Nunzio Berardi v Salvatore Russo t/as Russo & Partners

Background

1. The plaintiff sought leave to appeal from a determination of Magistrate Pierce in respect of a judgment dated 7 October 2014. The Court, as presently constituted, dismissed the plaintiff's summons on 16 October 2015.

Defendant submissions

1. The defendant moves the Court to make a lump sum order for costs for the appeal on an indemnity basis in accordance with s 98(4) of the Civil Procedure Act 2005 (NSW) ("the Act") as against the plaintiff. The Court is also requested to make a lump sum order for costs for the appeal on an indemnity basis against the legal representatives of the plaintiff pursuant to ss 98, 99(1)(a) and 99(1)(b) of the Act.
2. The defendant submits that the appeal, having no merits and clearly no prospects of success, must have been conducted for an ulterior purpose, putting it as high as being, possibly, an abuse of process. It is submitted that a client properly advised would not have embarked on and maintained the appeal.
3. The defendant cites in support G E Dal Pont, Law of Costs (2nd ed, 2009, LexisNexis Butterworths), at 539-540, par 16.51 and Colgate-Palmolive Company and Colgate-Palmolive Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 at 232-234. The defendant makes reference to the need to exercise the discretion found in s 99 of the Act "with care and discretion and only in clear cases": Ridealgh v Horsfield [1994] Ch 205 (at 229); Re Bendeich (1994) 53 FCR 422; [1994] FCA 1504; Deputy Commissioner of Taxation v Levick (1999) 168 ALR 383; [1999] FCA 1580, per Hill J at [11]; Levick v Deputy Commissioner of Taxation [2000] FCA 674.
4. The defendant correctly submits that any order for costs as against a legal representative must be made after they have an opportunity to be heard. Yet, it is submitted, such an order should be made on an indemnity basis in these proceedings, noting that the conduct of the proceedings and the legal representatives is relevant to the exercise of discretion to make a costs order under ss 99(1)(a) and 99(1)(b) of the Act. The defendant referred to the following paragraphs of the judgment; [35]-[46], [51], [60]-[61], [74]-[75], and [84]-[88] and submitted that these would be a basis for the exercise of discretion.
5. The amount of costs has been agreed between the parties, being a fixed sum of $11,000. However, the defendant seeks "an order pursuant to s 99 Civil Procedure Act that the solicitor for the plaintiff indemnify the defendant in respect of the said costs order".
6. The Affidavit of Mr Salvatore Russo provides copies of costs request letters. The Affidavit also annexes a letter forwarded to the solicitors for Mr Berardi in respect of what he refers to as "the hopeless nature of the proceedings and as an invitation to them to withdraw from the proceedings". It is Mr Russo's belief that the applications in the Local Court and Supreme Court, on appeal, lacked merit and were designed for the purpose of delay.

Plaintiff submissions

1. The plaintiff does not oppose the making of the proposed special costs order of $11,000.
2. The plaintiff submits that the order sought by the defendant, in relation to the solicitor personally, is not within the terms of the leave granted by the Court on 16 October 2015. Although acknowledging that the Court has the power to re-open the proceedings in order to consider the application, the plaintiff submits that the application was not foreseen in the order made by the Court on 16 October 2015.
3. The plaintiff submits that the solicitor concerned ought to be given a reasonable opportunity to be heard, should such an application be entertained (s 99(2) of the Act). It is submitted that the application of the defendant was not contemplated by the order the Court made, given that the order for any further or special costs was "…to be dealt with on the basis on submissions filed" and such submissions were to be limited to "no more than 3 pages".
4. It is further submitted that the case that was brought on behalf of the plaintiff, although unsuccessful, was not doomed to fail nor was it futile. The plaintiff, in citing the judgment of the Court (Nunzio Berardi v Salvatore Russo t/as Russo & Partners [2015] NSWSC 1520), submits that it demonstrates the complex nature of the case and that it was not brought "for an ulterior purpose".
5. The plaintiff submits that the order sought in relation to a personal costs order against the solicitor for the plaintiff is therefore ill-founded and that the only appropriate costs order be that the plaintiff pay the defendant the amount of $11,000, being the defendant's costs in the proceedings.

