Plaintiff v Firstnamed Defendant

Supreme Court of Victoria|2011-06-02|Before: J FORREST J

PRACTICE AND PROCEDURE - Costs - Costs sought by defendants against plaintiff's solicitors - Principles for granting of indemnity costs - Special circumstances demonstrated - Section 33ZD Supreme Court Act - Rule 63.23(1)(c) Supreme Court (General Civil Procedure) Rules 2005.

2 The issue now is what order should be made in respect of the defendants' costs of the proceeding. Oldham Naidoo concedes that it ought to pay costs on a party/party basis. The defendants seek an order for indemnity costs. I think that they are correct and that such an order should be made.

3 Subsequent to my ruling, the defendants applied for the following orders:

(a) the costs of the proceeding including reserved costs be paid by the principals and/or directors of Oldham Naidoo Lawyers Pty Ltd, such costs to be taxed on an indemnity basis;

(b) the costs of the defendants, ordered to be paid by the plaintiff by orders made on 13 November 2009, 13 April 2010, 25 August 2010, and 25 January 2010 be paid by the principal and/or directors of Oldham Naidoo Lawyers Pty Ltd, such costs to be taxed on an indemnity basis.[2]

4 It is not necessary to set out to any great extent the actions of Oldham Naidoo which led to the proceeding being dismissed as an abuse of process. The detailed factual matters are set out at [5]-[10] of my first ruling[3] and [7]-[32] of Cohen (No 2)[4].

5 Reduced to its basics, Oldham Naidoo's conduct involved the following:

(a) the issuing of the proceeding on 24 December 2008 in the name of Dr Cohen without obtaining his instructions or authorisation to do so;

(b) the maintenance of the claim (for nearly two years) in the name of Dr Cohen without any communication to him advising that he was the named representative plaintiff and therefore the subject of a number of obligations including that imposed by s 33ZD of the Supreme Court Act 1986 (Vic);

(d) the making of an allegation in the statement of claim central to Dr Cohen's "claim" which, upon any reasonable investigation, was demonstrably false.[5]

6 Rule 63.23(1)(c) of the Supreme Court (Civil Procedure) Rules 2005 (Vic) provides:

(1) Where 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 a failure to act with reasonable competence and expedition, the Court may make an order that-

...

(c) the solicitor pay all or any of the costs payable by any party other than the [solicitor's] client.

7 The defendants' submissions nominate three jurisprudential bases for an award of costs against a solicitor in favour of another party:

(a) to compensate the party for wasted costs;[6]

(b) to punish a solicitor for misconduct;[7]

It is not necessary to canvass those principles here as the issue to be determined relates only to the extent of the order rather than the making of a costs order; it is well established that where a solicitor has taken unauthorised steps in litigation, a solicitor may be personally liable for the costs incurred by other parties as a result of such conduct.[9]

8 Recently, in Bray v Dye (No 2),[10] Judd J canvassed extensively the principles relating to an award of costs where legal practitioners act without the authority of their client.

9 The leading authority is an old English case of Fricker v Van Grutten.[11] It is worth repeating one of the passages extracted by his Honour:

As regards Mr Toppin, he has done what he ought not to have done. He got this informal consent, and acted on it, and occasioned the trouble that we are asked to set right; and following the course adopted in Nurse v Durnford and Newbiggin-By-the-Sea Gas Co v Armstrong we must order him to pay all Mr Weller's costs, and all costs which he has been ordered to pay, and he must also pay to the defendants their costs so as to indemnify them. He must pay Mr Weller's costs as between solicitor and client, and the costs as between solicitor and client, and the costs of the defendants as between party and party; and such costs must include the costs of this application both here and in the Court below. Mr Weller's name should be struck out for the purpose of all future proceedings [emphasis added].

10 The principles relevant to the making of an order of costs on an indemnity, rather than on a party/party basis have been the subject of much judicial scrutiny. Of particular significance are the decisions of Sheppard J in Colgate-Palmolive v Cussons,[12] and Harper J in Ugly Tribe Co Pty Ltd v Sikola.[13] It is helpful, here, to set out what is said by Harper J in Ugly Tribe[14]:

In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v. Dowling. Special circumstances must be present to justify such a departure: Australian Electoral Commission v. Towney (No. 2). These include:

(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty Ltd v. International Produce Merchants Pty Ltd.

(ii) The making of an irrelevant allegation of fraud: Thors v Weekes

(iii) Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty. Ltd v Keeprite Australia Pty Ltd.

(iv) The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty Ltd v. Westpac Banking Corp.

(v) Conduct which amounts to a contempt of court: EMI Records Ltd v Ian Cameron Wallace Ltd.

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA) Branch (No. 2).

(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v Petit-Breuilh (No. 2).

