Xabregas v The Owners - Strata Plan No. 79205; Moallem v Consumer, Trader and Tenancy Tribunal & Ors - [2014] NSWSC 1027 - NSWSC 2013 case summary

Supreme Court of NSW|2013-11-22|Before: White J, Windeyer AJ

's Corporation, SP 79205 (Defendant 2011/244426; 2nd Defendant 2013/327776) Susan Moallem (Plaintiff 2013/327776) Consumer, Trader and Tenancy Tribunal (1st Defendant 2013/327776) Luiz Marcos (3rd Defendant 2013/327776) Westpac Banking Corporation (5th Defendant 2013/327776) Representation: Counsel: In Person (Dr Xabregas) D Radman, sol'r (Owners Corporation) M A Friedgut (Ms Moallem) By mention (CTTT) K Fraser (Westpac) P Silver (Progressive Strata Services Pty Ltd) C Fini (2nd Cross-Defendant on Cross-Summons - Owners Corporation) R Koffel (Koffels Pty Ltd) Solicitors: Slater & Gordon (Plaintiff) Crown Solicitor (1st Defendant) Grace Lawyers (2nd Defendant) Bannermans Lawyers (2nd Cross-Defendant) File Number(s): 2011/244426; 2013/327776

Variation of costs orders made by Windeyer AJ on 25 October 2013 or additional costs orders 12The relevant orders made by Windeyer AJ on 25 October 2013 are set out at para [2] above. The first order in order 2 was made pursuant to s 229 of the Strata Schemes Management Act 1996. That section provides: "229 Costs in proceedings by owners against owners corporation (1) This section applies to proceedings brought by one or more owners of lots against an owners corporation or by an owners corporation against one or more owners of lots (including one or more owners joined in third party proceedings). (2) The court may order in proceedings that any money (including costs) payable by an owners corporation under an order made in the proceedings must be paid from contributions levied only in relation to such lots and in such proportions as are specified in the order. (3) If a court makes such an order the owners corporation must, for the purpose of paying the money ordered to be paid by it, levy contributions in accordance with the terms of the order and must pay the money out of the contributions paid in accordance with that levy. (4) Division 2 of Part 3 of Chapter 3 (section 78 (2) excepted) applies to and in respect of contributions levied under this section in the same way as it applies to contributions levied under that Division." 13The "further order" that any costs of the strata corporation be not levied against lot 1 was not made pursuant to s 229 as that section does not deal with an owners corporation's own costs of proceedings. 14Section 230 of the Strata Schemes Management Act provides: "230 Restrictions on owners corporation levying contributions for expenses (1) An owners corporation cannot, in respect of its costs and expenses in proceedings brought by or against it under Chapter 5, levy a contribution on another party who is successful in the proceedings. (2) An owners corporation that is unsuccessful in proceedings brought by or against it under Chapter 5 cannot pay any part of its costs and expenses in the proceedings from its administrative fund or sinking fund, but may make a levy for the purpose. (3) In this section, a reference to proceedings under Chapter 5 includes a reference to proceedings on appeal." 15Section 230 was inapplicable because the proceedings were not brought under chapter 5 of the Strata Schemes Management Act. The "further order" was made pursuant to s 98 of the Civil Procedure Act 2005 (NSW). (Owners, Strata Plan 50411 v Cameron North Sydney Investments Pty Ltd [2003] NSWCA 5 at [170]; Symes v Proprietor Strata Plan 31731 [2003] NSWCA 7 at [83]; Moallem v Consumer, Trader and Tenancy Tribunal & Ors at [88]-[95]; Pacific Mirage Limited v Le Breton [2014] FCAFC 46 at [53]-[60]). 16It is clear from the transcript of the proceedings before Windeyer AJ and from the fact that Dr Xabregas had filed a notice of motion on 18 October 2013 seeking an order that the Owners Corporation's solicitors pay the Owners Corporation's costs of the proceedings, that the reference in order 2 to "the solicitor" was to the Owners Corporation's solicitor, Grace Lawyers, and not to the solicitors for Ms Moallem (Slater and Gordon). His Honour's order did not expressly deal with the question of how the costs incurred by the Owners Corporation in respect of its notice of motion of 29 August 2013 should be borne if it were found that its solicitor should be entitled to charge costs against it. 17Ms Moallem, Dr Xabregas and Mr Marcos were parties to the Owners Corporation's notice of motion of 29 August 2013. The effect of the first order made on 25 October 2013 was that the Owners Corporation was liable to pay each of their costs. Mr Marcos did not appear on the hearing of the motion, but Ms Moallem and Dr Xabregas did. The effect of the first part of the second order made on 25 October 2013 was that the liability of the Owners Corporation to pay the costs of Ms Moallem and any costs incurred by Dr Xabregas (who was self-represented at the hearing before Windeyer AJ) would have to be borne by Dr Xabregas and Mr Marcos through a levy against lot 2, unless some further order were made. 18The orders sought in para 1(a) and (b) of Ms Moallem's notice of motion of 8 November 2013 (para [7] above) would substitute for the order that the Owners Corporation's notice of motion be dismissed with costs, orders that the notice of motion be dismissed and that the Owners Corporation pay Ms Moallem's costs. The orders sought in para 1(c)-(e) of that notice of motion make no substantive change to order 2 made on 25 October 2013. Paragraphs 2 and 3 of Ms Moallem's notice of motion of 8 November 2013 seek to deal expressly with the question of how the costs incurred by the Owners Corporation in relation to its notice of motion of 29 August 2013 should be borne, either by a levy against lot 2 or by an order restraining the solicitors acting for the Owners Corporation from charging costs to it in respect of the notice of motion. Ms Moallem's notice of motion was filed within 14 days of the entry of the orders made by Windeyer AJ on 25 October 2013.

