Byrd and Byrd and Ors
[2012] FamCAFC 170
•30 October 2012
FAMILY COURT OF AUSTRALIA
| BYRD & BYRD AND ORS | [2012] FamCAFC 170 |
| FAMILY LAW ─ APPEAL ─ PRACTICE AND PROCEDURE ─ Appeal against interlocutory orders made by the trial Judge which allowed the husband to amend his Application for Final Orders during the course of the trial to seek orders for costs against the wife’s former solicitor and the former adversarial forensic accounting expert for the wife ─ Where there are no reported case of an application for costs being allowed to be brought against a non-party prior to the delivery of judgment in the proceedings in which the non-party had played a role ─ Where the Court followed the observations of Peter Smith J in the English authority of Phillips v Symes [2004] EWHC 2330 (Ch); [2005] 4 All ER 519 ─ Where the Court found that allowing the claim for costs against the wife’s former solicitor and the former adversarial forensic accounting expert for the wife to be made prior to the delivery of judgment in the substantive proceedings could serve no useful purpose, and had the very considerable, and realised, potential for mischief, particularly when the practice was sought to be defended upon the fallacious ground that the husband was only trying to do them a favour by giving them early notice ─ Where although the Court had no doubt that the trial Judge was motivated by natural justice concerns, allowing the husband to bring a claim for costs against the wife’s former solicitor and the former adversarial forensic accounting expert for the wife was erroneous ─ Applications for leave to appeal granted ─ Appeals allowed. FAMILY LAW ─ APPEAL ─ PRACTICE AND PROCEDURE ─ Joinder ─ Whether the orders of the trial Judge joined the wife’s former solicitor and the former adversarial forensic accounting expert for the wife to the proceedings, and, if so, whether his Honour erred in doing so ─ Where although the trial Judge’s reasons for judgment may suggest otherwise, his Honour did not make an order joining either the wife’s former solicitor or the former adversarial forensic accounting expert for the wife as parties to the proceedings, nor was there an order for leave to intervene pursuant to s 92 of the Act. |
| Family Law Act 1975 (Cth) ss 92, 94, 117(2) Family Law Rules 2004 (Cth) |
| Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 Aiden Shipping Co Ltd v Interbulk Ltd, The Vimeira [1986] AC 965; [1986] 2 All ER 409; [1986] 2 WLR 1051 Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) (2012) 200 FCR 154 Hypec Electronics Pty Ltd (in liq) v Mead & Ors (2004) 61 NSWLR 169 Knight and Another v FP Special Assets Limited and Others (1992) 174 CLR 178 Lemoto v Able Technical Pty Ltd and others (2005) 63 NSWLR 300 Myers v Elman [1940] AC 282 Phillips v Symes [2004] EWHC 2330 (Ch); [2005] 4 All ER 519 Rutherford and Rutherford (1991) FLC 92-255 Symphony Group plc v Hodgson [1994] QB 179; [1993] 4 All ER 143; [1993] 3 WLR 830 |
| APPELLANT (SECOND RESPONDENT IN EA 53 OF 2012): | Ms Byrd |
| RESPONDENT (FIRST RESPONDENT IN EA 53 OF 2012): | Mr Byrd |
| SECOND RESPONDENT (APPELLANT IN EA 53 OF 2012): | Mr Y |
| THIRD RESPONDENT (APPELLANT IN EA 53 OF 2012): | Ms D |
| FILE NUMBER: | SYC | 767 | of | 2009 |
| APPEAL NUMBERS: | EA | 51 | of | 2012 |
| EA | 53 | of | 2012 |
| DATE DELIVERED: | 30 October 2012 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Coleman, Thackray and Austin JJ |
| HEARING DATE: | 21 September 2012 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 5 April 2012 |
| LOWER COURT MNC: | [2012] FamCA 206 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT (SECOND RESPONDENT IN EA 53 OF 2012) | Mr Simpson SC |
| SOLICITOR FOR THE APPELLANT (SECOND RESPONDENT IN EA 53 OF 2012) | Newnhams Solicitors |
| COUNSEL FOR THE FIRST RESPONDENT (FIRST RESPONDENT IN EA 53 OF 2012) | Mr Gould |
| SOLICITOR FOR THE FIRST RESPONDENT (FIRST RESPONDENT IN EA 53 OF 2012) | Gibsons Lawyers |
| COUNSEL FOR THE SECOND & THIRD RESPONDENT (APPELLANTS IN EA 53 OF 2012) | Mr Aldridge SC |
| SOLICITOR FOR THE SECOND & THIRD RESPONDENT (APPELLANTS IN EA 53 OF 2012) | Watts McCray |
Orders
That Ms Byrd (“the wife”), Mr Y and Ms D have leave to appeal the orders of Le Poer Trench J made on 5 April 2012.
That the Appeal No. EA 51 of 2012 by the wife, and the Appeal No. EA 53 of 2012 by Mr Y and Ms D against the orders of Le Poer Trench J of 5 April 2012 be allowed and the orders set aside.
