Benjamin & Khoury Pty Ltd v Rahme

[2022] NSWSC 766

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Benjamin & Khoury Pty Ltd v Rahme [2022] NSWSC 766

Hearing dates:

31 May 2022

Date of orders:

14 June 2022

Decision date:

14 June 2022

Jurisdiction:

Common Law

Before:

Davies J

Decision:

(1) In proceedings 2021/330107:

(a) On condition that the plaintiff pays into court the sum of $196,554 by 12 July 2022, stay the enforcement of the judgment until the determination of the appeal;

(b) Order that costs be costs in the appeal.

(2) In proceedings 2021/330110:

(a) On condition that the plaintiff pays into court the sum of $93,170 by 12 July 2022, stay the enforcement of the judgment until the determination of the appeal;

(b) Order that costs be cost in the appeal.

Catchwords:

JUDGMENTS AND ORDERS – stay of execution – where appeal lodged – judgments created by registration of certificate of costs assessor - whether “proceedings” constituted by registration – appeal against Review Panel determination - appeal by way of rehearing – whether Part 7 of the Legal Profession Uniform Law Application Act 2014 precluded reliance on ss 67 and 135 of the Civil Procedure Act - whether serious question to be tried at hearing of the appeal – where balance of convenience lies – stay granted on condition of partial payment into court of judgment sum

Legislation Cited:

Bankruptcy Act 1966 (Cth)

Civil Procedure Act 2005 (NSW) ss 67, 133, 135,

Corporations Act 2001 (Cth) s 459E

District Court Act 1973 (NSW) s 4

Legal Profession Act 1987 (NSW) ss 208H, 208J, 208KF

Legal Profession Act 2004 (NSW) s 352

Legal Profession Uniform Law Application Act 2014 No 16 (NSW) s 71, 73, 77, 88, 89, 90,

Legal Profession Regulation 2005 (NSW) s 352

Supreme Court Act 1970 (NSW) s 16

Uniform Civil Procedure Rules 2005 (NSW) r 20.14, 50.7

Cases Cited:

Akierman Holdings Pty Limited v Akerman (No 3); In the matter of Akierman Holdings Pty Limited (No 2) [2021] NSWSC 869

Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685

Ballard v Carlisle Attorneys Pty Ltd [2010] NSWSC 769

Behnia v Sarraf (No 2) [2019] NSWDC 281

Brierley v Anthony Charles Reeves T/as Kaplan Reeves & Co & Ors [2000] NSWSC 305

Currabubula & Paola v State Bank NSW; Currabubula v State Bank NSW [2000] NSWSC 232

Daley v Hughes (2014) 86 NSWLR 729; [2014] NSWCA 268

Diemasters Pty Ltd and Ors v Meadowcorp Pty Ltd, Narendra Jain and Charles Chelliah (Unrep, Supreme Court of New South Wales, Macready M, 16 July 2003)

Doyle v Hall Chadwick [2007] NSWCA 159

Firth v Centrelink (2002) 55 NSWLR 451; [2002] NSWSC 564

Flexible Manufacturing Systems v Alter [2004] NSWSC 29

Fordyce v Leung [2022] NSWCA 55

Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383

Patterson v Cohen [2005] NSWSC 635

Rahme v Benjamin & Khoury Pty Ltd [2019] NSWCA 211

Rahme v Benjamin & Khoury Pty Ltd (No 2) [2019] NSWCA 239

Tanamerah Estates Pty Ltd v Tibra Capital Pty Ltd [2015] NSWCA 383

Vaughan v Dawson [2008] NSWCA 169

Voicu v The Owners-Strata Plan No 1624 [2020] NSWSC 296

Wentworth v Rogers; Wentworth & Russo v Rodgers (2006) 66 NSWLR 474; [2006] NSWCA 145

Texts Cited:

Nil

Category:

Procedural rulings

Parties:

Benjamin & Khoury Pty Ltd (Plaintiff)
Dana Therese Rahme (First Defendant)
John Sharpe (Second Defendant)
Gregory Walsh OAM (Third Defendant)

Representation:

Counsel:
D Smith (Plaintiff)
C J Bevan (First Defendant)
Submitting appearances (Second & Third Defendants)

Solicitors:
Daniel Jude Lawyers (Plaintiff)
Solon Lawyers (First Defendant)
Crown Solicitors Office (Second & Third Defendants)

File Number(s):

2021/330107 & 2021/330110

Publication restriction:

Nil

Judgment

Background

1. By two amended summonses filed 8 April 2022 the plaintiff, Benjamin & Khoury Pty Ltd (“B&K”), appeals against two determinations of a Costs Assessment Review Panel dated 22 October 2021. There were four assessments as a result of the Court of Appeal overturning a decision at first instance and ordering that B&K pay the costs both of the first instance hearing and the appeal: Rahme v Benjamin & Khoury Pty Ltd [2019] NSWCA 211 and Rahme v Benjamin & Khoury Pty Ltd (No 2) [2019] NSWCA 239.

2. B&K is a firm of solicitors who had previously acted for the present defendant, Dana Rahme, and her husband, Gabriel Rahme. The Rahmes brought proceedings against B&K and its principal, Dieb Khoury, alleging negligence and breach of fiduciary duty. The Rahmes failed at first instance before Emmett  AJA, but on appeal Ms Rahme succeeded against B&K in her claim for breach of fiduciary duty. Ms Rahme was not successful against Mr Khoury.

3. The costs orders were that B&K pay the costs of Ms Rahme (but not Mr Rahme) of the proceedings in the Court below, and that B&K pay the costs of Ms Rahme of the proceedings in the Court of Appeal. There were notations that there was no order for costs in the Court of Appeal as between Ms Rahme and Mr Khoury, and that there was no order for costs in the Court of Appeal as between Mr Rahme, B&K, and Mr Khoury.