Should a costs order be made against Grace Lawyers? 19It is convenient to deal first with the claim that the solicitors for the Owners Corporation, Grace Lawyers, should not be entitled to charge the Owners Corporation for the costs of its notice of motion and the further claim made by Dr Xabregas that the solicitors should pay the other parties' costs of the notice of motion. (Dr Xabregas makes a wider claim, but at present I am dealing only with the costs of the notice of motion with which Windeyer AJ dealt.) 20Dr Xabregas had filed a notice of motion on 18 October 2013 in which she not only sought the rescission of earlier costs orders of 19 October 2011, 22 November 2012 and 5 December 2012, but in which she also sought an order pursuant to s 99 of the Civil Procedure Act that "a Personal Costs order be made for 'the first defendant's [Owners Corporation's] solicitors to pay the first defendant's costs of the proceedings'". After the hearing before me of Ms Moallem's application to set aside the resolutions of the Owners Corporation Dr Xabregas consented to an order for the dismissal of her notice of motion of 18 October 2013. An order dismissing that notice of motion was made on 4 November 2013. 21Paragraphs 3 and 4 of Dr Xabregas' further notice of motion filed on 13 November 2013 seek wider relief against the solicitors representing the Owners Corporation. Relevantly, for present purposes, those paragraphs seek orders that the solicitors pay costs that the Owners Corporation was ordered to pay and also bear the burden of the costs incurred by the Owners Corporation, in other words that the solicitors not be entitled to charge such costs. 22Ms Moallem's notice of motion filed on 13 November 2013 was filed more than 14 days after the entry of the orders made by Windeyer AJ on 25 October 2013. Rule 36.16 of the Uniform Civil Procedure Rules provides: "36.16 Further power to set aside or vary judgment or order (cf SCR Part 40, rule 9) (1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order. (2) The court may set aside or vary a judgment or order after it has been entered if: (a) it is a default judgment (other than a default judgment given in open court), or (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or (c) in the case of proceedings for possession of land, it has been given or made in the absence of a person whom the court has ordered to be added as a defendant, whether or not the absent person had notice of the relevant hearing or of the application for the judgment or order. (3) In addition to its powers under subrules (1) and (2), the court may set aside or vary any judgment or order except so far as it: (a) determines any claim for relief, or determines any question (whether of fact or law or both) arising on any claim for relief, or (b) dismisses proceedings, or dismisses proceedings so far as concerns the whole or any part of any claim for relief. (3A) If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered. (3B) Within 14 days after a judgment or order is entered, the court may of its own motion set aside or vary the judgment or order as if the judgment or order had not been entered. (3C) Despite rule 1.12, the court may not extend the time limited by subrule (3A) or (3B). (4) Nothing in this rule affects any other power of the court to set aside or vary a judgment or order." 23After the hearing on 25 October 2013 before Windeyer AJ Dr Xabregas sent an email to Mr Daniel Holt of Grace Lawyers and to Mr Lewis of Slater and Gordon. (Mr Lewis acted for Ms Moallem.) In her email of the evening of 25 October 2013 Dr Xabregas advised that she would be applying to withdraw her notice of motion with respect to personal costs orders against the Owners Corporation's solicitors. On Monday, 28 October 2013 she sent a further email to Mr Holt and to Mr Lewis asking whether either of them consented to her withdrawal of her notice of motion. Mr Lewis advised that Ms Moallem would consent to an order dismissing Dr Xabregas' notice of motion filed on 18 October 2013 on the basis that Dr Xabregas paid Ms Moallem's costs of the motion. Grace Lawyers did not respond. 24Dr Xabregas deposed that on 25 October 2013 Mr Radman represented to her that if she were to proceed with her notice of motion against the Owners Corporation's lawyers, she would have to join all the lawyers who had acted for the Owners Corporation from time to time. Mr Radman denied the conversation to which Dr Xabregas deposed. It is unnecessary to make any finding about that matter, and it would not be possible to do so in any event, because in the way the matter had to proceed there was no cross-examination of either Mr Radman or Dr Xabregas. 25At the hearing on 1 November 2013 reference was made to Dr Xabregas' notice of motion in the course of the argument before me. I observed that Dr Xabregas had also filed a notice of motion (that is, in addition to Ms Moallem) seeking an order setting aside the orders of Bergin CJ in Eq of 22 November and 5 December 2012, that seemed to raise the same issue as was raised in the Owners Corporation's notice of motion dealt with by Windeyer AJ. I asked whether Dr Xabregas' notice of motion had also been dealt with by his Honour. Counsel for Ms Moallem advised me that Dr Xabregas' notice of motion had been stood over and then transferred to me. Dr Xabregas then intervened to say that that was not right. Mr Radman (of Grace Lawyers) said that Dr Xabregas' notice of motion had been referred for a listing date before the Registrar. Dr Xabregas then said: "Your Honour, ... subsequent to - that motion only came about if the slip rule applied. As a consequence I decided that evening because of Windeyer J's decision, I sent a notice to both the first defendant and the plaintiff saying that I was withdrawing the motion [and] did they consent. The first defendant [the Owners Corporation] has not yet replied. The plaintiff's solicitors replied saying they would consent if I paid costs." I said: "His Honour: By the sounds of things I should deal with it, to dismiss that motion at some convenient time, in any event. And I will deal with any argument about costs of the motion. [Dr Xabregas]: Yes, thank you your Honour." I asked to be reminded that at the appropriate time I should dismiss Dr Xabregas' notice of motion of 18 October 2013. 26Dr Xabregas' notice of motion was dismissed on 4 November 2013. The whole of the notice of motion was dismissed, not merely the orders seeking rescission of earlier costs orders. 27Dr Xabregas deposed that this was inadvertent on her part. She said it was not until 6 November 2013 when the matter was back in court before me (in fact, 5 November 2013) that she realised the implication that the rights reserved against the Owners Corporation's lawyers by the orders made by Windeyer AJ may have disappeared with her "withdrawal" of her notice of motion. I accept that evidence. At not point in any of the hearings before me on 1, 4 and 5 November was any express mention made of that. 28In any event, there was no determination of Dr Xabregas' claim for personal costs orders against Grace Lawyers on its merits. Nor was the dismissal of Dr Xabregas' notice of motion made pursuant to any contract with Grace Lawyers. Nor was there any basis for contending that an estoppel arose precluding Dr Xabregas from renewing the application. No-one from Grace Lawyers gave any evidence that he or she assumed that Dr Xabregas would not seek to renew the claim. Nor is there any evidence that Grace Lawyers acted to their detriment on any assumption that the claim for a personal costs order had gone and would not be renewed. 29It was open to Dr Xabregas to make the same claim in a fresh application, which she did by her notice of motion filed on 13 November 2013. It does not matter that that application was made more than 14 days after the entry of Windeyer AJ's orders. Those orders had not determined any claim for relief against the solicitors. Accordingly, the qualification in r 36.16(3A) to the power in r 36.16(3) to vary an order that has been entered is inapplicable. In any event, the application is within the power of the court to make supplemental orders preserved by r 36.16(4). 30In Short v Crawley (No. 45) [2013] NSWSC 1541, I dealt with the question whether the court had power to make gross sum costs orders or orders for interest on costs if the notice of motion seeking such orders was made more than 14 days after the entry of final costs orders. I said: "16 Each of subrules 36.16(1), (2), (3), (3A) and (3B) confers power on the court to vary or set aside its orders. Subrule (1) confers such a power if the notice of motion is filed before the order is entered. Subrules (3A) and (3B) in substance extend that time by 14 days. That period cannot be further extended (subrule (3C)). Subrule (2) confers additional powers to vary or set aside an order if it is a default judgment, or was made in the absence of a party. Subrule (3) also confers power to vary or set aside an order. It applies to the varying or setting aside of any order, whether entered or not, except so far as the order determines a claim for relief, or determines any question arising on a claim for relief, or dismisses the proceedings, or dismisses a claim for relief. The words 'except so far as' in subrule (3) are important. They do not mean 'unless'. That is to say, it is only so far as an order determines a claim for relief, or a question on such a claim, or dismisses a proceeding, or a claim in a proceeding, that the power to vary the order is excluded. 17 If the claim for relief sought to be raised has not been determined and the proceeding has not been dismissed, then it is not an objection to the court's power to determine the claim for that relief, that the granting of the relief would involve the setting aside or variation of an earlier order. Nor would it matter whether the application was made within 14 days of entry of the order sought to be varied. That is because the power of variation invoked would not be the power under r 36.16(1) as extended by r 36.16(3A), but the separate power under r 36.16(3). ... 33 Further, in my view, a gross sum costs order is a supplemental order that makes more specific provision for the implementation of the earlier costs order by providing an alternative mode of enforcing it, that does not alter the substantive relief given by the previous costs order, and falls within the narrow class of exceptions to the principle that when proceedings have been disposed of by a final order they are at an end (Phillips v Walsh at 209-210). As such there is a further power of variation preserved by r 36.16(4). Thus it has been held that in accordance with the power to make such supplemental orders, an order for costs may be made against a non-party notwithstanding the entry of the final judgment in the proceeding (Caboolture Park Shopping Centre Pty Ltd (In Liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 at 235; UTSA Pty Ltd (In Liq) v Ultra Tune Australia Pty Limited (1998) 146 FLR 209 at 212-213). ..." 31The same principles apply in this case. 32Section 99 of the Civil Procedure Act relevantly provides: "99 Liability of legal practitioner for unnecessary costs (cf Act No 52 1970, section 76C; SCR Part 52A, rules 43 and 43A) (1) This 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. (2) After giving the legal practitioner a reasonable opportunity to be heard, the court may do any one or more of the following: (a) it may, by order, disallow the whole or any part of the costs in the proceedings: (i) in the case of a barrister, as between the barrister and the instructing solicitor, or as between the barrister and the client, as the case requires, or (ii) in the case of a solicitor, as between the solicitor and the client, (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 (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, (c) it may, by order, direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party." 33The present question is whether the costs incurred by the Owners Corporation and the other parties in connection with the Owners Corporation's notice of motion of 29 August 2013 were incurred by the serious neglect, serious incompetence or serious misconduct of the solicitors or were incurred improperly, or without reasonable cause, in circumstances for which the solicitors were responsible. 34The circumstances leading up to the Owners Corporation's filing its notice of motion of 29 August 2013 are set out in my previous reasons. In brief, consent orders were made on 14 October 2011 in the 2011 proceedings commenced by Dr Xabregas. One of the orders was that Dr Xabregas pay the Owners Corporation's costs. On 20 August 2012 Dr Xabregas filed a notice of motion in which she sought to have the consent orders set aside. Ms Moallem filed a notice of motion on 16 November 2012 for summary dismissal of Dr Xabregas' notice of motion. On 22 November 2012 Bergin CJ in Eq dismissed Dr Xabregas' notice of motion of 20 August 2012. On that day her Honour ordered that Dr Xabregas pay the costs of the Owners Corporation and Ms Moallem on the indemnity basis. On 5 December 2012, Bergin CJ in Eq made orders which are set out at [29] of my previous reasons. They included: "2. It is noted that the plaintiff neither consents nor opposes the following order: I make the order in paragraph 1 of the Short Minutes of Order initialled by me and dated today. 