Thomas Baena trading as Baena Legal v Zuhair Nakhleh Habeebeh [2021] NSWSC 1079 | Case summary

Thomas Baena trading as Baena Legal v Zuhair Nakhleh Habeebeh [2021] NSWSC 1079 | Case summary | Zoe

The background to these proceedings is set out in some detail by Slattery J in Thomas Baena trading as Baena Legal v Zuhair Nakhleh Habeebeh [2020] NSWSC 1851 (judgment) which I will not repeat in full here. The following is a summary of the background as it is relevant to the determination of the issue of costs.
The plaintiff is a lawyer who, until late 2019, had acted for the defendant in family law settlement proceedings against the defendant's former wife. He commenced these proceedings in response to a lapsing notice that had been served by the defendant in relation to a caveat lodged by the plaintiff over real property owned jointly by the defendant, his former wife and their two children. The lapsing notice had been served in the context where orders had been made in the family law proceedings for the sale of the property and for the net proceeds to be held in the trust account of the defendant's current solicitors.
In these proceedings, which were commenced by a statement of claim filed on 15 June 2020, the plaintiff sought an order for the extension of his caveat and payment of his legal costs on an indemnity basis in the amount of $96,239 plus interest and fees for a total claim of $102,634. The plaintiff's caveat claimed an interest by virtue of a charge in favour of the plaintiff said to arise from the costs agreement entered into between him and the defendant and on account of an amount outstanding of $75,000.
In his defence filed on 20 June 2020, the defendant claimed, amongst other things, that the plaintiff's costs agreement was void and denied the plaintiff's entitlement to lodge the caveat and to costs in the amount claimed.
On 23 June 2020, Darke J made orders that the plaintiff's caveat be extended to 10 July 2020. His Honour made the extension order despite opposition from the defendant as he was satisfied that the caveat was one that may have substance within the meaning of s 74K(2) of the Real Property Act 1900 (NSW). It is apparent from the transcript that his Honour granted a short extension as completion of the sale of the property was scheduled for 18 July 2020 and to provide the parties with an opportunity to resolve the matter by payment of a portion of the sale proceeds into a trust account or into Court to protect the plaintiff's position pending determination of the amount owed to him.
On 9 July 2020, Darke J ordered that the caveat be withdrawn upon the defendant's undertaking to retain the sum of $100,000 from his share of the sale proceeds in his solicitor's trust account until further order of the Court or agreement by the plaintiff for disbursement of such funds. The proceedings were otherwise stood over for directions on 20 November 2020.
On 13 July 2020, the plaintiff applied for a Supreme Court assessment of his legal costs which he claimed were the subject of the costs agreement referred to in the caveat.
On 5 November 2020, the costs assessor published her costs assessment determination which reduced the plaintiff's claim for costs from $96,239 to $13,860 and ordered the plaintiff to pay the costs of the costs assessor. The costs assessor also concluded that the costs agreement relied on by the plaintiff was void for non-disclosure. Her reasons indicate that she was highly critical of the plaintiff's conduct and she referred him to the Office of the Legal Services Commissioner pursuant to the Legal Profession Uniform Law 2014 (NSW). The plaintiff lodged an application for review of the costs assessor's determination on 2 December 2020.
On 20 November 2020, the plaintiff was ordered to file an amended statement of claim by 11 December 2020.
