Catto v Hampton Australia Ltd (in liq)
[2008] SASC 231
•22 August 2008
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
CATTO & ORS v HAMPTON AUSTRALIA LTD (IN LIQ) & ORS
[2008] SASC 231
Judgment of The Full Court
(The Honourable Justice Vanstone, The Honourable Justice Anderson and The Honourable Justice White)
22 August 2008
PROCEDURE - COSTS - APPEALS AS TO COSTS
Order for indemnity costs made following a civil trial - successful parties had already paid their solicitor's costs in full - whether the costs order encompassed all the costs which the successful parties had already paid to their solicitors or only those costs which the solicitors could have enforced by application against their clients.
Held: when a party has already paid its solicitor's costs, indemnity costs comprise (subject to issues of reasonableness) costs actually paid.
Applications to the Full Court to review, at first instance, provisional costs orders made by a master - whether review procedure correct - whether the matters were appropriately before the Full Court.
Held: review procedure inappropriate - however, in the circumstances, applications for review treated as appeals.
Legal Practitioners Act 1981 (SA) s 42; Mutual Recognition Act 1993 (SA); Supreme Court Act 1935 (SA) s 40, s 48, s 49 and s 50; Judiciary Act 1903 (Cth) s 55B; Supreme Court Rules 1987 r 101, Second Schedule; Supreme Court Civil Rules 2006 r 8, r 16, r 271, r 276, r 277 and r 278 , referred to.
Halliday v SACS Group Pty Ltd (1993) 67 ALJR 678; Pickering v Smoothpool (No 6) [2001] SASC 440; Latoudis v Casey (1990) 170 CLR 534; Kelly v Noumenon Pty Ltd (1988) 47 SASR 182, applied.
R v Miller [1983] 3 All ER 186, distinguished.
Cachia v Hanes (1994) 179 CLR 403; Fullalove v Parker (1862) 31 LJCP 239; In Re Jones (1869) LR 9 Eq 63; In Re Hope (1872) LR 7 Ch App 766; TNT Bulkships Ltd v Hopkins (1989) 65 NTR 1; Elders Trustee and Executor Company Ltd & Anor v Estate of Herbert & Anor (1996) 111 NTR 25; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 1 Qd R 183; Cannon Street Pty Ltd v Karedis (2006) 229 ALR 699; Theden v Nominal Defendant [2007] QSC 316, discussed.
Burford v Allan [1998] SASC 6693; Santos Ltd v Delhi Petroleum Pty Ltd (2005) 240 LSJS 366; Minister for Works v Australian Dredging and General Works Pty Ltd [1986] WAR 235; Cannon Street Pty Ltd v Karedis [2007] 1 Qd R 505; McNamara Business and Property Law v Kasmeridis (2005) 92 SASR 382, considered.
WORDS AND PHRASES CONSIDERED/DEFINED
"Costs incurred", "Indemnity costs"
CATTO & ORS v HAMPTON AUSTRALIA LTD (IN LIQ) & ORS
[2008] SASC 231Full Court: Vanstone, Anderson and White JJ
VANSTONE J: I agree with the orders proposed by White J and with the reasons he has given.
ANDERSON J: I also agree with the orders proposed by White J and with his reasons.
WHITE J: Following a substantial civil trial in this Court, a judge dismissed the plaintiff’s claims.[1] The judge ordered that the defendants should have their costs of the trial on an indemnity basis. These appeals concern the basis upon which a master should carry out the adjudication of those indemnity costs.
[1] Catto and Ors v Hampton Australia Ltd (In Liq) and Ors (No 3) [2004] SASC 242; (2004) 89 SASR 234.
The principal question is whether the indemnity costs to which the defendants are entitled are the amounts which they actually expended in defending the plaintiffs’ claims, or are only those amounts which their respective solicitors could have enforced in an action against them, ie, the amounts which they were legally obliged to pay. The defendants (who are the present appellants) contend for the former, and the plaintiffs (the present respondents) for the latter. If the plaintiffs’ submission is accepted, there is then an issue as to whether subs 42(6) and (7) of the Legal Practitioners Act 1981 (SA) (LPA) have the effect that the costs arrangements between the defendants and their respective solicitors were unenforceable. Finally, there is an issue as to whether the master was correct in holding that the amounts paid by the second defendant to one of its firms of solicitors could not be recovered at all because at relevant times those solicitors did not have an entitlement to practise the law in South Australia.