4. The solicitors who acted for Ms Rahme during the substantive proceedings were Kekatos Lawyers.

5. The two present sets of proceedings are relevantly identical, except that proceedings 2021/330107 concern the assessment of the first instance costs, and proceedings 2021/330110 concern the assessment of the appeal costs. The certificates issued by the Review Panel were registered pursuant to s 71(3) of the Legal Profession Uniform Law Application Act 2014 No 16 (NSW) (“the Application Act”), and thereby became judgments of the Court.

6. The judgment in proceedings 2021/330107 was in the sum of $393,108.08, and the judgment in proceedings 2021/330110 was in the sum of$186,339.84.

7. By a notice of motion in each of the proceedings filed on 25 and 30 March 2022 respectively, the plaintiff seeks an order pursuant to ss 67 and 135 of the Civil Procedure Act 2005 (NSW) staying the operation of each of the judgments.

8. The appeals are brought pursuant to s 89 of the Application Act. They have not yet been fixed for hearing. Motions seeking security for costs from B&K and seeking to set aside notices to produce and/or subpoenas have been fixed for hearing on 3 November 2022. It does not seem likely, therefore, that the substantive appeals will be heard until 2023.

The parties’ positions

9. In the meantime, at least one reason for the bringing of the present motions is that, following the registration of the certificates resulting in judgments on 9 November 2021, the solicitors acting for Ms Rahme served statutory demands on the plaintiff under s 459E of the Corporations Act 2001 (Cth), based upon the judgments. An agreement was in place that the demands would not be enforced before 2 June 2022, a date apparently chosen on the basis that the present motions were listed to be heard on 31 May. When I indicated to the parties that I would be reserving my decision, the lawyers for Ms Rahme agreed that the demands would not be enforced until after my judgment was delivered.

10. The plaintiff submitted that there were three serious questions for resolution on the appeal. First, it was said that the costs that Ms Rahme claims from the plaintiff cannot exceed the amount that she is liable to pay to Kekatos Lawyers. Mr David Smith of counsel for B&K referred to this as the indemnity principle. Ms Rahme denies that she is liable to pay some or all of the amounts claimed by Kekatos Lawyers for acting for her. This appears to be because Kekatos Lawyers did not provide proper costs disclosures to her. B&K say that they did not know of this dispute between Ms Rahme and Kekatos Lawyers when the costs were being assessed or reviewed.

11. Secondly, although it was only Ms Rahme who was entitled to her costs from B&K, B&K submitted that the Review Panel determined that she was entitled to recover all common costs of her and her husband from B&K, and that those costs were to extend to all common costs in the proceedings against both B&K and Mr Khoury. B&K submitted that the costs should have been apportioned.

12. Thirdly, B&K submitted that there was a denial of procedural fairness in that the Review Panel made directions giving B&K until 4 September 2021 to reply to Ms Rahme’s submissions, but then indicated on 26 August 2021 that it had made its determination. Further, when this was pointed out to the Review Panel, it agreed to consider further submissions, but thereafter changed its position and said it would not do so after those submissions were made.

13. B&K submitted that there were three aspects to the balance of convenience consideration. The first was the issue of the service of the statutory demands. B&K submitted that it would suffer irreparable harm if the proceedings were not stayed and the statutory demands were not set aside. If B&K was wound up, that would have implications for its finance facilities and with the Law Society.

14. The second issue concerned Ms Rahme’s ability to repay monies that B&K might be obliged to pay to her, but which it might subsequently be entitled to recover if it was successful on the appeal. B&K submitted that Ms Rahme’s financial position was such that there was considerable doubt she would have the wherewithal to repay the money.

15. Thirdly, B&K relied again on the fact that, if Ms Rahme was not required to pay the costs of Kekatos Lawyers, she would be receiving a windfall if the present judgments were paid.

16. Mr Bevan of counsel for Ms Rahme took what might be considered to be a preliminary jurisdictional point. He submitted that, on a proper construction of the Application Act, a stay was not available in this jurisdiction. He submitted that on a proper construction of ss 89 and 90 of the Application Act the only course available to B&K was to seek from the Review Panel a suspension of the operation of the determination of the decision. He submitted that if the appeals had been brought in the District Court rather than this Court, it would have been open to B&K to seek from the District Court a suspension of the operation of the determination. Ms Rahme relied in that regard on what was said by the Court of Appeal in Fordyce v Leung [2022] NSWCA 55.

17. Ms Rahme submitted that reliance on s 67 of the Civil Procedure Act was not available because that section provided a power only to “stay any proceedings”, and she submitted that the judgments obtained by the registration of the certificates did not constitute proceedings.

18. Ms Rahme submitted that, if it was found that this Court had jurisdiction to stay the judgments, as a matter of discretion the Court should not do so for a number of reasons. First, many of the amended grounds of appeal were never raised before the Assessor or the Review Panel. Secondly, the amended grounds of appeal rely on a large number of documents not tendered before the assessor or the Review Panel. Thirdly, B&K wish to rely on a number of other documents which are not admissible without the prior grant of leave from the Court hearing the appeal pursuant to s 89(4) of the Application Act. Fourthly, B&K seek an order that the Court refer the assessment for an enquiry and report pursuant to Pt 20 Div 3 of the Uniform Civil Procedure Rules 2005 (NSW)(“UCPR”), when the only power is contained in s 89(3) of the Application Act, namely, a remitter to the District Court for determination by the Court in accordance with any decision of this Court.

19. Ms Rahme submitted that the appeals lack arguable merit. She submitted that there was no basis for the assertion that Kekatos Lawyers has a “fruits of the action” lien over the judgment debts necessitating B&K paying any costs to Kekatos Lawyers, rather than to her. That was particularly the case because there is no judgment in favour of Kekatos Lawyers against Ms Rahme to support the lien.

