Plaintiff v Defendants

Supreme Court of Victoria|2010-10-22|Before: EMERTON J

PRACTICE AND PROCEDURE - Costs - Application for an order that unsuccessful plaintiff's legal representatives pay defendant's costs of the proceeding - 'failure to act with reasonable competence and expedition' - Unarguable claim - Duty to the Court - Abuse of process - Whether a collateral purpose - Exercise of caution - Indemnity costs - Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 63.23(1), (7).

2 Pinefield now applies for its costs of the proceeding. It seeks an order that its costs be assessed and paid on an indemnity basis. Further, given the financial position of the plaintiff and the manner in which the trial was conducted, Pinefield seeks an order under r 63.23(1) and (7) of the Supreme Court (General Civil Procedure) Rules 2005 or, alternatively, pursuant to the inherent jurisdiction of the Court, that the solicitors for the plaintiff, GPZ Legal, and/or the plaintiff's barrister, Mr Gerald Parncutt, pay its costs of the proceeding, or part thereof.

3 The plaintiff, as the losing party, is liable for Pinefield's costs of the proceeding. For the reasons that follow, Pinefield is entitled to its costs of the proceeding on an indemnity basis from 16 July 2009, the date that Pinefield's application for summary judgment was dismissed - largely on the basis of affidavit material that was incorrect. Further, the plaintiff's solicitors and counsel who appeared at trial will be ordered to pay Pinefield's costs of the trial of the proceeding on 8, 9, 10 and 11 December 2009.

4 Pinefield was the second mortgagee of the Apollo Bay property, which was owned by Apollo Resort Pty Ltd, and was to be developed into holiday apartments comprising a 'resort'. The plaintiff's claim against both Pinefield and the second defendant was that the plaintiff's leasehold interest in one of the units in the development (Lot 15) was binding on them as mortgagees. Lot 15 was to be developed as a conference centre and recreation area and was to be used generally for the management of the resort.

5 In its original statement of claim, the plaintiff alleged that Pinefield knew and approved of the fact that Apollo Resort and the plaintiff intended to enter into the lease (as defined) so that the plaintiff could manage the development as a holiday resort and serviced apartments. It was alleged that this knowledge and approval was to be inferred from "numerous conversations" between Steve Sherman and Mario Charisiou (on behalf of Apollo Resort and the plaintiff) and Peter Spargo and Brian Jennings (on behalf of Pinefield) in which Messrs Sherman and Charisiou gave certain explanations to Pinefield and received certain acknowledgements from Pinefield. Mr Charisiou was the sole director of both the plaintiff and Apollo Resort. Mr Sherman acted as Apollo Resort's finance broker. The explanations allegedly given to Pinefield by Messrs Charisiou and Sherman were that, "Apollo Resort intended that upon completion of construction on the land to a stage where the land could operate as a holiday resort and/or serviced apartments, the Plaintiff, a management company, would occupy Lot 15 pursuant to a lease and would take bookings for and manage the resort."

6 It was also alleged that both Pinefield and the second defendant approved seven pre-sales contracts in respect of the apartments, each of which referred to the management role of the plaintiff and contained a copy of the proposed management agreement with the plaintiff. Further, each of them was given a valuation by Charter Keck Cramer which referred to "a proposed management structure and lease".

7 As a consequence, the plaintiff sought declaratory relief and damages against Pinefield based on promissory estoppel and misleading and deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth) and s 9 of the Fair Trading Act 1999 (Vic).

8 On 16 April 2009, Pinefield issued a summons pursuant to Rules 23.01 and 23.03 of the Supreme Court (General Civil Procedure) Rules 2005 seeking summary dismissal of the proceeding or, in the alternative, that certain paragraphs of the statement of claim be struck out.

9 GPZ Legal was instructed to act on behalf of the plaintiff on 21 May 2009, just four days before the summary dismissal application was due to be heard, resulting in the adjournment of the hearing of the summary dismissal application to 22 June 2009. Counsel briefed to appear for the plaintiff on the application did not appear at trial, and no orders are sought against him.

10 On 19 June 2009, Mr Charisiou and Mr Sherman swore affidavits in opposition to Pinefield's application. Mr Charisiou deposed that in order to obtain finance from Pinefield, he and Mr Sherman met with representatives of Pinefield - Mr Jennings and Mr Spargo. Mr Charisiou deposed that he told Mr Jennings and Mr Spargo about the management arrangements for the apartments, and that it was expected that an entity related to Apollo Resort would manage the development and enter into a lease for that purpose. Mr Sherman deposed, amongst other things, that he recalled having conversations with Mr Charisiou, Mr Spargo and Mr Jennings to the effect that once the individual apartments had been sold, the recreational area and conference centre would be managed by Mr Charisiou to generate income. He deposed that Mr Spargo and Mr Jennings took no issue with the intended management structure.