That written submissions in support of any application for costs be filed and served within 28 days and that written submissions in opposition to any such claim(s) be filed and served within 56 days.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Byrd & Byrd and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Numbers: EA 51 of 2012 and EA 53 of 2012
File Number: SYC 767 of 2009
| Ms Byrd |
Appellant (Second Respondent in EA 53 of 2012)
And
| Mr Byrd |
First Respondent (First Respondent in EA 53 of 2012)
And
| Mr Y |
Second Respondent (Appellant in EA 53 of 2012)
And
| Ms D |
Third Respondent (Appellant in EA 53 of 2012)
REASONS FOR JUDGMENT
introduction
By Notice of Appeal filed 26 April 2012 (EA 51 of 2012) Ms Byrd (“the wife”) sought leave to appeal against interlocutory orders made on 5 April 2012 by Le Poer Trench J pursuant to the provisions of the Family Law Act 1975 (Cth) (“the Act”) in financial proceedings between the wife and Mr Byrd (“the husband”).
By Notice of Appeal filed 1 May 2012 (EA 53 of 2012) the wife’s former solicitor (“Mr Y”), and the former adversarial forensic accounting expert of the wife, (“Ms D”), also sought leave to appeal against the interlocutory orders made on 5 April 2012 by Le Poer Trench J.
The orders of the trial Judge of 5 April 2012 arose out of an interlocutory application which was contained in a minute of order titled “Draft Minute of Order as sought by the husband on 29 September 2011” which was tendered by Senior Counsel for the husband on 28 November 2011 and marked as Exhibit H6, and a Response to an Application in a Case filed by the wife on 30 November 2011.
The order of 5 April 2012 of the trial Judge which the wife, Mr Y and Ms D sought leave to challenge provided:
2.The husband’s application to amend his Application for Final Orders in the manner sought is allowed and the husband is ordered to file and serve such amended Application within 14 days from the date of these orders.
The effect of the trial Judge’s order was to allow the husband to amend his Application for Final Orders during the course of the trial to seek orders for costs against Mr Y and Ms D.
At the commencement of the hearing of the applications for leave to appeal, Senior Counsel for the wife sought leave to amend the proposed grounds of appeal contained in the Notice of Appeal filed 26 April 2012 (EA 51 of 2012), and “proceed on the grounds contained in the Notice of Appeal of the First and Second Appellants in E.A. 53 of 2012”. That leave was granted, without opposition, and the wife’s position thus became that she supported the appeal of Mr Y and Ms D (EA 53 of 2012), and adopted the submissions of Senior Counsel for Mr Y and Ms D. For clarity, we shall refer to the three applicants for leave collectively as “the appellants” in these Reasons.
The husband resisted the appeals and submitted:
3.... that the appeals are directed to a series of procedural determinations which are not readily amendable to a grant of leave to appeal having regard to relevant principle, including Rutherford (1991) FLC 92-255. ...
background
The wife was born in 1965 and the husband in 1963.
The parties married in March 1989, separated in February 2008, and were divorced in March 2010.
There are three children of the marriage.
On 16 February 2009 the wife commenced proceedings for parenting and property settlement orders. The parenting issues were resolved upon the making of consent orders on 4 August 2010.
The property settlement proceedings were set down for a four day hearing before the trial Judge commencing 26 September 2011. The whole of that hearing time was consumed in argument, primarily about the admissibility of experts’ reports sought to be relied upon by the wife. Four judgments were delivered by the trial Judge in relation to that issue.
On 29 September 2011 (the fourth day of the hearing), Ms Rees of Senior Counsel (as Rees J then was) appeared for the wife, instructed by Mr Y, and informed the trial Judge that she had been advised that an application was to be made by the husband to seek costs against Mr Y and Ms D, and that, as a consequence, her instructing solicitor (Mr Y), could no longer act for the wife. Mr Y subsequently filed a Notice of Ceasing to Act on 30 September 2011. The wife subsequently retained her current solicitors.
On 15 February 2012, when the matter came before the trial Judge again, the Court was advised that Ms D no longer wished to be an expert in the case, and withdrew from the proceedings as the adversarial expert for the wife. Ms D then instructed solicitors to represent her in relation to the foreshadowed costs application against her.
On 5 April 2012 the trial Judge delivered his reasons for judgment, and made the orders which are the subject of the applications for leave to appeal.
the proposed grounds of appeal
Mr Y and Ms D’s proposed grounds of appeal (EA 53 of 2012), which the wife has been granted leave to adopt, provided:
1.His Honour erred in failing to take account of, or give sufficient weight, to:
(a)the fact that the costs application was bound to fail;
(b)the fact that, insofar as the costs application was based upon past events they were trivial and not capable of sustaining a costs order;
(c)that such a costs application could be heard and determined forthwith;
(d)thats [sic] insofar as the costs application was based on events that might arise it could presently have no basis and must, at present, fail or be dismissed as an abuse of process;
(e)the tests laid down by the authorities to be applied in determining whether costs orders should be made against witnesses;
(f)the facts that the grounds outlined by the Husband to justify such an order could not support such an order having regard to the correct test to be applied;
(g)the prima facie immunity of a witness;
(h)the effect of Rule 15.61(2);
(i)the futility of the amendment;
(j)the effect of the amendment on the proceedings and the efficient conduct of them.
