The latest application for an order that a party’s solicitor pay the costs of proceedings personally is Whyked Pty Ltd v Yahoo!7 Pty Ltd [2008] NSWSC 477. In dismissing the application, Justice McDougall commented:
‘[185] In theory, the courts are open to all. In practice, access to the courts is often dictated by the availability of financial resources. That is an unfortunate fact of life. It does not mean that those without resources should be barred from the courts, particularly where legal practitioners are prepared to accept instructions on a contingency basis.
[186] The policy underlying the power of the courts to order for security costs is based on different considerations. Undoubtedly, the exercise of that power has the effect from time to time of preventing arguable cases from being run. Where that happens, it should be pursuant to an order of a court on an application for security for costs, after balancing all relevant considerations. It should not be pursuant to a decision of a legal practitioner who is afraid to accept instructions from an impecunious client because the defendant, if successful, may obtain an order for costs against the legal practitioner personally.’
His Honour stated the law as follows:
‘The statutory power
[7] The general power of the court to order costs is found in s 98(1) of the Civil Procedure Act:
- 98
Courts powers as to costs.
- (1)
Subject to rules of court and to this or any other Act:
- (a)
costs are in the discretion of the court, and
- (b)
the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
- (c)
the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.
[8] That general power is cut down by UCPR r 42.3:
- 42.3
Powers of the court generally
- (1)
Subject to r 42.27, the court may not, in the exercise of its powers and discretions under s 98 of the Civil Procedure Act 2005 , make any order for costs against a person who is not a party.
- (2)
This rule does not limit the power of the court:
- (a)
to make an order for payment, by a relator in proceedings, of the whole or any part of the costs of a party to the proceedings, or
- (b)
to make an order for payment, by a person who:
- (i)
is bound by an order made, or judgment given, by the court in proceedings or is bound by an undertaking given to the court in proceedings, and
- (ii)
fails to comply with the order or the judgment or breaches the undertaking,
of the whole or any part of the costs of a party to the proceedings occasioned by the failure or the breach, or
- (c)
to make an order for payment, by a person who has committed contempt of court or an abuse of process of the court, of the whole or any part of the costs of a party to proceedings occasioned by the contempt or abuse of process, or
- (d)
to make an order for costs against a person who purports, without authority, to conduct proceedings in the name of another person, or
- (e)
to make an order for costs against a person who commences or carries on proceedings, or purports to do so, as an authorised director of a corporation, or
- (e1)
in the case of proceedings in the Land and Environment Court, to make an order for costs against a person who carries on proceedings as a party’s agent, or
- (f)
to make an order of the kind referred to in rule 42.27, or
- (g)
to make an order for costs in exercise of its supervisory jurisdiction over its own officers, including solicitors, barristers and court appointed liquidators.
[9] The court’s power to make a costs order against a legal practitioner is found in s 99(1), (2) of the Civil Procedure Act:
- 99
Liability of legal practitioner for unnecessary costs.
- (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.
[10] There is no doubt that, considered alone, the power conferred by s 98 includes the power to order costs against non-parties: Knight v FP Special Assets Ltd (1992) 174 CLR 178. However, the power to order costs against non-parties is cut down by r 42.3. That rule does not limit the court’s power to make costs orders against legal practitioners, and there is thus no need to consider the question of who is (or is not) a “party” for the purposes of the rule (as to which, see for example the decision of Austin J in In the matter of Bauhaus Pyrmont Pty Ltd (in liq) (2006) 67 NSWLR 289 at 291–295 [7] to [26]).
[11] The Federal Court of Australia has essentially similar powers in relation to costs generally and costs orders against legal practitioners. See, respectively, s 43 of the Federal Court of Australia Act 1976 and order 62 r 9 of the Federal Court Rules 1979. There does not seem to be anything in the Federal Court of Australia Act or the Federal Court Rules equivalent to UCPR r 42.3.
