Mifsud v Chemplex Australia Ltd [1999] VSCA 175

Court of Appeal (Vic)|1999-11-05|Before: BROOKING, CHARLES and CHERNOV, JJ.A.

COSTS - Amendment to pleadings - Discretion to order costs not displaced by Accident Compensation Act 1985 s.135B(6) - Amending party to pay costs thrown away by reason of amendment. COSTS - County Court - Power to order solicitors to pay costs. County Court Act 1958 s.78A(2) County Court Rules of Procedure in Civil Proceedings r.63A.23. COSTS - Order against solicitors - Whether gross negligence necessary.

By a writ filed on 30 November 1992 in the County Court, the appellant sued the respondent for damages for personal injuries suffered by him in the course of his employment by the respondent as a result of the latter's alleged negligence and breaches of statutory duties. The plaintiff's claim was that his injuries were caused by his being exposed in the workplace to the chemical acrylo-nitrile. The action was commenced on the day before the commencement of the operation of the Accident Compensation (WorkCover) Act 1992, which curtailed rights of employees to recover damages from employers for injuries suffered at the workplace. Because it will be necessary to examine later in some detail the developments in the proceeding, it will be convenient to refer to the appellant as "the plaintiff" and to the respondent as "the defendant". We shall call the plaintiff's solicitors, "the solicitors".

On 10 March 1998, her Honour Judge Rizkalla gave the plaintiff leave to amend his statement of claim. She also ordered that the plaintiff pay the defendant's costs of the action between 6 March 1996 and 10 March 1998, as well as the costs of the application for the amendment. The plaintiff has, by leave granted by this Court on 17 April 1998, appealed against her Honour's costs order ("the costs order"). In his notice of appeal, the plaintiff seeks, in lieu of the costs order, an order that the plaintiff pay the defendant's costs thrown away by reason of the amendment and that the costs of the application before her Honour be costs of the action. The defendant has cross-appealed (also by leave of this Court) for the purpose of preserving the right to argue, should it become necessary, that leave to amend should not have been granted to the plaintiff without an order that the defendant be compensated for its costs flowing from the amendment. In the event, however, the cross-appeal was not pursued.

The first ground argued on behalf of the plaintiff was that her Honour had no discretion to make the costs order by reason of the operation of s.135B(6) of the Accident Compensation Act 1985 ("the Act"). This was a new ground of appeal, added pursuant to leave given at the commencement of the hearing before us.

The plaintiff contended that, because the costs order required him to pay all the costs of the defendant during the relevant period irrespective of whether they had been thrown away by reason of the amendment, they were costs of "the proceeding" and had to be paid in accordance with s.135B(6). The plaintiff's counsel contended that the costs order was no mere interlocutory order to pay the defendant's costs thrown away by the amendment. Such an interlocutory order, submitted the plaintiff, would probably not be characterised as an order that required payment of costs of (part of) "the proceeding" for the purposes of the section, whereas the costs order in question required payment of all costs of a certain part of the proceeding and thus was covered by s.135B(6). The plaintiff's counsel relied on Whitehead v. Kreglinger (Australia) Pty. Ltd. [1998] 4 V.R. 216, where the respondent's relevant offer of settlement (which was not an offer of compromise within Order 26 of the County Court Rules) was made in a sum which turned out to be greater than the amount of damages subsequently awarded to the plaintiff by the jury. After the verdict, the judge ordered that the plaintiff pay the defendant's costs after the date of that offer of settlement. In doing so, her Honour purported to exercise a discretion as to costs pursuant to s.78A of the County Court Act 1958. At 218, Buchanan, J.A. (with whom Tadgell and Charles, JJ.A. agreed) held that the costs of the proceedings were governed by s.135B(6), which displaced the discretion as to costs which the trial judge otherwise had under s.78A. His Honour said that "the costs" referred to in that provision were the costs of the proceeding and not some of them, so that there was no room for the exercise of any discretion by the trial judge.

Putting aside s.135B(6), s.78A(1) of the County Court Act and Rule 63A.03(1) of the County Court Rules empowered her Honour to exercise a discretion as to the payment of costs upon the plaintiff's application to amend the statement of claim. Section 135B(6) prescribes a regime as to the payment of costs where a "judgment or order for damages is made". In the circumstances that were present in Whitehead, the trial judge had no discretion but to order costs pursuant to the section. But even where s.135B(6) operates to compel payment of costs in accordance with its provisions, the costs which are to be paid pursuant to it do not include costs that have been ordered to be paid at an earlier stage of the proceeding, such as an application for further and better discovery or an application that the trial be adjourned. The section does not deprive the court of its discretion as to costs at any stage of the proceeding prior to judgment for damages. In Whitehead, judgment for damages was given and therefore the section overrode the discretion as to costs given to the judge by s.78A of the County Court Act. In this case, however, no such judgment or order for damages has been given or made, so that the section did not operate to deprive her Honour of the discretion on the question of costs. It follows that this ground of appeal has not been made out.