Principles to be applied

1. The Court has power in relation to the ordering of costs in proceedings, under s 98 of the Act: "98 COURTS POWERS AS TO COSTS (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount. (5) The powers of the court under this section apply in relation to a married woman, whether as party, tutor, relator or otherwise, and this section has effect in addition to, and despite anything in, the Married Persons (Equality of Status) Act 1996. (6) In this section, 'costs' include: (a) the costs of the administration of any estate or trust, and (b) in the case of an appeal to the court, the costs of the proceedings giving rise to the appeal, and (c) in the case of proceedings transferred or removed into the court, the costs of the proceedings before they were transferred or removed."
2. Section 99 of the Act, 'liability of legal practitioner for unnecessary costs' outlines the circumstances in which an order for costs against a legal practitioner can be made, as follows: "99 LIABILITY OF LEGAL PRACTITIONER FOR UNNECESSARY COSTS (1) This section applies if it appears to the court that costs have been incurred: (a) by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or (b) improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible. (2) After giving the legal practitioner a reasonable opportunity to be heard, the court may do any one or more of the following: (a) it may, by order, disallow the whole or any part of the costs in the proceedings: (i) in the case of a barrister, as between the barrister and the instructing solicitor, or as between the barrister and the client, as the case requires, or (ii) in the case of a solicitor, as between the solicitor and the client, (b) it may, by order, direct the legal practitioner: (i) in the case of a barrister, to pay to the instructing solicitor or client, or both, the whole or any part of any costs that the instructing solicitor or client, or both, have been ordered to pay to any other person, whether or not the solicitor or client has paid those costs, or (ii) in the case of a solicitor, to pay to the client the whole or any part of any costs that the client has been ordered to pay to any other person, whether or not the client has paid those costs, (c) it may, by order, direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party. (3) Before making such an order, the court may refer the matter to a costs assessor (within the meaning of Part 7 of the Legal Profession Uniform Law Application Act 2014) for inquiry and report. (4) The court may direct that notice of any proceedings or order under this section with respect to a legal practitioner be given: (a) in the case of a barrister, to the instructing solicitor or client, or both, as the court may direct, or (b) in the case of a solicitor, to the client. (5) The court may give ancillary directions to give full effect to an order under this section, including directions to a legal practitioner to provide a bill of costs in assessable form: (a) to the court, or (b) to a party to the proceedings, or (c) in the case of a barrister, to the instructing solicitor or client, or both, or (d) in the case of a solicitor, to the client. (6) A party's legal practitioner is not entitled to demand, recover or accept: (a) in the case of a barrister, from the instructing solicitor or client, or (b) in the case of a solicitor, from the client, any part of the amount for which the legal practitioner is directed by the court to indemnify any party pursuant to an order referred to in subsection (2) (c). (7) In this section, 'client' includes former client."
3. The jurisdiction of the Supreme Court to award costs originates from its status as a superior court of record with inherent jurisdiction, as distinct from a court with statutory and limited jurisdiction. But the jurisdiction, while creating a wide discretion, must be exercised judicially. No discretion is truly "unfettered" and its exercise must give effect to the purposes of the Act that now governs the power and may not consider extraneous matters.
4. Section 98 of the Act confirms that costs are in the discretion of the Court, which has "full power to determine by whom, to whom and to what extent costs are to be paid" and whether such costs are to be paid on the ordinary basis or on an indemnity basis: s 98(1) of the Act.
5. In exercising the discretion under the Act, the Court is required to give effect to the overriding purpose of the Act, which is "to facilitate the just, quick and cheap resolution of the real issues in the proceedings": s 56(1) of the Act. Further, by operation of s 56(5) of the Act, the Court is required to have regard to any conduct of a solicitor or barrister that causes his or her client to breach the duty, reposed on all parties to a civil proceeding, to assist the court to further the overriding purpose described: s 56(5) of the Act together with ss 56(3) and 56(4) of the Act.
6. The purposes of the Act include the avoidance of delay (s 59), the dictates of justice (s 58) and case management (s 57), all of which would be included in the description of the overriding purpose and are otherwise particularised in the nominated sections.
7. These criteria, while codified in the Act, are not new: see, for example, Idoport Pty Ltd v NAB (2000) 49 NSWLR 51; [2000] NSWSC 338. They do not alter the principles to be applied in the determination of the issues in this application.
8. An order for the payment of costs by one party (or the legal representatives of the party) is not for the purpose of punishment. Costs generally follow the event because such an order is intended, at least to the extent that the costs incurred were not unreasonable or unreasonably incurred, as compensation (and vindication) for the successful action: Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59; Ohn v Walton (1995) 36 NSWLR 77.
9. Leaving aside for present purposes any issues associated with Calderbank offers or the status of trustees and other special classes, indemnity costs may be awarded, relevantly, when a party/party costs order is insufficient, in the circumstances, to compensate for costs unreasonably incurred due to the misbehaviour of the other party. Common examples include: misleading a court; conduct that has caused unreasonable delay and expense; where there were no real prospects of success; where there has been unreasonable delay for the purpose of a tactical advantage: see Wentworth v Rogers [1999] NSWCA 403; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants (1988) 81 ALR 397; Rouse v Shepherd (No 2) (1994) 35 NSWLR 277. There are many other examples of conduct by a losing party that warrants the award of indemnity costs.