Background Circumstances
It is not necessary to recount the circumstances of the plaintiffs’ claims at first instance. The judge gave short reasons for the order for indemnity costs. She was satisfied that the plaintiffs should have been well aware that the chances of success of their claims were “at best slim and at worst non existent”. The judge considered that there was, to an extent at least, a “wilful blindness to the weakness of the plaintiffs’ case and a forlorn hope that the second defendants would choose to negotiate a general settlement as against a long and costly defence to the action”. The judge said that aspects of the plaintiffs’ case were “all but hopeless” and considered that the claim made against the third defendant, a liquidator, lacked any basis. The terms of the order were as follows:
“The court orders that …
4.All the plaintiffs and Robert John Charles Catto in his own right pay the costs of the first, second and third defendants in defending the claims, inclusive of costs reserved, on an indemnity basis …”
Mr Robert Catto was separately identified in the order as he had been a plaintiff in the proceedings in his capacity as executor of an estate. It is convenient in these reasons to refer to all those ordered to pay the defendants’ costs as “the plaintiffs”.
It was common ground on the appeals that the respective solicitors for the defendants had, from time to time during the currency of the litigation, rendered accounts to them for their work and that the defendants had, very shortly after receiving those accounts, paid them in full. All amounts claimed by the solicitors for costs had been paid by the defendants prior to the judge making the order for indemnity costs.
The practice and procedure governing the underlying action, including the costs regime, was that contained in the Supreme Court Rules 1987 (the 1987 Rules). The Supreme Court Civil Rules 2006 (the 2006 Rules) came into operation on 4 September 2006. By r 8(3) of the 2006 Rules, the regime contained in Ch 12 of those Rules is applicable to the adjudication of the costs ordered by the judge.
The first and third defendants served a short form bill of costs prepared on a time costing basis, seeking costs totalling $686,704. The second defendant lodged a bill of costs, also calculated on a time costing basis, seeking costs totalling $624,119.
An issue then arose between the parties as to whether the indemnity costs should be adjudicated on the time costing basis sought by the defendants, or as scale costs. The plaintiffs contended that in the absence of written agreements between the defendants and their respective solicitors which satisfied the requirements of s 42(6)[2] of the LPA, there was no basis upon which the defendants could properly claim to be entitled to costs otherwise than under the applicable scales of the 1987 Rules.[3] It was said that the respective solicitors could not have enforced any claim for costs which exceeded those scale costs. The first and third defendants applied for a determination of the appropriate basis for the adjudication. The parties then settled on a number of issues which were to be determined by the master as preliminary issues. All parties agreed that the master should give his rulings on those issues without any further interlocutory step being taken in relation to the costs adjudications.
[2] (6) A legal practitioner may make an agreement in writing with a client for—
(a)payment of a specified amount by way of legal costs (which may—but need not—consist of a daily, hourly or other time-related rate for professional work carried out by the legal practitioner on the client's behalf); or
(b)payment of legal costs in accordance with a specified scale; or
(c)subject to any limitations imposed by the Society's professional conduct rules or the regulations—payment of a contingency fee to be calculated on a basis set out in the agreement on fulfilment of a condition stated in the agreement.
[3] Rule 101.07, and the Second Schedule to the 1987 Rules.
The Master’s Rulings
The master delivered his rulings on the preliminary issues on 11 October 2007.[4] The effect of the master’s rulings was as follows:
1The amounts which the defendants could recover as indemnity costs under the judge’s order were those amounts which they had a legal liability to pay to their respective solicitors, and not the amounts which they had in fact paid to their respective solicitors.[5]
2It was open to the plaintiffs, as the persons liable under the judge’s indemnity costs order, to raise issues concerning the liability for costs of the defendants to their respective solicitors and, in particular, s 42(6) and s 42(7) of the LPA for the purpose of establishing their own liability to the defendants.[6]
3The first and third defendants had not established that they had entered into an agreement for costs of the kind contemplated by s 42(6) of the LPA.[7] Accordingly, there was no proper basis on which to adjudicate the first and third defendants’ indemnity costs on a time costing basis. Their indemnity costs were to be assessed by reference to the applicable scale under the 1987 Rules.[8]
4The second defendant had different firms of solicitors acting for it at different times. One firm (Andersens) did not have a legal right to practice in South Australia in the period prior to the proclamation of amendments to the Mutual Recognition Act 1993 (SA) on 16 September 1999. Accordingly, the second defendant could not recover the costs which it had paid to Andersens or its South Australian agents at all.[9] The second defendant did not have enforceable agreements with the other firms of solicitors who had acted for it (apart from the firm Piper Alderman) permitting time charging. This meant that the costs paid by the second defendant to Piper Alderman could be assessed on a time charging basis but that in relation to its other solicitors the second defendant could recover only costs assessed by reference to the applicable 1987 Rules scale.
