Kiefel v State of Victoria

THE APPLICANT'S SOLICITOR'S SUBMISSIONS 24 The applicant's solicitors filed submissions opposing any order being made against the firm. It submitted that the imposition of a costs order against Arnold Thomas & Becker would be unjust in the circumstances. 25 The applicant's solicitors submitted that the respondent's claim for indemnity costs "lack[ed] a coherent and legal basis." Arnold Thomas & Becker came on to the record in July 2012 after pleadings and evidence had closed. It argued that it would be unjust to hold it liable for the costs of running a trial on pleadings for which it was not responsible. It submitted that logic dictated that the respondent should seek costs from all those who had previously been involved in the framing, pleading and conduct of the applicant's case including Access Law, who were the applicant's legal representative prior to July 2012, and the applicant's barristers. 26 The applicant's solicitors further submitted that the respondent's costs application confused two separate costs concepts. The application had been brought because of deficiencies in the way in which the proceedings were "framed, pleaded and conducted." The respondent nonetheless, was seeking a costs order from 11 August 2012, the day after the third Calderbank offer expired. The applicant's solicitors argued that the third Calderbank offer was irrelevant to the question of Arnold Thomas & Becker's costs liability because the offer made no threat and gave no warning of reliance upon the offer in the event that it was not accepted. It submitted that the proper course would be to seek costs from Access Law from the day after the expiry of the first or second Calderbank offers. 27 The applicant's solicitors argued that the respondent had misstated the duty established in Walker by failing to acknowledge that the obligation existed "[b]efore a proceeding is brought...". Arnold Thomas & Becker did not act for the applicant until one month prior to trial. By this time the proceedings had been on foot for more than two years, pleadings and evidence had been filed and served and a trial date fixed. It argued that, in such circumstances, any allegations of breach of duty by Arnold Thomas & Becker "lose their force." 28 The applicant's Further Consolidated Statement of Claim had been the subject of much criticism. The applicant's solicitors submitted that it would have been highly unlikely that the Court would have entertained an application to amend it so close to the trial date. It noted, that despite such criticism, the respondent failed to apply to have it struck out. It says this was a forensic decision made by the respondent. 29 The applicant's solicitor noted that by virtue of Rule 9.66 of the Rules Mrs Kiefel, as a non-lawyer acting as James Kiefel's legal representative, had to be represented by a lawyer. It submitted that, if Arnold Thomas & Becker had refused to act for the applicant she would have found other means to bring the claim to trial. 30 The applicant's solicitors further submitted that the Court cannot assume that the applicant's next friend commenced and continued to pursue the applicant's claim on the advice of his new legal representative. This information was protected by legal professional privilege which had not been waived: see Modra v State of Victoria (2012) 205 FCR 445 at 448.

Indemnity Costs 31 The Court has a broad and unfettered discretion under ss 37P(6)(d) and (e) and 43 of the FCAA to award costs in proceedings. That discretion must, of course, be exercised judicially and not arbitrarily or capriciously: see Cretazzo v Lombardi (1975) 13 SASR 4 at 11; Denlay v Commissioner of Taxation (No 2) (2013) 302 ALR 237 at 239. Within that general discretion it has long been accepted that costs will ordinarily follow the event and that a successful litigant will receive costs in the absence of special circumstances which justify the making of some other order: see Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at 234 (per Black CJ and French J). The "ordinary rule" recognises that a successful party would have incurred costs in prosecuting or defending the proceeding and is entitled to be compensated. Such compensation will normally be paid on a party-party basis. 