Grounds 8, 9, 10, 11, 12, 13, and 14: The costs grounds
123 Grounds 8, 9, 10, 11, 12, 13, and 14 are interrelated as they are concerned with whether the primary judge erred in failing to hold that there was no debt owing to the petitioning creditors. I will consider these grounds together.
124 The primary judge at [16] described the appellants' principal contention as follows:
At the kernel of their arguments, however, is the contention that because the petitioning creditors have had their costs paid for them by Cassowary Coast Regional Council (of which they were members or employees) and because the Council has received a payment in respect of those costs from a mutual fund, there is no debt due and owing by them to the petitioning creditors.
125 The appellants claimed that no amount remained owing to the petitioning creditors under the costs orders because the debt was extinguished when, on about 18 March 2020, the Council received a payment from the Queensland Local Government Mutual Fund (LGM). LGM is a pooled fund and scheme to manage liability of local councils arising in connection with the exercise of their powers, duties, or functions.
126 In 2019, the Council made a claim to LGM for legal fees incurred in the proceedings the Council and its staff were involved in with the appellants. On 22 January 2020, LGM determined to offer a payment to the Council for legal costs for the defence of the counterclaim, and only in respect of the Council, Mr Gott, Mr Kremastos and Mr Taylor, in the sum of $92,500 (after a deductible of $7,500). The primary judge found that Mr Gott's costs in the defamation proceedings were not covered by the offer. The Council accepted the offer by LGM and $92,500 was paid to the Council.
127 By cl 29 of the Scheme Rules, LGM has a contractual right of subrogation in the event of a payment pursuant to the scheme to the extent of such payment. The right of subrogation extends to all rights of the member against any person or other entity legally responsible for the claim.
128 The appellants also argued that only the Council, but not the individual creditors, were liable under the costs agreements with Connolly Suthers, the solicitors who represented the petitioning creditors in the District Court.
129 There were two relevant costs agreements in evidence. The first was a costs agreement dated 7 July 2017 between Connolly Suthers and Mr Gott for his defamation case against the appellants. The primary judge found that under the terms of that agreement, Mr Gott was the client of Connolly Suthers; and that Mr Gott had given instructions to Connolly Suthers in relation to the commencement and prosecution of the defamation proceedings.
130 On 7 December 2017, the Council resolved to indemnify Mr Gott in the defamation proceedings and the Council subsequently paid Mr Gott's legal costs. The primary judge found that this did not detract from the express terms of the costs agreement to the effect that Mr Gott was personally liable for the legal costs of his solicitors.
131 The second costs agreement was between Connolly Suthers and the defendants to the appellants' counterclaim and was dated 26 September 2017. The primary judge found that each of the petitioning creditors was a client of Connolly Suthers and they each provided instructions to the firm with respect to the counterclaim. His Honour found that, under the agreement, each of the petitioning creditors was liable for the costs of Connolly Suthers, and their liability was not affected by the Council's agreement to guarantee due and punctual performance by the clients and indemnify Connolly Suthers for any loss or damage suffered by that firm. His Honour found there was no agreement that the individual petitioning creditors would not be liable in any circumstances to Connolly Suthers for legal costs incurred with respect to the counterclaim. The Council paid the legal costs of the petitioning creditors due to Connolly Suthers in respect of the counterclaim.
132 The primary judge found that each of the individual petitioning creditors had provided an undertaking to the Council that any monies recovered from the appellants with respect to the costs order would be remitted to the Council.
133 The primary judge noted that the fact that a party's legal costs are to be paid, or have been paid, by a third person does not preclude that party obtaining an order for costs, but that a party which is not liable to their solicitors for costs cannot recover costs against an unsuccessful party. His Honour observed that the fact that a third party has paid, or has undertaken to pay, a party's legal costs does not mean that a costs order in favour of the party is improperly made; and that a successful party can recover costs if they have an obligation to pay their solicitors, notwithstanding that a third person may or will relieve them of that obligation.