2.His Honour erred by wrongly finding that it was not argued before him that the case against Ms [D] and Mr [Y] must fail.
3.His Honour erred by taking into account and giving excessive weight to the so-called desirability of giving early notice of an intended costs application.
4.His Honour’s decision was manifestly unreasonable.
5. His Honour erred in giving leave to amend.
The proposed grounds of appeal fall within two broad areas of complaint. The first is whether the orders of the trial Judge of 5 April 2012 joined Mr Y and Ms D to the proceedings, and, if so, whether his Honour erred in doing so. The second issue which arises, irrespective of the fate of the first area of complaint is whether the trial Judge erred by allowing the husband to amend his application during the course of the proceedings between the husband and the wife to seek an order for costs against Mr Y and Ms D.
discussion
1) Did the orders of 5 April 2012 of the trial Judge join the solicitor (“Mr Y”) or the expert witness (“Ms D”) as parties to the proceedings, and, if they did, was such joinder erroneous?
As the submissions of their Senior Counsel make clear, Mr Y and Ms D assert that, by the trial Judge’s orders of 5 April 2012, each of them was joined as a party to the proceedings. Counsel for the husband submitted that neither Mr Y nor Ms D had been joined as parties to the proceedings by the trial Judge’s orders.
It was submitted on behalf of the husband, correctly, that appeals lie against orders rather than against findings of fact, or conclusions drawn, or inferences reached in reliance upon such findings of fact (see s 94(1) of the Act). It was accordingly submitted on behalf of the husband that, as no order for the joinder of Mr Y or Ms D had ever been made, applying the principles which undoubtedly govern applications for leave to appeal against interlocutory orders, particularly of a procedural nature (see Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 and Rutherford and Rutherford (1991) FLC 92-255), the applications of Mr Y and Ms D for leave to appeal should be dismissed.
It is clear from the terms of his orders that the trial Judge did not expressly order the joinder of Mr Y or Ms D. However, each of them is shown as a respondent to the proceedings on the coversheet of his Honour’s judgment of 5 April 2012, implying that they had become parties to the proceedings.
Counsel for the husband submitted that the husband had never sought that either Mr Y or Ms D be joined as a party to the proceedings, and conceded that neither Mr Y nor Ms D had sought to intervene in the proceedings pursuant to s 92 of the Act.
As Senior Counsel for Mr Y and Ms D submitted, although the trial Judge did not specifically make an order for the joinder of Mr Y or Ms D to the proceedings, his Honour’s reasons suggest that he proceeded on the basis that the husband sought that Mr Y and Ms D be joined as respondents in the proceedings, or that allowing the husband to amend his claim to seek costs against Mr Y and Ms D necessitated, or resulted in their being joined.
Senior Counsel for Mr Y and Ms D referred, in this context, to a number of paragraphs of his Honour’s reasons for judgment, which recorded:
18.In paragraph 61 it is submitted that the husband acted inappropriately by filing the application contained in exhibit H6. It is conceded that the Rules enable a cost application to be made at any time (Rule 19.08). The application is said to be inappropriate because the husband should have foreseen that once made, the wife’s solicitor would be conflicted out of the case and would need to be represented during the balance of the case. The wife would consequently be required to engage a new attorney. The wife would incur considerable expense in having a new attorney consider all the work thus far undertaken in the case. The husband should also have foreseen that Ms [D] would need to be legally represented in the proceeding. These submissions are based on the assumption that in the giving of evidence by the wife and Ms [D] each may be cross-examined about matters which go only to the costs question as opposed to being relevant to the main proceeding of property division.
...
29.The submission made by the wife in paragraph 72 of her written submissions I cannot appreciate. I am unable to discern why the wife submits that the husband’s application for leave renders the “entire proceeding inoperable”. As best I can discern the reason advanced is that both Mr [Y] and Ms [D] would need to be represented in the further hearing. That must be a matter entirely for each to decide. Further, as I understand the submission, it is suggested the wife would have to cross-examine both Ms [D] and Mr [Y] during the hearing in relation to the question of costs and would herself be available to be cross-examined by those parties. This submission probably states an available conclusion if the husband was permitted to run the costs case concurrently with the balance of the property proceedings, however, that is not his application. In fact he has stated specifically he would not do that.
...
41. Assuming the above paragraph is correct; the question then arises as to how that notice should be given. Presumably it could have been given in correspondence or it could be given in the manner chosen by the husband. The distinction between the two approaches is most stark in the way in which the later approach causes the wife’s solicitor and Ms [D] to be named as parties. Does that distinction create a critical difference for Mr [Y] and Ms [D]?