32 One variant of the usual order which may be warranted in special or unusual circumstances is an order that costs be paid on an indemnity basis. In Gersten v Minister for Immigration & Multicultural Affairs [2001] FCA 260 at [19] the Full Court held that "[i]f an action is commenced when proper advice would indicate that the proceeding has no prospect of success, a discretion to award indemnity costs is ordinarily enlivened." Under such an order the party in whose favour it is made will be compensated fully for all reasonable expenses incurred in the litigation. Any departure from the "ordinary rule" must be warranted having regard to the circumstances of the case. In Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 Sheppard J reviewed a large number of authorities from which he distilled certain principles or guidelines about the awarding of costs. His Honour identified a number of circumstances in which it had been held that the award of indemnity costs was justified. These included: where the misconduct of a party causes loss of time to the Court and to other parties; the proceedings had continued in wilful disregard of known facts or clearly established law; and the undue prolongation of a case by the making of groundless contentions. See at 233. See also Dowling v Fairfax Media Publications Pty Ltd (No 2) [2010] FCAFC 28 at [42]-[45] (per Graham J), [139]-[140] (per Logan and Flick JJ). Sheppard J was at pains to stress that the categories of conduct which might warrant the award of indemnity costs were not and could not be closed. 33 A departure from the ordinary position that costs follow the event may also be warranted where there has been an unreasonable rejection of a Calderbank offer. The departure may involve the award of indemnity costs to the offeror. 34 In Calderbank the Court of Appeal held that the successful party who had been awarded £10,000 should only have his costs up to the point at which he had rejected an offer from the other party which exceeded in value that which had been obtained by the order of the Court. Thereafter the unsuccessful party was to have her costs paid by the successful party. 35 The decision in Calderbank gave effect to the policy that the parties to litigation should seriously consider, and not lightly reject, offers made by another party with a view to compromising their dispute and avoiding a trial or the continuation of a trial: see Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at 125 (Weinberg J). 36 In later cases the Calderbank principles were developed. As a result of these developments the position now is that, depending on the circumstances of the case, an unreasonable refusal of a Calderbank offer may justify the award of costs on an indemnity basis from the date of rejection: see Black v Lipovac (1998) 217 ALR 386 at 432-3. 37 Any Calderbank offer must be "couched in such terms as enable the offeree to make a carefully considered comparison between the offer made and the ultimate relief it is seeking in all its aspects": see Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [24] (per Goldberg J). Where a Calderbank offer includes a provision relating to costs it is necessary for the offeror to isolate "the term as to costs in a way which is clear and capable of proper assessment independently of the principal claim …": see Perry v Comcare (2006) 150 FCR 319 at 334 (Greenwood J). Offers which are expressed to be "inclusive of costs" or "all up" have been held to be insufficiently precise: see, for example, Smallacombe v Lockyer Investment Company Pty Ltd (1993) 42 FCR 97 at 102 (Spender J). On the other hand an offer, such as the present, which proposes that each party bear its own costs or that a particular sum be paid "plus costs" have been accepted as proper offers: see, for example, Cutts v Head [1984] Ch 290 at 299 (Oliver LJ); Alpine Hardwoods at 125. 38 Once a viable offer is made and it is not accepted by the offeree the offeror who seeks indemnity costs bears the onus of establishing that the offerree's refusal or non-acceptance was unreasonable or imprudent. The reasonableness of the refusal or non-acceptance must be determined in the light of the circumstances that existed at the time that the rejection or failure to accept occurred. 39 In GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55 at 63-4 Finn J said that: "The reasonableness of the rejection of an offer is to be considered in light of the circumstances which existed at the time of the rejection. And, relevant in that consideration are the terms of the offer and the circumstances of the litigation, 'including the time at which the offer is made and the understanding of the parties as to the strengths and weaknesses of their respective cases'". 40 The authorities support the proposition that restraint is to be exercised in awarding costs on an indemnity basis. In particular, such orders should not be made for a punitive purpose. In Hamod v New South Wales (2002) 188 ALR 659 at 665 Gray J (with whom other members of the Court agreed) cautioned that: "Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs."

