G ISSUE FIVE: THE costs CONSEQUENCES
I The Applications and the Overriding Issue
58 The complex costs orders proposed reflected the complexity of what had occurred. By the time of the interlocutory hearing, the following costs applications were proposed by various parties:
(1) the following parties seek against the applicants the costs of all case management hearings to date on an indemnity basis, payable forthwith as a lump sum:
(a) respondent in Brash v Natalwala (NSD 882 of 2019);
(b) respondent in Tompkins v Natalwala (NSD 889 of 2019);
(c) respondent in Page v Rooparinesingh (NSD 1673 of 2019);
(d) first and second respondents in West v Rane (NSD 875 of 2019);
(e) respondent in Van Tricht v Esler (NSD 1631 of 2019);
(f) respondent in Amorin-Woods v Saba (NSD 881 of 2019);
(g) first and second respondents in Scott v Rane (NSD 1596 of 2019); and
(h) second respondent in Maher v Kim (NSD 1247 of 2019).
(2) The respondent in Baxter v Boshell (NSD 1652 of 2019) seeks against the applicants that costs of the interlocutory hearing and of 24 February 2020 (including all preparation) be paid on an indemnity and a lump sum basis.
(3) The following parties seek their costs of, arising from and incidental to all case management hearings and interlocutory hearings on an indemnity and a lump sum basis against the applicants' solicitor:
(a) respondent in Gilbert v State of Queensland (NSD 539 of 2019);
(b) first and second respondent in Brown v Morrow (NSD 1257 of 2019); and
(c) third respondent in Scott v Rane (NSD 1596 of 2019).
(4) The applicant seeks:
(a) in the proceedings commenced by Ethicon GMs, that costs be reserved; and
(b) in all other matters, that costs be costs in the cause.
59 All these various costs orders are essentially directed to the same problem: who should bear the costs of the unnecessary case management hearings referred to in the chronology set out above?
60 In resolving this question one thing is clear: the respondents should be compensated for the failure of the applicants to grasp the realities of the problems far earlier. Accordingly, this is a clear case where costs should not be left to be costs in the cause or otherwise reserved generally. The real question is as between the applicants and their legal representatives: who should bear the responsibility for any adverse costs order?
61 The possibility of a special costs order being made was raised by Burley J on 12 September 2019 (at the third case management hearing) and, by order 7 made on 24 February 2020 (at the sixth case management hearing), I reserved the question of whether the Solicitors should pay part or all of the costs reserved. More particularly, the issue reserved was whether the costs, or a proportion of them, of any of the Federal Proceedings which are subsequently stayed are to be borne by the Solicitors personally, because of a failure to comply with s 37N(2) the Act. Both in writing and during oral argument, the issue addressed more generally was what costs order should be made in relation to the Federal Proceedings to date. For obvious reasons, I gave leave to the Solicitors to intervene and adduce evidence and submissions on this issue. This leave was exercised and the Solicitors filed evidence and submissions (and were represented separately from the applicants at the hearing by counsel, Mr Lloyd).
II An Overview of the Submissions of the Solicitors
62 In the course of his able and comprehensive submissions, Mr Lloyd summarised the position of the Solicitors as follows:
(1) they acknowledge that notice of the overlap between the applicants and the Ethicon Class Action could and should have been given prior to the case management hearing on 24 February 2020, and the Solicitors apologised to the Court and the respondents for the failure to have done so and for the inconvenience caused to the Court and the parties;
(2) they contend that the question of whether the Court should exercise its discretion to make a costs order against the Solicitors for any or all of the costs of any of the Federal Proceedings should be reserved for later determination, because a determination of that question at this stage would involve real practical unfairness to the Solicitors; and
(3) if, contrary to the submission in (2) above, the Court determines the issue of all or any of the costs of any of the Federal Proceedings, in the exercise of the Court's discretion, there should be no order made against the Solicitors.
III Relevant Principles
63 The argument made by the Solicitors focussed heavily on the leading Full Court authorities dealing with personal costs orders against solicitors which, as counsel noted, "pre-date the introduction of ss 37M and 37N" of the Act. Despite this, the Solicitors accepted that the introduction of ss 37M and 37N:
… may have broadened the circumstances in which the Court may make a personal costs order against a lawyer. However, it is appropriate to construe and apply s.37N(2) and (4) in the context of the earlier decisions in personal costs order cases. The Court of Appeal of New South Wales has continued to apply relevant decisions delivered prior to the introduction of s 56 of the Civil Procedure Act 2005 (NSW) in personal costs order cases.