It was then submitted that her Honour's discretion miscarried because she took into account, on the question of costs, mere assertions made by counsel for the defendant from the Bar table. She also erred, it was said, in having regard to letters of 6 March and 6 May 1996 and 15 January 1997 from the defendant's solicitors to the solicitors for the plaintiff containing suggestions by the defendant that the plaintiff amend his pleading to allege what he eventually alleged in his amended statement of claim that came before her Honour. It was contended that the three letters were merely handed to her Honour and not verified by affidavit or otherwise with the result that they were not in evidence. It was said that her Honour erred in considering the defendant's claim that it be paid all its costs from August 1993 when it had not given notice of the claim by way of summons or otherwise. It was also argued by the plaintiff's counsel on the appeal that her Honour erred in concluding that the plaintiff had 'sat on' his case since March 1996. There is no substance in any of these submissions and we reject them.

The plaintiff's argument that her Honour erred in not ordering that the plaintiff pay only the defendant's costs thrown away by reason of the amendment has greater merit. It is trite that where leave is granted to amend a pleading, it is ordinarily given on terms that compensate the respondent for any prejudice that may flow to it from the amendment. Usually such prejudice will include costs wasted because of the amendment. Thus, the usual order on a successful application to amend pleadings requires that the applicant pay the defendant's costs thrown away by reason of the amendment - see for example Commonwealth v. Verwayen (1990) 170 C.L.R. 394 at 456 per Dawson, J.

Counsel for the defendant acknowledged that her Honour's costs order might cover costs of the defendant in addition to those thrown away by reason of the amendment. He argued, however, that by making the order the judge sought to compensate the defendant for all the prejudice it would suffer from the amendment, including the loss of the opportunity of being able to defend successfully the plaintiff's claim that his injuries were caused by acrylo-nitrile. It was argued that if the defendant could have successfully defended the plaintiff's claim as originally formulated, then the amendment resulted in all its costs (or at least those incurred after 6 March 1996) being wasted. It was submitted that since it would be impossible to determine from the jury's verdict who had succeeded on the acrylo-nitrile issue, it was appropriate to build into the costs order some compensation for the possibility that all the defendant's costs incurred up to the date of the amendment, and certainly since 6 March 1996, had been wasted. But the short answer to this submission is that there is nothing in her Honour's reasons which suggests that she intended to include such compensation in her costs order. Moreover, her Honour was not in a position to form a view on the defendant's prospects of successfully defending the proceeding as originally framed. We do not accept this submission made on behalf of the defendant.

Counsel for the defendant also argued that even if all the defendant's costs incurred between 6 March 1996 and 10 March 1998 were not wasted by reason of the amendment, such costs as were not thrown away would be small and that, given the high-handed attitude adopted by the solicitors in disregarding totally the suggestions that the plaintiff amend the statement of claim, it was appropriate that all of its costs incurred during the period in question be paid. A costs order made on such a basis would be punitive and would amount to an improper exercise of discretion. There is nothing in her Honour's reasons to suggest that she made the order on that basis. This submission too must be rejected.

Counsel for the defendant argued that it would not be practicable to dissect the defendant's costs incurred prior to the amendment so as to isolate those thrown away from those which have not been wasted. He argued that most of the defendant's costs incurred since March 1996 related to the plaintiff's claim based on his exposure only to acrylo-nitrile. Thus, it was said by way of example, the costs of counsel travelling to the United States to interview Dr. Nerland, the cost of his report and his attendance here for the trial which was due to commence before Judge Dove on 14 August 1997, were all wholly or almost wholly wasted. It was said that the taxing officer would not be able to say how much of the cost of the Nerland report, for example, was wasted if Dr. Nerland or some other expert was engaged to advise on the new claims based on the 19 chemicals. In those circumstances, it was submitted, it was appropriate for her Honour to treat all the defendant's costs incurred in the period fixed by her as the defendant's costs thrown away by reason of the plaintiff's amendments.

In our view, however, although the determination of the amount of the defendant's costs thrown away may be difficult, it is not an unachievable task. It is part of the function of the taxing officer to make such a determination and although the relevant facts here are more complicated than those in most personal injuries cases, it will not be impossible to decide in the light of relevant evidence what costs of the defendant have been occasioned or wasted by the plaintiff's amendment. For example, it can be assumed for present purposes that the defendant will require a second report from Dr. Nerland. If so, it will be a question of fact to be determined by the taxing officer what is the net increase in the cost to the defendant of procuring two reports from this expert, rather than a report dealing with all 19 chemicals alleged to be causative of the plaintiff's injuries.