20. Ms Rahme submitted that the evidence does not demonstrate that she does not have the ability to repay any judgment sum that is paid to her in the event that B&K were successful on its appeals.

Does this Court have jurisdiction to grant a stay?

21. Part 7 of the Application Act deals with the assessment of legal costs. Section 73 provides:

73   Costs determination to be final

A costs determination is binding on all parties and no appeal or other assessment lies in respect of the determination, except as provided by this Part.

22. Division 5 of Pt 7 deals with reviews which are available to a party to a costs assessment. Division 6 then deals with appeals from a review panel. Divisions 5 and 6 constitute the exception provided for in s 73.

23. Sections 89 and 90 of the Application Act provide:

89   Appeal on matters of law and fact

(1)    A party to a costs assessment that has been the subject of a review under this Part may appeal against a decision of the review panel concerned to--

(a) the District Court, in accordance with the rules of the District Court, but only with the leave of the Court if the amount of costs in dispute is less than $25,000, or

(b) the Supreme Court, in accordance with the rules of the Supreme Court, but only with the leave of the Court if the amount of costs in dispute is less than $100,000.

(2)    The District Court or the Supreme Court (as the case requires) has all the functions of the review panel.

(3)    The Supreme Court may, on the hearing of an appeal or application for leave to appeal under this section, remit the matter to the District Court for determination by that Court in accordance with any decision of the Supreme Court and may make such other order in relation to the appeal as the Supreme Court thinks fit.

(3A)    The Supreme Court may, before the conclusion of any appeal or application for leave to appeal under this section in the District Court, order that the proceedings be removed into the Supreme Court.

(4)    An appeal is to be by way of a rehearing, and fresh evidence or evidence in addition to or in substitution for the evidence before the review panel or costs assessor may, with the leave of the Court, be given on the appeal.

90 Effect of appeal on review panel decision

(1) If an appeal against a decision of a review panel under section 89 or an application for leave under that section in relation to a determination by a costs assessor is pending in the District Court, either the review panel or the District Court may suspend the operation of the determination or the decision.

(2)    The review panel or the District Court may end a suspension made by the review panel. The District Court may end a suspension it made.

(3)    A suspension ends when (as the case may be) -

(a) the appeal is determined, or

(b) the application for leave is dismissed, discontinued or struck out or lapses.

24. It may be observed that a party who wishes to appeal may do so to either the District Court or the Supreme Court, and both courts are given all the functions of the Review Panel.

25. Mr Bevan pointed to the wording of s 90 to submit that a party to an appeal in the District Court can seek from either the review panel or the District Court a suspension of the operation of the determination by the review panel. No mention is made of the Supreme Court in that regard. In that way, Mr Bevan submitted that the Application Act was a code which does not enable the Supreme Court to suspend the operation of a review panel determination, and he submitted that the more general provisions contained in the Civil Procedure Act, such as ss 67 and 135, are not available for the alternative remedy of seeking a stay.

26. It is not easy to determine why s 90 appears to exclude the Supreme Court from being able to suspend the operation of the determination by the review panel as the section gives to the District Court the power to do. On the other hand, if s 89(2) gives to both the Supreme Court and the District Court all of the functions of the Review Panel, it is difficult to see why the Supreme Court does not thereby have the power of suspension referred to in s 90(1).

27. However, even if the Supreme Court has no such power, s 90 does not preclude any other powers the Supreme Court may have to stay a judgment. Section 71(3) of the Application Act provides that on the filing of the certificate by the costs assessor it is taken to be a judgment of the Court. Section 88(3) incorporates that provision for the certificate issued by a review panel.

28. It may be accepted, therefore, that the judgments in the present case have come about by a ministerial act (Fordyce v Leung [2022] NSWCA 55 (Fordyce) at [76]), but that does not mean that rights and powers relating to the enforcement of that judgment cannot be relied upon. The Court of Appeal in Fordyce at [76] allows that such a judgment can be enforced as such, and refers in that regard to s 133 of the Civil Procedure Act. If s 133 can be availed of to enforce such a judgment, s 135 can similarly be availed of. Section 135 relevantly provides:

135 Directions as to enforcement

(1)    The court may, by order, give directions with respect to the enforcement of its judgments and orders.

(2)    Without limiting subsection (1), the court may make any of the following orders--

…

(c)   an order prohibiting any other person from taking any further action, either permanently or until a specified day, to enforce a judgment or order of the court, …

29. In Doyle v Hall Chadwick [2007] NSWCA 159 (Doyle), the Court of Appeal (Hodgson JA with whom Mason P and Campbell JA agreed) said at [52] that a judgment arising from a certificate pursuant to s 208J(3) of the Legal Profession Act 1987 (NSW) (a predecessor of s 71(3)) was liable to be set aside or varied if the certificate on which it is based was set aside or varied. However, Doyle does not suggest any limitation in relation to staying such a judgment without dealing first with the underlying certificate.

30. There seems to be some uncertainty about whether the filing of the certificate pursuant to s 71 of the Application Act means that the judgment thereby created constitutes “proceedings”. Whilst Fordyce at [74] and [77] makes clear that the filing of the certificate does not commence an “action” in the District Court, that appears to be because of the limited definition of “action” in s 4 of the District Court Act 1973 (NSW). The term “proceedings” is not defined in either the Supreme Court Act 1970 (NSW) (except irrelevantly for present purposes in s 16) or the Civil Procedure Act 2005 (NSW).

