Gorczynski v Holden

[2010] NSWSC 992

CITATION:	Gorczynski v Holden [2010] NSWSC 992
HEARING DATE(S):	5 July 2010
JUDGMENT DATE :	3 September 2010
JUDGMENT OF:	McCallum J
DECISION:	The orders are: 1.That leave to appeal be granted. 2. That the appeal be allowed. 3.That order 3 made by the Magistrate in each of the proceedings below be varied by adding the words “together with the defendant’s costs of the proceedings from 1 May 2007 as agreed or assessed on an indemnity basis.
CATCHWORDS:	PROCEDURE - costs - appeal as to costs - whether Magistrate erred in considering herself constrained by law applicable in Small Claims Division - determination by solicitors to discontinue proceedings - whether costs should have been ordered on indemnity basis after after they failed to seek leave to do so
LEGISLATION CITED:	Legal Profession Act 1987 Legal Profession Act 2004 Local Court Act 2007 Uniform Civil Procedure Rules 2005 Civil Procedure Act 2005 Local Courts (Civil Procedure) Rules 2005
CATEGORY:	Principal judgment
CASES CITED:	Gorczynski v Holden [2008] NSWSC 334 Arnoldus-Lewis v Murphy [2008] NSWSC 1103 Murphy v Arnoldus-Lewis [2009] NSWCA 142 Ashi v Pty Ltd v Karasco Investments Pty Ltd [2009] NSWSC 780 Loudoun-Shand v Jadasi Investments Pty Ltd [2007] NSWCA 316
PARTIES:	Peter Gorczynski Michael Geoffrey Anthony Holden, StephenEdward Martin, Ian John Benecke and Brenden John Miller t/as "Garland Hawthorn Brahe"
FILE NUMBER(S):	SC 2009/296263
COUNSEL:	Mr N Connolly (Plaintiffs) Mr P Doyle-Gray (Defendants)
SOLICITORS:	Niall Connolly Lawyers (Plaintiff) Garland Hawthorn Brahe (Defendants)

- 21 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

McCALLUM J

3 September 2010

09/296263 Peter Gorczynski v Michael Geoffrey Anthony Holden & Ors (trading as Garland Hawthorn Brahe)

JUDGMENT

1 HER HONOUR: Mr Peter Gorczynski is a former client of the defendant law firm, Garland Hawthorn Brahe. In June 2005, Garland Hawthorn Brahe commenced two separate proceedings against Mr Gorczynski in the Small Claims Division of the Local Court seeking payment of outstanding fees for legal services.

2 At the time the legal services in question were provided, and indeed at the time the proceedings against Mr Gorczynski were commenced, the rights of clients in respect of legal fees were governed by Part 11 of the Legal Profession Act 1987. That Act was subsequently repealed and replaced by the Legal Profession Act 2004, which commenced on 1 October 2005.

3 The 1987 Act provided for a prescribed form of bill of costs to be given to a client. Section 192 of the Act prohibited solicitors from commencing or maintaining proceedings for the recovery of costs unless 30 days had passed since giving the client a bill of costs in accordance with the prescribed form. It was common ground that the bills of costs given to Mr Gorczynski were not in accordance with the form prescribed under the 1987 Act. I was informed by counsel for Garland Hawthorn Brahe that the firm prepared the bills in accordance with the requirements of the 2004 Act, which had no application in the circumstances (and indeed had not commenced when the bills were sent).

4 Mr Gorczynski contended that the legal consequence of those events was that the two proceedings in the Small Claims Division were commenced in contravention of the prohibition contained in s 192 of the 1987 Act, and were therefore liable to be dismissed.

5 Garland Hawthorn Brahe eventually acceded to that contention and their claims in the Local Court were ultimately dismissed by consent. In the meantime, however, both parties had incurred legal costs well out of proportion to the amounts initially claimed. The context in which they did so is explained below.

6 The costs implications of the dismissal of Garland Hawthorn Brahe’s claims were further complicated by the fact that Mr Gorczynski had filed a cross-claim in each proceeding alleging breach of retainer on the part of Garland Hawthorn Brahe (the cross claims remain on foot and are yet to be heard). The amounts claimed by Mr Gorczynski by the cross claims exceeded the jurisdictional limit of the Small Claims Division. For that reason, by the time Garland Hawthorn Brahe’s claims were dismissed, the whole of the proceedings had been transferred to the General Division of the Court.