[4] Catto and Ors v Hampton Australia Ltd (In Liquidation) and Ors [2007] SASC 360.
[5] Ibid at [5].
[6] Ibid at [6].
[7] Ibid at [15].
[8] Ibid at [20].
[9] Ibid at [23]-[24].
Events Subsequent to the Master’s Rulings
The defendants indicated to the master that they wished to appeal or review his rulings before the full costs adjudication took place. It was appreciated that there may be difficulties in appealing or reviewing these bare rulings as they were not followed by any orders. Accordingly, on 17 December 2007, the master made orders as follows:
1. Pursuant to 6R 8 that all taxations and adjudications on costs in this action proceed under the 2006 Rules.
2. 1st and 3rd defts to file by 11 January 2008 a partial Schedule of their costs confined to the items which will raise the issues on which they seek to appeal.
3. 2nd deft to advise other parties and the Court by letter by 11 January 2008 of the items in their bill of costs on which an adjudication is sought so that an appeal can proceed.
4. Adjudication of costs set for 29 January 2008 at 10am.
5. I dispense with the requirement of any notice of dispute at this stage.
Effect was given to those orders. At the adjudication on 29 January 2008, the master addressed a limited number of items claimed by each defendant. Acting on his previous rulings, the master disallowed wholly certain items and allowed others only in part. Then, purporting to act under r 276 of the 2006 Rules, the master made provisional costs orders on the Schedule of Costs lodged by the first and third defendants, and on the Schedule lodged by the second defendant. The master then made the following orders:
4.Payment of provisional cost orders are stayed pending review under 6R 278(5) or further order.
5.As the issues have been dealt with in my published reasons FDN 163 a review of both provisional cost orders under 6R 278(3) is dispensed with.
6.Any review of either provisional cost order under 6R 278(5) is referred to the Full Court.
The effect of these orders will be addressed shortly. Subsequently, each of the defendants applied to the Full Court for a review of the provisional costs orders made by the master. Those applications came on for hearing before this Court. In effect, the Full Court was asked to hear and determine the first instance reviews of provisional costs orders.
Procedural Issues
The Court raised concerns with the parties about the procedure outlined above. After hearing submissions, the Court ruled that it did not regard the review applications as being properly before it. However, as the parties had assembled in readiness for a hearing, the Court agreed to arrangements by which the respective applications for review would be treated as appeals from the order made by the master on 17 December 2007 that the respective adjudications of costs proceed in accordance with his rulings of 11 October 2007.
I set out my reasons for holding that the review applications were not properly before the Full Court.
The Regime for Adjudication of Costs
Part 3 of Ch 12 of the 2006 Rules contains the regime for an adjudication of costs. A claimant must file in the court a claim for costs prepared in an approved form (r 271(1)) and the respondent must file an answering notice indicating the extent to which the claim is admitted or disputed (r 271(4)). Rule 271(6) provides that the court may determine preliminary issues arising in relation to an adjudication:
(6)If the claim is not admitted in full, either party may apply to the Court for a preliminary assessment of the issues in dispute and, on such an application, the Court may exercise any one or more of the following powers—
(a) determine the basis on which costs are to be awarded and give any directions that may be necessary or desirable to arrive at a proper award of costs on the relevant basis;
(b) resolve issues in dispute between the parties or give directions for resolving such issues by mediation, arbitration or reference to an expert for report;
(c) make such orders for costs as may appropriately be made without proceeding to detailed adjudication of the costs;
(d) order that the claim for costs proceed in whole or part to detailed adjudication.
