THE DISTRICT COURT

OF NEW SOUTH WALES

CIVIL JURISDICTION

JUDGE NEILSON

TUESDAY 31 AUGUST 2004

6286/02 MOMIBO PTY LTD AND BARRY BYRNE (Applicants)

JOHN BURNETT ADAM AND JOHN ROBERT MARSDEN TRADING AS MARSDENS LAW GROUP (Respondents)

1. This is an application by successful defendants and cross claimants (“the applicants”/ “Momibo”) for costs against the former solicitors (“the respondents”/ “Marsdens”) of the unsuccessful plaintiffs and cross defendants, Messrs Tony Farrugia and Michael Cuomo (“the plaintiffs”). The relief claimed in the Notice of Motion is this:

1. That the respondents pay the applicants’ costs of these proceedings up to and including 22 October 2003 pursuant to:
(a) Part39A r14, District Court Rules; and/or
(b) Section 198M Legal Profession Act 1987 (NSW).
2. In the alternative to order 1, that the respondents pay the applicants’ costs of these proceedings up to and including 1 August 2003 pursuant to:
(a) Part39A r14, District Court Rules; and/or
(b) Section 198M Legal Profession Act 1987 (NSW).
3. That the respondents pay the applicants’ costs of this notice of motion.

Mr Hughes QC, for the applicants, did not press for the relief calimed under the Rules. However, I believe it appropriate to make a comment about this provision. The general power of this Court to award costs (section 148B) has been held to extend to the making of an order against a third party: New South Wales Insurance Ministerial Corporation v Edkins (1998) 45 NSWLR 8. The provision in section 148A does not limit the Court’s power to making a costs order against a party only. In theory, therefore, this Court has the power to make an order for costs against a solicitor for a party under the “general law” developed by the superior Courts on that topic. Section 148E of the District Court Act 1973 makes special provision about the liability of legal practitioners for costs in certain circumstances. However section 148E(1) requires “serious neglect , serious incompetence or serious misconduct”. However subsection (5) provides that nothing in s 148E limits the generality of s 148B or any other provision of the District Court Act. Hence s 148E must be seen as an additional or ancillary power to the power to order a legal practitioner to pay costs under the “general law”.

14 Liability of solicitor




(1) Where costs are incurred improperly or without reasonable cause, or are wasted by undue delay or by any other misconduct or default, and it appears to the Court that a solicitor is responsible (whether personally or through a servant or agent), the Court may, after giving the solicitor a reasonable opportunity to be heard:




(a) direct the solicitor to repay to his client costs which the client has been ordered to pay to any other party, and




(b) direct the solicitor to indemnify any party other than his client against costs payable by the party indemnified.




(2) Without limiting the generality of subrule (1), a solicitor is responsible for default for the purposes of that subrule where any proceedings cannot conveniently proceed, or fail or are adjourned without useful progress being made, because of the failure of the solicitor:




(a) to attend in person or by a proper representative,




(b) to file any document which ought to have been filed,




(c) to deliver any document which ought to have been delivered for the use of the Court,




(d) to be prepared with any proper evidence or account,




(d1) to comply with any provision of the rules or any judgment or order or direction of the Court, or




(e) otherwise to proceed.




(3) The Court may, before making an order under subrule (1), refer the matter to the registrar for enquiry and report.




(4) The Court may order that notice of any proceedings or order against a solicitor under this rule shall be given to the solicitor’s client in such manner as may be specified in the order under this subrule.




(4A) The Court may give ancillary directions in order to give full effect to a costs order, including directing a solicitor to provide to the Court or a party to the proceedings a bill of costs in assessable form.




(5) This rule is in addition to, and is intended to operate independently of, the provisions of section 148E of the Act and does not apply in circumstances where section 148E of the Act applies.

The jurisdiction is one which “must be exercised judicially and in accordance with general legal principles pertaining to the law of costs” - Oasis Hotel Ltd v Zurich Insurance Co (1981) 124 DLR (3rd) 455 at 462, quoted in Knight v FP Special Assets [(1992) 174 CLR 178] at 192 but it is sufficient, as was said in Leicester v Walton [Court of Appeal, 22 November 1995, unreported] that the solicitor’s “action or inaction led to the incurring of costs which would not otherwise have been incurred or the wasting of costs which would not otherwise have been wasted.”

6. Facts

The principal proceedings arose out of a commercial lease of a first floor lockup shop known as suite 3, 448 Cleveland Street, Surry Hills. Momibo Pty Ltd was the lessor and Mr Barry Byrne was its director. The plaintiffs were the lessees. They conducted in the shop a business known as “Divine Solariums”. The lease was for 2 years commencing on 15 June 1998. The lease contained an option to renew for a further period of 2 years. That option had to be exercised in writing between 15 December 1999 and 14 March 2000. There is no direct evidence that the option was exercised and Mr Gregory Keith Anderson, a solicitor employed by the respondents, who had day to day conduct of the plaintiffs’ case after 11 February 2003, admitted in his oral evidence before me that it was not exercised. From 15 June 2000, the plaintiffs remained in possession of premises pursuant to clause 14 of the Memorandum, which is in the following terms:

If the lessee holds over after the expiration or prior determination of the term granted by this lease, with the consent of the lessor, the lessee shall become a monthly tenant only of the lessor. In such event the lessee will pay a monthly rent being a monthly proportion of the annual rent payable hereunder during the last year of the term and otherwise will be subject to the same terms and conditions mutatis mutandis as those herein contained as far as are applicable, provided that such tenancy shall be terminable by one month’s notice to quit in writing expiring at any time.

8. On 23 June 2000, after the expiration of the term of the lease, Momibo Pty Ltd commenced proceedings in the Downing Centre Local Court claiming:

(a) $6,500 for rent due between 15 February 2000 and 15 July 2000
(b) $3,486.93 for the plaintiff’s share of outgoings
(c) $1,366 for interest on the above
with a set off of $1,900 for sums recently paid. The total claimed, including the costs of the proceedings, was $9861.73. On 22 November 2000, Momibo Pty Ltd obtained default judgment for that sum, an affidavit of debt having been sworn by the company’s then solicitor Mr Peter Robert Murphy.

10. On 18 April 2001, Mr Michael Cuomo filed a notice of motion in the Local Court seeking to set aside the default judgment and for a stay of proceedings. That notice was supported by his affidavit sworn that day. Part of that affidavit is this:

The debtor maintains that he has a bona fide defence and motions the court to set aside the judgment so that his defence may be heard on its merits.

The reason the debtor failed to file a prescribed defence within the required time, together with the grounds on which he relies for the purpose of this motion is attached marked annexure”A”

The defendants say as follows;

(1) They did in fact pay rent for the period 15/2/00 – 15/7/00 and they have the bank deposit slips to prove this.
(2) The defendants have continually requested from the plaintiff verified receipts and/or documents to substantiate his claim on “outgoings”. To date, nothing has been forthcoming. The only document forwarded to the defendants has been an unaudited copy of the Byrne Family trust profit and loss account. The defendants fail to see the relevence of this document to the premises they rented at 448 Cleveland Street.

(3) I say that upon receipt of the statement of claim in this matter, I had numerous discussions with the plaintiffs representatives, including a Mr Barry Byrne. During several of those discussions I :
a. Demanded a full reconciliation of the rent paid to date, so that the exact balance could be determined. Demanded that more recent payments made be deducted from the total claim, as the total is incorrect.

b. Demanded a full itemisation of the plaintiffs claim for “Outgoings” in addition to the rental. Including a percentage break-down for the whole Building.
c. Brought to the attention of Mr Byrne the many items of a structural and Capital nature in the demised premises that required urgent repair or maintenance: eg; non functioning Hot-Water system, broken window panes, cracked plaster in walls, leakage from pipe and toilet systems, flaking paint work, lack of reasonable security items, faulty light fittings, plumbing and sewage blockages, ect.