Some relevant authorities
[12] The parties referred me to many decided cases. Some of those cases dealt with other legislation, such as s 198M of the Legal Profession Act 1987 (NSW) (see now s 348 of the Legal Profession Act 2004): Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; Degiorgio v Dunn (No 2) (2000) 62 NSWLR 284. Others related to the Federal Court of Australia Act and the Federal Court Rules; Levick v Commissioner of Taxation (2000) 102 FCR 155; White Industries (Qld) Pty Ltd v Flower and Hart (a firm) (1998) 156 ALR 169. While I accept that those and other cases may provide valuable guidance to the exercise of the discretion, they need to be read by reference to the statutory powers with which they are concerned. Further, and more generally, it is necessary to bear in mind that the power to order costs against a legal practitioner is that now found in s 99 of the Civil Procedure Act, and to be exercised in accordance with the terms of that section. There is a danger in substituting analyses of, or glosses upon, the section for the language employed in it.
[13] Sully J considered the power conferred by s 99, and authorities bearing on the exercise of that power, in Ideal Waterproofing Pty Ltd v Buildcorp Australia Pty Ltd [2006] NSWSC 155. His Honour concluded at [17] that s 99 should be applied consistently with the principles stated in Ridehalgh v Horsefield [1994] Ch 205, with what his Honour referred to as “two additional riders”.
[14] Ridehalgh concerned s 51 of the English Supreme Court Act 1981. There is no relevant distinction between the terms of that section and the terms of s 99. At 223–233, the Court of Appeal in Ridehalgh considered the adjectives “improper”, “unreasonable” and “negligent”. Their Lordships said:
’Improper’ means what it has been understood to mean in this context for at least half a century. The adjective covers, but is not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty. It covers any significant breach of a substantial duty imposed by a relevant code of professional conduct. But it is not in our judgment limited to that. Conduct which would be regarded as improper according to the consensus of professional (including judicial) opinion can be fairly stigmatised as such whether or not it violates the letter of a professional code.
Unreasonable’ also means what it has been understood to mean in this context 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.
The term ‘negligence’ was the most controversial of the three. It was argued that the Act of 1990, in this context as in others, uses ‘negligence’ as a term of art involving the well known ingredients of duty, breach, causation and damage. Therefore, it was said, conduct cannot be regarded as negligent unless it involves an actionable breach of the legal representative’s duty to his own client, to whom alone a duty is owed. We reject this approach.
…
But for whatever importance it may have, we are clear that ‘negligence’ should be understood in an untechnical way to denote failure to act with the competence reasonably to be expected of ordinary members of the profession.
In adopting an untechnical approach to the meaning of negligence in this context, we would however wish firmly to discountenance any suggestion that an applicant for a wasted costs order under this head need prove anything less than he would have to prove in an action for negligence : ‘advice, acts or omissions in the course of their professional work which no member of the profession who was reasonably well-informed and competent would have given or done or omitted to do;’ an error ‘such as no reasonably well-informed and competent member of that profession could have made;’ see Saif Ali v Sydney Mitchell & Co [1980] AC 198 at 218 and 220, per Lord Diplock.
We were invited to give the three adjectives (improper, unreasonable and negligent) specific, self-contained meanings, so as to avoid overlap between the three. We do not read these very familiar expressions in that way. Conduct which is unreasonable may also be improper, and conduct which is negligent will very frequently be (if it is not by definition) unreasonable. We do not think any sharp differentiation between these expressions is useful or necessary or intended.” [at 323D — 233E]
[15] At 233–234, their Lordships pointed out that a legal practitioner did not act improperly, unreasonably or negligently simply because he or she acted for someone whose case was doomed to fail; their Lordships appeared to consider that something more, amounting in effect to abuse of process, was required:
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.” [at 233F — 234F]
[16] At 239, their Lordships noted that a finding that the legal practitioner had acted improperly, unreasonably or negligently did not mean that he or she must be ordered to pay wasted costs. Such a finding enlivened the discretion to make such an order, and required, in their Lordships’ view, that their be some reason why the discretion should not be exercised in favour of the parties seeking it:
Even if the court is satisfied that a legal representative has acted
improperly, unreasonably or negligently and that such conduct has caused the other side to incur an identifiable sum of wasted costs, it is not bound to make an order, but in that situation it would of course have to give sustainable reasons for exercising its discretion against making an order.” [at 239F]
[17] The “two additional riders” to which Sully J referred in Ideal Waterproofing were:
- (1)
the jurisdiction to order costs against a legal practitioner personally is one to be exercised sparingly, because (among other things), the court would not always know all the details and circumstances of the practitioner’s instructions. Thus, for the jurisdiction to arise, the conduct must involve some serious dereliction of duty or gross negligence (Dal Pont: Lawyers’ Professional Responsibility in Australia and New Zealand (Second Edition) at 374–375); and
- (2)
the inherent power of the court to order its officers to pay costs in an appropriate case is ordinarily one to be exercised on the basis of a serious dereliction of the duty owed by the officer to the court. However, it is neither necessary nor desirable to define the level of incompetence or negligence at which the costs jurisdiction will arise (Harley v McDonald [1999] 3 NZLR 545 at [59] to [61]).