11 Pinefield's application for summary judgment was dismissed by Associate Justice Evans on 16 July 2009. His Honour struck out various paragraphs of the statement of claim alleging that the plaintiff had a legal right to possession of the property.[1] However, having regard to the matters deposed to by Mr Charisiou and Mr Sherman, his Honour permitted the plaintiff to maintain the claim that Pinefield had made representations upon which the plaintiff had relied or, alternatively, had engaged in deceptive and misleading conduct in causing the plaintiff to believe that it was entitled to enter into the lease, these being matters of fact for determination at trial.[2]

12 On 14 August 2009, the plaintiff filed an amended statement of claim. The amended statement of claim alleged that Pinefield knew and approved of the fact that Apollo Resort "and/or a related entity to Apollo Resort or entity nominated by Apollo Resort, ultimately, the Plaintiff" intended to enter into a lease to enable the land to be managed as a holiday resort and serviced apartments. Pinefield's knowledge and approval of Apollo Resort's intention to enter into a lease was to be inferred from the following conversations -

14.2 In numerous conversations from about April 2006 until October 2006 between Steve Sherman ("Sherman") and Charisiou on behalf of Apollo Resort and the Plaintiff and Peter Spargo ("Spargo") and Brian Jennings ("Jennings") on behalf of the First Defendant, Sherman and Charisiou advised Spargo and Jennings, inter alia, that upon completion of construction on the land to a stage where the land could operate as a holiday resort and/or serviced apartments, a management company being an entity related to or nominated by Apollo Resort would occupy Lot 15 pursuant to a lease and would take bookings for and manage the resort. During the course of these conversations no objection to the proposed lease was ever taken by Spargo or Jennings on behalf of the First Defendant. At no stage in these conversations did Spargo or Jennings state that consent to a lease would need to be in writing prior to the execution of the lease. Spargo and Jennings on behalf of the First Defendant accepted the explanations given by Charisiou and Sherman and proceeded in negotiations and dealings with Apollo Resort on behalf of the First Defendant on that basis.

I will refer to these alleged conversations as 'the crucial conversations'.

13 The amended statement of claim also made reference to the provision to Pinefield of the seven pre-sales contracts and the Charter Keck Cramer valuation. In paragraph 14.6 it was alleged that Pinefield "only sought security of 14 lots of the development which was in accordance with the conversations as set out in paragraph 14.2".

14 The proceeding was mediated on 29 October 2009. The plaintiff was represented for the first time by Mr Parncutt of counsel, who was instructed by Nick Galatas of GPZ Legal. The mediation was unsuccessful.

15 The trial of the proceeding commenced on Thursday, 3 December 2009. Mr Parncutt appeared for the plaintiff, instructed by Mr Galatas of GPZ Legal. He immediately applied for an adjournment of the trial[3] and for leave to file a further amended statement of claim.[4] The trial was adjourned until the following Monday, 7 December 2009, and the plaintiff was granted leave to file the further amended statement of claim.

16 The further amended statement of claim included a significant new cause of action against the second defendant based on estoppel by convention. No such additional cause of action was pleaded against Pinefield; the amendments to the pleading against Pinefield were essentially cosmetic. The pleading of the crucial conversations was simply divided into two paragraphs: the first in relation to Pinefield's knowledge; the second in relation to its approval. The plaintiff's case against Pinefield continued to rest squarely on the existence of the crucial conversations.

17 When the trial recommenced on 7 December 2009, Mr Parncutt opened the plaintiff's case without outlining the plaintiff's case against Pinefield, or making any mention of evidence to be led in support of the allegations made against Pinefield. In particular, Mr Parncutt made no reference to the crucial conversations.

18 Mr Charisiou and Mr Spargo then gave evidence for the plaintiff, but neither of them was asked about the crucial conversations in evidence in chief. In cross-examination, Mr Charisiou agreed that he did not meet either Mr Spargo or Mr Jennings until 4 May 2007, well after the crucial conversations were alleged to have taken place and after the loan arrangements with Pinefield had been entered into.

19 It was not until the morning of the sixth and final day of the trial (11 December 2009), however, that Mr Parncutt conceded, for the first time, that the crucial conversations did not take place. He said in his final submissions:

It's true your Honour that the plaintiff has not pressed the original claim made against the first defendant, and that was because after taking instructions it became apparent that it had been incorrectly pleaded, and the conversations said to have occurred with the representatives of the first defendant didn't take place, and apparently were confused with later conversations.