4. In reply Mr Byrne said to me, words to the following effect on several occassions:

PB “O.K. I agree that as long as you keep paying some rental into the Account I will not do anything I will not do anything furtheer about the Court proceedings … I will try to trace those more recent up to date payments you mentioned….so don’t worry about it for now … we can sort it all out.”; and

PB “I wil try to provide you with a break-up of the outgoing expenses, I understand that it is impossible to calculate your exact percentage payable just from those overall totals for the building.”; and

PB “ I realise ther are lots of defects and problems with the building … but that is your problem … you are the ones who rented it …”.

5. I say that in reliance upon those statements, we continued to pay rental to the Bank account, and never received any notice that the plaintiff’s undertaking not to proceed with the Statement of Claim was to be revoked.
6. Further, I say that the request for details of the Outgoings claim was NEVER complied with at all or to the extent necessary for the tenant to calculate its possible liability. Further, dispite the many demands, and the premises falling into structural disrepair to the extent where it virtually prevented us from operating our Sun-Tanning Business there, the Landlord/Plaintiff refused to carry out any emergency repairs.
6. I say therefore, that Defendants deny being indebted as alleged, and have been denied the opportunity to defend the proceedings because of the Plaintiff’s breach of undertaking. Further, the Defendant wishes to file Defence and Notice of Cross Claim in the matter, upon the facts and circumstances as set out above.

a. Rent was in fact paid and has deposit slips.
b. No formal verification of outgoings, only a profit and loss account of Byrne Family Trust.

15. On 3 September 2001, Mr Cuomo filed a notice of motion in the Local Court seeking leave to file a cross claim. The notice recites that he had received advice that he had grounds “to take legal action against [Momibo Pty Ltd] for damages sustained as a result of breaches of the lease by [Momibo Pty Ltd]”. The notice also recites that he was then awaiting a decision on an application for legal aid. The notice of motion was listed for hearing on 1 November 2001 but was struck out because Mr Cuomo failed to appear. He was ordered to pay Momibo’s costs of $360. On 5 November 2001, a friend of the plaintiffs, Mr Henri Di Caprio, handed a letter to the Registrar of the Local Court advising that the plaintiffs only received the notice of hearing of the motion on the evening of 1 November 2001 and asking that the notice of motion be “re-installed” and that the costs order be set aside. The same letter stated that the plaintiffs had obtained the services of Mr Leonard Karp through the Bar Association. It appears to be common ground that that this was a pro bono appointment. On 6 December 2001, the Registrar of the Local Court advised Mr Cuomo in writing that the relief required by Mr Di Caprio could be obtained by filing a fresh notice of motion and suggested that he liaise with his barrister. The evidence before me does not disclose the further conduct of or fate of the Local Court proceedings. They appear to have been overtaken by proceedings in this court.

16. The evidence is clear that the plaintiffs consulted Mr Karp prior to their instructing the respondents. On 7 November 2001 the plaintiffs met in conference with Mr John Marsden, one of the respondents and Mr Dennis Grant, a solicitor employed by the respondents. The plaintiffs provided to Mr Grant a bundle of documents which they had relating to the Local Court proceedings. Further instructions were provided to the respondents at their Sydney office on 22 February. It is common ground that Marsdens accepted instructions on a pro bono basis, or, to use Mr Hughes’ permutation, on a speculative basis. From 7 November 2001 to 11 February 2003, Mr Grant had the conduct of the plaintiff’s matter on a day to day basis, under the general supervision of Mr Marsden. Mr Grant resigned from the employ of the respondents on 11 February 2003, giving 6 weeks notice at that time. Mr Gregory Keith Anderson took over day to day conduct of the plaintiffs’ matter on 11 February 2003 and retained that conduct until the respondents ceased to act on 4 August 2003. Mr Anderson is also a solicitor employed by the respondents.

17. Certain instructions of the plaintiffs to the respondents have been disclosed in evidence. I permitted the disclosure of those instructions on the basis that privilege had been waived by the instructions being pleaded in the substantive proceedings. Mr Grant’s affidavit (exhibit 10) contains the following:

6. At all times I was instructed by Farrugia and Cuomo that rent had been paid up to the date that they were locked out of the premises.

7. At all times Farrugia and Cuomo’s instructions were that the outgoing were not paid by reason of he failure of Barry Byrnes and/or Momibo Pty Limited to verify the outgoings which they claimed were outstanding. I was instructed by Farrugia and Cuomo that they had made numerous requests for thus to be done and it had been ignored.

8. On the basis of the instructions provided and the documents provided by the clients, my view was that it was arguable that Momibo Pty Limited and Byrnes were in breach of the lease with Farrugia and Cuomo by failing to do so.

3. When I became involved in this matter I had the opportunity to peruse the file. I was aware that there was a dispute about payment of rent. The clients’ consistent instructions, in conference, were to the effect that, “We have paid all rent,” or words to that effect. It also became apparent to me from the documentation on file that there may have been an issue about non payment of outgoings.

12. The plaintiffs paid rent to the first plaintiff as and when required by the terms of the lease.
13. At the end of the first year of the lease the second defendant presented the plaintiffs with an account for outgoings. This account was for outgoings for the whole of the building at 448 Cleveland Street, Surry Hills, and not for that part of the property the subject of the lease in paragraph 5 above.

14. The plaintiffs, by Anne Cuomo, the mother of Michael Cuomo, requested particulars when confronted the account referred to in paragraph 13 above.

15. The first defendant refused to supply such particulars.
16. At various times during the course of the lease after about June 1999 the defendants breached the covenant of quiet enjoyment in the lease, and caused a private nuisance.

Particulars of Breach

a. the second defenadnt entered the premises without notice and in the presence of clients of the business made demands for money. Such demands were made in a loud voice premises, advertising the premises for lease, thereby causing the the palintiffs embarrassment and loss of business.
b. the defendants or either of them caused "for lease" sings to be placed outside the premises,advertising the premises for lease, changed the locks and thus excluded the plaintiffs from the premises
17. On or about 3 February 2001 the second defendant, without notice and in breach of the lease, changed the locks and thus excluded the plaintiffs from the premises.
18. The first defendant converted to its own use those items memtioned in paragraph 9,(c),(e),(g),(h),(i),(j),(l),(n),(p), and (s).
19. The defendant’s also refused to permit the plaintiffs to attend the premises so to offer the solarium beds specified in paragraph 9(d) above, for sale at market price, thereby causeing the plaintiffs loss.
20. As a result of the actions of the defendant’s or any one of them, the plaintiffs suffered damage as follows,

a. Loss of the benefit of the lease, including the option.
b. Loss of profit
c. Loss of the value of goods converted to the defendants use
d. Loss of the value of assets sold at a loss because of the defendants’ demands that the plaintiffs not enter the premises to retrieve them.

(c) Security locks,
(e) Fish tank and tropical fish,

(g) Two massage tables,

(h) Sink and taps in massage room,

(i) Large potted plants,

(j) Coffee table,

(l) Reception desk,

(n) Mirrors,

(p) Stereo,

(s) Curtains and blinds.

