Gippsreal Ltd v Kenny

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2016 0023

GIPPSREAL LTD	Applicant
v
CAROLINE MAJELLA KENNY and IAN SYMONDS & ASSOCIATES	Respondents

---

JUDGES:	WHELAN, PRIEST AND KYROU JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	17 November 2016
DATE OF JUDGMENT:	15 December 2016
MEDIUM NEUTRAL CITATION:	[2016] VSCA 319
JUDGMENT APPEALED FROM:	Kenny v Gippsreal Ltd [No 2] [2015] VSC 737 (Vickery J)

---

PRACTICE AND PROCEDURE – Application for costs against lawyers for opposing party under r 63.23 of Supreme Court (General Civil Procedure) Rules 2005 alleging no proper basis for commencement of proceedings, in breach of s 18 of Civil Procedure Act 2010 – Application made more than 2 years after proceedings finalised – Factors relevant to exercise of discretion under r 63.23 – Relevance of time limit in s 30 of Act – Delay inordinate and not satisfactorily explained – Principle of finality.

PRACTICE AND PROCEDURE – Judge erred in treating respondents’ application under s 29 of Civil Procedure Act 2010 for order dismissing applicant’s application under r 63.23 of Rules as being ‘akin’ to an application for summary judgment under s 63 of Act – Whether ‘no real prospect of success’ test in s 63 applicable – Factors relevant to exercise of discretion under s 29 – Civil Procedure Act 2010 ss 7, 8, 9, 10, 18, 25, 28, 29, 30, 31, 61, 62, 63.

PRACTICE AND PROCEDURE – Whether judge overlooked relevant evidence in exercising discretion to dismiss application under r 63.23 of Rules against lawyers – Whether judge’s reasons adequate – Judge erred – Court of Appeal exercised discretion under r 63.23 for itself on basis of all evidence before judge – Application under r 63.23 against lawyers dismissed – Leave to appeal granted but appeal dismissed.

---

APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr J L Evans	Oakleys Legal
For the First Respondent	Mr P B Murdoch QC with Mr D A Klempfner	DLA Piper Australia
For the Second Respondent	Ms A J Golding	Colin Biggers & Paisley

WHELAN JA
PRIEST JA
KYROU JA:

Introduction and summary

This is an application for leave to appeal against an order of a judge in the Trial Division that dismissed two summonses issued by the applicant on 22 December 2014 in which it sought orders under r 63.23 of the Supreme Court (General Civil Procedure) Rules 2005 (‘Rules’) requiring the respondents to pay the applicant’s costs in each of two proceedings which had been finalised on 7 August 2012.[1] The orders were sought against the first respondent in her capacity as counsel for the opposing parties in those proceedings, and the second respondent in its capacity as solicitors for the opposing parties.
[1]Kenny v Gippsreal Ltd [No 2] [2015] VSC 737 (‘Reasons’).

Rule 63.23 of the Rules relevantly provided:

63.23 Costs liability of lawyer
(1)Where a solicitor for a party, whether personally or through a servant or agent, has caused costs to be incurred improperly or without reasonable cause or to be wasted by a failure to act with reasonable competence and expedition, the Court may make an order that—
…
(b)the solicitor pay to the solicitor’s client all or any of the costs which the client has been ordered to pay to any party;
(c)the solicitor pay all or any of the costs payable by any party other than the client.

…
(3)The Court shall not make an order under paragraph (1) without giving the solicitor a reasonable opportunity to be heard.
(4)The Court may, before making an order under paragraph (1), refer the matter to a Costs Judge or another Associate Judge for inquiry and report.
…
(7)This Rule shall, with any necessary modification, apply to a barrister as it applies to a solicitor.

The judge made the impugned order on the application of the respondents pursuant to separate originating motions that they filed on 2 April 2015. As explained below, the respondents conducted their applications on the basis that they were made pursuant to ss 28 and 29 of the Civil Procedure Act 2010 (‘CPA’) and relied on an alleged breach by the applicant of the overarching obligation in s 25.[2]
[2]Section 10(1) of the CPA relevantly provides that the overarching obligations in the CPA apply to parties to a civil proceeding and their lawyers.

Sections 25, 28 and 29 of the CPA relevantly provide:

25       Overarching obligation to minimise delay
For the purpose of ensuring the prompt conduct of a civil proceeding, a person to whom the overarching obligations apply must use reasonable endeavours in connection with the civil proceeding to—
(a)       act promptly; and
(b)       minimise delay.

…
28Court may take contravention of overarching obligations into account
(1)In exercising any power in relation to a civil proceeding, a court may take into account any contravention of the overarching obligations.
(2)Without limiting subsection (1), in exercising its discretion as to costs, a court may take into account any contravention of the overarching obligations.

29 Court may make certain orders
(1)If a court is satisfied that, on the balance of probabilities, a person has contravened any overarching obligation, the court may make any order it considers appropriate in the interests of justice including, but not limited to—
(a)an order that the person pay some or all of the legal costs or other costs or expenses of any person arising from the contravention of the overarching obligation;
…
(c)an order that the person compensate any person for any financial loss or other loss which was materially contributed to by the contravention of the overarching obligation … ;
…
(e)an order that the person not be permitted to take specified steps in the civil proceeding;
(f)any other order that the court considers to be in the interests of any person who has been prejudicially affected by the contravention of the overarching obligations.

(2) An order under this section may be made—
(a)on the application of—
(i)any party to the civil proceeding; or
(ii)any other person who, in the opinion of the court, has a sufficient interest in the proceeding; or

(b)on the court’s own motion.

(3)This section does not limit any other power of a court to make any order, including any order as to costs.

Sections 25 and 29 of the CPA need to be read in the light of the overarching purpose in s 7(1), namely, ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.’ Section 8(1) provides that a court must seek to give effect to the overarching purpose in the exercise of any of its powers and s 9(1) sets out a number of objects to which the court must have regard in making any order or giving any direction in a civil proceeding. The object in s 9(1)(f) is ‘the timely determination of the civil proceeding’.

The judge held that the applicant had breached the overarching purpose in s 7(1) of the CPA because its delay of over two years in issuing its summonses was unexplained and inordinate. Although the judge did not expressly find that the applicant had breached s 25, he quoted that section and implicitly found that the applicant had breached it. In deciding to dismiss the applicant’s summonses, the judge applied the ‘no real prospect of success’ test in s 63 of the CPA, which deals with summary judgment. He did so on the basis that the relief sought by the respondents in their originating motions was ‘akin’ to an application for summary judgment.

The applicant has sought leave to appeal on four grounds. Two of the grounds rely on an affidavit sworn by Trevor Rickard, the managing director of the applicant, on 22 June 2015 (‘Rickard affidavit’) which was said to explain the applicant’s delay in issuing the summonses. Those grounds allege that, in finding that the applicant’s delay was ‘unexplained’, the judge failed either to have regard to the Rickard affidavit or to provide adequate reasons for his decision. The remaining grounds seek to impugn the judge’s implicit finding that the applicant’s delay constituted a breach of s 25 of the CPA and the exercise of his discretion to deny to the applicant the relief it sought against the respondents under r 63.23 of the Rules.

By notices of contention, the respondents contend that the judge erred in treating their applications as being ‘akin’ to an application for summary judgment under s 63 of the CPA and in applying the ‘no real prospect of success’ test in that section.

The parties agree that, if any of the applicant’s grounds of appeal are successful, this Court should decide the relevant issues for itself rather than remit the proceeding to the Trial Division for rehearing.

For the reasons that follow, we have concluded that:

(a)the judge erred in applying the ‘no real prospect of success’ test in s 63 of the CPA;
(b)the judge erred in not taking into account the Rickard affidavit and not referring to it in his reasons;
(c)the Rickard affidavit failed to provide a satisfactory explanation for the applicant’s delay; and
(d)although the judge did not refer to all the matters that were relevant to the exercise of his discretion to dismiss the applicant’s summonses pursuant to the respondents’ originating motions, the proper exercise of that discretion required the making of an order dismissing the summonses.

Accordingly, we will grant the application for leave to appeal but dismiss the appeal.

Facts and procedural history

The applicant is the responsible entity of a registered managed investment scheme established under the Corporations Act 2001 (Cth) which offers first mortgage real estate investment loans to borrowers. At all relevant times, Mr Rickard was the principal of the legal firm Oakleys Legal as well as the managing director of the applicant.

