(1988) 81 ALR 397
Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300
Source
Original judgment source is linked above.
Catchwords
(1988) 81 ALR 397
Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300
Judgment (11 paragraphs)
[1]
Judgment
HER HONOUR: This application relates to the costs of an interlocutory application heard by me on 21 June 2019 in a dispute between various members of the Turner family. The relief sought in that amended notice of motion (the Amended Motion) (and the issues raised on that application) went to the constitution of the proceedings and raised not uncomplicated issues as to the appointment of a tutor to represent a person lacking legal capacity in circumstances where there are claims being made in relation to a number of different transactions involving family members who are here seeking to appear on both sides of the record.
I listed the matter on 11 September 2019 to indicate that the decision I had reached on the application (in order not to delay the making of further directions for the conduct of the proceedings) and then on 12 September 2019 made orders largely in accordance with proposed minutes of order that had been prepared by the parties to reflect that decision. I subsequently published my reasons for that decision (see Turner v O'Bryan-Turner [2019] NSWSC 1340). In those reasons I did not deal with the question of costs of the motion (there having been an indication in the submissions for the respondents to the motion that they would wish to make submissions on that issue). On 12 November 2019, when the matter was back before me for directions, I made directions for submissions to be filed in relation to the issue of the costs of the motion on the basis that I would then determine the issue of costs on the papers. I have considered the parties' submissions and I now publish my reasons as to that issue.
[2]
Background
The background to this matter (as also is its procedural history) is set out in the reasons I published on 12 September 2019 and does not need here to be repeated save insofar as it is relevant to describe the nature of, and relief sought in, the notice of motion that is now the subject of the costs application. In these reasons I will again refer to the family members by their first names, without intending any disrespect, and in the case of the incapacitated person (the first plaintiff) by the name by which he is commonly known.
The applicants on the notice of motion are David and Karl (the two children of John and his now deceased second wife, Wendy), and Angelena (Wendy's executrix). I refer to the interests of Wendy's estate and the two children as the David/Karl interests.
The respondents on the notice of motion comprise the "Nick" interests (being Nick, the son of John's first marriage, and Allawah Pastoral Pty Ltd (Allawah), the company Nick now controls and which is the subject of certain of the relief sought by the David/Karl interests).
In essence, the disputes between the respective family members relate to distinct transactions or events: on the one hand, to the transfer from John to Wendy, David and Karl at the end of 2015/early 2016 of what I have referred to in the earlier reasons as the Trundle properties (those transfers having been effected by Wendy for a nominal sum under a power of attorney granted to her by John in 2015) (transactions challenged by Nick, as tutor for John - the "principal claim"); and, on the other hand, to certain loans and mortgage transactions entered into by John with Allawah in 2010 and then in 2015 that it is said have the effect that Allawah held, or holds, security over approximately 90% of the value of the Trundle properties (see T 18; 20/6/19) (transactions challenged by the David/Karl interests and the subject of the cross-claim filed in the principal proceedings).
As I noted in my earlier reasons, Nick's position on the hearing of the Amended Motion was that, if the principal claim were to be successful, then orders for the transfer of property or payment of money (including potential costs orders) would be made against (among others) Wendy's estate, and hence that Angelena has an adverse interest to that of John in the principal claim; whereas, if the unconscionable conduct/undue influence claims made in the cross-claim were to succeed then the 2010 transactions would be set aside but nevertheless he has no direct personal interest adverse to John in that regard (although he might benefit from the settlement or disposition of that claim) and hence his position is that he has no adverse interest to John in relation to the cross-claim (see T 39.22). Thus, it was submitted for the Nick interests that Angelena should not be appointed as John's tutor on the cross-claim; and that (if no tutor can be found for John, as appears presently to be the position), the principal claim should be determined first and separately from the cross-claim.
The David/Karl interests instead framed the question in terms of whether there is a real, sensible possibility of a conflict of interest and argued that there is no such real, sensible possibility of a conflict of interest should Angelena be appointed as tutor for John on the cross-claim (emphasising that any settlement of the proceedings would require court approval and that, for all practical purposes, neither side can now obtain instructions from John - though Nick and his lawyers arguably had that opportunity at an earlier stage; see T 30.41; T 39.44; 21/6/2019). Nevertheless, they also argued that if such a conflict does exist it is manageable and that the very same conflict of interest would arise on the part of Nick (if he were to be permitted to act as John's tutor on the principal claim and is at the same time defending the cross-claim in his own right).
Ultimately, I accepted that Angelena, as Wendy's executrix, did have an interest adverse to John in relation to the principal claim and hence that the appropriate course was not to permit Angelena to be appointed as John's tutor to prosecute the cross-claim in the present proceedings (in effect that being the position for which Nick had contended) but I considered that, having regard to the overriding statutory purpose mandated by s 56 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act), it was appropriate to put in place a regime whereby the challenges by the David/Karl interests to the 2010 transactions could be dealt with concurrently or consecutively with the challenge by Nick to the 2015/2016 transactions.
Thus, I put in place a regime whereby the cross-claim would be discontinued with Angelena having leave to commence fresh proceedings as John's tutor and for those separate proceedings to be heard after the hearing of the principal claim by the same judge (and with evidence in the principal proceedings that is relevant in the second set of proceedings being treated as evidence in that second set of proceedings (an outcome not precisely that for which the David/Karl interests had primarily contended but which, for practical purposes, is an outcome consistent with what they proposed in the course of oral argument)).
Relevantly, I made orders that Angelena, in her capacity as the executrix of Wendy's estate, replace and be substituted for Wendy as the first defendant in the proceedings; for the cross-claim to be discontinued by leave; and that the issues pleaded in the discontinued cross-claim be litigated in separate proceedings (in accordance with certain undertakings given by the parties). The respective proceedings have been listed for hearing before me commencing on 9 June 2020.
What remains now for determination at this stage is the issue as to the costs of the amended motion.