7 The Magistrate who dismissed Garland Hawthorn Brahe’s claims nonetheless considered herself bound by the costs provisions that apply in the Small Claims Division. On that premise, her Honour rejected an application by Mr Gorczynski for indemnity costs, and awarded him costs at the low rates fixed by statute in that division. Mr Gorczynski now seeks to appeal against that decision.

Requirement for leave to appeal

8 Mr Gorczynski initially contended that the orders made as to costs were ancillary to errors of law on the part of the learned Magistrate and, accordingly, that the appeal was brought as of right under s 39(1) of the Local Court Act 2007. In the context of an application for leave to file an amended summons heard by Davies J earlier this year, his Honour held against Mr Gorczynski on that issue and afforded him an opportunity to bring in an amended summons seeking leave under s 40(2) of the Act: see his Honour’s judgment given 3 March 2010 (unreported).

9 Section 40 of the Local Court Act provides:

“(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court on a ground that involves a question of mixed law and fact may appeal to the Supreme Court but only by leave of the Supreme Court.

(2) A party to proceedings before the Court sitting in its General Division who is dissatisfied with any of the following judgments or orders of the Court may appeal to the Supreme Court, but only by leave of the Supreme Court:

(a) an interlocutory judgment or order,

(b) a judgment or order made with the consent of the parties,

(c) an order as to costs.”

10 With respect, I agree with the conclusion reached by Davies J on that issue. It is clear from the terms of s 40, in my view, that Parliament intended there should be no appeal from the Local Court against any decision as to costs, whether flowing from pure legal error or otherwise, except with the leave of the Court.

11 The hearing before me proceeded on the basis that the question of leave would be heard and determined together with the substantive appeal. In order to consider both matters, it is necessary to examine the history of the litigation in some detail.

History of disputes between the parties

12 The two statements of claim were filed by Garland Hawthorn Brahe in the Small Claims Division in June 2005 claiming amounts of $1,284.80 and $6,667.30 respectively. No defence was filed in either matter and on 3 August 2005 Garland Hawthorn Brahe obtained default judgment against Mr Gorczynski for each amount claimed together with interest and costs. Garland Hawthorn Brahe then commenced bankruptcy proceedings (in the Federal Magistrates Court) on the basis of the default judgments.

13 After being served with the bankruptcy notices, Mr Gorczynski moved to have the default judgments set aside. That application was heard in the Local Court on 15 March 2007. On that occasion, the solicitor appearing for Mr Gorczynski, Mr Kent, outlined his contention that it was in breach of the Legal Profession Act 1987 for Garland Hawthorn Brahe to maintain or continue the proceedings (exhibit B, tab 10, sub-tab 3 at page 27).

14 It appears that Mr Kent was attempting to invite the Court to make an order of its own motion dismissing the proceedings at that time. More than once, he was stopped from expanding the submission, the Magistrate apparently perceiving the point as being directed only to the issue whether Mr Gorczynski had a substantive defence to the claims so as to warrant the Court’s setting aside the default judgments.

15 The Magistrate determined to set aside the judgments on conditions. His Honour said:

“It will be clear from the comments I’ve made that I have had great difficulty in accepting Mr Gorczynski credibility (sic) in relation to the non-receipt of the statement of claim. I have some way as to my concerns might be misplaced. I propose to set aside the judgment but on certain conditions.”

16 The Magistrate made the following orders:

(a) in proceedings 6511 of 2005 the judgment was set aside on terms;

(i) that Mr Gorczynski pay the sum of $1480.58 (the amount of the judgment) into Court;
(ii) that Mr Gorczynski pay Garland Hawthorn Brahe’s costs of the notice of motion to set aside the default judgment in the sum of $350.

(b) in proceedings 6512 of 2005 the judgment was set aside on terms:

(i) that Mr Gorczynski pay the sum of $7885.49 (the amount of the judgment) into Court;
(ii) that Mr Gorczynski pay Garland Hawthorn Brahe’s costs of the bankruptcy notices issued by them in the sum of $750;
(iii) that Mr Gorczynski pay Garland Hawthorn Brahe’s costs of the notice of motion to set aside the default judgment in the sum of $350.

