McIlraith v Ilkin & anor

John Howard McIlraith (plaintiff) PARTIES : Alexander Leon Ilkin (first defendant) Suechris Holdings Pty Ltd (second defendant)

COUNSEL : Mr J H McIlraith (in person) Mr M Bradford (first defendant)

SOLICITORS : Alex Ilkin Pty Ltd, Solicitors (first defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11667/07 John Howard McIlraith v Alexander Leon Ilkin & anor

1 HIS HONOUR: On 23 August 2007, I summarily dismissed Mr McIlraith's proceedings against the first defendant Mr Ilkin, in which he sought to invoke the court's summary supervisory jurisdiction over its officers, and ordered that Mr McIlraith pay Mr Ilkin's costs [[2007] NSWSC 911]. Consequently, by consent I dismissed Mr McIlraith's proceedings against the second defendant Suechris, with no order as to costs. Mr McIlraith seeks leave to file, within eight weeks, a further amended statement of claim. For Mr Ilkin, Mr Bradford seeks an order that the costs payable by Mr McIlraith be assessed on the indemnity basis. Mr McIlraith submits that there should be no costs order, but that in any event Mr Ilkin who acted as his own solicitor should not be entitled to profit costs.

2 As to Mr McIlraith's application for leave to file, within eight weeks, a further amended statement of claim - made after the order dismissing the proceedings was pronounced - no draft of the proposed pleading has been provided, although it may be presumed that it would plead causes of action for damages for defamation, malicious falsehood, and, perhaps, negligence. It may well be that there would be limitation issues, and/or other discretionary grounds, on which an amendment to raise the proposed new causes of action now could be opposed. This is particularly so bearing in mind that nine years have now elapsed since the relevant events. It would be entirely inappropriate to grant leave to amend without Mr Ilkin having an opportunity to consider the proposed amended pleading. 3 I have already ordered that the proceedings be dismissed, following a contested hearing in which that was the relief sought. The application was not for a striking out of all or part of the statement of claim for deficiencies in the pleading, but for summary dismissal on the basis that the case brought was doomed to fail. Mr McIlraith conducted the matter on the basis that it involved (and only involved) the invocation of the court's summary supervisory jurisdiction. There was never the slightest suggestion that Mr McIlraith was seeking to invoke the ordinary jurisdiction of the court in an action at law. The reason why Hidden J directed pleadings in the first place was to enable Mr McIlraith's allegations to be articulated with specificity. 4 Even if I had not already dismissed the proceedings, as I have, it would in those circumstances have been inappropriate to grant leave to amend the statement of claim.

Costs of the proceedings generally 5 Although I have already pronounced a costs order, in circumstances where there had been no argument on the question of costs I regard both parties as being at liberty to move for some other costs order, and neither as bearing any onus of showing that the order already made should be disturbed. 6 In my previous judgment I concluded that Mr McIlraith's claim against Mr Ilkin could not succeed, and moreover that it was a wholly inappropriate one for the court's summary jurisdiction. Mr Ilkin was wholly successful in resisting Mr McIlraith's claim, and moreover in showing that it was doomed to fail. It is only in the most exceptional cases that a wholly successful defendant should not recover its costs. Mr McIlraith has repeated the submissions he made in the substantive case about the "wrongful conduct" of Mr Ilkin, which in my previous judgment I concluded could not raise a triable case of serious dereliction of professional duty against him. Nothing would be served by repeating the reasons I have already given for rejecting Mr McIlraith's submissions in that behalf. There is no sufficient reason why Mr Ilkin as a wholly successful defendant should not recover such of his costs as are properly allowable. 7 The issues which do require further consideration are:

· whether Mr Ilkin's costs should be assessed on the indemnity basis; and · whether Mr Ilkin should be entitled to profit costs of acting as his own solicitor.