[3]
Procedural history of the motion
I summarised in my earlier reasons the somewhat tortured procedural history of this matter and noted that both sides accepted some share of the blame in this regard. I do not here repeat that procedural history. It is, however, relevant to note the following as to the various iterations of the notice of motion that came to be heard on 21 June 2019 (since Nick places reliance on this procedural history in support of the costs orders he now seeks).
On 20 July 2018, the David/Karl interests filed a notice of motion seeking to 'lift' an injunction imposed by orders made by Sackar J on 13 December 2017 orders and for leave to file an amended statement of cross-claim. Since the filing of that motion, there have been six further iterations of the notice of motion (in which Nick complains that the David/Karl interests were "seeking numerous different orders, some of which have been abandoned entirely, some of which have evolved and some of which have been abandoned and reintroduced").
Following Wendy's death on 26 August 2018, Rees J ordered on 9 October 2018 that the David/Karl interests file a notice of motion as to: the appointment of a representative to Wendy's estate pursuant to r 7.10 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); the appointment of a person to act as tutor for John as cross-claimant; and leave to amend the cross-claim. (Nick says that the failure to comply with Rees J's orders in a timely manner was the subject of a later hearing resulting in indemnity costs orders against the David/Karl interests.) On 14 February 2019, the matter came before me and I made further orders for the filing of such a notice of motion.
On 21 February 2019, a notice of motion was filed (Nick complains that the relief there sought was contrary to that which was the subject of the orders that had been made by Rees J and by me), seeking orders that: Nick be restrained from acting as tutor; leave be given to the defendants to proceed by cross-claim against a solicitor (Ms Stephanie Hughes); and as to leasing the Trundle properties. That motion was subsequently abandoned.
On 22 March 2019, a fresh notice of motion was filed (the March Motion) seeking (again, Nick says, contrary to the orders that had been made for the filing of a motion) orders that: Nick be restrained from acting as tutor; Angelena be appointed as representative of Wendy's estate on the cross-claim; the defendants be given leave to proceed against Ms Hughes on the cross-claim; the defendants be given leave to file an amended cross-claim; the defendants be given leave to amend the defence; directions as to the role of the mortgagee(the National Australia Bank Limited) in the proceeding; and as to leasing of the Trundle properties.
Following the listing of the March Motion (for hearing of the relief sought in prayers 1-7 only - i.e., not to deal with the application for orders for the leasing of the Trundle properties), the David/Karl interests notified Nick of their intention to seek orders under a further version of the notice of motion served on 12 June 2019. Subsequently, on 17 June 2019, an amended notice of motion was served by the David/Karl interests (that being the version of the interlocutory application that was dealt with in my earlier reasons) (i.e., the Amended Motion).
Leave to file the Amended Motion was opposed by Nick. Complaint was made that the David/Karl interests had not taken steps to relist the proceeding before me to deal with those matters in advance of the listed hearing on 21 June 2019 and complaint was also made that they had not explained, or adequately explained, the basis for not complying with the earlier orders made by Rees J and by me in relation to the filing of a notice of motion of the kind there described. In particular, Nick maintained that leave should not be granted for the amendment of any motion to include the orders contained in the Amended Motion; but, in the alternative, that if leave be granted for the filing of the Amended Motion and the motion heard, the plaintiffs ought be awarded costs on an indemnity basis against the defendants (see his previous submissions dated 20 June 2019).
I gave leave for the filing of the Amended Motion (as explained in my earlier reasons) because I was not persuaded that there was any prejudice that would be suffered by Nick by proceeding to deal with the relief now being sought that could not adequately (and consistently with the overriding purpose mandated for the conduct of litigation in this Court) be met by a costs order in due course; and I was of the opinion that it was in the interests of the just, quick and cheap resolution of the real issues in dispute to settle the complaints about the constitution of the proceedings once and for all. I remain of that view.
[4]
Applicants' (Defendants') submissions
The applicants emphasise the practical difficulties they say they faced by the time of the Amended Motion: namely, that the proceedings had been commenced in haste (in view of Wendy's terminal illness) and, although Sackar J had noted the conflicting interests of Nick as tutor in the plaintiff's claim and of Wendy as John's tutor in the cross-claim, his Honour did not make any orders to regulate the conflicts and the practical position was that there was no one else who would act as tutor for John in the claim or the cross-claim; that although orders were made appointing the NSW Trustee and Guardian (the Trustee) in late 2017 to act on John's behalf, the Trustee was subsequently permitted (by me) to withdraw, as John had no estate to administer; and that, upon Wendy's death on 26 August 2018, the proceedings necessarily had to be re-constituted.
As noted already, Angelena was Wendy's appointed executor. She was granted probate on 15 March 2019 of Wendy's Will dated 19 October 2017. It is said by the applicants that it was appropriate that Angelena become the representative of Wendy's estate in the plaintiffs' claim. There can be, and was, no real dispute as to that proposition.
Where the dispute arose was as to the application for leave for Angelena to be substituted as John's tutor in the cross-claim brought by the David/Karl interests. The applicants say that that main thrust of their application in that regard was to "preserve the integrity of the cross-claim" by substituting Wendy's legal personal representative (Angelena) for Wendy. It is said that that substitution should have been uncontroversial and that it would ensure both that Wendy's estate is adequately protected in the principal claim and that John's interests in the cross-claim are protected (noting that Wendy's estate would be bound by any orders in those proceedings).
The alternative submission put for the applicants on the hearing of the Amended Motion was to the effect that, if Angelena were not to be substituted for Wendy as John's tutor in the cross-claim, then Nick should be restrained from acting as John's tutor in the plaintiff's claim. It was submitted that Nick and Angelena were "equally conflicted", and must be treated the same way to avoid a procedural unfairness.
