Principles and issues on special costs applications against solicitors
6 Before turning to the competing submissions on recusal, it is convenient to set out the legal position in relation to special costs applications against solicitors and the issues which therefore arise for determination in this special costs application.
7 There is precedent for a judge of this Court in bankruptcy proceedings both to dismiss a debtor's action and to award indemnity costs against the debtor's solicitors. In Deputy Commissioner of Taxation v Levick [1999] FCA 1580; 168 ALR 383, a solicitor acting for a debtor, Mr Levick, filed a notice of intention to oppose a creditor's petition on grounds that were later found to be spurious. Prior to the hearing of the petition, the petitioner successfully applied to have Mr Levick joined as a party and sought indemnity costs against him. Counsel for the debtor sought a ruling on the costs application first, which, not surprisingly, was refused upon the basis that the issues raised in the grounds opposing the petition had to be ruled upon first. The grounds advanced were not the subject of any oral submissions on behalf of the debtor prior to the making of the sequestration order. Hill J therefore made the sequestration order without opposing submissions and then dealt with the costs application, at which time each of the grounds were found to be entirely without merit.
8 There is nothing in the Levick judgment to suggest that, had the grounds been argued in opposition to the making of the sequestration order rather than in relation costs application, Hill J would not still have ruled upon those grounds, still made the sequestration order, and then relied upon those findings in order to make the indemnity costs order against Mr Levick.
9 Hill J in Levick was careful to emphasise the distinction between an argument that does not succeed and one that justifies a third party costs order: see 390 [15]. Prior to considering the merits of the grounds that Mr Levick had advanced, Hill J considered authority as to when a solicitor could be made liable for costs in proceedings in which that solicitor's client's case had failed: see 389-391 [9]-[17], including the reference to Helljay Investments Pty Ltd v Deputy Commissioner of Taxation [1999] HCA 56; 166 ALR 302 at 310-11, in which Hayne J declined to recuse himself by reason of prior adverse decisions in cases that were factually similar, and made a third-party indemnity costs order (albeit that the third party was not a solicitor).
10 The Full Court upheld Hill J's costs order: Levick v Commissioner of Taxation (2000) 102 FCR 155 at 162-7 [29]-[50]. The Full Court applied prior authority to the effect that clients are free to reject advice and insist on litigating hopeless cases, and that it is rarely, if ever, safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved. As a practical matter, a trial judge will usually have to form an adverse view on the merits of the case before it becomes a special costs case, even if that outcome might be anticipated by the successful opposing party. The Full Court did not cast any doubt on the propriety of Hill J hearing the costs application. The Full Court's decision in Levick was cited by the Solicitors and accepted as binding authority in this area.
11 Although I would not regard the categories as being closed, the Full Court in Levick at 159 [17] quoted Hill J's reference to the case having no chance, or perhaps no real chance, or being untenable. The absence of merit in the failed case is a practical precondition for the special costs application to be made at all, although that may or may not have featured in a prior judgment as it has in this case.
12 The question of whether the application before me was properly brought has already been decided. No application for special leave to appeal to the High Court has, to my knowledge, been filed, despite this being raised by me at the 9 February 2017 stay application hearing: see stay judgment at [10]-[11]. Given Ms Young's bankruptcy status that is now unlikely to take place.
13 An application for constitutional writs has been brought in relation to the September judgment, but as I concluded in the stay judgment at [21], that seems to be devoid of merit, not least because no jurisdictional error is identified, let alone demonstrated as possibly existing. In those circumstances, the findings made in the September judgment stand as much for any other judge who might hear the special costs application as for me in hearing it, subject to any evidentiary impediments standing in the way of reliance on the prior judgment being used to establish any necessary facts. The question for determination on the special costs application was not whether the case as brought was devoid of merit - that has already been effectively determined - but whether the Solicitors should be liable for the costs of the respondents (and now special costs applicants) for running such a case on behalf of their client.