On 16 December 2020, Slattery J heard and determined a notice of motion filed by the plaintiff on 3 December 2020 seeking a stay of the proceedings until his application for review of the costs assessor's determination was completed. His Honour also dealt with the defendant's application for the proceedings to be dismissed and for payment to him of the $100,000 held in his solicitor's trust account as soon as the family law proceedings were resolved. Slattery J considered that the plaintiff's motion and the defendant's application were "each asking for too much" (judgment at [27]) and refused to grant the relief sought by each of them. His Honour considered that the issues raised by the plaintiff's statement of claim, which at that time continued to seek an extension of the caveat and his costs of just over $100,000, should be ventilated at a final hearing. His Honour noted that the defendant's position that the costs agreement is void would have the effect of extinguishing the charge and undermining the claimed interest in the caveat (judgment at [26]) but also acknowledged the possibility that the plaintiff could argue that the caveat was supported by a "fruits of litigation" lien over the amount held in the solicitor's trust account (judgment at [32]). Ultimately, his Honour varied the order made by Darke J on 9 July 2020 to provide that the money held in the trust account be reduced from $100,000 to $40,000, extended the time for the plaintiff to file an amended statement of claim to 25 January 2021, and ordered that the costs of the plaintiff's motion and hearing that day be each party's costs in the proceedings.
On 8 January 2021, the plaintiff filed an amended statement of claim which removed the claim for an extension of the caveat but maintained the monetary claim for his costs. I pause to observe that the amended statement of claim included a claim for relief that, in the interests of justice, the Supreme Court of New South Wales pay $62,975.73 to the plaintiff if that amount was not recovered from the defendant because Slattery J acted upon the costs assessor's "erroneous determination" in reducing the order to $40,000.
On 4 February 2021, the defendant filed a defence to the amended statement of claim, following which a timetable was set by the Registrar for the exchange of evidence with the plaintiff to serve his evidence by 9 April 2021.
On 26 March 2021, a certificate of determination of the review of the Supreme Court costs assessor's assessment was issued. The review panel affirmed the costs assessor's original assessment in the sum of $13,860 and upheld her determination that the plaintiff's costs agreement was void and that there was no contractual basis for the legal costs claimed by the plaintiff.
On 6 April 2021, the plaintiff wrote to the Equity Registrar requesting a directions hearing noting that all that was left on this matter was for him to discontinue his statement of claim.
On 7 April 2021, the proceedings were listed before the Equity Registrar on 20 April 2021. On that occasion, the Registrar offered to stand the matter in the list to hear the discontinuance application and settle the costs issue that day. As the plaintiff wished to rely on written submissions, the discontinuance hearing was listed before the Equity Registrar on 29 April 2021.
Later on 20 April 2021, the plaintiff filed the notice of motion the subject of this hearing which led to the discontinuance hearing before the Equity Registrar being vacated. In addition to orders that leave be granted to the plaintiff to withdraw his statement of claim and for the defendant to pay his costs, the plaintiff's motion also sought an order for the amount of $13,860 to be paid by the defendant to the plaintiff.
On 29 April 2021, orders were made for the plaintiff and the defendant to exchange evidence in relation to the plaintiff's notice of motion.
On or around 14 May 2021, the defendant paid the amount of $13,860 to the plaintiff.
On 8 June 2021, Ward CJ in Eq listed the plaintiff's costs application for a two-hour hearing on 13 August 2021 and made orders for the parties to file and serve written submissions.

