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Texts Cited: N.A.

Category: Costs

Parties: Benjamin Thomas Madsen and James Tristan Madsen (applicants)
Simon John Raftery (first respondent)
Jonathan Edward O’Loughlin (second respondent)
RJCR Holdings Pty Ltd (third respondent)

Representation: Counsel:
D S Weinberger SC / D Emmerig (applicants)
J Brezniak (second and third respondents)
Solicitors:
Bird & Bird (applicants)
Sparke Helmore Lawyers (second and third respondents)

File Number(s): 2025/406702

Publication restriction: N.A.

JUDGMENT (Ex tempore)

1. By Interlocutory Process filed on 8 May 2026, the applicants, Mr Benjamin Madsen and Mr James Madsen, seek orders that Mr Jonathan O'Loughlin and RJCR Holdings Pty Ltd (trading as O'Loughlin Westhoff) pay the applicant's costs of the Interlocutory Process filed on 17 March 2026 on an indemnity, or alternatively, the ordinary basis. The orders are sought pursuant to s 98 or s 99 of the Civil Procedure Act 2005 (NSW) or the inherent jurisdiction of the Court. The Interlocutory Process also sought similar orders against Mr Simon Raftery, but that application has been dismissed by consent of the parties to the proceedings.

2. The background of the application has an extended history. Much of that history can be gleaned from the two judgments that I have delivered in these proceedings. I do not propose to repeat the matters addressed in those judgments. In In the matter of Meribel Invest FIR Pty Ltd [2026] NSWSC 325, I gave reasons and made orders dealing with the Interlocutory Process filed on 17 March 2026. In those reasons, published on 7 April 2026, I concluded that proceedings had been commenced and conducted in the name of Meribel FIR by O'Loughlin Westhoff on instructions from Mr Raftery in circumstances where Mr Raftery did not have authority to give those instructions. I concluded that the steps taken in the proceedings had not been ratified. At [50] of those reasons, I made the following observations:

As to costs, the Madsen parties have essentially succeeded on their application and prima facie are entitled to costs. If the proceedings are ultimately dismissed for want of authority, they would, prima facie, be entitled to their costs of the proceedings. A question would arise as to who should be ordered to pay those costs. Meribel FIR should not be ordered to pay costs of proceedings conducted in its name without authority. The appropriate course at this stage is to reserve costs.

3. The proceedings were not dismissed for want of authority. In my decision dated 27 May 2026, published as In the Matter of Meribel Invest FIR Pty Ltd and In the Matter of Meribel Capital Group [2026] NSWSC 593, I concluded that on 13 April 2026, Ms Gillian Raftery, the sole director of Meribel FIR and of Meribel Capital, who is Meribel FIR's parent company, adopted the agency of Mr Raftery and O'Loughlin Westhoff in relation to the proceedings. As I explain at [15] of those reasons, ratification has retrospective effect: see Leybourne v Permanent Custodians Limited [2010] NSWCA 78 at [131].

4. Had the proceedings been dismissed, it would not have been appropriate to make an order that Meribel FIR pay the costs of the application because the proceedings were commenced in its name without authority.

5. In Hillig v Darkinjung Pty Ltd (No 2) [2008] NSWCA 147, McColl JA (Beazley and Giles JJA agreeing) observed at [48] as follows (citing the decision of Powell J in Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421 at 430):

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.

That was a case where the solicitor's retainer had been withdrawn.

6. In McHugh v Eastern Star Gas Ltd [2012] NSWCA 169; 88 ACSR 707, Whealy JA (with whom Bathurst CJ and MacFarlan JA agreed) observed as follows at [91]:

It may be that one reason, perhaps an important reason, why costs have commonly been allowed against a solicitor where he has not been retained is that the third party cannot, in ordinary circumstances, obtain an order for costs against the solicitor's "client". That is precisely because the "client" has never authorised the solicitor to act.

7. If Meribel FIR had not adopted the agency of Mr Raftery and O'Loughlin Westhoff, there would have been a powerful argument in favour of a costs order against Mr O'Loughlin, O'Loughlin Westhoff and Mr Raftery. However, once Meribel FIR adopted the agency of Mr Raftery and O'Loughlin Westhoff, Meribel FIR exposed itself to the possibility of a costs order. That risk was with a matter that Ms Raftery specifically took into account at the time she adopted the agency of Mr Raftery and O'Loughlin Westhoff on 13 April 2026. The effect of the adoption, or ratification, is that the basis for declining to make a costs order against Meribel FIR fell away.