Costs against Legal Practitioners: Principle

1. Much authority was cited that, it was submitted, was at least persuasive as to the approach to be taken to the award of costs against legal practitioners. A great deal of it emanates from the Federal Court of Australia. There may be differences between the results of the approach taken by the Federal Court and that taken by this Court. Those differences, if any, may derive from the difference between statutory or inherent jurisdiction being exercised or from the differing nature of the substantive jurisdiction to which the costs issues are ancillary or, perhaps, collateral.
2. In New South Wales, the Court of Appeal has adumbrated the principles that should be applied. Dealing with the general jurisdiction and the provisions of the Legal Profession Act 2004 (NSW) (Division 5C, particularly ss 198J, 198L, 198M and 198N), the Court, after reciting the history of such orders, set out the principles in the following way: "[92] The new Division 5C should be construed against the background of the following principles which can be gleaned from the English and Australian authorities which have considered the power to order legal practitioners to pay the costs of proceedings in which they have represented parties: (a) The jurisdiction to order a legal practitioner to pay the costs of legal proceedings in respect of which he or she provided legal services must be exercised 'with care and discretion and only in clear cases': Ridehalgh (at 229), Re Bendeich [1994] FCA 1504; (1994) 53 FCR 422; Deputy Commissioner of Taxation v Levick [1999] FCA 1580; (1999) 168 ALR 383 per Hill J at [11]; Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155 at [44]; Gitsham v Suncorp Metway Insurance Ltd [2002] QCA 416 at [8] per White J (with whom Davies and Williams JJA agreed); De Sousa v Minister for Immigration [1993] FCA 146; (1993) 41 FCR 544; Money Tree Management Service Pty Ltd v Deputy Commissioner of Taxation (No 3) [2000] SASC 286; (b) A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he or she acts for a party who pursues a claim or a defence which is plainly doomed to fail: Ridehalgh (at 233); Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 at [56] per Lord Hobhouse; White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169 (affirmed on appeal, Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 87 FCR 134); Levick v Deputy Commissioner of Taxation; cf Steindl Nominees P/L v Laghaifar [2003] QCA 157; [2003] 2 Qd R 683; (c) The legal practitioner is not 'the judge of the credibility of the witnesses or the validity of the argument': Tombling v Universal Bulb Co Ltd [1951] 2 TLR 289 at 297; the legal practitioner is not 'the ultimate judge, and if he reasonably decides to believe his client, criticism cannot be directed to him': Myers v Elman (at 304, per Lord Atkin); Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 47 ATR 1 at [34] per Callinan J; (d) A judge considering making a wasted costs order arising out of an advocate's conduct of court proceedings must make full allowance for the exigencies of acting in that environment; only when, with all allowances made, a legal practitioner's conduct of court proceedings is quite plainly unjustifiable can it be appropriate to make a wasted costs order: Ridehalgh (at 236, 237); (e) 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: Myers v Elman (at 318); Orchard v South Eastern Electricity Board (at 572); Ridehalgh (at 229); (f) 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: Orchard v South Eastern Electricity Board (at 572); Ridehalgh (at 229); in such circumstances '[t]he court should not make an order against a practitioner precluded by legal professional privilege from advancing his full answer to the complaint made against him without satisfying itself that it is in all the circumstances fair to do so': Medcalf (at [23] per Lord Bingham); (g) The procedure to be followed in determining applications for wasted costs must be fair and 'as simple and summary as fairness permits...[h]earings should be measured in hours, and not in days or weeks... Judges ... must be astute to control what threatens to become a new and costly form of satellite litigation': Ridehalgh (at 238 - 239); Harley v McDonald [2001] UKPC 18; [2001] 2 AC 678 at 703 [50]; Medcalf (at [24]). [93] The authorities concerning the sparing exercise of the jurisdiction to make wasted costs orders against legal practitioners (sub-paragraph (a)) are consistent with cases in which orders are sought that a lay non-party pay the costs of litigation; such an order is exceptional: Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 at 980 per Lord Goff; Taylor v Pace Developments Ltd [1991] BCC 406 at 410; Symphony Group Plc v Hodgson [1994] QB 179 at 192-3 per Balcombe LJ; Flinn v Flinn [1999] VSCA 134 at [24]." (Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153, per McColl JA, with whom Hodgson and Ipp JJA agreed.)
3. The Court of Appeal in Lemoto deals with the tension between the various counts and the principle to be applied. The Court of Appeal said: "[111] It is plain, as Goldberg J accepted in White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (at 231), that the proposition that 'commencing or maintaining proceedings with no or no substantial prospects of success enlivens the jurisdiction to order a solicitor to pay the costs of a party' is expressed at a dangerous level of generality. Something more is required as both Goldberg J and Davies JA accepted. Sheller JA in Carson characterised it as improper for a solicitor to commence proceedings which were 'futile or foredoomed to fail'. This accords with Davies JA's proposition. [112] It is not necessary for the purpose of this judgement to resolve the tension between these decisions. Suffice it to say that Sheller JA's observation in Carson and Davies JA's qualification in Steindl appear to presage the philosophy underpinning Division 5C. [113] The cases in which legal practitioners have been ordered to pay the other party's costs of the proceedings costs bear out the 'plainly unarguable' and 'futility' test. In Deputy Commissioner of Taxation v Levick Hill J ordered the solicitor for the respondent, who was seeking to resist a creditor's petition filed by the Deputy Commissioner, to pay the applicant's costs