The applicants say that Nick's opposition to the Amended Motion (alleging that Angelena's interests conflicted with those of John) was made notwithstanding his own "conflicting interests". (Nick disputes that he has any such conflict of interest, as adverted to above.) The applicants also say that, to avoid 'derailing' the litigation on a personal issue, the issue of proceedings against Ms Hughes was not pressed - and that Angelena, David and Karl were referred to other solicitors "who will now commence separate proceedings" against the solicitor who acted on the transactions they seek to attack. Hence, the relief they pressed under the Amended Motion only relevantly went to the constitution of the proceedings in relation to their cross-claim.
The applicants say that the situation was that if Angelena was not substituted for Wendy, then there was a real risk the cross-claim would fail for want of prosecution, which would permit Nick to retain the advantages he procured in the 2010 and 2015 trust transactions.
It is said that Nick did not seek to resolve the procedural problems that arose with Wendy's death; rather, that Nick appeared to seek to take advantage of them. Insofar as Counsel for Nick submitted (in the course of closing submissions on the Amended Motion) that consideration might be given to splitting the proceedings, and embarking upon separate hearings of the plaintiffs' claim and the cross-claim, the applicants' complaint is that that that submission came at a late stage "when it could not result in a saving of costs".
The ultimate outcome of the Amended Motion was, the applicants submit, in substance the outcome which had been sought in the Amended Motion "albeit by a slightly different route", namely that Nick and Angelena would continue to be representative parties in the plaintiff's claim and in a separate claim by John (with Angelena as tutor), to determine the issues formerly raised by Wendy in the cross-claim.
It is conceded by the applicants that there were several iterations of the motion and that the respondents should have an order for costs thrown away by each amendment to the motion (albeit that it is submitted that those costs ought be relatively minor and would extend only to the time spent reading and taking instructions as to each amendment). However, the applicants maintain that the Amended Motion was substantially successful in that it resolved the procedural impasse (which it is said was largely the result of Nick's recalcitrance).
In those circumstances (and noting the observation I had made in my earlier reasons to the effect that there was some fault on both sides), the applicants' principal submission on costs is that they (as the moving parties) should have their costs of the Amended Motion but that they should pay the other parties' costs thrown away by the successive amendments to the notice of motion. In the alternative, it is submitted that a just outcome would be one in which each of the parties meets his or her own costs of the motion.
Insofar as the earlier submission for the respondents made reference to an application for costs under s 99 of the Civil Procedure, and to the extent that such an application is still pressed, the applicants say that the respondents have not followed the procedures laid down by the Court of Appeal in Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153 (Lemoto) (at [144]-[150] per McColl JA, Hodgson and Ipp JJA agreeing), dealing with the analogous s 198M of the former Supreme Court Act 1970 (NSW), and that Practice Note SC Gen 5 (the Practice Note) applies to such an application. They resist any such order on that basis.
What her Honour said in Lemoto (at [144]-[149]) was that:
144 I should, at this stage, record my disagreement with the primary judge's observation that if a party seeks a s 198M order, the conduct of that application is then purely a matter for the judge. Section 198M is not open to that construction. Where an application is made by a party as s 198M contemplates, it is that party who should have its carriage. It is only if the judge, of his or her own motion, considers making an order, that the carriage of the matter is purely a matter for him or her.
145 Where the application is made by a party, it should be made by notice of motion supported by an affidavit: see Sorridimi v Moros & Anor [2004] NSWCA 168.
146 The Court must ensure that the legal practitioner has full and sufficient notice of the complaint and full and sufficient opportunity of answering it. Insofar as the degree of particularity of notice is concerned, cases concerning the requirement that allegations against a legal practitioner in disciplinary proceedings be specifically identified provide an apt analogy: see Smith v NSW Bar Association [1992] HCA 36; (1992) 176 CLR 256 at 270 per Deane J. Specifying the allegation with particularity guides the court as to the proper approach to its task and facilitates making clear findings as to the nature and quality of the legal practitioner's conduct so as to determine whether a s 198M order ought be made: cf O'Reilly v Law Society of New South Wales (1988) 24 NSWLR 204; R v Solicitors Disciplinary Tribunal; Ex parte L [1988] VR 757 at 770; Johns v Law Society of New South Wales [1982] 2 NSWLR 1 at 6 per Moffitt P.
147 In determining the application, the court should be conscious that use of judicial findings in the principal proceedings will only be permitted where the legal practitioner will not suffer an injustice: see Flinn v Flinn (at [4] - [9]).
148 It is fundamental that the power to order costs against a non-party be exercised judicially: Knight v FP Special Assets Ltd (at 192). Exercising the power judicially means that the proceedings in which a s 198M order is considered must take place in court and, save in exceptional circumstances such as deliberate non-attendance, in the presence of the person likely to be affected by any order made. They should be determined by the delivery of a judgement which adequately exposes the reasons for the outcome: Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247.
149 While recognising that the procedure to be adopted pursuant to Division 5C is a matter for the court considering making a s 198M order, I would suggest that such a court:
(1) consider whether there is a prima facie case that a solicitor or barrister has provided legal services to a party without reasonable prospects of success within the meaning of s 198J; the solicitor or barrister should be given an opportunity to be heard on whether a prima facie case has been made out; full particulars of the basis of the application should be provided;
(2) if the court considers there is a prima facie case, the legal practitioner should be given the opportunity to show cause why a s 198M order should not be made; again this requires giving the solicitor or barrister sufficient particulars of the prima facie case;
(3) after any explanation is provided, the court should determine whether a finding that the legal practitioner has provided legal services to a party without reasonable prospects of success within the meaning of s 198J should be made; in considering this issue the onus of proof may differ depending upon whether or not the rebuttable presumption in subss 198N(1) and (2) is operative;
(4) if the court concludes the legal practitioner has provided legal services to a party without reasonable prospects of success within the meaning of s 198L the court should consider whether it is, in all the circumstances, just to make a s 198M order;
(5) if an order is made, it should specify whether it is a repayment order or an indemnity order and whether the solicitor or barrister is ordered to pay "the whole or any part of" the relevant costs;
(6) provide reasons for the decision.