134 The primary judge observed that the appellants relied heavily upon Lowbeer v De Varda [2018] (2018) 264 FCR 228, where the judge had made a factual finding at first instance that the solicitor and a third party had agreed that the solicitor would look only to the third party for costs and there had been no agreement requiring the petitioning creditor to pay the solicitor's costs. The Full Court dismissed the appeal, holding that the petitioning creditor had no liability to pay costs and, therefore, had no entitlement to a costs order. The primary judge distinguished the facts of the case.
135 The primary judge observed that in Noye v Robbins [2010] WASCA 83, where a police officer's legal costs had already been paid by the Police Service prior to the relevant costs order, it was held that a successful party can recover costs even if its liability to pay the costs has been discharged prior to the making of the order.
136 The primary judge held that the application of these principles meant that the fact that the Council would pay, or had paid, Mr Gott's costs and the costs of defending the counterclaim, did not mean that the petitioning creditors were not entitled to a costs order, provided they were liable to pay Connolly Suthers' costs. His Honour found that Mr Gott and the other defendants to the counterclaim were liable to pay Connolly Suthers' costs notwithstanding that the Council paid the costs on their behalf.
137 The primary judge also held that to the extent that the Council indemnified the other petitioning creditors for the solicitors' costs, it was entitled to require the petitioning creditors to exercise their rights of recovery against the debtors. His Honour held that LGM was subrogated to the Council's rights against the petitioning creditors with respect to the payment of $92,500 and that if the Council recovered any costs, those costs would be recoverable by LGM from the Council. His Honour held that the indemnity provided by LGM to the Council and the payment by LGM on 18 March 2020 did not displace the entitlement of the petitioning creditors to the benefit of the costs orders, or to present the petition relying on a debt based on the costs order, or to obtain a sequestration order relying on that debt.
138 The appellants' grounds allege that the primary judge erred in:
failing to properly go behind the judgment (Ground 8);
finding that the counterclaim costs were reimbursed by the insurer "JLT/LGM" pursuant to the Scheme Rules (Ground 9);
finding that the payment of the $100,000 (less the deductible) was for the counterclaim only (Ground 10);
finding that the Gott defamation proceeding was covered by the Council resolution on 7 December 2017 (Ground 11);
finding that the alleged creditors Mr Taylor, Ms Taylor and Mr Kremastos were liable to Connolly Suthers for the costs (Ground 12);
finding that the evidence demonstrated that each of the alleged creditors had provided an undertaking to the Council to remit any monies recovered to Council (Ground 13);
finding that a contractual right of subrogation existed for the LGM payment of $100,000 as provided in Clause 29 of the Scheme Rules (Ground 14).
139 The appellants' submissions are somewhat disjointed and difficult to understand. Nevertheless, I understand them to argue that the primary judge erred in finding that petitioning creditors are not "creditors" principally for the following reasons:
The payment made on about 18 March 2020 to the Council from LGM extinguished the debt.
Clause 12.1 of the costs agreements was not binding on the first, third, fourth or fifth petitioning creditors pursuant to s 54(1)(a) of the Property Law Act 1974 (Qld), and the only petitioning creditor liable to pay costs is the Council (as is said to have been held by Henry J in Toogood v Graffen [2022] QSC 053).
The costs agreements entered expressly provided that only the Council would be liable for any and all legal costs and there was no valid costs agreement with the first, third, fourth or fifth petitioning creditors.
No legal accounts or invoices were ever given to the first, third, fourth or fifth petitioning creditors and the legal costs are therefore unenforceable against those parties.
The evidence did not establish that the Council was paid pursuant to the LGM Scheme Rules.
The primary judge erred in finding that LGM had offered to make a payment to the Council only for legal costs for the defence of the counterclaim in light of a letter from LGM dated 22 February 2020 which demonstrates that LGM made a discretionary ex gratia payment for reimbursement for both the defamation claim and the counterclaim as it could not differentiate between the two.
The primary judge erred when he stated during the hearing on 24 March 2021 that the solicitors had not been paid before the costs order was made by the District Court on 26 April 2018.
140 The appellants' arguments coalesce into two primary submissions, namely that the primary judge erred failing to find that:
(1) the individual petitioning creditors were not liable to pay any costs to Connolly Suthers under the costs agreements;
(2) the payment by LGM operated to extinguish the debt.
