Solicitors:
Brown Ward King (Plaintiff)
Ashurst (Defendant)
File Number(s): 2022/309225
[2]
Background to the application
By Originating Process filed on 17 October 2022 the Plaintiff, Mrs Karen Battaglia sought leave under s 471B of the Corporations Act 2001 (Cth) to proceed against SX Projects Pty Ltd (in liq) ("Company"), to claim an alleged debt in the amount of $1,040,070, pursuant to a purported Deed of Loan dated 10 March 2014. By my judgment delivered on 21 November 2022 ("earlier judgment"), I dismissed that application and ordered that Mrs Battaglia pay the costs of the proceedings, as agreed or as assessed. I also made further orders, at the request of the liquidator of SX Projects, to progress a determination of a claim for a costs order against the solicitors who acted for Mrs Battaglia in the application.
By his submissions dated 21 November 2022, the liquidator sought an order that Mrs Battaglia pay SX's costs of the Originating Process filed on 17 October 2022 on an indemnity basis, as agreed or as assessed ("Indemnity Costs Order"). I was not asked to make the Indemnity Costs Order when I had made the costs order on an ordinary basis on 21 November, and I was also not asked to and did not reserve leave to reopen that question and agitate a later application for an Indemnity Costs Order. It seems to me that it would not be appropriate to deal with an application that falls outside the scope of the leave that was reserved to the liquidator, and I do not do so.
The liquidator also now seeks an order that Mrs Battaglia's solicitor indemnify the Company against the Indemnity Costs Order. While I had reserved leave for submissions as to a costs order against the solicitor, the order now sought by the Liquidator has the obvious difficulty that it is premised on an Indemnity Costs Order that was not made on 21 November and will not be made now. I will, however, deal with the question whether an order for costs should be made against the solicitor, at least on the ordinary basis, for completeness.
[3]
The parties' submissions and affidavit evidence
By his submissions dated 24 November 2022, the liquidator outlined the background to the application and referred to the issue of a bankruptcy notice to Mrs Battaglia on 11 July 2019 in respect of an earlier debt, and to Mrs Battaglia's then claim for a set-off in relation to that debt. He refers to Mrs Battaglia's application for leave to bring the proceedings in respect of the debt under s 471B of the Act, and to the history of the proceedings, which has involved default by Mrs Battaglia in complying with earlier orders made by the Registrar and more than one occasion on which Mrs Battaglia's solicitors did not appear at directions hearings, until the matter was stood down to give them a further opportunity to do so.
The liquidator refers to the principles applicable to an order for indemnity costs and to my summary of those principles in Re Indoor Climate Technologies Pty Ltd [2019] NSWSC 356. I need not address those principles here where, as I have noted above, leave to bring an application for indemnity costs was not sought or reserved.
The liquidator also refers to the principles applicable to an order under s 99 of the Civil Procedure Act 2005 (NSW) and the circumstances in which a legal practitioner's conduct of Court proceedings may be so unjustifiable as to make an order under that section. He draws attention to the observations of Ward CJ in Eq (as the President of the Court of Appeal then was) in NHB Enterprises Pty Ltd v Corry (No 5) [2020] NSWSC 1838 ("NHB") at [44]-[56]. Her Honour there 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; s 99 of the Civil Procedure Act does not confine that inherent or supervisory jurisdiction; and, before making a costs order under s 99 of the Civil Procedure Act, 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".
Her Honour also 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]
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 …"
The liquidator here submits that it was unreasonable for the Company to be subjected to the expenditure of costs incurred in defending the application for leave to bring the proceedings and Mrs Battaglia should have known that the leave application stood no chance of success, as there was no good reason to depart from the proof of debt procedure and a significant and unexplained delay in her filing the application. The liquidator submits, in those circumstances, that the action "must be presumed to have been commenced or continued for some ulterior motive", and contends that Mrs Battaglia's objective in commencing the proceeding was to justify her application to set aside a bankruptcy notice that the liquidator had issued to her. The liquidator also submits that Mrs Battaglia's solicitor was aware or should have been aware that there was no basis for the commencement of the proceeding and submits that the Company's costs of the proceedings, which he estimates as $25,000 as at 15 November 2022, were incurred because of the solicitor's conduct.