17 Mr Gorczynski complied with the conditions imposed and paid a total of $10,816.07 (paying $1450 to Garland Hawthorn Brahe and the balance into Court). Separately, he filed an appeal to this Court against that part of the Magistrate’s decision. One of the grounds of appeal was the Magistrate’s refusal to hear Mr Kent on the point that the proceedings were not properly maintainable.

18 On 12 April 2007, Mr Gorczynski filed a defence and cross-claim in each proceeding in the Local Court. In those pleadings he again alleged, as argued by Mr Kent on the application to have the default judgments set aside, that Garland Hawthorn Brahe were prohibited from recovering the amounts claimed as no bill of costs had been provided to him in accordance with the Legal Profession Act 1987 and the relevant regulations (exhibit B, tabs 6 and 7). The pleadings included reference to s 192 of the Act, which relevantly provided:

Bill of costs to be given before costs can be recovered from client
(1) Proceedings for the recovery of costs by a barrister or solicitor for providing legal services must not be commenced or maintained against any person unless at least 30 days have passed since a bill for those costs was given to the person in accordance with this Division.

19 On 17 April 2007, five days after those pleadings were filed, Garland Hawthorn Brahe wrote to Mr Kent, stating:

“We refer to previous correspondence and advise that we propose to discontinue both sets of proceedings. Notices of discontinuance are enclosed herewith. Would you be good enough to obtain your client’s instructions in relation to his consent to the discontinuance to avoid us approaching the Court for leave ” (my emphasis).

20 Mr Gorczynski did not consent to the discontinuance. The issues he considered at that time are set out in his affidavit sworn on 26 March 2009 in the proceedings in the Local Court (exhibit B, tab 17) as follows:

“a) I remembered what Mr Kent had said to me concerning his conversation with Mr Miller at court on 15 March 2007 regarding the very limited amount that I would likely recover from the Plaintiffs under the Small Claims scale of costs;
b) I remembered how the Plaintiffs had fought against my application for costs in the Federal Magistrate Court proceedings, estimated at that point to be about $10,000. The Plaintiffs’ offer was silent about those costs and whether they intended to make an offer or cause me to incur further costs by having to go through the assessment process;
c) The offer was silent as to what the Plaintiffs intended to do about the real costs that I had been forced to incur thus far in the Local Court, estimated at that point to be about $6,000;
d) The offer was silent about refunding the $10,816.07 that I had paid to the court and the Plaintiffs on 12 April 2007;
e) The offer was silent as to what the Plaintiffs’ intended to do regarding the Appeal in the Supreme Court or the costs that I had already incurred in relation to it, estimated at that point to be about $1500.”

21 On 19 April 2007 (two days after informing Mr Kent that they proposed to discontinue both sets of proceedings in the Local Court), Garland Hawthorn Brahe again wrote to Mr Kent advising him that they consented to the orders sought in the summons commencing the appeal “save as to costs”.

22 According to Mr Gorczynski’s affidavit in the Local Court referred to above, it was his understanding that Mr Kent had subsequently written to Garland Hawthorn Brahe about various costs issues but had not received a reply. In any event, at some point Garland Hawthorn Brahe must have withdrawn their consent to the orders sought in the appeal summons. In accordance with their letter of 19 April 2007, there should have been no argument except as to costs. However the appeal was heard and determined on its merits by Hoeben J in April 2008. His Honour dismissed the summons and ordered Mr Gorczynski to pay Garland Hawthorn Brahe’s costs in the sum of $9,325: Gorczynski v Holden [2008] NSWSC 334.

23 It is difficult to understand why the appeal proceeded on a contested basis in the circumstances. As disclosed in the correspondence to which I have already referred, Garland Hawthorn Brahe had determined no later than 17 April 2007 to discontinue the underlying proceedings in the Local Court. It should have followed, without further ado, that the proceedings would be brought to an end. I do not understand why, in the absence of Mr Gorczynski’s consent to the discontinuance, Garland Hawthorn Brahe did not simply approach the Court for leave to discontinue, as contemplated in rule 12.1 of the Uniform Civil Procedure Rules. Leave would unquestionably have been granted in the circumstances, albeit on terms as to costs. The discontinuance of the proceedings in the Local Court at that time would have obviated the need for this Court to hear the appeal determined by Hoeben J and would have spared the costs of that appeal.