31. A number of cases have held that the commencement of a costs assessment does not amount to the commencement of proceedings: Diemasters Pty Ltd and Ors v Meadowcorp Pty Ltd, Narendra Jain and Charles Chelliah (Unrep, Supreme Court of New South Wales, Macready M, 16 July 2003) at [27]; Brierley v Anthony Charles Reeves T/as Kaplan Reeves & Co & Ors [2000] NSWSC 305 [24]; Flexible Manufacturing Systems v Alter [2004] NSWSC 29 at [22]; Ballard v Carlisle Attorneys Pty Ltd [2010] NSWSC 769 at [17]. Justice Basten was not so certain in Voicu v The Owners-Strata Plan No 1624 [2020] NSWSC 296 at [19], although it does not appear that his Honour was made aware of the decisions to which I have referred.

32. None of these cases makes reference to whether proceedings are constituted, once the certificate is filed, although Master Harrison (as her Honour then was) said in Flexible Manufacturing at [22]:

It may be that once a certificate is issued and is sought to be registered as a judgment in the court it may be process for enforcement of a judgment.

33. Even if there are no proceedings constituted by the registration of the certificate, s 135 is not limited to judgments from proceedings. Once the certificate is registered as a judgment, provisions in the Civil Procedure Act and the UCPR in relation to judgments are available except, perhaps, provisions concerning the variation or setting aside of the judgment without dealing with the underlying certificate, precisely because of the circumstances in which the judgment has come into being: see Doyle at [49]-[52].

34. There is nothing in Div 6 of Pt 7 of the Application Act to suggest that any powers this Court has in relation to judgments where an appeal is brought are not applicable to those judgments. The fact that the District Court is given the additional power of suspending the operation of a determination (if that is the effect of s 90(1)) does not suggest otherwise. Nothing in s 90 or in any of the authorities, particularly Fordyce, suggests that, if the Supreme Court does not have the power to suspend the operation of the determination, it does not have the power to stay the enforcement of the judgment pending the hearing of the appeal, if a case is otherwise made out for such a stay.

33. It is not without some significance that in Doyle, Hodgson JA said at [53] that there was no need for a provision of the kind contained in s 208KF of the Legal Profession Act 1987 in relation to an appeal to the Supreme Court because the Supreme Court “has power to make orders in relation to its own judgments”. Section 208KF(2)(c) provided that where a review panel provided a certificate, both the assessor’s certificate and the judgment effected by the registration of that certificate ceased to have effect, and any enforcement of it was to be reversed. It appears to be that part of s 208KF to which Hodgson JA was referring.

34. There is no need to determine if B&K’s reliance on r 50.7 UCPR, which in turn appears to derive from the power in s 67 (because both refer to a stay of proceedings), is a source of power in the present case. I am satisfied that s 135, quite apart from any inherent power in the Court, is sufficient to provide a basis for the stay which B&K seeks.

Legal principles

37. In considering whether to grant a stay pending the resolution of an appeal, the Court is to determine whether the appeal raises serious issues for the determination of the appellate court, and whether there is a real risk that the appellant will suffer prejudice or damage if a stay is not granted: Kalifair Pty Ltd  v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 at 18. The issue of prejudice or damage has sometimes been described as a similar determination to the question of where the balance of convenience lies: Vaughan v Dawson [2008] NSWCA 169 at [17]; Tanamerah Estates Pty Ltd v Tibra Capital Pty Ltd [2015] NSWCA 383 at [11]. It is not necessary for the appellant to demonstrate special or exceptional circumstances: Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 693-4 (Alexander).

38. In Alexander, the Court went on to say this (at 695):

Two further principles can be mentioned. The first is that where there is a risk that the appeal will prove abortive if the appellant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay: Scarborough v Lew's Junction Stores Pty Ltd (at 130); applied in Sun Alliance Insurance Ltd v Steiger (Full Court, Supreme Court of Victoria, 22 March, 1985, unreported). Thus, where it is apparent that unless a stay is granted an appeal will be rendered nugatory, this will be a substantial factor in favour of the grant of a stay: Wilson v Church (No 2) (1879) 12 Ch D 454; Re Middle Harbour Investments Ltd (In Liq) (at 2). Secondly, although courts approaching applications for a stay will not generally speculate about the appellant's prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated, this does not prevent them considering the specific terms of a stay that will be appropriate fairly to adjust the interest of the parties, from making some preliminary assessment about whether the appellant has an arguable case. This consideration is protective of the position of a judgment creditor where it may be plain that an appeal, which does not require leave, has been lodged without any real prospect of success and simply in the hope of gaining a respite against immediate execution upon the judgment.

Serious question to be tried

39. Grounds 2, 3 and 4 of the appeal in the amended summonses are reflected in what is set out in pars [9], [10] and [11] above.

Ground 2:   The indemnity principle

40. In Wentworth v Rogers; Wentworth & Russo v Rodgers (2006) 66 NSWLR 474; [2006] NSWCA 145 Basten JA said at [102]:

The substantive issue at the heart of the Appellants’ case was the principle that the fundamental purpose of an order that one party to litigation pay the legal expenses or ‘costs’ of another party is to provide an indemnity in relation to the whole, or usually part, of the legal obligation incurred by the other party to his or her lawyers. If that party is under no legal obligation to pay lawyers’ fees, no amount can be recovered from the unsuccessful party. This principle, sometimes known as the indemnity principle, was explained in Gundry v Sainsbury [1910] 1 KB 645.