Costs Payable by Solicitors 41 Courts are extremely reluctant to make costs orders, much less indemnity costs orders, against legal practitioners. A serious dereliction of duty on the part of the practitioner must be established: see White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 at 230-1. Even if such a dereliction of duty occurs it is to be borne in mind that "[t]he primary object of the jurisdiction is to reimburse to a party to proceedings costs which that party has incurred because of the default of the practitioner, that is to say it is a jurisdiction which is compensatory rather than punitive or disciplinary": see White Industries at 229. 42 These principles have, however, now been qualified, in part at least, by the provisions of ss 37M and 37N of the FCAA. Relevantly these sections provide: "37M The overarching purpose of civil practice and procedure provisions (1) The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes: (a) according to law; and (b) as quickly, inexpensively and efficiently as possible. (2) Without limiting the generality of subsection (1), the overarching purpose includes the following objectives: (a) the just determination of all proceedings before the Court; (b) the efficient use of the judicial and administrative resources available for the purposes of the Court; (c) the efficient disposal of the Court's overall caseload; (d) the disposal of all proceedings in a timely manner; (e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute. (3) … (4) The civil practice and procedure provisions are the following, so far as they apply in relation to civil proceedings: (a) the Rules of Court made under this Act; (b) any other provision made by or under this Act or any other Act with respect to the practice and procedure of the Court. 37N Parties to act consistently with the overarching purpose (1) The parties to a civil proceeding before the Court must conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose. (2) A party's lawyer must, in the conduct of a civil proceeding before the Court (including negotiations for settlement) on the party's behalf: (a) take account of the duty imposed on the party by subsection (1); and (b) assist the party to comply with the duty. (3) … (4) In exercising the discretion to award costs in a civil proceeding, the Court or a Judge must take account of any failure to comply with the duty imposed by subsection (1) or (2). (5) If the Court or a Judge orders a lawyer to bear costs personally because of a failure to comply with the duty imposed by subsection (2), the lawyer must not recover the costs from his or her client." 43 As Gray J observed in Modra v Victoria (2012) 205 FCR 445 at 455, "the impact of those sections on the obligations of legal practitioners practising in this Court is significant." 44 By s 37N(1) a party is required to conduct a proceeding in a way that is consistent with the overarching purposes identified in s 37M. By s 37N(2) the party's lawyer must take into account the overarching duty imposed by subsection (1) and assist his or her client to comply with that duty. A failure of either the party or the practitioner to comply with these obligations may have costs consequences: see s 37N(4). 45 The achievement of the overarching purpose of the civil practice and procedure depends in part on a practitioner offering objective and considered advice to a client. This includes advice as to matters such as whether a proper basis in law exists for the making and pursuit of a particular application and the contents of any affidavits sworn in support of such an application. Without such advice, the just resolution of disputes according to law and as quickly and inexpensively as possible may well be hampered, if not frustrated. 46 There will be occasions when a solicitor against whom indemnity costs is sought is not in a position properly to resist the application because he or she is bound to respect client legal privilege. If the client does not waive privilege the solicitor is prevented from revealing instructions given by and advice tendered to the client. In such circumstances indemnity costs will only be awarded if the Court is satisfied that, on no view, could the privileged information assist in absolving the practitioner: see Medcalf v Mardell [2003] 1 AC 120 at 134-5, 145-7.

CONSIDERATION 47 In the normal course the costs of the proceeding should follow the event. Such an order is sought by the applicant. The questions which arise for determination are whether the circumstances of this case justify departure from the usual "rule" on the grounds that the applicant failed to plead an arguable case, failed to accept a Calderbank offer and/or because a costs order should be made against the applicant's solicitor instead of the applicant.

Usual Order as to Costs or Indemnity Costs? 48 The applicant emphasised that, in exercising its discretion in relation to costs, a court will normally order that the unsuccessful party pay the successful party's costs on a party-party basis. He contended that the respondent had failed to justify any departure from this norm in the present case. He sought to reinforce his case by relying on factors such as the beneficial nature of the DDA, his disabilities and what was described as the "evolving jurisprudence" in this area. 49 In some circumstances considerations such as these may properly be taken into account in determining appropriate costs orders. In Ruddock Black CJ and French J affirmed (at 237) that although "the primary factor in deciding on the award of costs is the outcome of litigation", the nature and purpose of the proceeding remains a relevant factor in the exercise of the Court's discretion. 50 A major difficulty which confronts the applicant's reliance on such factors is that the respondent's complaint relates not to the nature of the legislation or the case law which has been developed under it. The complaint focuses on the failure of the applicant to plead a viable case under that legislation and the failure by him to accept the respondent's offer of compromise. 