On 27 April 2010, the applicant made a loan to Action Cycles Pty Ltd, whose sole director and secretary were Darren Gellie and Lorelle Gellie, respectively (collectively ‘AC parties’). Darren and Lorelle Gellie (collectively ‘Gellies’) guaranteed the obligations of Action Cycles Pty Ltd under the loan agreement. The loan was secured by mortgages over land owned by the AC parties and a charge over the assets and undertaking of Action Cycles Pty Ltd. In July 2011, the AC parties defaulted on their obligations pursuant to the loan agreement and the applicant then took steps to enforce its securities, including the appointment of receivers and managers pursuant to the charge.

On 22 August 2011, the AC parties commenced a proceeding against the applicant in which they alleged that there had been no event of default under the loan agreement and sought to prevent the applicant from enforcing its securities (‘2011 Proceeding’).[3] By counterclaim, the applicant sought orders for the repayment of the outstanding loan amount and for the sale of some of the secured property.
[3]The receivers and managers of Action Cycles Pty Ltd were also parties to the 2011 Proceeding but their role is not relevant for present purposes.

The first respondent acted for the AC parties between September 2011 and June 2012 and the second respondent acted between 26 April 2012 and 10 July 2012.

On around 1 March 2012, the applicant and the AC parties executed a deed of settlement in relation to the 2011 Proceeding. The deed required the AC parties to pay a sum of money to the applicant by 27 April 2012, failing which the applicant would be entitled to enter judgment against the AC parties.

The AC parties failed to make payment by 27 April 2012 and subsequently alleged that the deed of settlement was void and liable to be set aside. The respondents acted for the AC parties in the 2011 Proceeding when this allegation was made. The AC parties obtained interlocutory orders in the 2011 Proceeding to prevent the applicant from entering judgment pursuant to the deed of settlement.

On 30 April 2012, the applicant’s solicitors (Oakleys Legal) wrote to the respondents to put them on notice that, if it was determined that the AC parties had no basis to oppose judgment in favour of the applicant and that in all the circumstances their opposition had no reasonable prospect of success, the applicant would seek an order for indemnity costs against them personally.

On 8 May 2012, the applicant commenced a new proceeding against the AC parties seeking a declaration that the deed of settlement was valid and binding and entry of judgment against the AC parties in accordance with the terms of the deed (‘2012 Proceeding’).[4] In their defence and counterclaim, the AC parties made allegations that were similar to those in their statement of claim in the 2011 Proceeding and also alleged that the deed of settlement was void and liable to be set aside.
[4]The former receivers and managers of Action Cycles Pty Ltd were also parties to the 2012 Proceeding but their role is not relevant for present purposes.

On 7 August 2012, the applicant obtained judgment by consent against the AC parties in the 2011 Proceeding and the 2012 Proceeding (collectively ‘2011 and 2012 Proceedings’). The orders made in the 2011 Proceeding included: that the AC parties pay the applicant $2,336,782.74; that the applicant recover possession of specified secured property; that the proceeding and counterclaim be otherwise dismissed; and that the AC parties pay the applicant’s costs of that proceeding and counterclaim from 27 April 2012 to 7 August 2012, including reserved costs, on an indemnity basis.

In relation to the 2012 Proceeding, the relief included:

(a) a declaration that the deed of settlement was valid and binding;

(b) an order that the AC parties’ counterclaim be dismissed;

(c) an order that the AC parties pay the applicant’s costs of the proceeding and counterclaim to 7 August 2012, including reserved costs, on an indemnity basis; and

(d) an order reserving the ‘question of whether any third parties may also be liable to pay any or all’ of the applicant’s costs of the proceeding.

On 22 December 2014 — more than two years after the finalisation of the 2011 and 2012 Proceedings on 7 August 2012 — the applicant applied by separate summonses for orders that the respondents personally pay the applicant’s costs in each of those proceedings including the counterclaims.[5] The orders were sought pursuant to r 63.23 of the Rules, or alternatively, s 29 of the CPA. Insofar as the orders were sought under s 29 of the CPA, the applicant relied on an alleged breach by the respondents of s 18 of the CPA. That section prohibits a party and its lawyers from making a claim in a civil proceeding if it does not have a ‘proper basis’.
[5]There were two main differences between the two summonses. First, the summons issued in the 2011 Proceeding confined the costs sought to the period from 30 April 2012 until 7 August 2012. Secondly, in the 2011 Proceeding, the applicant also sought compensation for loss suffered by it due to the delay in obtaining judgment against the AC parties between 30 April 2012 and 7 August 2012.

The summonses were supported by several affidavits, including the Rickard affidavit. The Rickard affidavit stated that it was filed ‘specifically … to explain the delay in issuing the [summonses]’. The Rickard affidavit stated relevantly as follows:

(a) On 26 April 2012, it became apparent to the applicant that the AC parties would not be able to give effect to the deed of settlement and were contemplating action to have it set aside.

(b) The AC parties’ application to set aside the deed of settlement delayed the exercise of the applicant’s rights pursuant to its securities until the further terms of settlement were executed on 7 August 2012.

(c) On 16 August 2012, the applicant initiated an application to subdivide one of the secured properties (‘Cowes property’) in order to sell it as two separate lots. The permit application progressed slowly and was not granted until October 2013.

(d) By the end of May 2013, but not before, the applicant was aware that the only real property likely to be available to it from which to satisfy the debt owed by the AC parties, was the Cowes property. However, as at that time, the likely amount to be recovered from the sale of that property, if the subdivision proceeded, was still uncertain. Attempts to sell the Cowes property including by auction on 2 November 2013 were unsuccessful and it remains listed for sale.

(e) Until the Cowes property is sold, the applicant will be unable to determine its ultimate losses in respect of its loan to Action Cycles Pty Ltd.

(f) During the 2011 Proceeding, the Gellies made representations to the applicant that they owned antique furniture and artworks valued in excess of $1 million that were charged in favour of the applicant. In 2013, Mr Rickard was uncertain as to whether any funds would be realised from the sale of those assets for the benefit of the applicant.

(g) Mr Rickard monitored the activities of other financiers who had securities over assets of the AC parties and steps taken by the former solicitors of the AC parties to recover costs from them. Action Cycles Pty Ltd went into liquidation on 11 September 2012 and Mr Gellie became bankrupt on 18 February 2014.

(h) In September 2013, Mr Evans of counsel was briefed to provide advice as to potential claims the applicant had against the respondents in relation to their conduct of the 2011 and 2012 Proceedings. Following repeated follow up communications by Mr Rickard, Mr Evans provided detailed written advice in relation to that issue on 25 June 2014.

(i) On 10 October 2014, Mr Rickard instructed Mr Evans to prepare the necessary documents to commence the applications against the respondents. The documents were prepared by around 4 December 2014 and they were filed on 22 December 2014.

On 3 February 2015, the applicant issued subpoenas addressed to the respondents and others in each of the 2011 and 2012 Proceedings. The subpoenas addressed to the respondents sought the production of documents containing or evidencing:

(a) instructions from the AC parties to the respondents in relation to their entry into the deed of settlement; and/or

(b) legal advice from the respondents as to the enforceability of the deed of settlement or the AC parties’ rights to avoid it or set it aside.

On 2 April 2015, the respondents applied by originating motions in each of the 2011 and 2012 Proceedings for orders dismissing the applicant’s summonses and setting aside the subpoenas. The originating motions stated that the orders dismissing the summonses were sought on two grounds. The first ground was that, insofar as the applicant’s applications were made pursuant to r 63.23 of the Rules, they were incompetent. The second ground was that, insofar as the applications were made pursuant to s 29(1) of the CPA, they had been brought contrary to s 30(2) because they were not made prior to the finalisation of the 2011 and 2012 Proceedings.

Sections 30 and 31 of the CPA provide as follows:

30 Applications for orders under section 29
(1) An application for an order under section 29 is to be made—
(a)in the court in which the civil proceeding was, or is being, heard; and

(b) in accordance with the rules of court.
(2)An application for an order under section 29 must be made prior to the finalisation of the civil proceeding to which the application relates (excluding any period for appeals).
(3)For the purposes of subsection (2), if an order, including an order in respect of costs, is made after the date of finalisation of the civil proceeding to which the application relates, the date of making of the last of the orders is taken to be the date of finalisation of that proceeding.

31 Extension of time for application
(1)Despite section 30(2), a person may apply to the court for an extension of time to apply for an order under section 29 after the finalisation of the civil proceeding.
(2)The court may grant an extension of time for making an application under section 29 if satisfied that the person making the application was not aware of the contravention of the overarching obligations until after the end of the period specified in section 30(2).