24 Plainly, it was within Mr Gorczynski’s control also to avoid those consequences by giving his consent to the discontinuance of the two proceedings. However, the price of his doing so was to accept costs capped at the rates permitted in the Small Claims Division. To consent to that course may have been an unpalatable option, whether or not it was the likely outcome in any event. By that time, Mr Gorczynski had been compelled to defend the two bankruptcy notices, to pay Garland Hawthorn Brahe’s costs of $750 for having those notices issued, to make applications to have the default judgments set aside, to pay Garland Hawthorn Brahe’s costs of those applications in the sum of $700 and to pay the disputed fees into Court as the price of being heard on a point that was ultimately conceded.

25 In any event, whatever the merits of his decision, Mr Gorczynski had no obligation to give his consent. It was Garland Hawthorn Brahe who had commenced the proceedings and it was they who had determined to discontinue them. They had evidently accepted, by April 2007, that there was an appreciable risk that the proceedings had been commenced in contravention of the statute. The last chance to avoid what transpires to have been a complete waste of costs and court resources was theirs. If they had obtained leave to discontinue at that time, the hearing of the appeal before Hoeben J, the preparation of Mr Gorczynski’s subsequent application to have the Local Court proceedings dismissed and some of the argument in the Local Court would have been avoided.

26 I do not have evidence before me as to the subjective explanation for the fact that Garland Hawthorn Brahe did not approach the Local Court for leave to discontinue the proceedings in April 2007. Objectively, their failure to do so stands as an indication that, for whatever reason, they had decided to battle on and to dispute the contention that the commencement and maintenance of the proceedings was prohibited by the statute.

27 That analysis is reinforced by a consideration of the judgment of Hoeben J. His Honour stated, at [13]:

“The plaintiff [Mr Gorczynski] put another submission as to a denial of natural justice. The plaintiff submitted that if the plaintiff’s defence on the merits, ie that the defendants’ claims were not maintainable because of their failure to comply with the Legal Profession Act 1987 or the Legal Profession Act 2004, the court should of its own motion, have struck out the two statements of claim or alternatively, have stayed them. This was because the defendants had not complied with the mandatory provisions of the Act. The plaintiff submitted that s331(3) of the 2004 Act required a court to stay any proceedings brought in contravention of that section. His Honour’s refusal to hear submissions on this point deprived the plaintiff of the opportunity of having the proceedings stayed or dismissed.”

28 It is apparent from that passage of the judgment that his Honour perceived the contention that Garland Hawthorn Brahe’s claims were not maintainable due to a failure to comply with the Legal Profession Act 1987 as a live issue between the parties that remained to be determined on the merits. If, at the time of the hearing of the appeal, Garland Hawthorn Brahe had disclosed an intention to discontinue the proceedings in the Local Court, his Honour would undoubtedly have perceived that issue differently.

29 After the determination of the appeal by Hoeben J, Mr Gorczynski filed a notice of motion in each proceeding in the Local Court seeking the following orders:

“1 The proceedings be transferred to the Court’s General Division pursuant to Part 2 rules 6 and 7 of the Local Courts (Civil Procedure) Rules 2005.
2 The Plaintiffs’ Statement of Claim be dismissed pursuant to Part 13 rule 13.4 of the Uniform Civil Procedure rules 2005.
3 The monies paid by the Defendant/Cross Claimant to the court and to the Plaintiffs on 12 April 2007, totalling $10,816.07, be refunded along with any interest that may be due to the Defendant.
4 The Plaintiffs pay the Defendant’s costs of and incidental to the Statement of Claim on an indemnity basis.
5 The Defendant be granted leave to amend its Cross Claim.”

30 When the motions came before the Court on 29 January 2009, Mr Connolly, who appeared for Mr Gorczynski, informed the Court that the amount claimed by the cross-claims was $15,000 (which exceeds the jurisdictional limit of the Small Claims Division). In those circumstances, it was indicated on behalf of Garland Hawthorn Brahe that they did not oppose order 1 transferring the proceedings to the Court’s General Division.