1. None of the First Defendant's costs of these proceedings and none of the costs referred to in clauses 10, 12(iii), 14, 15(ii) and 20 of the Deed of Agreement which is Annexure A to the Consent Orders of 19 October 2011, are to be levied by the First Defendant against the Respondent to the Plaintiff's Motion filed 20 August 2012 but are only to be levied (insofar as it may be necessary) against Lot 2." 35On 27 February 2013 Progresssive Strata caused the Owners Corporation to pass a resolution raising a levy against lot 2 in a sum of $47,012.53 said to represent some of the costs incurred by the Owners Corporation referred to in the orders of the Supreme Court of 5 December 2012. On or about 11 March 2013 Dr Xabregas applied to a strata schemes adjudicator for an order altering the amount of the contributions payable pursuant to the resolutions of 27 February 2013. On 3 July 2013, a strata schemes adjudicator made orders which are set out at [40] of my previous reasons. They included an order purportedly made pursuant to s 153 of the Strata Schemes Management Act invalidating the resolutions made on 27 February 2013. 36Progresssive Strata wavered as to what course to take. On 20 June 2013 it caused the Owners Corporation to pass a resolution levying the owners of both lots for a sum of $135,035 which included a sum for costs that were the subject of the orders of 5 December 2012. 37When Ms Moallem complained about that levy its lawyers initially advised that the levy would be cancelled and the levy for a smaller amount for both lots would be raised (at [66]-[69] of reasons). Instead, Progresssive Strata caused the Owners Corporation to take a different course by filing the notice of motion of 29 August 2013 (reasons at [71]). That notice of motion sought to vary the orders of 5 December 2012 under the slip rule. 38On 25 October 2013 Windeyer AJ dismissed the notice of motion. On 4 November 2013 I made an order in the nature of certiorari quashing the orders of the strata schemes adjudicator. I also made orders setting aside three resolutions of the Owners Corporation that purportedly imposed levies contrary to the orders of Bergin CJ in Eq. 39On 15 July 2013 Grace Lawyers provided advice to Progressive Strata about the orders made by the strata schemes adjudicator and the orders of Bergin CJ in Eq. (The letter of advice was addressed to the secretary of the Owners Corporation, care of Progressive Strata. Progressive Strata was fulfilling the role that would otherwise have been filled by the secretary.) At the time of giving the advice Grace Lawyers did not have available to them the transcript of the proceeding before Bergin CJ in Eq on 22 November and 5 December 2012. They advised, amongst other things: "The adjudicator is correct in stating that levies are ordinarily only to be levied in accordance with unit entitlements. That is plain from the language of s 78(2) of the Act. The exception to that provision upon which Bergin CJ in Eq may have been attempting to draw in making the Supreme Court orders is s 229 of the Act, which allows a Court to order that a levy only be with respect to one or more specified lot owners when the purpose of that levy is to pay a cost order made against the owners corporation in proceedings involving lot owners. This section was designed to prevent an owners corporation from levying costs against an owner who had successfully sued the owners corporation. The difficulty, however, is that no costs order was ever made against the owners corporation in the Supreme Court proceedings. The existence of such a costs order in proceedings is a requirement for the activation of s 229 of the Act. ... The effect of this order is therefore detrimental to the Strata Scheme. On the one hand, Bergin CJ in Eq has made an order that is devoid of effect, given that it cannot possibly be construed as an order under s 229 of the Act (given that no cost order has been made against the Owners Corporation). The order therefore does not have beneficial effect that Bergin CJ in Eq sought that it have, being that the Owners Corporation will be capable of obtaining the funds to pay its legal fees by way of a levy against Dr Xabregas." 40The advice was wrong in saying that the orders of Bergin CJ in Eq were devoid of effect because they were not supported by s 229 of the Strata Schemes Management Act. Being an order of a superior court of record, the order of 5 December 2012 was effective in accordance with its terms unless and until it was set aside, even if there were no legislative basis to support the order. I so held in my previous reasons (at [56]). 41Grace Lawyers recommended "instigating proceedings to alter Bergin CJ in Eq's orders". Their reasoning continued: "... there are two scenarios that could arise that would create difficulties when going through the cost assessment process. Firstly, the cost assessment could award only part of the Scheme's actual costs. Even if 90% of the costs were awarded and paid by Dr Xabregas, that would still leave the Scheme indebted to its legal representatives for the remaining 10% with no avenue to recover these costs. The second scenario, and the more likely, is that Dr Xabregas will not be capable of paying the cost orders. If this happens and we are pressed to bankrupt Dr Xabregas, the Scheme will again be left in a position where it will be unable to pay its creditors. Both of these situations would place the Scheme in an untenable situation that could never have been intended by Bergin CJ in Eq. The route that is open to us to challenge the Supreme Court's order is therefore to challenge it under the 'Slipe [sic] Rule'. This rule is most commonly invoked to correct clerical errors in Court orders but there is case law to the effect that it can have broader application to alter any order that has an effect different to the effect intended by the Court. ... Finally, as the intention of the court in making the order is paramount to determining whether it will be altered, we would also consider it necessary to obtain all indications of what that intention was. On this point, we note that the last correspondence received by you from Slater & Gordon refers to you having a copy of the transcript of the hearing at which the order was made. If this is so, please provide this transcript. If Slater & Gordon is mistaken, please let us know so that we may request the transcript from Slater & Gordon. Once we have the transcript, we will be in a better position to fashion a new order for the Supreme Court to make that will align with the Court's intentions without unduly prejudicing the Owners Corporation." 42The transcript of the hearing before Bergin CJ in Eq was obtained before the notice of motion was filed. The transcript was annexed to an affidavit of Ms Karina Heinz of 27 August 2013. 43The transcript shows that the Owners Corporation was not represented on 5 December 2012. Bergin CJ in Eq was sitting as Duty Judge. Counsel for Ms Moallem informed her Honour that the Owners Corporation opposed the orders sought by Ms Moallem that none of the Owners Corporation's costs of the proceedings and none of the costs referred to in the relevant clauses of the deed of 19 October 2011 be levied by the Owners Corporation against Ms Moallem, but only be levied (insofar as it may be necessary) against lot 2. The evidence before her Honour included correspondence from the then solicitor for the Owners Corporation, Mr Cunio of David Le Page Solicitor, in which he argued that the Strata Schemes Management Act did not allow an Owners Corporation to levy one owner, but not the other, except in cases falling within ss 229 or 230 of the Act, neither of which applied. Mr Cunio also argued that s 98 of the Civil Procedure Act did not confer the power to make such an order because the power was subject to the Strata Schemes Management Act. Counsel for Ms Moallem referred Bergin CJ in Eq to the decisions of the Court of Appeal in Owners Strata Plan No. 50411 and Ors v Cameron North Sydney Investments Pty Ltd and Symes v The Proprietors Strata Plan No. 31731. Her Honour summarised her understanding of Ms Moallem's submission as being that Heydon JA had found that the power to make the orders sought by Ms Moallem came under the Civil Procedure Act, that it was not necessary for it to be found in the Strata Schemes Management Act, and that the orders sought could be made pursuant to s 98 of the Civil Procedure Act. 44At the hearing before Windeyer AJ Mr Radman appeared for the Owners Corporation. He submitted that the order of 5 December 2012 had unintended legal consequences. He submitted that Bergin CJ in Eq had intended that the Owners Corporation should be able to pay the bills its lawyers had rendered, but also had intended that the burden of such costs should not be borne by Ms Moallem, but by Dr Xabregas. He submitted that by prohibiting the Owners Corporation from making a levy on lot 1 in respect of such costs and requiring that there be a levy only on lot 2, an unintended legal consequence of the order was that it was made contrary to the requirements of the Strata Schemes Management Act. Section 78(2) of that Act provides: "78 Manner of levying contributions ... (2) Contributions levied by an owners corporation must be levied in respect of each lot and are payable (subject to this section and section 77) by the owners in shares proportional to the unit entitlements of their respective lots." 45Insofar as Bergin CJ in Eq may have relied on s 98, Mr Radman submitted that the power conferred by that section was subject to rules of Court and to that or any other Act. Thus, s 98, he submitted, did not confer power to make a levy contrary to the requirements of s 78(2). Mr Radman submitted that either in the Court's inherent jurisdiction to correct an order that has unintended legal consequences, or pursuant to the slip rule (Uniform Civil Procedure Rules, r 36.17), the order should be corrected. He referred to Newmont Yandal Operations Pty Ltd v J Aron Corporation [2007] NSWCA 195; (2007) 70 NSWLR 411 as demonstrating that either under the slip rule or in the Court's inherent jurisdiction, the Court can correct an order which has consequences which were not intended by the judge making the order. 46Windeyer AJ rejected the argument. In extempore reasons (Xabregas v Owners Corporation Strata Plan No. 79205, 25 October 2013, no medium neutral citation), his Honour observed that it seemed from the transcript that in general the arguments relied on were made known to Bergin CJ in Eq and that counsel appearing for Ms Moallem had relied upon s 98 of the Civil Procedure Act. His Honour said that whether or not Bergin CJ in Eq was correct was something which gave rise to a question of law which should (scil. could) be challenged on appeal, but could not be challenged by a different judge sitting at first instance to amend the orders made nearly 12 months previously on the basis they did not give effect to the law or arguments that had been put to the trial judge. 47Windeyer AJ acknowledged that there was force in the arguments put by Mr Radman as to the correctness of the orders made by Bergin CJ in Eq on 5 December 2012. I also acknowledge that if the matter were free from authority, or if the question were being considered afresh at appellate level, there would be force to the argument that s 98 does not confer power on a Court to make orders authorising the raising of levies otherwise than as prescribed by the Strata Schemes Management Act. But that was not a question that could be resolved by an application under the slip rule or in the Court's inherent jurisdiction. The very question as to whether there was power to make the order had been argued before Bergin CJ in Eq. Her Honour considered the argument. By the orders she made she rejected it. 48The present was not a case like Newmont Yandal Operations Pty Ltd v J Aron Corporation. There, separate proceedings had been instituted for the purpose of permitting resolution of a particular issue that had been raised in earlier proceedings, but which could not be separately determined in the earlier proceedings. It was the intention of the judge making orders in the later proceedings that the making of the orders should not give rise to any opportunity to the parties to argue that the orders created any form of estoppel in connection with the earlier proceedings, except in respect of particular questions determined in the later proceedings. The orders in the later proceedings were corrected to avoid the unintended legal consequence that there should be any occasion for the raising of arguments of res judicata or other estoppel issues. The judge making the orders that were corrected had not decided that the orders as originally formulated and made could arguably create any such estoppel. That is not this case. Newmont Yandal Operations Pty Ltd v J Aron Corporation did not support the arguments raised by Grace Lawyers for "correcting" the order of 5 December 2012. To the contrary, in his reasons in Newmont Yandal Operations Pty Ltd v J Aron Corporation, Spigelman CJ referred (at [46]) to the decision of the High Court in Ivanhoe Gold Corporation Limited v Symonds (1906) 4 CLR 642. His Honour noted that there, Griffiths CJ had said (at 654) that if the judge in the first proceeding had applied his mind to the particular question that gave rise to the unintended legal consequence, then the only recourse would have been by way of appeal. That is the present case. 49It was not argued before Windeyer AJ, nor before me, that an unintended consequence of the orders of 5 December 2012 was that a strata schemes adjudicator would make an order invalidating a resolution that was passed in compliance with those orders. No doubt that event was unforeseen and unintended. But the remedy was not to set aside the orders of 5 December 2012 under the slip rule, but to set aside the adjudicator's resolution as was done on 4 November 2013 on the application of Ms Moallem. 