42.The wife says the making of those two persons as parties to the proceedings, immediately means they are likely to be represented in the proceeding thus elongating the hearing. I do not accept that is necessarily so. True it is that as parties they have a right to be represented and may chose [sic] to do so as a matter of prudence, however, in relation to the cost application the husband wishes to pursue he has clearly stated it will not be moved upon until the conclusion of the trial. Further he has told the Court he would not seek to traverse the cost matter with Mr [Y] or Ms [D] within this trial. It must be acknowledged however, that some cross-examination of Ms [D] and the wife may be relevant to matters, clearly relevant in the trial currently being conducted and also to the cost application. Provided the cross-examination is relevant to the matters in issue in the trial it must reasonably be anticipated the cross-examination will be permitted even if it was also relevant to the husband’s cost application. I am reasonably confident however, that if both Mr [Y] and Ms [D] were represented it would not unduly lengthen the trial.
43.If the husband had chosen to give notice only through correspondence would that situation give rise to a different response from both Ms [D] and Mr [Y]? I consider it probably would not create a different response. If Mr [Y] says he is conflicted out of the case because a cost order is sought against him and the wife in the alternative then one asks rhetorically would he not be in the same conflict if he was given (along with the wife) written notice of the intended application? It seems to me probable that he would take the same view. In making those statements it should not be inferred that I have concluded that Mr [Y] is “conflicted out” from acting for the wife in the trial. That matter has not been argued before me.
44.If the written notice was given by the husband rather than making the application to the Court would that make a difference for Mr [Y] and Ms [D] requiring or desiring to be legally represented in the balance of the trial. It seems it ought not make an appreciable difference to them. Presumably they would wish to be represented in the trial where they are named parties to protect their interests. It is hard to see how they would not wish to protect their interests once they had been put on notice of the husband’s intended application notwithstanding that the application had not been made. In deed should the husband be unsuccessful in his application to amend his Application for Final Orders it is hard to see how that would change anything for Mr [Y] and Ms [D] because they are clearly on notice of what awaits them at the conclusion of the trial should the husband be a “man of his word”.
Although his Honour’s orders do not expressly so provide, it is ultimately less than clear to us whether the trial Judge intended, as a consequence of allowing the husband to amend his application to seek costs against them, that Mr Y and Ms D be joined as parties to the proceedings. Given that neither Mr Y nor Ms D sought leave to intervene in the proceedings, and that the husband did not seek to have either of them joined, there was no basis upon which Mr Y or Ms D could properly have become parties to the proceedings.
As submitted by Counsel for the wife, pursuant to s 94 of the Act, this Court can only uphold a challenge to a “decree” which has been made. Section 4 of the Act defines “decree” as a “decree, judgment or order”. Mr Y and/or Ms D did not become parties to the proceedings pursuant to a “decree”. Although the trial Judge’s reasons for judgment may suggest otherwise, his Honour did not make an order joining either Mr Y or Ms D as parties to the proceedings. Nor was there an order for leave to intervene pursuant to s 92 of the Act. Our conclusion has no practical implications for either of the parties to the marriage, or Mr Y, or Ms D. The issue of real substance raised in these proceedings is whether the trial Judge erred in permitting the husband to amend his claim to seek orders for costs against Mr Y and/or Ms D in the circumstances in which his Honour did.
2) Did the trial Judge err in allowing the husband to amend his claim to seek an order for costs against Mr Y and Ms D during the course of the trial?
It was submitted by Senior Counsel for the appellants that the trial Judge could not properly have permitted the husband to seek orders for costs against either Mr Y or Ms D until the financial proceedings between the husband and the wife had been concluded by the delivery of his Honour’s judgment in those proceedings.
Senior Counsel for Mr Y and Ms D submitted that:
4.Costs orders against witnesses can only be made in the most extreme case because, generally speaking, the evidence of witnesses is absolutely privileged. Mann v O’Neill (1997) 191 CLR 204 at 213. See in relation to experts’ reports Family Court Rules Regulation 15.61(2). A costs order against an expert witness is justified only where there has been gross dereliction of duty or recklessness, where evidence is given recklessly, in flagrant disregard for the expert’s duties and requires a high level of proof. Phillips v Symes [2004] EWHC 2330 (Ch), [2012] 4 ALL ER 519 at paragraphs 83 and 94-96. In apparently the only Australian case where costs have been ordered against a witness that order was made where the witness had knowingly given false evidence in furtherance of a fraud involving an attempt to defraud the court where that witness had also actively assisted the litigation financially for a share of the proceeds. Naomi Marble & Granite Pty. Limited v FAI General Insurance Claim Limited (No. 2) [1999] 1 Qd.R.518.
5.Thus a person seeking a costs order against a witness faces a very difficult burden of proof indeed. The witness’s general right of immunity indicates that such applications should be treated by the courts with great caution.