31 Notably, however, the practitioner who appeared for Garland Hawthorn Brahe stated that they opposed the making of an order dismissing the proceedings and, further, that they wished to have an opportunity to put on evidence in support of their position (exhibit A, tab 3, page 2). Mr Connolly then outlined the basis for the application. It was the same argument as had, by then, been put twice before (by Mr Kent). Mr Connolly contended that Garland Hawthorn Brahe had not complied with s 192 of the Legal Profession Act and, accordingly, that their claims had no prospects of success. The Magistrate made the order transferring the proceedings to the General Division and stood the balance of the two notices of motion over for hearing on 26 February 2009.

32 On 26 February 2009, the proceedings came before Magistrate O’Shane. Garland Hawthorn Brahe initially sought a further adjournment on the basis that they had only recently received notice of additional evidence to be relied upon on behalf of Mr Gorczynski. That application was refused. After the luncheon adjournment, Mr Hughes of counsel, who appeared for Garland Hawthorn Brahe, then announced that he had news that “may serve to shorten the proceedings”. Mr Hughes reminded the Magistrate that order 1 sought in the notices of motion (transferring the proceedings to the Court’s General Division) had already been made. He then said in relation to order 2 (seeking dismissal of Garland Hawthorn Brahe’s claims under rule 13.4) “the plaintiffs wish to indicate that they will discontinue the statements of claim against the defendant” (exhibit A, tab 4, page 10.25).

33 It followed that there was no opposition by Garland Hawthorn Brahe to order 3 sought in the notices of motion (that the moneys paid into Court be refunded to Mr Gorczynski), although Mr Hughes rightly noted that was a matter for the Court. The only outstanding issues then were Mr Gorczynski’s application to have his costs of the two claims paid on an indemnity basis (order 4) and his application for leave to amend his cross-claim (order 5).

34 As to the cross-claim, Mr Hughes indicated that a grant of leave to amend would be premature, since no draft amendment had been provided to Garland Hawthorn Brahe. It appears from the transcript that the Magistrate ordered Mr Gorczynski to file and serve a draft amended cross-claim within 21 days.

35 As to the question of costs (order 4), Mr Hughes submitted to the Magistrate that, since the cross-claim was still on foot, the appropriate costs order was for the costs of the statements of claim to be costs in the cause on the cross-claim. Mr Connolly opposed that course. He again outlined the contention that the proceedings should never have been commenced or maintained because Garland Hawthorn Brahe had failed to comply with s 192 of the Legal Profession Act 1987. After hearing some argument as to whether an indemnity costs order was appropriate in those circumstances, the Magistrate determined to adjourn the proceedings to another occasion in order to give further consideration to that issue. The parties offered to provide written submissions in advance of the adjourned hearing and her Honour indicated that she would receive those.

36 An order was made at the conclusion of the hearing that day adjourning the proceedings part heard to 20 March 2009. However, it appears the proceedings in fact next came before the Court on 27 March 2009. It is not clear whether draft amended cross-claims had been distributed on behalf of Mr Gorczynski by that date. The transcript of a later hearing suggests that they had (Exhibit A, tab 6, page1.25).

37 Shortly after the hearing commenced, there was the following exchange:

HER HONOUR: Right, well, you won’t be getting any decision from me today. I went through the amended statement of claims…

CONNOLLY: Amended cross-claims, your Honour?

HER HONOUR: Cross-claims, I beg your pardon and I – well, at some point my hair stood on end. I take it your client drafted them, did he?
CONNOLLY: I’m instructed that the cross-claims originally were settled by the plaintiff’s former solicitor.

38 The Magistrate proceeded to illustrate her concerns about the “amended cross-claims”. Her Honour was highly critical of their contents, suggesting that the pleader, if a legal practitioner, should go back to the College of Law. However, it is apparent from a comparison of those remarks with the pleadings filed that her Honour had in fact been looking at the original cross-claims filed 27 April 2007 (which were the subject of Mr Connelly’s part-heard application for leave to amend).

39 The impression that emerges from the transcript is that Mr Connelly did not identify the misunderstanding, and so thought her Honour’s criticisms were directed at him. In any event, the Magistrate expressed the view that it was going to take at least a day to determine the outstanding issues on the two motions. Her Honour declined to determine the issue of costs that day and adjourned the proceedings part heard to 10 August 2009.

