Kendirjian v Ayoub

Civil Procedure Act 2005 LEGISLATION CITED: Supreme Court Rules 1970 Uniform Civil Procedure Rules 2005

Degmam Pty Ltd (In Liq) v Wright (No 2) (1983) 2 NSWLR 354 FAI General Insurance Co Limited v Burns (1996) 9 ANZ Ins Cas 61-384 Harrison v Schipp [2001] NSWCA 13 CASES CITED: Kendirjian v Ayoub [2008] NSWCA 194 Lake Macquarie City Council v McKellar [2002] NSWCA 90 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Re Smith; Ex-parte Rundle (No 2) [1991] 6 WAR 299 Whyte v Brosch (1998) 45 NSWLR 354

PARTIES: David Anthony Kendirjian (Appellant) Cheree Elizabeth Ayoub (Respondent)

J W Conomos (Appellant) (29 October 2007) COUNSEL: A Morrison SC; M McHugh (Appellant) (26 November 2007) P J Deakin QC; D L Ronzani (Respondent)

SOLICITORS: Eugene Lepore & Associates (Appellant) Abbott Tout Lawyers (Respondent)

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40697/06 DC 29/04

BEAZLEY JA McCOLL JA

David Anthony Kendirjian v Cheree Elizabeth Ayoub (No 2)

Judgment 1 THE COURT: In Kendirjian v Ayoub [2008] NSWCA 194, (the "principal judgment") this Court determined that the serious neglect of Mr J W Conomos of counsel and Mr Eugene Lepore, solicitor (the "legal practitioners") the appellant's former legal representatives, had resulted in wasted costs.

2 The Court made the following orders, relevantly: "(1) Appeal dismissed with costs. (2) Respondent to file and serve within seven days written submissions as to whether any, and if so which, of the costs of the appeal should be ordered to be paid on an indemnity basis. (3) Mr Conomos and Mr Lepore to file and serve within a further fourteen days written submissions dealing with: (i) what part of the wasted costs should be paid by either or both of them; and (ii) whether any, and if so which, of the costs of the appeal should be ordered to be paid on an indemnity basis. (4) Leave to the appellant to file and serve within 21 days written submissions dealing with: (i) the question of who should bear the burden of the wasted costs; and (ii) whether any, and if so which, of the costs should be ordered to be paid on an indemnity basis." 3 Submissions were received from the legal practitioners and the respondent. The appellant did not exercise the liberty reserved to him to make independent submissions. 4 The respondent submits that the Court found the legal practitioners had each failed to present the appeal properly. She argued that, in accordance with the Court's findings (at [202] - [216]) and the principles in Whyte v Brosch (1998) 45 NSWLR 354, the legal practitioners should be ordered to pay on an indemnity basis all of her costs thrown away in preparing for, and appearing at, the hearings on 29 October 2007 and 26 November 2007. She submitted that the costs wasted as a result of the legal practitioners' conduct related to (a) the appeal grounds pleaded, (b) the submissions advanced both in writing and orally up to and including 29 October 2007, and (c) the subsequent Motion heard on 26 November 2007. She sought these costs on an indemnity basis, relying on what she alleged to be the legal practitioners' "relevant delinquency": Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 (at 79) per Gaudron and Gummow JJ. 5 The respondent further submits that the legal practitioners should pay, on an indemnity basis, all the costs she incurred in having to prepare more than one set of written submissions: see principal judgment (at [212]). She identified the wasted costs in this respect as relating to the preparation of any written submissions prior to those dated 30 November 2007. 6 Insofar as the hearings of 29 October 2007 and 26 November 2007 were concerned, the respondent submitted the wasted costs attracted an indemnity costs order because the legal practitioners had failed to assist the Court to further the just, quick and cheap resolution of the real issues in the appeal and, as a consequence, put her to unnecessary expense.

7 The legal practitioners do not dispute the Court's conclusion in the principal judgment that they were guilty of serious neglect in preparing the written submissions. They acknowledged their errors, however they contended they were unintended, and should not be treated punitively. They submitted an indemnity costs order should only be made in limited circumstances and that their conduct did not fall within those limited circumstances. They did not develop that proposition by reference to authority. 8 The legal practitioners affirmed their concession of 29 October 2007 that they should bear the costs of the preparation for, and the first day of, the hearing: principal judgment (at [204], [211]). They also conceded that they should pay the costs of the Notice of Motion of 26 November 2008 and the preparation of the respondent's first set of written submissions. 9 However the legal practitioners contended the appellant personally should bear the costs of the "second submissions", by which we take it they intend to refer to the Further Supplementary Submissions and the respondent's written submissions in response: see principal judgment (at [65] - [66]). 10 Finally, the legal practitioners submitted that, in relation to any contribution as to costs between themselves, they should share those costs equally or bear their burden in such manner as the Court thought fit.