[18] I am not entirely sure that the views expressed in Harley are directly applicable to the exercise of the power conferred by s 99 of the Civil Procedure Act. Harley was a case on the inherent jurisdiction of the court. That is why their Honours talked about conduct amounting to a serious dereliction of the duty owed by a legal practitioner to the court. For better or for worse, the legislature has seen fit to enact a statutory test that is framed in the terms now to be found in s 99, and not by reference to the test of serious dereliction favoured by the Court of Appeal in Harley.
[19] With that qualification, however, I propose to do as Windeyer J did in Karwal v Skrzypczak [2007] NSWSC 931 at [9], and proceed substantially on the basis outlined by Sully J in Ideal Waterproofing. I note in passing that Windeyer J at [10] appeared to share my doubt as to the relevance of cases involving the inherent jurisdiction to the exercise of the power conferred by s 99.‘
The conclusion to which his Honour came was:
‘[178] So far, I have dealt with the various complaints individually. On the view to which I have come, the only complaints that are made good are those in respect of the attempt to assign (so that the assignee could sue upon) causes of action under the Trade Practices Act, and the claim based on joint venture.
[179] I do not think that either of those matters is sufficient by itself to justify the conclusion for which Yahoo contends. Nor are they, taken together. Further, and to the extent that (as I think is the case) they should be examined against the background of the entire conduct of the litigation, I see no reason to change that conclusion.
[180] On the solicitor’s evidence — which, as I have said, I accept — he did not at any stage subjectively form the view that the proceedings reasonable prospects of success. A subjective view cannot be determinative. But one is then left to ask: what is there in the objective circumstances that should have brought this home to the solicitor?
[181] I do not think that there is anything. At least some of the complaints made by Yahoo are in my view wrong. As to other complaints: there were arguments in favour of the position that Whyked or the plaintiffs took, even if (in some cases) the solicitor did not appear to perceive those arguments.
[182] The solicitor was diligent in his performance of the retainer. He took and acted on the advice of counsel, whom he believed to be experienced and capable. In my view, it was open to him to do so, in circumstances where he did not just relinquish all responsibility to the barrister, but discussed the issues with the barrister either by telephone or through emails.
[183] The case sought to be advanced was a difficult one. It faced problems. But in my view, notwithstanding the fate that parts of it suffered, it cannot be characterised as hopeless. The real problem is that the plaintiffs lacked the resources to bring it, and made what I think was a mistaken tactical decision to frame it in such a way that an application for security for costs was bound to succeed and, having succeeded, was bound to have the practical effect of bringing the litigation to an end.
[184] I do not think that the exercise of the power given by s 99 of the Civil Procedure Act should be undertaken in such a way as to deter legal practitioners from advancing difficult cases, or from accepting instructions from impecunious clients. As a matter of general policy, someone with a case that is not manifestly hopeless should not be denied the opportunity to litigate it: see, in a different but analogous context, the well known decision in General Steel Industries v Commissioner for Railways (1964) 112 CLR 125.
[185] In theory, the courts are open to all. In practice, access to the courts is often dictated by the availability of financial resources. That is an unfortunate fact of life. It does not mean that those without resources should be barred from the courts, particularly where legal practitioners are prepared to accept instructions on a contingency basis.
[186] The policy underlying the power of the courts to order for security costs is based on different considerations. Undoubtedly, the exercise of that power has the effect from time to time of preventing arguable cases from being run. Where that happens, it should be pursuant to an order of a court on an application for security for costs, after balancing all relevant considerations. It should not be pursuant to a decision of a legal practitioner who is afraid to accept instructions from an impecunious client because the defendant, if successful, may obtain an order for costs against the legal practitioner personally.
[187] I do not think that there is anything in the complaints advanced by Yahoo to deflect the “in principle “ conclusion express at [107] above.’