[5]
Respondents' (plaintiffs') submissions
I have referred above to the plaintiffs' initial outline of submissions on 20 June 2019 in which the costs orders then sought were identified as follows: costs pursuant to s 99 of the Civil Procedure Act on an indemnity basis forthwith; alternatively, that the defendants pay the plaintiffs' costs on an indemnity basis forthwith. They submitted at that time that costs should be the subject of submissions by the parties and their legal representatives and determined on the papers (hence the reason that I did not make costs orders at the time I published my earlier reasons).
As to the Amended Motion, the respondents submit that they were successful in that motion and therefore, pursuant to rr 42.1 and 42.7 of the UCPR, costs should follow the event and be ordered in their favour. Further, the respondents submit that, as a result of the applicants' conduct, costs ought be ordered in their favour on an indemnity basis and forthwith.
They still press for an order for costs against the legal practitioners acting on behalf of the applicants as a "wasted costs order". In respect of the wasted costs order, the respondents rely on their previous submissions of 20 June 2019 as to the following matters: the numerous iterations of a motion which sought numerous relief, some later abandoned and then sought again, including removal of the first plaintiff's tutor; the fact that the removal of the first plaintiff's tutor was sought in a previous motion but was not pressed at the hearing of it; a failure to comply with court orders; and a failure to comply with a subpoena. As adverted to above, complaint as to various of those matters was made at the hearing of the Amended Motion (in the context of the opposition to the filing of the Amended Motion).
In particular, it is noted by the respondents that: the recent motion was originally filed on 20 July 2018 seeking only leave to file an amended statement of cross-claim; six different motions were subsequently put forward; 12 different prayers for relief were sought across the seven different motions; five different proposed amended statements of cross-claim were put forward (which proposed different relief, different cross-claimants and different cross-defendants); the final motion sought eight prayers for relief, of which the respondents did not substantively oppose two; and the motion was heard over eleven months after the original motion was filed, on 21 June 2019 for half a day.
The submissions on which the above proportions were based may be summarised as follows.
[6]
Submission that the respondents were successful in the "event"
The respondents say that they were successful on the Amended Motion (and are thus entitled to their costs pursuant to r 42.1 of the UCPR) on the basis that: Order 2 of the orders dated 14 December 2017 was not "lifted" (which was the relief sought in prayer 1 of the Amended Motion and which was opposed by the respondents on the basis that it was not necessary); the claim for Nick to be restrained from acting as tutor for John on the claim (prayer 2 of the Amended Motion), which was opposed by the respondents on the basis that it was not prosecuted at a previous motion and he did not have a relevant adverse interest, was not successful because Nick remains as tutor for John on the principal claim; as to Angelena being appointed pursuant to r 7.10 of the UCPR (prayer 3 of the Amended Motion), which was opposed by the respondents, the respondents were successful because Angelena was appointed based on her capacity as Executrix; as to Angelena being appointed as tutor for John on the first cross-claim (prayer 3A of the Amended Motion), which was opposed by the respondents on the basis that Angelena had a relevant adverse interest, the respondents were successful because Angelena had an adverse interest and was not so appointed; as to leave to file an amended cross-claim (prayer 3B of the Amended Motion) (which it is said was only opposed by the respondents on the basis that a proper tutor had not been appointed), the respondents say they were successful because Angelena was not appointed as tutor for John on the cross-claim but, for case management reasons, a new proceeding was required to be commenced; as to leave for David, Karl and Angelena as Executrix to file a cross-claim in the same form as the proposed amended first cross-claim (prayer 3C of the Amended Motion), which the respondents opposed on the basis that the applicants did not have standing, the respondents were successful because leave was not granted; and as to leave for the applicants to file an amended defence (prayer 3D of the Amended Motion), the respondents point out that they did not oppose that order and it was duly granted.
The respondents say that they opposed an order that the matter be listed for hearing only on the basis that a substantial number of steps were required to be taken by the parties, including amended pleadings and further evidence. They say that, where the parties have consented to a timetable for those steps, the order to list the matter for hearing is "hardly a negative outcome" for the respondents (and that, but for the tutor issue and the applicants' motions, would have been sought by them earlier).
Thus, the respondents submit that they should have an order for their costs and oppose an order for them to pay the applicants' costs of the motion.
Costs forthwith order
As to the application for a "costs forthwith" order, the respondents note that, pursuant to r 42.7(2) of the UCPR, costs of an interlocutory application are not payable until the conclusion of the proceeding unless the court orders otherwise. They submit that the circumstances of the Amended Motion warrant a "costs forthwith" order, addressing the three main factors relevant to the consideration of such an application as follows.
First, as to whether the application raises a discrete issue separate to the substantive proceeding, or finally determines a discrete issue, the respondents say that the motion primarily dealt with procedural issues and that those issues were finally determined. It is said that whether a purported tutor has an adverse interest is wholly irrelevant to the issues to be determined in the substantive proceeding and that the amendments to the pleadings were unopposed, except to the extent of the appropriate representation. Thus, it is said that the procedural issues concerning representation have now been resolved and that the parties "are in a position to take steps towards a trial".
Second, as to whether a party has engaged in some unreasonable conduct, the respondents submit that the following conduct of the applicants was unreasonable: seeking to remove Nick as tutor in a previous motion, not pressing that relief at the hearing of that motion, then subsequently seeking the same relief in the Amended Motion; significant delay prosecuting the motion and non-compliance with court orders, which resulted in an adverse indemnity costs order; and the fact that eight different motions were put forward by the applicants and other proposed parties against different parties and proposed parties, three of which were put forward after the previous indemnity costs order was made.