141 At the heart of these issues is the indemnity principle. In broad terms, the indemnity principle is that a party ordered to pay another party's costs is obliged to pay only those costs which the other party is legally obliged to pay to his or her lawyers: Mainieri v Cirillo (2014) 47 VR 127 at [43]. The indemnity principle does not require that the costs have been paid, but it does require that there be a legal liability to pay costs: Wentworth v Rogers (2006) 66 NSWLR 474 at [126]; Royal v El Ali (No 3) [2016] FCA 1573 at [37]; In Re Ryals Hotel Pty Ltd [2021] NSWSC 42 at [6]. The indemnity principle is flexible, and is designed to allow for a just and fair result: Hancock Prospecting Pty Ltd v Hancock (No 3) [2016] WASC 423 at [19].
142 The indemnity principle will not be displaced merely because a third party has undertaken to pay the client's legal costs: Hancock Prospecting Pty Ltd v Hancock (No 3) at [23]. A party indemnified, whether by insurance or otherwise, against their liability to pay costs is still entitled to a costs order, even if the costs have been paid prior to the date of the costs order: Coshott v Woollahra Municipal Council [2008] NSWCA 176 at [11], [13]; Cristovao v Tan & Tan Lawyers Pty Ltd [2018] FCAFC 41 at [35]-[44].
143 For a party to be disentitled to costs under the indemnity principle, it must be demonstrated that there was no retainer, or alternatively, that there was an agreement that under no circumstances would the client be liable for costs: Hancock at [26]; Cristovao v Tan & Tan Lawyers at [38]. The onus of establishing these matters rests upon the party seeking to resist the making of a costs order or the payment of costs pursuant to such an order: Hancock at [27].
144 There was a costs agreement dated 7 July 2017 between Connolly Suthers and Mr Gott in respect of his defamation proceedings against the appellants and a second costs agreement dated 26 September 2017 between Connolly Suthers and each of the petitioning creditors in respect of the counterclaim.
145 The second costs agreement names each of the five petitioning creditors. In the agreement, they are referred to collectively as "you".
146 Clause 2.1 of the second costs agreement provides:
This document is an offer to enter into a costs agreement with you. If you accept this offer you will be regarded as having entered into a costs agreement. This means you win be bound by the terms and conditions set out in this document, including being billed in accordance with it. Acceptance may be by any one of the following ways:
(a) signing and returning a copy of this document; or
(b) giving us instructions after receiving this document; or
(c) contacting us and advising of your acceptance
147 Under cl 2.2 Connolly Suthers agrees to provide the petitioning creditors with legal services. Clause 3.1 sets out Connolly Suthers' professional fees. Clause 5.1 states that bills will be sent to "you" containing information of professional fees, other charges, disbursements and expenses and GST at such times as Connolly Suthers considers it appropriate to do so.
148 Clause 12.1 provides:
The Cassowary Coast Regional Council, being the signatory to this Agreement, acknowledge that they have all necessary authority to bind you and that they requested us to enter into this Agreement with you and in consideration of that agreement hereby (and if more than one jointly and severally) guarantee to us the due and punctual performance by the client of all the terms and conditions of this Agreement and further agree to indemnify and keep us indemnified against any loss or damage however arising which we may suffer in consequence of any failure by you to perform your obligations under this Agreement (including those relating to the payment of the Fee, interest, costs and expenses) or for any other reason whatever and this guarantee shall not be effected or discharged by the granting to you of any time or other indulgence or consideration or transaction whereby the liability of those signatories would, but for the provisions of this clause. have been effected or discharged.
149 The costs agreement between Connolly Suthers and Mr Gott was in materially identical terms.
150 The appellants argue that the effect of cl 12.1 of the costs agreement for the counterclaim is that only the Council is liable to pay Connolly Suthers' costs and the individual petitioning creditors are not liable. They also argue that as the costs agreement was only signed by Mr Gott on behalf of the Council and was not signed by the other individual petitioning creditors, they are not parties to the agreement and are not bound by it.