22. The SOC as filed had annexed to it a “certificate under section 198L of the Legal Profession Act 1987”. That has been marked exhibit L before me. A copy of that certificate is annexed to these reasons for judgment. No part of exhibit L has been completed, other than the signature of the “Solicitor for the Plaintiff “, that of Mr John Marsden. The form used for exhibit L does not appear to me to be a form generated in Marsdens’ office but rather a form generated by, for example, the Registry of this Court, the Law Society, a legal stationer or a seminar provider. The paper used for the SOC as filed is different to the paper on which Exhibit L is printed: this is clear from a physical examination of the original documents. Mr Marsden’s signature on the SOC differs somewhat from his signature on exhibit L. Mr Grant’s oral evidence made it clear that the documents were signed at different times: he saw Mr Marsden sign the SOC but not exhibit L.

23. An affidavit of Mr Marsden (exhibit 12) was read. Mr Marsden was required by the applicants for cross examination but his illness prevented his attending Court during the week of the hearing before me (16 to 18 March 2004) and during the following week and, it appeared to me, the prognosis for his being available for cross examination in the immediate future was not good. In those circumstances I exercised my discretion under Part 30 r3 to grant leave to the respondents to read Mr Marsden’s affidavit. After having cross examined Mr Grant and Mr Anderson, Mr Hughes did not other than formally object to my granting that leave. Nevertheless Mr Marsden’s evidence remains untested but, more significantly, it does not answer some of the questions raised in the current application. Mr Marsden said this:

(a) I reviewed the instructions from my clients and after careful consideration was satisfied that s.198L of the Legal Profession Act 1987 (NSW) was complied with. I was instructed to file proceedings and I signed the s.198L Certificate.

(a) When he received the “instructions” of his clients,
(b) What those “instructions” were: merely the oral instructions which may have been reduced to writing in some form, and/or the documents relating to the Local Court proceedings, and/or the lease and the registered memorandum and/or other material;
(c) Whether he read the SOC;
(d) When he signed the certificate, whether that be before or after he signed the SOC;
(e) The form of exhibit L, its origin and why it was used.

10. It was may view, based on the instructions that I had received from Farrugia and Cuomo, as well as my perusal of documentation provided to me that the claim as pleaded in the Statement of Claim had reasonable prospects of success.

11. At no time prior to ceasing to have access to the file and my leaving the employ of Marsdens Law Group did my attitude in relation to the prospects of success change. At no time prior to my leaving the employ of Marsdens Law Group did I see any evidence to change my opinion on that point.

27. The evidence of Mr Grant was that the plaintiffs were always promising to provide to the solicitors documents to support the claim, documents to prove payment of the rent and documents to support the claim for damages. A box of such documents was not provided to Mr Anderson until 1 or 2 weeks prior to his retaining an expert to provide an opinion as to the damage suffered by the plaintiffs, that is prior to 8 May 2003. The documents provided appear to me to be itemised on pages 1 and 2 of the report of Mr D.P. Watson of 25 June 2003 which is annexure A to Mr Watson’s affidavit of 25 June 2003 (exhibit K). In cross examination by Mr Hughes, Mr Anderson admitted that he did not “lift a finger” between February and July to find documentary evidence to prove that the rent had been paid. This concession was wrought from Mr Anderson in a masterful interrogation that would have been harrowing for any solicitor. The concession does not explain why documents were produced to Mr Anderson when they were. It seems probable to me that either Mr Anderson or Mr Watson again reiterated the advice earlier given by Mr Grant that the plaintiffs must produce all documents in their possession which would support their claim. I accept that it had been firmly drawn to the attention of the plaintiffs by Marsdens that they were to produce all the documents that they could to support their claim and that that requirement was kept before the plaintiffs by Marsdens.

28. In the meantime, the litigious process was taking a rather slow course. A Notice of Grounds of Defence was filed on 30 August 2002. Momibo denied the averment in paragraph 12 of the SOC that the plaintiffs had paid all rent as and when required by the lease. In answer to paragraph 17 of the SOC, Momibo admitted that it changed the locks on the demised premises “as the Plaintiffs were almost six months in arrears in payment of their rent”. It is not presently necessary to recite the other grounds of defence. As the plaintiffs’ claim was not a liquidated claim, the Notice of Grounds of Defence was not verified. However the notice of grounds of defence was not accompanied by certificate under the Legal Profession Act 1987, section 198L and this was required: section 198L(3), Form 10A inserted by Gazette No 111 of July 2002, p5181. Nevertheless the plaintiffs did not take any issue about this and it was not raised in the application before me.

29. On 29 October 2002 a pre-trial conference was held before an Assistant Registrar. A timetable was then set which fixed 13 January 2003 as the day for serving the last of the evidence (that in reply) and fixed a Status conference for 25 February 2003. On that day the matter came before Bowden A.J. who noted the “parties have not complied with the timetable”. His Honour set the matter down for directions on 7 May 2003 and made a “show cause” order. The matter again came before Bowden A.J. on 7 May 2003. Both parties prepared written submissions, which were placed before his Honour, on the “show cause” application and the plaintiffs relied on an affidavit of Mr Anderson sworn on 1 May 2003 (exhibit A, annexure G before me). The substance of Mr Anderson’s affidavit is this:

6. From my perusal of the file it appears as though the reasons why the Plaintiffs were unable to comply with the orders relating to the filing and service of Affidavit evidence are as follows:
a) The Plaintiffs are suffering from financial difficulties which on their instructions relate to the circumstances surrounding these proceedings, in particular the loss of their business. This has effected their ability to engage a forensic accountant to prepare an expert report as to damages. Our firm has entered into arrangements with the Plaintiffs regarding fees however arrangements with an expert have been difficult to make noting the financial constraints that the Plaintiffs have.
b) Lay affidavits have been drafted and were first signed by the Plaintiffs and some other witnesses in early to mid December 2002. However from my perusal of the file it appears as though there were errors in relation to the Affidavits that were prepared and signed, those errors being discovered by the Solicitor acting for the Plaintiffs at the time and as a result those Affidavits were not filed and served in the proceedings.
7. I expect that by 7 May 2003 (when this matter is listed for show cause) the Lay Affidavits will be either sworn, filed and served or alternatively substantially complete to enable the filing and service of same. There are seven (7) Lay Affidavits which includes Affidavits from each of the Plaintiffs. At the time of preparing this Affidavit those Lay Affidavits are in my estimation 80%-90% complete.
8. In relation to expert evidence, the Plaintiffs, with the assistance of a close friend and advisor, have been searching for an expert who is prepared to assist them on terms that are not incompatible with their financial resources.
9. The Plaintiffs, along with their close advisor, have attended upon the Institute of Charted Accountants in Australia and have also been making their own inquires with various expert firms in an attempt to make arrangements for an expert to prepare a report.
10. On 30 April 2003 I had a telephone conversation with Mr DiCaprio (the Plaintiffs close advisor) who informed me that he is close to confirming arrangements with an expert by the name of David Watson of Walter and Turnbull. Mr DiCaprio informed me that he will be meeting with Mr Watson on the afternoon of 30 April 2003 to discuss the matter and hopefully come to some terms of agreement. I expect that by 7 May 2003 I will be able to inform the Court of the precise detail and anticipated time required for the expert to prepare his report.

(a) leave to file and serve an amended defence and cross claim by 16 May 2003,
(b) plaintiffs to file and serve any affidavits and experts reports by 13 June 2003,
(c) parties to agree categories of discovery by 20 June 2003,
(d) discovery by 4 July 2003.