50In my view, the order made by Windeyer AJ dismissing the Owners Corporation's notice of motion of 29 August 2013 was inevitable. The application had no reasonable prospects of success, but was doomed to fail. 51The question then is whether this conclusion is a sufficient basis for making orders under s 99 of the Civil Procedure Act against the solicitors. There was nothing in the way in which the application was handled which would justify making any such order. If any such order were to be made, it would be on the basis that the application was brought on the advice of the solicitors, but had no reasonable prospects of success and was doomed to fail. 52Clearly, there was no serious neglect, serious incompetence or serious misconduct by the solicitors, nor any impropriety. The question is whether costs were incurred "without reasonable cause, in circumstances for which a legal practitioner is responsible" within the meaning of s 99(1)(b). Those words have to be read in context. Their meaning in the context of s 99 and cognate provisions has been considered on many occasions. 53Historically, superior courts possess an inherent jurisdiction to order solicitors to pay costs of legal proceedings or to order that a solicitor not charge costs as part of the disciplinary jurisdiction over solicitors. The power is exercised sparingly having regard to the public interest that lawyers not be deterred from pursuing their clients' interests by fear of incurring a personal liability to their clients' opponents and to discourage arguments about costs less the remedy be more damaging than the disease (Ridehalgh v Horsefield [1994] Ch 205 at 226; Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300 at [91], 320). The jurisdiction is now regulated by statute, namely s 99 of the Civil Procedure Act and s 348 of the Legal Profession Act 2004. Section 348 of the Legal Profession Act 2004 does not apply in this case because the proceedings are not taken on a claim for damages. 54In Ideal Waterproofing Pty Ltd v Buildcorp Australia Pty Ltd [2006] NSWSC 155 Sully J applied to the construction of s 99(1) and (2) of the Civil Procedure Act, the analysis of the English Court of Appeal in Ridehalgh v Horsefield of s 51(6) and (7) of the Supreme Court Act 1991 (UK). Those sections were differently expressed. They provided that the Court could disallow or, as the case might be, order a legal representative to meet wasted costs, being costs incurred by a party as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative. 55Prior to the commencement of the Civil Procedure Act, Pt 52 r 66 and Pt 52 rr 43 and 43A of the Supreme Court Rules dealt with the power of the Court to disallow costs, or to direct a solicitor or barrister to pay to the client costs which the client had been ordered to pay to another party, or to indemnify any party other than the client against costs payable by the party indemnified, where costs had been incurred "improperly or without reasonable cause, or are wasted by undue delay or by any other misconduct or default" for which the solicitor or barrister was responsible. 56In Wentworth v Rogers [1999] NSWCA 403 the Court of Appeal said (at [41]): "[41] It follows that the Australian cases do not suggest that the general approach taken in England ought not to be followed here. The Australian cases are perhaps not as comprehensive as either Myers or Ridehalgh. But it is clear that there is no difference of substance in the approach taken in the United Kingdom and the approach taken here. Accordingly, the English authorities provide guidance for courts here in a matter such as this." 57In Ridehalgh v Horsefield the Court of Appeal said (at 232): "'Unreasonable' also means what it has been understood to mean in this context [that is, in the context of the making of a wasted costs order against a party's legal representative] for at least half a century. The expression aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on a practitioner's judgment, but it is not unreasonable." 58The Court of Appeal also said (at 233): "A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he acts for a party who pursues a claim or a defence which is plainly doomed to fail. ... ...It is not entirely easy to distinguish by definition between the hopeless case and the case which amounts to an abuse of the process, but in practice it is not hard to say which is which and if there is doubt the legal representative is entitled to the benefit of it." 59Lemoto v Able Technical Pty Ltd concerned the construction of s 198J and 198M of the Legal Profession Act 1987 that dealt with the obligations of a solicitor or barrister to pay costs if they acted for a party whose claim or defence did not have "reasonable prospects of success". McColl JA set out the principles concerning the Court's power to order legal practitioners to pay costs of proceedings which were principles against which the relevant sections of the Legal Profession Act were to be construed. One of those principles as summarised by her Honour (at [92]) was that: "(b) A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he or she acts for a party who pursues a claim or a defence which is plainly doomed to fail: Ridehalgh (at 233); Medcalf v Mardell [2003] 1 AC 120 at 143 [56], per Lord Hobhouse of Woodborough; White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169; 29 ACSR 21 (affirmed on appeal; Flower & Hart (a firm) v White Industries (Qld) Pty Ltd (1999) 87 FCR 134); Levick v Commissioner of Taxation; cf Steindl Nominees Pty Ltd v Laghaifar [2003] 2 Qd R 683." 60As noted above in Ideal Waterproofing Pty Ltd v Buildcorp Australia Pty Ltd Sully J applied the principles stated by the English Court of Appeal in Ridehalgh v Horsefield to s 99 of the Civil Procedure Act. That approach was followed by Windeyer J in Karwala v Skryzypczak; Re Estate of Ratajczak [2007] NSWSC 931, by McDougall J in Whyked Pty Ltd v Yahoo!7 Pty Ltd [2008] NSWSC 477, and by Barrett J in Hickey v Fitzpatrick [2010] NSWSC 1119. 61I consider that I should follow that approach. This is so notwithstanding the observations made by Pembroke J in Ireland (as executor of the estate of the late Gordon) v Retallack (No. 2) [2011] NSWSC 1096 at [50]-[54] where his Honour stated that the language and syntax of s 51(7) of the Supreme Court Act 1981 (UK) that was in issue in Ridehalgh v Horsefield were distinctly different from s 99(1) of the Civil Procedure Act. His Honour declined to follow the reasoning in Ridehalgh v Horsefield, notwithstanding its having been followed at first instance in this Court and by Payne J in the Land and Environment Court (NA & J Investments Pty Ltd v Minister of Administering the Water Management Act 2000 (No. 2) [2011] NSWLEC 98). It does not appear that his Honour was referred to Wentworth v Rogers in the passage quoted (at [56] above) where the Court of Appeal was considering rules of Court which were in similar terms to s 99(1). The issue in Ireland v Retallack (No. 2) was different. It was whether excessive costs had been incurred, particularly in obtaining unnecessary expert evidence in the conduct of the litigation, not whether costs had been incurred because the claim brought had no reasonable prospects of success. 62In De Giorgio v Dunn (No. 2) [2005] NSWSC 3; (2005) 62 NSWLR 284 Barrett J (as his Honour then was) considered the meaning to be given to ss 198J and 198M of the Legal Profession Act 1987 concerning the obligations of a solicitor or barrister and their liability to pay costs if a claim or defence did not have reasonable prospects of success. His Honour said that that phrase meant that the claim or defence was "so lacking in merit or substance as to be not fairly arguable". This construction of those sections was approved and adopted by the Court of Appeal in Lemoto v Able Technical Pty Ltd. Section 99 of the Civil Procedure Act does not impose a liability for costs on a solicitor or barrister merely because the claim or defence has no reasonable prospects of success, unless that is to be implied from the reference to the incurring of costs without reasonable cause. That implication should not be made if the section is to be construed, as the Court of Appeal has said in relation to cognate provisions, in accordance with the principles adopted in the English cases summarised in Ridehalgh v Horsefield as set out above. In De Giorgio v Dunn (No. 2) and in Hickey v Fitzpatrick, Barrett J said that s 198M of the Legal Profession Act 1987 (now s 348 of the Legal Profession Act 2004) imposed a more demanding standard on lawyers than was applicable in cases whereby a costs order was sought against a party's lawyer on general law principles (De Giorgio v Dunn (No. 2) at [26]; Hickey v Fitzpatrick at [125]). In Hickey v Fitzpatrick, Barrett J made it clear that the reference to general law principles included the principles under s 99 of the Civil Procedure Act. 63I conclude that it is not sufficient to justify an order that Grace Lawyers pay costs of the motion, or not charge costs to the Owners Corporation in respect of the motion, that the motion brought on the advice of Grace Lawyers had no reasonable prospects of success and was doomed to fail. 64These authorities do not distinguish between a case where the client acts on the advice of his solicitor or client and a case where the client is determined to proceed with a claim or defence that has no reasonable prospects of success contrary to legal advice. Given that there is a public policy in litigants having legal representation, there is less ground for making a solicitor or barrister liable for costs if he or she has advised the client against proceeding on a claim that is doomed to fail than if the client is acting on the lawyer's advice. But the reasoning in Ridehalgh v Horsefield is directed to whether the lack of reasonable prospects of success means that the claim or defence amounts to an abuse of process. As the Court of Appeal observed this is a question of degree. Acting for a client on a frivolous claim, such as in Levick v Commissioner of Taxation (2000) 102 FCR 155 where it was argued that the Income Tax Assessment Act 1997 was invalid and the Australian Taxation Office did not exist for legal purposes, can expose the lawyers concerned to a personal costs order because the lawyers themselves could not have been satisfied that the points they raised were at least seriously arguable. That is not this case. 65Section 99 of the Civil Procedure Act and cognate provisions referring to costs being incurred unreasonably have been read narrowly. There are good public policy reasons for this. They include the risk that if the jurisdiction to make wasted costs orders against lawyers is exercised too widely, lawyers may be harassed or deterred from acting for clients with borderline cases under threat of a risk of personal costs orders. There is also no public policy in litigants with hopeless cases having to attempt to make or defend them in person. In White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 Goldberg J said (at 236) that the line was to be drawn where the lawyer recognises that there is no chance of success, but intends to use the proceeding for an ulterior purpose or with a disregard of any proper consideration of the prospects of success. This was approved in Levick v Deputy Commissioner of Taxation (at [43], 166). It is the same point made by the Court of Appeal in Ridehalgh v Horsefield that the relevant criterion is whether propounding the claim or defence is an abuse of process. Clearly that is not so in the present case. 66For these reasons I conclude that no order should be made against Grace Lawyers in respect of the costs incurred by or payable by the Owners Corporation, or the costs of any other parties, in connection with the Owners Corporation's notice of motion of 29 August 2013.