41. Section 77 of the Application Act provides that a costs assessor may, when conducting an assessment of ordered costs, obtain a copy of, and may have regard to, a costs agreement. The predecessor of s 77, in almost identical terms, was s 208H in the Legal Profession Act 1987. Justice Basten, in Wentworth v Rogers also made reference to that section, and an argument put forward in that case that the costs assessor would disregard any reduced rate in a costs agreement and any contractual provision that costs were not payable. His Honour said that such an argument should not be accepted. He went on to say:

[159] …[I]t would be remarkable if the if the restraint imposed by s 208H undercut the basic compensatory purpose of adverse costs orders by removing the need for such costs to be restricted to those for which the successful party was liable to his or her own lawyers. An alternative construction, which would not have so radical a result, would be that the costs assessor is not entitled to determine the extent of the contractual obligation; if there is a dispute in that regard, it must be determined elsewhere, presumably by a court.

[160]   There are reasons for accepting the last conclusion as appropriate. The first is that s 208F spoke of “costs payable as a result of an order made by a court”. It is not for the costs assessor to determine whether costs are payable or not…It follows that the indemnity principle, which underpins the concept of an adverse costs order, continues to operate and provides a constraint on the costs recoverable by the party which has the benefit of a costs order.

(emphasis added)

42. After the Review Panel concluded its review of the costs, it appears that it came to the attention of B&K that Ms Rahme was disputing in whole or in part a liability to pay the fees of Kekatos Lawyers. B&K then wrote to Ms Rahme’s lawyers asking if the fees of Kekatos Lawyers had been paid, whether Ms Rahme disputed that she had a liability to them for those fees, and if she intended to make an application for assessment of their costs. There was no response to that letter. However, after the present notice of motion was filed, B&K became aware of an exchange of correspondence between Kekatos Lawyers and Ms Rahme’s lawyers, such correspondence being annexed to affidavits filed in relation to the present motion by Ms Rahme’s lawyers.

43. In a letter from Kekatos Lawyers to Ms Rahme’s lawyers dated 5 April 2022, the following appears:

4.    It is concerning that Mrs Rahme has taken issue with our invoices and costs agreements, in circumstances whereby those invoices were relied upon for party/party cost assessments, and a fruitful costs determination has been made. The conduct proceeded on is an abuse of process in that an assertion is made on costs assessment that there is entitlement to money on the basis that Kekatos Lawyers is owed fees for the costs incurred for the Supreme Court and Appeal proceedings against BK, and on the other hand Mrs Rahme is claiming that Kekatos Lawyers is not owed any fees…

5.    The abuse of process is furthered, in that, a third party, being BK is being required to pay party/party costs in circumstances whereby Mrs Rahme has no intention to pay any legal costs and disbursements amount to Kekatos Lawyers.

6.    Needless to say, the conduct also flies in the face of indemnity principle.

44. The letter went on to say that Kekatos Lawyers would be proceeding with the costs assessment for their solicitor/client costs against Ms Rahme. The letter also said that they had advised Ms Rahme’s solicitors that they maintained the solicitor lien over all judgment and costs determination proceeds recovered from B&K by Ms Rahme in connection to the orders made in the appeal proceedings. The letter said that B&K could not discharge its obligations imposed in the costs order without satisfying a lien.

45. The letter in reply from Ms Rahme’s lawyers of 8 April 2022 said that costs billed before 8 April 2016 were statute-barred. They drew attention to s 352 of the Legal Profession Act 2004 (NSW) which precludes a law practice from applying for assessment unless it has given compliant bills of costs to the client at least 30 days beforehand. They asserted that the final bills and tax invoices did not comply with the Legal Profession Regulation 2005 (NSW). The letter went on to reiterate what had earlier been said in Local Court proceedings,

That Mrs Rahme does not dispute that she has some liability to your firm for legal costs and that the only issues are whether the costs are payable by herself and the bankrupt estate of her husband jointly, to the intent that she is liable for only one-half of the costs, …

(emphasis in the original)

46. In a letter from Ms Rahme’s lawyers to the Manager of Costs Assessment dated 21 April 2022, similar points were made as had been made to Kekatos Lawyers. It was also asserted that there was an issue between Mr and Mrs Rahme and Kekatos Lawyers as to whether they were ever given the costs agreements which were relied upon to support the application for assessment.

47. In an affidavit sworn by Ms Rahme’s solicitor on 27 April 2022 for the present hearing, Mr Soulos said (at paragraph 27):

…[T]here is no dispute that Mrs Rahme is in dispute with her previous solicitors, Kekatos Lawyers, about the payment of their costs of acting for Mrs Rahme in her Supreme Court proceeding against B&K for damages for breach of fiduciary duty.

(emphasis in the original)

48. It is apparent from all of this material that there are serious issues between Ms Rahme and Kekatos Lawyers concerning any liability she has to pay some or all of the costs of Kekatos Lawyers. It does not appear that this dispute was known to the costs assessor or the Review Panel. However, it is ultimately not for the costs assessor to determine whether the costs are payable or not: Basten JA in Wentworth v Rogers at [160]. It will be for a Court to determine whether those costs are payable to Kekatos Lawyers. If they are not, there is, at the very least, an arguable case that the indemnity principle will operate to mean that B&K is not ultimately required to pay some or all of the costs assessed and reviewed. There is a serious question to be tried on this issue.

Ground 3:   Apportionment

49. The costs orders made by the Court of Appeal were that B&K was to pay Ms Rahme’s costs, Mr Khoury was to pay his own costs, and Mr Rahme was to pay his own costs.

50. B&K submitted that both the assessor and the Review Panel had determined that Ms Rahme was entitled to recover all common costs of her and Mr Rahme from B&K, and that those costs were to extend to all common costs in the proceedings against both B&K and Mr Khoury.