9. In further answer to paragraph 12 the defendants say: -

(a) the rent was payable to the first defendant, by advance monthly instalments due on the 15th day of each month, subject only to a rent holiday for the initial two weeks of the term of the lease;
(b) the plaintiffs commonly failed to pay rent as and when it fell due.
Particulars

15/07/98 $1,300 17/07/98 $1,300

15/069/98 $1,300 - nil

15/10/98 $1,300 23/10/98 $1,000

15/11/98 $1,300 - nil

15/12/98 $1,300 - nil

15/01/99 $1,300 - nil

15/05/99 $1,300 19/5/99 $1,300

15/06/99 $1,300 01/07/99 $1,300

15/07/99 $1,300 - nil

15/08/99 $1,300 - nil

15/11/99 $1,300 24/11/99 $1,500

15/12/99 $1,300 - nil

15/03/00 $1,300 31/03/00 $500

15/04/00 $1,300 24/04/00 $800

15/05/00 $1,300 - nil

15/07/00 $1,300 19/07/00 $1,300

15/08/00 $1,300 22/08/00 $1,300

15/09/00 $1,300 19/09/00 $1,300

15/10/00 $1,300 18/10/00 $1,500

15/05/00 $1,300 - nil

15/07/00 $1,300 19/07/00 $1,300

15/08/00 $1,300 22/08/00 $1,300

15/09/00 $1,300 19/09/00 $1,300

(c) For almost the entire period of the tenancy, the plaintiffs were in breach of their obligation to pay the rent:

Particulars
The plaintiffs rent account fell into arrears as of 15 September 1998 and remained in arrears, at all times until termination of the tenancy. As of the termination of the tenancy, in or about March 2001, the plaintiffs were indebted to the first defendant for $9,090.00 in unpaid rent.

13. In answer to paragraph 17 the defendants say: -

(a) the first defendant caused the locks to be changed on 12 March 2001:
(b) as of March 2001 the plaintiffs were approximately 6 months in arrears of their obligation to pay rent:
(c) the last occasion on which the plaintiffs offered rent was a payment of $600.00 on 31 January 2001:
(d) otherwise the defendants deny the paragraph.

13. The cross-defendants are liable to the cross-claimant for $24,146.82.

Particulars

Outstanding Rent $9,090.00

Outstanding outgoings $11,919.16

Interest on overdue monies $3,354.66

Reinstatement expenses $1,633.00

Enforcement expenses $750.00

Total $26,746.82

Less security deposit -$2,600.00

Total $24,146.82

34. The cross claim was verified by an affidavit of Barry Byrne. Both the defence and cross claim were supported by a certificate under section 198L. The timetable made on 7 May 2003 made no provision as to when a defence was to be filed to the cross claim. Under the Rules it ought to haven been filed within 28 days of service of the cross claim, but no defence to the cross claim was filed until 25 June 2003.

35. The plaintiffs failed to file and serve their affidavits and expert’s reports by 13 June. On 17 June, Momibo’s solicitor sent a fax (which might be categorised as either a “reminder” or a “hurry-up”) to the plaintiff’s solicitors. The respondents replied the following day, the substance being:

Defence to Cross Claim

We have forwarded the Amended Notice of Grounds of Defence and Cross Claim to Counsel (Mr Leonard Karp) to settle a defence.

We will file and serve that Defence as soon as possible.

We do not propose to request particulars of the Amended Notice of Grounds of Defence and Cross Claim.

Plaintiffs Affidavits and Experts Reports

We are in the process of settling our clients Lay Affidavits.

We expect to have them filed and served within the next seven (7) to fourteen (14) days.

In relation to expert evidence, we confirm that our clients have engaged Walter Turnball to prepare an experts report.

That report is close to completion and we expect that that will also be filed and served within the next seven (7) to fourteen (14) days.

Our clients have no objection to your client having further time in which to file and serve any evidence in reply.

Discovery

We will send to you under cover separate letter a request for verified discovery of certain categories of documents.

Please advise whether your client will be seeking discovery from our client and if so what categories of documents will it seek to discover.

(a) plaintiffs to file and serve affidavits and experts reports by 26 June 2003,
(b) parties to agree categories of discovery by 2 July 2003,
(c) parties to give discovery by 11 July 2003,
(d) Momibo to file and serve affidavits and experts reports by 28 July 2003.

38. The plaintiffs’ lay affidavits were filed on 23 June and the plaintiffs’ expert’s affidavit, annexing his report, was filed on 26 June 2003. On 26 June 2003 a defence was filed to the cross claim. The defence was not verified as required by Pt 20 r6 and Pt 10 r2. The defence was not accompanied by a solicitor’s certificate under section 198L and ought to have been. However neither of these defects were raised at the time and they were not mentioned before me. Momibo’s affidavits were filed on 25 July (five) and 28 July (one). They were served on the respondents on 28 July 2003. What occurred then is deposed to by Mr Anderson in exhibit 11:

7 After reading the evidence filed by the Defendants it became apparent to me that the defendants had a substantial case to the effect that rent had not been paid in full
8 I then conducted a review of the file in an attempt to reconcile the rental records of the plaintiffs, with those of the defendants.
9 On 31 July 2003 I met with Farrugia and Cuomo to discuss the rental issue. The meeting was held at 11:30am and finished at 1:30pm.
10 I then organised for Farrugia and Cuomo to come into Sydney and meet with myself, Elyse White Partner of Marsdens Law Group (due to John Marsden being overseas) and Mr Leonard Karp of counsel.
11 A Notice of Ceasing to Act was subsequently filed and served on all parties concerned.

40. On 5 August, the matter came before Bowden AJ again for directions. Mr Karp of Counsel appeared for the plaintiffs. His Honour noted that the respondents were ceasing to act for the plaintiffs and, nevertheless, the most recent timetable had been complied with. His Honour set the substantive proceedings down for hearing on 22 October 2003.

41. On 22 October 2003, the substantive proceedings were listed for hearing before Twigg J. His Honour called the matter on at 2:07 pm. The plaintiffs had earlier been called on before Garling J shortly after 10 am but did not appear. They did not appear before Twigg J at 2:07 pm. Mr Anderson did appear before his Honour as a “former representative for the plaintiffs”. Mr Anderson informed his Honour that he was there that day “under circumstances where the defendants have a motion which they intended to bring against [Marsdens], seeking a costs order against Marsdens Law Group, under section 198N of the Legal Profession Act”. He went on to tell his Honour that, essentially, he had a “watching brief” in case something happened about that foreshadowed application. At 2:50 pm Mr Anderson was called by his Honour to give evidence. That evidence proved that the plaintiffs had been advised of the hearing date. After considering all the evidence before him, his Honour dismissed the plaintiffs’ claim and gave judgment for Momibo for $35,402.82 on the cross claim. His Honour ordered the plaintiffs to pay Momibo’s costs on a party/party basis. His Honour then went on to order Momibo to file and serve the notice of motion, with the amended form of which I am currently dealing.

42. Merits of the Plaintiffs’ Claim

Counsel for each party before me addressed at some length on the merits of the plaintiffs’ claim in the substantive proceedings. As those merits are germane to the applicants’ case, it is necessary to consider them.

43. (a) The basic claim

If the plaintiffs had paid all rent as and when it fell due and their allotted share of the outgoings and if the option to renew had not been exercised (which is the only factual finding available to me in light of the concession made by Mr Anderson referred to in [6] above), the plaintiffs’ remedy would have been for a breach of clause 14 of the lease, recited above, i.e. for being kept out of possession for one month. The damages payable would have been for loss of profit for a month’s trading or what might be called “business interruption expenses”. If credence can be given to Mr Watson’s report (exhibit K) (which depends on the validity of the assumptions he made and the accuracy of such records as were put before him), the loss of profit for one month would have been $7,997 (gross income) less $2,033 (total expenses) being $5,964, which sum makes no allowance for any taxes payable.