64 Reference was made to my decision in Young v Hughes Trueman Pty Ltd (No 4) [2017] FCA 456. In that case, I noted (at [25]-[27]):
It is often said that the discretion as to costs in s 43 is "wholly unfettered". In a practical sense this remains true, but … this is perhaps now an over simplification. Since the introduction of Part VB of the Act, s 37N(4) has provided that in exercising the discretion to award costs in a civil proceeding, the Court must take account of any failure of a party to conduct the proceeding in a way consistent with the overarching purpose to facilitate resolution of the dispute according to law and as quickly, inexpensively and efficiently as possible. Similarly, s 37M provides that all civil practice and procedure provisions must be interpreted and applied, and any power conferred must be exercised or carried out, in a way that best promotes the overarching purpose.
Irrespective of whether it is still literally accurate to say that the discretion is "unfettered", the principles which guide the exercise of a discretion to make orders such as those proposed emerge from the decision of Goldberg J in White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 and the decisions of the Full Court in Levick v Deputy Commissioner of Taxation (2000) 102 FCR 155 and Macteldir Pty Limited v Roskov [2007] FCAFC 49. Wigney J collected the relevant principles in Mitry Lawyers v Barnden [2014] FCA 918 at [42] as follows:
1. Instituting or maintaining a proceeding on behalf of a client which has no, or substantially no, prospect of success will not, without more, invoke the jurisdiction to make a costs order against a lawyer.
2. Something which involves "unreasonable conduct" is required.
3. What constitutes unreasonable conduct will depend on the circumstances of the particular case.
4. The element of acting unreasonably involves some deliberate or conscious decision taken by reference to circumstances unrelated to the prospects of success, with either a recognition that there is no chance of success, or an intention to use the proceeding for an ulterior purpose, or to abuse the processes of the court, or with a disregard of any proper consideration of the prospects of success.
5. The circumstances must involve or result in a serious dereliction of duty owed to the court, or serious misconduct in promoting the course of, and the proper administration of, justice.
6. An ulterior purpose or an abuse of process cannot be assumed simply because the case is hopeless.
7. The reason that the mere pursuit of an unmeritorious case is not so sufficient to invoke the jurisdiction to make a costs order against a lawyer is that a party is entitled to have a practitioner act for him or her in an unmeritorious case. The court is concerned to avoid the risks of a practice developing whereby lawyers endeavour to browbeat their opponents into abandoning clients, or particular issues or arguments, for fear of personal costs orders being made against them.
The summary of Wigney J was accepted by the parties as an accurate statement of the principles. To these, I would add two further matters. First, despite the focus on "unreasonable conduct" in the context of non-party costs orders, orders for costs are compensatory, not punitive: see Latoudis v Casey (1990) 170 CLR 534. Secondly, although such orders have been described as "exceptional", as McColl JA observed in Yu v Cao (2015) 91 NSWLR 190 at 216 [139]:
"[E]xceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense ... [t]he ultimate question [being] whether in all the circumstances it is just to make the order." The power to order non-party costs "is inevitably to some extent a fact-specific jurisdiction and ... there will often be a number of different considerations in play, some militating in favour of an order, some against."
(emphasis in original)
65 It was further submitted that these principles are broadly consistent with the leading decisions of the Court of Appeal of New South Wales. That Court has held that the power to make personal costs orders against legal practitioners is to be exercised with caution and sparingly: Lemoto v Able Technical Pty Ltd [2005] NSWCA 153; (2005) 63 NSWLR 300 at 320-2 [92] per McColl JA.
66 Mr Lloyd then turned to the relevance of two further matters.
67 The first was the relevance of counsel being briefed. In Fowler v Toro Constructions Pty Ltd [2008] NSWCA 178 at [85]-[87], Basten JA (with whom McColl JA and Young CJ in Eq agreed) held that the fact that a solicitor obtained and relied on counsel's advice, was a factor which should have given cause for careful consideration before making a personal costs order, and the fact that a solicitor obtains counsel's advice "and the fact that no order is sought against counsel are all factors which militate against the conclusion that the solicitor alleged a fact without a 'proper basis'". Although this is not a case involving an allegation the claims made were without a proper basis, the reasoning is said to apply and although the Solicitors acknowledge that a solicitor who retains and relies on counsel is not immune from a personal costs order, the fact that counsel is retained and the nature and extent of reliance on counsel are relevant matters in the exercise of the Court's discretion.