Indemnity costs 8 The cases in which it is appropriate that costs be assessed on an indemnity basis are characterised by the circumstance that the successful party has been unreasonably put to costs. What attracts an indemnity order is the unreasonableness, in some respect, of the conduct of the other party - whether it be by bringing proceedings which amount to an abuse of process (including proceedings that are doomed to fail), or by making manifestly unsustainable allegations, or by continuing to litigate proceedings despite an offer which would have provided a result more favourable than that ultimately attained. These are but instances, rather than a complete catalogue, of circumstances in which it may be appropriate to order that costs be assessed on the indemnity basis, but they serve to illustrate the point that the touchstone is some aspect of unreasonableness in the conduct of the other party in causing the successful party to incur costs. 9 In the present case, I have already concluded that the proceedings were doomed to fail, and that they were wholly inappropriate for the court's summary supervisory jurisdiction. To that it might be added that they were brought many years after the events in question. Moreover, in a letter dated 5 April 2007, Mr Ilkin pointed out to Mr McIlraith the defects in the case, warned him that an indemnity costs order would be sought against him, and offered him the opportunity to discontinue the proceedings without any adverse costs order. 10 In those circumstances, I am quite satisfied that Mr McIlraith acted unreasonably in the relevant sense in bringing and persisting in the proceedings, and that Mr Ilkin was unreasonably put to costs. The courtesy and skill with which Mr McIlraith presented his case cannot remedy its substantive defects. I am satisfied that an order that the costs that Mr McIlraith must pay Mr Ilkin be assessed on an indemnity basis is appropriate. Costs of solicitor acting for self 11 The more difficult and complex question is whether Mr Ilkin is entitled to the costs of acting as his own solicitor. Mr McIlraith submitted that a solicitor defendant is, or ought not be, entitled to profit costs for acting for himself. Strictly speaking, Mr Ilkin did not act for himself; a solicitor corporation of which he is the director was the solicitor. However, I have attributed no significance to this distinction, and proceed on the basis that Mr Ilkin is to be regarded as having acted as his own solicitor. 12 Generally speaking, a litigant in person is not entitled to costs, or to remuneration foregone, though he or she is entitled to out of pocket disbursements [Cachia v Hanes (1993) 179 CLR 403]. However, there is said to be an exception to this rule for a litigant in person who is a solicitor, conventionally called "the Chorley exception" after the case in which it was articulated by the Court of Appeal of England: London Scottish Benefit Society v Chorley (1884) 13 QBD 872. In that case, Brett MR said (at 875-6): An action was brought against solicitors, who defended in person, and who were ultimately held to be entitled to judgment with costs. They claimed to have their costs taxed as if they had been acting for a client, that is, a different person. The question is whether this view can be maintained. It was contended for the plaintiffs that there is no difference as regards the right to costs between a solicitor and an ordinary person; and for the defendants it was contended that the costs of a solicitor, who is party to a suit, ought substantially to be taxed as if he had been acting for a different person. I think neither contention correct. I cannot think that any privilege of a solicitor exists. I am wholly unable to agree to any argument standing upon that footing. I should have thought that a person wrongfully brought into litigation ought to be indemnified against the expenses to which he is unjustly put; but there cannot be a perfect indemnity, because it is impossible to determine how much of the costs is incurred through his own over anxiety. Where an ordinary party to a suit appears for himself, he is not indemnified for loss of time; but when he appears by solicitor, he is entitled to recover for the time expended by the solicitor in the conduct of the suit. When an ordinary litigant appears in person, he is paid only for costs out of pocket. He cannot himself take every step, and very often employs a solicitor to assist him: the remuneration to the solicitor is money paid out of pocket. He has to pay the fees of the court, that is money paid out of pocket; but for loss of time the law will not indemnify him. When, however, we come to the case of a solicitor, the question must be viewed from a different aspect. There are things which a solicitor can do for himself, but also he can employ another solicitor to do them for him; and it would be unadvisable to lay down that he shall not be entitled to ordinary costs if he appears in person, because in that case he would always employ another solicitor. If a solicitor does by his clerk that which might be done by another solicitor, it is a loss of money, and not simply a loss of time, because it is work done by a person who is paid for doing it. It is true, however, to say that the costs of a solicitor appearing in person must be taxed differently from those of an ordinary litigant appearing by a solicitor. The unsuccessful adversary of a solicitor appearing in person cannot be charged for what does not exist, he cannot be charged for the solicitor consulting himself, or instructing himself, or attending upon himself. The true rule seems to be that when a solicitor brings or defends an action in person, he is entitled to the same costs as an ordinary litigant appearing in person, subject to this restriction, that no costs which are really unnecessary can be recovered. Of this kind are the costs of instructions and attendances. 13 Bowen LJ agreed with Brett MR, and added (at 876): A great principle, which underlies the administration of the English law, is that the courts are open to everyone, and that no complaint can be entertained of trouble and anxiety caused by an action begun maliciously and without reasonable or probable cause; but as a guard and protection against unjust litigation costs are rendered recoverable from an unsuccessful opponent. Costs are the creation of statute. 14 After referring to a passage in Coke's Commentary, 2 Inst 288, his Lordship continued (at 877): His meaning seems to be that only legal costs which the court can measure are to be allowed, and that such legal costs are to be treated as expenses necessarily arising from the litigation and necessarily caused by the course which it takes. Professional skill and labour are recognised and can be measured by the law; private expenditure of labour and trouble by a layman cannot be measured. It depends on the zeal, the assiduity, or the nervousness of the individual. Professional skill, when it is bestowed, is accordingly allowed for in taxing a bill of costs; and it would be absurd to permit a solicitor to charge for the same work when it is done by another solicitor, and not to permit him to charge for it when it is done by his own clerk. The question before us does not depend on the privileges of a solicitor. 15 Fry LJ said (at 877-8): I am of the same opinion. This is not a question as to a solicitor's privilege. I think that the conclusion at which we have arrived will be beneficial to the public, because if the rule were otherwise a solicitor who is party to an action would always employ another solicitor, and whenever he is successful he would recover full costs; whereas under the rule of practice laid down by us, a solicitor who sues or defends in person will be entitled, if he is successful, to full costs, subject to certain deductions, of which his unsuccessful opponent will get the benefit. 16 From those passages it appears that the rationale of the Chorley exception involved two propositions:

· that a solicitor litigant's costs could be allowed because they were measurable by the court, whereas the costs of other litigants in person were not measurable by the court; and · that as a solicitor could always employ another solicitor to act and recover costs, there was no reason why the solicitor should not be entitled to recover costs of instead acting for himself or herself, which were likely to be less. 17 Chorley was adhered to in England until statutory reforms, providing for the recovery of costs in certain circumstances by litigants in person, were introduced by the (UK) Litigants in Person (Costs and Expenses) Act 1975. [H Tolputt & Co Ltd v Mole [1911] 1 KB 836; Reed v Gray [1952] 1 Ch 337; Buckland v Watts [1970] 1 QB 27]. Chorley was also followed in Australia, although apparently without argument [Ogier v Norton (1904) 29 VLR 536; Dalgety Australia Operations Ltd v FF Seeley Nominees Pty Ltd (No 2) (1988) 49 SASR 75; Hawthorn Cuppaidge & Badgery v Channell [1992] 2 Qd R 488]; and in other jurisdictions [Hanna v Ranger (1912) 31 NZLR 159; McArdle & Davidson v Howard [1915] 8 WWR 1056 (Ontario SC); Texas Co (SA) Ltd v Cape Town Municipality [1926] SALR (AD) 467 (Supreme Court of South Africa, Appellate Division)]. 18 The Chorley exception was considered by the High Court in Guss v Veenhuizun (No 2) (1976) 136 CLR 47. Mr Guss acted as solicitor on the record and instructed counsel in proceedings in the High Court in which, as the successful appellant, he obtained an order for costs in his favour. The Court was unanimous that he was entitled to recover his disbursements. While Mason and Murphy JJ considered that he could not recover profit costs, Gibbs ACJ, Jacobs and Aickin JJ regarded the Chorley exception as a "well established rule of practice" with the result that Mr Guss was entitled to his professional costs, because those costs were able to be quantified by the court and its officers. Their Honours said (at 51): The appellant did not claim costs incurred by him in retaining the professional services of a solicitor in his litigation. He appeared in person. He sought taxation of costs on the basis that he was a solicitor who acted for himself and did so according to the well established rule of practice which entitles a person, being a solicitor, to certain professional costs in those circumstances: London Scottish Benefit Society v Chorley , Crawford and Chester (1884) 13 QBD 872. See also H Tolputt & Co Ltd v Mole [1911] 1 KB 836. Those authorities establish that the litigant in person does not recover such costs in such circumstances in the capacity of a solicitor, but because, he happening to be a solicitor, his costs are able to be quantified by the court and its officers. 19 This was an acceptance of the Chorley exception by the majority of the High Court, on an issue which divided the court and decided the case. 20 It has been suggested that, in Cachia v Hanes, the High Court has subsequently cast doubt on the Chorley exception. Nonetheless, in Cachia, the majority said of Chorley (at 412) that both the general principle and the exception had been accepted in the High Court (a reference to the above passage in Guss). However, their Honours described the Chorley exception as "somewhat anomalous", adding (at 411): The justification given for the privileged position afforded to a solicitor acting for himself is somewhat dubious, but it serves to emphasise the general rule. 21 Later, their Honours said (at 412): If the explanations for allowing the costs of a solicitor acting for himself are unconvincing, the logical answer may be to abandon the exception in favour of the general principle rather than the other way round. 22 In my view it is quite clear that, while raising a question about the Chorley exception, their Honours clearly refrained from saying that Guss v Veenhuizun was wrong, reserving for the future the possibility that it might require reconsideration. 