51. B&K submitted that the appropriate finding was that only half of the common costs could be claimed.

52. The plaintiff made reference to a number of cases which considered how costs should be apportioned where one of two litigants on one side of the dispute is successful but the other is not, and the party on the other side is ordered to pay the costs of the successful party. Those authorities, particularly Currabubula & Paola v State Bank NSW; Currabubula v State Bank NSW [2000] NSWSC 232 at [95]-[106] (although see the doubt cast on some aspects of this in Daley v Hughes (2014) 86 NSWLR 729; [2014] NSWCA 268 at [57]-[59]) and Akierman Holdings Pty Limited v Akerman (No 3); In the matter of Akierman Holdings Pty Limited (No 2) [2021] NSWSC 869 at [56]-[67] tend to show that the position contended for by B&K is uncertain, but arguable.

53. It is not without some significance that the letter from Ms Rahme’s solicitors to Kekatos Lawyers of 8 April 2022 (see above at [45]) makes clear that Ms Rahme is challenging what she is obliged to pay to Kekatos lawyers on the same basis, namely, that she should only be liable for half the fees with her husband’s bankrupt estate liable for the other half.

54. I consider that there is a serious question to be tried on the point.

Ground 3:   Procedural unfairness

55. I do not give any weight to this ground in determining whether there is a serious question to be tried. The Review Panel gave an extension to B&K to lodge any submissions in reply to further submissions made by Ms Rahme. No such submissions were made by Ms Rahme, so that there was nothing to which B&K could reply.

56. Since any appeal will be by way of a re-hearing, nothing flows from any procedurally unfair decision if one is established.

Balance of convenience

57. Three matters suggest that the balance of convenience favours B&K. The strongest matter is the existence of the statutory demands. If a stay is refused, there is a reasonable possibility that the statutory demands would not be able to be set aside. There is the reasonable possibility of a risk, therefore, that B&K could be wound up. That is a very significant matter for a law firm whose business is conducted as an incorporated legal practice.

58. In a letter from Mr Soulos to B&K’s solicitors of 28 April 2022 Mr Soulos said this:

To be clear about this, the moment the notice of motion filed on 25 March 2022 seeking a stay of the judgments dated 9 November 2021 in each of the appeal proceedings is determined:

(a)   If the motions are dismissed and the stays are refused, I will be taking immediate action to file and serve in the Supreme Court an originating process to wind up B&K in insolvency if the two judgments dated 9 November 2021 and not paid pending the determination of B&K’s two appeals against the decisions of the Review Panel and its application to set aside the underlying Certificates of Determination;

Mr Soulos went on to say that if the motions were upheld and the stays granted, he would sign consent orders in the Federal Court to stay the operation of the relevant statutory demands pending the determination of B&K’s appeals.

59. In his affidavit of 23 May 2022 the solicitor for B&K said that he was instructed by Mr Dieb Khoury, the principal of B&K, that B&K continues with the ordinary operation of its business as an incorporated legal practice, despite the time, cost and inconvenience associated with Ms Rahme’s attempt to wind it up. He said further that Mr Khoury instructed him that Ms Rahme would seek to wind up B&K, that the presumption of insolvency that arises would be a technical default under B&K’s financing arrangements, advertising of the winding up application would be harmful to B&K’s business, and that the Law Society may intervene in the winding up. Objection was taken to those paragraphs by Mr Bevan, on the basis that they were submissions.

60. Even if they are only to be regarded as submissions, what is likely to result from a winding up in that regard is fairly self-evident. It would be a very significant matter for B&K in relation to continuing its legal practice.

61. The second matter concerns the ability of Ms Rahme to repay any amounts paid to her in accordance with the assessment made. The evidence of her financial position is somewhat confused. Searches undertaken on behalf of B&K demonstrated that no real property or shares were owned in the name of Dana Rahme. In an affidavit filed by her solicitor on 23 May 2022, Mr Soulos gives evidence that Ms Rahme owns assets in her maiden name. He identifies two properties owned by Ms Rahme as Dana Tannous, one at Carlingford and one at Glenmore Park.

62. A bundle of documents was tendered at the hearing of the notice of motion on behalf of Ms Rahme. Amongst those documents was a title search showing that Dana Tannous was the registered proprietor of a property in Carlingford with a mortgage to Westpac Banking Corporation, and another title search showing that she is the registered proprietor of a property in Glenmore Park, with a different mortgage to Westpac Banking Corporation. There is a valuation of the Glenmore Park property of $1,100,000.00 and a valuation of a property in Telopea at $2,060,000.00. A comparison of the deposited plan number shows that the property described in the title searches in Carlingford and the property described in the valuation as Telopea are one and the same.

63. Other documents tendered by Ms Rahme show that she had outstanding to a company called Pepper Money an amount of $699,231.56 as at 14 March 2022. No such mortgage appears on the title to either parcel of land, leading to one possible conclusion that it represents a loan secured by an unregistered mortgage.

64. The statement from RAMS Home Loan (wholly owned by Westpac) shows an indebtedness of $1,311,773.92 as at 28 February 2022. I was informed from the bar table by Mr Bevan that the RAMS document and the Pepper Money documents concerned the Telopea property. There does not appear, therefore, to be any evidence about what is owed to Westpac in relation to the Glenmore Park property. Pepper Money is not associated with Westpac.

65. On the other hand, in an affidavit sworn by Mr Soulos in support of a notice of motion seeking security for costs against B&K, he said this:

23.   The first defendant [Ms Rahme] owns no assets of any value other than the family home at Victoria Road Parramatta, which is mortgaged. She conducts a hair dressing business, as a qualified hairdresser, at Marrickville in Sydney, and her husband, who is now bankrupt as a result of a judgment obtained against him by the plaintiff for unpaid legal costs, assists her as the manager of that hair dressing business.

66. There is no evidence, apart from that statement, that Ms Rahme owns a property in Victoria Road, Parramatta, although I note that the account statements for both RAMS and Pepper Money were addressed to her at 62 Victoria Road, North Parramatta.

