In the matter of Bayfoyle Pty Ltd

Category: Costs

Parties: Sandra Henri Edmonds and David James Edmonds (Plaintiffs/Respondents to the costs application)
Bayfoyle Pty Ltd (Defendant/Applicant on the costs application)
L Smits (Respondent to the costs application)

Representation: Counsel:
S Edmonds (self-represented) (Plaintiff/Respondent)
S Lees (Defendant/Applicant)
L Smits (Respondent to the costs application)
Solicitors:
CG Gillis & Co (Defendant/Applicant)

File Number(s): 2025/184474 (007)

JUDGMENT

Nature of the application

1. By Originating Process filed on 14 May 2025, the Plaintiffs, Ms Sandra Edmonds and Mr David Edmonds applied to wind up the Defendant, Bayfoyle Pty Ltd (“Bayfoyle”) in insolvency under s 459A of the Corporations Act 2001 (Cth) (“Act”), relying, inter alia, on a presumption of insolvency said to arise from a creditor’s statutory demand (“Demand”) they had issued to Bayfoyle.

2. By Interlocutory Process filed on 3 July 2025, Bayfoyle sought orders under s 467 of the Act or alternatively under r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) dismissing the winding up application. By my ex tempore judgment delivered on 9 September 2025 (“First September Judgment”), I held that it was not open to Mr and Mrs Edmonds to rely on a presumption of insolvency under s 459C of the Act because the Demand on which they relied was stale at the time the winding up proceeding was commenced. I there rejected submissions made by Mr Smits, who appeared for Mr and Mrs Edmonds, which sought to challenge the well-established case law as to that matter. I also held that the winding up application was filed without adequate verification of the debt claimed and that also provided “ample basis” to dismiss the winding up under UCPR r 13.4 so far as it relied on the Demand, on the basis that the Originating Process disclosed no reasonable cause of action or was an abuse of process in that regard. I did not then dismiss the winding up application so far as Mr and Mrs Edmonds also sought leave to proceed as contingent creditors and orders that Bayfoyle be wound up by proving actual insolvency or on the just or equitable ground.

3. By Interlocutory Process filed on 31 July 2025, Mr and Mrs Edmonds also pressed four paragraphs of relief. The first was that leave be granted to Mr Smits, their solicitor and Mr and Mrs Edmonds to be substituted for Mr and Mrs Edmonds under s 465B of the Act in the winding up application. The second was to seek to achieve the same result by a different route, by joining Mr Smits as an additional plaintiff in the proceedings under UCPR r 6.24. I did not grant make those orders for the reasons set out in my further ex tempore judgment delivered on 9 September 2025 (“Second September Judgment”). Third, Mr and Mrs Edmonds sought an order joining a third party as an additional plaintiff in the proceedings and, fourth, they sought leave to bring the winding up application “in respect of any contingent or prospective debts held or claimed by them or “anyone [sic] or more of them”. I also declined those orders for the reasons set out in my Second September Judgment.

4. After deliver of my September judgments, I ordered that the balance of claims made by Mr and Mrs Edmonds for a winding up on the basis that Bayfoyle was insolvent in fact, or on the just or equitable ground or that they had standing to pursue such proceedings as contingent or prospective creditors proceed on pleadings; that Mr and Mrs Edmonds file and serve their Statement of Claim dealing with those matters by 23 September 2025; and relisted the matter for directions on 30 September 2025.

5. Mr and Mrs Edmonds then filed a Statement of Claim (“September Statement of Claim”) categorised as an affidavit on Justicelink. I ordered that that document be struck from the file when the matter was next listed for directions on 30 September 2025, but allowed Mr and Mrs Edmonds another opportunity to file the Statement of Claim on which they wished to proceed, properly filed as such. I also made orders for Bayfoyle to file and serve any application to strike out the Statement of Claim, which it had foreshadowed, and for any such application to strike out the Statement of Claim and the question whether the time to determine the winding up proceedings should be extended under s 459R of the Act to be heard on 13 November 2025.

6. Mr and Mrs Edmonds subsequently filed a Statement of Claim comprising some 74 pages (“October Statement of Claim”) on 2 October 2025.

7. By Interlocutory Process dated 21 October 2025, Bayfoyle sought an order that the October Statement of Claim be struck out under UCPR r 14.28 and that the proceedings be dismissed. Bayfoyle also sought an order that Mr and Mrs Edmonds pay its costs of the proceedings, on a fixed sum basis, and an order under s 99 of the Civil Procedure Act 2005 (NSW) (“CPA”) that Mr Smits pay the Plaintiffs the whole of the costs that they have been ordered to pay, or alternatively that Mr Smits pay Bayfoyle the costs payable by it, with that indemnity limited to the amount of costs which Mr and Mrs Edmonds have been ordered to pay less any amounts that Bayfoyle has recovered from Mr and Mrs Edmonds.

8. By my judgment delivered on 13 November 2025 (Re Bayfoyle Pty Ltd [2025] NSWSC 1373) (“November Judgment”), I ordered that that Statement of Claim be struck out. I also dismissed the proceedings for the reasons set out in paragraphs 60-63 of the November Judgment as follows:

“The proceedings should also be dismissed, for several reasons. First, as they stand, pleaded in the manner noted above, they could not go forward to a hearing. I also have no confidence, by reference to the pleadings as they stand, or the submissions that have been put by Mr Smits for Mr Edmonds, that there would be any utility in allowing an opportunity for a further pleading, even part from the time limit under s 459R of the Act. The Edmonds’ approach to this hearing provides no reason to think that have any particular wish to or intention of confining their claims, going forward, in a way that would allow them to be properly pleaded. To the contrary, this hearing has been conducted by Mr Smits, for the Edmonds, on the basis that assumes the propriety of the allegations as put, while seeking to mischaracterise them as a straightforward and simple contractual case. There is no reason to think, when this hearing has been conducted in this manner, that a further opportunity to the Edmonds to re-plead the case, even if it were open to them, would result in a re-pleading that avoided the difficulties to which I have referred above.

