Plaintiff v Defendant

2 The appeal before me is a hearing de novo, and Gippsreal sought to uphold the appeal and the order against Kurek's solicitors in reliance upon rule 63.23(1)(c) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) and the Court's inherent jurisdiction to make a legal practitioner liable to pay for the costs of a proceeding.[1] The jurisdiction to order that a legal practitioner personally pay the costs of a litigant must be exercised with caution[2] but in an appropriate case should be exercised. However wide or narrow the Court's inherent jurisdiction may be, under either the inherent jurisdiction or that conferred by rule 63.23, it extends to circumstances where costs have been incurred improperly or without reasonable cause or have been wasted due to a failure by a legal practitioner to act with reasonable competence and expedition. The exercise of the power to award costs against a legal practitioner may punish the legal practitioner for misconduct[3] but the risk of a costs order assists more generally in the administration of justice. The possibility of personal liability gives confidence to the courts and litigants that legal practitioners are acting in the best interests of their clients in accordance with appropriate professional standards as an officer of the Court with duties they are bound to uphold to clients, the courts and to justice.

3 In this proceeding it was maintained by Gippsreal that the statutory demand should never have been signed or issued by Mahons on behalf of their client. There is no doubt that Kurek was entitled to be paid $35,000 by Gippsreal when the statutory demand was signed and served. On 11 February 2009 Wood AsJ ordered that Gippsreal pay Kurek $35,000 by way of interim taxed costs in accordance with the orders made by Hollingworth J and the Court of Appeal in contested proceedings. No application had been made by Gippsreal to stay the order for payment of those costs and, on any view, they were payable to Kurek by Gippsreal.

4 Gippsreal contends, however, that the statutory demand should not have been signed and served because of an offsetting claim between the parties which was known to Mahons as Kurek's solicitors on record. In July 2006 Gippsreal had commenced proceedings against Kurek seeking, amongst other things, loss said to be in excess of $80,000. In that proceeding Gippsreal had filed an amended statement of claim in September 2008 pursuant to an order made by Master Kings (as the Associate Justice then was) on 27 August 2008. That proceeding was still on foot when the statutory demand was signed and served. Indeed, on 3 March 2009 Gippsreal's solicitors wrote to Mahons foreshadowing that the issue of any warrant of execution sought by Kurek for payment of the costs which had been ordered by Wood AsJ would be met with an application for a stay of execution of the warrant. The letter informed Mahons that any such application for a stay would be based in part upon the existence of Gippsreal's claims against Kurek in the still pending proceeding and the likely inability of Kurek to repay any amount which Gippsreal may have been required to pay in satisfaction of the costs order. Gippsreal's solicitors' letter to Mahons was sent after receipt of the statutory demand and asked that it be withdrawn.

5 The quantum claimed by Gippsreal against Kurek in the pending proceeding was not identified with much particularity either in the amended statement of claim or in the supporting affidavits before me. The affidavit of Mr Morton-Pedersen identified the quantum sought as "in excess of $80,000" without further breakdown. The relevant particulars in the amended statement of claim are no more helpful in identifying the elements that might make up the claim. There was, nonetheless, when the statutory demand was signed (and at all times until the proceedings were commenced to set them aside), a claim in pending proceedings which had been issued in this Court in a statement of claim signed by senior counsel. Rule 13.01 requires pleadings settled by counsel to be signed and that requirement is not a mere formality. The signature by counsel of a pleading has been described as a voucher that the case is not a mere fiction[4] and reflects the duties imposed upon counsel to be satisfied that proceedings have a cause of action sufficient to invoke the Court's jurisdiction and sufficient to warrant exposing an opposing party to the risk of orders and Court sanction. The claim by Gippsreal against Kurek was on foot, the pleadings had not been struck out, the particulars had not been struck out, its existence had been reaffirmed on 3 March 2009 and, however imprecise the claim may have been, on no view could it be said that Gippsreal was asserting a claim it did not seriously maintain. Mahons were aware of that claim as the solicitors on the record for Kurek. They knew that the proceeding was on foot when the statutory demand was issued. The assertion that the quantum of the claim was in excess of $80,000 may not be backed up by supporting material but it is not controverted with any opposing evidence. Furthermore, the nature of the claims made are essentially legal costs which it may be assumed that Mr Morton-Pedersen is well placed to estimate.

6 In those circumstances I agree with learned Efthim AsJ that Gippsreal had a genuine offsetting claim against Kurek's entitlement to be paid $35,000 at the time when the latter, through its solicitors, issued the statutory demand. In my view the statutory demand ought not to have been made. It was signed and served by the legal practitioner who had acted for the defendant throughout all of the relevant proceedings in his client's dispute with Gippsreal.

7 The consequence of issuing a statutory demand against a company are potentially serious if unpaid. It was reasonable for Gippsreal to respond by seeking to have the statutory demand set aside, having first sought by letter to Mahons to have the statutory demand withdrawn. The costs incurred by Gippsreal were caused by the conduct of Kurek's solicitors notwithstanding that the statutory demand was served by Mahons upon the instructions of their client. What they did was improper and without reasonable cause in the circumstances of an offsetting dispute known to them at all relevant times. The fact that the quantum of the claim may be imprecise does little to advance Mahons' case because no attempt was made by them to determine what it might amount to. This apparent indifference to the quantum of a claim known to them in the face of a long standing assertion of a claim neither reveals nor justifies a view that there was no offsetting claim. Mahons knew of the claim and had a duty to their client (if not more broadly) to evaluate whether a statutory demand should be made.

8 Learned Efthim AsJ noted towards the end of his reasons that there was nothing in Mr Hanlon's affidavits, which were filed on behalf of Mahons, to indicate that Kurek had insisted that the demand be issued. In my view, however, even if there had been evidence to that effect, it would not of itself necessarily prevent a costs order against the solicitors personally. Whether or not it would do so, would depend upon all of the circumstances, but the mere insistence by a client that his, her or its legal practitioner undertake conduct which would otherwise expose a solicitor to an order for costs does not of itself justify the solicitor acting upon the client's insistence. A solicitor is not always justified in acting as a client might insist.[5]

9 Accordingly, and having heard submissions concerning the costs of the proceeding before me, I affirm the orders of Efthim AsJ and order:

(b) The appellant pay the defendant's taxed costs of their appeal on a party and party basis.

[1] Myers v Elman [1940] AC 282, 318-9 (Lord Wright); White Industries (Queensland) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 29 ACSR 21, 81 (Goldberg J).

[2] Re Bendeich [1994] FCA 1504; (1994) 126 ALR 643, 647 (Drummond J).

[3] Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178, 199 (Dawson J).

[4] Great Australian Gold Mining Co v Martin (1877) 5 Ch D 1, 10 (James LJ).

[5] Lemoto v Able Technical Pty Ltd [2005] NSWCA 153; (2005) 63 NSWLR 300; Re Cooke (1889) 5 TLR, 408 (Lord Esher MR).