The categories of special circumstances are not closed: Tetijo Holdings, supra. The cases must not, therefore, 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": National Australia Bank v Petit-Breuilh.

At the same time, the courts should, I think, be astute to avoid a wilderness of single instances. Even worse would be the creation of different regimes in different courts, especially as between the Federal Court and a State Supreme Court. This would encourage the undesirable practice of forum shopping, as well as the almost equally undesirable spectre of frequent post-trial applications for costs to be awarded on some special basis (ie on other than the usual party and party basis).

According to Winneke, P. in Spencer's case:

"It is well recognised that there is occurring an ever increasing gap between party/party costs and those actually incurred ... This ... has continued ... notwithstanding expressions of view by individual Judges that it is capable, in today's circumstances, of working injustice: see, for example, per Rogers J (as he then was) in Qantas Airways Ltd. v. Billingham Corp. The practice is designed to reflect a compromise between the interests of successful and unsuccessful litigants. As Handley, JA observed in Cachia v Hanes the practice is also adopted to provide an 'important spur to settlement'. Sheppard J. in Colgate-Palmolive Co v Cussons Pty Ltd at 233 restated the practice and pointed out: 'This has been the settled practice for centuries in England. It is a practice which is entrenched in Australia. Either legislation ... or a decision of an intermediate court of appeal or of the High Court would be required to alter it'."

The compromise about which Winneke P spoke is perhaps justifiable on the basis that potential litigants must not be unnecessarily discouraged from bringing their disputes to the courts. After all success can seldom be guaranteed, if only because - where the facts are in dispute, as they generally are - it is seldom possible to predict with certainty what findings of fact will be made. In these circumstances, an honest plaintiff or defendant might be discouraged from bringing or defending a claim were an adverse result to be followed by an order that the losing party indemnify, or go close to providing an indemnity to, the successful party against the latter's costs.

The position changes where a litigant acts dishonestly in the litigation, or where the rights and privileges of a litigant are flouted or abused. Then, the rationale for refusing to order that the losing party indemnify an opposite party against that party's costs is less compelling. Indeed, costs are more frequently if not invariably awarded on an indemnity or like basis (such as that of solicitor/client) where findings of dishonesty or serious misconduct have been made against the party ordered to pay. (citations omitted and emphasis added)

11 The defendants relied upon the following matters as justifying an indemnity costs order against Oldham Naidoo:

(a) proceedings were issued in Dr Cohen's name without his knowledge or consent;

(b) Oldham Naidoo never entered into a retainer with Dr Cohen, nor provided him with a costs agreement or disclosure statement;

(c) despite telling Dr Cohen that there would be "no costs for you to be involved in the proceeding", four costs orders were made personally against Dr Cohen;

(d) in correspondence, Mr Oldham deliberately concealed from Dr Cohen the fact that proceedings had been issued in his name;

(e) Oldham Naidoo lawyers prosecuted the proceeding for almost two years before Dr Cohen became aware, through his own sources, that an action had been brought in his name;

(f) despite Mr Oldham knowing, shortly after 9 February 2009, that instructions had to be sought from a plaintiff to name him or her as a representative plaintiff in a group proceeding, he did nothing to bring his knowledge of the "irregularity" in this case to the attention of the Court, Dr Cohen or the defendants;

(g) despite knowing that proceedings should have been issued with express instructions from Dr Cohen, Mr Oldham was only moved to act when contacted by Mr Lassen, on Dr Cohen's behalf, in October 2010, and even then:

(i) did not inform the Court or the defendants of the true reason why an application was being made to substitute Mr Arnold for Dr Cohen; and

(ii) continued to depose in his affidavits that Oldham Naidoo was "retained by the Plaintiff [Dr Cohen]", when he knew this was not the fact; and

(h) Mr Oldham also permitted statements of claim to be filed (and a defence to be filed in response) containing allegations which he knew or ought to have known were false.

12 Oldham Naidoo resist an order for indemnity costs on the following grounds:

(a) the authorities do not dictate that indemnity costs ought be paid in such a case, and costs are in the discretion of the Court;

(b) the conduct of Oldham Naidoo was not deliberate, but rather the proceedings were issued as a consequence of Oldham Naidoo's failure to appreciate its obligations as the solicitor instigating the litigation; and

(c) Oldham Naidoo has accepted responsibility for its actions and made appropriate concessions in the course of these applications.

13 It is correct, as Oldham Naidoo argue, that it does not follow that because a proceeding is issued and maintained without authority there will necessarily be an order for indemnity costs in favour of the other parties. Rather, the nature of the award of costs (and indeed whether such an award is made) always remains within the discretion of the Court.