It can be seen that under r 271 the court may determine the basis upon which the costs are to be awarded and may give appropriate directions to facilitate the adjudication. The court can also order that the claim for costs proceed in whole or in part to a detailed adjudication. Thus r 271(6) contemplates a step which precedes the detailed adjudication (or quantification) of the costs. It seems that when the master made his rulings on 11 October 2007 he was exercising the power contained in r 271(6).
After the detailed adjudication, a master will, in the first instance, make a provisional order for the payment of costs or any other amount found to be payable on the adjudication (a provisional costs order) (r 276). The detailed adjudication can also be carried out by a person who is not a judicial officer of the court (r 277). That process too may result in the making of a provisional costs order (r 277(4)).
Rule 278 provides for reviews of provisional costs orders:
278—Review of provisional costs order
(1) A party who is dissatisfied with a provisional costs order may, within 14 days after the date of the order, apply for review of the order by a Master.
(2) An application for review must specify, in detail, the applicant’s objection to the decisions made on the adjudication.
(3) If the provisional order was made by a Master, the review will, as a general rule, be in the nature of a reconsideration by the Master who made the order (but another Master may conduct the review if for some reason it is not possible or convenient for the same Master to do so).
(4) On a review, the Court may—
(a)confirm the provisional costs order and order that it be entered in the Court’s record as a judgment of the Court; or
(b)vary the provisional costs order as may be appropriate in the circumstances and order that it be entered in the Court’s record as a judgment of the Court.
(5) A party who is dissatisfied with the decision on review may, within 14 days of that decision, apply for a further review by a Judge.
(6) The Court may, on the further review, confirm the costs order as entered in the Court’s record as a judgment of the Court or order that it be varied as the Court thinks appropriate.
It can be seen that r 278 provides for a review of a provisional costs order, in the first instance, by the same master who made the order (r 278(1)-(3)). On that review, the master may either confirm the order and direct that it be entered in the court’s record as a judgment of the court or, alternatively, vary the provisional costs order and then direct that the provisional costs order (as varied) be entered in the court’s record as a judgment of the court. A person who is dissatisfied with the decision on review may, within 14 days, apply for a further review by a single judge (r 278(3)). Rule 278 contemplates that a judge will conduct the review only after the provisional costs order has been entered in the court’s record as a judgment of the court.
Consideration of the Process
In the present case, the master’s order of 29 January 2008 purported to dispense with the first stage review contemplated by r 278(1)-(4). In my opinion, it is doubtful that a dispensation of this step in the process can be made. That is because completion of the first stage review is a necessary step before a dissatisfied party can apply for a review by a judge. Put slightly differently, what the 2006 Rules contemplate is the single judge reviewing the order or decision made on review by the master. If that review is dispensed with then there is no order or decision which may be reviewed by a judge.
Further, it is not altogether clear that a master may refer to the Full Court a matter which the 2006 Rules contemplate will be heard and determined by a single judge. The parties referred in this respect to r 16(1) of the 2006 Rules which provides:
(1) A Master may refer a matter for consideration by—
(a) the Court constituted of a single Judge; or
(b) the Full Court.
In addition, the parties referred to s 48(2)(c) and s 49(1) of the Supreme Court Act 1935 (SA). Section 48(2)(c) provides:
(c) the jurisdiction of the court may be exercised by a master to the extent authorised by this Act or any other Act, or by rules of court made under this Act or any other Act.
Section 49(1) provides:
(1)The court constituted of a single judge or a master may reserve a question of law for the consideration of the Full Court.
I do not consider s 49(1) to be relevant. Even though several of the issues raised on the appeal are questions of law, this was not a case in which the master was reserving a question of law for the consideration of the Full Court.
Section 48(2)(c), in combination with r 16(1), does indicate that masters have power to refer a matter for consideration of the Full Court. However, r 16(1) appears to be confined to matters which would otherwise be before the master, ie, matters which masters could, absent the referral, hear and determine themselves. It is not appropriate to express a concluded view about this point because the Court did not hear full argument on it. However, even if the masters’ powers under r 16(1) are not limited to matters which may be heard by them, one would expect, in the ordinary course, that a master would exercise considerable restraint before referring a matter in the nature of an appeal or review from the master's own decision to the Full Court. That is because it would be undesirable for there to be an impression that a judicial officer could determine the constitution of the court to hear appeals or reviews from his or her own decisions.