67. In Mr Rahme’s statement pursuant to the Bankruptcy Act 1966 (Cth) he says that his partner’s name is Dana Tannous and her annual income before tax is $50,000.00. He says that he has been unemployed for 11 years. Pre-tax income of $50,000 per year would not remotely support the mortgages and the known indebtedness of Ms Rahme.

68. In the light of that confusing information, there is some doubt that if the money was paid to Ms Rahme she may have a reasonable difficulty in repaying it if B&K was successful on its appeal, either by reason of the indemnity principle being applied, or if costs were apportioned between Ms Rahme and her husband.

69. A third matter concerns the lien that Kekatos Lawyers claims over the costs that have been assessed.

70. In the letter from Kekatos Lawyers to Mr Soulos of 5 April 2022, under the heading “Fruits of litigation lien”, Kekatos Lawyers said this:

13.   We have advised your office that Kekatos Lawyers maintains a solicitor lien over all judgment and costs determination proceeds recovered from BK by Mrs Rahme in connections to the orders made in the Appeal Proceedings. For your reference, we draw you to our letter of 6 November 2020, which makes very clear our position.

…

16.   Furthermore, the existence of a lien in means (sic) that BK cannot discharge the obligations imposed in the costs order without satisfying the lien.

71. In Firth v Centrelink (2002) 55 NSWLR 451; [2002] NSWSC 564 Campbell J (as his Honour then was) said:

[33]   A solicitor whose efforts result in the recovery of money for his client has an equitable right to have his proper costs and disbursements paid from the money so recovered.

…

[35]   The authorities establish the following propositions concerning this right of the solicitor:

(a)   The solicitor’s right exists over money recovered through obtaining judgment in litigation, and also over money recovered through the settlement of litigation: Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33]; Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4.

(b)   The solicitor’s right exists over both the amount of a judgment in favour of the client, and the amount of an order for costs in favour of the client: In The Estate of Fuld (No 4) [1968] P 727 at 736; Twigg v Keady (1996) 135 FLR 257 at 266 – 267 per Finn J; In Re Blake; Clutterbuck v Bradford [1945] Ch 61 (a case concerning a statutory charging order rather than a lien arising in equity’s exclusive jurisdiction, but dependent on the same principle as the equitable right – see paragraph 44 below).

(c)   It exists over money which is in the possession of the solicitor, and also over money which is in court (In Re Meter Cabs [1911] 2 Ch 557 at 562) and money which is owed to the client but not paid into court (In The Estate of Fuld (No 4) [1968] P 727; Re de Groot [2001] 2 Qd R 359 at 375)

(d)   The solicitor need not be still acting for the client at the time that the money was recovered: In The Estate of Fuld (No 4) [1968] P 727; Kelso v McCulloch (Supreme Court of NSW, Young J, 24 October 1994 unreported); Twigg v Keady (1996) 135 FLR 257 at 289 per Kay J; Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4

(e)   For the right to arise it must be shown that there is a sufficient causal link between solicitor’s exertions and the recovery of the fund of money: Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4 - 5; Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33].

(f)   The quantum of money for which the solicitor has the equitable right is the amount which is properly owing to the solicitor by the client, whether that amount be ascertained by taxation of a bill of costs, or assessment, or pursuant to a costs agreement: Roam Australia Pty Ltd v Telstra Corporation Ltd [1997] FCA 980 (Lehane J, 22 September 1997, unreported at 4). In relation to those situations where taxation is necessary to ascertain the quantum owing to the solicitor, the solicitor’s right exists in the fund prior to the occurrence of the taxation (Johns v Cassel (1993) 6 BPR 13,134 at 3,136 per Hodgson J; Twigg v Keady (1996) 135 FLR 257 at 289 per Kay J; In The Estate of Fuld (No 4) [1968] P 727 at 740; Roam Australia Pty ltd v Telstra Corporation Ltd [1997] FCA 980 (Lehane J, 22 September 1997, unreported at 6).

(g)   The solicitor’s equitable right exists before the court is asked to intervene to protect it; it “arises immediately upon the recovery of monies through the exertions of the solicitor”: Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33]; if the lien is over the proceeds of an order for costs, it comes into existence at the time of making of that order for cost: Phillipa Power & Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266; Kison v Papasian (1994) 61 SASR 567. If the lien is over the proceeds of a settlement, it arises when the settlement agreement is entered into: Re de Groot [2001] 2 Qd R 359 at 368. (These statements concern when the lien comes into existence as an item of present property – they are not concerned with the ability of the solicitor to deal with the rights under the lien as future property before the fund is in existence.)

72. In Patterson v Cohen [2005] NSWSC 635, Hamilton J said at [4]:

From the judgment of Lehane J in Roam Australia Pty Ltd v Telstra Corporation Ltd [Unreported, Federal Court of Australia, Lehane J, 22 September 1997] and authority there cited the following principles may be derived:

(1)   If as a result of legal proceedings in which a solicitor has acted for a client the client obtains moneys by way of judgment or compromise, the solicitor acquires an equitable right to have his costs paid out of the moneys.

(2)   If the solicitor gives notice of his right to the person liable to pay the moneys, only the solicitor and not the client can give a good discharge to that person for the amount equivalent to the solicitor’s costs.

(3)   The solicitor’s right does not depend upon intervention by the Court, the assistance of which is invoked not to create, but to enforce, the right.

(4)   The solicitor’s claim may be asserted even thought the precise amount to which the solicitor is entitled has not yet been agreed or assessed.

(5)   It does not matter that the solicitor has ceased to act for the client before the recovery was effected, if the solicitor’s work was instrumental in obtaining the judgment or compromise.

(6)   The solicitor’s work will be regarded as instrumental if the solicitor did work for the client in the proceedings and the solicitor’s participation was not slight or fleeting or for a short period only.