151 Under cl 12.1, the Council acknowledged that it was authorised to bind the other petitioning creditors. In other words, the Council warranted that it was acting as the authorised agent of the other petitioning creditors. There is no evidence suggesting the Council lacked that authority. In any event, the solicitor who acted for the petitioning creditors deposed that he took instructions concerning the matter from all the petitioning creditors. It follows that under cl 2.1 they accepted the agreement. The solicitor also deposed that while the Council paid the petitioning creditors' legal fees and costs, there was no agreement that the individual petitioning creditors would not be liable in any circumstances for Connolly Suthers' fees.
152 There was ample evidence before the primary judge that each of the petitioning creditors entered a binding agreement with Connolly Suthers under which they were liable to pay Connolly Suthers' fees. Under cl 12.1, the Council provided a guarantee and indemnity in respect of the individual petitioning creditors' payment of Connolly Suthers' fees. That did not have the effect that the individual petitioning creditors were not themselves liable to pay the fees.
153 What is important for the application of the indemnity principle is an obligation to pay lawyers' fees. In this case, the individual petitioning creditors were liable to pay Connolly Suthers' fees under the costs agreements even though the Council provided a guarantee and indemnity and in fact paid those fees. There was no agreement that under no circumstances would the individual petitioning creditors be liable for Connolly Suthers' costs.
154 Similarly, the payment by LGM to the Council did not operate to relieve any of the petitioning creditors of their obligations under the costs agreements. As the cases I have cited indicate, a party which is indemnified, whether by insurance or otherwise, against their liability to pay costs is still entitled to recover costs, even if the costs have been paid prior to the date of the costs order.
155 In these circumstances, the primary judge was correct to reject the appellants' argument that there was no debt owing to the petitioning creditors.
156 It is unnecessary to address all the grounds and submissions advanced by the appellants. Many of them, including alleged mistakes of fact, could make no difference to the correctness of primary judge's rejection of the appellants' arguments that there was no debt at the date of the creditor's petition.
157 I will, however, address some particular submissions made by the appellants.
158 The appellants submit that the primary judge in his judgment of 24 December 2020 setting aside the initial sequestration order found there was not in truth a debt owing to the petitioning creditors and no right of subrogation existed as the relationship between the Council and LGM was not one of "insured and insurer". In his reasons, his Honour stated there were substantial reasons to think that there may not be a debt truly owed to the petitioning creditors. However, that was merely an interlocutory judgment and his honour did not purport to finally decide the issue. The issue was finally determined in his Honour's ultimate reasons and judgment.
159 The appellants submit that in Toogood v Graffen, Henry J accepted that cl 12.1 of the costs agreement was not binding on the individual petitioning creditor pursuant to s 54(1)(a) of the Property Law Act. In that proceeding, the first appellant sought review under the Judicial Review Act 1991 (Qld) of two decisions. The first was a decision of the then Chief Executive Officer of the Council to authorise a costs agreement with Connolly Suthers to represent the petitioning creditors in the current appeal. The second was a resolution of the Council to oppose the appeal and make a security for costs application.
160 The first decision concerned an agreement between Connolly Suthers and the petitioning creditors dated 11 November 2021. It was signed by the CEO. The first appellant had argued that the CEO did not have power or authority to enter into the costs agreement, and only the Council had that power. Justice Henry rejected that submission by reference to s 240 of the Local Government Act 2009 (Qld) (the LGA).
161 The first appellant had also argued that the Council's funding of the litigation costs of the individual petitioning creditors involved an unlawful loan, guarantee or indemnity by the Council. He relied on cl 12.1 which was in relevantly identical terms to the costs agreements of 7 July 2017 and 26 September 2017. The first appellant argued the costs agreement breached s 111(1) of the LGA, which he contended prohibits a local government from making or guaranteeing a loan to an individual. Justice Henry held that cl 12 was not, and did not provide evidence of, a guarantee of a loan. His Honour also rejected various other arguments made by the first appellant. The proceeding was summarily dismissed.