It is said that the respondents have incurred a significant amount of expense responding to the different motions and considering the different issues raised in them and that the applicants are aware of the significant costs incurred by Nick (personally and as tutor for John) in the proceeding, noting that in the applicants' previous unsuccessful motion to restrain Nick's solicitors from acting for the plaintiffs in the principal claim Nick gave evidence in cross-examination on 27 June 2018 (see T 77.19-31; T 86.14-34) as to his financial position and as to his unpaid legal costs; and pointing to the unsuccessful motion to remove Nick as tutor before Sackar J.
It is submitted that the expenses incurred by Nicholas in successfully contesting the Amended Motion (as well as the previous motion and seeking an urgent listing on 13 February 2019) have "significantly prejudiced his financial capacity to continue the substantive proceeding".
Nick argues that it is an available inference to draw, based on the applicants' (and their representatives') knowledge of Nick's financial situation since at least 25 July 2018, that the applicants' conduct of the Amended Motion "was premised on an attempt to reduce, impair or strip [him] of financial means to continue prosecuting the proceeding as John's tutor, thereby securing ill-gotten gains". It is submitted that the inference is also available to be drawn from the entirety of the applicants' conduct since the decision of Sackar J in Owen John Turner by his Tutor Nicholas John Turner v Wendy Joan O'Bryan Turner [2018] NSWSC 1140 delivered 25 July 2018 (pointing to the numerous iterations of the motions and changes in the applicants' position throughout those different motions).
[7]
Indemnity basis
The application for costs on an indemnity basis is made by reference to the following matters.
First, that after the indemnity costs order was made against them "for knowingly failing to comply with Court orders and other delinquencies", the applicants subsequently put forward three further motions all of which failed to comply with the orders that had been made by Rees J on 9 October 2018 and by me on 14 February 2019.
It is said that, contrary to those orders, the motion filed on 22 March 2019: sought at prayer 4, leave to proceed by cross-claim against Ms Hughes ( a solicitor) (which was later abandoned by the 12 June 2019 motion) and at prayer 5, leave to amend the cross-claim to substitute the cross-claimant with the applicants and for the new cross-claimants to proceed against the then cross-defendants as well as John (as a new third cross-defendant) and Ms Hughes as a new fourth cross-defendant; (which was later abandoned by the 12 June 2019 motion); and sought at prayer 7, directions as to the potential joinder of a new party, being NAB (which was later abandoned by the 12 June 2019 motion); and at prayers 8 to 11, directions regarding leasing of properties (which was later abandoned by the 12 June 2019 motion). It is noted that the motion sent to the plaintiffs on 12 June 2019 sought, at prayer 3A, leave as per prayer 5 of the 22 March 2019 motion but the proposed statement of cross-claim listed only Angelena as tutor for John as a cross-claimant.
Complaint is made that the applicants also failed to comply with orders dated 23 April 2019 by failing to file and serve written submissions by 24 May 2019 (their submissions being filed on 17 June 2019) and that the final amended motion was provided on 17 June 2019, being four days before the hearing.
It is submitted that it is also relevant that, in the 22 March 2019 and 12 June 2019 motions, Angelena did not seek to be appointed as tutor for John on the cross-claim, which it is said necessitated a significant shift in attention and preparation on the real issues to be determined (to consider the merits of the proposed cross-claimants' action and standing) and that four days before the hearing of the motion, the provision of the Amended Motion (subsequently filed by leave) which sought Angelena's appointment as tutor again, necessitated a significant shift in focus at short notice.
Reference is made to the following correspondence between solicitors: a letter dated 18 March 2019 in which the applicants advised that Angelena no longer sought appointment as tutor for John, which was said would "remove the concerns as to potential conflicts of interests on her part"; a letter dated 18 March 2019 from the respondents' solicitors pointing out that without a tutor, the cross-claim must be stayed and seeking urgent instructions as to who the proposed new tutor will be (reserving the position as to costs); a letter dated 29 March 2019 in which the applicants' solicitors advised that their client would seek to proceed on the 22 March 2019 Motion and discontinue the Amended Motion; a letter dated 3 May 2019 in which the applicants solicitors confirmed that they were proceeding in relation to the 22 March Motion (and identified the documents sought to be read in the motion); and a letter dated 2 June 2019 from the applicants' solicitors enclosing documents by way of service in relation to the proposed amended 12 June 2019 motion.
Second, that the applicants effectively re-litigated an issue that they had decided not to press at an earlier hearing (the issue as to the appointment of Angelena as tutor on the cross-claim).
Third, that, based on the motion on foot at the time (being the 4 March 2019 motion, which included relief to lease properties), the respondents had issued a notice to produce seeking documents relating directly to that relief sought; there were issues as to production and that, thereafter, the 12 June 2019 motion did not seek relief concerning the leasing of the properties. It is said that the conduct of the applicants in first seeking then abandoning that relief (as to the leasing of properties) directly caused the respondents to incur unnecessary costs.
The respondents submit that, on the basis that case management principles compelled a just, quick and cheap resolution of the issues raised in the motion, the same principles compel an indemnity costs order.
[8]
Wasted costs order
The respondents submit that the applicants' legal practitioners have acted in "dereliction of their duties to the Court" in relation to the matters summarised above; and, in addition, that the defendants' solicitor also acted in dereliction of his duty to the court by failing to comply with a subpoena (see below).
It is noted that, in the context of a wasted costs order, the inherent jurisdiction of the court is "to ensure that lawyers properly perform their duty to the court to conduct litigation with propriety" and that this includes "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… It is frequently … exercised in order to compensate the opposite party in the action" (citing Myers v Elman [1940] AC 282).
The respondents submit that the manner in which the motion was prosecuted demonstrates serious neglect and/or serious incompetence of (and/or that the respondents incurred costs improperly for actions taken by) the applicants' legal representatives. It is noted that, regardless of the applicants' instructions (if any) relating thereto, the applicants' legal representatives owed a duty to assist the court to further the overriding purpose under the Civil Procedure Act. It is said that the applicants' legal representatives failed to carry out that duty by their conduct and/or caused the applicants to fail to carry out that duty.