44. (b) Loss of opportunity to exercise the option to renew.

As I pointed out in [6] above, the option to renew had to be exercised in writing between 15 December 1999 and 14 March 2000 and it was not exercised. If it had been it would have provided the same terms as the original lease (without the option to renew) between 15 June 2000 and 14 June 2002. Even if the plaintiffs had exercised the option, and assuming that they had otherwise honoured their obligations under the lease, damages would only have been available to the plaintiffs in respect of the period from 8 March 2001 to 14 June 2002, a period of just over 15 months. However, the plaintiffs’ claim for loss of the opportunity to exercise the option was not based on a loss of profits between 8 March 2001 and 14 June 2002. According to Mr Watson’s report, he had been “instructed to determine the future economic loss for Devine [sic] Solarium [sic] except for the action of the landlord the enterprise would have been to continue for at least five years” [my emphasis]. Mr Watson calculated the plaintiffs’ economic loss to be $565,860.08. Mr Anderson assented to a proposition put to him by Mr Hughes that the extension of the claim to 2006 was “arrantly absurd” but would not agree that it was “professionally irresponsible”. After saying that on 16 March 2004, Mr Anderson admitted on the following morning that the plaintiffs had made no attempt to exercise the option but would not assent to the propositions that the claim was “absurd” or “ill conceived”. In submissions, Mr Hughes described this claim as “totally ill-founded”. I agree. He went on to submit that it was “preposterous to say that there were reasonable prospects of success” for their claim. However, that submission draws attention to the statutory provision I am called upon to interpret: does it require that each part or ingredient of a claim for damages has to have reasonable prospects of success? Is the statutory provision directed to exaggerated or (to use Mr Hughes’s terminology) “ramped up” claims or to the more basic question of liability or to both?

45. (c) Conversion

This claim is made in paragraph 18 of the SOC ([19] supra) and the items alleged to have been converted are listed at [20]. The evidence to support his claim is in the affidavit of Mrs Anne Cuomo, the mother of one of the plaintiffs. In that affidavit (exhibit E) she states:

13. In or around May 2001 I accompanied Tony Farrugia and other family members to the Premises. In one hour we retook possession of as many of our belongings as we could. I observed that the partitions had been broken, and had been left in a heap in a corner of the room.
14. We had to sell the solarium beds for $4,000.00 on site due to the time factor We were given one (1) week to vacate. During the week we were only allowed access for four (4) hours. Michael and Tony were not allowed access. We sold the four (4) solarium beds to the first buyer for $4,000.00 for the lot. I do not recall the name of the buyer. We were not able to recover from the premises the following items, as they were missing:
a) Fish tank and its contents.
b) Fax machine.
c) Stereo.
d) Computer.
e) Window fittings.

47. (d) Breaches of the covenant of quiet enjoyment and private nuisance.

The plaintiffs’ claim is made in paragraph 16 of the SOC quoted above in [19]. The main evidence to support this claim is given in the affidavit of Mr Michael Cuomo (exhibit D):

17. In or around February 2000 Mr Byrnes entered the Premises. In the presence of several customers, I had the following conversation with Mr Byrnes:

Mr Byrnes said “you have not paid the rent. I demand payment of the rent right now”.


I said “I have paid the rent. Please stop causing a scene in front of my customers”.


Mr Byrnes voice was loud. His fists were clenched, and his facial muscles were tensed. I was intimidated by his tone of voice. I also noticed that customers present on the Premises were looking in our direction as Mr Byrnes spoke.


18. In or around May 2000 a “For Lease” sign was erected immediately in front of the Premises.

19. In or around July 2001 and August 2000, during business hours, and whilst the business was operating, a Real Estate Agent entered the Premises with several unidentified persons accompanying him.

The Real Estate Agent said “I have been hired by Mr Byrnes”.


He proceeded to walk around the Premises entering various rooms, and made hand gestures to the unidentified persons.


I said to the Real Estate Agent “What are you doing? I am trying to run a business. Your are interfering with my customers”.


The agent said: “I am doing a check up”

8. In or around May 2000 I noticed “For Lease” sign erected immediately in front of the solarium. I said to Michael “Why are those signs up? Customers are asking”

“I did not commission any agent to inspect the premises for “a check up”, or for any other reason, around July or August 2000.”

51. This, to my mind, raises a triable issue. Of course, it would be open to a tribunal of fact to accept both Mr Cuomo and Mr Byrne and believe that someone, knowing the identity of the principal of the lessor, was on a “frolic of his own” but another tribunal of fact might believe that the evidentiary onus of proof fell upon Mr Byrne to call his (usual) real estate agent to deny the conduct alleged by Mr Cuomo. If the breach were established some damages would flow, although probably of no great size.

52. As to the demand for rent in or around February 2000, one must have regard to Momibo’s allegation of non payment of rent particularised in paragraph 9(b) of the amended notice of grounds of defence ([31] supra). The same allegation was made by Momibo in the cross claim, paragraph 5, where the allegation is repeated but erroneously refers to “paragraph 10(b) of the Defence herein.” The error is obvious and no one would be misled by it. Momibo has been successful on its cross claim. Rent clearly was outstanding prior to February 2000. In those circumstances, the lease permitted Momibo to enter upon the premises without the necessity of giving any notice to quit or obtaining an ejectment order and repossess the premises and expel and exclude the plaintiffs and their customers (Memorandum clause 12.1(i)). Clause 12.1(iv) permitted Momibo to recover all arrears under the lease (without limiting the mechanism of recovery). Those rights were “in addition to and not in derogation to any other right or remedy of the lessor.” The covenant for quiet enjoyment was subject to those provisions. In those circumstance one could find that Momibo was justified in permitting its principal, Mr Byrne, to enter the premises and demand payment from the plaintiffs. Especially is that so when each of the plaintiffs has averred in his affidavit:

“I am dyslexic and I must have everything, other than the most simple of documents read to me.”

54. The other alleged breach of covenant is the erection of a “For Lease” sign “in or around May 2000”. The inference I draw is that the sign was erected after the plaintiffs failed to exercise the option to renew by the due date 15 March 2000 and shortly prior to the expiration of the lease on 14 June 2000. The erection of this sign was wholly permitted by clause 6.3(b) of the Memorandum and could not amount to a breach of the covenant of quiet enjoyment.

55. In summary, the first allegation raises a triable issue, it may or may not have constituted a breach of the lease, the second allegation was insupportable in light of the plaintiffs’ failure to pay rent and the third allegation was insupportable in light of the plaintiffs’ failure to exercise the option and ought to have been known by Marsdens at all material times.

56. (e) Loss of value of assets sold

This claim is made in paragraph 20(d) of the SOC ([19] supra). It is clear from the evidence of Mrs Anne Cuomo, which I have quoted above [45] that the plaintiffs’ family/friends/agents were permitted to enter the premises and sell the solarium beds. One can only assume that the buyer took the beds. If the buyer could do so, then so could the plaintiffs, by their agents. This claim is, to say the least, highly speculative.

198J Solicitor or barrister not to act unless there are reasonable prospects of success




(1) A solicitor or barrister must not provide legal services on a claim or defence of a claim for damages unless the solicitor or barrister reasonably believes on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.




(2) A fact is provable only if the solicitor or barrister reasonably believes that the material then available to him or her provides a proper basis for alleging that fact.