Further, and in any event, a re-pleading is not here open, for the large part of the Edmonds’ case, since s 459R of the Act requires that an application for a company to be wound up in insolvency be determined within six months after it is brought. Mr Smits accepts that the six month period specified in that section expires tomorrow. Section 459R of the Act in turn provides that the court may by order extend the period, but only if the Court is satisfied that "special circumstances justify the extension", and the order is made within that six month period. I have had regard, here, to the detailed review of the relevant statutory provisions, and their purpose, in Bryant, in the matter of Gunns Ltd (in liq) (recs and mgrs apptd) v Badenoch Integrated Logging Pty Ltd [2024] FCA 97 at [18]ff and, on appeal, in Badenoch Integrated Logging Pty Ltd v Bryant [2024] FCAFC 167 at [42]ff. There is no basis to find that special circumstances justify such an extension here. To the extent that special circumstances exist, namely the breadth of the winding up application; the scope of the allegations made in them and the manner in which they have been pleaded; and the attempt to bring a winding up proceeding, prior to any substantive claim that seeks to establish its premises; then all of those matters tend against extending the time period, rather than being special circumstances that would warrant that extension.

The case law recognises that, where a winding up is sought on alternative grounds to insolvency "that are not interwoven and therefore indivisible", then s 459R of the Act will not bar the balance of the claims. Here, having regard to the pleading, it seems to me that the Edmonds’ claims are so interwoven and so indivisible that the effect of s 459R is to bar them as a whole. In particular, the Court cannot, by any process of review of the Statement of Claim, identify what claims would be left and what material facts would be pleaded in support of them, once those matters that are barred by s459R of the Act are excluded.

In any case, once s 459R takes effect in respect of that part of the claim that relies on insolvency, the matters to which I have referred above will continue to have effect. Any balance of the claim that does not rely upon assertions of insolvency will still rely upon assertions of the status of the Edmonds’ claims as creditors or contingent creditors, which have all of the difficulties to which I have referred above.”

9. I also there noted that two other matters remained for determination as follows:

“Bayfoyle's claim for a gross sum costs order against the Edmonds and its claim for an order for costs against Mr Smits, the solicitor acting for the Edmonds, under s99(2)(c) of the [CPA]. It would not be appropriate to hear those matters today, not least because the second of them may give rise to a conflict of interest between the Edmonds and Mr Smits, so far as each of them may prefer that the other bear or at least be jointly liable for the costs of the proceedings. The Edmonds and Mr Smits should be given the opportunity to address that conflict of interest before the question of costs goes to hearing. I should also allow the Edmonds, and Mr Smits, an opportunity to lead evidence as to the question of costs, including the quantification of costs on a gross sum costs order, if they wish to do so.”

10. Although Mr Smits does not seem to have filed a Notice of Ceasing to Act for Mr and Mrs Edmonds, Mrs Edmonds represented herself (and claimed to represent Mr Edmonds) in respect of the costs application, and Mr Smits made submissions on his own behalf, possibly recognising a conflict of interest where a costs order was now sought against Mr Smits personally. The costs application were initially listed for hearing on 19 December 2025, but that hearing was adjourned to 22 December 2025, where Mr and Mrs Edmonds were party to proceedings in another Court on the day on which that matter was first listed. Mr Lee, who appears for Bayfoyle, Mrs Edmonds and Mr Smits each relied on written submissions and made oral submissions at the hearing on 22 December 2025.

Affidavit evidence

11. In support of its costs application, Bayfoyle read part of an affidavit dated 20 October and an affidavit dated 21 November 2025 of its solicitor, Mr Wong. By his affidavit dated 20 October 2025, Mr Wong outlined his experience and exhibited the costs agreement between Bayfoyle and his firm and between his firm and Counsel and summarised Bayfoyle’s costs of the proceedings to date and estimated the then future costs of the proceedings. Mr Wong expressed the view that, in an assessment of its costs, Bayfoyle was likely to incur costs to a costs consultant and a lodgement fee and the costs assessment process would likely take up to six months. Mr Wong also addressed the percentage of costs which would commonly be allowed in an assessment, there adopting percentages which are consistent with those which have frequently been adopted by the Courts in the case law.

12. By his second affidavit dated 21 November 2025, Mr Wong updated the costs which had been incurred by Bayfoyle in the proceedings and addressed an issue which had arisen in respect of authorities referred to in Mr and Mrs Edmonds’ outline of submissions at the hearing on 13 November 2025, prepared by Mr Smits, at least some of which appear to have been “hallucinations” generated by artificial intelligence and not to be authentic. Mr Wong also referred to a mortgage held by Mr Smits or his firm over a property owned by Mr and Mrs Edmonds and identified allegations of misconduct that had been made in the October Statement of Claim before it was struck out. He also referred to an email dated 21 November 2025 sent by Mr Smits, which had falsely attributed a reference to one of the non-existent authorities on which Mr Smits relied to a reference provided by the Court. Mr Smits apologised for that false attribution in oral submissions.

13. By her affidavit dated 15 December 2025, Mrs Edmonds claimed to be entitled to depose that affidavit under power of attorney on behalf of Mr Edmonds. It is not necessary to have regard to whether that approach is permissible, where I have regard to Mrs Edmonds’ evidence for all purposes in the proceedings. Mrs Edmonds refers to earlier proceedings involving Bayfoyle, where she claims that she and her husband incurred and paid legal costs in excess of $200,000. She refers to work done by her then solicitors in those proceedings and contends that no new work was required in these proceedings. Mrs Edmonds contends that Bayfoyle relied upon the same or substantially the same documents and legal work in the 2018 proceedings and in these proceedings. Irrespective of any overlap in evidence, the primary issues in these proceedings were plainly distinct from any issues in the 2018 proceedings, being whether these proceedings could properly be brought as winding up proceedings and, second, the form of the October Statement of Claim filed in these proceedings. Mrs Edmonds contends that she will not be able, without legal representation, and without the file going to a costs assessor, to identify what part of Bayfoyle’s costs represented genuinely new work. That proposition depends upon its premise of overlap in issues in the proceedings and does not sufficiently recognise the broad brush approach which the Court will properly take in a gross sum costs application.