162 The appellants rely upon the following passage from the judgment of Henry J at [32]:
Moreover, the words of clause 12.1 are inconsistent with a co-ordinate right to seek contribution from co-obligors. Section 54 (1) Property Law Act 1974 (Qld), in speaking of a promise by two or more persons being construed as a promise made jointly and severally, does so "unless a contrary intention appears". Clause 12.1's indemnity evidences such contrary intention.
163 The appellants submit that in this passage Henry J held that, "the only liable party is the Council". However, his Honour was only addressing the appellants' particular argument that the Council had unlawfully guaranteed a loan. His Honour's reasoning does not touch upon the primary obligation of the petitioning creditors that arose under the cll 2.1 and 5.1 of the costs agreements to pay the fees incurred by Connolly Suthers. Contrary to the appellants' submission, his Honour did not find that the only party liable to pay fees under the costs agreement was the Council. In any event, I have rejected the submission that the individual petitioning creditors were not liable to pay Connolly Suthers' fees under the respective costs agreements of 7 July 2017 and 26 September 2017.
164 The appellants also submit that on 21 February 2019, Mr Gott, by a written undertaking given to Mayor Kremastos, "made an equitable assignment to transfer to the second Respondent Council conditional upon any future monies being awarded to him (fruits of the judgment) which could be recovered from the Appellants". They submit that on 28 February 2019, Mr Gott procured a similar equitable assignment from each of the other individual petitioning creditors.
165 The appellants submit that the assignments effected a change in the identities of the creditors. They rely on r 799(2)(b) of the Uniform Civil Procedure Rules 1999 (Qld) which provides that, "an enforcement creditor requires a court's leave to start enforcement proceedings if…there has been a change in an enforcement creditor or enforcement debtor, whether by assignment, death or otherwise". The expression "enforcement creditor" is defined to mean a person "entitled to enforce an order for the payment of money", or, "to whom the benefit of part of the order has passed by way of assignment or in another way". The appellants submit that as there was a change in the enforcement creditor, the leave of the District Court to start enforcement proceedings was required.
166 The appellants also submit that the petitioning creditors were, "not a person who for the time being entitled to enforce [a] final order for the payment of money", within s 40(3)(d) of the Bankruptcy Act. They submit that the bankruptcy notices were invalid and the creditor's petition should have accordingly been dismissed.
167 Mr Gott's undertaking was in the following terms:
I hereby give my absolute undertaking and warrant that any monies awarded to me in respect of any costs order, settlement or judgment (whether by way of award of standard or indemnity costs and/or damages on any basis) will, if recovered from Mr & Mrs Toogood, be remitted by me to Council immediately after receipt thereof from Mr & Mrs Toogood.
To remove any doubt, I warrant that I will not be personally enriched by virtue of this proceeding, over which I have been indemnified by Council.
168 The terms of the undertaking given by Mr Kremastos, Mr Taylor and Ms Taylor were as follows:
I give my undertaking that any monies whatsoever which may be awarded to me in relation to this matter, if recovered from Mr & Mrs Toogood will be remitted by me to Council immediately after receipt thereof from Mr & Mrs Toogood.
169 The undertakings do not assign the benefit of the orders of the District Court. They effect an assignment of any monies that may be recovered from the appellants under the costs orders.
170 In FTV Holdings Cairns Pty Ltd v Smith [2014] QCA 217, Fraser JA explained at [43]:
…There can be no immediate assignment in law or in equity where the property to be assigned does not yet exist. What purports to be a present assignment of future property must be contingent, in the sense that the assignment can occur only when the property is brought into existence. Where that contingency is not expressed in the contract, equity gives effect to the parties' intention by construing what purports to be a present assignment of future property as a contract to assign the property when it comes into existence; where the contingency is expressed, the contract takes effect in equity according to its terms…
171 There has not yet been any recovery of monies from the appellants. There is no relevant property in existence that an assignment could operate upon. I reject the appellants' submission that the petitioning creditors were required to seek leave under r 799(2) of the Uniform Civil Procedure Rules or that the petitioning creditors did not come within s 40(3)(d) of the Bankruptcy Act.
172 I reject Grounds 8, 9, 10, 11, 12, 13, and 14.