(3) This Division applies despite any obligation that a solicitor or barrister may have to act in accordance with the instructions or wishes of his or her client.




(4) A claim has reasonable prospects of success if there are reasonable prospects of damages being recovered on the claim. A defence has reasonable prospects of success if there are reasonable prospects of the defence defeating the claim or leading to a reduction in the damages recovered on the claim.




(5) Provision of legal services in contravention of this section constitutes for the purposes of this Division the provision of legal services without reasonable prospects of success.




198K Preliminary legal work not affected




This Division does not apply to legal services provided as a preliminary matter for the purpose of a proper and reasonable consideration of whether a claim or defence has reasonable prospects of success.




198L Restrictions on commencing proceedings without reasonable prospects of success




(1) The provision of legal services without reasonable prospects of success does not constitute an offence but is capable of being professional misconduct or unsatisfactory professional conduct.




(2) A solicitor or barrister cannot file court documentation on a claim or defence of a claim for damages unless the solicitor or barrister certifies that there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.




(3) Court documentation on a claim or defence of a claim for damages is not to be accepted for lodgement unless accompanied by the certification required by this section. Rules of court may make provision for or with respect to the form of that certification.




(4) In this section:




court documentation means:




(a) a statement of claim, summons, cross-claim, defence or further pleading, or




(b) an amended statement of claim, summons, cross-claim, defence or further pleading, or




(c) a document amending a statement of claim, summons, cross-claim, defence or further pleading, or




(d) any other document of a kind prescribed by the regulations.




cross-claim includes counter-claim and cross-action.




198M Costs order against solicitor or barrister who acts without reasonable prospects of success




(1) If it appears to a court in which proceedings are taken on a claim for damages that a solicitor or barrister has provided legal services to a party without reasonable prospects of success, the court may of its own motion or on the application of any party to the proceedings make either or both of the following orders in respect of the solicitor or barrister who provided the services:




(a) an order directing the solicitor or barrister to repay to the party to whom the services were provided the whole or any part of the costs that the party has been ordered to pay to any other party,




(b) an order directing the solicitor or barrister to indemnify any party other than the party to whom the services were provided against the whole or any part of the costs payable by the party indemnified.




(2) The Supreme Court may on the application of any party to proceedings on a claim for damages make any order that the court in which proceedings on the claim are taken could make under this section.




(3) An application for an order under this section cannot be made after a final determination has been made under this Part by a costs assessor of the costs payable as a result of an order made by the court in which the proceedings on the claim concerned were taken.




(4) A solicitor or barrister is not entitled to demand, recover or accept from his or her client any part of the amount for which the solicitor or barrister is directed to indemnify a party pursuant to an order under this section.




198N Onus on solicitor or barrister to show facts provided reasonable prospects of success




(1) If the court (the trial court) hearing proceedings on a claim for damages finds that the facts established by the evidence before the court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success, there is a presumption for the purposes of this Division that legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success.




(2) If the Supreme Court (when the Supreme Court is not the trial court) is satisfied, either as a result of a finding of the trial court or otherwise on the basis of the judgment of the trial court, that the facts established by the evidence before the trial court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success, there is a presumption for the purposes of this Division that legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success.




(3) A presumption arising under this section is rebuttable and a solicitor or barrister who seeks to rebut it bears the onus of establishing that at the time legal services were provided there were provable facts (as provided by section 198J) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success.




(4) A solicitor or barrister may, for the purpose of establishing that at the time legal services were provided there were provable facts (as provided by section 198J) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success, produce information or a document despite any duty of confidentiality in respect of a communication between the solicitor or barrister and a client, but only if:




(a) the client is the client to whom the legal services were provided or consents to its disclosure, or




(b) the court is satisfied that it is necessary for the solicitor or barrister to do so in order to rebut a presumption arising under this section.

The Government has changed the standard for assessing unmeritorious claims in the bill. Under clause 198J the standard will be that the solicitor or barrister must reasonably believe, on the basis of provable facts and a reasonably arguable view of the law, that the claim has reasonable prospects of success. This requirement will also apply to defendant lawyers so that they cannot advance spurious defences. In either case solicitors or barristers must reasonably believe that the material available to them provides a proper basis for alleging the facts on which they want to rely.

We have excluded from these requirements preliminary advice on damages claims. A solicitor or barrister must be able to take initial instructions and advise the client on whether or not their claim or defence has reasonable prospects of success without being in breach of these clauses. Under clause 198L barristers and solicitors must satisfy the standard of reasonable prospects of success before they commence proceedings or file a defence. Under clause 198M they risk having costs awarded against them if they act without reasonable prospects of success. This bill introduces vital tort law reform. I will be sending the bill and the Government's actuarial advice to my counterparts in all other States and Territories. The bill builds on the Government's work with the insurance industry and other jurisdictions to find solutions for people affected by the public liability crisis.

60. The mischief must be beyond that which the law currently regulates. For example, under s 148E of the District Court Act costs can be awarded against a solicitor for “serious neglect, serious incompetence or serious misconduct”. A further example where costs might be entered against a legal practitioner is under DCR Pt 39A r 4, which I have already discussed.

61. The Case Law

I was taken by Counsel to a large number of cases, by Mr Hughes to demonstrate the mischief sought to be remedied by these new provisions and by Mr Lindsay to show the reluctance of courts to upset certain principles and to protect the rights of litigants and their legal advisers. I shall discuss these authorities in chronological order.

The plaintiff had legal aid. He claimed that his house and its contents were being damaged because of defects in the electrical supply allowing electricity to escape near his house. The cause of action was negligence and breach of statutory duty. The damage to the plaintiff’s house was being caused by “water phenomena”. Donaldson MR summed up the case thus at 573D:

The plaintiff’s case at the trial was that all the water phenomena were caused by an escape of electricity through the earth under the cottage, thereby heating water in the soil to a point at which it became steam and/or causing the water to change to hydrogen and oxygen gases, the latter being responsible explosively for some of the so-called “dynamic” incidents, i.e., the movement of physical objects. In fact, on the advice of counsel, reliance upon “dynamic” phenomena was abandoned some time before the trial. All this may sound ludicrous, but there is no doubt that it was supported by expert advice. Furthermore, the alternative was prima facie even more ludicrous. It was that someone in the Orchard household, to the knowledge of the other members, was deliberately and systematically destroying their home for no apparent purpose other than to mount a claim against the defendants, notwithstanding that no member of the family appeared to have any grudge against them. It was a quite astonishing situation in which the truth, as eventually determined by the judge, namely that it was probably all the work of the son, but that Mr. and Mrs. Orchard must have from an early stage have realised what was going on, was even stranger than the fiction propagated by the plaintiff, supported in all innocence as he was by experts, some of whom were highly qualified.

64. Donaldson MR said at 572E:

[T]his is a jurisdiction which falls to be exercised with care and discretion and only in clear cases. In the context of a complaint that litigation was initiated or continued in circumstances in which to do so constituted serious misconduct, it must never be forgotten that it is not for solicitors or counsel to impose a pre-trail screen through which a litigant must pass before he can put his complaint or defence before the court. On the other hand, no solicitor or counsel should lend his assistance to a litigant if he is satisfied that the initiation or further prosecution of a claim is mala fide or for an ulterior purpose or, to put it more broadly, if the proceedings would be, or have become, an abuse of the process of the court or unjustifiably oppressive.