The respondents note that David and Karl are aged 21 and 20 respectively; that both have minimal financial capacity and that they are unable to meet a costs order. It is said that the applicants' legal representatives are aware of this incapacity and that any costs orders will be met by the property subject of the proceeding. The respondents seek the return of that property (or the value of it) and say that they are therefore prejudiced by any costs incurred by the applicants, particularly wasted costs.
As an additional submission on the wasted costs order issue, the respondents say that it was evident that Angelena had an adverse interest to John. It is submitted that it is "questionable" whether the defendants' solicitor carried out any analysis prior to certifying that Angelena did not have an interest in the cross-claim which was adverse to the interests of John as cross-claimant. The respondents say that such certification was unreasonable conduct and below the standard required; and that, as a result of the certification, Angelena was put forward as a viable tutor and the respondents incurred significant costs resisting the motion for that relief.
It is said that the respondents did not resist the proposed amendments but, upon receipt on 17 June 2019 of the proposed motion, which reintroduced a prayer for the appointment of Angelena as John's tutor on the cross-claim, they were compelled (again) to resist the appointment. It is said that, prior to that, the respondents had already notified the applicants that instructions to seek costs against the legal representatives would be sought; and that had the certification not occurred and had a suitable tutor been proposed, the respondents would not have incurred substantial costs resisting the proposed appointment.
The respondents point out that the defendants' representatives were aware, from 13 July 2017, that the then cross-defendants opposed the appointment of the purported tutor for the cross-claimant (then Wendy), because, inter alia, she had an adverse interest on account of the relief sought in the claim; and that Angelena, on appointment as Wendy's Executrix, was similarly affected. It is said that the applicants' legal representatives were also aware, since 13 July 2017, that Wendy had not filed a consent to act as tutor and the applicants' solicitor had failed to certify that she did not have an adverse interest to John; and that the respondents' reply filed 11 September 2017 did not plead to the allegations.
It is submitted that, in effect, the applicants' legal representatives had prosecuted the cross-claim (the defendant's solicitor as solicitor on the record) for two years knowing this "patent deficiency" (namely, the absence of a consent to act as tutor with the accompany solicitor's certificate); and, being aware of this deficiency and noncompliance with the UCPR, knowingly failed to rectify it.
Other matters
The respondents point to the view I expressed in Turner v O'Bryan-Turner [2019] NSWSC 258 (at [43] - [46]) that the "attitude demonstrated by the first to third defendants through their legal representatives [could] fairly be described as cavalier" and that I marked this with the court's disapproval by ordering costs on an indemnity basis on that occasion. It is said that the delay in relation to the motion prejudices them (as the plaintiffs in the principal claim and defendants in the new proceeding) in circumstances where the applicants (the defendants in the principal claim and plaintiffs in the new proceeding) seek to impugn the 2010 and 2015 transactions on the basis of undue influence and unconscionability, both of which require evidence of conversations and intentions over nine years ago and four years ago, respectively.
It is submitted that the respondents have incurred the following wasted costs in relation to the proposed appointment of Angelena as tutor: that between 26 October 2018 and 22 March 2019, the applicants had prepared their case on the basis that Angelena sought appointment as tutor; between 22 March and 17 June 2019, the applicants had prepared their case on the basis that Angelena did not seek appointment as tutor because the defendants (i.e., the respondents) would be substituted as cross-claimants; and, on 17 June 2019, four days before the hearing, the applicants re-prepared their case on the basis that Angelena sought appointment as tutor.
The respondents point to the Practice Note in the context of wasted costs orders and the observation of the court in Whyte v Brosch (1998) 45 NSWLR 354 at 355 in relation to the duties owed by legal practitioners to the court.
It is submitted that, considering the lack of sophistication of David and Karl, and the complexity arising in respect of the tutor issue, the numerous iterations of the motion were attributable to the applicants' legal representatives; and that the numerous iterations demonstrate a failure to facilitate a just, quick and cheap resolution by: complicating and confusing the real issues in dispute; causing significant delay and protracting the hearing of the motion for over 11 months; and causing significant costs to be incurred in dealing with the various relief sought and/or abandoned.
Further, complaint is made as to the costs incurred in the respondents having to incur costs defending two motions seeking the same relief (namely, the prayer for the removal of Nick as tutor). It is said that the reason given for not pressing the removal of Nick as tutor (namely that correspondence had been received that the Trustee was being invited to take over so it was put to one side while the Trustee made his or her investigations), was not correct since it was acknowledged by the applicants' solicitor on 18 June 2018, prior to that hearing, that the Trustee had declined to act (and, by inference, ceased investigations). It is noted that the 2018 Motion only sought leave to file an amended statement of cross-claim whereas the motion sent to the respondents' solicitors on 26 October 2018, but not filed, sought the removal of Nick.
[9]
Determination
The principles in relation to the exercise of the costs discretion are not in dispute. There is a wide discretion as to costs (s 98 of the Civil Procedure Act). The general rule is that costs follow the event, subject to the court's discretion to vary the general rule in appropriate cases (see r 42.1 of the UCPR).