(3) An application under this section may be made by—
(a) any party to the civil proceeding; or
(b)any other person who has a sufficient interest in the civil proceeding.

The judge decided the two grounds upon which the applicant relied in two separate judgments. On 18 June 2015, he held that, insofar as the applicant’s applications were based on s 29 of the CPA, they were incompetent because they were not made within the time specified by s 30 of the CPA.[6] It is not necessary for us to refer to the judge’s reasons for that decision.
[6]Kenny v Gippsreal Ltd [2015] VSC 284.

The discussion that follows is concerned only with the judge’s separate decision on the applicant’s applications insofar as they were based on r 63.23 of the Rules.

Conduct of trial

Despite the broad wording of the originating motions, the respondents conducted their applications on the basis that they were made pursuant to ss 28 and 29 of the CPA and that they relied on a breach by the applicant of the overarching obligation in s 25. As the second respondent adopted the written and oral submissions of the first respondent in relation to its application, we will only refer to the submissions of the first respondent during the trial.

In her primary written submissions, which were filed prior to the filing of the Rickard affidavit, the first respondent stated that the applicant’s applications were brought contrary to the terms and tenor of the CPA such that they ought to be dismissed, struck out or permanently stayed. Specifically, the first respondent submitted that the applicant was compelled by s 25 of the CPA to use reasonable endeavours in connection with the proceeding to act promptly and minimise delay, and that the applicant’s ‘unexplained delay … for more than 28 months is itself a breach of [the applicant’s] overarching obligation to minimise delay’. The first respondent also submitted that the applicant had breached its obligation pursuant to s 18(d) of the CPA because the fact that it issued subpoenas ‘to garner evidence in support of its applications’ suggested that it did not have a proper basis for making the claims it did against the respondents. The first respondent’s further written submissions, which were filed after the filing of the Rickard affidavit, referred to that affidavit.

The applicant referred to the Rickard affidavit in its written submissions. It accepted that if the Court found that it had breached an overarching obligation, the Court had a discretionary power to dismiss its applications under s 29(1)(e) of the CPA.

During the trial, counsel for the first respondent described the position as follows:

[COUNSEL]: [In our submissions] we deal with s 29(1)(e), a very important provision of the [CPA], … because we say … that if the court is satisfied that there’s been a breach of an overarching obligation, the court [may] make an order that the person in breach of their overarching obligation not be permitted to take specified steps in the civil proceeding.
…
HIS HONOUR: And you would say that applies here … that you rely upon this order to not permit the summons to proceed insofar as it deals with the Rule 63 matter.
[COUNSEL]: Yes … in conjunction of course with … the court’s power and obligation in relation to the overarching purpose identified in ss 7, 8 and 9 [of the CPA].[7]

[7]Transcript of Proceedings, Kenny v Gippsreal Ltd (Supreme Court of Victoria, S CI 2011 04416, S CI 2012 02626, S CI 2015 01489, S ECI 2015 00120, Vickery J, 8 September 2015) (‘Transcript’) 30–1.

In relation to the test to be applied by the judge in the exercise of the discretion under r 63.23 of the Rules, the applicant submitted that it ought to be the test set out in s 63(1) of the CPA, that is, the ‘real prospect of success’ test. Counsel for the applicant made the following statements at the trial:

[COUNSEL]: [O]f course this is not being framed as a summary judgment application, but where summary determination is sought it ought be treated in a similar manner by the court. And that is to say that in determining whether to acquiesce to the application by [the respondents], the court ought not dismiss [the applicant’s] summonses unless it is satisfied that were they to proceed to a final hearing that [the applicant’s] application under Rule 63.23 has no real prospect of success, being the test as described in s 63(1) of the [CPA].
…
[R]ather than apply the more stringent common law test to an application of this kind, the [CPA] itself suggests … that any application for summary determination should be determined on the basis of the no real prospect of success test in s 63(1) rather than the more stringent common law test.
HIS HONOUR: So are you putting it on the basis of a matter of discretion in the application of Rule 63.23 that the test ought to be the no real prospect of success test?
[COUNSEL]: Yes. That is to say this application which is for effectively summary dismissal of our application, under Rule 63.23, ought to be approached in that manner.
HIS HONOUR: Yes, as a matter of discretion in the application of Rule 63.23?
[COUNSEL]: Yes …[8]

[8]Transcript 60, 61.

Contrary to the judge’s observations set out at [39] below, the respondents did not conduct their case on the basis that the test to be applied was, or was similar to, the test under s 63 of the CPA. The following exchange took place between the judge and counsel for the first respondent at the trial:

HIS HONOUR: … The question is how does the court or ought the court approach effectively the summary dismissal at this point based on limited discretionary factors?
[COUNSEL]: It’s not of course … an application for summary dismissal of a case.
HIS HONOUR: No, it’s not.
[COUNSEL]: It is simply seeking an order pursuant to the provisions of the [CPA].
HIS HONOUR: Yes.
[COUNSEL]: For the court to make an order that, ‘You shall not at this stage of a proceeding utilise the provisions of order 63.23 in circumstances which are analogous to the provisions of the [CPA] [ss] 29, 30 and 31’.
HIS HONOUR: Your application is really made on the basis of 29(1)(e) isn’t it?
[COUNSEL]: On 1(e), yes.[9]

[9]Transcript 91.

During the trial, both parties referred to the Rickard affidavit and addressed its contents. Counsel for the first respondent made the following references, among others, to the Rickard affidavit during the trial:

Your Honour ought to have an affidavit [of] Mr Rickard of 22 June 2015 … which largely goes to the question of delay in issuing the applications for the third party costs orders.
…
[I]n our submission, the matters that he deposes to as being relevant to the question of why it took so long to make the application for costs are all matters that occur after 7 August 2012 and that aren’t focused on the question that order 63.23 demands focus on … Rather the emphasis is on why it was that they … didn’t make an application because they were concerned about getting the moneys from the [AC] parties by the sale of the secured properties.[10]

[10]Transcript 5, 28.

Counsel for the applicant made the following references, among others, to the Rickard affidavit during the trial:

[T]he affidavit of Mr Rickard of 22 June 2015, is particularly directed to questions of why the application was not issued until December 2014 … He seeks to justify the alleged delay to 22 December which is the date of the issue of the summonses.
…
Mr Rickard addresses as it were the reasons why, or what occurred between April 2012 and the making of final orders on 7 August 2012 … [and] the reasons why, or the justifications for an application pursuant to Rule 63.23 not being made on 7 August 2012, and indeed not until December 2014 …[11]
[11]Transcript 68–69, 70.

Decision of trial judge

At the outset of his reasons for judgment, the judge stated that, where the Court finds that a lawyer has engaged in the conduct referred to in r 63.23 of the Rules:

a discretion is then enlivened for the Court to make any of the specified costs orders against the lawyer in question. The exercise of the discretion is left at large, however it would be required to be undertaken judicially and in the interests of justice.[12]

[12]Reasons [35].

The judge identified the following question to be determined by the Court:

[W]hether [the applicant], by reason of alleged delay in the making [of] its applications for non-party costs orders against the [respondents] in respect of [the 2011 and 2012 Proceedings] is entitled to pursue costs and/or compensation pursuant to r 63.23 of the Rules, where it is further alleged that the delay in making the applications results in a contravention of the overarching obligations prescribed by the CPA.[13]

[13]Reasons [38].

The judge conducted his consideration of that question on the following basis:

I take it from the manner in which the parties presented their cases that I should deal with both applications on the basis of a summary hearing akin to determining an application commenced under s 63(1) of the CPA.
…
In the light of the manner in which the parties proceeded, by the application of the test in s 63 of the CPA, the [question] is to be decided by applying the statutory test, as explained by the Court of Appeal in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd, namely whether the application made by [the applicant] for non-party costs against the [respondents] has no real prospect of success.[14]

[14]Reasons [19], [39] (citations omitted).

The judge described the applicant’s delay in filing its summonses as ‘manifest’, ‘unexplained’ and ‘inordinate’ and found that it ‘amounted to a contravention of the overarching purpose of the CPA’.[15] He found that the delay was an ‘insurmountable barrier to the exercise of the discretion under r 63.23 in favour of [the applicant]’[16] and that on that basis, the applications had no real prospect of success. The judge’s findings were in the following terms:
[15]Reasons [52], [62].
[16]Reasons [62].