We agree with the defendant's counsel that her Honour's reasons suggest that she intended that the defendant's costs thrown away be paid by the plaintiff. It is understandable, in one sense, why she chose 6 March 1996 as the date for the beginning of the period during which the defendant's wasted costs be paid by the plaintiff. It was on that day that the defendant's solicitors wrote for the first time to suggest that relevant amendments be made to the statement of claim. It is clear that the information which would have allowed the plaintiff to make the amendment he eventually made was in the hands of the solicitors long before the amendment was sought. But her Honour's costs order gave the defendant not only its costs that were thrown away by the amendment, but also costs that were not wasted. To this extent the discretion miscarried and to this extent the appeal must succeed and the costs order be varied so that it is confined to the payment of all of the defendant's costs thrown away by reason of the amendment. There is no basis for confining it to the period specified by her Honour; the defendant is entitled to all of its costs thrown away by reason of the amendment.

No error, however, was made by her Honour in ordering that the defendant be paid its costs of the application.

We should add that the costs of the defendant thrown away by reason of the amendment are not confined to the defendant's costs associated with its pleadings that have been rendered useless by reason of the amendment, as was, at one stage, suggested by the plaintiff's counsel. Such costs would include, for example, the wasted costs of:

- perusing and dealing with all the previous versions of the statement of claim

- legal and other advice given in respect of the plaintiff's claim which was based solely on acrylo-nitrile

- making a compromise offer under the Act

Similarly, a significant part of the defendant's costs relating to the procuring of the Nerland report, including the cost of sending counsel to the United States, may well have been wasted. The defendant may be able to establish that had the amendment been made at or about the time suggested by it, only one visit by counsel would have been necessary and only one report would have been required from Professor Nerland. It will then be a question of estimating the net increase in the cost to the defendant resulting from the second report having to be obtained from the United States expert. We emphasise that what we have said about what may constitute the costs thrown away is not intended to be an exhaustive list of the possible categories. There may be other costs that have been wasted because of the amendment. Similarly, what we have said should not be taken as in any way seeking to interfere with the role of the taxing officer.

We come now to the question who should bear the costs to which the defendant is entitled. Should the solicitors be ordered to pay some or all of these costs and should certain of their costs for which the plaintiff would otherwise be liable be disallowed? This requires first a summary in chronological order of the long history of this action and the role of the solicitors in its conduct.

16 As we have already mentioned, on 16 August 1995 the plaintiff's solicitors received the first expert medical report from Professor Bisby, dated 15 August 1995. He examined and interviewed the plaintiff on 3 August 1995. His report draws attention to a number of important matters, including the following.

(a) In addition to being exposed to acrylo-nitile, the plaintiff was exposed at work to a range of other chemicals and toxic substances which included:

* break down and contaminant products of polymer manufacture

* products of combustion (smoke) of plastic slurry including cyanides, acid gasses probably including hydrogen chloride and polycyclic aromatics

* probably other organic solvents and catalysts not yet identified.

(b) The medical problems suffered by the plaintiff included:

* lung disease - chronic obstructive airways disease and fibrosis

* dermatitis on the left groin area which could be chronic tinea

Professor Bisby also referred to a diagnosis of asbestos lung disease made years earlier and to the exposure to asbestos of the plaintiff in the defendant's plant but not, according to the plaintiff's recollection, elsewhere. His report dealt at length with the toxic effects of the chemicals and other substances mentioned in it.

The Bisby report was given to the defendant's solicitors. On 6 March 1996, they wrote to the solicitors inviting amendments to the statement of claim in relation to chemicals and injuries. They specifically referred to the Bisby report which dealt with those matters. They also pointed out that any amendment would affect the scope of further inquiries and investigations and medical examinations that the defendant intended to arrange in the matter.

On 1 May 1996 a mediation was held, which was adjourned to 13 June 1996.

By letter dated 6 May 1996 addressed to the solicitors, the defendant's solicitors confirmed their understanding (seemingly gained at the mediation) that the plaintiff's real case in respect of his injuries was that he was suffering from a liver condition caused by his exposure to acrylo-nitrile. They also confirmed that the solicitors had advised them at the mediation that the "matters and chemicals pleaded are the only subject in issue between the parties."

On 6 August 1996 the matter was fixed for trial on 10 April 1997. On 29 October 1996, the solicitors received a report of Dr. Little, who referred to the plaintiff's exposure to numerous chemicals and resultant injuries, including skin rash.

By letter dated 15 January 1997 the defendant's solicitors again wrote to the solicitors confirming what they said was the advice of the solicitors provided during the May mediation, namely, that the statement of claim "stands" and that the injuries remain as set out in their letter of 6 May 1996 to which reference has been made earlier. Thus, so far as the defendant's solicitors were concerned, in early 1997, the plaintiff's case was that his injuries were caused by his exposure to one chemical, namely, acrylo-nitrile. No doubt because of the contrast between that limited allegation and the contents of the Bisby report, the defendant's solicitors suggested in their letter of 15 January 1997 that other chemicals might "need to be considered".

22 Not only did the solicitors not take up the suggestion contained in the three letters, but they did not even bother to acknowledge them.