6.It appears that there are no reported cases where an application for costs has been made against a witness prior to the conclusion of a case. See the discussion Phillips v Symes, above, at paragraphs 65-74. (Errors as in original)
It was further submitted that the trial Judge had not made, and could not have made findings which established a possible basis for ordering Mr Y or Ms D to pay the husband’s costs. Given that the findings which might give rise to a prima facie case could only be made after the hearing of the substantive proceedings had concluded with the Court’s judgment, it was submitted to be unsurprising that no reported case of an application for costs being allowed to be brought against a non-party prior to the delivery of judgment in the proceedings in which the non-party had played a role had been cited by Counsel for any of the present parties.
In the English case of Phillips v Symes [2004] EWHC 2330 (Ch); [2005] 4 All ER 519 (“Phillips v Symes”), Peter Smith J of the Chancery Division of the High Court of Justice cited (at par 37), the judgment of the House of Lords in Aiden Shipping Co Ltd v Interbulk Ltd, The Vimeira [1986] AC 965; [1986] 2 All ER 409; [1986] 2 WLR 1051 (“Aiden Shipping”) as authority for the proposition that “it was possible to make a costs order against a non-party in appropriate circumstances”. That conclusion is not controversial for present purposes, and sensibly so.
In Knight and Another v FP Special Assets Limited and Others (1992) 174 CLR 178 (“Knight”) the High Court agreed with the conclusion of the House of Lords in Aiden Shipping. Knight was decided twelve years prior to Phillips v Symes, and involved claims against receivers and managers of two corporations. The former were non-parties, the latter were parties to the litigation in which costs against the former were sought. Although not directly relevant, the English authorities referred to in the judgments in Knight in relation to the “disciplining jurisdiction” of the Court, and circumstances in which, and against whom, the jurisdiction may be enlivened leave little room for doubting that orders for costs against non-parties will only be appropriate in exceptional circumstances, which will usually be best determined, or possibly only able to be determined, when the substantive proceedings have been determined.
The law enunciated in Knight may be displaced by legislation enacted in individual jurisdictions (see Hypec Electronics Pty Ltd (in liq) v Mead & Ors (2004) 61 NSWLR 169 at pars 66-69), but it remains binding authority in the Federal Court of Australia (see Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) (2012) 200 FCR 154 at pars 76-79 & 84) and in this Court.
The latter passages of Phillips v Symes, to which Senior Counsel for Mr Y and Ms D referred, recorded:
83.I agree with that analysis. One has to remember the standard required to found the liability. It must be gross dereliction of duty or recklessness. Mr Fenwick submitted that the rationale of the rule is not to protect the guilty, but to provide a general principle for protection of witnesses from intimidation and threats. That indeed is one of the several bases for the need to confer a prima facie immunity on a witness: see Otton LJ in Stanton’s case [1998] 4 All ER 961 at 989, [2000] QB 75 at 106. Interestingly (although this might not be significant) the reasons he gives are as follows: (i) the need to stop matters being litigated; (ii) the need to protect witnesses themselves from suits; and (iii) the need to encourage witnesses to come forward and say what they have to in court.
...
94.In my judgment, that question should be looked at in the light of modern developments of the law in relation to litigation. Thus, wasted costs applications against advocates have been decoupled from the immunity. The immunity has been destroyed as regards advocates. In neither of those cases did the courts accept submissions that the immunity inhibited advocates fearlessly representing their clients. Indeed they rejected them. As regards experts in Stanton’s case the Court of Appeal equally was dismissive of the belief that experts would be deterred from giving proper reports because of a potential action against them.
95.It seems to me that in the administration of justice, especially, in the light of the clearly defined duties now enshrined in CPR Pt 35 and CPR PD 35, it would be quite wrong of the court to remove from itself the power to make a costs order in appropriate circumstances against an expert who, by his evidence, causes significant expense to be incurred, and does so in flagrant reckless disregard of his duties to the court.
96.I do not regard the other available sanctions as being either effective or anything other than blunt instruments. The proper sanction is the ability to compensate a person who has suffered loss by reason of that evidence. This flows from Myers v Elman applied to experts. I do not accept that experts will, by reason of this potential exposure, be inhibited from fulfilling their duties. That is a cri de coeur often made by professionals, but I cannot believe that an expert would be deterred because a costs order might be made against him in the event that his evidence is given recklessly in flagrant disregard for his duties. The high level of proof required to establish the breach cannot be ignored. The floodgates argument failed as regards lawyers and is often the court of last resort.
We have not been referred to, or discovered for ourselves, any authority either expressly following, or declining to follow, the decision in Phillips v Symes. In the absence of any reason for not doing so, and the compelling logic of the reasons for the decision in the case, we propose to follow Phillips v Symes.