68 The second was where lawyers facing a potential costs order are constrained by a claim of legal professional privilege, the lawyers are entitled to the benefit of doubt and, in this regard, reference was made to the speech of Lord Bingham (with whom Lord Hoffmann and Lord Rodger agreed) in Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 at 134-5 [23]-[24].
IV The Submissions on the Evidence and on Application of Principle
69 As a consequence of the application of these principles and cautions, the Solicitors submitted that notwithstanding that it was "hardly surprising" the Court made the order reserving the question of whether a costs order against the Solicitors should be made, the better course is that the determination of whether the Solicitors should pay the costs of the overlap proceedings should be reserved for later determination. If not reserved, it is said the following matters arising from the evidence "tell against a finding that the conduct by the Solicitors involves a 'serious dereliction' by them":
(1) Mr Barakat, the solicitor with principal conduct of the proceedings, was faced with a difficult and complex problem and did attempt to give consideration to the appropriate procedure to address that problem;
(2) Mr Barakat believed that the strategy that was adopted of commencing the proceedings which may be stayed in this Court was appropriate and that this strategy was the subject of advice sought from senior and junior counsel;
(3) the choice of counsel, being senior and junior counsel also retained in the Ethicon Class Action, "was at least arguably prudent"; and
(4) there is no evidence to support a finding of an abuse of process.
70 Further, the Solicitors stressed that they were constrained from advancing "a full explanation" to the Court and that this was an important consideration in the present case. The evidence is said to reveal that "[t]here plainly are privileged communications, particularly between the Solicitors and counsel … which are capable of being relevant to the exercise of the Court's discretion". By reference to the speech of Lord Bingham in Medcalf v Mardell (at 135 [23]), it was contended that the present case is not one of those rare cases where the Court is able "to make 'full allowance' for the inability of the practitioner to tell the whole story or to conclude that there is no room for doubt" as to what occurred.
V Consideration
An Observation as to the Relevant Principles
71 The concession by the Solicitors that the introduction of ss 37M and 37N of the Act may have broadened the circumstances in which the Court may make a personal costs order against a lawyer is well founded.
72 In Kadam v MiiResorts Group 1 Pty Ltd (No 4) [2017] FCA 1139; (2017) 252 FCR 298 at 300-1 [1]-[4], I observed in relation to Part VB that:
An informed participant or observer would likely conclude that the conduct of modern litigation reflects a number of interrelated developments, several of which are relevant for present purposes. The first is the increased complexity and size of litigation. The second, connected to the first, but also partly explained by technological innovation, is the size and scale of the evidentiary material placed before courts in the process of quelling disputes. The third is the commercialisation of the law, discussed by a number of economic analysts of civil procedure who have observed that the primary modern method of remuneration of lawyers provides an incentive to maximise work and perform tasks that may genuinely be thought desirable or justifiable, but are unnecessary for the determination of the true issues in proceedings. The fourth is that the courts are an arm of government dependent upon public resources at a time of focus on efficient allocation of those resources.
The response to these and related developments has caused what might be described as a revolution in case management. Over the last 20 years, almost every Australian jurisdiction has introduced a provision by either legislation or by way of Rules of Court, setting out the 'overriding' or 'overarching' purpose of procedural rules. …
Of course, this stress on active case management is not entirely new nor has it arisen spontaneously. In 1935, the Supreme Court of the United States appointed an Advisory Committee comprised of academics and lawyers (including a former Senator), to prepare a unified system of general rules for federal courts. The procedural rules that resulted, two years later, provided that the rules were to be construed and administered "to secure the just, speedy and inexpensive determination of every action and proceeding": Federal Rules of Civil Procedure (US), r 1. More recently, in 1996, the report by Lord Woolf, Access to Justice: Final Report to the Lord Chancellor on the Civil Justice System in England and Wales, highlighted how considerations of public and private efficiency necessitated major reform, and the regulatory result of the Woolf Report (Civil Procedure Rules 1998 (UK), r 1.1) was the immediate progenitor of the various Australian case management reforms.