of the proceedings. His Honour held that the order was warranted because the solicitor had advanced arguments as to whether the Australian Taxation Office existed for legal purposes, whether a delegate of the applicant was authorised to file creditor's petitions and whether the Income Tax Assessment Act 1936 (Cth) was invalid. His Honour concluded (at [34]) that those arguments 'untenable ... indeed ... nonsense'. He pointed out (at [19]) that the same arguments had been rejected as being 'untenable and obviously so' by Hayne J when advanced by the same solicitor in Helljay Investments Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [1999] HCA 56; (1999) 74 ALJR 68 at [26] - although it should be noted that Hayne J refused (at [22]) to order the solicitor to bear the costs because he had not been given proper notice of the application. [114] Another illustration of the sort of hopeless case which might attract the court's jurisdiction to impose a personal costs order on the legal practitioner responsible for the proceedings would be one where there was no evidence to support an essential element of a cause of action."
4. Her Honour McColl JA then discusses the purposes of the provisions of the Legal Profession Act there in issue and their promulgation through the vehicle of the Civil Liability Act 2002 (NSW) and her Honour comments: "[123] The grave consequences to which Division 5C exposes a legal practitioner and his or her client indicates that '[t]he construction of the section and the application of the jurisdiction should ... be no wider than is clearly required by the statute': cf Medcalf at [56] per Lord Hobhouse. [124] There are some general observations which can be made. First, Division 5C represents a departure from the historical basis upon which legal practitioners could be exposed to personal costs orders. A legal practitioner is now required to ensure that a claim, or a defence to a claim, for damages has 'reasonable prospects of success' and, to that extent, to become a judge of the client's cause. The legislature has endorsed the proposition that it is not in the public interest, nor a function of the due administration of justice, for legal practitioners to provide legal services in circumstances which involve representing clients who wish to pursue or defend claims for damages which have no reasonable prospects of success. [125] Secondly, Division 5C requires the legal practitioner to evaluate the client's case with an eye to his or her potential exposure to a personal costs order as well as the disciplinary consequences which may flow from a finding that he or she has contravened s 198J: see s 198L. The potential for a conflict of interest is manifest as, too, is the deterrent effect on legal practitioners. Division 5C is capable of visiting severe consequences both against the legal practitioner and the client potentially deprived of legal representation to pursue his or her claim for damages. [126] The legislature clearly intended Division 5C to have this chilling effect. It is timely, however, to recall the tensions to which the Court of Appeal referred in Ridehalgh (at 226). While the Division 5C jurisdiction should not be emasculated, the due administration of justice should not be impaired by a too liberal exercise of the new powers. … [139] One of the reasons the Division 5C jurisdiction should be exercised with caution is to ensure that the preparedness of the legal profession to represent litigants 'should not be undermined either by creating conflicts of interest or by exposing the [legal profession] to pressures which will tend to deter them from representing certain clients or from doing so effectively': cf Medcalf (at [52]). … [141] An allied view is that the administration of justice may be better served by a party being legally represented notwithstanding that the party has a hopeless case. In Kumar v Minister for Immigration & Multicultural & Indigenous Affairs (No 2) [2004] FCA 18; (2004) 133 FCR 582 at [15] Mansfield J referred to 'the public interest for the client to be represented' even when a legal practitioner had advised that proceedings had no reasonable prospects of success on the basis that [p]roceedings, even hopeless proceedings, are likely to be conducted more efficiently by a solicitor for a party than by a litigant in person.' 142 Properly administered the Division 5C jurisdiction should not trespass upon the preparedness of legal practitioners to provide legal services in claims for damages as long as they have reasonable prospects of success. However, the purpose of Division 5C is plainly to deter the legal practitioner at the peril of a personal costs order, and possibly disciplinary proceedings, from representing a client whose prospects in pursuing or resisting a claim for damages he or she has formed the view have no reasonable prospects of success. There is no entitlement to legal representation in such cases. It is a matter for the client to determine whether to pursue the claim or defence without such services." (Lemoto, supra, per McColl JA.)
5. In this application, the defendant does not rely upon the provisions of the Legal Profession Act. Nevertheless, the principles adumbrated by McColl JA in the quoted passages apply to the exercise of the jurisdiction under s 98 of the Act and Part 42 of the Uniform Civil Procedure Rules 2005 (NSW).
6. Costs should not be awarded against a legal practitioner unless there has been real misbehaviour by the practitioner or the proceeding (including a defence) has been maintained without any, or any substantial, prospects of success being that the proceeding or defence was "futile" or "foredoomed to fail".
7. It is not, in those circumstances, for the legal practitioner to judge the credibility of the client. The practitioner is entitled, if not required, to take the client at face value. Moreover, a case that depends on altering or adapting the law (certainly on a logical or reasoned basis) is not futile or foredoomed. Practitioners are entitled, without penalty, to pursue for their clients novel issues of law based on an arguably available factual scenario.
8. The desirability of having clients legally represented is a factor in the balance. However, the purpose of legal representation is to aid the administration of justice, not to frustrate it.