Phillips v Symes specifically addressed the issue of costs sought against witnesses, but drew upon principles espoused in Myers v Elman [1940] AC 282 (“Myers v Elman”), which related to costs applications made against a party’s lawyer. The New South Wales Court of Appeal recently traversed the issues concerning costs applications made against a party’s lawyer (see Lemoto v Able Technical Pty Ltd and others (2005) 63 NSWLR 300 (“Lemoto”)) and discussed both Knight and Myers v Elman. Although Lemoto dealt with such costs applications in the context of legislation intrinsic to New South Wales, the observations therein have broader application.
The Court of Appeal made reference to the inherent problems caused by costs applications brought against a lawyer acting for one of the parties in the proceedings, which may include deprivation of the party’s advice from that lawyer, disclosure of privileged communications, deterrence of lawyers from pursuing their client’s interests for fear of incurring personal liability for the other party’s costs, the need for the lawyer to then secure his or her own representation in the proceedings, and the proliferation of litigation (see Lemoto at pars 6, 91, 92(f), 99, 139, 191, 192 and 195).
As is not in doubt, although the husband was granted leave to amend his claim to seek costs against Mr Y and Ms D, the trial Judge did not contemplate dealing with that issue until after the delivery of judgment in the substantive proceedings. It was fairly conceded by Counsel for the husband that declining to allow the husband to seek costs against Mr Y and/or Ms D prior to the delivery of judgment in the substantive proceedings did not preclude an application being made for such relief at that time.
Although variously articulated with greater sophistication, the thrust of the submissions of Counsel for the husband was that the granting of leave to seek costs against Mr Y and Ms D during the course of the trial of the matrimonial cause did no more than afford them procedural fairness. It was submitted on behalf of the husband that the giving of notice of an intended claim for costs at the earliest opportunity had been recognised in the authorities as an appropriate course to adopt. The giving of notice of the intention to seeks costs against Mr Y and Ms D by Senior Counsel then appearing for the husband to Senior Counsel then appearing for the wife during the trial, and formalising such notice by the application which was ultimately granted by the trial Judge, was submitted on behalf of the husband to be entirely appropriate, if not mandatory.
In particular, Counsel for the husband submitted:
18. His Honour first considered the applicant wife’s application to ‘abort’ the trial and, having considered the submissions made, determined to refuse such application on the bases that [...]:
18.1 it was proper for the respondent husband to have provided notice to the applicants of his proposed application for costs at the time that he did so and indeed incumbent upon him to have done so [...];
18.2 whilst a matter for each of the applicants, it was not necessarily the case that such notice would result in the separate representation of each in the continued proceedings [...];
18.3 issues going solely to costs application would not be traversed in the substantive proceedings [...];
18.4 had notice of the proposed application be given in correspondence, as opposed to by application, no different position would have resulted [...]; and,
18.5 “a significant amount of time and cost has been invested in the hearing of the trial thus far” which would be wasted if the trial was aborted and result in a significant delay before further hearing dates could be allocated [...];
and it is significant to note that there is no challenge to any of those findings in this application for leave to appeal, which findings amply support His Honour’s exercise of discretion in refusing to abort the trial.
In the passages of the judgment in Phillips v Symes to which we have earlier alluded, Peter Smith J explained (at par 70) why there was “really no reason to warn a legal representative of the potential exposure that a person has to a wasted costs order in the event that they are found guilty of misconduct justifying such an order”, and explained (at par 71) why “the only warning required to be given to an expert is the self-evident one set out in the CPR and the declaration that he signs”. The terms of the United Kingdom Civil Procedure Rules 1998, SI 1998/3132 (“CPR”) by which the expert witness in Phillips v Symes was bound do not differ materially for present purposes from those of the Rules of Court by which Ms D was bound.
Just as was recognised by the Court of Appeal in Lemoto (at par 193), the most realistic time for costs applications to be made against non-parties is immediately after the substantive proceedings have concluded.
We cannot accept that it was “incumbent” upon the husband to have given notice of his intention to seek costs against Mr Y or Ms D. It may even have been “improper” for the husband to have given notice of his proposed application against Mr Y and Ms D but, as in not in doubt, the husband in this case went further than merely giving notice of his intention, the husband actually sought to make his claim during the trial of the substantive proceedings.
Whilst it may not “necessarily” have been the case that the giving of notice would have resulted in separate representation of each of Mr Y and Ms D, the husband having been allowed to amend his claim to seek orders for costs against them, irrespective of whether they were joined in the proceedings, rendered that highly likely, if not inevitable. It also rendered highly likely, if not inevitable, that Mr Y could not prudently continue to represent the wife, and that Ms D could not prudently continue to act as her adversarial expert.
To the extent that they had been particularised, any complaints with respect to either Mr Y or Ms D had not been established by the husband, even to a prima facie level, when the trial Judge made the order presently under challenge. Whilst it might be technically correct to say that “issues going solely” to the husband’s costs application would not “be traversed in the substantive proceedings”, that submission ignores the reality that, once the husband was allowed to bring his claim against them, Mr Y and Ms D could not simply ignore what might be happening in the substantive proceedings lest findings potentially to their detriment resulted, and it was suggested that they had made no attempt to avoid them. Whilst in theory maintaining the distinction urged by Counsel for the husband may not seem difficult, in practice that would not necessarily be the case.