Should a costs order be made against Progressive Strata? 67In her notice of motion of 18 October 2013 Ms Moallem had sought an order that Progressive Strata pay the costs of the Owners Corporation's notice of motion of 29 August 2013 on the indemnity basis. Ms Moallem did not proceed with that application and it was dismissed on 4 November 2013. That dismissal did not preclude Dr Xabregas from bringing her claim that Progressive Strata pay costs and bear the burden of the Owners Corporation's costs. Dr Xabregas' application was brought more than 14 days after 25 October 2013. For the reasons at paras [29]-[31] above that is not a bar to Dr Xabregas' application. 68As noted at [16] of the principal reasons, Progressive Strata was appointed as the compulsory strata managing agent for the Owners Corporation from 5 November 2011 to 4 November 2013 with power to exercise all of the functions of the Owners Corporation. The appointment was extended on an interim basis, but until further order, on 21 October 2013. All of the actions taken by the Owners Corporation in the litigation from 5 November 2011 were taken by Progressive Strata. 69Ms Moallem persuaded Windeyer AJ that it would be unjust if she had to bear the burden of the Owners Corporation's liability to pay her costs and to contribute to the Owners Corporation's costs of the Owners Corporation's unsuccessful application to change the orders of Bergin CJ in Eq of 5 December 2012. Dr Xabregas submits that it is equally unjust that she should be required to bear the burden of the Owners Corporation's liability to pay her and Ms Moallem's costs of the unsuccessful application and to bear the burden of the costs incurred by the Owners Corporation. 70The same arguments are made in relation to the hearing of the summons before me. Ms Moallem persuaded me that it would be unjust that she have to bear the burden of the Owners Corporation's liability to pay her costs or to contribute to the Owners Corporation's own costs when she was successful in overturning the resolutions passed by the Owners Corporation acting through Progressive Strata. Dr Xabregas submits that it is also unjust that she be required to bear the burden of the Owners Corporation's liability to pay costs or to bear the burden of costs incurred by the Owners Corporation. 71There is no issue that the power under s 98 of the Civil Procedure Act extends to the making of costs orders against non-parties. The power should only be exercised in exceptional circumstances, that is, outside the ordinary run of cases, and is to be exercised sparingly (FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 at [210], [214]; May v Christodoulou [2011] NSWCA 75; (2011) NSWLR 462 at [11], [29]-[31], [93]). 72In Knight v FP Special Assets Limited [1992] HCA 28; (1992) 174 CLR 178, Mason CJ and Deane J, with whom Gaudron J agreed on this matter, said (at 192-193): "The prima facie general principle is that an order for costs is only made against a party to the litigation ... there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awarding of costs, support an order for costs against a non-party ... For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made." 73In Kebaro Pty Ltd v Saunders [2003] FCAFC 5 the Full Court of the Federal Court said (at [103]): "[103] In our opinion, the authorities establish, on the foregoing analysis, the following propositions: · A non-party costs order is exceptional relief, although some categories of factual situations are now recognised as within the discretion, for example, the situation described by Mason CJ and Deane J in Knight at 192 - 193. The width of the jurisdiction is illustrated by a recent English decision that there can be circumstances in which it would be appropriate to order costs in favour of a non-party against a party (see Individual Homes v Macbreams Investments, 23 October 2002, High Court of Justice Chancery Division at 8). · Whilst such an order is extraordinary, the categories of case are not closed, although in order to warrant its exercise, a sufficiently close connection, or as Gobbo J expressed it, a 'real and direct and ... material' connection with the principal litigation, must be demonstrated; in the words of Callinan J, the non-party can fairly be liable if adjudged by its conduct, to be a real party to the litigation, even if not the real party." 74In FPM Constructions v Council of the City of Blue Mountains, Basten JA said (at [210]): "... It is clear that the categories of case which may attract the exercise of the power are by no means closed, nor should they be. Nevertheless, the requirements of justice should not be allowed to expand an exception to the general rule, so as to undermine the rule itself. What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria: (a) the unsuccessful party to the proceedings was the moving party and not the defendant; (b) the source of funds for the litigation was the non-party or its principal; (c) the conduct of the litigation was unreasonable or improper; (d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and (e) the unsuccessful party was insolvent or could otherwise be described as a person of straw." 75Before addressing the more particular questions that arise in deciding whether Progressive Strata should be considered to be a real party to the litigation and whether exceptional circumstances exist that would justify the making of a costs order against it, one should stand back and ask whose conduct was it, or what were the circumstances, that caused the costs to be incurred? 76As counsel for Progressive Strata submitted, the initial cause of the incurring all of the costs now in dispute was the filing by Dr Xabregas of her notice of motion of 20 August 2012 seeking to set aside the consent orders of 19 October 2011 and seeking to stay the execution of the deed of 14 October 2011. It was Dr Xabregas' application to overturn the basis on which the proceedings had been settled that led to Ms Moallem filing her notice of motion for summary dismissal and for payment of costs. It was Ms Moallem's notice of motion that led to the costs orders of 5 December 2012 that have been productive of later litigation, but her application was successful. She was awarded indemnity costs and costs orders were made to ensure that she not bear the burden of the Owners Corporation's costs. It was Dr Xabregas' conduct in filing her notice of motion of 20 August 2012 that was the initial cause for the incurring of the later costs. 77The next step that has resulted in the incurring of the costs was Dr Xabregas' application to the strata schemes adjudicator for an order altering the amount of contributions payable pursuant to the resolutions of 27 February 2013. At least the primary ground of that application was that the levy of $47,012.53 on lot 2 in respect of costs the subject of the orders of 5 December 2012 had not been assessed or agreed to. Neither Dr Xabregas nor the Owners Corporation made a submission to the strata schemes adjudicator that the resolution was invalid because it was contrary to s 78(2) of the Strata Schemes Management Act. The adjudicator did not deal with the ground on which Dr Xabregas had challenged the resolution. Had he done so he ought to have rejected the challenge on the ground that the Owners Corporation was entitled to raise a levy pursuant to s 76(4) of the Strata Schemes Management Act, namely, that it was faced with an expense for which levies had not been raised to the administrative and sinking funds that could not at once be met from either fund. The fact that Dr Xabregas was entitled to have the costs assessed did not mean that the Owners Corporation was not liable to pay the lawyers engaged, nor that its liability was deferred until the costs had been referred for assessment. As a third party payer, Dr Xabregas was entitled to have the costs referred for assessment pursuant to s 350 of the Legal Profession Act 2004 (Gannon v Owners - Strata Plan No. 4403 [2013] NSWSC 1916 at [123]). But that did not mean that the Owners Corporation was relieved of the expense for legal fees until the assessment took place, and did not affect its right to make a levy in respect of the expense. If Dr Xabregas had paid the levy and the costs were assessed at a lesser sum she would be entitled to a refund. But she was not entitled to dispute the levy on the ground she did. 78Unfortunately the subsequent costs that have been incurred in the litigation are attributable to the strata schemes adjudicator's having decided the issue in the way he did, rather than on the grounds advanced by the parties. None of the parties was responsible for that. 79The adjudicator made an order "invalidating resolution 7 made at the EGM on 27 February 2013" (see [40] of the principal reasons). Progressive Strata was in a difficult position. The orders of Bergin CJ in Eq of 5 December 2012 precluded the Owners Corporation from levying lot 1 in respect of the costs the subject of those orders, but the resolution Progressive Strata had caused to be passed on 27 February 2013 pursuant to those orders had been set aside as invalid by the adjudicator on the basis that the levy was contrary to s 78(2) of the Strata Schemes Management Act. 80As noted above, on 20 June 2013 Progressive Strata caused the Owners Corporation to pass a resolution levying the owners of both lots for a sum of $135,035 which included a sum for costs that were the subject of the orders of 5 December 2012. 81As noted above, Progressive Strata through its lawyers initially advised that the levy would be cancelled, but instead, having taken legal advice, it took a different course by causing the Owners Corporation to file the notice of motion of 29 August 2013. 82This wider context is relevant to, but not decisive of, the question whether a third party costs order should be made against Progressive Strata in relation to the Owners Corporation's notice of motion of 29 August 2013. That was a separate and misguided application that increased the costs. 83In Knight v F P Special Assets Limited, Mason CJ and Deane J listed three circumstances which if satisfied would indicate that an order for costs should be made against a non-party if the interests of justice so required. First, that the unsuccessful party was insolvent or a man of straw. Secondly, that the non-party has paid an active part in the conduct of the litigation, and, thirdly, that the non-party has an interest in the subject of the litigation. The second of those circumstances applies in this case. I also think that the first of the circumstances applies. In the context of the application by the Owners Corporation against the only two lot owners, the Owners Corporation can be considered as a person of straw. It holds the common property for the lot owners and short of winding up the scheme, in the absence of a special costs order under s 98, the only means it has of satisfying a costs order is by recovery of levies on the lot owners proportionately to their unit entitlement. Those same persons were the respondent to the Owners Corporation's applications. The Owners Corporation should be considered as a person of straw for present purposes because the successful respondents to its application would prima facie be the persons who would have to provide it with the funds to pay the costs payable to them. 84I do not think that the third circumstance identified in Knight v F P Special Assets Limited is satisfied in this case. Progressive Strata did not have an interest in the subject of the litigation. It was appointed as strata managing agent for reward. On 7 November 2011 Progressive Strata caused the Owners Corporation to enter into a strata management agency agreement with itself. Under that agreement Progressive Strata Management was entitled to a services fee of $2,500 per annum, together with additional fees for various specified services, including matters such as its staff attending meetings, preparing meeting agendas and minutes and preparing BAS statements and the like. Ms Heinz deposed that in addition to the services fee of $2,500 per annum the Owners Corporation had been charged $5,864.23 for additional services up to November 2013. Progressive Strata also makes charges to recoup all disbursements. However, neither its remuneration, nor its charges for disbursements gives it any real financial interest in the outcome of this litigation. 85Of the five criteria listed by Basten JA in FPM Constructions v Council of the City of Blue Mountains at [210], three or four are satisfied in respect of Progressive Strata's notice of motion of 29 August 2013. As to the first criterion, it was the moving party. The second criterion is not satisfied in the terms it was stated by Basten JA, but is satisfied in substance. The source of funds for the litigation was not Progressive Strata. But Progressive Strata would seek to have the successful respondents to its application provide the funds for its application through the imposition of levies. As to the third criterion, the conduct of the litigation was not unreasonable or improper in the sense that the litigation was conducted in a way likely to cause increased costs. The application was handled in the same way as litigation is routinely handled. There was no impropriety in the making of the application. However, the application was doomed to fail and in that sense it was unreasonable for the application to have been brought. When in FPM Constructions v Council of the City of Blue Mountains Basten JA referred to the conduct of litigation as being unreasonable, I do not understand his Honour to be using that word in the narrow sense explained by the Court of Appeal in Ridehalgh v Horsefield at 232 (quoted at para [57] above) in relation to the making of wasted costs orders against lawyers. 86For the reason in para [84] above, Progressive Strata did not have a personal interest in the application. But for the reasons in para [83] above, the Owners Corporation should be considered as a person of straw. 87Neither the criteria stated in Knight v F P Special Assets Limited, nor those stated in FPM Constructions v Council of the City of Blue Mountains are exhaustive. The categories of case in which a costs order can be made against a non-party are not closed. The important question is whether Progressive Strata should be considered to be the "real party" in connection with the Owners Corporation's notice of motion of 29 August 2013. Progressive Strata is not to be considered as the "real party" merely because it was causing the Owners Corporation to act. The persons who constitute the mind of the company, such as its directors, are not, solely on that account, to be considered to be the real party to litigation brought by the company (May v Christodoulou). 88Nonetheless, I think Progressive Strata should be treated as the "real party" to the Owners Corporation's notice of motion of 29 August 2014. The Owners Corporation is a separate legal person, but is not like the general run of companies. It exists as the vehicle through which the lot owners are to enjoy the common property and through which decisions as to the management of the common property are to be made. Progressive Strata, as the compulsory strata managing agent, has the task of managing the strata scheme for the benefit of the lot owners. In litigation commenced by the Owners Corporation against both lot owners, the compulsory strata managing agent that causes the litigation to be brought should be considered to be the real party to the litigation. 89Counsel for Progressive Strata emphasised that it acted on the basis of legal advice. I accept that it was reasonable for Progressive Strata to act on the advice it was given. But although relevant, that fact is by no means decisive. Unsuccessful parties to litigation must bear the consequences of acting on mistaken legal advice. The same is true of persons who are to be treated as real parties to the litigation. 90In my view it would not be just if Ms Moallem or Dr Xabregas and Mr Marcos were required to bear the financial burden of the Owners Corporation's notice of motion of 29 August 2013 that Progressive Strata caused the Owners Corporation to file. The application had no real prospects of success. I consider that Progressive Strata was the real party to that application. Accordingly, it should bear the burden of the Owners Corporation's liability to pay costs of the application and it should bear the burden of the legal costs that it caused the Owners Corporation to incur. 91It may seem paradoxical that the burden of those costs should be borne by Progressive Strata when it was acting on the advice of Grace Lawyers, rather than by Grace Lawyers themselves. But it is not a true paradox. It may be that Progressive Strata would be entitled to be indemnified by Grace Lawyers either as a matter of contract (if there were a contract between them) or by an action in tort. That is not a question before me. Because Progressive Strata's role is characterised as its being the real party to the application it caused to be brought, it is no more paradoxical that it should pay the costs incurred when acting on advice provided by the lawyers retained by it for the Owners Corporation than if it were the named party to the application.