40 On 10 August 2009, the Magistrate heard the application for indemnity costs. At the outset of the argument Mr Doyle-Grey, who appeared for Garland Hawthorn Brahe then and on the appeal before me, stated that he and Mr Connolly had had some productive discussions that had narrowed the issues on costs. He said that the Court would “have to be focussed on what happened in April 2007 and whether it was reasonable for the defendants (sic) to reject the discontinuance with an offer to pay costs” (exhibit A, tab 6, page 6). Mr Connolly said (to the Magistrate) “I agree that those are the issues”.

41 It is clear, however, that Mr Connolly was not agreeing that his application was governed by the law that binds the Small Claims Division. In this Court, Mr Doyle-Grey contended otherwise. He submitted that, in applying the law that binds the Small Claims Division, the Magistrate was proceeding “on the agreed basis before her” (T24.27). I do not think that is what Mr Connolly was indicating in the exchange quoted above. He specifically addressed the Magistrate on the basis that, since the proceedings were then in the General Division of the Court, her Honour had “full and complete discretion” as to costs under s 98 of the Civil Procedure Act 2005 and part 42 of the Uniform Civil Procedure Rules 2005 (exhibit A, tab 6, page 12.45).

42 The narrowing of issues apparently conceded by Mr Connolly was that it was appropriate to focus on the reasonableness of Mr Gorczynski’s decision not to consent to the discontinuance. Mr Connolly evidently understood the argument against him to be that Mr Gorczynski could have obtained no better result as to costs from the Court than that proposed in the notices of discontinuance (exhibit A, tab 6, page 6.30). Only in that context did he concede that it was relevant to look at the law that binds the Small Claims Division. Mr Connolly’s response was that, regardless of whether Mr Gorczynski could have obtained a better result from the Court, he was under no obligation to consent to the discontinuance. It was for the solicitors to make the application for leave, having determined that they would discontinue the proceedings. He submitted, correctly in my view, that it was appropriate that they do so, as the moving party in the proceedings.

43 Whilst it was not inappropriate for the Court to be invited to have regard to what the position would have been had the solicitors’ claims been discontinued in April 2007 (when the proceedings were still in the Small Claims Division of the Court), the Court was not bound to determine the application made in 2009 on that basis. In that respect, Mr Connolly was plainly right.

44 Regrettably, however, the argument developed in a way that suggested otherwise. Garland Hawthorn Brahe pointed to the fact that, at the time they proposed discontinuance of the proceedings in April 2007, the only costs that could have been ordered in the Small Claims Division were those payable pursuant to Regulation 14 of the Local Courts (Civil Procedure) Rules 2005. That was not disputed by Mr Connolly, and was in fact a point made in his written submissions (exhibit B, tab 16).

45 In support of their submissions, Garland Hawthorn Brahe relied on a decision I gave in Arnoldus-Lewis v Murphy [2008] NSWSC 1103 and the Court of Appeal’s dismissal of an application for leave to appeal against that decision: Murphy v Arnoldus-Lewis [2009] NSWCA 142. The issue in that case was whether the Small Claims Division had power to award “expenses” (for travel and time spent at court) to an unrepresented litigant. I held that, in the absence of any express statutory power to do so, the Small Claims Division has no such power. Garland Hawthorn Brahe relied on that decision as authority for the different proposition that the Small Claims Division has no power to make an order for indemnity costs, since its only express power is to award costs at capped rates.

46 The exchanges on those issues introduced confusion in two respects. First, there was confusion as to the law that the Magistrate should apply. It was common ground at the hearing before me that her Honour was not sitting in the Small Claims Division when the costs order was made. However, her Honour was addressed on the basis that she only had power to award costs in accordance with the legislation applicable in that division (exhibit A, tab 5, page 15.30).

47 Secondly, the submissions proceeded on the premise that it was Mr Gorczynski’s fault that the proceedings had not been discontinued in April 2007, by reason of his allegedly unreasonable failure to consent to that course. The argument entirely overlooked the fact that Garland Hawthorn Brahe could have discontinued the proceedings with the leave of the Court. Indeed, if they had reached the point in April 2007 of accepting that the proceedings had been commenced in contravention of s 192 of the 1987 Act, it would in my view have been incumbent upon them to do so, and inappropriate to maintain their claims and defend the interlocutory appeal thereafter.