In this case the central allegation relied upon by [the applicant] as to the conduct of the [respondents], which was said to justify the making of an order under r 63.23 of the Rules, would also have amounted to a contravention of the overarching obligations of the CPA which, if made out, may have justified the exercise of the discretion to make an order under s 29 of the CPA, provided, of course, that the time limit provided by s 30 of the CPA had been complied with.
Having dismissed the application insofar as it was founded on s 29 of the CPA by reason of non-compliance with the statutory time limit under s 30, in my opinion, it would work to circumvent the very clear statutory requirements under the CPA if an applicant was, in effect, permitted to maintain the very same case to found a non-party costs order against lawyers, but do so under r 63.23 of the Rules.
To my mind, a powerful, and in this case an insurmountable, element in the exercise of the discretion under r 63.23, is the necessity to comply with [the] statutory requirement of s 30 of the CPA and prevent the force and effect of that provision being undermined by application of a Rule of Court in the manner urged by the applicant. The proper administration of the CPA and the protection of the regime of checks and balances established in Part 2.4 [of the CPA] calls for this approach.
A further matter which arises in the exercise of the discretion is the manifest and unexplained delay in [instituting] the application for non-party cost orders against the [second respondent]. The proceedings for all practical purposes came to an end on 7 August 2012 upon the making of the 2011 and 2012 Proceeding Orders.
…
[B]y 30 April 2012 [the applicant] and its lawyers were well aware of an entitlement to seek costs against the [respondents], which I infer would have included knowledge of the necessary essential facts to found a potential claim for costs based on r 63.23 of the Rules.
… [The applicant] waited nearly two years before prosecuting its claims for non-party costs against the [respondents].
…
I find that the unexplained delay on the part of [the applicant] in the initiation of the non-party costs against the [respondents] to be not only inordinate and conduct which in itself amounted to a contravention of the overarching purpose of the CPA, including the overarching purpose under s 7(1) to facilitate the ‘just, efficient, timely and cost-effective resolution of the real issues in dispute’, but was of such a degree as to also amount to a further and insurmountable barrier to the exercise of the discretion under r 63.23 in favour of [the applicant].
For these reasons, and based upon the evidence before the Court, [the applicant’s] applications have no real prospect of success. It is possible that when the subpoenas … are returned, some evidence may be disclosed which could be relevant to the exercise of the discretion on the question of costs, such as the knowledge and expressed opinions of the [respondents] as to the prospects of success in overturning the Deed of Settlement. However, no such evidence has been brought before the Court by [the applicant], and the existence of any such evidence, its content and its weight, is a matter of speculation.
Further, even if evidence was to be unearthed which demonstrated that the [respondents] appreciated that the prospects of success were as low as negligible to the point where, properly advised, the 2011 and 2012 Proceedings should not have been brought, by reason of the other factors discussed, which to my mind were insurmountable, the applications were bound to fail in any event.
[The applicant] had opportunity to put on such material as it may have been advised to challenge the summary judgment applications of the [respondents], and to seek directions from the Court to facilitate this process. However, in seeking to controvert the applications, it rested its case on the material presently before the Court and sought no adjournment.[17]

[17]Reasons [49]–[52], [54]–[55], [62]–[65].

The judge held that an appropriate order, in the interests of justice, was one dismissing the applicant’s summonses summarily without a full hearing on the merits.[18]
[18]Reasons [67]–[68].

On 18 December 2015, the judge made an order which, relevantly, dismissed the applicant’s summonses and set aside the subpoenas referred to at [24] above. On 24 February 2016, he made an order requiring the applicant to pay the costs of the respondents.

Applicant’s grounds of appeal and respondents’ notices of contention

The applicant’s proposed grounds of appeal are as follows:

Ground 1 – His Honour erred in law, in that in determining that, on the evidence before him, the application had no real prospects of success, he failed to take into consideration the whole of the evidence. In particular:
(1)At paragraph [52] of the reasons for decision, His Honour referred to the ‘manifest and unexplained delay in [instituting] the application for non-party costs against the [second respondent]’, and at paragraph [62] of the reasons for decision, His Honour referred to ‘the unexplained delay on the part of [the applicant] in the initiation of the non-party costs against the [respondents]’, where there was considerable, unchallenged evidence which explained the reasons for that delay, namely the [Rickard affidavit] (which was expressly relied upon by the applicant in its written and oral submissions to the Court at the hearing on 8 September 2015);
(2)At paragraph [65] of the reasons for decision, His Honour stated that ‘[the applicant] had opportunity to put on such material as it may have been advised to challenge the summary judgment applications of the [respondents], and to seek directions from the Court to facilitate this process. However, in seeking to controvert the applications, it rested its case on the material presently before the Court and sought no adjournment’. In fact, the applications by the respondents for summary dismissal of the applicant’s applications against them were each commenced on 2 April 2015, were the subject of orders of the Honourable Justice Vickery for the filing of responsive affidavits on 4 June 2015, in response to which the [Rickard affidavit] was filed, and … expressly relied upon by the applicant in its written and oral submissions to the Court at the hearing on 8 September 2015;
(3)By reason [of] the matters above, it is apparent that His Honour failed to take into consideration … the [Rickard affidavit] in making his decision.

Ground 2 – His Honour erred in law in finding, at paragraph [62] of his reasons that ‘the unexplained delay on the part of [the applicant] in the initiation of the non-party costs against the [respondents]’ was inordinate and conduct which in itself amounted to a contravention of the overarching purposes of the [CPA], and further was of such a degree as to also amount to a further and insurmountable barrier to the exercise of the discretion under rule 63.23 of the [Rules] in favour of the applicant, given that there was considerable, unchallenged evidence which explained the reasons for that delay, namely the [Rickard affidavit] (which was expressly relied upon by the applicant in its written and oral submissions to the Court at the hearing on 8 September 2015).
Ground 3 – His Honour failed to give adequate reasons for his decision, in that he offered no reasons for rejecting or otherwise disregarding the evidence contained in the [Rickard affidavit] in determining that, on the evidence before him, the application had no real prospects of success.
Ground 4 – His Honour erred in law, in that in determining that, on the evidence before him, the application had no real prospects of success, he gave undue weight to 3 elements going to the question of the exercise of His Honour’s discretion under rule 63.23, namely:
(1)delay on the part of the applicant in issuing its application against the respondents; and
(2)the necessity to comply with the requirements of section 30 of the [CPA] in exercising the discretion; and
(3)the object of the timely determination of the proceeding, identified at section 9(1)(f) of the [CPA] as a matter to which the Court should have regard in furthering the overarching purpose in section 7 of the [CPA].

The first respondent’s notice of contention was in the following terms:

1The learned judge erred in law in holding that he ‘should deal with both applications on the basis of a summary hearing akin to determining an application commenced under s 63(1) of the [CPA]’.
2The learned judge erred in law in holding that ‘the [question] was to be decided by applying the statutory test, as explained by the Court of Appeal in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd, namely whether the application made by [the applicant] for non-party costs against the [respondents] had no real prospect of success’.
3The learned judge ought to have held that:
3.1The Court’s power to summarily dismiss a proceeding pursuant to sections 28(1) and 29(1) of the [CPA] on being satisfied of a contravention of an overarching obligation is sui generis;
3.2 In exercising any power in relation to a civil proceeding, including the power to summarily dismiss a proceeding, the Court was entitled to take into account the [a]pplicant’s breach of its overarching obligation to act promptly and minimise delay;

3.3 The Court’s power, pursuant to section 29(1) of the [CPA], to make any order it considers appropriate in the interests of justice on being satisfied that a person has contravened any overarching obligation must be exercised judicially but is otherwise unfettered;
3.4 The Court’s power, pursuant to section 29(1) of the [CPA], to make any order it considers appropriate in the interests of justice on being satisfied that a person has contravened any overarching obligation was not to be determined by reference to the [a]pplicant’s prospects of success in its substantive action;
3.5The Court need only have been satisfied that the [a]pplicant had breached an overarching obligation as a pre-condition to exercising the power to summarily dismiss the proceeding pursuant to sections 28(1) and 29(1) of the [CPA].[19]

[19]Citations omitted.

The second respondent adopted the first respondent’s notice of contention and its submissions on the notice of contention and the applicant’s grounds of appeal. Accordingly, we will only refer to the first respondent’s submissions.

First respondent’s notice of contention: Applicable test

It is convenient for us to consider the first respondent’s notice of contention before turning to the applicant’s grounds of appeal.