On 14 March 1997 the respondent requested that the trial date of 10 April 1997 be vacated. As a result the trial was re-fixed for 14 August 1997. On or about 10 April 1997, the solicitors received the report of Fay Simpson, a neuro-psychologist, which also made it apparent that the plaintiff had been exposed to a large number of harmful chemicals in his workplace.

By letter dated 12 June 1997 the solicitors gave notice to the defendant's solicitors that at the hearing on 14 August 1997 an amendment would be sought to the particulars of injury to include "heart disease; exacerbation of heart disease". (No such amendment, however, was sought on 14 August 1997.)

The solicitors also had available to them a report from Dr. Hocking dated 29 July 1997 which was prepared for the defendant. His report also makes it clear that the plaintiff may have suffered several work-related illnesses including:

On 13 August 1997, being the day before the trial of the proceeding was due to commence, the solicitors received two further reports from Professor Bisby, each dated that day. The reports emphasised again that the plaintiff's physical illnesses included lung damage and ischaemic heart disease. The lung damage was attributed to exposure to asbestos, and to "the fumes and chemicals I have listed. The heart effects are attributed to the lung disease". Professor Bisby also emphasised that although there was "concentration in all reports on acrylo-nitrile", that specific material was only one of many known toxic exposures which the plaintiff had had and that he had mentioned the other chemicals in his previous reports including:

Professor Bisby reiterated that "it was important not to simply consider acrylo-nitrile in the context of these exposures". In commenting on the report of Dr. Nerland, Professor Bisby again noted that the appellant had much and varied exposure to chemicals other than acrylo-nitrile.

On the day when the trial was to start before Judge Dove (14 August 1997) the solicitors served on the defendant's solicitors the first proposed amended statement of claim, which sought to amend the commencement of the period during which the plaintiff was exposed to acrylo-nitrile from 1980 to 1973 and to add in the particulars of injuries the following injuries:

"heightened sensitivity to chemical and environmental exposures, respiratory and liver damage, dermatitis and upper skin rashes".

It was also proposed to insert a claim for pecuniary loss. There were other amendments sought which need not be detailed here.

At the outset of the hearing before Judge Dove, the plaintiff's senior counsel sought leave to amend the statement of claim in accordance with the draft referred to above. No application, however, was made to allege heart disease. The application for amendment was opposed and his Honour heard argument on the application. On the following day, 15 August 1997, the plaintiff served on the defendant's solicitors a second proposed amended statement of claim, which was similar to the one served on the previous day except that the claim for pecuniary loss was deleted. On that day his Honour ruled that he would give leave to the plaintiff to amend his statement of claim, in effect, in accordance with the amendments proposed in the second amended statement of claim, other than the amendment which sought to extend the period during which the plaintiff was said to have been exposed to acrylo-nitrile. His Honour ultimately took the view that the proposed amendment to the particulars of injury did not allege new injuries but rather the effects of the plaintiff's having been exposed to the "chemicals referred to". He concluded that the defendant would not suffer significant prejudice as a result of the amendment, but that this was only because of the "professional approach of the defendant's solicitor" in meeting these matters before they had been raised by the plaintiff. Earlier, his Honour said

"I accept .. that the defendant's solicitors went perhaps beyond the normal obligation imposed upon them, and communicated with vigour and regularity to the plaintiff's solicitors seeking their assent to the proposition that they should amend, and in seeking to have them, given that assent, go ahead and make the amendment."

In light of the amendments which his Honour was prepared to allow, the defendant applied to have the trial adjourned. His Honour acceded to that application and directed that the case be re-fixed and that the plaintiff pay the defendant's costs thrown away "by reason of this adjournment". His Honour then raised with counsel for the plaintiff the fact that the plaintiff was blameless in the matter and as a result there was concern that he would be paying the costs of the adjournment which seemed to have come about by failure of the solicitors to give notice of the anticipated changes. In response, the plaintiff's senior counsel submitted that his instructing solicitor understood from the mediations and conferences in May and June of 1996 that the defendant's solicitor knew that the plaintiff intended to rely upon the full range of injuries that were set out in the Bisby report; he did not respond to that correspondence because he did not anticipate that there would be any difficulty about the matter. Counsel told his Honour that his instructing solicitor believed that, while "formally he may have failed to respond to the correspondence", the discussions between the solicitors would have made it plain to the defendant that the injuries which had been added to the particulars of injury were going to be an issue at trial. The plaintiff's counsel urged his Honour not to take the "unusual step of visiting costs upon the solicitor, because he acted in good faith". His Honour decided, in his own words, "without great enthusiasm", not to call upon the solicitor to explain his conduct. Having regard to the limited knowledge he had of the background to the application, his Honour considered that it would be unfair for him to make an order against the solicitors notwithstanding that he was tempted to do so. He said that "in the circumstances" he would make the usual order that the plaintiff pay the defendant's costs thrown away by reason of the adjournment.

It seems that on 15 August 1997, the solicitors prepared a third amended statement of claim to reflect the amendments allowed by Judge Dove, but that fourth statement of claim was not filed or served.