51 It is noteworthy that the deficiencies in the pleadings bear a considerable similarity to some of the deficiencies which were identified in Walker. Despite this being pointed out by the respondent and the Court at various times before trial the pleadings remained substantially unaltered. This led me to make a series of adverse observations in the principal judgment: see, for example, at [44]-[56], [71]-[77], [92], [94], [99], [112], [127], [133], [136], [177], [213]-[214]. There was, for example, a failure to distinguish between claims of direct and indirect discrimination and between causes of action arising before and after amendments to the DDA which came into force in August 2009. These and other shortcomings underpinned the applicant's failure, through written submissions and oral argument, to advance a coherent case: the deficiencies in the pleadings were neither remedied nor clarified. On the contrary, some submissions added to an already high level of confusion. Despite being on notice of the respondent's evidence, the applicant pressed on without regard to the strength of the evidentiary case advanced against him. Much of this evidence was unchallenged at trial. 52 The respondent also relied on the applicant's failure to accept the offer of compromise which it made on 30 July 2012. The offer was expressed to be a Calderbank offer. 53 In assessing the reasonableness of any failure to accept an offer, for Calderbank purposes the Court is required to consider the whole of the circumstances: see MGICA (1992) Pty Ltd v Kenny and Good Pty Ltd (No 2) (1996) 70 FCR 236 at 238 (Lindgren J). Those circumstances will include the time at which the offer is made, the extent to which the party to whom the offer is made is aware of the evidence which the offering party will deploy at trial, the relative strengths and weaknesses of the parties' cases and the period during which the offer is open for acceptance: see MGICA at 238-40. 54 The applicant argued that the Calderbank offer, made on 30 July 2012, had not unreasonably been refused. This was because, had the offer been accepted, his next friend would have been personally liable for the costs owed by him to his solicitors. 55 It may be accepted that this would have been the practical effect of an acceptance of the offer. The contention, however, ignores the fact that, by failing to accept the offer and pressing on, he ran the risk that he would be wholly unsuccessful and then face (as has proved to be the case) the need to accept responsibility not only for his own solicitor's costs but also for the costs incurred by the respondent. He chose to accept the risk that the Calderbank principles might, after trial, operate to his detriment: cf IFTC Broking Services Ltd v Commissioner of Taxation (2010) 268 ALR 1 at 5. This he was entitled to do. He must, however, abide the consequences. 56 I accept the respondent's contention that the applicant acted unreasonably and imprudently in not accepting its offer. This, like IFTC, was "an ordinary case". The applicant did not accept the offer made to him. Instead, he "chanced [his] hand in the inherently risky business of litigation": cf IFTC at 6. 57 A case has, therefore, been made out for an award of indemnity costs. Both bases for the respondent's claimed entitlement to indemnity costs have been established. Such an award would have been warranted even if only one of the grounds had been made good. Under Calderbank principles the obligation to pay indemnity costs did not arise until after the period, during which the offer was open, expired. The obligation to pay costs on an indemnity basis should run from 11 August 2012. 58 To so hold is not, in the circumstances of this case, to discourage other potential applicants with meritorious cases. Rather, the award of indemnity costs will serve to discourage those with unmeritorious cases who remain determined to pursue all available legal options without regard to the principles to which ss 37M and 37N of the FCAA give effect. 59 The question remains as to whether those costs should be paid by the applicant or by his solicitors.

Whether Solicitors Should Pay Costs? 60 The respondent's application for a costs order to be made against the applicant's solicitors was founded on a number of bases. They were that: The solicitors had breached their "duty to ensure" that complaints and grievances that are not capable of being brought within the Disability Discrimination Act are not pursued and that those that are pursued are related clearly and directly to the provisions of the Disability Discrimination Act. Such a duty had been identified by the Court in Walker as arising from the requirements of s 37M(2) of the FCAA. Had the duty been complied with the matter would not have proceeded to trial. The failure by the applicant to accept the Calderbank offer which was made on 30 July 2012 and which was open for two weeks occurred after the solicitors had been retained and come on to the record. 61 As Gray J (with whom Reeves J agreed) said in Walker at [114]: "Before a proceeding is brought after … a complaint [of disability discrimination] has been terminated [by the Human Rights Commission], the legal representatives engaged on behalf of a vulnerable person have a particular duty to ensure that complaints and grievances that are not capable of being brought within the Disability Discrimination Act are not pursued, and that those that are pursued are related clearly and directly to the provisions of the Disability Discrimination Act." As framed, that duty falls on the solicitors who are consulted in the aftermath of a rejection of a complaint by the Australian Human Rights Commission and who are asked to advise a potential applicant about whether or not he or she has a proper basis for commencing a proceeding under the DDA. The duty will be breached if a proceeding is commenced and no reasonable prospects exist for a successful prosecution of a claim under the Act or if any claim that is pursued is not pleaded with the requisite degree of clarity. 