The developments in modern litigation which partly spurred this case management revolution have deep roots. Like turning a battleship, it is to be expected that there is some 'time lag' before the changes sought to be wrought by the procedural reforms become fully realised. …
73 Part VB sought to drive behavioural change (and make the battleship turn somewhat more quickly) by, among other things, placing direct obligations on lawyers and by making compliance with the overarching purpose obligation central to determining issues as to costs. This is reflected by s 37N(2) of the Act requiring a party's lawyer to take account of the duty imposed on the party by the overarching purpose obligation, and to the further obligation to assist the party to comply with that duty. Further, s 37N(4) provides that in exercising the discretion to award costs, the Court must take account of any failure of a lawyer to comply with these obligations. Similarly, s 37M(3) provides that all civil practice and procedure provisions must be interpreted and applied, and any power conferred must be exercised or carried out, in a way that best promotes the overarching purpose.
74 The position in the Federal Court is to be contrasted to that which applies in New South Wales. Section 99 of the Civil Procedure Act 2005 (NSW) deals with the liability of legal practitioners for unnecessary costs. By reason of s 99(1), the section applies:
… if it appears to the court that costs have been incurred -
(a) by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or
(b) improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.
75 By the operation of this section, the circumstances in which costs are to be awarded against a lawyer by reason of the failure to comply with the cognate obligations which are imposed on the legal practitioner by state legislation, are specified. These provisions expressly incorporate the necessity for the court to be satisfied that conduct of a particular kind has occurred, being the sort of conduct referred to in the previous case law. Part VB has approached the same problem somewhat differently. In exercising a discretion to award costs, the relevant mandatory obligation is to take account of any failure to comply with the obligations of the lawyer, coupled with the requirement to facilitate the overarching purpose in exercising any power including the power to award costs.
76 Although it is unnecessary for me to form a definitive view for the purposes of this application, it seems to me arguable that the pre-Part VB cases dealing with awards of costs against practitioners need to be approached with some degree of caution to the extent that they are said to delimit the circumstances in which costs can be awarded against Solicitors notwithstanding the proof of a failure to comply with the statutory obligation on lawyers imposed by s 37N(2) of the Act. Put another way, it is arguable the bar has been somewhat lowered in this Court as compared with that applying in New South Wales by reason of s 99(1) of the Civil Procedure Act 2005 (NSW). The reason why this is an issue that is unnecessary to decide, is that I think the conduct of the Solicitors in the present circumstances does rise to the level of unreasonable and unjustifiable conduct within the meaning of those earlier authorities.
The Appropriate Orders
77 It is useful to start by noting that for present purposes I accept the evidence of Mr Barakat at [69] above. It was relevantly unchallenged, and is not inherently unlikely. The consequence is that on the evidence currently before me I accept that the maladroit strategy adopted was fastened upon after at least an attempt to think about the problem, and following advice from senior and junior counsel.
78 There was another aspect of the evidence which is more problematic: that is, the notion the Solicitors were constrained from advancing a full explanation.
79 The relevant privilege said to give rise to that fetter, of course, does not belong to the Solicitors at all, but to the relevant clients. Given the wasted costs are going to be paid by either the clients or their legal representatives, it is far from clear to me as to why it would not be in the client's interests to waive any claim for privilege over advice given as to the strategy fastened upon by their lawyers as to the mode by which their claim was to be advanced.
80 This is not an example of the problem that can arise acutely when a lawyer is accused of acting unreasonably because of any improper consideration of the prospects of success, or there was an alleged intention to use the proceeding for an ulterior purpose, or to otherwise abuse the processes of the court. In those types of cases, precisely what was said to a client about those topics may be critical to assessing the conduct of the lawyer. Here, however, it is fanciful to conceive that what occurred can be explained away by thinking there may have been prudent advice given to clients that was ignored. Further, despite submissions somewhat obscurely pointing to a real problem in revealing what in fact occurred, it remains unclear to me why it would not have been possible to reveal relevant information as to consideration by lawyers as to the mode by which the claims were to be advanced, without trespassing on confidential and privileged material as to the merits of those claims.
81 Much emphasis was placed by the Solicitors on the need to give them the benefit of the doubt: but there is a big difference between the role of doubt when a batsman is hit on the pads by a ball which might be slipping down the leg side, to the role of doubt when the wicket is thrown down with the batsman stranded six foot shy of the popping crease. The failure of the Solicitors to turn their minds appropriately and promptly to how the claims in which they were instructed should be advanced consistently with the overarching purpose was not a close run thing and sensibly (and to the credit of the Solicitors), their Counsel did not suggest otherwise.