Costs order sought against Karina Heinz 92Dr Xabregas sought orders that Ms Karina Heinz personally pay costs. She is a director and, I infer, an employee of Progressive Strata. At all times she acted for it. There is no reason that a personal costs order should be made against her.

Orders to be made in respect of the Owners Corporation's notice of motion of 29 August 2013 93There is no reason to vary Windeyer AJ's order that the Owners Corporation's notice of motion be dismissed with costs. The variation sought by Ms Moallem was that the Owners Corporation only pay her costs and not the costs of Dr Xabregas and Mr Marcos. Mr Marcos did not appear and Dr Xabregas was not legally represented. Nonetheless, she may have incurred expenses that would be recoverable on assessment. There is no reason she should not recover those costs from the Owners Corporation. 94To give effect to these conclusions the orders made by Windeyer AJ on 25 October 2013 should be varied. The first part of order 2 whereby his Honour ordered that pursuant to s 229 of the Strata Schemes Management Act the costs payable by the Owners Corporation pursuant to order 1 should be levied against the owner of lot 2 alone should be discharged. There should be an order pursuant to s 98 of the Civil Procedure Act that the costs payable by the Owners Corporation pursuant to order 1 should not be levied against lot 2. (A similar order has already been made in respect of lot 1. For ease of reference the whole of order 2 will be discharged and the latter part restated.) There should be further orders pursuant to s 98 of the Civil Procedure Act that Progressive Strata pay to Ms Moallem and to Dr Xabregas and Mr Marcos the costs payable by the Owners Corporation to them in respect of order 1 made on 25 October 2013 and that Progressive Strata indemnify the Owners Corporation in respect of its liability to pay such costs. The first of those orders is appropriate so that Ms Moallem, Dr Xabregas and Mr Marcos do not have to seek to enforce their entitlement to costs by proceedings against the Owners Corporation. There should be a further order pursuant to s 98 of the Civil Procedure Act that the costs incurred by the Owners Corporation in respect of its notice of motion of 29 August 2013 should not be levied against either lot 1 or lot 2 and that Progressive Strata indemnify the Owners Corporation in respect of its liability, if any, to pay costs and disbursements incurred by it to its solicitors in respect of its notice of motion of 29 August 2013.