[3]

Consideration and determination

The plaintiff contends that he should recover his costs in the amount of $3,216.40, being the total expenses incurred by him in respect of the statement of claim, because it was the defendant's actions that caused the plaintiff to commence the proceedings. The plaintiff submits that he had no choice but to commence proceedings to protect his interest as the defendant served the lapsing notice and refused to discuss the plaintiff's legal bill with him or accept the plaintiff's offer of $15,000 to settle that bill. Pausing here, there is no evidence on this application of an offer being made by the plaintiff prior to the commencement of these proceedings that he would accept $15,000 in satisfaction of his legal bill and I note the defendant asserts that no such offer was made.
The plaintiff submits that the defendant should be ordered to pay his expenses as the plaintiff has had success in these proceedings. He points to the success before Darke J in obtaining an extension of the caveat and the orders made on 9 July 2020 for an amount of the sale proceeds to be paid into a trust account. The plaintiff submits that the costs assessor's determination that his costs agreement was void for non-disclosure is not significant as that determination cannot interfere with the power of the Court in relation to real property matters and where the Court has found that the caveat had substance. He maintains that the issue of the caveat has been adjudicated and he was the successful party.
The plaintiff also points to his success in obtaining an order from Slattery J for $40,000 to "protect [his] legal bill". He submits that his December 2020 motion seeking a stay of the proceedings was made for the valid reason of stopping the parties incurring costs while the costs assessment review was under way and says that his motion was resolved in both parties' favour.
The plaintiff also submits that, after the costs assessment review decision, he acted reasonably by moving quickly to finalise the proceedings by approaching the defendant's solicitor with an offer to resolve the proceedings on the basis that the defendant would pay to the plaintiff the amount of $13,860 as assessed, together with the plaintiff's filing fees and costs associated with bringing the matter to the Court.
Pausing here, there is evidence on this application that indicates there were a number of offers made by the parties to resolve the proceedings after the plaintiff informed the defendant that he intended to withdraw the statement of claim. They included offers by the defendant to agree to the proposed discontinuance, first, on the basis that he would pay $5,000 to the plaintiff in satisfaction of the $13,860 costs assessment and, later, on the basis that the plaintiff was to pay $15,000 for the defendant's costs. They also included offers by the plaintiff to withdraw his claim on the basis that each party would pay their own costs, which offers were rejected by the defendant.
The defendant submits that, as the plaintiff is the discontinuing party, he should pay the defendant's costs in accordance with the usual approach under rr 42.19 and 42.20 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).
The defendant contends that there is no basis to order otherwise than in accordance with the usual rule as the plaintiff acted unreasonably in commencing the proceedings and in the manner which he has conducted them. The matters relied on by the defendant as unreasonable conduct on the part of the plaintiff include the following: placing a caveat on the title to the property without ensuring that the costs agreement was compliant; not applying for a costs assessment of his legal bill in January 2020 or shortly after, which the defendant submits would have avoided the need for the proceedings entirely; prolonging the proceedings by an unnecessary notice of motion before Slattery J; failing to comply with the order to file an amended statement of claim by 11 December 2020; and writing and requesting a directions hearing on 20 April 2021 before the Registrar which did not proceed.
As there is no dispute that the proceedings are to be discontinued by the plaintiff, r 42.19 of the UCPR is the starting point in respect of costs. That rule provides that, unless the Court orders otherwise, the plaintiff must pay such of the defendant's costs as has been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued. Rule 42.20 relates to the dismissal of proceedings and provides for the payment of costs on a similar basis.
Rule 42.19 does not give rise to a presumption that costs will be ordered against the plaintiff as the discontinuing party. Rather, it provides a default position in relation to costs that is subject to the discretion of the Court, with the onus on the plaintiff to establish that there is some sound position or good reason for departing from the ordinary course whereby he would be required to pay the defendant's costs of the proceedings: Bitannia Pty Limited v Parkline Constructions Pty Ltd [2009] NSWCA 32 (Bitannia) at [53]-[54] (Hodgson JA, Tobias and Basten JJA agreeing), [70], [72] (Basten JA); Galea v Camilleri [2019] NSWSC 167 (Galea) at [14]-[15].
A consequence of discontinuing proceedings is that it precludes the Court from being able to decide certain questions relevant to the issue of who should pay costs, being matters that could only be determined on a proper evidentiary basis if the matter proceeded to a final hearing: Bitannia at [56]; Galea at [16]. As Robb J observed in Galea at [17], the rules that permit parties to discontinue or withdraw from proceedings and that deal with the associated costs consequences apply in a range of situations. Those situations include a voluntary decision not to proceed with a claim, which may involve a realisation of the improvidence of the proceedings, and the occurrence of some event which destroys the utility of the proceedings being maintained.