20 Mr Parncutt expressed the plaintiff's difficulty in the following way:

MR PARNCUTT: So it's clear there were no conversations with the first defendant's representatives as set out on the statement of claim. So that part of the claim wasn't proceeded with, and as Your Honour will observe that the case has primarily been against the second defendant. I can't really go past one other issue Your Honour, without making a submission on it, and that is with respect to the fact that there was said to be no knowledge by the first defendant of the lease arrangement.

It's submitted Your Honour that this is not the case. In paragraph 14(g) of the amended statement of claim, p.8, it's said there between April '06 and October '06 Sherman on behalf of Apollo Resort provided a Charter Keck Cramer valuation, and an application for finance to Spargo as representative of the first defendant. No objection was taken by the first defendant in respect of the proposed management structure, and proposed lease.

Now, Your Honour will see from Exhibit B19 there was a valuation dated 22 December 2005, that is evidenced in the abridged summary sent to Pinefield, if Your Honour will recall, as part of the uncontroverted evidence of Mr Sherman, and that's Exhibit P26. But I can't really make any submission in relation to the fact there has been any estoppel created by reason of the conduct between the first defendant, and the plaintiff.

I can only adduce evidence - as I have done, Your Honour - of their awareness of the lease, but there's no disentitling conduct, or unconscionable conduct on behalf of the first defendant that I can point to, or have pointed to, or have lead evidence about during the plaintiff's case. Now --

HER HONOUR: I'm sorry, what's left then against the first defendant?

MR PARNCUTT: I beg your pardon, Your Honour?

HER HONOUR: What is left then against the first defendant?

MR PARNCUTT: There is nothing left against the first defendant.

21 By this, Mr Parncutt acknowledged that without evidence of the crucial conversations, the claims against Pinefield were doomed to fail. The acknowledgement was made in the context of discussion concerning, and notwithstanding, the fact that Pinefield may have been provided with copies of pre-sales agreements and the Charter Keck Cramer valuation, each referring to the proposed management structure.

22 Immediately following Mr Parncutt's concession, the claim against Pinefield was dismissed.

Should the legal representatives pay any of Pinefield's costs of the proceeding?

23 As a result of the sequence of events described above, Pinefield seeks orders pursuant to r 63.23(1) and (7) or, alternatively, pursuant to the inherent jurisdiction of the Court, that GPZ Legal and/or Mr Parncutt, pay the following costs:

(a) Pinefield's costs of the proceeding;

(b) Alternatively, Pinefield's costs of the proceeding from the date of mediation until the claim was dismissed against Pinefield;

(c) Alternatively, from the first day of trial until the claim was dismissed against Pinefield; or

(d) Alternatively, from the second day of the trial until the claim was dismissed against Pinefield.

24 Rule 63.23 enables costs to be awarded against legal representatives on two grounds: (1) where they have caused costs to be incurred improperly or without reasonable cause, and (2) where they have caused costs to be wasted by failure to act with reasonable competence and expedition. This case concerns the second limb of the rule.

25 Pinefield submits that the plaintiff's solicitor and counsel wasted costs because they failed to act with reasonable competence and expedition by ensuring that the claim against Pinefield was withdrawn as soon as they became aware that the crucial conversations did not take place. Pinefield submits that, having regard to the financial position of the plaintiff, this conduct has caused it to incur costs for which it will not be compensated unless a special costs order is made against the plaintiff's lawyers.

26 In its previous form, r 63.23(1) provided for an order to be made '[w]here a solicitor for a party, whether personally or through a servant or agent, has caused costs to be incurred improperly or without reasonable cause or to be wasted by undue delay or negligence or by any other misconduct or default' (emphasis added). In Etna v Arif,[5] the Court of Appeal considered these words. Batt JA, with whom Charles and Callaway JJA agreed, concluded that although the intention of r 63.23(1) was to compensate, it also had a disciplinary character, and that "[i]n such a context it is natural that the word 'negligence' should have a more stringent meaning than it does in the law of tort".[6] His Honour concluded that 'negligence' connotes more than 'mere' or 'tortious' negligence: some kind of professional impropriety or 'gross' negligence is required.[7]

27 In 2000, following the decision in Etna, r 63.23(1) was amended to replace the words 'undue delay or negligence or by any other misconduct or default' with the words 'a failure to act with reasonable competence and expedition'.[8]

28 As a result, r 63.23 no longer makes reference to negligence, misconduct or default. Pinefield submitted that the change in language significantly broadens the scope of conduct that will enliven the Court's jurisdiction to make a wasted costs order. It was submitted that the jurisdiction is enlivened when an omission to act in a thorough and efficient manner in dealing with the issues in dispute and the conduct of the litigation has resulted in an incurring of unnecessary costs by one of the other parties to the litigation. The crux of Pinefield's submissions is that, although the test is higher than 'mere inefficiency', the jurisdiction to make a wasted costs order is enlivened in this case by conduct of the plaintiff's legal representatives which lacked due care and attention to the steps which were necessary to prove the plaintiff's case. Pinefield submits that this approach to the amended rule is consistent with the primary basis for the jurisdiction, which is compensatory rather than punitive.[9]