8. In In the matter of HIH Insurance Limited (in liquidation); Smith v McGrath; Baldock v McGrath [2014] NSWSC 922, Brereton J observed at [24] that:

A litigant who disputes a solicitor's retainer runs the risk that any want of authority may be cured by supplementally evidence, or ratified…

That risk ultimately was realised in this case. The benefit to the applicants of the cure is that Meribel FIR exposed itself to the risk of a costs order.

9. The applicants were free to pursue the costs of the 17 March 2026 Interlocutory Process against Meribel FIR. However, the proceedings between the applicant and Meribel FIR, and also against Mr Raftery, have been compromised. That compromise extends to any order for costs against Meribel FIR or Mr Raftery.

10. While there was evidence before me in the earlier hearings that suggested at that time that Meribel FIR may not have had sufficient assets to satisfy an undertaking as to damages, for the purposes of this application there is evidence to suggest that if the applicants had elected to pursue Meribel FIR for their costs, instead of compromising the claim for costs, Meribel FIR might not have had the ability to meet those costs.

11. For the reasons set out in my first judgment, there is a basis to be critical of Mr O'Loughlin in the conduct of the proceedings. There is also a basis to be critical of Mr Raftery. However, I do not conclude that Mr O'Loughlin deliberately misled the Court or deliberately misled the applicants. I accept that his conduct is better explained by neglect rather than deceit. In my view, it is inconceivable that Mr Raftery's lack of authority would not eventually have become known. I find it inconceivable that Mr O'Loughlin would have acted as he did in actual knowledge of the absence of authority. That is because he could not have contemplated that the lack of authority would never be exposed.

12. In my view, the evidence is consistent with Mr O'Loughlin having been misguided as to the true position rather than having set about to conduct what in effect would have been a fraud. I accept that Mr O'Loughlin should have appreciated that Mr Raftery had no authority to give instructions on behalf of Meribel FIR. I do not accept that he was conscious of that fact.

13. It was submitted for Mr O'Loughlin and O'Loughlin Westhoff that the applicants acted precipitously in bringing the Interlocutory Process of 17 March 2026. That submission was made in support of a contention that Mr O'Loughlin and O'Loughlin Westhoff did not cause the applicants to incur the costs that they incurred. I do not accept those submissions. The applicants were placed in an extraordinary position, in part by Mr O'Loughlin's conduct. They were entitled to act with expedition. I do not accept that there can be any criticism levelled at the applicants, or the applicants' legal advisers, for taking the steps that they took once they learned that Mr Raftery did not have authority to take steps on behalf of Meribel FIR.

14. Nevertheless, whether or not the Court's power under ss 98 or 99 of the Civil Procedure Act to order costs to be paid by Mr O'Loughlin or O'Loughlin Westhoff is engaged, in my view, once Ms Raftery elected to adopt the agency of O'Loughlin Westhoff, the obvious person from whom the applicants should seek their costs in respect of the 17 March 2026 Interlocutory Process became Meribel FIR. Counsel for Mr O'Loughlin and O'Loughlin Westhoff described Meribel FIR as the "natural party" from whom costs orders should be sought. I think that is an appropriate description. Mr O'Loughlin and O'Loughlin Westhoff were purporting to act in the proceedings even though they did not have authority to do so from Meribel FIR. Meribel FIR chose, as was its right, to adopt the agency and to take the benefit, as well as the risks, of those proceedings.

15. The circumstances in which the Court should exercise power to order legal practitioners to pay the costs of proceedings were summarised by McColl JA in Lemoto v Able Technical Pty Limited (2005) 63 NSWLR 300; [2005] NSWCA 153 at [92]. Her Honour observed that the jurisdiction to order a legal practitioner to pay the costs of legal proceedings in respect of which he or she provided legal services must be exercised with care and discretion, and only in clear cases.

16. I do not accept the submission that Meribel FIR and Mr O'Loughlin should be treated, effectively, as if they are joint tortfeasors. I do not accept that the applicants should be seen as having, in effect, a choice to recover costs from Meribel FIR or from O'Loughlin Westhoff and Mr O'Loughlin at their election. That is including because costs orders are discretionary and particular considerations arise when the Court is considering making a costs order against solicitors.

17. I accept the submission from Mr O'Loughlin and O'Loughlin Westhoff that the conventional course would be to recover costs from Meribel FIR. It seems to me that the proper target of the costs order was Meribel FIR. As I have noted, the right to obtain a costs order against Meribel FIR has been compromised.

18. For these reasons, I am not satisfied that I should make a costs order against Mr O'Loughlin or O'Loughlin Westhoff. The Interlocutory Process of 8 May 2026 is dismissed.

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