Submissions on first respondent’s notice of contention

The first respondent submitted that her application was brought pursuant to ss 28 and 29 of the CPA on the basis that the applicant had breached its overarching obligations by virtue of its inordinate delay in bringing its applications under r 63.23 of the Rules. The application was not, so it was said, brought pursuant to s 63 of the CPA on the basis that the applicant’s applications had no real prospect of success.

The first respondent submitted that there is no basis for introducing the ‘no real prospect of success’ test set out in s 63 of the CPA to an application made pursuant to ss 28 and 29. According to the first respondent, s 63 is directed to ‘an entirely different circumstance’ from ss 28 and 29 and the application was not ‘akin’ to an application under s 63. The first respondent contended that the focus of pt 4.4 of the CPA, in which s 63 is found, is on the pre-trial dismissal of unmeritorious claims and defences, and is only invoked if an application has been made pursuant to s 61 by a plaintiff or pursuant to s 62 by a defendant. The express basis of an application under s 62 was said to be that the ‘plaintiff’s claim or part of that claim has no real prospect of success’.

In contrast, so it was said, ss 28 and 29 are directed towards an ‘entirely different issue’, namely, providing sanctions for a person’s contravention of the overarching obligations, and do not require analysis of the merits of the underlying claim. According to the first respondent, the powers under those sections are triggered by a contravention of an overarching obligation and include the power to order that an otherwise ‘meritorious’ proceeding be dismissed, even where all elements of the cause of action can be, or have been, proved.[20]
[20]The first respondent referred to Actrol Parts Pty Ltd v Coppi [No 3] [2015] VSC 758 [74]–[85] in support of this proposition. She also referred to Yara Australia Pty Ltd v Oswal (2013) 41 VR 302, 311 [26] (‘Yara’).

The applicant submitted that there was no clear articulation by the respondents as to whether the orders which they sought were exclusively pursuant to s 29(1) of the CPA. According to the applicant, there were two bases for those orders: first, that the applicant’s applications pursuant to r 63.23 of the Rules were ‘inimical to the overarching purpose’ set out in s 7; and secondly that the applicant had contravened the overarching obligation in s 25.

The applicant contended that the hearing before the judge was ‘obviously summary in nature’ in the sense that it did not involve consideration by the judge of all of the matters which would be relevant to the determination of the applicant’s applications pursuant to r 63.23 of the Rules. Instead, so it was said, the hearing was directed to the issue of whether the two bases for the orders sought by the respondents, if established, entitled them to those orders without a full hearing of the applicant’s applications on their merits.

The applicant submitted that, insofar as the judge sought to deal with the first basis for the orders sought by the respondents, his application of the test in s 63 of the CPA was correct. Insofar as the judge sought to deal with the second basis for those orders, the applicant accepted that the Court’s power under s 29(1) was generally unfettered but submitted that the judge did not err by treating the respondents’ applications as if they were ‘akin’ to an application for summary dismissal under s 63. This was said to be because the respondents sought orders for summary termination of the applicant’s applications for relief under r 63.23 of the Rules. According to the applicant, in determining whether to make those orders, the judge was required to decide not only whether the applicant had breached s 25(1) of the CPA but also whether to exercise his discretion to make those orders without a full hearing on the merits of the applicant’s applications under r 63.23 of the Rules.

Decision on first respondent’s notice of contention

In our opinion, the first respondent has established some of the grounds in support of her notice of contention.

The discussion at [29]–[34] above demonstrates that, although the respondents’ originating motions did not specify the source of power that they relied upon in support of the relief sought,[21] at trial they made it clear that they were seeking an order under s 29(1)(e) of the CPA on the basis that the applicant had breached the overarching obligation in s 25. That discussion also demonstrates that the respondents did not accept that the originating motions should be dealt with on the basis that they were akin to an application for summary judgment under s 63 of the CPA and that the Court should apply the ‘no real prospect of success’ test in that section. Rather, the respondents submitted that the Court should apply s 29.
[21]See [25] above.

It follows that the suggestion in paras 19 and 39 of the judge’s reasons[22] that the parties presented their cases on the basis that the respondents’ applications should be dealt with as being akin to applications for summary judgment under s 63 of the CPA is wrong. It also follows that the judge erred in applying the ‘no real prospect of success’ test in s 63.
[22]See [39] above.

For completeness, we note that the respondents could not have made an application for summary judgment under s 63 of the CPA in relation to the applicant’s summonses which were issued in the 2011 and 2012 Proceedings. This is because ss 61 and 62 provide that only a plaintiff or a defendant in a civil proceeding may make such an application. The respondents were the legal advisors of the AC parties during part of the 2011 and 2012 Proceedings but they were never parties to those proceedings.

As the respondents sought an order under s 29(1)(e) of the CPA on the basis that the applicant had breached the overarching obligation in s 25, the issues that required determination by the judge were:

(a)whether, by delaying the issue of its summonses until 22 December 2014, the applicant failed to use reasonable endeavours to act promptly and minimise delay and thereby breached s 25; and
(b)if so, whether it was in the interests of justice to make the order sought by the respondents in relation to that breach, namely, an order under s 29(1)(e) that the applicant be precluded from further pursuing its summonses.

The first issue required the judge to consider at least the following: the length of the delay, any explanation that was provided for the delay, whether any steps were taken during the period of the delay to progress the matter and whether any such steps were timely and reasonable.

The second issue required the judge to consider at least the matters set out at [99] below, which include: any prejudice to the respondents by reason of the delay; the merits of the applicant’s claim; and whether the interests of justice would be best served by making the order sought by the respondents, some other order or no order at all.

As the making of an order under s 29 of the CPA is discretionary, the circumstances of a particular case may give rise to particular issues that need to be considered in the proper exercise of the discretion. The weight to be given to any particular matter, including the merits of a party’s claim which is sought to be impugned on the basis of delay, may vary from case to case. What is abundantly clear, however, is that an application under s 29 cannot be resolved by treating it as an application under s 63 and having regard only to the ‘no real prospect of success’ test in that section.

It follows that paras 1 and 2 of the first respondent’s notice of contention are made out. Our views on the other paragraphs appear from the above discussion.

The fact that the judge applied the wrong test in determining the respondents’ applications under s 29 of the CPA does not necessarily mean that, in granting relief to the respondents under that section, the judge’s discretion miscarried. We will consider this issue when we discuss Grounds 2 and 4 of the applicant’s proposed grounds of appeal.

Applicant’s Grounds 1 and 3: Rickard affidavit
Submissions on applicant’s Grounds 1 and 3

The applicant submitted that the judge erred in finding that the applicant’s delay in bringing its applications was ‘unexplained’. This was said to be because the applicant had filed and served the Rickard affidavit which was directed to an explanation for the delay and which had been the subject of both written and oral submissions by the applicant. According to the applicant, the judge erred in failing to take into account the explanation for the delay in the Rickard affidavit.

The applicant contended that the judge’s reasons make no reference to the evidence in the Rickard affidavit, nor to the extensive written and oral submissions of the applicant with respect to the delay and the significance of the evidence in the Rickard affidavit. The applicant submitted that if the judge did have regard to those matters, it was not apparent from his reasons why he described the delay as ‘unexplained’ and why he rejected the applicant’s evidence and submissions on the issue of delay. According to the applicant, the judge’s reasons were inadequate because they did not address those matters and this constitutes an appealable error of law.[23]
[23]The applicant referred to Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430, 441–4 (‘Beale’) in support of that proposition.

The first respondent did not accept that the judge overlooked the Rickard affidavit. She submitted that it was unthinkable that the judge could produce his judgment without reference to the Rickard affidavit, the other evidence and the submissions. The first respondent contended that it was clear from the way in which the judge proceeded that, although he did not refer to the affidavit explicitly, he had in fact taken into account all of the matters referred to in the affidavit. According to the first respondent, the judge took those matters into account in the same way that he took into account an exhibit to her affidavit without referring to the affidavit as the source.

The first respondent submitted that even if the judge had overlooked the Rickard affidavit, the omission was not conducive of any error because that affidavit failed to provide any satisfactory excuse for the applicant’s delay. Reference to the Rickard affidavit was said to be irrelevant to the ratio of the judge’s decision because the delay, of itself, led to the dismissal of the applicant’s summonses.