82 The problem in lack of access to the privileged material does not go to the question of whether the Solicitors were responsible for this failure. They were responsible - as Mr Lloyd correctly recognised. Nor does any opaqueness caused by a lack of access to privileged material present a difficulty in assessing whether the Solicitors or their clients should bear the responsibility for this failure. Clearly, it is far more probable than not that no part of this fiasco is the fault of the clients.
83 The real problem occasioned by any lack of access to privileged material goes to the question of the fair attribution of responsibility as between the Solicitors and those it is suggested they relied upon to give them advice.
84 It would occasion an unfairness to counsel briefed by the Solicitors to make any findings as to precisely what passed between the Solicitors and counsel. Although on the evidence in the current application I have been content to proceed on the basis of Mr Barakat's unchallenged evidence that he discussed strategy with counsel, I am acutely aware that counsel have not had the opportunity of either putting on evidence or being heard, and I would not make any order affecting the rights of counsel without providing them with that opportunity.
85 It seems to me that the appropriate course is to make an order that the Solicitors pay the respondents' costs of each of the case management hearings following the second of those case management hearings. There is simply no reason why the clients of the applicants should be required to bear the costs of those hearings nor is there any reason why the respondents should not have their costs of those hearings.
86 Given that I have concluded that the Solicitors are to bear the costs of those hearings personally because of a failure to comply with the duty imposed by s 37N(2), the consequence of this conclusion is that the Solicitors must not recover these costs from their clients: s 37N(5).
87 Further, I note my preliminary view that the Solicitors (or indeed any legal representative of the applicants) should not recover costs associated with attending or preparing for these hearings from their clients pursuant to the relevant contracts of retainer. Leaving aside any statutory or equitable power, the Court has an implied power to control its own processes and the conduct of lawyers who appear before it. My tentative view is that I do not consider it is appropriate that the applicants should be visited with the necessity to fulfil any obligation to pay costs to lawyers who, in my view, have failed to comply with the overarching duty in the way that I have described. I am conscious, however, that this was not the subject of any submissions by the Solicitors. Accordingly, I will provide the Solicitors with leave to file submissions within seven days if they wish to be heard on the question as to why an order preventing recovery of these costs qua the clients ought not be made.
88 Having reached these conclusions, I do not consider that I should make an award that the costs be paid on an indemnity basis. The case management hearings dealt with a variety of issues and much time was taken up by the respondents advancing arguments as to why various procedural steps should be taken, including transfer applications, which had minimal merit. I recognise the fact that there are differences between the individual cases, but it is impossible to approach a task such as the present without adopting a somewhat "broad brush" approach, and the overall justice of the case seems to me to be best reflected by an order that the respondents have their costs of the hearings on a party-party basis. I do not propose to make any orders for costs in relation to the various transfer applications. This extends to the applications made in the four stand-alone proceedings which, although successful, were successful because of practical matters concerning the demands on my docket, and not because of the focus of submissions made by the respondents.
89 Nor do I consider that the costs should be paid forthwith. This is for two reasons. First, the claims are continuing although the non-transferred Federal Proceedings have been the subject of a temporary stay. It is appropriate that all costs payable either in favour or adverse to the respondents should be paid at the conclusion of the proceedings, subject to any earlier compromise between the parties.
90 But there is a second and further reason why to make the costs orders payable forthwith may operate an injustice in the circumstances of this case. This is because I propose to reserve liberty for the Solicitors to seek an order that any other legal representative engaged in relation to the case management hearings on behalf of the applicants make contribution to, or be jointly liable for, the costs that would otherwise be payable solely by the Solicitors.
91 It is a matter for the Solicitors as to whether they wish to advance such a claim. Given that counsel for the Solicitors has stressed that it would be inappropriate until the substantive issues have been determined for further material to be disclosed as to the nature of the communications between the Solicitors and counsel, it seems more likely for it to be appropriate that any such application by the Solicitors, if it is made, be heard at the conclusion of the proceedings when the substantive issues have been determined. For the sake of clarity, I note that I do not propose to reserve this liberty in relation to the stand-alone proceedings, which will be transferred - but any injustice caused by the current order requiring the Solicitors to pay the whole of the costs of the relevant case management hearings could be ameliorated, if it was appropriate to do so, by an order made at the conclusion of the proceedings that remain in the Federal Court.
92 It goes without saying that if such an application is made, the matter should be listed before me for directions to be made, including fashioning orders so that any person against whom any relief is sought is provided with the necessary procedural fairness.