29 Counsel for Mr Parncutt resisted the argument that the new language had changed, significantly or at all, the threshold for the making of a wasted costs order. He argued that the Court should interpret the new rule in light of settled principles and the approach to such orders established in relation to the exercise of the inherent jurisdiction of the Court. Those principles continue to govern the exercise of the Court's discretion under r 63.23(1). Counsel for GPZ Legal conceded that the change in language from 'negligence' to 'reasonable competence' was "obviously important", but also argued that the rule was still governed by the principles relevant to the exercise of the inherent jurisdiction, which reflected both difficulties of evidence and principle.

30 I do not consider that the words 'failure to act with reasonable competence and expedition' require findings of gross negligence. In Guss v Geelong Building Society (in liq), Ashley J, with whom I respectfully agree, expressed doubt that anything more stringent than would make out a case of negligence in a professional negligence claim was required to establish a failure to act with reasonable competence:

What was said, particularly in Etna, concerning 'negligence' has, I think, been overtaken by the change in the language of the rule.[10]

31 In Ridehalgh v Horsefield[11], Sir Thomas Bingham MR commented on the equivalent English rule, which contained the requirement that the court be satisfied that costs have been incurred 'unreasonably or improperly in any proceedings or have been wasted by failure to conduct proceedings with reasonable competence and expedition'.[12] His Honour observed that it was noteworthy that the reference to 'misconduct' was omitted, as was the implication that any conduct must amount to misconduct if it is to found a wasted costs order. He then said:

More importantly, reference to 'reasonable competence' is introduced, suggesting the ordinary standard of negligence and not a higher standard requiring proof of gross neglect or serious dereliction of duty.[13]

32 In Ridehalgh, the Court of Appeal was in fact concerned with a version of the rule that required a finding of 'improper, unreasonable or negligent' conduct. It adopted an "untechnical approach to the meaning of negligence". However, the Court discountenanced any suggestion that an applicant for a wasted costs order "need prove anything less that he would have to prove in an action for negligence: 'advice acts or omissions in the course of their professional work which no member of the profession who was reasonably well-informed and competent would have given or done or omitted to do;' and error 'such as no reasonably well-informed and competent member of the profession could have made'".[14]

33 As well as describing the character of the conduct which enlivens a wasted costs order in terms of negligence, the authorities refer to the duties owed by legal practitioners to the court. In Myers v Elman,[15] Lord Wright described conduct that could attract a wasted costs order as "conduct which involves a failure on the part of a solicitor to fulfil his duty to the Court and to realize his duty to aid in promoting in his own sphere the cause of justice."[16]

34 In written submissions filed on behalf of Mr Parncutt, it was submitted that the Court should assume that "shortly prior to the second day of the trial" Mr Parncutt received instructions that the plaintiff could no longer adduce evidence that the crucial conversations occurred. This is consistent with the fact that on that day, Mr Parncutt opened the plaintiff's case and called his first witness (Mr Charisiou) but did not refer to the crucial conversations in his opening or seek to adduce evidence from Mr Charisiou about them. However, it is significant that the further amended statement of claim was also filed on that day containing the allegations against Pinefield founded on the crucial conversations. The plaintiff's legal representatives must have turned their minds to the way in which the case against Pinefield was pleaded in the further amended statement of claim and made a deliberate decision to pursue the claims founded on the crucial conversations as late as the morning of 7 December 2009.

35 Mr Parncutt has sworn an affidavit in which he deposes that he believed at all times that the case against Pinefield was not hopeless or doomed to fail - even after he received instructions that the crucial conversations did not take place as pleaded. In written and oral submissions, Mr Parncutt and GPZ Legal both argued that the plaintiff's case against Pinefield was not hopeless from the beginning because it might have been possible to establish by other means that Pinefield knew of the existence of the plaintiff's lease, or of 'a' lease: Pinefield had not expressly denied having had this knowledge, and until the defendants informed the Court on 11 December 2009 (the sixth and final day of the trial) that they did not propose to call any witnesses, the plaintiff could have expected to obtain a concession of such knowledge in cross-examination. It was further submitted that although a decision had been made not to plead estoppel by convention against Pinefield (in contrast to the case pleaded against the second defendant), the Court, in considering whether or not a claim is hopeless, ought not to confine itself to an analysis of the pleaded case.