62 If, once a proceeding has been commenced, the applicant chooses to change solicitors, a duty falls on those solicitors, in so far as it is possible, to ensure that a hopeless case does not come to trial and that the statement of claim is in proper form. The capacity of the new solicitors to do this may depend on the procedural history of the matter and the proximity of the trial at the time at which they are retained. These factors may restrict the capacity of the solicitors to remedy any existing deficiencies. 63 In order to comply with their obligations the new solicitors must carefully review the pleadings and any complaints which may have been made about them by the Court or solicitors acting for other parties. Having done so the new solicitors will need to make a judgment about the efficacy of the pleadings. If significant deficiencies are identified in the applicant's statement of claim the new solicitors must so advise the client and seek instructions to apply to the Court for leave to amend. 64 If the opposing party makes an offer of settlement prior to trial the new solicitor must, of course, give consideration to that offer and provide advice to the client about an appropriate response. 65 The applicant's solicitors, against whom costs orders are sought, were placed in an extremely difficult position. They were first approached to act on 11 July 2012. The applicant's litigation guardian had had a disagreement with the solicitors who had previously been retained. A dispute was ongoing between the litigation guardian and the former solicitors relating to costs. As a result the former solicitors maintained a lien over the files. Because of this the applicant's file was not handed over to his new solicitors until 22 August 2012, about a fortnight before the trial was fixed to commence. Although the new solicitors had, in the meantime, had access to some of the documents appearing on the file (including the pleadings) which had been supplied by counsel who had previously been briefed in the proceeding and whose brief was renewed by the new solicitors, they did not have access to other documents including correspondence between the respondent's solicitors and the applicant's former solicitors. 66 Primary responsibility for the deficiencies in the pleadings must rest on the solicitors formerly retained by the applicant. It was these same solicitors who had acted for the applicants in Walker and Modra. The statements of claim in those cases contained many of the same deficiencies that were the subject of complaint in the present proceeding. It was the responsibility of the newly engaged solicitors to review the pleadings. In doing so the deficiencies would have been manifest. Having conducted the review their failure to act may, on one view, be taken to have involved an assumption of responsibility for the deficiencies. This would, however, only be the case if there were practical steps which the new solicitors could have taken, but did not take, to rectify the deficiencies. The pleadings had long since closed by the time the applicant's present solicitors came on to the record. By then the trial was a matter of weeks away. There is force in the solicitors' submission that, having regard to the history of the proceeding and the proximity of the trial, any application to make yet more fundamental changes to the statement of claim was bound to have been looked on unfavourably by the Court. The hearing had been significantly delayed because of the applicant's travel to the United States and any further adjustments to the applicant's pleaded case would have made it difficult, if not impossible, to hold the trial date. A large number of witnesses, mainly on the respondent's side, had been incommoded by an earlier adjournment of the trial date and had made arrangements to be available during the period allocated for the hearing. This predicament, in which the new solicitors found themselves, made it all the more necessary for them to give serious consideration to the respondent's offer of settlement and to provide advice to their client as to the issues raised by it. 67 The Court does not know (and cannot know) what (if any) advice the new solicitors gave to the applicant in relation to his pleaded case, the strengths and weaknesses of his evidentiary case and an appropriate response to the respondent's Calderbank offer. This is because the solicitors are unable, by reason of the operation of the doctrine of client legal privilege, to put on evidence relating to these matters. A partner in the firm has deposed that the firm has not procured the consent of the applicant's guardian to waive client legal privilege "inhering in several of her communications with [the firm]". As a result he was "unable to depose as to any legal advice that [the firm] provided to [the litigation guardian]." In these circumstances I cannot be satisfied that the solicitors did not tender appropriate advice to the applicant only to find that that advice was rejected. 68 The respondent's application that the solicitors should pay its costs must, therefore, be rejected.

DISPOSITION 69 The applicant should pay the respondent's costs in each proceeding on a party and party basis up to 10 August 2012 and thereafter on an indemnity basis. 70 The respondent should pay the solicitor's costs incurred in defending its application that the solicitors pay its costs on an indemnity basis. The applicant should pay the respondent's costs of the respondent's application for an award of costs. I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.