14. Mrs Edmonds also refers to complaints that she made to the office of the Legal Services Commissioner in May 2025 and to the Legal Practitioners Fidelity Fund in July 2025, the latter apparently concerning a third party law firm. She also refers to a complaint made by Mr Smits to the Legal Services Commission in December 2025. I recognise that these complaints apparently relate to “recycled legal work” and they highlight the extent to which any costs assessment in this matter is likely to become a forum for reagitation of earlier disputes, not only between the parties, but between Mr and Mrs Edmonds and third parties. Mrs Edmonds also submits, in her affidavit, that it would be “procedurally unfair” for a gross sum costs order to be made without referral to a costs assessor. I do not accept that submission, first because the Court has statutory power to make a gross sum costs order under the CPA, and the exercise of that power in a proper manner is not procedurally unfair; and, second, Mr and Mrs Edmonds and Mr Smits have both had the opportunity to lead affidavit evidence and make submissions in this application. Mrs Edmonds also indicates that she assisted Mr Smits collating authorities for the hearing on 13 November 2025, although she does not go so far as to say that she, rather than Mr Smits sourced the non-existent case law on which Mr Smits relied. Even if she had done so, that would have been no answer to Mr Smits’ failure to verify the existence of the case law before he relied on it.

15. Mr Smits led no evidence in response to the costs application, although he sought to address some factual matters by assertions made in oral submissions.

Gross sum costs order

16. The principles applicable to a gross sum costs order are well-established. Section 98(4) of the CPA relevantly provides that the Court may make an order to the effect that a party to whom costs are to be paid is entitled to a specified gross sum instead of assessed costs. That power is commonly exercised where costs have been incurred in a lengthy or complex case but it is not limited to such a case: Simone Starr-Diamond v Talus Diamond (No 4) [2013] NSWSC 811 at [8]. The power to make a gross sum costs order should only be exercised where the Court considers it can do so fairly between the parties, including achieving an appropriate sum on the materials available to it, and the Court typically applies a discount in assessing costs on a gross sum basis: Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23. A gross sum costs order may also be made to avoid the expense, delay and aggregation involved in litigation arising out of an assessment: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213. Where a gross costs order is to be made, the Court is not required to undertake a detailed examination of the kind which would be undertaken in a cost assessment, in determining a gross sum payable, and will apply “a broad brush” approach: Hadid v Lenfest Communications Inc [2000] FCA 628 at [35]; Harrison v Schipp above at [22]. I have summarised the applicable principles, in substantially these terms, in Saba v Plumb [2017] NSWSC 955 at [23] and again in Re Beverage Freight Services Pty Ltd [2020] NSWSC 509 and Re Beverage Freight Services Pty Ltd [2020] NSWSC 797 at [19].

17. In Gabrielle v Abood (No 4) [2023] NSWCA 100, the Court of Appeal in turn noted at [6] that:

“The power to make a gross sum costs order provided by s 98(4)(c) of the [CPA] is discretionary. Authority establishes that the discretion is not confined and may be exercised whenever the circumstances warrant its exercise; it should only be exercised when the Court considers that it can do so fairly between the parties, and that includes having sufficient confidence in arriving at an appropriate sum on the materials available; courts have typically applied a discount in assessing costs on a gross sum basis; and the court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment: see Hamod v New South Wales [2011] NSWCA 375 at [813] –[820] and authority there cited.”

18. Turning now to the parties’ submissions, Mr Lees refers to Bayfoyle’s earlier submissions setting out the background to the proceedings and provides a short outline of the history of the proceedings. I have addressed that history in my earlier judgments to which I referred above and I do not repeat it. Importantly, Mr Lees notes that the October Statement of Claim as certified by Mr Smits contained allegations that, inter alia, Bayfoyle’s solicitors and another firm of solicitors were involved as accessories in contraventions of statutory prohibitions. Mr Lees also refers to matters arising in other proceedings between Mr and Mrs Edmonds and another party in the Court of Appeal of the Supreme Court of New South Wales, dealt with in the judgment of Free JA in Edmonds v Barrington Winstanley Group Pty Ltd [2025] NSWCA 251. I do not treat that judgment as proof of any fact in these proceedings, but I recognise that Mr and Mrs Edmonds’ failure to obtain the relief sought in that application will potentially have an adverse impact on their capacity to meet a costs order made against them, raising a real risk that any costs incurred by Bayfoyle in an assessment would be wasted.

19. Mr Lees submits that a gross sum costs order is appropriate, here, because the proceedings have involved discrete issues which have been resolved in two contested interlocutory hearings, although I recognise those hearings have themselves been lengthy; there has been a long a complex history of disputation and litigation between the parties, which is likely to “spill over” into the costs assessment process if a gross sum costs order is not made; and that there is a real question as to whether Mr and Mrs Edmonds have the means to satisfy a costs order made against them, so that there is a real risk that the costs of an assessment would be wasted. I am satisfied that these matters are established and support a gross sum costs order, notwithstanding the matters raised by Mrs Edmonds in evidence and submissions. In particular, Mrs Edmonds’ affidavit evidence and submissions highlight the likelihood that an assessment would become a further forum for the reagitation of earlier disputes, and it is apparent that there is a real doubt that Mr and Mrs Edmonds have the capacity to satisfy a costs order and the costs incurred by Bayfoyle in a costs assessment may well be wasted. I have not accepted Mrs Edmonds’ evidence as to any identity of issues between earlier and these proceedings and, in any case, I am satisfied that the Court can reach a fair estimate as to costs by adopting a discount to Bayfoyle’s solicitor-client costs in the application.

20. Bayfoyle here seeks a gross sum costs order for a percentage of its total solicitor-client costs to 17 November 2025 quantified, in Mr Wong’s evidence, as $184,880.05 (inclusive of GST) comprising $76,945 (inclusive of GST) of solicitors’ fees; $ 95,803.95 (inclusive of GST) of counsel’s fees and $12,131.10 (inclusive of GST) of other disbursements. This approach is favourable to Mr and Mrs Edmonds and Mr Smits (so far as costs are claimed against him) since it does not extend to costs incurred after that date, including costs of this application.

