforesaid, no order as to the costs of the appeal or the proceedings below as between the appellant, the first respondent and the seventh respondent.

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