36 Mr Parncutt generally submitted that the mere pursuit of a hopeless case was not sufficient grounds for making a wasted costs order against a legal representative. He argued that to justify making a wasted costs order for pursuing a hopeless case, it must be established that the lawyer made a deliberate or conscious decision to prosecute the claim by reference to circumstances unrelated to the prospects of success. According to Mr Parncutt, the challenge for the Court is to distinguish the hopeless case from one that amounts to an abuse of process.

37 In making this submission, Mr Parncutt relied heavily on a passage of the judgment of Goldberg J in White Industries (Qld) Pty Ltd v Flower & Hart (a firm), in which, after analysing the authorities, his Honour said:

This analysis of the cases makes it clear that the jurisdiction to order costs against an unsuccessful party's solicitors is enlivened when they have unreasonably initiated or continued an action when it had no or substantially no prospects of success but such unreasonableness must relate to reasons unconnected with success in the litigation or to an otherwise ulterior purpose or to a serious dereliction of duty or serious misconduct in promoting the cause of and the proper administration of justice.[17]

38 The passage of Goldberg J in White Industries referred to by Mr Parncutt contains an additional sentence:

Further, the cases establish the proposition that it is a relevant serious dereliction of duty or misconduct not to give reasonable or proper attention to the relevant law and facts in circumstances where if such attention had been given it would have been apparent that there were no worthwhile prospects of success.[18]

39 Mr Parncutt also referred the Court to the decision of the Privy Council in Harley v McDonald, in which Lord Hope described as "unsound" the proposition that a barrister who pursues a hopeless case not appreciating it to be hopeless displays such a degree of incompetence as to amount to a serious dereliction of his or her duty to the court. It is unwise for the court, in the exercise of this jurisdiction, to treat the pursuit of hopeless cases as a demonstration of incompetence.[19] The Privy Council emphasised the right of litigants to have their case presented in court, and the public interest in the doors of the court remaining open and litigants who insist on bringing their cases to court being represented by legal practitioners - however hopeless their case might appear.

40 In Ridehalgh v Horsfield, the Court of Appeal also cautioned against penalising lawyers for litigating a hopeless case:

It is rarely if ever safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved. They are there to present the case; it is (as Samuel Johnson unforgettably pointed out) for the judge and not the lawyers to judge it.

It is, however, one thing for a legal representative to present, on instructions, a case which he regards as bound to fail; it is quite another to lend his assistance to proceedings which are an abuse of the process of the court. Whether instructed or not, a legal representative is not entitled to use litigious procedures for purposes for which they were not intended, as by issuing or pursuing proceedings for reasons unconnected with success in the litigation or pursuing a case known to be dishonest ...[20]

41 However, in Steindl Nominees Pty Ltd v Laghaifar, Davies JA of the Queensland Court of Appeal considered these statements in Ridehalgh and said of them:

To the extent that those statements state or imply that it is not improper for a legal representative to present a case which he or she knows to be bound to fail, I would reject them. I would prefer to say that it is one thing to present a case which is barely arguable (but arguable nevertheless) but most likely to fail; it is quite another to present a case which is plainly unarguable and ought to be so to the lawyer who presents it. In my opinion, with respect, it is improper for counsel to present, even on instructions, a case which he or she regards as bound to fail because, if he or she so regards it, he or she must also regard it as unarguable.[21]

42 His Honour went on to discuss the requirement for barristers to exercise forensic judgments independently and counsel's duty to the administration of justice according to law:

If it is counsel's duty to exercise his or her own independent judgment upon which points will be argued it must also be his or her duty, in the exercise of that judgment, to decide whether there is any point which can be argued. Greater care must be taken, in judging the conduct of a lawyer for a party in litigation, where the arguability that party's case depends on a question of fact than where it depends on a question of law, for it is not for counsel or solicitor to sit in judgment on the reliability of his or her client's witnesses. Nevertheless the question, in my opinion, is the same whether it depends on fact or law. If the case is plainly unarguable it is improper to argue it.[22]

43 It is unnecessary to resolve the tension between these authorities, because in this case on either approach there is justification for making an order. When Mr Parncutt opened the plaintiff's case he knew that the (very recently amended) pleading was false and could not be supported by any evidence given by Mr Charisiou or Mr Sherman. The plaintiff's legal representatives knew that the case was not just hopeless - they knew it to be without foundation. At the very least, the Court should have been told that the plaintiff could lead no evidence of the conversations that were pleaded and which formed the basis for the claims against Pinefield. Failure to take this step involved, in my view, a dereliction of counsel's duty to the Court.

44 Moreover, an admission by Pinefield that it knew of Apollo Resort's intention to enter into a lease with the plaintiff would not, in and of itself, have enabled the plaintiff to establish its case against Pinefield in promissory estoppel or deceptive and misleading conduct. Although it was submitted in argument that Pinefield's silence in the face of knowledge that there was to be a lease would have been sufficient to make out the plaintiff's case, even Mr Parncutt's own appraisal (referred to above) of what had and had not been established in the case against Pinefield does not support such a conclusion.