On or about 12 September 1997 the solicitors served on the defendant's solicitors a fourth proposed amended statement of claim - the fifth version of the pleading. It particularised for the first time the additional chemicals and injuries (referred to in the Bisby report). That proposed further amended statement of claim was signed by senior and junior counsel. On 29 September 1997, a fifth proposed amended statement of claim - the sixth pleading - was served on the defendant's solicitors. It added numerous particulars of negligence, raised for the first time a claim based on alleged exposure of the plaintiff to asbestos fibres and dust (pleaded at length) and reintroduced the claim for loss of earning capacity.

On 18 December 1997, the plaintiff sought leave from Judge Meagher to amend his statement of claim in accordance with the proposed fifth further amended statement of claim (of 29 September 1997). In his affidavit sworn on 8 April 1998 in support of the application for leave to appeal, the plaintiff's solicitor swore, in effect, that it was after Judge Dove granted the adjournment on 15 August 1997, that senior and junior counsel (for the first time) undertook a detailed examination of the number of chemicals to which the plaintiff had exposure at his workplace. What the solicitor did not say in his affidavit, however, was that Judge Meagher dismissed the plaintiff's application made on 18 December 1997 with costs to be paid, and again, by the plaintiff.

On 5 January 1998, the solicitors filed on behalf of the plaintiff a new writ naming as defendant Huntsman Chemical Company of Australia Pty. Ltd. and claiming damages for injuries from asbestos suffered by him in the course of his employment. According to the statement of claim in the first and second actions, that company is Chemplex Australia Ltd., after a change of name, but before us counsel for the plaintiff seemed to entertain some doubt about whether that was the fact.

On 4 February 1998 the solicitors served a summons in the first action together with a sixth version of a proposed amended statement of claim - the eighth pleading, counting the first statement of claim and the one in the new action. The summons sought leave to amend the statement of claim and an order that the two actions "be consolidated and heard together". The proposed new pleading listed the same chemicals and injuries as were alleged in the fifth proposed amended statement of claim of 29 September 1997, although it omitted the claim for asbestosis and the claim for loss of earning capacity. The last claim has been in and out of the pleading quite a number of times. The summons came on for hearing before Judge Rizkalla on 6 March 1998. Her Honour had before her an affidavit sworn by one of the solicitors on 4 February 1998 and an affidavit sworn by the solicitor for Huntsman in the second action on 5 March 1998. Her Honour also had before her the letters to which reference has been made earlier, namely, those of 6 March and 6 May of 1996 and of 15 January 1997.

On Friday 6 March 1998 her Honour gave a ruling in respect of the application by the plaintiff to amend the statement of claim and ordered that the two actions be heard together. In giving her ruling, her Honour noted that in his submissions the plaintiff's counsel conceded:

"that no new material came into the hands of the plaintiff after August 1997 [and that] the plaintiff's legal practitioners had now taken an in-depth overview of his cause of action and have determined that he has a separate and further cause of action in relation to asbestosis against the defendant Huntsman as well as further claims against Chemplex in relation to the effects of 18 other chemicals to this point previously not named and additional new particulars of injury as a result."

In her ruling on costs the judge said that, in the words of the plaintiff's own counsel, it was not until after Judge Dove adjourned the trial that "the plaintiff's solicitors and counsel have taken a good look at this action".

The defendant contended before her Honour that it would be prejudiced in two ways if the amendment was allowed, namely, in relation to costs and by reason of the fact that the s.135B conference and offer of compromise under the Act took place in August 1993, years before the new allegations were made. The judge said that she proposed to order that the plaintiff attend a further s.135B conference on a date to be fixed and that the defendant make at that conference a further offer of compromise taking into account the allegations in the amended statement of claim. We were told that the judge later came to entertain doubt about her power to make such an order. She rejected the defendant's application that there be a preliminary trial of the question raised by the proposed defence in the second action based on the Limitation of Actions Act 1958.

The solicitors have now sought to meet the defendant's complaint that it had made its offer of compromise under the Act in August 1993, years before the plaintiff's new allegations, by forwarding to the defendant's solicitors a letter of 13 May 1998 in which it advised that the plaintiff was willing to attend a further conference under s.135B of the Act. Alternatively, they said, the plaintiff was willing to enter into a contract with the defendant to attend a further s.135B(4) conference and be bound by the costs and other consequences which would flow from it in accordance with the Act.