Costs of Ms Moallem's notice of motion of 18 October 2013 and of her summons in the 2013 proceedings 95The reasons for my conclusion that Grace Lawyers are not liable for a costs order in respect of the Owners Corporation's notice of motion of 29 August 2013 applies a fortiori in respect of the Owners Corporation's defence of the applications brought by Ms Moallem. All that can be said in respect of the Owners Corporation's defence of Ms Moallem's proceedings is that Grace Lawyers advanced arguments that were not accepted. There is no basis for making a costs order against them in respect of Ms Moallem's proceeding. 96There are critical differences in respect of the proceedings brought by Ms Moallem and the application brought by the Owners Corporation by its notice of motion of 29 August 2013. The Owners Corporation's notice of motion was doomed to fail. The defence of Ms Moallem's notice of motion could not be so characterised. Although the arguments raised by the Owners Corporation were unsuccessful, they were fairly arguable. The Owners Corporation was not the moving party. 97There is a potential basis for ordering Progressive Strata to bear the burden that would otherwise be assumed by the Owners Corporation of the costs of Ms Moallem's summons and notice of motion. It decided to cause the Owners Corporation to pass the resolutions of 20 June, 18 September and 14 October 2013 that I quashed. Those resolutions were made in contravention of the orders made by Bergin CJ in Eq. Hence there is a prima facie justification for ordering the party responsible for the resolutions, that is, Progressive Strata, to pay the costs of the litigation that arose because the resolutions were passed. 98I am persuaded that would not be a just outcome. As noted above, it was Dr Xabregas' decision to file her notice of motion of 20 August 2012 to set aside the consent orders of 19 October 2011 that was the initial cause for the incurring of the costs of this litigation. A further cause was Dr Xabregas' application to the strata schemes adjudicator to set aside the Owners Corporation's resolutions of 27 February 2013. The adjudicator's decision put Progressive Strata in a difficult position. It was not Dr Xabregas' fault that the adjudicator decided the application on a ground that she had not argued. But she did not disclaim the adjudicator's decision. Mr Marcos supported Dr Xabregas in the hearing before me. 99In my view it is just that the owners of lot 2, rather than Progressive Strata, bear the burden of the costs payable by the Owners Corporation to Ms Moallem in respect of Ms Moallem's notice of motion of 18 October 2013 and her summons in the 2013 proceedings, and that they bear the burden of the costs incurred by the Owners Corporation in respect of that proceeding. 100Ms Moallem did not press a claim against Progressive Strata. However, to the extent that the Owners Corporation's own costs are not recovered from the owners of lot 2, I think it is just that Progressive Strata be liable for such costs having regard to its responsibility for causing the resolutions to be passed that led to Ms Moallem's proceeding. That is, it is just that Progressive Strata bear the burden of the liability for costs incurred by the Owners Corporation, insofar as the Owners Corporation is not indemnified by Dr Xabregas and Mr Marcos. I do not mean by that that the Owners Corporation must first exhaust its remedy against Dr Xabregas and Mr Marcos before seeking to enforce its indemnity against Progressive Strata, but that the liability for its own costs be borne primarily by Dr Xabregas and Mr Marcos. 101The question then is what costs order should be made in the proceedings heard before me to give effect to that conclusion. In my reasons of 20 November 2013 I said (at [95]): "95 It was implicit in the orders made in Cameron North Sydney Investments [Owners, Strata Plan 50411 v Cameron North Sydney Investments Pty Ltd [2003] NSWCA 5 at [170]] and Symes that the owners corporation could impose levies on the lot owners other than the named party to meet its costs. That is because in the case of the order in Cameron North Sydney Investments the owners corporation was expressly prohibited from using an administrative fund or sinking fund or other existing assets for the purpose of meeting its costs. It was necessarily implicit in the finding that s 76 of the Supreme Court Act conferred power on the court to restrain a body corporation from imposing a levy on a successful party so as to recover its own costs, or a proportion thereof, from the successful party and could not have recourse to the administrative fund or sinking fund or other assets, that s 76 also empowered a body corporate to impose a levy on other lot owners to meet its costs, notwithstanding that such a levy would not be proportionate to the lot owner's unit entitlement. If that were not so the owners corporation would have no means of paying debts properly incurred to its lawyers for its legal costs and the lawyers would have no means of recovering their debts." 102This was the view followed by Bergin CJ in Eq on 5 December 2012. The implication that the costs order made under s 76 (now s 98) authorised the body corporate imposing a levy on other lot owners arises in the absence of any other order giving indemnity a body corporate (now an owners corporation) against its liability which would provide the source of funds for it to meet its liability. 103Although the Court of Appeal's decisions are authority that justifies a trial judge making orders pursuant to s 98 of the Civil Procedure Act authorising the making of a differential levy, it does not appear that in Cameron North Sydney Investments, nor in Symes v Proprietors, Strata Plan 31731 the Court of Appeal's attention was drawn to the requirement of s 78(2) of the Strata Schemes Management Act that if levies are to be raised, they are to be raised against the owners of lots in proportion to their lot entitlements. It may be, as is implicit in the Court of Appeal's decisions, that s 98 which confers a power specifically in respect of costs is a particular provision which authorises the making of orders permitting the Owners Corporation to raise levies otherwise than in accordance with s 78(2) to pay costs. However, because of the doubts about that course, I think it preferable in this case not to make orders conferring power, or purportedly conferring power, on the Owners Corporation to make levies otherwise than in accordance with s 78(2), except where that is authorised by s 229. 104Section 229 of the Strata Schemes Management Act authorises the making of orders prohibiting an owners corporation from levying a lot owner who was the successful party for the costs payable by the owners corporation. Section 98 of the Civil Procedure Act empowers the making of orders prohibiting an owners corporation from raising levies against the successful party in respect of the owners corporation's own costs. There is nothing in the Strata Schemes Management Act that precludes such an order. I have already made an order that none of the costs payable by the Owners Corporation to Ms Moallem and none of the costs incurred by the Owners Corporation in relation to her summons and notice of motion were to be levied against Ms Moallem and that the Owners Corporation was not to use the administrative funds, sinking fund or other existing assets for the purpose of paying or meeting those costs. But an order under s 98 should then say how the burden of the owners corporation's own costs is to be borne, unless it is to be implied that the burden is to be borne by a differential levy. 105Rather than making an order (expressly or by implication) conferring, or purportedly conferring, power on the Owners Corporation to raise a levy against lot 2 in respect of costs incurred by the Owners Corporation, I think the better course is to make an order that the current owners of lot 2, Dr Xabregas and Mr Marcos, indemnify the Owners Corporation in respect of the costs incurred by it in respect of Ms Moallem's summons and notice of motion. Such an order is within the power conferred by s 98 and is not contrary to anything in the Strata Schemes Management Act. Such an order would preclude the implication that the Owners Corporation could make a differential levy for such costs, or recover interest on levies pursuant to s 79(2) of the Strata Schemes Management Act. This should be made express. The Owners Corporation will be entitled to a personal remedy against Dr Xabregas and Mr Marcos. To the extent the Owners Corporation might be unable to recover its costs from Dr Xabregas and Mr Marcos it should be indemnified by Progressive Strata.