45 In these circumstances, I consider that in choosing to persist with the claims in the vain hope that relevant evidence might emerged incidentally in cross-examination, Mr Parncutt failed to act 'with reasonable competence and expedition' and costs were wasted as a result. This involved more than mere mistake or error of judgment. Claims were allowed to proceed for which, so far as the plaintiff and its legal practitioners were aware, there was no basis in fact, supported by a pleading that was false.

46 It was submitted on behalf of Mr Parncutt that it was not possible for him to ensure that the claim against Pinefield was withdrawn. It was a matter for the plaintiff (in effect, Mr Charisiou) to decide whether to withdraw the claim. The most that could be said against Mr Parncutt was that he pursued a hopeless claim on behalf of the plaintiff against Pinefield. For the reasons given, I do not accept this proposition.

47 As to the submission that it was not possible for Mr Parncutt to ensure that the claim against Pinefield was withdrawn, Mr Parncutt should have alerted the Court to the fact that matters were pleaded against Pinefield which were false so as not to mislead the Court. While a legal representative is obliged to do the best that he or she can for the client, if asked to do something that misleads the court is or otherwise inconsistent with his or her duty to the court, he or she is obliged to tell the client that it cannot be done and, if necessary, to cease to act.

48 I see no difference between the position of Mr Parncutt and his instructing solicitors in this regard. Mr Galatas must have been equally aware of the importance of the crucial conversations for the plaintiff's case against Pinefield. After all, he began acting for the plaintiff when its response to Pinefield's summary dismissal application was being prepared, and must be taken to have understood the significance of the crucial conversations. He too must have known the pleading to be false. A solicitor does not abdicate his or her professional responsibility once counsel becomes involved. Although the forensic decisions involved in the running of a trial are to a large extent the responsibility of counsel, in this case Mr Parncutt came to the matter much later than Mr Galatas, and plainly had a lot of 'catching up' to do - as was evidenced by his adjournment application on the first day. He was more than usually reliant on the knowledge and expertise of his instructing solicitor. Furthermore, the management of the central figure in this sorry narrative, Mr Charisiou, fell principally to Mr Galatas, even once the trial had begun. By the time of the trial, Mr Charisiou was in a parlous financial position and was apparently prepared to use whatever means were available to him to prevent the property from being repossessed. In my view, the task of obtaining instructions from Mr Charisiou which were consistent with their duties to the Court fell equally upon Mr Parncutt and his instructing solicitors.

49 In this context, I must make reference to Pinefield's submission that even if the 2000 amendment did not broaden the application of r 63.23 (as it had argued), the Court should infer that the proceeding against Pinefield was brought and continued for a collateral purpose. It was submitted that the proceeding against Pinefield was instigated and pursued to prevent Pinefield from exercising its rights as mortgagee in a timely manner. This inference, Pinefield argued, is supported by the fact that on 23 December 2009, less than a fortnight after the proceeding against Pinefield was dismissed, a summons was issued to set aside judgments obtained by Pinefield against Apollo Resort and Mr Charisiou.[23] At the same time, an application was made to the Federal Magistrates' Court to set aside a bankruptcy notice issued on behalf of Pinefield. After the first application came on before Associate Justice Mahony on 9 February 2009 and his Honour made orders directing the applicants to produce material demonstrating they had a proper defence to Pinefield's statement of claim, Mr Charisiou and Apollo Resort decided not to proceed with the application and consented to the summons being dismissed.

50 I think it likely that Mr Charisiou had a collateral purpose in keeping Pinefield in the litigation as long as possible to delay its exercise of its rights as mortgagee. He succeeded in staving off Pinefield's execution of its possession order for the Apollo Bay development for almost 12 months. I cannot say that the legal representatives consciously and deliberately participated in that collateral purpose. However, I infer that they decided to 'bat on' in disregard for the relevant law and facts and for any proper consideration of the prospects of success in the litigation. They allowed a pleading which they knew to be false to stand. This constituted a dereliction of their duty to the Court.

51 Accordingly, I find that the requirement that costs were wasted by the legal representatives' failure to act with reasonable competence and expedition is made out. In reaching this conclusion, I have been mindful that the jurisdiction to order costs against the legal representatives of a party is an extraordinary jurisdiction that must be exercised with great caution and only in the clearest of cases.[24] In UTSA Pty Ltd (in liq) v Ultratune Australia Pty Ltd,[25] Habersberger J identified three primary reasons for caution -

(1) There is the risk that too ready an exposure of lawyers to personal liability for costs may inhibit the way in which the lawyer conducts the litigation on behalf of his or her client, and create tension between his or her own interest in minimising the possibility of personal exposure and his or her duties to the client and to the Court in acting expeditiously and to the advantage of the client.[26]

(2) It will often be difficult for a court to have before it all of the information necessary to fully understand the circumstances which led to costs being wasted, especially in respect of instructions and advice subject to client legal privilege which has not been waived.[27]

(3) Such applications are determined summarily, and cannot be allowed to evolve into expensive and time-consuming 'satellite litigation'.[28] The allegations raised in a wasted costs application should be confined strictly to questions which are apt for summary disposal by the Court.