Up to the time the appeal was called on for hearing there seems to have been no suggestion that the plaintiff should not pay, without recourse to his solicitors, all the costs that he has thus far been ordered to pay in this litigation and, in particular, the costs ordered by Judge Dove to be paid by him (in respect of which a bill of costs claiming more than $70,000 has been served) and the costs the subject of the order of Judge Rizkalla, which order has, according to a rough estimate casually made by the defendant's solicitor, when added to the costs payable under Judge Dove's order, brought the costs payable by the plaintiff to about $150,000. There is in addition an order for costs made against the plaintiff by Judge Meagher on 18 December 1997, in consequence of the unsuccessful application to amend the statement of claim, which will itself require payment of some thousands of dollars. This says nothing about the costs which the plaintiff is required to pay to his solicitor in respect of the abortive trial, which must be very large, and the costs of eight statements of claim, (the original statement of claim and six amended versions in the main action and a single statement of claim in the new action). Nor does it say anything about the costs of the application for leave to appeal or the appeal itself. Of course, the bill of costs delivered may be substantially reduced on taxation and the casual estimate of $150,000 may prove to be too high. But on any view it is plain that amounts of money which any ordinary person would regard as huge have been incurred by both sides in this litigation as a result of the way in which it has been conducted on the plaintiff's behalf.

The plaintiff's solicitors have continued to represent him, even during the hearing of the appeal, notwithstanding that it has for a considerable period of time been manifest that their own financial interests conflict with the interests of their client. Ever since Judge Dove raised the question whether the solicitors themselves instead of the plaintiff might be ordered to pay costs, with the result that senior counsel for the plaintiff made a submission that no order for costs be made against the solicitors (with the inevitable result that his own client would bear the burden), a submission which was immediately followed by a statement of his own embarrassment, it should have been realised that independent advice was necessary for the plaintiff so that he could consider trying to pass the burden of costs over to his solicitors. If there was any doubt about this at the time when Judge Dove made his order, the conflict of interest ought to have been clear to all concerned once Judge Rizkalla made her order, which on any view inflicted on the plaintiff a huge burden in costs, quite apart from the corresponding amount he would be required to pay his own solicitor in respect of his own costs thrown away. When we read the papers in this case it became apparent to us that it was high time that consideration was given to whether the plaintiff had suffered a serious injustice by being required to pay the other side's and his own heavy costs incurred as a result of his own solicitors' negligence. Notwithstanding what occurred after we did raise the matter, we see no reason for supposing that, if we had not raised it, the plaintiff himself would not have been left to bear very large expenses which should have been borne by his solicitors. It had evidently been contemplated, to take but one example, that, if the appeal failed, the usual order would be made that the plaintiff pay the defendant's costs of the appeal (including the costs reserved).

Accordingly, when the appeal was called on we asked Mr Dalton whether he would be suggesting to us, on behalf of the plaintiff, that the plaintiff's solicitors should pay any of the costs which the plaintiff had been ordered to pay and should forgo any of the sums which they would otherwise claim for costs from him, as regards not only the costs in the County Court but also the costs reserved on the application for leave to appeal and the costs of the appeal itself. We raised with Mr Dalton the question whether he and his junior were in a situation of embarrassment in view of the fact that it might be said that the interests of the plaintiff required that consideration be given to the seeking of an order against the solicitors instructing them. We also intimated that in our view the solicitors should be represented before us so that they might combat a possible suggestion that they themselves should pay and forgo certain costs.

As a result of our intimation Mr Scanlon appeared on behalf of the solicitors. We are indebted to him for his concise, realistic and helpful argument, presented at short notice and under difficult circumstances. We heard argument from him in support of the appeal in addition to hearing him on the question whether the solicitors should be ordered to pay, directly or indirectly, or to forgo any of the costs of the first action or of the appeal. He did not seek any adjournment or suggest that the matter with which his clients were concerned could not be properly considered on the material contained in the appeal book. He did, however, intimate, as we understood him, that if the result of the appeal was that some order was made for costs against his clients they might then wish to consider whether they should not themselves look for contribution to counsel who drew the original and first two amended statements of claim in the main action before Mr Dalton and his junior were retained.

Mr Scanlon offered an undertaking to the Court that if the appeal was allowed and a substituted order made requiring the plaintiff to pay the costs thrown away as a result of the amendments allowed by her Honour, his clients would themselves pay the costs the subject of that order (including the costs of the application to her Honour) and would in addition forgo their own costs in so far as those costs were thrown away as a result of the amendments or were costs of the application to her Honour. He also announced, not by way of undertaking offered on behalf of his clients but by way of intimation only, that his clients had informed him that they would "indemnify" the plaintiff against the order made by Judge Dove. Whether this related only to the costs ordered to be paid or to the plaintiff's own costs in addition was not made plain.

We think it clear that it was negligence on the part of the plaintiff's solicitors that had the result that the action had to be adjourned by Judge Dove. We also think it clear that it was negligence on their part which put the plaintiff's legal advisers in the position in which they determined that it was necessary to seek the leave to amend which they sought and obtained from Judge Rizkalla. Indeed, we consider that all the attempts made on behalf of the plaintiff to amend the statement of claim in the original action and the fact that the plaintiff's legal advisers thought themselves constrained to file the writ in the second action were clearly the result of negligence on the part of the plaintiff's solicitors. Since it has been held that it is necessary for gross negligence to be shown before the summary jurisdiction is exercised to order solicitors to pay or to forgo costs (Etna v. Arif [1999] VSCA 99), we expressly say that we regard the negligence we have mentioned as in each case gross.