73. In circumstances where B&K has been put on notice of the lien claimed by Kekatos Lawyers, it is at risk if it pays the amount of the judgments to Ms Rahme. Whilst I accept that B&K could protect itself by paying the money to a stakeholder or into court, the existence of the dispute between Ms Rahme and Kekatos Lawyers in relation to their fees, is a further matter to be taken into account when assessing the balance of convenience.

Should a stay be granted?

74. In my opinion, B&K demonstrates that there are two serious questions to be tried, being the indemnity principle and the question concerning whether B&K should only be liable for half of the common costs, and the balance of convenience favours B&K, particularly because of the pending statutory demands.

75. As noted above at [18], Ms Rahme put forward a number of matters which she submitted should mean that the discretion to grant a stay should be exercised against B&K. A number of those matters concern the raising of issues which were not raised before the Review Panel, including reliance on documents not placed before the Review Panel.

76. An appeal to the Court is by way of rehearing, and fresh or other evidence may with the leave of the Court be relied upon. The issue of Ms Rahme’s dispute with Kekatos Lawyers does not appear (from the Review Panel’s reasons) to have been before the panel. I was informed from the bar table that the dispute was not known by B&K at the time of the review. I do not consider that these matters should result in a refusal of a stay.

77. Ms Rahme also raises the matter of the orders sought by B&K in its amended summons, namely, for referral out to a referee pursuant to r 20.14 UCPR. Ms Rahme pointed to s 89(3) of the Application Act to submit that the Supreme Court’s power is limited to remitting the matter for determination to the District Court, which in turn does not have the power of remitter: Behnia v Sarraf (No 2) [2019] NSWDC 281 at [11]. Two things should be said about that. First, s 89(3) says that the Supreme Court “may” remit the matter to the District Court. It is not obliged to do so.

78. Secondly, the subsection says that the Court “may make such other order in relation to the appeal as the Supreme Court thinks fit”. B&K do not seek in the Amended Summons that the District Court refer the matter to a referee after remittal from this Court; it seeks that this Court refer the assessment to a referee. However, even if, for some reason, that is inappropriate or beyond the power of this Court (very doubtful when r 20.14 is only limited in one respect), the fact that such inappropriate relief is sought does not inform the discretion about granting a stay. If B&K is otherwise successful on the appeal, the Court will grant appropriate relief.

79. One significant consideration when a stay is sought on a judgment pending an appeal is whether conditions should be attached to any stay and, in particular, if part of the judgment should be ordered to be paid. Ms Rahme submitted that an order should be made that the amount of the judgments should be paid into court.

80. In relation to the argument concerning the liability for the common costs, B&K will still remain liable to Ms Rahme for half of the assessed costs if B&K’s argument in this regard is accepted. If that were the only basis for the appeal, it would be appropriate to make it a condition of the stay that B&K pay half of the assessed costs to Ms Rahme.

81. However, B&K also rely on the indemnity principle. B&K also note the lien claimed by Kekatos Lawyers. Ms Rahme does not dispute that she owes some costs to Kekatos Lawyers. Further, the least likely outcome of the dispute involving Kekatos Lawyers’ fees is that Ms Rahme will be entitled to retain any costs paid by B&K as a result of the judgments but not pay those costs to Kekatos Lawyers. The most likely outcomes are either that B&K will be obliged to pay the judgments because Ms Rahme will be obliged to pay all of those costs to Kekatos Lawyers as a result of the assessments, or Ms Rahme will be required to pay costs to Kekatos Lawyers based on their asserted fruits of the action lien, even where Kekatos Lawyers might not otherwise be entitled to obtain their fees from Ms Rahme because of failures to comply with the Application Act. In other words, there is a reasonable likelihood that B&K will be obliged to pay at least half of the costs assessed to Kekatos Lawyers.

82. In addition, there is some doubt that, if the judgments or part of them were paid to Ms Rahme, she would be able to repay them in the event that that became necessary.

83. In all of those circumstances, it is appropriate to make it a condition of the stay that B&K pay an amount into Court pending the determination of the appeal. In view of the dispute over common costs, the appropriate condition is that B&K pay into Court 50% of the total of the two judgments being an amount of $289,724.00. Such amount should be paid within 28 days of judgment herein.

Conclusion

84. I make the following orders:

1. In proceedings 2021/330107:

1. On condition that the plaintiff pays into court the sum of $196,554 by 12 July 2022, stay the enforcement of the judgment until the determination of the appeal;

2. Order that costs be costs in the appeal.

2. In proceedings 2021/330110:

1. On condition that the plaintiff pays into court the sum of $93,170 by 12 July 2022, stay the enforcement of the judgment until the determination of the appeal;

2. Order that costs be cost in the appeal.

**********

Amendments

21 June 2022 - 1. Order pursuant to r 36.17 Uniform Civil Procedure Rules 2005 (NSW) correcting the orders so they read:

(1) In proceedings 2021/330107:
(a) On condition that the plaintiff pays into court the sum of $196,554 by 12 July 2022, stay the enforcement of the judgment until the determination of the appeal;
(b) Order that costs be costs in the appeal.

(2) In proceedings 2021/330110:
(a) On condition that the plaintiff pays into court the sum of $93,170 by 12 July 2022, stay the enforcement of the judgment until the determination of the appeal;
(b) Order that costs be cost in the appeal.

2. Order pursuant to r 36.17 Uniform Civil Procedure Rules 2005 (NSW) correcting para [6] of the reasons for judgment so it reads:

The judgment in proceedings 2021/330107 was in the sum of $393,108.08, and the judgment in proceedings 2021/330110 was in the sum of $186,339.84.

Decision last updated: 21 June 2022