It is not necessary presently to address the possibility of a first stage review by a master being referred to the Full Court. Even if this course is open, it would seldom be appropriate for such a referral to be made. If the review had proceeded in the ordinary way before the master and then before a single judge, it is probable that permission for an appeal to the Full Court from the single judge’s decision would have been required.[10] It is undesirable that this restraint on appeals concerning questions of costs only should be circumvented.
[10] Halliday v SACS Group Pty Ltd (1993) 67 ALJR 678 at 679 per Mason CJ.
Finally, my opinion is that the review process contemplated by r 278 was inappropriate as a means of review of the issues in dispute between the present parties. The review process is best adapted to a review of decisions concerning the actual quantification of claimed costs. It is adapted to the correction of mistakes, errors or oversights which have occurred in the detailed adjudication process. That explains why r 278 contemplates, rather unusually, a first stage review by the original decision-maker. In my opinion, the process is not well adapted to the review of decisions on issues of principle decided under r 271(6). I do not mean by this to indicate that the review process would be inappropriate if the adjudication of the whole of the defendants’ Schedules of costs had been completed, and the issues of principle were some of several to be determined on the review.
The process of appeal provides a more appropriate process for review of issues of principle. An appeal lies against a judgment of the court constituted by a master.[11] For this purpose, a judgment is defined to include an order or direction.[12] The master's rulings on 11 October 2007 were not, of themselves, an order or direction but the subsequent order made by the master on 17 December 2007 that the adjudication of costs proceed (in effect in accordance with his previous rulings) on 29 January 2008 was such an order. It was an appealable order.[13] In my opinion that is the course which should have been followed in the present case. Because the master’s decision concerned a question of costs only, an appeal would lie only with permission (r 281(b)). If there was to be any further appeal to the Full Court, that too would require permission (r 281(a)(ii); r 281(b)). In this way the Court may control the extent of appeals in such cases.
[11] Supreme Court Act 1935, s 50(1)(b).
[12] Ibid s 50(6).
[13] Pickering v Smoothpool (No 6) [2001] SASC 440 at [16] – [17]; (2001) 217 LSJS 178 at 181-182.
For these reasons, I consider the procedure which occurred in the present case to have been inappropriate. However, in the circumstances it is appropriate for this Court to treat order No 4 made by the master on 17 December 2007 as an order that the adjudication of costs proceed in accordance with the rulings which he published on 11 October 2007. It is then appropriate to treat the applications by the defendants to this Court for reviews of the master's orders on 29 January 2008 as being instead appeals against those orders. I would make the necessary ancillary orders to give effect to that approach.
The Nature of the Indemnity Costs Ordered by the Judge
The plaintiff’s argument that the indemnity costs which they must pay are confined to those which the defendants were legally liable to pay to their respective solicitors had its basis in r 101.07(6) of the 1987 Rules. That subrule provides:
(6)In any rule or order unless the contrary meaning is indicated by the context or other factors:
Bases of assessment of costs
(a) costs as between party and party, or a like expression, means only the costs which have been necessarily and reasonably incurred by the party in the conduct of the litigation;
(b) costs, or a like expression, means costs as between party and party;
(c) costs as between solicitor and client, or a like expression, means all costs reasonably incurred by the party in respect of the litigation and having regard to the proper interests of the persons who will ultimately bear the burden of such costs;
(d) costs as between solicitor and own client, or a like expression, means costs as a complete indemnity against the costs incurred by the party in respect of the litigation provided that they are not to include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them;
(e) indemnity costs, or a like expression, mean the same as costs as between solicitor and own client.
Subrules 6(d) and (e) have the effect that the expression “indemnity basis” in the judge’s order is to be understood as meaning that the defendants should have a complete indemnity against the “costs incurred” by them, subject to the proviso that those costs should not include costs incurred unreasonably in their own interests.