Mrs Battaglia and the solicitor in turn rely on his affidavit dated 9 December 2022, which indicates that, prior to commencing the proceedings, he reviewed the bankruptcy notice that had been issued to Mrs Battaglia; took instructions in relation to a claim sought to be asserted by Mrs Battaglia against the Defendants; provided advice to Mrs Battaglia, the content of which is presumably subject to legal professional privilege and is not disclosed; took Counsel's advice in relation to relevant matters, the content of which is also presumably subject to legal professional privilege and is also not disclosed; took instructions from Mrs Battaglia, the content of which is again presumably subject to legal professional privilege and is not disclosed; and caused the commencement of the proceedings. I bear in mind that the solicitor cannot, without Mrs Battaglia's consent, waive legal professional privilege in respect of the advice given to Mrs Battaglia, or advice obtained from Counsel on her behalf, or her instructions, where that privilege is her and not her solicitor's privilege.
By submissions dated 9 December 2022, Mrs Battaglia and the solicitor repeat the matters made in support of her application for leave to bring the relevant proceedings, notwithstanding that the application for leave has been dismissed, and otherwise makes no submission against a costs order on the ordinary basis against her, which was already made in the earlier judgment. Mrs Battaglia and the solicitor submit that, if the Court is included to make an indemnity costs order against her, the appropriate date for such an order to commence is from 4 November 2022, the date after the expiry of an offer made by the liquidator and referred to in the liquidator's submissions. As I have noted above, I do not consider I should determine the application for such an order, where leave to make it was not sought or reserved.
Mrs Battaglia's solicitors also review, at some length, the principles applicable to an order against a solicitor under s 99 of the Civil Procedure Act, referring to case law including White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1988) 156 ALR 169; [1998] FCA 806 at [89]ff, Lemoto v Able Technical Pty Ltd [2005] NSWCA 153 and NHB, to which I have referred above. Mrs Battaglia's solicitor notes that the underlying premise of the liquidator's submissions is that Mrs Battaglia's claim was hopeless, and that he ought not to have lent his assistance to Mrs Battaglia in commencing and maintaining the application and he contends that notion is "untenable". He submits that, if that were correct:
"Every legal representative who receives a warning(s) from the opposing party as to the merits of its case must carefully reconsider and proceed with caution for fear of invoking the Court's jurisdiction under section 99 of the CPA if the case was ultimately hopeless or unsuccessful. That consequence is contrary to public interest."
I do not accept that submission. The acceptance of the liquidator's submission would require no more than that the solicitor had directed his or her attention to the merits of the claim, if it were in fact not arguable, then lent his assistance to pursuing it. The solicitor also submits that the application was not hopeless, because Mrs Battaglia remains entitled to seek the recovery of her funds through the proof of debt process and appeal any determination of that process. I also do not accept that submission, because the fact that the proof of debt process was available to Mrs Battaglia and that there was no apparent reason to depart from it was an important reason why an application for leave to bring proceedings under s 471B of the Corporations Act would likely not succeed, not a justification for bringing that application.
In submissions in reply, the liquidator emphasises the absence of evidence put forward by Mrs Battaglia or her solicitors as to a consideration of the merits of the application. I give limited weight to that matter, where that evidence would likely have required a waiver of legal professional privilege. The liquidator also emphasises the circumstances in which these proceedings were commenced as a matter supporting his claim that Mrs Battaglia's solicitor indemnify the Company against the Indemnity Costs Order. I have had regard to those matters, which are consistent with the basis on which leave under s 471B of the Act to bring the proceedings was declined in the earlier judgment.
[4]
Determination
I am conscious that the solicitor's ability to respond to this application is confined by his obligation to respect Mrs Battaglia's legal professional privilege, and he cannot disclose what advice he obtained from Counsel or gave to Mrs Battaglia in respect of the prospects of the application. It seems to me that the prospects of Mrs Battaglia's application were always poor, or very poor, and it failed for the reasons set out in the earlier judgment. However, I am not satisfied that that I could or should draw the inference of improper purpose for which the liquidator contends from the limited evidence in this application or that these matters rise to the level of warranting a personal costs order against the solicitor, where that order would potentially dissuade solicitors accepting instructions in difficult cases.
I am therefore not persuaded that I should vary the costs order made in the earlier judgment and I do not do so. There should be no order as to the costs of the costs application, to avoid a waste of costs in further submissions in that regard.
[5]
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Decision last updated: 27 December 2022