14 The following matters, however, satisfy me that "special circumstances" have been demonstrated and this is an appropriate case in which to make the award of costs against Oldham Naidoo on an indemnity basis.

15 First, but for the actions of Oldham Naidoo, this proceeding, in all probability, would not have been commenced and, so it must follow, the defendants would not have incurred costs in defending the claim. For the reasons I discussed in Cohen (No 2), there has never been a realistic prospect of a plaintiff (properly informed of his or her obligations and responsibilities) taking on this case.

16 Second, I accept the criticisms made by the defendants of the conduct of Oldham Naidoo between the time of issue and February of this year. Dr Cohen was kept in the dark as to the role it had created for him as representative plaintiff, despite a number of pieces of correspondence between himself and Oldham Naidoo. Oldham Naidoo did not attempt to enter into a costs agreement with him; it had no retainer (oral or in writing) from him. During the time he was the named representative plaintiff, four costs orders were made against him - none of which he was informed of. He only learnt that he was the representative plaintiff when informed in October 2010 by his son. It can, I think, be readily assumed that had Dr Cohen known that the proceeding had been instituted in his name he would have given instructions forthwith to have himself removed, particularly if he had been told of his obligations in relation to costs under s 33ZD of the Supreme Court Act.

17 Third, I reject the contention on behalf of Oldham Naidoo that its conduct was "not deliberate" but rather resulted from a "failure to appreciate its obligations as the solicitor instigating the litigation". Apart from Mr Oldham's assertion, no evidence was proffered to support this extraordinary proposition. I do not know how it can be said that a solicitor taking the important step of issuing a group proceeding does not "deliberately" institute the proceeding on behalf of the person named as plaintiff. Mr Oldham must have known that he had no authority from Dr Cohen. Moreover, as I have just noted, he gave no advice to Dr Cohen as to his liability for costs or as to his obligations as representative plaintiff. Whether Mr Oldham was motivated by altruism, incompetence or greed is for others to determine. The stark reality is that the proceeding was issued and maintained intentionally in Dr Cohen's name. Nothing in the file notes or the correspondence indicates otherwise. The reference to the timing of the opt out notice is a red herring.

18 The conduct of Oldham Naidoo amounted to a serious breach of its ethical obligations. It was, at least, distinctly arguable that it constituted a contempt of court.[15]

19 Fourth, I also reject the suggestion that I should take into account Oldham Naidoo's acceptance of responsibility for its actions and the making of appropriate concessions. Once the file material and the contents of Dr Cohen's affidavits had been digested, the solicitor's position was indefensible. The concessions made on its behalf were generated, in my view, by a "realpolitik" approach to the litigation - arguing the toss about whether it was liable would have led nowhere other than to increase the costs incurred by Oldham Naidoo in defending its position. Whilst the practitioners now instructed by the firm are to be commended for their realism, it hardly counts against an order being made in favour of the defendants on an indemnity basis.

20 Finally, this is a case involving a patent abuse of process by Oldham Naidoo. Such conduct can and has in the past warranted an order for indemnity costs.[16]

21 In summary, without Oldham Naidoo's involvement, the defendants would not have been exposed to any order for costs. The institution and maintenance of the proceeding was a clear abuse of process and involved serious misconduct. Special circumstances have been demonstrated.

22 The orders sought by the defendants should be made:

(a) the costs of the proceeding including reserved costs be paid by the principals and/or directors of Oldham Naidoo Lawyers Pty Ltd, such costs to be taxed on an indemnity basis;

(b) the costs of the defendants, ordered to be paid by the plaintiff by orders made on 13 November 2009, 13 April 2010, 25 August 2010, and 25 January 2010 be paid by the principal and/or directors of Oldham Naidoo Lawyers Pty Ltd, such costs to be taxed on an indemnity basis.

[1] [2011] VSC 185 ("Cohen No 2").

[2] [2] of the defendants' written submissions.

[3] [2010] VSC 371 ("Cohen No 1").

[5] The assertion that Dr Cohen was the registered proprietor of particular properties that were said to be damaged by the fire. See [10] and [13] of Cohen (No 2).

[6] Myers v Elman [1940] AC 282, 289; Ridehalgh v Horsefield [1994] Ch 205, 206.

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

[8] Gippsreal Ltd v Kurek Investments Pty Ltd [2009] VSC 344.

[9] H_illig v Darkinjung Pty Ltd & ors (No 2)_ [2008] NSWCA 147, [47]-[48].

[15] Willis v Magistrates Court of Victoria & Buck (1996) 89 A Crim R 273; Re Harrison: Application For Readmission [2002] SASC 335; Ditfort v Brown (1990) 19 NSWLR 49.

[16] Re Wilcox (1996) 141 ALR 727, 734-735.

Supreme Court (Civil Procedure) Rules 2005(Vic)

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