The first respondent submitted that the ratio of the judge’s decision is found at paras 50 and 51 of his reasons and concerns the necessity to ensure that an application under r 63.23 of the Rules is made within the statutory time limit set out in s 30 of the CPA, which was not the subject of any criticism by the applicant or any proposed ground of appeal. According to the first respondent, properly understood, the judge’s observations about the absence of any explanation for the delay were no more than obiter. So much was said to be evident from the following statement in the judge’s reasons:

A further matter which arises in the exercise of the discretion is the manifest and unexplained delay in [instituting] the application for non-party costs orders against the [second respondent].[24]

[24]First respondent’s written case [12], quoting Reasons [52] (emphasis in original).

The first respondent submitted that when considered in context, it is apparent that the judge’s reference to the applicant’s failure to explain its delay in instituting its applications under r 63.23 of the Rules must be a reference to the period prior to the finalisation of the 2011 and 2012 Proceedings on 7 August 2012. The first respondent contended that the transcript shows that the judge was alive to the absence of any explanation for that part of the delay and that reference to the Rickard affidavit bears out the correctness of the judge’s conclusion. The first respondent referred to the following discussion between the judge and counsel for the first respondent:

[COUNSEL]: … [H]ere as it appears from Mr Rickard’s affidavit in our submission, the matters that he deposes to as being relevant to the question of why it took so long to make the application for costs are all matters that occur after 7 August 2012 and that aren’t focused on the question that order 63.23 demands focus on, and that is the actions of the [respondents], rather it focuses on—
HIS HONOUR: Are you saying there’s no evidence of delay being explained properly … in respect of the period prior to 7 August 2012?
[COUNSEL]: Precisely Your Honour.[25]

[25]Transcript 28.

The first respondent submitted that, in any event, in circumstances where the applicant was under a ‘strict, positive duty’ to ensure that it complied with its overarching obligations[26] and had breached one of those obligations by failing to use reasonable endeavours to act promptly and minimise delay, specific reference to the Rickard affidavit would have yielded no different result. The first respondent contended that, although the Rickard affidavit seeks to explain the applicant’s delay, the matters set out in it do not excuse that delay. According to the first respondent, the Rickard affidavit contains ‘nothing more than a chronology of inaction’ and ‘confirms rather than excuses the [a]pplicant’s inordinate delay’.
[26]The first respondent referred to Yara (2013) 41 VR 302, 311 [26] in support of that proposition.

Decision on applicant’s Grounds 1 and 3

In our opinion, Grounds 1 and 3 are made out.

In deciding whether the respondents were entitled to relief under s 29 of the CPA based on the applicant’s alleged breach of the overarching obligation in s 25, the first issue that the judge had to determine was whether the applicant had committed that breach. As stated at [58] above, that issue required the judge to consider at least the following: the length of the delay, any explanation that was provided for the delay, whether any steps were taken during the period of the delay to progress the matter and whether any such steps were timely and reasonable.

In circumstances where:

(a)the applicant’s explanation for its delay in issuing the summonses was highly relevant to the resolution of the issues before the judge;
(b)the applicant had filed the Rickard affidavit which purported to provide an explanation for the delay; and
(c)both parties had referred to the Rickard affidavit in their submissions,

it was incumbent on the judge to analyse the Rickard affidavit and decide whether it provided a satisfactory explanation for the delay. The fact that the judge did not refer to the Rickard affidavit in his reasons and stated twice[27] that the applicant’s delay was ‘unexplained’, strongly indicates that he overlooked the affidavit and failed to base his decision on the whole of the evidence that was before him.

[27]Reasons [52], [62]. See [40] above.

We reject the first respondent’s submission that it was unthinkable that the judge would have overlooked the Rickard affidavit. In our opinion, when read as a whole, the judge’s reasons indicate that he did so.

We also reject the first respondent’s submission that the judge’s finding that the applicant’s delay was unexplained did not form part of the ratio of the judge’s decision. The judge’s finding that the delay was unexplained was one of the two matters which he described as ‘insurmountable’ barriers to the granting of relief to the applicant under r 63.23 of the Rules.[28] We also reject the first respondent’s submission that the judge’s references to delay were confined to the period from April 2012 until 7 August 2012. This is because the judge refers to a delay of ‘nearly two years’.[29]
[28]Reasons [51], [62]. See [40] above.
[29]Reasons [55]. See [40] above.

If, contrary to our conclusion, the judge took the Rickard affidavit into account, his reasons do not disclose the impact it had on his chain of reasoning. For example, it is not clear whether the judge: rejected Mr Rickard’s evidence; accepted the evidence but determined that it failed to provide a satisfactory explanation for the delay; or determined that, while the evidence provided a satisfactory explanation, the explanation was outweighed by other considerations which required dismissal of the applicant’s summonses. It follows that the judge’s reasons are inadequate.[30]
[30]Beale (1997) 48 NSWLR 430, 441–4; Fletcher Construction Australia Ltd v Lines MacFarlane & Marshall Pty Ltd [No 2] (2002) 6 VR 1, 30–4 [99]–[106].

The first respondent’s submission that the Rickard affidavit did not provide a satisfactory explanation for the applicant’s delay is discussed under Grounds 2 and 4 below.

Applicant’s Grounds 2 and 4: Relevant discretionary considerations
Submissions on applicant’s Grounds 2 and 4

The applicant submitted that delay amounting to a contravention of s 25 of the CPA cannot, in itself, be determinative of the exercise of the Court’s discretion to grant relief under r 63.23 of the Rules and that the judge erred in treating the delay as an ‘insurmountable barrier’ to the granting of such relief. According to the applicant, there are numerous factors that the judge should have considered, including the explanation for the delay, the degree of the contravention caused by the delay[31] and any part of the delay which might be excusable. The applicant accepted that there could be circumstances in which one factor alone could be sufficient to deny relief, but submitted that those circumstances would usually involve misconduct or a serious dereliction of duty as well as obvious prejudice to a party such as in White Industries (Qld) Pty Ltd v Flower & Hart.[32] The applicant submitted that the judge’s error was to elevate the factor of delay to a level whereby it became determinative and to overlook the factors in ss 7, 8 and 9 of the CPA.
[31]The applicant referred to s 9(2)(e) of the CPA which provides that the court may have regard to the degree to which each person to whom the overarching obligations apply has complied with those obligations in relation to the proceeding.
[32](1998) 156 ALR 169.

The applicant submitted that the judge erred by effectively concluding that summary dismissal was justified ‘regardless of substantive merit’ and reached that conclusion by placing undue reliance on: the applicant’s delay; the necessity to comply with the requirements in s 30 of the CPA in exercising his discretion; and the object of the timely determination of the proceeding identified in s 9(1)(f) of the CPA. The applicant contended that the operation of r 63.23 of the Rules should not be circumscribed by reference to the limitation contained within s 30 of the CPA. According to the applicant, assistance can be obtained from the Limitations of Actions Act 1958 in an assessment of the circumstances in which bare delay will be sufficient to deny relief.

The applicant submitted that because the respondents’ applications were akin to applications for summary dismissal, they could only have succeeded if the judge determined that regardless of the potential strength of the substantive merits of the applicant’s applications under r 63.23 of the Rules, the delay on the part of the applicant in commencing its applications inevitably meant that the Court should dismiss them. This was said to be because the evidence which it sought to rely on in its applications under r 63.23 was ‘highly likely to be incomplete’ at the time the judge considered the respondents’ applications. According to the applicant, although it had adduced sufficient evidence to show that it had a prima facie case for its applications, it had sought further evidence in support of them by way of subpoenas which had not yet been complied with.

The applicant contended that the judge should have found, by reference to the Rickard affidavit, that the applicant acted reasonably in delaying seeking advice and making a decision as to whether to institute an application against the respondents under the CPA and under r 63.23 of the Rules until such time that it was clear that there would be a shortfall in the funds to be realised from the securities provided by the AC parties. The applicant also contended that the overarching purpose in s 7(1) of the CPA is not served by compelling a party to institute an application under r 63.23 immediately if it may ultimately prove unnecessary.

The applicant submitted that the prejudice it will suffer as a result of the judge’s decision is significant, namely, it will lose its right to pursue its claim against the respondents, and that there was no evidence before the judge of any countervailing prejudice to the respondents.

The applicant also submitted that the judge erred by not identifying who had contravened the overarching obligation in s 25 of the CPA, and that parties should not necessarily be penalised for the conduct of their legal practitioners.[33]
[33]The applicant referred to Kambouris v Kiatos [2016] VSCA 266 [38]–[39] in support of this submission.