48 I emphasise that it is not established whether that was their belief at that time. As already explained, Garland Hawthorn Brahe’s conduct of the proceedings and the appeal after April 2007 suggests, on the contrary, that they did not unequivocally accept the point taken against them. Either way, there was no proper basis for determining the costs application as if Garland Hawthorn Brahe had discontinued the proceedings back in April 2007. If their decision not to seek leave to discontinue reflected a determination to argue the point, then it cannot be said that the continuation of the proceedings was due to any decision of Mr Gorczynski’s.

49 Conversely, if, by April 2007, solicitors accepted the correctness of Mr Gorczynski’s point, it would follow that they accepted from that time that they were prohibited from maintaining the proceedings (by a statute that governed their conduct as legal practitioners). In that event, there could have been little doubt in August 2009 that they should have paid Mr Gorczynski’s costs an indemnity basis, at least from the time they formed that view.

The Magistrate’s decision and the errors alleged

50 The Magistrate gave judgment on the costs application on 17 August 2009. Her Honour determined the application on the basis that, although the proceedings had been transferred to the General Division, there had been “no proceedings in respect of the plaintiff’s claim for some very considerable time”. On that basis, her Honour took the view that Garland Hawthorn Brahe’s claims were “still with the Small Claims Division, or…still a small claim at any rate”.

51 The Magistrate concluded, by reference to the limited statutory powers of the Court, that she did not have the power to award costs on an indemnity basis. Accordingly, she rejected the application. Whilst other issues were raised by the grounds of appeal relied upon in the amended summons, the burden of the argument put on behalf of Mr Gorczynski at the hearing before me related to that aspect of the Magistrate’s decision.

52 Mr Doyle-Grey did not dispute that it would have been wrong for the Magistrate to approach the matter on the basis that the Court’s powers in respect of the indemnity costs application were confined to those of the Small Claims Division. He submitted, however, that the judgment below should be read as if her Honour did not fully articulate her reasons. He submitted that I should read into the reasons a “missing paragraph” to the effect that, although the Court had power to grant the application, it would in the exercise of its discretion cap the costs according to the regime that would have applied if the application had been determined in April 2007, before the proceedings were transferred to the General Division.

53 The basis for that submission was that her Honour had, at the time of argument, clearly appreciated that she was sitting in the Court’s General Division. Mr Doyle-Grey submitted that the preferable conclusion was that her Honour could not have overlooked that consideration when giving judgment a week later (T30).

54 I do not think it is possible to read the Magistrate’s reasons in that way. Her Honour referred to the relevant costs provisions and said that they “clearly preclude this court exercising its jurisdiction in the small claims division from making any award [of] costs on an indemnity basis”. Her Honour said, “even if this court were unable (scil: able) to make a costs award on an indemnity basis, it would hesitate to do so” because such costs are to be awarded only in a clear case. Her Honour then said “But, as I have already just stated, this court does not have the power or jurisdiction to award costs on an indemnity basis and, accordingly, the court rejects the defendant’s application per clause 4 of his notice of motion.”

55 The matter is put beyond doubt by the following exchange (at T6.14) between the Magistrate and Mr Connelly in the context of Mr Connelly’s application for an allowance for disbursements

“HER HONOUR: That is true, but I’m not going to make an award including disbursements if there’s nothing before me. I don’t have – it certainly wasn’t part of – it wasn’t an alternative claim made by you. The only application made by you on behalf of your client was for costs to be paid on an indemnity basis.
CONNELLY: Yes, your Honour.
HER HONOUR: This court can’t do that.
CONNELLY: No, your Honour, I appreciate that.
HER HONOUR: Sitting in the small claims division.
CONNELLY: I’ve heard your Honour’s reasons.”

56 In my view, it is clear that her Honour regarded herself as being bound by a constraint that did not exist. On that basis, I am satisfied that the decision entailed error, as contended on behalf of Mr Gorczynski.