The judgment of Peter Smith J in Phillips v Symes makes clear that the first step in any successful claim of the kind the husband was granted leave to bring against Mr Y and Ms D involves potential adverse findings in relation to things done or omitted to be done by them in their professional capacity as those matters emerge, directly or indirectly, from the evidence in the substantive proceedings. Moreover, as the English authorities reveal, whilst the question of judicial recusal may then become problematic, the benefits of costs applications being made and determined after the delivery of judgment in the substantive proceedings, far outweigh the potential detriment of such an approach. Even then, as the authorities make clear, only in the exceptional circumstances, discussed in the authorities, will an order against a non-party such as Mr Y or Ms D be justified (see Aiden Shipping and Knight).
Had the husband not been granted leave to amend his claim, the trial would have uncontroversially resumed in November 2012. After the conclusion of the trial, judgment would have been delivered. Application(s) for costs may then have been made. The wife would not have had to retain new legal representation and a new adversarial expert witness. We are unable to accept that, if it were able to continue, the time the trial would take, would not be extended as a result of the husband’s application being granted.
There is however a further significant issue with respect to the likely future course of the trial of the substantive proceedings. Whether or not, having delivered judgment in the substantive proceedings which give rise to a costs claim against a non-party, the trial Judge delivering such judgment should determine such claims, or recuse himself from doing so can be a vexed issue, as the judgments in Symphony Group plc v Hodgson [1994] QB 179; [1993] 4 All ER 143; [1993] 3 WLR 830 and in Phillips v Symes make clear. Given the settled law relating to the circumstances in which orders can permissibly be made against non-parties, allowing the husband to amend his claim during the trial to seek such relief, albeit the issue was not to be formally considered until after the delivery of judgment in the substantive proceedings, increased the likelihood that the trial Judge would be obliged, if requested, to recuse himself from the further hearing of the trial, the proceedings thereby necessarily being aborted, and the time during which the case had proceeded being wasted.
The following submissions were also advanced on behalf of the husband:
20. It is submitted that the decision to grant leave to amend is not amenable to successful challenge having regard to the above, and recognition that:
20.1 it being conceded by the applicants that there was a power to make an order for costs (including pursuant to rule 15.64(d)(iv)), albeit one that should only be exercised in exceptional circumstances, the applicants could not properly succeed on a contention that amendment ought be refused because there was no power to make the order sought [...]; and
20.2 having elected to prosecute the issue in the manner which they did, it was not open to His Honour to determine to dismiss the application for costs effectively summarily, no evidence having been put before the Court on the application for costs (although the contentions having been outline in ‘point form’ AB1:106) and the Court not entering into any such determination, no party having sough that this occur [...]. (Footnote omitted, errors as in original)
We have largely dealt with these contentions earlier, but to reiterate, given the concession, properly made, that the husband could not have been prejudiced by his application for leave to amend to seek costs against Mr Y and Ms D prior to the delivery of judgment in the substantive proceedings between the husband the wife being refused, the absence of any challenge to the power of the Court to make such an order does not assist the husband’s opposition to the appellants’ challenges. It is also to be remembered that refusing to allow the husband to amend his claim to seeks costs during the pendency of the matrimonial cause did not, and could not, have constituted dismissal, either summary or otherwise, of any costs claim which the husband might later bring against Mr Y or Ms D.
It was further submitted on behalf of the husband:
27. Similarly, it is submitted that rule 15.64(d)(iv) flows from the ability of the Court to make an order in appropriate case against an expert pursuant to section 117(2). The only constraint appearing in the Rules is that contained in rule 15.61(2) which rule (if to be valid) can only be interpreted consistently with section 117(2) – that is, to be within the power afforded the Court by section 123 and absent contrary provision, the rule ought not be interpreted as validly constraining the power of the Court to otherwise make an order against a witness pursuant to section 117(2): see Harrington v Lowe (1996) 190 CLR 311, particularly at 324-5.
28. To the extent that if the applicants contend that the 2nd applicant has an absolute immunity from an order for costs, it is submitted that such proposition ought be rejected as inconsistent with: [...]
28.1 section 117(2);
28.2 the propositions derived from common law, which it appears the applicant contends have been incorporated by rule 16.41(2): see Phillips v Symes [2005] 2 All ER 519.
29. If it be correct that there exists power in the Court to make an order as was sought to be included by the respondent’s husband’s amendment, then it could not be said that the application was doomed to fail (by reference for example to the standard in General Steel Industries v Commissioner for Railways (1964) 112 CLR 125) so as to deny any utility to permitting the amendment. The ‘points in issue’ disclose (at the very least) an arguable basis for the exercise of the discretion as to costs against each of the applicants [...].