There is one other aspect of which sight must not be lost. Justice requires that the solicitor shall have full opportunity of rebutting the complaint, but circumstances can arise in which he is hampered by his duty of confidentially to his client, from which he can only be released by his client or by overriding authority, such as that contained in regulation 74 of the Legal Aid (General) Regulations 1980 (S.I. 1980 No. 1894). In such circumstances justice requires that the solicitor be given the benefit of any doubt.

It may well be the duty of counsel primarily, but also of the solicitor with due regard to the view expressed by experienced counsel, to weigh the evidence available to his client, if a plaintiff, to see whether the plaintiff’s claim raises a triable issue. It is not the duty of the solicitor to endeavour to assess the result where there is a likelihood of a conflict of evidence between his client’s witnesses and those of the other side: per Sachs L.J. in Carl Zeiss Stiftung v. Herbert Smith & Co. (No. 2) [1969] 2 Ch. 276, 297D. In the light of the apparent integrity of the plaintiff, the apparent evidence of his supporting witnesses from the neighbourhood and the reports of Mr. Bowie as a qualified expert witness, I would not be prepared to hold, without ever knowing what the solicitors and counsel did advise their client and the legal aid committee, that the solicitors and counsel must have fallen short of the proper discharge of their duty that the solicitors ought to be found guilty of a serious dereliction of duty or serious misconduct in allowing the case to proceed with the benefit of legal aid.

In a case such as the present, the charge against a solicitor of misconduct or dereliction of duty, which would have to be made out before the court could impose personal liability for the costs of the action on the solicitor, is a serious charge, with very serious consequences. Such a charge ought not rest solely on inference without evidence. I appreciate that, as already mentioned, defendants who wish to make such a charge against solicitors for the plaintiff have a difficulty in getting evidence because of the rules of legal professional privilege. Those rules of privilege also, however, hamper the solicitor in seeking to justify his own conduct of the case. The justification of privilege lies in the field of public policy; that a defendant may thereby be precluded from making out a claim that his costs should be paid by the plaintiff’s solicitor personally is part of the price which has to be accepted from rules designed to ensure that a litigant has freedom to consult with his lawyers before his case comes before the court.

The public policy aspect does, however, have further implications. The power of the court to order a solicitor to pay the costs personally where litigation has been initiated or continued unreasonably when it had no or substantially no chance of success is, in an appropriate case, a very salutary power. I do not, however, regard it as at all salutary that a practice should develop whereby solicitors for defendants endeavour to browbeat solicitors for legally-aided plaintiffs into dropping their clients’ cases—or into procuring revocation of the relevant legal aid certificates—by threats that the defendants will seek to hold the plaintiffs’ solicitors personally liable for the costs of the litigation. In Carl Zeiss Siftung v. Herbert Smith & Co. (No. 2)[1968] 2 All E.R. 1233, 1236, Pennycuick J. said in relation to an attempt by a plaintiff to harass the solicitors for the defendant (by a claim that all funds in the solicitors’ hands were subject to a constructive trust):

“The prospect of this personal liability would be a grave deterrent to a reasonable solicitor undertaking the conduct of such an action at all, for … the conduct of the action would represent a gamble on his client’s success, a highly undesirable state of affairs. If he did undertake the defence, the fact that he was at risk in regard to this liability might, and in many circumstances almost inevitably would, tend to influence and hamper him at various stages in the action … He might even find that his interest was in conflict with his duty to his client, for example, in connexion with some suggested compromise. There can I think be no doubt that such a claim would represent a very serious obstruction in the course of justice.”
These words can be readily be applied to any such brow-beating practice as I have mentioned on the part of defendants or their solicitors, should such a practice develop; indeed, such conduct might be contempt of court.

In this matter costs were sought against a solicitor under SCR Pt 52 r 66 and Pt 52A r 43, equivalent to DCR Pt 39A r 14. After referring to Knight v FP Special Assets Ltd (19920 174 CLR 178, Bryson J continued:

Counsel for Messrs Paltos and Cumming [the claimants] suggested that the following observations of Mason CJ and Deane J at 192-193 govern the present case: “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.” In this case Mrs Sialepis is unable to fund the litigation herself or to provide security for the amount of costs claimed by Messrs Paltos and Cumming. In the most literal sense a solicitor acting for an impecunious person falls within the reference by Mason CJ and Deane J to a non-party who “... has played an active part in the conduct of the litigation and where ... 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.” In my respectful view their Honours were not intending to refer to the common case of a solicitor who acts for an impecunious party.

A principal solicitor who, after weighing counsel’s advice with his own and different views, accepts counsel’s advice in favour of bringing an application and later yields to a large and continually growing body of indications that it should not be gone on with is not in my view guilty of misconduct, and has not behaved unreasonably. Professional minds ought to be accessible to second thoughts. If an application should not be gone on with, the agony of the decision to withdraw it must be accepted.

The plaintiff had unsuccessfully sued his former solicitors for professional negligence. The plaintiff appeared to be impecunious. The defendant sought costs against the plaintiff’s current solicitor. The application was based on SCR Pt 52A r 43 and on the Supreme Court’s supervisory jurisdiction, not relevant to proceedings in this Court. Smart J said:

The English Court of Appeal in Ridehalgh v Horsefield [1994] Ch 205 at 225 said:
"The party who substantially loses the case is ordinarily obliged to pay the legal costs necessarily incurred by the winner. Thus hopeless claims and defences are discouraged, a willingness to compromise is induced and the winner keeps most of the fruits of victory."

Their Lordships added, "sometimes the losing party is impoverished and cannot pay."

They spoke of a "tension between two important public interests" (at 226):

"One is that lawyers should not be deterred from pursuing their clients' interests by fear of incurring a personal liability to their clients' opponents; that they should not be penalised by orders to pay costs without a fair opportunity to defend themselves; that wasted costs orders should not become a back-door means of recovering costs not otherwise recoverable against a legally-aided or impoverished litigant; and that the remedy should not grow unchecked to become more damaging than the disease. The other public interest ... is that litigants should not be financially prejudiced by the unjustifiable conduct of litigation by their own or their opponents' lawyers."

In Myers v Elman [1940] AC 282 their Lordships were divided over the nature of the jurisdiction, that is, whether it was punitive, compensatory or a hybrid of the two. This is still a matter of dispute. See Jachimowlcz v Jachimowicz (1986) FLC ¶191-702 at 75,080-75,081 per Asche and Pawley JJ and the cases there cited.

Costs orders are not usually made against solicitors in respect of their conduct of litigation for mere mistakes or errors of judgment. There has to be a substantial departure from proper professional standards of conduct. That may include gross neglect or gross inaccuracy on the solicitor's part.

There is no impropriety in a solicitor merely conducting a speculative action but he should satisfy himself that there is a bona fide cause of action: Rich v Cook (1900) 110 LT Jo 94 and Ladd v London Road Car Company (Times, 24 March 1900) (1900) 110 LT Jo 80.

In Edwards v Edwards [1958] P 235 at 248 Sachs J stated that it was clear from the authorities that unreasonably to initiate or continue an action when it has no or substantially no chance of success may constitute conduct attracting an exercise of the court's jurisdiction to order a solicitor to pay the costs of the other party. The jurisdiction is one to be exercised sparingly. I agree with Sachs J.

In Orchard v South Eastern Electricity Board [1987] QB 565 at 572 Sir John Donaldson MR said:
"this is a jurisdiction which falls to be exercised with care and discretion and only in clear cases. In the context of a complaint that litigation was initiated or continued in circumstances in which to do so constituted serious misconduct, it must never be forgotten that it is not for solicitors or counsel to impose a pre-trial screen through which a litigant must pass before he can put his complaint or defence before the court. On the other hand, no solicitor or counsel should lend his assistance to a litigant if he is satisfied that the initiation or further prosecution of a claim is mala fide or for an ulterior purpose or, to put it more broadly, if the proceedings would be, or have become, an abuse of the process of the court or unjustifiably oppressive."