21. Mr Lees also relies, in support of a submission as to the quantum of the gross sum costs order, on an offer made on 15 September 2025 by Bayfoyle. While that offer may have been relevant to an application for indemnity costs, which was not brought by Bayfoyle, I do not consider it relevant to the amount of gross sum costs which should be ordered. Mr Lees also refers to the quantification of gross sum costs, by reference to costs incurred by Bayfoyle and submits the Court should order gross sum costs in an amount equal to 70% of solicitors’ costs and all of Counsel fees and other disbursements. Mr Lees submits that the quantum sought is reasonable and appropriate, having regard to specified matters, including the large volume of evidence tendered by the Edmonds, the length of the Statements of Claim on which they relied, the fact that the matter was listed on three days and there have been two substantive interlocutory hearings. I broadly accept that submission.

22. In oral submissions, Mr Lees recognises that the amount claimed by Bayfoyle appears relatively large, but points to the context that Mr and Mrs Edmonds sought to wind up Bayfoyle both in insolvency and on the just or equitable ground; there who two substantive hearings in respect of the proceedings, each for much of a day; there were interlocutory applications made by Mr and Mrs Edmonds and Bayfoyle heard at the same times; both Statements of Claim relied on by Mr and Mrs Edmonds were lengthy and the second was amended without mark up from the first; and Mr and Mrs Edmonds initially indicated they would rely on numerous affidavits and voluminous exhibits, although much of their evidence was ultimately not read. I also accept these matters displace any initial impression that the costs incurred by Bayfoyle are unreasonably large for the nature of the issues in dispute, where that largely reflects the manner in which Mr and Mrs Edmonds brought their claims against Bayfoyle.

23. By her submissions dated 15 September 2025, Mrs Edmonds submitted that this was not an appropriate case for a gross sum costs order as there were serious grounds for disputing that the “costs estimates” of Bayfoyle are fair, reasonable or proportionate. She again referred to earlier proceedings with Bayfoyle in 2018 – 2019 and also relied on other proceedings between another firm of solicitors and Mr Smits, a matter which again highlights the extent to which Mr and Mrs Edmonds would likely raise other matters in any assessment of the costs of these proceedings. Mrs Edmonds also repeated the proposition that she and Mr Edmonds have no present means or capacity to assess or determine any reduction in the proportionality of costs, this time referring to costs that may be ordered against Mr Smits, in the absence of an assessment of Bayfoyle’s costs. She refers to the filing and service of a Notice of Intention to Appeal, which is a matter for the Court of Appeal and not for me. Ms Edmonds also seeks a “reasonable period” to obtain legal advice as to specified matters, but she and Mr Edmonds have already had a reasonable period to do so, since the application to strike out the Statement of Claim was determined and the proceedings were dismissed on 13 November 2025, more than a month before the question of costs was listed for hearing.

24. Mrs Edmonds also refers to complaints which she has made to several regulatory bodies, a matter which also suggests the complexities that would arise in any assessment, and submits that “procedural fairness” requires referral to a costs assessor, a matter which I have addressed in dealing with her affidavit evidence above. Mrs Edmonds also submits that only a “line by line Costs Assessment would be appropriate”, a matter which also highlights the difficulties which would be involved in referring this matter to costs assessment, particularly where Mr and Mrs Edmonds likely do not have the financial capacity to meet the costs of an assessment that was adverse to them, or costs that may be ordered against them in that assessment.

25. Mrs Edmonds also makes a further supplementary submission, which responds, on a paragraph by paragraph basis to submissions made by Mr Lees for Bayfoyle. I have had regard to that response, but need not address it further in order to determine the application.

26. I am satisfied that the gross sum costs order sought by Bayfoyle should be made, subject to several adjustments. First, the amount claimed should be reduced by 10%, since GST is not ordinarily recoverable by a party which would likely receive a GST tax credit. Second, of that amount, the amount recoverable for solicitor-clients costs should be reduced to 60%, less than the amount often allowed in an application of this kind, to allow the Court to be comfortable that there is then no real prospect of Mr and Mrs Edmonds (and Mr Smits, if an order is made against him) being disadvantaged by the absence of a costs assessment; Counsel’s fees should be reduced to 80% for the same reason; and disbursements should be allowed in full. Accordingly, the amount of solicitors fees which should be the subject of a gross sum costs order is reduced to $69,950 exclusive of GST and I will allow 60% of that amount, $41,970; the amount of counsel’s fees which should be the subject of a gross sum costs order is reduced to $87,094.50 exclusive of GST, and I will allow 80% of that amount, $69,675 to the nearest dollar; and the amount of disbursements which should be the subject of a gross sum costs order is reduced to $11,028.27 exclusive of GST, and I will allow that amount rounded down to the nearest dollar, for a total of $122,673 exclusive of GST.

The costs orders sought by Bayfoyle against Mr Smits

27. As I noted above, Bayfoyle also sought an order that under CPA s 99 that Mr Smits pay the Plaintiffs the whole of the costs that they have been ordered to pay, or alternatively that Mr Smits pay Bayfoyle the costs payable by it, with that indemnity limited to the amount of costs which Mr and Mrs Edmonds have been ordered to pay less any amounts that Bayfoyle has recovered from Mr and Mrs Edmonds.

28. There would be no utility in the first of the orders sought, given Mr and Mrs Edmonds’ likely financial position, where it would make it not more likely that Bayfoyle would ultimately recover its costs of the proceedings from Mr and Mrs Edmonds. Mr Lees fairly acknowledged, in oral submissions, that the alternative order sought should not extend to the whole of the costs of the proceedings and submitted that Mr Smits should fairly be ordered to pay 60% of the costs ordered against Mr and Mrs Edmonds, as a global assessment of the additional costs to which Bayfoyle had been exposed by the manner in which Mr Smits had conducted the proceedings.