As set out above in relation to its notices of contention, the first respondent submitted that the application of the ‘no real prospect of success’ test was not the correct approach to the determination of the respondents’ application. Nevertheless, the first respondent submitted that if this Court is to concern itself with the applicant’s prospect of success in its determination of this application for leave to appeal, on any objective view of the facts, the applicant failed to act promptly and minimise delay in making its applications. This meant, so it was said, that the applicant had breached the overarching obligation in s 25 of the CPA and this breach triggered the operation of ss 28 and 29.

The first respondent submitted that the judge was clearly correct to dismiss the applicant’s applications against the respondents under r 63.23 of the Rules on the ground of excessive delay in achieving finality in the 2011 and 2012 Proceedings. According to the first respondent, the applicant’s delay in instituting its applications after finalisation of those proceedings was so inordinate that on any objective view, the operation and effect of the CPA presented an insuperable barrier to the applicant being allowed to pursue its applications.

The first respondent contended that not only was the Court entitled to exercise its discretion under ss 28 and 29 of the CPA on the basis of the applicant’s delay, but, by s 8(1), the Court was compelled to give effect to the overarching purpose in exercising its powers under those sections.

The first respondent also contended that the usual concern that the defaults of practitioners not be visited upon the client is not relevant in this case because Mr Rickard was both principal of Oakleys Legal, solicitors for the applicant, and managing director of the applicant.

The first respondent submitted that the provisions of Order 63 are subordinate legislation and must ‘bend to the express intention of Parliament’ in ss 29, 30 and 31 of the CPA. This was said to mean that, if a person is going to make a claim for costs against a lawyer pursuant to r 63.23, then such an application must be made before the proceedings are finalised. According to the first respondent, this time frame can only be extended where the person was not aware of the grounds upon which such an application could be made when the proceedings were finalised.

The first respondent contended that, if the position were otherwise, a person could ‘side step’ the operation of ss 29, 30 and 31 of the CPA, by bringing an application pursuant to r 63.23 of the Rules. According to the first respondent, that is what the applicant was seeking to do, because the applications against the respondents were predicated on a contravention of the overarching obligation in s 18 of the CPA.

The first respondent submitted that prejudice to her arising from the applicant’s delay in applying for relief under r 63.23 of the Rules may be inferred simply from the fact of her position as a professional person subject to prolonged exposure to an attack on her competence, and her continued exposure to an adverse costs order nearly three years after she ceased acting for the AC parties.[34] She also submitted that she would suffer prejudice as a result of having to revisit a matter two and a half years after it had been concluded and try to remember why she made forensic and strategic decisions in relation to the pleadings in the 2011 and 2012 Proceedings.
[34]The first respondent relied on Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins& Sells [1999] 3 VR 863, 887 [60] in support of this submission.

Decision on applicant’s Grounds 2 and 4

For the reasons discussed under Grounds 1 and 3, the judge erred in determining the respondents’ applications to dismiss the applicant’s summonses without taking into account the Rickard affidavit. However, as the parties agreed that this Court should decide for itself the outcome of those applications after taking into account the Rickard affidavit and all the other evidence at trial, we will now proceed to do so.

In our opinion, the Rickard affidavit did not provide a satisfactory explanation for the applicant’s delay. Indeed, it did not provide any express explanation for the delay. It simply listed, in chronological order, a series of events and steps taken by the applicant in relation to the securities it held from the AC parties without stating how they affected the timing of the issuing of the applicant’s summonses.

For present purposes, we will accept the applicant’s submission that it may be inferred from the Rickard affidavit that the applicant wished to explore recovery of costs from the AC parties by enforcing its securities, and to defer seeking costs from the respondents until it became clear that it was unlikely that the costs would be recovered from the AC parties. However, this does not constitute a satisfactory explanation for the following reasons.

It is a precondition for the granting of relief under r 63.23 of the Rules that the respondents had ‘caused costs to be incurred improperly or without reasonable cause or to be wasted by a failure to act with reasonable competence and expedition’. The applicant was in a position to know whether this precondition was satisfied prior to the finalisation of the 2011 and 2012 Proceedings. If the applicant believed that the precondition was satisfied, it should have sought relief against the respondents prior to the finalisation of the proceedings. The sufficiency of the applicant’s securities from the AC parties to meet its costs of the proceedings had no bearing on the merits of an application under r 63.23. A timely application under that rule would not have resulted in double recovery of costs, as any amount recovered from the respondents would reduce the amount that could be recovered from the AC parties. It follows that we reject the applicant’s submissions set out at [80] above.

The applicant’s delay in seeking relief against the respondents under r 63.23 of the Rules must be considered in the context of the letter of 30 April 2012,[35] which put the respondents on notice of a possible claim for costs against them, and the reservation of rights against ‘any third parties’ in the order dated 7 August 2012.[36] It is clear from these documents that the applicant had contemplated making an application for a costs order against the respondents from as early as 30 April 2012. The Rickard affidavit is silent on why the applicant did not make such an application prior to the finalisation of the 2011 and 2012 Proceedings on 7 August 2012, as it focuses on events after that date.
[35]See [18] above.
[36]See [21] above.

The clear inference is that the applicant wanted to keep its options open against the respondents, by expressly reserving its position against them, while it explored recovery of costs from the AC parties, and decided to pursue the respondents when it became apparent that there was little prospect of recovery from the AC parties. This approach to the use of r 63.23 of the Rules is inappropriate. A person who believes that a lawyer has acted in a manner that warrants the making of a costs order against the lawyer under the rule must act expeditiously in applying for such an order rather than keeping such an application in reserve to be activated years later depending on intervening events. The time within which an application under r 63.23 should be made is discussed further at [101]–[106] below.

Having considered the Rickard affidavit, we are firmly of the view that the judge was right to describe the delay of over two years from the finalisation of the 2011 and 2012 Proceedings on 7 August 2012 as inordinate and to implicitly find that it amounted to a contravention of s 25 of the CPA.

We reject the applicant’s submission that the judge erred by not identifying the extent to which the applicant, as distinct from its lawyers, breached s 25 of the CPA. It is abundantly clear from the judge’s reasons that he attributed the delay to the applicant. He was right to do so. Although it appears from the Rickard affidavit that the applicant’s counsel may have been responsible for some of the delay after September 2013, there was no evidence that anyone other than the applicant was responsible for any part of the delay prior to that time. The delay prior to that time was itself inordinate in the circumstances of this case.

We will now consider whether the judge correctly held that the delay constituted an ‘insurmountable’ barrier to the exercise of the discretion under r 63.23 of the Rules in favour of the applicant.

The judge’s implicit finding that the applicant’s delay in seeking relief under r 63.23 of the Rules constituted a breach of the overarching obligation in s 25 of the CPA, which we have upheld, meant that the exercise of the discretion under that rule required the judge to consider at least the following:

(a)any temporal requirement implicit in r 63.23 and, in particular, any such requirement arising from reliance in an application for relief under that rule on an alleged breach of an overarching obligation in the CPA by a lawyer;
(b)the length of the applicant’s delay in seeking relief under r 63.23 and the adequacy of any explanation for the delay;[37]
(c)the nature of any prejudice to the respondents by reason of the delay;
(d)the merits of the applicant’s claim, that is, the prospect of the applicant establishing that the respondents had ‘caused costs to be incurred improperly or without reasonable cause or to be wasted by a failure to act with reasonable competence and expedition’;
(e)the duty of the Court under s 8(1) of the CPA to give effect to the overarching purpose in s 7(1) and to take into account the matters set out in s 9(1); and
(f)whether the interests of justice would be best served by making the order sought by the respondents, some other order or no order at all.

[37]Although the length of the delay and the adequacy of any explanation for it are relevant to the question of whether the applicant breached the overarching obligation in s 25 of the CPA, they are also relevant to the exercise of the Court’s discretion under s 29(1).

We will deal with each of these matters in turn.

Unlike s 30 of the CPA, r 63.23 of the Rules does not specify any temporal requirement for the making of an application for an order under that rule. However, a number of considerations indicate that such an application should be made no later than the time the parties seek final orders for costs in a proceeding, which is usually at the end of a trial when the Court publishes its reasons for judgment. An important consideration is the nature of the finding that a judge must make in order to engage r 63.23, namely, that a legal practitioner has caused costs to be incurred improperly or without reasonable cause or to be wasted by a failure to act with reasonable competence and expedition. The Court is best placed to hear submissions on this when the conduct of the litigation by the parties and their lawyers is fresh in the trial judge’s mind, which is usually when the judge determines costs issues in the light of his or her substantive findings in the proceeding. Further, the lawyer against whom allegations are made under r 63.23 — which have the potential to seriously damage his or her professional reputation — is best able to defend him or herself, and assist the Court, at the time that costs issues are determined, rather than after final orders are made.