Under s 99(2) of the Civil Procedure Act, the court may make the following orders:
…
(b) it may, by order, direct the legal practitioner:
(i) in the case of a barrister, to pay to the instructing solicitor or client, or both, the whole or any part of any costs that the instructing solicitor or client, or both, have been ordered to pay to any other person, whether or not the solicitor or client has paid those costs, or [my emphasis]
(ii) in the case of a solicitor, to pay to the client the whole or any part of any costs that the client has been ordered to pay to any other person, whether or not the client has paid those costs,
…
The Practice Note states:
5. The requirement that parties and practitioners comply with directions and rules will be confirmed by the use of costs sanctions in appropriate cases, including costs orders against practitioners personally and costs ordered on a payable forthwith basis." [original emphasis]
In respect of the court's jurisdiction to make a costs order as against a legal practitioner (wasted costs order) as, for instance, under s 99 of the Civil Procedure Act it is noted in G E Dal Pont, Law of Costs (4th ed, 2018, LexisNexis Butterworths Australia) at [23.2] that:
The object of the court's jurisdiction to make a wasted costs order is primarily compensatory; that is, to indemnify or to compensate, and thus protect, the client who has suffered and to indemnify, or compensate the party who has been injured, whether it be the opposing party or the lawyer's own client. …
The court is not principally concerned with punishment … but with ensuring the litigant is not required to pay costs caused by the lawyer's dereliction of duty to the court. [footnotes omitted]
When one comes to ask who was successful in the "event" that was determined in my earlier reasons, the "event" in my opinion is, relevantly, the application for Angelena to represent John's interests as tutor in the cross-claim. Insofar as the Nick interests have pointed to aspects of the relief claimed in the motion or Amended Motion that were either not pressed (and not granted) or not opposed (and granted), those do not represent the core of the dispute that was debated and determined in the interlocutory hearing the subject of the present costs application.
In relation to that "event", although Nick succeeded in his contention that Angelena had an adverse interest to John in relation to the principal claim, and in persuading me that I should not make an exception to the general principle that such a person should not be appointed as his tutor on the cross-claim (because of that adverse interest), that was ultimately in one sense a Pyrrhic victory - in that I was firmly of the view that the position should not be left that the cross-claim was unable to be progressed in conjunction with the principal claim and put in place a regime to deal with that. There is, therefore, force to the submission that the David/Karl interests were successful as a matter of practical reality in that the orders made by me permit the contentions the subject of the cross-claim to be pursued without further delay (albeit through the mechanism of separate proceedings to be heard consecutively with the principal claim). The recognition that Angelena's conflict of interest would preclude her appointment as a tutor on the cross-claim was in one sense a triumph of form over substance.
Thus, my conclusion is that there was a mixture of success on this issue but that, overall, the David/Karl interests succeeded in practical terms in achieving the outcome they sought (and thus in the terms of Roache v News Groups Ltd [1998] E.M.L.R 161) they obtained relief that would not have been obtained but for the Amended Motion. Therefore, as a starting point, in the ordinary course, costs would follow the event and there would be a costs order in their favour (albeit not for costs thrown away as a result of the various iterations of the motion and the like).
However, the conduct of the matter by the David/Karl interests must also be taken into account. The David/Karl interests' position was one that may fairly be described as one based on "shifting sands" - there were (as is conceded) numerous iterations of the motion, with not insignificant changes in the relief to be sought and manner in which the claim was sought to be pursued. It is indisputable that costs were unnecessarily incurred and thrown away as a result of the varying stances adopted by the David/Karl interests. That, to my mind, is a factor that tends against the making of a costs order in favour of the David/Karl interests at this stage (even one accompanied by an order that the costs thrown away by the various amendments be payable by the David/Karl interests - particularly since it appears that the David/Karl interests are contending that such costs should have been minimal and hence it raises the likelihood of further argument).
It does, not, however, follow from that that there should be a costs order in favour of the Nick interests.
I accept that unreasonable conduct in the course of proceedings may be a basis for a costs order otherwise than in accordance with the usual rule (see for example Fountainhead Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397). However, I am not persuaded that the series of defaults of which the Nick interests complain is so egregious as to warrant a special costs order. Insofar as I previously criticized the first to third defendants' conduct as cavalier, that has already been dealt with in the costs orders previously made.
True it is that the conduct of the proceedings to date has been unsatisfactory insofar as the constitution of the proceedings is concerned; and it has certainly not been a model of compliance with s 56 of the Civil Procedure Act. However, as previously noted by me, there has been fault on both sides. Moreover, the tenor of some of the submissions that have been made (references to getting away with ill-gotten gains and the like) suggests that there is a risk of lack of objectivity. The place for emotive submissions of this kind is not, I would venture to suggest, before a tribunal of fact (other than perhaps a jury).
In my opinion, the appropriate course is to order that costs of the Amended Motion be costs in the cause other than the costs thrown away by the successive iterations of the notice of motion. An order of that kind should, in my opinion, adequately compensate the Nick interests for the time involved in addressing the numerous iterations of the interlocutory application and the changes in stance adopted from time to time by the David/ Karl interests and will leave the overall costs of the motion to await the outcome of the substantive proceedings.
As to whether the costs thrown away should be payable forthwith, I am not persuaded that this should be the case. Although those costs may be able discretely to be identified, it seems to me that it would be more appropriate for them to form part of an overall costs assessment process in due course and the fact that the matter has now been listed for trial means that there is not uncertainty as to the timing of the ultimate hearing.
Nor do I consider that the costs thrown away should be ordered on an indemnity basis for the reason that I am not persuaded that there has been such a level of unreasonableness in the conduct of the proceedings to warrant such an order at this stage.
As to the claim for personal costs orders against the applicants' legal representatives, the steps contemplated in Lemoto were not here followed. While I remain of the view that there has been much that is unsatisfactory in the conduct of the proceedings to date (though there has been fault on both sides), I would not be prepared to make a personal costs order without hearing submissions directly from the legal representatives in their own right on that issue and that has not occurred.
Moreover, it was the position of the Nick interests at the hearing of the Amended Motion that the issues posed by the application raised questions of some complexity requiring careful consideration (and, indeed, this was the basis, as I understand it, on which the Nick interests pressed for written reasons to be published on what might otherwise have been an interlocutory point able to be dealt with in more summary fashion).
In the absence of hearing from the solicitors, I am not prepared to contemplate findings of such a serious kind as breach of duty to the court or the like. Nor could I possibly draw the inference that the conduct of the proceedings to date has been some kind of campaign to exhaust Nick's financial resources so as to permit the David/Karl interests to "enjoy some ill-gotten gains". It must be kept in mind that both sides accuse the other of misconduct or breach of duty. Those allegations are yet to be determined.