23 In Western Australia, however, Ipp J (as his Honour then was) at first instance [Dobree v Hoffman (WASC, 11 December 1995, unreported, BC9502706)], and on appeal the Full Court [(WASC, 5 December 1995, Rowland, Steytler and Parker JJ, unreported, BC9606034], did not follow Guss v Veenhuizun, and held that the Chorley exception did not apply in that state. In the Full Court, Parker J, with whom Rowland and Steytler JJ concurred, expressed agreement with Ipp J that Guss did not decide the question and was not binding authority, so that the Supreme Court of Western Australia was free to take its own course. His Honour advanced, as reasons why the Chorley exception was inappropriate: that it was not an established rule of practice in Western Australia; that the authority of Guss v Veenhuizun was diminished by the observations made in Cachia v Hanes; that the ability to measure a solicitor's costs was not a principled basis for a distinction between a solicitor litigant and any other self litigant; that the exception may have the effect in some cases of encouraging ill considered or unnecessary litigation because a solicitor litigant was without impartial advice and would not bear the same cost disincentive as one who instructed an independent solicitor; and that despite the observations in Chorley, the Chorley exception had the appearance of placing solicitors in a position of special privilege. 24 In Burford v Allan (1996-7) 68 SASR 217, the Full Court of the Supreme Court of South Australia held that the Chorley exception should no longer be applied to an award of costs under that Court's statutory jurisdiction. 25 Were the question untrammelled by authority, I might well have taken the same course as the Supreme Court of Western Australia in Dobree. In particular, I would question the proposition, which underlies the Chorley exception, that as a solicitor can employ another solicitor to do the work he or she should be entitled to recover the costs of doing the work him or herself. To the contrary, there seems to me a substantial reason to do so. Where a solicitor represents a litigant, the court is entitled to expect the litigant to be impartially and independently advised by an officer of the court. Indeed, where the court concludes that a solicitor is not in a position to give impartial and independent advice to a party, because of the solicitor's own interest in the outcome, the court has restrained the solicitor from continuing to act [see, for example, Kallinicos v Hunt (2006) 64 NSWLR 561]. Where a solicitor acts for himself or herself there cannot be independent and impartial advice, and this is in principle a strong reason for holding that a solicitor litigant should not be entitled to costs of acting for him or herself. 26 However, I do not believe that it is open to me to follow the Supreme Court of Western Australia, or to discard the Chorley exception. First, I have already explained that Guss v Veenhuizun has decided the question, and has not been overruled by Cachia v Hanes. Secondly, in Atlas Corporation Pty Ltd v Kalyk [2001] NSWCA 10, the Court of Appeal held that, despite Dobree, Guss was an authoritative endorsement by the High Court of the Chorley exception, that the statements of the majority on that issue were not obiter dicta, and that it had not been overruled in Cachia, and so was binding; accordingly the court followed Guss. Thirdly, in Khera v Jones [2006] NSWCA 85, a Court of Appeal constituted by Mason P and Ipp JA (who, it will be remembered, had given the first instance judgment in Dobree), while indicating a preference, if the matter were uncluttered by authority, for the approach adopted in Dobree, refused leave to appeal on the basis that there was little reason to think that the court would depart from its "firm and comparatively recent decision" in Atlas. For this court, the decisions of the Court of Appeal in Atlas and in Khera are conclusive. The Chorley exception is the law in New South Wales. Subsequently, in the Federal Court of Australia, Dowsett J in A & D Douglas Pty Ltd v Lawyers Private Mortgages Pty Ltd [2006] FCA 690, has agreed (at [10]) that Guss and Cachia state the law in Australia, and that the Chorley exception applies. 27 It follows that the costs of which Mr McIlraith must pay Mr Ilkin will include Mr Ilkin's reasonable costs of acting as his own solicitor.

(1) Refuse leave to further amend the statement of claim.

(2) Order that the costs referred to in Order 2 made on 23 August 2007 be assessed on the indemnity basis. **********

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