Dillon LJ said (at 579):

"It may well be the duty of counsel primarily, but also of the solicitor with due regard to the views expressed by experienced counsel, to weigh the evidence available to his client, if a plaintiff, to see whether the plaintiff's claim raises a triable issue. It is not the duty of the solicitor to endeavour to assess the result where there is a likelihood of a conflict of evidence between his client's witnesses and those of the other side: per Sachs LJ in Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch 276, 297D."

I agree with these observations.

In the present case it matters not whether the court proceeds under the Supreme Court Act and Rules or its supervisory jurisdiction.

69. Costs were awarded against the plaintiff’s present solicitor from the date when, after the plaintiff and that solicitor became aware that the action would fail and all reasonable attempts had been made to minimize the plaintiff’s foreseeable loss by settling the proceedings, the plaintiff’s present solicitor continued to act in the prosecution of the action, when that solicitor knew that his client had no assets. His Honour held that the solicitor ought to have declined to act further.

70. (d) Wentwoth v Rogers [1999] NSWCA 403

This was a application for leave to appeal against an order for indemnity costs made against Wentworth and her solicitor. A joint judgment was delivered by Handley and Stein JJA and Sheppard AJA. At [21] to [25] their Honours considered the statutory basis for awarding costs against a solicitor and commencing at [26] the case law. At [32], their Honours commenced to discuss Ridehalgh v Horsefield [1994] Ch 205. At [35] their Honours quoted from the judgment of Bingham MR in that case:

Later Bingham MR referred to a phrase "improper, unreasonable or negligent" which appears in the English legislation. He discussed each of these words. We refer to what he said about "improper" and "unreasonable" but not to what he said about "negligent" because this is not a case which involves negligence. Of "improper" and "unreasonable" his Lordship said (at 232):

"'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 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."

71. After discussing further authorities, their Honours concluded at [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.

On a bankruptcy petition, the debtor raised points of opposition and gave a notice under s 78B of the Judiciary Act 1903 (Cth). All these points were raised by way of defence to the petition, not by way of making any claim or seeking any relief other than dismissal of the petition. The points were not seriously arguable. The trial judge found that these points originated with the debtor’s lawyers. The validity of the points did not depend on any unresolved question of fact. Sequestration was ordered. On the petitioner’s motion, the trial judge ordered the debtor’s solicitors to pay the petitioner’s costs on a solicitor and client basis. The court (Wilcox, Burchett and Tamberlin JJ), after citing a number of cases to which I have already referred (either directly or indirectly) and De Sousa v Minster for Immigration, Local Government and Ethnic Affairs (1993) 41 FCR 544, Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224, Re Bendeich (No 2) (1994) 53 FCR 422, and White Industries (Qld) Pty Ltd v Flower and Hart (1998) 156 ALR concluded, commencing at [43],:
We accept the statements of principle made in the cases we have cited. We endorse the emphasis on caution in making orders against solicitors, particularly as it will often be difficult for a court to know all the details and circumstances of the solicitor's instructions. We share the concern expressed by Donaldson MR and Dillon LJ in Orchard about the risk of a practice developing whereby solicitors endeavour to browbeat their opponents into abandoning clients, or particular issues or arguments, for fear of a personal costs order being made against them. We agree such conduct might amount to contempt of court.

Having said that, it is equally important to uphold the right of a court to order a solicitor to pay costs wasted by the solicitor's unreasonable conduct of a case. What constitutes unreasonable conduct must depend upon the circumstances of the case; no comprehensive definition is possible. In the context of instituting or maintaining a proceeding or defence, we agree with Goldberg J that unreasonable conduct must be more than acting on behalf of a client who has little or no prospect of success. There must be something akin to abuse of process; that is, using the proceeding for an ulterior purpose or without any, or any proper, consideration of the prospects of success.

In the present case, Hill J inferred that the subject arguments "clearly originated with the lawyers"; that is, Mr Levick and Mr Fitzgibbon. No challenge can be made to that inference. So this is not a case, like Orchard, where a difficult case was taken to a lawyer by a client who wished it to be pursued in the court. Neither is it a case, like that contemplated in Ridehalgh v Horsefield, where the lawyer had "to present, on instructions, a case which he regards as bound to fail". This is a case where the lawyers themselves thought up the "legal" points and advanced them on behalf of the client. It is unreasonable, in the sense of a dereliction of duty (to both the client and the court), for any lawyer to take that course without first being satisfied that the points are, at least, seriously arguable. We agree it was not necessary in the present case that the lawyers be satisfied that the points would succeed; but it was necessary they be satisfied there was a rational basis upon which they might succeed.

The situation would be different if the viability of the points depended on one or more unresolved questions of fact. In that situation, lawyers might be entitled, acting reasonably, to notify the points, against the possibility that the facts, when determined, would lend support to them.

This case provides me with little assistance. It concerns the granting of indemnity (or solicitor and client) costs. At [10], Hamilton J points out that one of the basis for making an order for indemnity costs is that the proceedings brought were “totally hopeless” and cited authorities to support that proposition. On this area I was also referred to Colgate-Palmolive Company v Cussons Pty Ltd (1993) 118 ALR 248.

74. (g) Cook v Pasminco Ltd (No2) (2000) 179 ALR 462.

The facts of this case are adequately summed up in the headnote:

The applicants were residents of Cockle Creek in New South Wales and Port Pirie in South Australia and brought representative proceedings under Pt IVA of the Federal Court of Australia Act 1976 (Cth) claiming that the group they represented had suffered in their health from noxious emissions from the respondents’ plants. The applicants’ claims were brought in negligence and nuisance and also under Pt VA of the Trade Practices Act 1974 (Cth). The Pt VA claim was that the respondents, in trade or commerce, had supplied goods manufactured by it which had a defect.

The respondents sought striking out of the claim and Lindgren J ordered that the application be dismissed as incompetent and beyond the jurisdiction of the Federal Court because the Pt VA claim was untenable and doomed to fail so that there was no federal claim to support the accrued jurisdiction of the Federal Court: Cook v Pasminco (2000) 99 FCR 548.

The respondents then sought an order that the applicants’ solicitors, Coleman & Greig, pay its costs on an indemnity basis.

Unfortunately, in my opinion the conduct of the solicitors in the present case warrants the award of an order that they pay Pasminco’s costs on an indemnity basis. The reason is that on the evidence, including the lack of relevant evidence from them explaining the position, I infer that they commenced the proceeding in this court based on the TP Act claims, without any or any proper consideration of the prospects of success of those claims. If the solicitors had believed that those claims had had some prospects of success, they could not have been criticised for having launched the proceeding in this court in order to obtain the advantages they apparently perceived in litigating here. But they were not entitled to commence the proceeding in this court irresponsibly, recklessly as to whether the federal claims had any prospect of success. Yet it seems to me that this is precisely what they did. If they had responsibly considered the matter, they would have appreciated that the federal claims had no prospect of success at all.

The headnote is accurate and, for ease, I cite it in full:

During the course of an appeal by the unsuccessful defendants to a High Court action leading and junior counsel who represented the defendants, acting on instructions, made serious allegations of fraud against the claimant in a draft amended notice of appeal, in a supplementary skeleton argument and at the hearing of the appeal. The Court of Appeal dismissed both the defendants’ app