No doubt it was reasonable for the plaintiff's solicitors to file the writ when they did, in November 1992, while armed only, as it would seem, with reports from two general practitioners. It is not possible on the material before us to say that when they filed the writ in the first action they had been guilty of negligence in failing to obtain further information either about how the plaintiff's case could be put on liability or about what injuries he might have sustained. We shall ignore the fact that it was not until the latter part of 1995 that the solicitors obtained any expert opinion on the nature and extent of the injuries sustained by their client and what was or might be responsible for those injuries. By August 1995 they were in possession of Professor Bisby's first report, which we have already discussed at some length. If they had then taken steps to have the plaintiff's case appropriately formulated, it may well be that no complaint could have been made against them. It could have been said that the original proceedings were necessarily instituted in haste and that it was reasonable to expect that an amended pleading would be necessary once expert opinion bearing on the closely related matters of liability and injuries was obtained. But in fact none of the amended pleadings ever produced could be regarded as a reasonably satisfactory statement of what should have been the plaintiff's claim. In our view the solicitor's negligence has resulted in the wasting of large sums of money in costs because of their failure to take steps to have their client's claim properly formulated. They ignored the clear warnings given by the defendant's solicitors by their letters written between March 1996 and January 1997, warnings about both the possibility of exposure to additional chemicals and the nature of the injuries suffered.

In the unhappy circumstances of this case, had it not been for the undertaking offered by the solicitors through their counsel, we should have thought that the least that was required of this Court was that it cause some intimation to be given to the plaintiff of the need to obtain independent advice about his own solicitors' possible liability to him in negligence. The idea that there should be superimposed upon the present two actions a third one, in which the plaintiff sues his former solicitors for negligence, is not at all attractive, raising as it does the prospect of much further delay and expense. Fortunately we may, in all the circumstances, including the position now taken up by the solicitors, go much further than causing an intimation to be given, and dispose of the matter ourselves. We have made it entirely clear to them that the Court is contemplating the making of an order that will require them to pay, directly or indirectly, such of the costs of the defendant as have been or will have to be awarded to it in consequence of their negligence and requiring them to forgo such of their own costs as have been incurred in consequence of that negligence. Through Mr Scanlon they have not suggested that we do not have power to do this, or that we should not deal with the matter at the present time and on the present material. Nor did Mr Scanlon put any argument directed to the issue of negligence beyond observing, rightly, that it was difficult to criticise the solicitors for filing the writ in the first action as a matter of urgency when their knowledge of the facts was imperfect; no such criticism has been suggested. (He also, as we have mentioned, intimated that the solicitors might, if ordered to pay or forgo costs, wish to have recourse against the counsel previously retained on behalf of the plaintiff.) Mr Scanlon did not contend that the fact that Judge Dove had adverted to the possibility that an order for costs might be made against the solicitors but had not made one prevented the making of a subsequent order against them now. While no concession of negligence has been made in terms in relation to the costs which Judge Dove ordered the plaintiff to pay, it is perhaps implicit in the intimation which Mr Scanlon made on the solicitors' behalf that they would "indemnify" the plaintiff against his Honour's order that they accept that there was negligence in the necessary sense.

Notwithstanding that our power to make an order has not been questioned in any way by Mr Scanlon, we think we should say something about it. Solicitors are officers of the Supreme Court: Legal Practice Act 1996, s.8. In the absence of some statutory provision which will support an order that a party's solicitor pay costs incurred in the litigation, it might be contended that the County Court has no disciplinary powers by virtue of which it can require solicitors to pay costs occasioned by their negligence. See R. v. Smith (Martin) [1975] Q.B. 531 at 540 per Lord Denning, M.R. and 547-8 per Sir Eric Sachs and compare Knaggs v. J.A. Westaway & Sons Pty. Ltd. (1996) 40 N.S.W.L.R. 476 at 485. On the other hand, the Federal Court exercises disciplinary powers over legal practitioners who practise in that court notwithstanding that it has no jurisdiction to admit them to practice: Caboolture Park Shopping Centre Pty. Ltd. v. White Industries (Qld.) Pty. Ltd. [1993] FCA 471; (1993) 45 F.C.R. 224; Re Bendeich [1994] FCA 1504; (1994) 53 F.C.R. 422; White Industries (Qld.) Pty. Ltd. v. Flower & Hart [1998] FCA 806; (1998) 156 A.L.R. 169; affirmed [1999] FCA 773; (1999) 87 F.C.R. 134. Provision has been made in Victoria to fill what Parliament saw as a gap in the law. By Act No. 16 of 1986 a new section was inserted into the County Court Act 1958:

"78A. Costs (1) The costs of and incidental to all proceedings are in the discretion of the Court and the Court may determine by whom and to what extent the costs are to be paid. (2) In the due exercise of the discretion conferred by sub-section (1), in any proceedings before the Court, the Court may order a legal practitioner to pay the costs of the proceedings or a portion of the costs."