29. Turning first to the applicable principles, s 99 of the CPA relevantly provides that:

Liability of legal practitioner for unnecessary costs

(1) This section applies if it appears to the court that costs have been incurred:

(a) by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or

(b) improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.

(2) After giving the legal practitioner a reasonable opportunity to be heard, the court may do any one or more of the following: …

(b) it may, by order, direct the legal practitioner: …

(ii) in the case of a solicitor, to pay to the client the whole or any part of any costs that the client has been ordered to pay to any other person, whether or not the client has paid those costs,

(c) it may, by order, direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party.

30. In Lemery Holdings Pty Limited v Reliance Financial Services Pty Ltd [2008] NSWSC 1114 at [72]-[73], Hammerschlag J (as his Honour then was) observed that:

“Undoubtedly “serious neglect” within the meaning of s 99(1) [of the CPA] would include a substantial omission on the part of a legal practitioner which no member of the profession who was reasonably well-informed and competent would have omitted to do …”

31. In Re Felicity; FM v Secretary, Department of Family and Community Services (No 4) [2015] NSWCA 19 at [22], Basten JA distinguished between two situations as follows:

“… different factors will be relevant where the absence of reasonable support for a proceeding derives from a misunderstanding of the law and a case where the absence of reasonable support derives from a lack of evidence. The kind of case may also be characterised by the stage at which it is contended that the proceedings reveal misconduct. This may well affect the extent of the order. For example, a proceeding commenced (or a defence proffered) on the basis of a misconception as to a basic element of law, may be misconceived from the outset so as to warrant an order that the practitioner responsible pay all of the costs of the successful party. By way of contrast, a case which was constructed around a viable legal premise, may be revealed to be hopeless when the evidence of a key witness fails to provide support. A failure to abandon the case at that stage may warrant an order against the practitioner for the wasted costs incurred from that point in time, but not from any earlier point.”

Here, the deficiencies in the case propounded by Mr and Mrs Edmonds were intrinsic to the structure of that case, and the manner in which it was pleaded, and did not turn on the question of any evidence led by them.

32. In NHB Enterprises Pty Ltd v Corry (No 5) [2020] NSWSC 1838 (“NHB”) at [44]-[56], Ward CJ in Eq (as the President of the Court of Appeal then was) noted that the Court has an inherent jurisdiction to make orders that a legal representative personally pay the opposing party’s costs directly for unnecessary or wasted costs, which arises out of the Court’s supervisory jurisdiction with respect to legal practitioners admitted by the Court; CPA s 99 does not confine that inherent or supervisory jurisdiction; and, before making a costs order under CPA s 99, the legal practitioner must be given a reasonable opportunity to be heard, and the same principle applies where the application is in the inherent jurisdiction of the Court. Her Honour also summarised the relevant principles governing the exercise of the power to make costs orders against legal practitioners, by reference to authority, as including that the jurisdiction is to be exercised “with care and discretion and only in clear cases”; in considering whether to make a wasted costs order arising out of a lawyer’s conduct of court proceedings, full allowance must be made for the exigencies of acting in that environment and only when, with all allowances made, a legal practitioner’s conduct of court proceedings is quite plainly unjustifiable is it be appropriate to make such an order; as noted above, a legal practitioner against whom a claim for a costs order is made must have full and sufficient notice of the complaint and full and sufficient opportunity of answering it; where a legal practitioner’s ability to rebut the complaint is hampered by the duty of confidentiality to the client, he or she should be given the benefit of the doubt and an order should not be made against a practitioner who is precluded by legal professional privilege from advancing his or her full answer to the complaint made against him or her without it being fair in all the circumstances fair to do so; and in exercising the jurisdiction, consideration is to be taken of the public interest reflected in the legislative provisions, namely, that litigants should not be financially prejudiced by the unjustifiable conduct of litigation by their opponent’s lawyers and that the procedure to be followed in determining applications for wasted costs must be fair and “as simple and summary as fairness permits”.

33. Her Honour also there referred to Nadarajapillai v Naderasa (No 2) [2015] NSWCA 209, where Emmett JA (with whom McColl and Macfarlan JJA agreed) observed at [11] that:

“Section 99 is described as applying where costs have been incurred “by the serious neglect, serious incompetence or serious misconduct of a legal practitioner”, or “improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible”. The (undefined) concepts in that subsection may be given meaning in the light of the discussion of the terms “improper”, “unreasonable” and “negligent” in Ridehalgh v Horsefield [1994] Ch 205, as well as the principles collected in Lemoto v Able Technical Ltd [2005] NSWCA 153; 63 NSWLR 300. The power conferred in s 99 must also be understood in the context of the obligations contained in ss 56-60 of the Civil Procedure Act: for example, a solicitor must not, by his or her conduct, cause a party to breach the duty to assist the court to further the “overriding purpose”, and the court may take into account a failure to do so in exercising a discretion with respect to costs.” [Citations omitted]

34. Her Honour also observed (at [50]-[51] that:

“It has been said that the decision to make an order under s 99(2) of the Civil Procedure Act against a practitioner requires a careful balancing of the public interest in maintaining and nurturing a legal profession which provides vigorous representation for litigants in court, uncompromised by fear of personal sanctions for failure; against the need to maintain and nurture the obligation to provide independent advice to litigants and to give proper weight to the public interest in the efficient administration of justice; and it is this latter element of the public interest which finds express recognition, in mandatory terms, in the overriding purpose provisions (Re Felicity [FM v Secretary, Department of Family and Community Services (No 4) [2015] NSWCA 19] at [14]).