With respect to the ingenuity of the submission, the issue before this Court is not the basis upon which any application against Mr Y or Ms D is to be determined. Nor is the issue the jurisdictional basis upon which such an application may be entertained. The issue is whether the trial Judge erred in allowing the husband to amend his claim during the course of the trial to seek such relief. To the extent that the appellants might contend that Mr Y or Ms D might enjoy “absolute immunity from an order for costs”, which we do not understand them to, there is no doubt, albeit only in exceptional circumstances, that orders against a non-party such as Mr Y and Ms D can be made by this Court (see Aiden Shipping, followed by the High Court in Knight).
The submissions made on behalf of the husband ignore the distinction between the merits of a claim when properly made, and when such a claim ought to be allowed to be made in a case such as this. The observations of Peter Smith J in Phillips v Symes (at pars 70-71) and Lemoto to which we have earlier referred make clear why, absent circumstances which have not been proven, or suggested in this case, claims for costs against non-parties such as Mr Y and Ms D should not be made, or permitted to be made until the substantive proceedings have been determined. Mr Y was the solicitor for the wife, and Ms D was an expert witness retained on behalf of the wife. Nothing which we say in these reasons for judgment should be thought to be suggested to have application beyond each of those categories.
To the extent that the husband sought to rely upon the Family Law Rules 2004 (Cth) (“Family Law Rules”) in support of his opposition to the appellants’ challenges, we find nothing emerging from the rules which provides comfort for the husband. As is not in doubt, there are extensive rules of the Court in relation to costs orders against solicitors (see for example Rule 19.10 of the Family Law Rules). It is unnecessary that we reproduce those rules in their entirety in these reasons, but it is relevant to point out that no provision of those rules provides, or mandates, that notice of a claim against a solicitor be given at any particular time. Nor do the rules provide for notice to be given prior to the delivery of judgment in the substantive proceedings. Why that is so is not difficult to understand. Solicitors are presumed to know that negligence and/or misconduct are likely to expose them to the risk of orders for costs being made against them personally.
Ms D, an expert witness who was clearly familiar with, and deposed to being bound by the Family Law Rules and professional standards issued by the Institute of Chartered Accountants, was deemed to be similarly aware, without the necessity of being put on notice at any particular time that negligence or misconduct would expose her to the risk of costs orders being made against her. Ms D deposed in her affidavit filed 16 September 2011 as follows:
7. I have read and understand Divisions 15.5.4, 15.5.5 and 15.5.6 of the Family Law Rules 2004 and have used my best endeavours to comply with them.
8.I have complied with the requirements of the professional standard APES215 Forensic Accounting Services and APES 225 Valuation Services issued by the Accounting Professional and Ethical Standards Board and mandatory for members of the Institute of Chartered Accountants.
9.I understand my duty to the court and I have complied with it and will continue to do so.
The position of solicitors and expert witnesses is thus clearly quite different to witnesses or other third parties in respect of whom there are no specific governing rules or codes, or whose professional training and expertise can be regarded as rendering them aware of the potential risk of costs orders being made against them if negligence or misconduct in the discharge of professional duties is established. We have earlier referred to the passages of the judgment in Phillips v Symes which cogently explain why that is so. There are compelling public policy considerations why costs against solicitors and/or expert witnesses should not be sought until the completion of proceedings.
Given that the husband was not precluded from seeking costs against the wife and/or Mr Y and/or Ms D after the delivery of judgment, and that the trial Judge, properly, made clear that only then would the husband’s claim be considered, the utility of allowing the claim to be made during the course of the trial was problematic. With the greatest of respect to the trial Judge, allowing the claim for costs against Mr Y and Ms D to be made prior to the delivery of judgment in the substantive proceedings could serve no useful purpose, and had the very considerable, and realised, potential for mischief, particularly when the practice was sought to be defended upon the fallacious ground that the husband was only trying to do them a favour by giving them early notice.
This case provides a graphic illustration of the perils of permitting a costs application to be made against non-parties such as solicitors and expert witnesses prior to completion of the substantive proceedings and the delivery of judgment in those proceedings. As the trial Judge clearly recognised in his reasons (par 43), his Honour was in no position to determine the likely merit or otherwise of the husband’s claims against Mr Y or Ms D. Although we have no doubt that the trial Judge was motivated by natural justice concerns, allowing the husband to bring a claim for costs against Mr Y and Ms D was erroneous.
conclusion
As is not in doubt, being thus satisfied that the necessary pre-requisites to allowing the appeals of the wife and Mr Y and Ms D have been satisfied, leave to appeal will be granted, and the appeals allowed.
costs
At the conclusion of the hearing of the appeals, all parties sought to provide written submissions as to costs after our Reasons for Judgment were published. We will thus make orders which will facilitate the filing of such submissions.
I certify that the preceding fifty eight (58) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Coleman, Thackray and Austin JJ) delivered on 30 October 2012.
Associate:
Date: 30.10.2012
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