In my opinion, the parties would be well advised to concentrate on preparation for the ultimate hearing rather than incurring further costs in interlocutory stoushes of this kind.
Finally, I accept that, on its face, the conduct of the applicants' solicitor in procuring a charge for legal fees was inconsistent (to use a neutral term) with the orders that were made in relation to not encumbering the assets the subject of the dispute in the proceedings; but I am not in a position to make any findings as to that conduct on the evidence before me and particularly without hearing from the legal representatives and without them having a full opportunity to understand and respond to the allegations now made against them.
[10]
Orders
For the reasons above, I order as follows:
1. The defendants (the applicants on the motion) pay the costs thrown away by the successive iterations of the notice of motion ultimately heard on 21 June 2019.
2. Otherwise, costs of the notice of motion heard on 21 June 2019 be costs in the cause.
[11]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 13 December 2019
Third, as to whether a long time is expected before the hearing of the substantive proceeding, it is noted that as at the date of the hearing of the Amended Motion, the substantive proceeding had not been set down for final hearing and it is said that, subsequent to the decision being handed down on 12 September 2019, there is still "much to come in the proceedings". (The proceedings have, however, now been listed for hearing and are being case managed by me.)
It is submitted that the costs of defending two motions seeking the same relief were incurred without reasonable cause and improperly in circumstances for which the applicants' legal representatives ought be held responsible. Complaint is again made that the defendants' representatives failed to facilitate a just, quick and cheap resolution of the real issues in dispute, or which should have been in dispute had the relief been sought at the previous hearing.
As to the alleged non-compliance with court orders, the respondents reiterate the complaints made previously (and referred to above) and say that the Amended Motion raised additional issues which were abandoned (thus, it is said, indicating that they were not "real" issues to be determined and were in breach of a duty to the court).
As to the alleged non-compliance with a subpoena, this relates to the subpoena issued in relation to the claimed equitable charge by the applicants' solicitor over the properties as part of the fee agreement. It is submitted that the non-compliance with the subpoena contributed to wasted costs and is conduct of a kind which attracts a wasted costs order.
In this regard, reference is made to the following correspondence between the solicitors: request by letter dated 19 October 2018 (which also referred to a request by letter dated 8 October 2018); after refusing on account of privilege, a further request by letter dated 23 October 2018; further refusal dated 30 October 2018 claiming privilege; further request by letter dated 23 January 2019; further refusal dated 24 January 2019 claiming privilege; further request by letter dated 30 January 2019; and further refusal by letter dated 31 January 2019 claiming privilege.
It is said that the subpoena was issued on 22 February 2019 on the basis that the documents to be produced would provide an understanding of the nature of the charge over properties created by the defendants'/cross-claimants' retainer with their former and current solicitors in circumstances where the proposed tutor (Angelena) for the cross-claimants was also the proposed representative for the first defendant and: the defendants, including the first defendant, seek to retain properties subject to the retainer charge to maintain the first defendant's estate; and the cross-claimants seeks to remove an equitable charge which would inflate the first defendant's estate. (A subpoena had also been issued and served upon the former solicitors, who apparently produced 212 pages.)
Complaint is made that the subpoena recipient, being the applicants' current solicitor: stated that no issue will be taken as to the last day for service; complained that the subpoena was poorly drafted; advised that two documents answered the description of the subpoena - a letter and the retainer; stated that, while the plaintiffs' claim was on foot, or if the properties were reconveyed, the charge would not be pressed, but did not say whether it would be pressed if an order for damages was made; did not respond to a request in advance for the basis of any objection to production; produced the two documents without objection having been raised to production; in response to a complaint that production was deficient considering the former solicitors' production, complained that: the subpoena had only been served four days before the return date and that best efforts were carried out to comply with the subpoena; the subpoena was issued as an "ad hominen" attack and was without forensic purpose; and said that efforts were ongoing to locate more documents and a further 28 days were required; and in response to a further request for production, continued to question to forensic purpose of the subpoena.
The respondents say that they provided a detailed explanation as to the forensic purpose of the subpoena by letter on 23 May 2019, notwithstanding that submissions as to purpose had already been heard and leave granted to file the subpoena; and that no substantive response was provided. On 13 June 2019, the respondents' solicitor informed the applicants' solicitor that the non-compliance would not be raised prior to the hearing due to the short timeframe in which it would be heard, but reserved the respondents' right to produce the letter on a question of costs.
A further issue raised by the respondents is that the charge was in breach of orders made on 18 April 2017. The respondents say that it was not until closing remarks at the hearing, after senior counsel for the applicants had conferred with the defendants' solicitor, that it came to light that the charge would be discharged (but it is said that a discharge does not resolve the underlying issue of John's interest as a creditor of Wendy's estate). The respondents submit that the issue should not have remained until the hearing, where it was publicly addressed; rather, that the applicants' solicitor should have been alive to the issue immediately upon receiving instructions to act and, well before the hearing of the motion, should have accepted the impropriety of taking a charge over the property subject of the proceeding when it was contrary to an injunction made in the proceedings. Further, it is submitted that the charge sought to secure fees against the property, which would have depleted the limited asset pool available to the respondents and their legal costs.
It is said that the subpoena recipient, being the applicants' solicitor: was aware that the subpoena had a forensic purpose as submitted by the respondents' counsel and leave was thus obtained by the court to issue and serve it; was aware of the respondents' position as to the forensic purpose; produced a retainer and letter accepting the retainer to "comply" with the subpoena; refused to produce any other document pursuant to the subpoena; knew, or should have known, the charge was in breach of the 18 April 2017 orders; and knew, or should have known, the charge was an issue in the motion as it touched upon Angelena's potential adverse interest.
It is submitted that the applicants' solicitor's conduct with respect to the subpoena was in dereliction of his duty to the court, at least insofar as that duty is found in s 56(3) of the Civil Procedure Act, which caused unnecessary costs to be incurred by the respondents.