The appropriate course in determining an application under s 99 of the Civil Procedure Act has been described as follows: first, to identify where costs have been incurred by a party as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative … and, second, once a finding of conduct by a legal practitioner to engage the operation of s 99(1) of the Civil Procedure Act is made, to determine whether such conduct caused costs to be incurred that would not otherwise have been incurred but for that conduct …”

35. Mr Lees also refers to in Rahman v Al-Maharmeh (No 2) [2021] NSWCA 151 at [22], where Brereton JA (Meagher JA and Leeming JA agreeing) observed that:

“The jurisdiction to make such orders is to be exercised “with care and discretion and only in clear cases. In considering such an application, courts apply a three‐ stage approach, asking first, has the legal representative of whom complaint is made acted improperly, unreasonably, or negligently; secondly, if so, did such conduct cause the applicant to incur unnecessary costs; and thirdly, if so, is it in all the circumstances just to order the legal representative to compensate the applicant for the whole or any part of the relevant costs.”

36. Mr Lees also refers to Muriniti v Kalil [2022] NSWCA 109 at [45], where Brereton JA (with whom McFarlan JA agreed) observed that:

“the section speaks of “serious neglect, serious incompetence or serious misconduct of a legal practitioner, or improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible”. This indicates that it is only engaged by egregious conduct: mere (as distinct from serious) neglect, incompetence or misconduct does not attract it.”

37. Mr Lees, in his initial submissions filed on 22 October 2025, provided a pointed but largely accurate summary of the steps in the proceedings matters on which Bayfoyle relied for its costs claim against Mr Smits as follows:

“[Bayfoyle] relies on the following circumstances:

a. When Mr and Mrs Edmonds filed the Originating Process commencing this proceeding on 14 May 2025, they appear to have been acting as litigants-in-person and [Mr] Smits was not on the record as acting for them. Mr Smits was however at least aware that the Edmonds were making the winding up application, as he swore an affidavit in support of the application on 16 April 2025.

b. On 21 July 2025 Mr Smits filed a Notice of Appearance as acting for Mr and Mrs Edmonds in this proceeding. From shortly after that date, upon reading the Originating Process and supporting affidavit, Mr Smits knew, or a competent solicitor in his position would have known, that:

i. The winding up application was doomed to fail in so far as it relied on a failure to comply with the 11 December 2024 statutory demand issued by Mr Smits because:

A. the s 459C(2) event relied upon in relation to the statutory demand was stale so there was no presumption of insolvency;

B. the affidavit in support of the statutory demand did not depose that there was no genuine dispute as to the debt; and

C. the winding up application was not accompanied by an affidavit which verified the debt, or total amount of the debts, was due and payable by the company, which complied with the rules, as required by s 459Q(c) of the Act.

ii. Mr and Mrs Edmonds had no standing to bring a winding up application as actual creditors of the Company because they had assigned any debts arising under the Contract for Sale and the Settlement Deed to Mr Smits 35 (those being the alleged ‘actual’ debts Mr and Mrs Edmonds rely on as debts 1-6 in Table A on p 55 of the Statement of Claim).

iii. The winding up application was doomed to fail in so far as it relied on actual insolvency of the Company as Mr and Mrs Edmonds had no evidence sufficient to plead or prove such a finding.

iv. The winding up application was doomed to fail in so far as it relied on the just and equitable grounds, because Mr and Mrs Edmonds are not members of the Company and had: no evidence sufficient to make out a prima facie case to obtain leave as contingent or prospective creditors, and no valid basis as alleged contingent creditors (given they are not members of [Bayfoyle]) to establish any grounds for a just and equitable winding up.

v. The winding up application was an abuse of process in the circumstances set out above, including where the statutory demand relied on was stale and the alleged debts were disputed.

c. Mr Smits was the alleged creditor (as assignee) of the Company, who had issued the statutory demand relied on, and stood to potentially benefit from a winding up order being made. Mr Smits was not an impartial solicitor, but had a material personal interest in the outcome of the proceedings. It appears that these proceedings (including the 31 July 2025 interlocutory process) may have, at least in part, been prosecuted for the benefit of Mr Smits.

d. On 16 June 2025, Mr Smits filed an application in support of the winding up application, again making himself a material witness in his clients’ case.

e. On 31 July 2025, Mr Smits filed an interlocutory process on behalf of Mr and Mrs Edmonds which sought [six] substantive prayers for relief, including that Mr Smits be substituted as a plaintiff under s 465B of the Corporations Act or joined as a plaintiff under UCPR r 6.24; and that DSJSE Pty Ltd be joined as a plaintiff under UCPR r 6.24. If that application had succeeded, Mr Smits would have become a party to the proceedings, and the sole director of another party (DSJSE). In those circumstances there was a real possibility of a conflict between the interests of Mr 36 and Mrs Edmonds and Mr Smits and the risk of a contravention of r 12.2 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW) (Solicitors’ Conduct Rules).

f. On 9 September 2025, the Edmonds’ interlocutory process was heard. Two of the substantive prayers for relief were not pressed (prayer 5 and prayer 6). At that hearing, Mr Smits gave evidence from the bar table that he had been made the sole director of DSJSE (T36.5). Mr Smits, who appeared as advocate for Mr and Mrs Edmonds, also read (without objection from the Defendant) his 16 June 2025 affidavit, raising the prospect of contraventions of r 27.1 of the Solicitors’ Conduct Rules. Paragraphs 1-4 of the Edmonds’ 31 July IP were dismissed, paragraph 5 was not pressed, paragraph 6 (regarding a caveat) was not heard, and the Edmonds were ordered to pay the Company’s costs.

g. On 22 September 2025, Mr Smits apparently ‘re-assigned’ the rights and debts under the Contract for Sale and the Settlement Deed back to Mr and Mrs Edmonds (2 October Statement of Claim at [26]). On 23 September 2025 a statement of claim (signed by Mr Smits and verified by Mr and Mrs Edmonds) was wrongly filed on behalf of the Edmonds as an affidavit, and it was struck out by the Court on 30 September 2025. It did not mention the apparent 22 September 2025 re-assignment.

h. On 2 October 2025 a Statement of Claim was filed with the registry. That Statement of Claim was amended from the version wrongly filed on 23 September 2025, but without the amendments being marked up. The 2 October 2025 Statement of Claim raised for the first time the alleged 22 September 2025 ‘reassignment’ from Mr Smits to Mrs and Mrs Edmonds. …

k. Mr Smits’ conduct of the litigation has caused unnecessary and wasted costs to the Company. The affidavits (of which there are at least [ten]) and pleadings ([two] statements of claim of 71 and 74 pages each) filed by Mr Smits in these proceedings are excessive in length and number and have been presented in a disorderly fashion.”