The plaintiffs focussed on the expression “costs incurred” in sub-r 6(d). They submitted that this expression refers to costs which a litigant has been, or is, legally liable to pay (in the sense that the litigant’s liability to pay those costs could be enforced against it by its solicitors). In support of this submission, counsel referred to a relevant meaning in the Shorter Oxford English Dictionary for the word “incurred” being “to render oneself liable to”. Counsel submitted that the notion of legal liability is consistent with the general principle that costs are awarded by way of an indemnity for the costs liability of the successful party,[14] which it was submitted meant only those costs which a party is legally liable to pay. Counsel submitted that unless the defendants could show that they had entered into agreements with their solicitors which complied with s 42(6) of the LPA, they could not show that they had a legal liability to pay more than scale costs, and, on the adjudication, should be confined to such costs.
[14] Cachia v Hanes (1994) 179 CLR 403 at 410; Burford v Allan [1998] SASC 6693.
However, in my opinion, there are a number of indications that the expression “costs incurred” in r 101.07(6)(d) should not be construed in the narrow way for which the plaintiffs contend. It is capable of being construed so as to refer to amounts actually expended by a party for costs.
Such a meaning is consistent with another relevant meaning given in the Shorter Oxford English Dictionary for the word “incur”, namely, “to bring upon oneself”. This alternative meaning is made clearer by the Macquarie Dictionary which gives as a meaning for the word “incur”:
To become liable or subject to through one’s own actions; bring upon oneself.
A litigant which has paid costs to its solicitors which were not strictly enforceable against it may be said to have incurred the costs by bringing the liability upon itself.
This construction is also consistent with the notion that costs are awarded to a party by way of indemnity. They are “intended to reimburse a litigant for costs actually incurred”.[15]
[15] Cachia v Hanes (1994) 179 CLR 403 at 414 (Emphasis added). See also Latoudis v Casey (1990) 170 CLR 534 at 567 per McHugh J.
There are also implications to be drawn from r 101.07(6) itself. It provides for costs orders with an expanding ambit: party and party costs; solicitor and client costs; and then solicitor-own client or indemnity costs. Party and party costs are specified as the costs “necessarily and reasonable incurred” by the party in the litigation (sub-r (6)(a)); costs between solicitor and client are defined to be all costs “reasonably incurred” by the party in the litigation (sub-r (6)(c)); while in relation to solicitor – own client or indemnity costs, sub-r (6)(d) refers only to “the costs incurred”, ie, without any qualifying adjective but subject to the proviso. That is, in order to be recoverable, party and party costs must not only have been incurred, but have been incurred necessarily and reasonably; solicitor and client costs must have been incurred and incurred reasonably, whereas in relation to indemnity costs, apart from the proviso, there is no such limitation.
It is reasonable to suppose that the word “incurred” has the same meaning in relation to each of the three categories of costs to which r 101.07(6) refers. If the plaintiffs’ present submission be correct, the word “incurred” in sub-r 6(a) would be otiose, because one would expect that an amount which was not legally enforceable against the litigant could not, in any event, be held to have been “necessarily” incurred. A construction which would result in the word “incurred” being otiose in one of its usages should not be preferred.
Further, in analogous circumstances litigants have been held to be entitled to recover costs already paid in connection with litigation, even though their solicitors could not have enforced the claim for those costs. The cases involving uncertificated solicitors provide an example.
In Fullalove v Parker,[16] it was held that a successful litigant was entitled to recover from the other party the amounts which he had paid to his attorney, even though that attorney, by reason that he did not have the certificate which was appropriate for the conduct of the litigation in question, could not have enforced his claim for costs. Similarly, in each of In Re Jones[17] and In Re Hope[18] it was held that while uncertificated solicitors could not maintain an action to recover their fees, the clients could, to the extent that they had paid the fees, enforce a costs order against the unsuccessful party in the litigation. The absence of the certificate did not have the effect that the debt was extinguished, only that the ability of the solicitors to enforce it was barred. Hence the position was held to be different with respect to unpaid amounts. The clients could not recover from the other party amounts claimed by their solicitors which they had not yet paid because, although the debt remained alive, the solicitors could not enforce the debt against them.
[16] (1862) 31 LJCP 239.
[17] (1869) LR 9 Eq 63.
[18] (1872) LR 7 Ch App 766.