Other claims made by Dr Xabregas 106Dr Xabregas also sought orders that would set aside all costs orders made, except to the extent that costs were certified by the costs assessor on 24 October 2013. That assessment related only to some of the costs in question. It did not include costs payable by Dr Xabregas to Ms Moallem. The assessment of costs provides no warrant for setting aside any of the other costs orders that have been made, even if there were power to do so. To the extent that issues concerning costs have been determined by costs orders that have been made, there is no power to vary the orders, except pursuant to a notice of motion filed within 14 days after the orders were made (Uniform Civil Procedure Rules, r 36.16). Insofar as there has been a considered determination in respect of costs, it would be wrong to reagitate questions that have already been considered and decided, even if there were power to do so (Autodesk Inc v Dyason (1993) 176 CLR 300 at 303). The balance of Dr Xabregas' notice of motion will be dismissed.

Orders 107For these reasons I make the following orders:

Vary order 2 made by Windeyer AJ on 25 October 2013 in proceeding 2011/00244426 by discharging the order and in lieu thereof order that costs payable by the Owners Corporation in respect of its notice of motion of 29 August 2013 pursuant to order 1 made on 25 October 2013, and the costs incurred by the Owners Corporation to its lawyers in respect of that notice of motion not be levied against the owner of lot 1 nor against the owners of lot 2 in Strata Plan SP79205.
Order that Progressive Strata Services Pty Ltd pay the costs payable by the Owners Corporation pursuant to order 1 made by Windeyer AJ on 25 October 2013 to the respondents to the Owners Corporation's notice of motion filed on 29 August 2013.
Order that Progressive Strata Services Pty Ltd indemnify the Owners Corporation in respect of the costs incurred by the Owners Corporation in respect of its notice of motion filed on 29 August 2013.
Order that the notice of motion filed by Ms Moallem on 8 November 2013 be dismissed.
Order that the costs payable by the Owners Corporation pursuant to order 2 made on 4 November 2013 be paid only from contributions levied in relation to lot 2 in SP 79205.
Order that the Owners Corporation not levy the owners of lot 2 in SP 79205 in respect of the Owners Corporation's own costs incurred by it in respect of Ms Moallem's notice of motion filed on 18 October 2013 in proceeding 2011/244426 and in respect of her summons filed in proceeding 2013/327776 determined on 4 November 2013.
Order that Dr Xabregas and Mr Marcos indemnify the Owners Corporation in respect of the Owners Corporation's own costs incurred by it in respect of Ms Moallem's notice of motion filed on 18 October 2013 in proceeding 2011/244426 and in respect of her summons filed in proceeding 2013/327776 determined on 4 November 2013.
Order that Progressive Strata Services Pty Ltd indemnify the Owners Corporation in respect of the Owners Corporation's own costs incurred by it in respect of Ms Moallem's notice of motion of 18 October 2013 in proceeding 2011/244426 and her summons in proceeding 2013/327776, but be indemnified by Dr Xabregas and Mr Marcos in respect of such liability.
Order that nothing in the costs order numbered 3 made on 4 November 2013 precludes payment of costs out of the administrative fund or the sinking fund to the extent such funds are augmented by levies or the proceeds of indemnity received by the Owners Corporation pursuant to these orders.
Order that the notice of motion filed by Dr Xabregas on 13 November 2013 be otherwise dismissed. 108My prima facie view on the costs of the notices of motion is that: (a) Dr Xabregas has been partially successful in her application against Progressive Strata and costs should follow the event. Progressive Strata should pay her costs of her notice of motion of 8 November 2013. She was not legally represented, but would have incurred expenses in relation to that application. (b) Progressive Strata should not be required to pay Ms Moallem's costs because Ms Moallem had previously consented to the dismissal of her claim against Progressive Strata. (c) Ms Moallem was unsuccessful in her application to vary the costs order that the Owners Corporation pay Dr Xabregas' costs. She was successful in obtaining an order that the costs payable by the Owners Corporation to her be levied against lot 2. She was unsuccessful in her application that the Owners Corporation's own costs in relation to her application be levied only against lot 2. Instead I ordered that the owners of lot 2 indemnify the Owners Corporation in respect of such costs. Having regard to that mixed success, prima facie, there should be no order as to costs between Ms Moallem and Dr Xabregas on their respective notices of motion. (d) Grace Lawyers was successful in relation to both notices of motion. Prima facie costs follow the event. However, Grace Lawyers' advice to the Owners Corporation was the cause of all parties incurring costs in connection with the Owners Corporation's unsuccessful notice of motion of 29 August 2013. That application had no reasonable prospects of success. Although this conduct did not justify making a personal costs order against Grace Lawyers under s 99 of the Civil Procedure Act, my prima facie view is that it would justify not exercising the discretion under s 98 to make a costs order in Grace Lawyers' favour. Prima facie there should be no order in respect of its costs of either notice of motion. (e) The Owners Corporation's costs of both notices of motion should follow the general orders. That is, Progressive Strata should pay the costs of the Owners Corporation of both notices of motion in so far as those costs related to the costs of the Owners Corporation's notice of motion of 29 August 2013. In so far as the costs of both notices of motion related to the costs of Ms Moallem's notice of motion filed on 18 October 2013 in proceeding 2011/244426 and her summons filed in proceeding 2013/327776 the Owners Corporation's costs should be paid in accordance with orders 7 and 8 in para [107] above. (f) There should otherwise be no orders as to costs of either notice of motion to the intent that each party bear its, her and his own costs. 109If any party seeks any different or further costs order in relation to the notices of motion of 8 and 13 November 2013 I will deal with the questions on the papers. I direct that if any party seeks any different or further costs order, submissions not to exceed five pages on the question of the costs of the applications with which I have dealt by these reasons be served and provided to my Associate within 14 days, and any submissions in response (not to exceed five pages) be provided within 14 days thereafter. 110This litigation has highlighted a deficiency in the legislation in relation to the making of levies on lot owners in respect of costs incurred by an owner's corporation in unsuccessfully maintaining or defending proceedings against a lot owner. Section 229 of the Strata Schemes Management Act deals only with the costs payable by an owner's corporation pursuant to a costs order against it. It would be desirable if the power in s 229 for a court to make an order as to how costs payable by an owners corporation may be levied were extended to allow the making of an order as to how the owners corporation's own costs incurred in unsuccessful proceedings may be levied. That would remove the current uncertainty about the court's power. I express no view on whether such an amendment should result in a modification of the rule in s 230 concerning the restriction on an owners corporation in raising a levy against a successful party in Chapter 5 proceedings. But the uncertainties raised by the present litigation should be addressed by legislative amendment. 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: 31 July 2014

Strata Schemes Management Act 1996(NSW)

Xabregas v The Owners - Strata Plan No. 79205; Moallem v Consumer, Trader and Tenancy Tribunal & Ors

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (10 paragraphs)

Legislation Cited (2)

Cases Cited (30)

Cited By (9)