52 While each of these is an important consideration for the exercise of discretion in this case, particular attention must be given to the question of Mr Parncutt's and Mr Galatas' ability to defend themselves by giving evidence of their instructions. The plaintiff company has refused to waive privilege over its communications with them in relation to the conduct of the proceeding.

53 In his affidavit, Mr Parncutt makes reference to the instructions that he received in relation to the crucial conversations and confirms that he is prevented by legal professional privilege from putting before the Court full details of those instructions, his consideration of them and the advice that he provided to the plaintiff's representatives. Mr Parncutt deposes that he believed that the claim was not hopeless or doomed to fail even after receiving the relevant instructions, that he would have liked to put before the Court full details of the instructions he received from the plaintiff's representatives and his reasons for holding the belief that he did, but that he was prevented from doing so by legal professional privilege and confidentiality requirements. GPZ Legal has the same difficulty, and cannot give evidence about instructions received from and advice given to the plaintiff in relation to the conduct of the case against Pinefield. As a result, the Court is left to examine the facts that are available to it and the conduct of the case before it, making proper allowance for the inability of the practitioners to tell the full story.

54 In my view, the Court should only make an order requiring the legal representatives to pay costs if satisfied that there is nothing the legal representative could have said, if unconstrained, to resist the order, and that it is in all the circumstances fair to make the order. The practitioner must have the benefit of any doubt that could be raised in the mind of the Court.[29]

55 Counsel for Mr Parncutt and Mr Galatas were asked what instructions they could possibly have been given to justify continuing with the claims against Pinefield once they became aware that the crucial conversations did not take place. It was submitted that an instruction from Mr Charisiou to continue with the case to see whether Pinefield's witnesses would give evidence that they had knowledge of a lease would have sufficed to establish that Mr Parncutt and Mr Galatas were merely running a hopeless case on instructions. I have already explained why such evidence would have been insufficient to give rise to a promissory estoppel or to found an action for misleading and deceptive conduct. This was conceded by Mr Parncutt when he agreed that there was 'nothing left' of his case in the absence of the crucial conversations, notwithstanding that knowledge of a proposal for a lease could be gleaned from the seven pre-sales contracts and the Charter Keck Cramer valuation. Moreover, the plaintiff continued to rely on the further amended statement of claim which contained allegations which Mr Parncutt and Mr Galatas knew to be false.

56 In all the circumstances, I am satisfied that there is nothing the legal representatives could reasonably have said, if unconstrained, to resist a wasted costs order and to dissuade me that it is fair to make the order. I have given them the benefit of any doubt that could be raised. Although the Court has been asked to assume (and the evidence establishes) that Mr Parncutt knew before he opened the plaintiff's case on Monday 7 December 2009 that the crucial conversations did not occur, he may not have been able to give advice and take instructions until the end of that day. This means that he should have risen on the Tuesday morning, the third day of the trial, to alert the Court to the fact that the crucial conversations did not take place as pleaded or at all, and then withdrawn the plaintiff's claim against Pinefield. His failure to do so constituted a failure to act with reasonable competence and expedition for the purposes of r 63.23. For the reasons I have given, that failure is also the failure of GPZ Legal. Mr Parncutt and GPZ Legal should pay Pinefield's costs of the trial from Tuesday 8 December 2009 until the proceeding against Pinefield was dismissed on 11 December 2009.

57 Pinefield seeks its costs of the proceeding on an indemnity basis or, alternatively, on a solicitor/client basis. This application is made against the plaintiff as well as its legal representatives. The plaintiff did not appear on the application. The summons was addressed to the plaintiff, although the form of orders sought did not expressly refer to the plaintiff. Orders were sought in general terms that Pinefield's costs be assessed on an indemnity basis or, alternatively, on a solicitor/client basis. As a result, the plaintiff was given an opportunity to make written submissions on the question of costs and, in particular, the basis upon which costs ought to be awarded. The plaintiff has not availed itself of that opportunity.