Leave to Appeal

57 I am satisfied that leave to appeal on that ground should be granted. Mr Doyle- Grey submitted that even if I were persuaded of error, leave should not be granted unless there is some “special feature” of the appeal beyond the errors alleged such as to distinguish this case from the raft of ordinary costs decisions, as to which Parliament has determined there should be no appeal as of right: Ashi v Pty Ltd v Karasco Investments Pty Ltd [2009] NSWSC 780 at [29] to [34] per Davies J.

58 In my view, the case raises an important matter of principle, namely, the obligation of a plaintiff who has decided to discontinue proceedings to take the steps available under the rules to give effect to that decision. Considerable costs and court resources could have been avoided had Garland Hawthorn Brahe done so in the present case.

59 A premise of the argument in the Court below and in this Court was that Garland Hawthorn Brahe’s determination to discontinue the proceedings could be characterised as an offer to resolve the proceedings on certain terms, which Mr Gorczynski rejected at his own peril. The decision of the Magistrate condoned that proposition. In my view, it was wrong and should not stand uncorrected. Consistently with their duty to the court under s 56 of the Uniform Civil Procedure Act 2005, Garland Hawthorn Brahe ought to have seen the proposed discontinuance through in accordance with the provisions of the rules.

Conclusion

60 The powers of this Court in respect of the determination of appeals under the Local Court Act 2007 are specified in s 41(1) of the Act, which provides:

(1) The Supreme Court may determine an appeal made under section 39(1) or 40:
(a) by varying the terms of the judgment or order, or

(b) by setting aside the judgment or order, or

(c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court’s directions, or

(d) by dismissing the appeal.

61 Neither party submitted that I should remit the matter to the Local Court. In my view, that would plainly be undesirable in the present case, since it would only result in further costs being incurred. It is not necessary to make any finding of fact in order to determine the appropriate variation of the orders made below: cfLoudoun-Shand v Jadasi Investments Pty Ltd [2007] NSWCA 316 at [51] per Basten JA.

62 Mr Doyle-Grey submitted that, even if the Magistrate’s decision entailed error, there should be no different order as to costs in any event. He submitted that it was appropriate to determine the matter as if the proceedings had been discontinued in April 2007, since Garland Hawthorn Brahe had effectively taken no steps in the proceedings since that time. I do not agree.

63 It must be remembered that Garland Hawthorn Brahe were the plaintiffs. Further, as the detailed history above discloses, they actively participated in the contest after April 2007. They opposed the interlocutory appeal, even though they had previously indicated their consent to the orders sought. Hoeben J ultimately found that the appeal was misconceived, and Mr Gorczynski has paid the price for bringing it, but the point is that it should never have proceeded.

64 After the appeal was dismissed, it was the application filed by Mr Gorczynski, which was initially opposed, that brought the claims to conclusion. All of the costs incurred after April 2007 would have been avoided had Garland Hawthorn Brahe approached the Court for leave to discontinue, as foreshadowed in their letter of 17 April 2007. I am satisfied, on that basis, that Garland Hawthorn Brahe should pay Mr Gorczynski’s costs from shortly after that date on an indemnity basis.

65 I have given consideration to whether I should order that all of Mr Gorczynski’s costs of the proceedings be paid on that basis. That was the order sought below, based on the submission that that is the appropriate order where proceedings have been commenced in contravention of a statutory prohibition. However, it was never determined by the Magistrate that the proceedings were in fact commenced in contravention of the statute. The decision of Garland Hawthorn Brahe to discontinue conceded the apparent strength of the point, but no more. It is not appropriate for me to determine the point now, since it was not argued before me and would possibly entail the need to make findings of fact.

66 Accordingly, it would not be appropriate at this stage to make an order requiring Garland Hawthorn Brahe to pay Mr Gorczynski’s costs of the whole of the proceedings assessed on an indemnity basis. The costs up to the date on which Garland Hawthorn Brahe determined to discontinue the proceedings should be the costs ordered by the Magistrate.

67 The orders are:

1. That leave to appeal be granted.

2. That the appeal be allowed.

3. In each of the proceedings below, numbered 6511 of 2005 and 6512 of 2005, that order 3 made by the Magistrate on 17 August 2000 be varied by adding the words “together with the defendant’s costs of the proceedings from 1 May 2007 as agreed or assessed on an indemnity basis.”

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