38. Mr Lees in turn submits that:

“Mr Smits has acted negligently, incompetently, improperly, or unreasonably etc in the following ways:

a. first, continuing proceedings which were doomed to fail;

b. second, drafting and filing a statement of claim which was manifestly defective;

c. third, continuing proceedings which were an abuse of the winding up process;

d. fourth, prosecuting the proceedings in a manner which resulted in wasted costs;

e. fifth, acting for Mr and Mrs Edmonds in circumstances where there was an actual or likely conflict between his own interests and his clients’ interests;

f. sixth, preparing written submissions with the use of Gen AI, without disclosing that use or verifying the authorities obtained using Gen AI, and citing fabricated Gen AI hallucinated cases in those submissions.”

39. It is not necessary to deal with all of the matters raised by Mr Lees in order to determine the question of an order for costs against Mr Smits. I do not consider it necessary to determine the first of these matters. As to the second of these matters, Mr Lees submits and I accept that:

“Mr Smits drafted and signed [the October Statement of Claim] which was manifestly defective and included serious unfounded allegations against [Bayfoyle’s] solicitors. The Court struck out the Statement of Claim on 13 November 2025 for reasons set out in detail from [20]-[52] of the [November Judgment], ultimately concluding that “[t]he Statement of Claim is replete with improper allegations, not properly supported by a pleading of material facts, and it is plainly embarrassing and should be struck out” (at [53]) …

There were also multiple examples in the Statement of Claim of serious allegations of illegality or misconduct being made (including against non-parties who are officers of the court: see Statement of Claim at [104]-[105], and 13 November Judgment at [47]) without any proper articulated support in pleaded material facts. This was contrary to UCPR r 14.14, and likely also rules 21.3 and 21.4 of the Solicitors’ Conduct Rules. Legal practitioners raising allegations of fraud need specific instructions and an appropriate evidentiary foundation …”

40. I am at least satisfied that Mr Smits’ conduct involved serious neglect and incompetence in several respects. First, it would have been apparent, for all of the reasons set out in my ex tempore judgments in respect of the first hearing, that the reliance on the Demand was untenable and Mr Smits’ submissions to the contrary unduly prolonged the proceedings without any reasonable basis. Second, both the September and October versions of the Statement of Claim were manifestly defective, and those defects were plainly the result of Mr Smits’ drafting of the relevant documents, extending to multiple claims made without a proper basis, where there is no reason to think documents of that complexity could have been drafted by Mr and Mrs Edmonds personally.

41. I do not consider it necessary to determine whether the third of these matters given the findings that I reach on other grounds. As to the fourth of these matters, Mr Lees submits and I also accept that:

“Mr Smits has prosecuted the proceedings in a manner which has resulted in significant wasted costs. As noted above, Mr Smits filed and served [two] statements of claim running to 70 pages each, both of which were struck out. The Plaintiffs also filed or served [ten] affidavits and [one] expert report and approximately 2,000 pages of exhibited documents. This included, for example, affidavits from DSJSE Pty Ltd shareholders Barbara Poole sworn 10 June 2025 and Andrew Bell sworn 1 August 2025, which had no apparent relevance to the issues in the proceeding. By email dated 10 November 2025, Mr Smits requested [Bayfoyle’s] solicitor include nine affidavits in the joint court book which were to be relied upon at the hearing on 13 November 2025. At the hearing on 13 November 2025, however, Mr Smits: a. did not read any affidavits (the reading of a paragraph of Mr Smits 11.12.24 affidavit and an affidavit of Barbara Poole 10.06.25 was not pressed (T13.12 and T14.35)); b. tendered [three] documents (the contract for sale, settlement deed, and deed of assignment); and c. the tender of an expert report of Alan Richardson was rejected.

In these circumstances, Mr Smits is responsible for the costs he has caused the Defendant to incur “without reasonable cause” to deal with the voluminous joint court book which included nine affidavits, all of which were included at Mr Smits’ request but were not ultimately relied upon during the course of the 13 November 2025 hearing, voluminous pleadings that were struck out, and evidence which was not read or not admitted, for the purposes of s 99(1)(b) CPA. Alternatively, it constitutes serious incompetence by Mr Smits in this regard for the purposes of s 99(1)(a) CPA.”

42. As to the fifth of these matters, I do not need to determine the existence of an actual or likely conflict between Mr Smits’ interests and the Edmonds’ interests, although I note that there were matters which gave rise to concern here, including the fact that Mr Smits had been assigned the debt on which Mr and Mrs Edmonds relied, before he reassigned it to Mr and Mrs Edmonds; that he was sought to be joined as a plaintiff in the proceedings and was a director of a company that was sought to be joined as a plaintiff in the proceedings; and that his affidavit evidence was relied on in the proceedings and he would likely have been a material witness in the proceedings had they gone to hearing.

43. As to the sixth of these matters, Mr Lees refers to the reference to several non-existent cases (or “AI hallucinated cases”) in Mr Smits’ submissions, and refers to Practice Note SC Gen 23 and the solicitor’s duty to the Court under rule 19 of the Legal Profession Uniform Law Australian Solicitors Conduct Rules. I accept that several of the cases to which Mr Smits referred did not exist and, recognising the seriousness of the finding, were likely generated by the use of artificial intelligence. However, that matter should have had little impact on the work required of Bayfoyle’s legal representatives, where it would not have taken long to identify the cases did not exist, and had no real impact on the conduct of the hearing, where the Court’s decision was reached by reference to well-established case law. Ultimately, this matter seems to me to have no impact on whether a gross sum costs order should be made against Mr and Mrs Edmonds, which I have addressed above, and little impact on whether a costs order should be made against Mr Smits. I also do not consider it to be necessary or desirable for the Court to refer the matter to the Legal Services Commissioner, where it is open to Bayfoyle to do so if it wishes, although that would likely add one further area of dispute to the multiple existing disputes between the parties.