58 In seeking its costs on an indemnity basis, Pinefield asks the Court to depart from its usual course. Special circumstances must be present to justify such a departure. Some of the special circumstances in which an award of costs on an indemnity basis has been made are conveniently set out in the judgment of Harper J in Ugly Tribe Co Pty Ltd v Sikola & Ors.[30] They include where there has been conduct which causes loss of time to the Court and to other parties[31] and where proceedings have been commenced or continued in wilful disregard of known facts or clearly established law.[32] As Harper J observed, the categories of special circumstances are not closed. The cases must not be read "in an endeavour to establish a set of inflexible guidelines which should thereafter be determinative of the manner in which the Court's discretion is to be exercised [for this] would be to fetter the Court's discretion".[33]

59 In my view, in the light of the way in which the proceeding was conducted by the plaintiff, Pinefield should have its costs on an indemnity basis from the date of the disposition of its summary judgment application by Associate Justice Evans. I am well satisfied that the plaintiff has engaged in conduct causing a loss of time to the Court and to the other parties, and in continuing proceedings in wilful disregard of known facts. The plaintiff's principal is Mr Charisiou. Mr Charisiou swore an affidavit containing an account of conversations that turned out not to have taken place. He knew those conversations were central to the plaintiff's claims against Pinefield. He was, at best, extremely careless in allowing his account of them to go forward as it did. It must have been apparent to him that those very conversations were critical to Evans AsJ's decision to dismiss Pinefield's summary judgment application in July 2009. Had a true account of Mr Charisiou's dealings (or lack of dealings) with Messrs Spargo and Jennings been given, it is likely that the proceeding against Pinefield would have come to an end in July 2009.

60 Although it is possible that Mr Charisiou used the processes of the court to avoid being 'sold up' for as long as possible, I do not need to make findings that there has been an abuse of process in order to make a special costs order. Mr Charisiou's disregard for the truth of the matters to which he deposed and upon which the plaintiff relied in the proceeding against Pinefield is sufficient. The plaintiff should pay Pinefield's costs of the proceeding, such costs to be paid on an indemnity basis from 16 July 2009.

61 The grounds which justify a costs order against the legal representatives are often coextensive with the grounds for ordering those costs to be paid on an indemnity basis.[34] To the extent that the plaintiff's legal representatives are liable for those costs, it is also on an indemnity basis.

[1] His Honour held that the plaintiff had no legal right to assert the priority of a lease entered into after the date of the mortgage to Pinefield without the consent of Pinefield.

[2] Pinefield appealed the decision of Associate Justice Evans to a judge in the Trial Division of this Court. That appeal was unsuccessful. However, on 5 August 2009, Justice Beach made orders for the filing of amended pleadings and for the expedited trial of the proceeding. The proceeding was set down for trial on 3 December 2009.

[3] On the basis that the second defendant had provided inadequate discovery.

[4] Largely in the form of a draft that had been forwarded to Pinefield in late November.

[8] Supreme Court (Chapter I Amendment No. 12) Rules 2000 (Vic) r 4(a).

[9] Myers v Elman [1940] AC 282, 289 (Viscount Maugham): 'The primary object of the Court is not to punish the solicitor, but to protect the client who has suffered and to indemnify the party who has been injured'; see also 319 (Lord Wright); Ridehalgh v Horsefield [1994] Ch 205, 227.

[11] [1994] Ch 205 ('Ridehalgh').

[17] [1998] FCA 806; (1998) 156 ALR 169, 239 ('White Industries').

[23] Obtained on 15 December 2008 and 24 April 2009 respectively.

[24] Orchard v South Eastern Electricity Board [1987] QB 565, 572 (Donaldson MR).

[25] [2004] VSC 105, [44]-[51].

[26] Re Bendeich (No 2) [1994] FCA 1504; (1994) 53 FCR 422, 426-7 (Drummond J); see also Orchard v South Eastern Electricity Board [1987] QB 565, 580-1 (Dillon LJ); White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169, 231 (Goldberg J).

[27] Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155, 167 (Wilcox, Burchett and Tamberlin JJ); Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120, 134-6 (Lord Bingham).

[28] Harley v McDonald [2001] UKPC 18; [2001] 2 AC 678, 703; Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120, 136 (Lord Bingham); Ridehalgh v Horsefield [1994] Ch 205, 238.

[29] Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155, 166 (Wilcox, Burchett and Tamberlin JJ); Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120, 134-6 (Lord Bingham), 145-7 (Lord Hobhouse).

[31] Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, French J, 3 May 1991).

[32] J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA) Branch (No 2) [1993] FCA 42; (1993) 46 IR 301.

[33] National Australia Bank v Petit-Breuilh (No 2) [1990] VSC 395 (Balmford J).

[34] See, eg, White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169, 253.

Fair Trading Act 1999(Vic)

Court (General Civil Procedure) Rules 2005

Court (Chapter I Amendment No. 12) Rules 2000

At a glance

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Judgment (106 paragraphs)

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Cases Cited (4)