The same approach has been adopted in other jurisdictions within Australia in more recent times. In each of TNT Bulkships Ltd v Hopkins[19] and Elders Trustee and Executor Company Ltd & Anor v Estate of Herbert & Anor,[20] the Supreme Court of the Northern Territory held that the successful litigant could recover the costs already paid to its solicitors even though the solicitors did not have a practising certificate entitling them to practise in the Northern Territory. In his separate reasons in Elders Trustee, Kearney J referred to r 63.26 of the Rules of the Supreme Court of the Northern Territory which allow a successful party to recover “a reasonable amount in respect of all costs reasonably incurred” (emphasis added). He held that insofar as the costs had been paid, r 63.26 was not confined to the proper costs of a certificated legal practitioner.[21] That is to say, Kearney J accepted that to the extent the costs had already been paid they had been “incurred” for the purposes of r 63.26.
[19] (1989) 65 NTR 1.
[20] (1996) 111 NTR 25.
[21] Elders Trustee and Executor Company Ltd & Anor v Estate of Herbert & Anor (1996) 111 NTR 25 at 37.
In Queensland, the distinction between the extinguishment of the debt on the one hand, and the bar of the remedy on the other, in the operation of a provision precluding an uncertificated solicitor from recovering fees has been recognised. In two cases it has been held that the effect of the language used in s 209(2) of the Supreme Court Act 1995 (Qld) is to extinguish the debt[22] while in Theden v Nominal Defendant[23] Jones J held that a successful litigant was entitled to recover fees already paid to his solicitor even though the solicitor was not entitled, at the relevant time, to practise the law in Queensland.[24]
[22] Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] QSC 78; (2002) 1 Qd R 183 at [19]; Cannon Street Pty Ltd v Karedis [2006] QSC 78; (2006) 229 ALR 699.
[23] [2007] QSC 316.
[24] Ibid at [31].
It is true that, with the exception of the reasons of Kearney J in Elders Trustee, these authorities have not addressed the meaning of the expression “costs incurred” in a provision analogous to r 101.07(6). Nevertheless, they indicate an approach consistent with the construction of the rule which I consider to be appropriate.
There are two further considerations which suggest that the master’s decision in this respect was in error. The first is that the judge’s order with respect to costs was made under s 40 of the Supreme Court Act 1935 (SA). Section 40(1) provides that:
Subject to the express provisions of this Act, and to the rules of court, and to the express provisions of any other Act whenever passed, the costs of and incidental to all proceedings in the court … shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and to what extent such costs are to be paid.
Rule 101.07(6)(d) is, for practical purposes, a rule designed to facilitate the implementation of orders made under s 40. It is not a rule which has its origins in s 42(6) or (7) of the LPA. That rather militates against the suggestion that
sub-r (6)(d) should be construed by reference to the concepts contained in s 42(6) of the LPA.
Secondly, the master’s decision has the effect that the successful defendants, even though entitled to indemnity costs, will be substantially out of pocket. They have paid, apparently in good faith, the amounts claimed by their solicitors. It seems that those amounts were claimed pursuant to arrangements entered into (again apparently in good faith) between the defendants and their solicitors. The judge’s reasons when ordering indemnity costs suggest that her Honour did not intend an order which would have the effect that the defendants would be substantially out of pocket. Courts do traditionally take a conservative view in relation to the costs to be allowed to a successful party[25] but that consideration is less necessary when a court has decided that an order for indemnity costs is appropriate. There is no reason why, in relation to indemnity costs, full effect should not be given to the compensatory[26] function of the costs order. The proviso in sub-r (6)(d) will enable the Court to disallow any costs claimed by the defendants which were incurred unreasonably in their own interests.
[25] Kelly v Noumenon Pty Ltd (1988) 47 SASR 182 at 185 per King CJ.
[26] Latoudis v Casey (1990) 170 CLR 534 at 567 per McHugh J.