Where, as in this case, there has been no final determination of the merits of the plaintiff's caveat and monetary claims, which at all times have been denied by the defendant, the principles set out in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-5 (McHugh J); [1997] HCA 6 are relevant. See also Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [25]-[30] (Payne JA, Meagher JA agreeing). The principles recognise that, in a case where a party discontinues or withdraws proceedings, the Court should not try a hypothetical action between the parties to determine who would have had success for the purposes of determining who should pay costs. However, the Court may, in some circumstances, be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action or, where both parties have acted reasonably, may, in a rare situation, be in a position to identify that one party was almost certain to have succeeded if the matter had been fully tried. If it appears that both parties have acted reasonably in commencing and defending the proceedings and continue to act reasonably, the proper exercise of the Court's discretion will usually mean that it will make no order as to costs.
Having regard to these principles and the evidence and submissions on this application, in my view, this is a case where the proper exercise of the Court's discretion is to make an order otherwise than in accordance with the usual rule with the intent that the proceedings should be discontinued on the basis that each party should pay their own costs. I have come to that view for the following reasons.
First, I do not consider this to be a case where the plaintiff has given up on the proceedings based on a recognition of the improvidence of his claims such that the usual rule should apply. To my mind, this is a situation where the plaintiff seeks to withdraw the proceedings as he recognises that there is no longer any utility them being continued. This is in circumstances where relief has already been granted in his favour and other intervening events have occurred, namely the extension and withdrawal of his caveat, the determination of the plaintiff's costs assessment and the payment by the defendant of $13,860 in satisfaction of the costs assessor's certificate.
Second, I accept that the plaintiff has had some success in this case. The plaintiff was successful in obtaining orders from Darke J extending his caveat on the first occasion over the defendant's opposition, with a later order that provided for the caveat to be withdrawn and the plaintiff's monetary claim being secured by the retention of $100,000 of the sale proceeds. There is also evidence that the plaintiff wrote to the defendant on 9 June 2020 in response to the lapsing notice to provide the defendant with an opportunity to withdraw the notice, failing which the plaintiff would apply to the Court to extend the caveat which he noted would be very costly for the defendant. Thus, the defendant was on notice that the proceedings would be commenced and had an opportunity, albeit for a limited period, to avoid the costs of the proceedings by, for example, offering to set aside some sale proceeds pending an assessment of the plaintiff's costs and the plaintiff withdrawing the caveat to allow the sale to proceed.
However, I am unable to accept the plaintiff's submission that his success before Darke J (or any other success) entitles him to a costs order in his favour in this case. Contrary to the plaintiff's submissions, there has been no final determination of the claim that he had a caveatable interest in the property. Darke J ordered an extension of the caveat on an interim basis having concluded that the caveat may have substance. While the question of whether the plaintiff had a caveatable interest is not one which this Court can (or should) decide, the material before me, particularly the costs assessor's determination that the costs agreement is void, raises significant doubts about whether there was a proper basis for the plaintiff's caveat or whether he could establish that he had reasonable cause to lodge it. Simply put, this is not a case where the plaintiff was almost certain to have succeeded if the issue of the plaintiff's claimed interest in the property by virtue of the contractual charge had been fully tried.
Third, as to the application before Slattery J, I accept that his Honour did not dismiss the proceedings in December 2020 in response to the defendant's application and ordered $40,000 to be retained in recognition that the plaintiff may have a claim in respect of his legal costs. However, it is not correct to say, as the plaintiff submits, that his Honour found that the legal work undertaken by the plaintiff for the defendant resulted in the "defendant's fruitful outcome". His Honour merely acknowledged that it was theoretically possible for the plaintiff to argue that he had a fruits of litigation lien for his legal costs without making any finding on that issue. As the defendant submits, the issue of whether the plaintiff could assert such a lien could only be decided at a final hearing with evidence. Given Slattery J's comment that each party "asked for too much" and did not obtain the relief that they sought, overall, it seems to me that the plaintiff and defendant each had a loss at that interlocutory hearing.
Fourth, the plaintiff's application for costs based on his successes must also be assessed against his conduct in the proceedings. That conduct includes non-compliance with orders for the filing of the amended statement of claim and his approach to filing his 20 April notice of motion instead of proceeding with the discontinuance hearing before the Register. Such conduct is not consistent with the just, quick and cheap determination of the proceedings in accordance with s 56 of the Civil Procedure Act 2005 (NSW).
Fifth, the defendant's submission that he is entitled for his costs to be paid by the plaintiff according to the usual order does not, in my view, take proper account of the plaintiff's apparent successes on his applications, the fact that the defendant had prior notice of the proceedings and the plaintiff's offer to resolve the proceedings on the basis that there be no order as to costs prior to the hearing of this application.
Having balanced the outcomes in these proceedings and the conduct of the parties, in my view, it is not in the interests of justice to order that either party recover their costs of the proceedings.
For these reasons, I make the following order: 1. Pursuant to Uniform Civil Procedure Rule 42.19, grant leave to the Plaintiff to discontinue the proceedings on the basis that there be no order as to costs and that each party pay their own costs.

Thomas Baena trading as Baena Legal v Zuhair Nakhleh Habeebeh

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