44. In submissions in response to the claim for a personal costs order against him, Mr Smits addresses the scope of CPA s 99 of the CPA and applicable case law, and submits that he acted on instructions and relied on Mr and Mrs Edmonds’ evidence. That submission does not, however, answer the difficulties that it would be apparent, on the case law, that neither the claim for a winding up based on the Demand nor the Statements of Claim, as apparently drafted by Mr Smits and certified by him, could be sustained against challenge. Mr Smits in turn submits, by assertion, that there was no improper purpose or abuse of process, no identifiable misconduct or dereliction of duty in respect of his conduct of the proceedings. He submits that the onus is on Bayfoyle to prove facts establishing the matters necessary for a personal costs orders on the Briginshaw standard. If that standard is applicable, then it seems to me that it is satisfied in respect of the matters noted above that support the making of a personal costs order against Mr Smits. Mr Smits also raises criticisms of Mr Wong’s evidence, although no objection was taken to his affidavits being read, and I have regard to those criticisms. Mr Smits submits that he cannot be liable for evidentiary disputes, but Bayfoyle does not here seek to make him liable on that basis; and he submits that procedural fairness prohibits a personal costs order without notice, but that does not assist him where he has had notice of the order sought against him. Mr Smits in turn submits that he can make complaints to the Legal Services Commissioner, which is a matter that I am content to leave for determination by the Legal Services Commissioner if such complaints are made.

45. Mr Smits also submits, in summary, that:

“It is respectfully submitted that the correct position is that no personal costs order should be made. He acted properly, in good faith, on specific instructions, and within the ordinary scope of his professional functions. Any complaint that Mr Smits breached any duty to the Court is denied, abstract and unproven.”

46. I will assume, without deciding, that Mr Smits acted on instructions, although Mr and Mrs Edmonds led no evidence of them and Mr Smits could not do so without breach of legal professional privilege; but that is no answer to the maintenance of untenable claims and untenable evidence and the deficiencies in the conduct of the proceedings to which I have referred above.

47. For the reasons set out above, I am satisfied that Mr Smits acted improperly and unreasonably, in maintaining untenable claims and untenable pleadings on behalf of Mr and Mrs Edmonds.

48. I now turn to the question whether Mr Smits’ conduct caused Bayfoyle to incur unnecessary costs. Mr Lees points out that this raises the question whether Mr Smits conduct “caused costs to have been incurred that would not otherwise have been incurred but for that conduct”: Newell; Muriniti v De Costi (2018) 97 NSWLR 398; [2018] NSWCA 49 at [71] per Beazley P (Gleeson JA agreeing at [241]. Mr Lees addressed the quantum of costs sought against Mr Smits in written submissions, but simplified Bayfoyle’s position in oral submissions ,and there Mr Lees indicated that Bayfoyle sought to recover 60% of its total recoverable costs against Mr Smits. Mr Smits responds that:

“Only an ambit claim costs is made against [Mr Smits]. The components are immeasurable quantitatively and qualitatively. They bear no proportionality under s 60 of the CPA to any specific legal work. Moreover, no claim is proportionate or linked causatively or directly to any costs incurred as a result of any alleged breach under s 99 of the CPA.”

49. I am satisfied that Mr Smits’ conduct caused Bayfoyle to incur unnecessary costs, where the costs of these proceedings would not have been incurred, or would have substantially reduced, had Mr Smits not sought to press reliance on the Demand that was stale or the plainly untenable pleadings. That is the necessary consequence of the nature of the conduct that I have addressed above. I am satisfied that that the percentage of costs now claimed by Bayfoyle, as against the already discounted gross sum costs ordered against Mr and Mrs Edmonds, is plainly justifiable and likely generous to Mr Smits, where much of the wasted costs of the proceedings reflects his pressing arguments which were untenable on their face and pleadings that he had apparently drafted which a competent legal practitioner would recognised were untenable. That percentage equates to $73,603, rounded down to the nearest dollar.

50. Mr Lees also submits that:

“… in all of the circumstances set out above, it would be just to order Mr Smits to compensate [Bayfoyle] for part of the relevant costs, by way of a partial indemnity for costs payable by [Bayfoyle] to its lawyers.

Such an order would be just in all of the circumstances because:

a. Mr Smits’ conduct is the cause of those unnecessarily incurred costs;

b. it would be just and fair for Mr and Mrs Edmonds to be, in effect, partially relived of liability for those costs [that Bayfoyle] has unnecessarily incurred as a result of Mr Smits’ misconduct, by way of the indemnity

c. it would not be just or fair for [Bayfoyle] to be at risk of not being able to recover all of the costs if Mr Smits or Mr and Mrs Edmonds cannot satisfy their respective costs orders.”

51. It seems to me that, in the circumstances that I have addressed above, it is plainly just to order Mr Smits to compensate Bayfoyle for the part of the relevant costs that it presses, where they would not have been incurred but for Mr Smits’ approach and where Mr and Mrs Edmonds likely do not have the capacity to meet, and fairly should not be required to meet, costs that result from the default of Mr Smits. I am also satisfied that Ms Smits has had full and sufficient notice of the complaint and a sufficient opportunity of answering it; and the public interest reflected in the legislative provisions, namely, that litigants should not be financially prejudiced by the unjustifiable conduct of litigation by their opponent’s lawyers, supports the relief sought.

Orders

52. For these reasons, I make the following orders, in the form sought by the Bayfoyle in its written submissions and as quantified above:

1. Order that Mr Leonardus Smits, solicitor, indemnify the Defendant in relation to costs paid or payable by the Defendant to its legal practitioners in respect of the proceedings, up to the fixed sum of $73,603.

2. Order that the plaintiffs pay the Defendant’s costs of the proceedings in the fixed sum of $122,673 exclusive of GST, less any amount recovered from Mr Smits pursuant to Order 1.

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