The second reading speech on the Bill for the amending Act shows that s.78A, or at all events s.78A(2), was introduced into the principal Act because Parliament believed that the County Court lacked power to award costs personally against a lawyer whose mismanagement of a case had caused extra costs to be incurred in litigation. The Parliamentary Debates are mentioned in R. v. Wright (1992) 77 A.Crim.R. 67 at 74-75.

The second statutory provision takes the form of delegated legislation, being contained in r.63A.23 of the County Court Rules. This corresponds to the well-known r.63.23 of Chapter I of the Supreme Court Rules and its terms need not be set out or summarised. There can be no doubt about the power of the County Court judges to make this rule notwithstanding that barristers and solicitors are officers of the Supreme Court. For the Rules, including r.63A.23, have been approved by Parliament: see Pezzimenti v. Seamer [1995] VicRp 42; [1995] 2 V.R. 32 at 36 per Brooking, J., 41 per Tadgell, J. and 42 per Teague, J.

Earlier we made passing reference to the decision of this Court in Etna v. Arif, where it is laid down that "negligence" in r.63.23 means gross negligence. It is worth noting that a little earlier a differently constituted court seems to have accepted that "ordinary" negligence sufficed for the purposes of the rule: Abrahams v. Wainwright Ryan [1999] 1 V.R. 102. We have already said that we regard the negligence in the present case as gross, whatever body of costs is being considered.

As we have mentioned, Mr Scanlon did not suggest that Judge Dove's omission to make an order for costs against the solicitors prevented the subsequent making of such an order. We think his Honour did no more than turn his mind to the existence of the power and reach the conclusion that he had inadequate material before him to determine whether an order against the solicitors would be appropriate.

When the matter of costs was debated before Judge Rizkalla, her Honour was invited by the defendant to award it the whole of the costs which it had incurred between 13 August 1993 (the date of the making of the offer in settlement required by the Act) and the date of her Honour's order, and her Honour in fact required the payment of costs incurred between 6 March 1996 and the date of her order for costs, 10 March 1998. We think it was open to her Honour, after giving due notice to the solicitors, to make an order against them which dealt not only with the costs thrown away as a result of the amendments which she gave leave to make but also the costs thrown away in consequence of the adjournment which Judge Dove had felt constrained to order. We also think that, once we have determined that her Honour's exercise of discretion in relation to costs cannot stand, we may, in re-exercising the discretion, make orders for costs against the solicitors, including the costs thrown away as a result of Judge Dove's order. Mr Scanlon has not submitted that we may not.

Provided that the plaintiff by his counsel gives a suitable undertaking to the Court to protect the defendant by enabling it to make an offer which will have the same consequences as an offer made pursuant to s.135B(4) of the Act, and subject to anything that counsel may say about the costs of the appeal and cross-appeal as between the plaintiff and the defendant, we will make orders in accordance with these minutes:

1. Appeal allowed, with no order as to costs, including costs reserved, save for the order in Minute 4.

2. Order of her Honour Judge Rizkalla as to costs made on 10 March 1998 varied by substituting for the said order an order -

(a) that the plaintiff pay the defendant's costs of this proceeding on Scale D so far as they have been thrown away by reason of the amendments to the statement of claim leave to make which has this day been granted and pay the defendant's costs of the application for leave to amend on Scale D;

(b) that the plaintiff's solicitors indemnify the plaintiff against the orders for costs made against him by his Honour Judge Dove on 15 August 1997 and his Honour Judge Meagher on 18 December 1997;

(i) the costs thrown away by reason of the adjournment granted by his Honour Judge Dove on 15 August 1997;

(ii) the costs of all proposed amendments to the statement of claim, whether or not the amendments became the subject of an application for leave to amend;

(iii) the costs of the application made to his Honour Judge Meagher on 18 December 1997;

(d) that the orders for costs made this day and made by his Honour Judge Dove on 15 August 1997 be stayed pending the determination of this proceeding or further order of a judge of the County Court.

3. Cross-appeal dismissed, with no order as to costs, save for the order in Minute 4.

4. The plaintiff's solicitors' costs of the appeal, including costs reserved, and of the cross-appeal disallowed as between the plaintiff and themselves.

The order of this Court will recite not only the undertaking to be given as mentioned above in respect of a further offer but also the undertaking which the plaintiff's solicitors have already given by their counsel that they will indemnify the plaintiff against all costs which he is ordered to pay by the order of Judge Rizkalla as varied by this Court and set out in Minute 2(a) and will not require payment by the plaintiff, as the plaintiff's costs, of any costs thrown away by reason of the amendments to the statement of claim leave to make which was granted by her Honour or of any costs as the costs of the application to her Honour.

At a glance

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Judgment (85 paragraphs)

Parties