Consideration/application

1. Further to the foregoing, the Court should emphasise, as stated earlier, the duty imposed on the Court, legal representatives and parties to facilitate the just, quick and cheap resolution of the real issues in the proceedings: s 56 of the Act. Conduct by a client or by legal representatives acting for the clients that frustrates or deliberately works against the expeditious resolution of the issues defined by the proceedings is conduct in breach of the duty to the Court and such a breach is a factor, if not the defining factor, in determining an exercise of discretion under the Act.
2. Moreover, acting on instructions that a legal representative knows to be inconsistent with the legal representative's and the client's duty to the Court is an important factor when the Court is required to exercise the discretion to award costs against legal representatives.
3. Nevertheless, even under the duty imposed upon legal representatives and clients under the provisions of s 56 of the Act, a client and that client's legal representative are entitled to pursue points that are arguable, even if novel.
4. The points raised in these proceedings are not, especially, novel.
5. Further, it cannot be said that the issues raised, whether for the first time on appeal or otherwise, are wholly unarguable, even though wrong and even, if at least partly, misconceived. The misconception arises from a misconception of the Legal Profession Act, arising from a strict reading of the terms of a particular provision and a failure to read that particular provision within the context of the entire statute.
6. In other words, the proposition advanced by the plaintiff was not wholly unreasonable or untenable. Nor was the proposition unarguable.
7. It arose, as stated, partly as a result of a failure to construe provisions of the Legal Profession Act within the context of the entire statute and by virtue of a misunderstanding of that which the learned magistrate decided and the manner in which he reached that conclusion. Otherwise, it arose from a failure properly to plead that which was sought to be argued or a failure to adduce evidence on the issue.
8. In other words, the Court takes the view that there is no breach of the duty under s 56 of the Act by the legal representatives. The principles and considerations that give rise to an exercise of discretion in favour of an order for costs, against persons other than a party to the proceedings, have not arisen. If there were a breach of duty, it is of a different kind, and it is between the plaintiff and his legal representative to resolve their respective liability for the costs.
9. In short, the application by the successful defendants, for a costs order against the legal representatives of the plaintiff, ought be dismissed. The application for a lump sum costs order is granted.
10. The Court makes the following orders: 1. Application for costs order against the legal representatives of the plaintiff dismissed; 2. Vary order [2] of the orders issued by the Court on 16 October 2015 in this matter, by inserting, at the end of the order, after the word "proceedings", the words "in the amount of $11,000"; 3. Pursuant to s 100 of the Civil Procedure Act 2005 (NSW), interest payable on $11,000 from 16 October 2015 until the date of this judgment at the rate prescribed by the Uniform Civil Procedure Rules 2005 (NSW) for interest after judgment; 4. Interest after judgment on $11,000 pursuant to s 101 of the Civil Procedure Act 2005 (NSW) in accordance with rates prescribed by the Uniform Civil Procedure Rules 2005 (NSW); 5. Otherwise, proceedings dismissed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 February 2018