Consideration 11 The trial was an assessment of damages, liability having been admitted. There were numerous grounds of appeal: principal judgment (at [43]). The appeal was dismissed with costs. Thus the appellant is primarily liable for the costs. The question is whether, and to what extent, the legal practitioners should bear the burden of that costs order. 12 Subject to the Civil Procedure Act 2005 and the Uniform Civil Procedure Rules 2005, the Court has full power to determine by whom, to whom and to what extent costs are to be paid and whether they should be awarded on an ordinary or an indemnity basis: s 98(1) Civil Procedure Act. 13 Section 56(1) of the Civil Procedure Act provides that the overriding purpose of the Act and the rules of court is to facilitate the just, and cheap resolution of the real issues in the proceedings. This Court is obliged to seek to give effect to that overriding purpose when exercising any power given to it by the Act or by the rules and in interpreting any provision of the Act: s 56(2). A party to civil proceedings is under a duty to assist the Court to further the overriding purpose and, to that end, to participate in the processes of the court: s 56(3). Legal practitioners must not cause their clients to be put in breach of that duty: s 56(4). The Court may take into account any failure to comply with s 56(3) or (4) in exercising its discretion with respect to costs: s 56(5). 14 Section 99 of the Civil Procedure Act relevantly provides: "99 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: (a) it may, by order, disallow the whole or any part of the costs in the proceedings: (i) in the case of a barrister, as between the barrister and the instructing solicitor, or as between the barrister and the client, as the case requires, or (ii) in the case of a solicitor, as between the solicitor and the client, (b) it may, by order, direct the legal practitioner: (i) in the case of a barrister, to pay to the instructing solicitor or client, or both, the whole or any part of any costs that the instructing solicitor or client, or both, have been ordered to pay to any other person, whether or not the solicitor or client has paid those costs, or (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 …" 15 The conduct the Court concluded led to wasted costs consisted in the inadequacy of the written submissions filed on behalf of the appellant, the inability to determine the appeal on the day listed for hearing and the necessity for further written submissions to be prepared: see the principal judgment (at [45] - [47], [55], [60] - [62], [203] - [204], [208] - [216]). 16 The position was compounded by the confusion in the appellant's camp as to the purport of the Court's directions about further written submissions. That led to the incurring of further wasted costs. No sensible explanation was proffered for how this confusion came about. In our view, the incurring of more costs was sufficiently connected with the original conduct of the legal practitioners so as also to have been incurred by reason of their serious neglect. 17 At the time the appeal was heard, and for all relevant purposes during its preparation, Pt 51 r 46(2) of the Supreme Court Rules 1970 required: "(2) In appeals raising substantial challenges to findings of fact, the submissions of the party making those challenges shall include a statement in narrative form setting out the findings challenged, those contended for, the reasons why the Court of Appeal should substitute those findings and supporting references to the transcript and other evidence. (3) Where the amount of damages claimed or awarded, or which should have been awarded, in respect of …bodily injury to, a person is in issue:

(a) the appellant's written submissions shall state: (i) the manner in which the damages were assessed, … (ii) the amounts of damages that are in issue in the appeals; (iii) briefly but specifically, the basis of the challenges; (iv) where applicable - the alternative assessment contended for …" 18 Part 51 r 40 of the Supreme Court Rules required an appellant to file and serve with the Notice of Appeal a Schedule signed by counsel or the solicitor (as appropriate) setting out, in substance, the same information as required by SCR 51.46(3)(a). 19 In Whyte v Brosch (at 355) the Court emphasised that it regarded compliance with Supreme Court Rule Pt 51, r 47 concerning the timely filing of written submissions as a matter of considerable significance. It emphasised that such procedural rules constituted the Court's attempt to ensure everyone knew what was required to ensure proceedings were conducted efficiently, expeditiously and with an appropriate use of judicial resources. The Court drew attention to the sanctions available in the case of default in compliance with the rules. Of present relevance was the warning that the Court could order costs thrown away by default in compliance to be paid by the legal practitioner responsible for the failure. 20 In Lake Macquarie City Council v McKellar [2002] NSWCA 90 the written submissions filed for the appellant bore little relationship to the detailed argument advanced by counsel. Ipp JA (with whom Handley JA and, on this point, Heydon JA agreed) referred to Whyte and observed (at [92]) that what was said in that case concerning the necessity to comply with the time limited for filing written submissions applied equally to filing written submissions which adequately reflected the arguments intended to be developed orally. Otherwise, his Honour pointed out "the entire purpose of the rule relating to the filing of written submissions will be frustrated." On that occasion no special costs order was made in circumstances where counsel apologised to the Court and his apology was accepted. It is apparent the Court was able to dispose of the appeal without having to call for further written submissions. 21 In Oshlack (at [44]) Gaudron and Gummow JJ acknowledged that it might be true "in a general sense that costs orders are not made to punish an unsuccessful party." However, their Honours continued: "… in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a 'solicitor and client' basis or on an indemnity basis. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part." 22 Their Honours cited, with approval, in reference to an indemnity costs order, Degmam Pty Ltd (In Liq) v Wright (No 2) [1983] 2 NSWLR 354. In that case, Holland J said (at 358) that circumstances in which an indemnity costs order have been made include those where the conduct of a party caused other parties to incur liability for costs beyond what they could reasonably have expected to incur in the litigation. 23 Gummow and Gaudron JJ also referred to Re Smith; Ex-parte Rundle (No 2) [1991] 6 WAR 299 (at 301) where Malcolm CJ (with whom Pidgeon and Rowland JJ agreed) observed that orders for costs on, inter alia, an indemnity basis are: "… [N]ormally made in circumstances where the conduct of a party against whom such an order has been [made] in connection with the litigation has been deserving of criticism." 24 The delinquency which attracted an indemnity costs order in Degmam and Re Smith was delinquency in the conduct of the proceedings: Harrison v Schipp [2001] NSWCA 13 (at [133] - [134]) per Giles JA (Handley and Fitzgerald JJA agreeing). 25 In FAI General Insurance Co Limited v Burns (1996) 9 ANZ Ins Cas ¶61-384 at 77,220, Mahoney P (with whom Priestley JA and Rolfe AJA agreed) spoke of the importance of litigation in the Commercial Division of this Court being conducted "without avoidable delay". His Honour considered that it was appropriate that a court, particularly a commercial court, consider an award of indemnity costs where time and costs had been wasted by failure to adhere to proper procedure in litigation. His Honour acknowledged that, special cases apart, an award of costs was not a punishment but observed: "…the power may be exercised by reference, inter alia, to the fact that what the party has done had delayed the disposition of a proceeding beyond what the due management of the proceedings would have required and has increased the cost to the other party, by the delay and otherwise the effect upon him." 26 His Honour was of the view (at 77,221) that a trial judge had not erred in ordering a party to pay indemnity costs in circumstances where there had been no deliberate misconduct, but "an unacceptable departure from the standards required in the conduct of litigation in a commercial court" effectively preventing "the court conducting the litigation in which it should have been conducted". 27 Mahoney JA's observations were made before the insertion of the overriding purpose provisions in the Supreme Court Rules. However they are apt to capture in our view, the purpose inherent in s 56 of the Civil Procedure Act. They emphasise that unacceptable departures from the procedures devised to ensure the efficient disposition of proceedings can attract an indemnity costs order. 28 Although, in Oshlack, Gaudron and Gummow JJ referred (at [44]) to "relevant delinquency" attracting an indemnity costs order, their Honours made it clear (at [35]) that the discretion conferred by costs provisions expressed in like terms to s 98 is not confined by legal rules, but is "absolute and unfettered as long as the discretion is exercised judicially upon facts connected with or leading up to the litigation". Mahoney P also expressed the view in FAI General Insurance that there was "no closed category of reasons for indemnity costs". 29 In this case, there are two areas of wasted costs: those incurred up to and including the hearing on 29 October 2007 and those relating to the events leading up to, and including, the Notice of Motion of 26 November 2008. 30 The legal practitioners contend, as we have said, that their errors were "unintended". It is difficult to understand what that can mean in the light of the clear provisions of the rules concerning written submissions to which we have referred. If by "unintended" the legal practitioners mean they were unaware of the requirements of the rules concerning written submissions, the submission raises grave concern having regard to the seniority of the legal practitioners in the profession. Mr Lepore was admitted as a solicitor in 1986 and Mr Conomos was admitted to the Bar in 1963. It can give the Court little comfort if practitioners of such experience appear to have been oblivious to the rules. 31 In our view the legal practitioners' conduct in failing to comply with the Court's rules constituted delinquency in the conduct of the proceedings of the sort to which we have earlier referred. Further their conduct caused the appellant to be in breach of his duty to assist the Court to further its overriding purpose, in particular, in delaying their disposition and in causing additional costs to be incurred. Their conduct effectively prevented the Court from conducting the appeal in the manner it should have been conducted, namely by hearing and reserving judgment on 26 October 2007. The Notice of Motion was necessary because of the failure to communicate accurately the order the Court had made concerning written submissions to Dr Morrison SC and Mr M McHugh. Although that failure was in their instructions and one would usually assume those instructions came from the solicitor, the legal practitioners did not seek to distinguish their respective liability in this respect. 32 The legal practitioners' conduct caused the appellant to breach his duty to assist the Court to discharge the overriding purpose of the Act. It is appropriate that he be ordered to pay the costs thrown away by that breach on an indemnity basis, but that the burden of that order should be borne by the legal practitioners pursuant to s 99. The order is not made punitively, but because of the unacceptable delays and additional work caused by the legal practitioners' conduct. 33 The legal practitioners have not made any submissions which would enable the Court to divide responsibility for the burden of the indemnity costs order other than on a 50:50 basis. Accordingly we order:

(1) As to the order made on 14 August 2008 that the appellant pay the costs of the appeal: (a) The appellant is to pay on an indemnity basis the respondent's costs of: (i) preparation for the hearing on 29 October 2007; (ii) the hearing on 29 October 2007; (iii) preparation of her written submissions dated 30 May 2007 and 12 November 2007; (iv) the Notice of Motion dated 20 November 2007; (v) the hearing of the Notice of Motion. (b) Otherwise the appellant is to pay the costs of the appeal on the ordinary basis. (c) As to order (1)(a): (i) J W Conomos of counsel to pay to the appellant 50% of the total costs referred to in that order. (ii) Eugene Lepore, solicitor, to pay to the appellant 50% of the total costs referred to in that order.

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