The master cited R v Miller[27] as authority for the proposition that the expression “costs incurred” in sub-r (6)(d) meant costs for which the defendants were legally liable to their solicitors, whether or not such costs had already been paid. In Miller, the issue was whether a statutory costs fund should pay a successful defendant’s costs of a prosecution in circumstances in which the defendant’s employer had undertaken to pay the costs of his defence. That question arose because the relevant legislation authorised the payment to a successful defendant only of such sums as were “properly incurred” by him in carrying on the proceeding. The prosecution argued that the employer’s agreement meant that the costs had not been incurred by the defendant, but rather by his employer. Lloyd J rejected that submission holding:
… costs are incurred by a party if he is responsible or liable for those costs, even though they are in fact paid by a third party, whether an employer, insurance company, motoring organisation or trade union, and even though the third party is also liable for those costs. It is only if it has been agreed that the client shall in no circumstances be liable for the costs that they cease to be costs incurred by him …[28]
Then question considered in Miller was quite different from that presently under consideration. Given the nature of the issue in Miller, there is no reason to suppose that Lloyd J was adverting at all to a circumstance in which a successful defendant had paid costs which could not have been enforced against him. In my respectful opinion, Miller does not stand as authority for the proposition for which the master cited it.
[27] [1983] 3 All ER 186.
[28] Ibid at 190.
Accordingly, I would hold that the master’s conclusion that the expression “costs incurred” in r 101.07(6)(d) refers only to costs for which the litigant was legally liable, even if those costs have already been paid, was incorrect. The master’s decision is, however, correct in relation to costs claimed by the solicitor but which have not yet been paid by the client. As all of the costs claimed by the present defendants have already been paid by them, that means that the master’s orders of 29 January 2008 should be set aside.
Remaining Issues
The Entitlement to Practice in South Australia of the Second Defendant’s Solicitors
As noted above, the master disallowed altogether the claim by the second defendant in relation to the amounts which it had paid to the firm known as Andersens and to their South Australian agents. The master found, on the evidence then before him, that Andersens did not have a legal right to practise in South Australia during relevant periods prior to 16 September 1999.
On appeal, the Court received by consent an affidavit from Andrew Corletto. Mr Corletto was the practitioner within the firm of Andersens who had carried out the work on behalf of the second defendant. He deposed, and evidenced, that he had held a South Australian practising certificate at relevant times.
The plaintiffs accepted that Mr Corletto’s affidavit indicated that the master’s decision concerning the second defendant’s entitlement with respect of the costs of Andersens was incorrect. That concession makes it unnecessary to consider the second defendant’s further submission that s 55B(4) of the Judiciary Act 1903 (Cth) entitled it to recover the amounts it had paid to Andersens and their South Australian agents because the plaintiffs’ claims at first instance had involved the exercise by this Court of Federal jurisdiction.[29]
[29] Cf Santos Ltd v Delhi Petroleum Pty Ltd [2005] SASC 242 at [42]; (2005) 240 LSJS 366 at 377; Minister for Works v Australian Dredging and General Works Pty Ltd [1986] WAR 235 at 242; Cannon Street Pty Ltd v Karedis [2006] QCA 541; [2007] 1 Qd R 505.
The appeal should also be allowed so as to correct the error which the new evidence received on appeal has revealed.
Sections 42(6) and (7) of the LPA
My conclusion concerning the meaning of the expression “costs incurred” in subrule 101.07(6)(d) makes it unnecessary to consider the defendants’ submission that s 42(6) of the LPA does not preclude the agreements which they had made with their respective solicitors from being enforceable. Similarly, it is not necessary to consider the plaintiffs’ submission that the Full Court decision in McNamara Business and Property Law v Kasmeridis[30] is plainly wrong. It may be necessary at some time in the future for the decision in Kasmeridis to be reconsidered, but it is not necessary to do so for the disposition of this appeal.
[30] [2005] SASC 269; (2005) 92 SASR 382.
Conclusion
For the reasons given above I would allow the appeals and make the following orders:
1.I would set aside each of the orders numbered 5 and 6 made by the master on 29 January 2008.
2.I would direct that each of the applications for review filed by the first and third defendants, and by the second defendant do stand as notices of appeal against the order numbered 4 made by the master on 17 December 2007.
3.I would extend to 12 February 2008 the time within which each of the defendants may appeal against the order made by the master on 17 December 2007.
4.I would grant each of the defendants permission to appeal against that order.
5.I would allow the appeals and set aside each of the remaining orders made by the master on 29 January 2008, and orders 4 and 5 made by the master on 17 December 2007.
6.I would remit the matters to the master for completion of the adjudication of the costs claimed by the defendants in accordance with these reasons.
7.I would hear the parties as to costs.
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