Another important consideration is the nature of the power conferred by r 63.23 of the Rules. Although the power falls within the Court’s supervisory jurisdiction over legal practitioners, it is essentially compensatory and for the benefit of parties to litigation,[38] and it should be exercised as simply and as expeditiously as the requirements of procedural fairness permit.[39] These considerations militate against the Court entertaining an application under r 63.23 after final orders are made in a proceeding if the person making the application was aware, prior to the making of those orders, of facts in support of the application.
[38]Bahai v Rashidian [1985] 1 WLR 1337, 1342.
[39]Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300, 303 [5], 304 [7], 333 [143].

A further important consideration is the need for finality in litigation, including any orders for costs that are made in the litigation.[40] If a party believes that the conduct of its, or an opposing party’s, lawyer warrants an order for costs being made against the lawyer under r 63.23 of the Rules but, instead of seeking such an order when final orders are made, seeks costs only against the opposing party, an application for such an order at a later time could seriously undermine the administration of justice. This is because if the application had been made when the judge was considering what costs orders to make as between the parties, he or she may have made an order that some of the costs of the trial be paid solely by the lawyer rather than making a general order that the costs of the trial be paid by the opposing party. The making of costs orders in ignorance of the proposed application may lead to the costs discretion miscarrying because it would be exercised without the benefit of all relevant considerations. Further, if an order for costs against the opposing party is included in the final orders of the Court, it may not be capable of alteration at the time that the Court subsequently hears an application under r 63.23.
[40]For a discussion of the finality principle, see D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1, 17–18 [34]–[35]; Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 331 ALR 1, 9–11 [33]–[37], 16 [66], 22–3 [100]–[102], 23–4 [106]–[107].

We accept that there may be circumstances which prevent a party from making an application under r 63.23 of the Rules at the time the parties seek final orders for costs in a proceeding. An obvious circumstance is where that party is not aware at that time that a lawyer had engaged in conduct falling within r 63.23.[41] Where such circumstances exist, an application under r 63.23 should be made as soon as practicable after there is no longer any impediment to the making of the application.
[41]See Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224, 226–7, 230, 234–6.

Where, at the time the parties seek final orders for costs in a proceeding, a party’s knowledge of facts which may warrant an order being made against a lawyer under r 63.23 of the Rules is incomplete, the appropriate course is for that party to communicate these matters to the Court at that time. This would enable the Court to give directions about the timing of any application for an order against a lawyer and, if appropriate, to defer making final orders as to costs.

The above observations have additional force where an application under r 63.23 of the Rules is based on an alleged breach of an overarching obligation by a lawyer. This is because ss 30 and 31 of the CPA evince a clear legislative intention that applications for relief based on a breach of an overarching obligation must be made prior to final orders being made in the relevant litigation, subject to the power of the Court to grant an extension where the person making the application was not aware of the breach prior to the making of final orders. Although ss 30 and 31 are, in terms, confined to an application for relief under s 29 of the CPA and do not apply to an application under r 63.23, the reliance on a breach of an overarching obligation necessarily requires that consideration be given to those sections in the exercise of the discretion under r 63.23.

Of course, the making of an application under r 63.23 of the Rules at the time the parties seek final orders for costs in a proceeding does not mean that the Court will be in a position to determine that application at that time. There may be some delay because r 63.23(3) requires the Court to give the lawyer who is the subject of such an application a reasonable opportunity to be heard and r 63.23(4) empowers the Court to refer the matter to a Costs Judge or an Associate Judge for inquiry and report.

It follows from the above discussion that, as the applicant sought relief against the respondents under r 63.23 of the Rules on the basis of a breach of the overarching obligation in s 18 of the CPA, the judge was right to consider the timing requirements in ss 30 and 31 of the CPA in the exercise of his discretion under r 63.23. However, while those timing requirements were relevant to the exercise of that discretion, they could not be treated as determinative. To treat them as determinative would be contrary to s 29(3) which provides that s 29 does not limit any other power of a court to make any order, including any order as to costs.

We have already explained why we have concluded that the judge was right to describe the applicant’s delay of over two years in seeking relief under r 63.23 of the Rules as inordinate.[42] Although the judge did not consider the adequacy of the explanation for the delay in the Rickard affidavit — because he overlooked that affidavit — we have considered the affidavit and have concluded that what was said to be the explanation for the delay is unsatisfactory.[43] Both the length of the delay and the lack of satisfactory explanation for it were important, but not determinative, discretionary considerations.
[42]See [96] above.
[43]See [91] above.

The judge did not expressly refer to any prejudice to the respondents. In our opinion, while the generic nature of the prejudice upon which the respondents relied[44] may have limited its weight, nevertheless it needed to be taken into account in the exercise of the discretion under r 63.23 of the Rules.
[44]See [89] above.

There was a dearth of specific evidence before the judge about the role of the respondents in the decision of the AC parties to challenge the validity of the deed of settlement and whether the respondents’ conduct ‘caused costs to be incurred improperly or without reasonable cause or to be wasted by a failure to act with reasonable competence and expedition’. It can be inferred from the fact that the applicant served subpoenas on the respondents seeking evidence in support of its applications under r 63.23 of the Rules, that the applicant was not confident that the evidence in its possession would be sufficient to persuade the Court to grant the applications.

The judge did not analyse the probative force of the evidence in support of the applicant’s applications under r 63.23 of the Rules. This is because his consideration of whether the applications had a real prospect of success focused on the applicant’s delay and what the judge said was the absence of an explanation for that delay.

In exercising the discretion in r 63.23 of the Rules, the judge sought to give effect to the overarching purpose in s 7(1) of the CPA, as required by s 8(1), and had regard to the matters set out in s 9(1).[45] He was right to do so.
[45]Reasons [56]–[61].

The judge also considered the interests of justice and concluded that they would be best served by making the order sought by the respondents.[46]
[46]Reasons [67]–[68]. See [41] above.

In our opinion, when one weighs up all of the relevant considerations to which we have referred, the conclusion that it was in the interests of justice for the judge to make an order dismissing the applicant’s applications under r 63.23 of the Rules, is irresistible. Those applications were made after an inordinate delay, for which no satisfactory explanation was provided, and they had unknown prospects of success because they were based on incomplete evidence. To have allowed the applications to proceed would have undermined the fundamental principle of finality in litigation.

At trial, it was common ground that s 29(1)(e) of the CPA empowered the Court to make an order dismissing the applicant’s summonses.[47] It is not necessary for us to consider the scope of s 29(1)(e), as the opening words of s 29 (‘any order [the court] considers appropriate in the interests of justice’) and s 29(1)(f) (‘any other order that the court considers to be in the interests of any person who has been prejudicially affected by the contravention’) are sufficiently wide to authorise dismissal of the summonses.[48]
[47]See [31] above.
[48]Knörr v Commonwealth Scientific and Industrial Research Organisation (CSIRO) [2014] VSCA 84 [67].

It is evident from the above discussion that the judge did not take into account all of the considerations that were relevant to the exercise of the discretion under r 63.23 of the Rules. Instead, he focused on the applicant’s delay and the provisions of the CPA requiring parties and their lawyers to act expeditiously and in a timely manner. While the judge was correct to take these matters into account, he erred in failing to have any regard to the other relevant considerations. Notwithstanding this, however, the judge correctly decided to grant the relief sought by the respondents, namely, an order that the applicant’s applications under r 63.23 be dismissed.

Conclusion

Due to the errors we have found in the judge’s decision, we will grant the applicant leave to appeal but dismiss the appeal.

Actions

Download as PDF Download as Word Document

Citations

Gippsreal Ltd v Caroline Majella Kenny and Ian Symonds and Associates [2016] VSCA 319

Most Recent Citation

Gabelich v Donaghey [2018] VSC 184

Cases Citing This Decision

3

Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 19] [2025] WASC 234

Cappelleri v Cappelleri [2020] VSC 306

Gabelich v Donaghey [2018] VSC 184

Cases Cited

14

Statutory Material Cited

0

Kenny v Gippsreal Ltd (No 2) [2015] VSC 737

Kenny v Gippsreal Ltd [2015] VSC 284

Actrol Parts Pty Ltd v Coppi (No 3) [2015] VSC 758

[2016] VSCA 319

15 December 2016