Kaji Australia Pty Ltd v Glover (No. 5)

[2020] NSWSC 1576

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Kaji Australia Pty Ltd v Glover (No. 5) [2020] NSWSC 1576

Hearing dates:

16 & 17 June 2020

Date of orders:

12 November 2020

Decision date:

12 November 2020

Jurisdiction:

Common Law

Before:

Davies J

Decision:

(1)   The defendant/cross-claimant is to pay the plaintiffs’ costs of the proceedings including the costs of the cross-claim, but excluding costs related to the proceedings in the District Court and the setting aside of the judgment for possession in this Court;

(2)   The defendant/cross-claimant is to pay the plaintiffs’ costs of the defendant/cross-claimant’s notice of motion filed 3 February 2020 and of the costs hearing;

(3)   The defendant/cross-claimant is to pay the third and fourth cross-defendants’ costs of the cross-claim;

(4)   The defendant/cross-claimant is to pay the fifth cross-defendant’s out-of-pocket expenses actually and reasonably incurred by him;

(5)   Order that Leonardo Carlo Muriniti is to indemnify the third and fourth cross-defendants for 65% of their costs of the proceedings;

(6)   Order that Leonardo Carlo Muriniti is to indemnify the third and fourth cross-defendants for the costs of the Third and Fourth cross-defendants amended notice of motion filed 14 May 2020;

(7)   Order that Leonardo Carlo Muriniti is to indemnify the fifth cross-defendant for 65% of the out-of-pocket expenses actually and reasonably incurred by him.

(8)   Subject to orders (4) and (5), the notice of motion by the fifth cross-defendant filed on 4 March 2020 is dismissed with no order as to costs.

(9)   The defendant’s notice of motion filed 3 February 2020 is dismissed with costs.

Catchwords:

COSTS - party/party – judgment for possession and for the amount owing under a loan agreement and mortgage – where defendant’s claims of fraud and conspiracy were dismissed by trial judge and later by Court of Appeal – where plaintiffs sought judgment for amount owing in District Court unnecessarily - where costs arising from separate proceedings excluded from costs order

COSTS - party/party - orders against non-parties - personal costs orders against lawyers of unsuccessful party – claims of fraud and conspiracy by unsuccessful defendant/cross-claimant - indemnity costs sought pursuant to Schedule 2 of the Legal Profession Uniform Law and s 99 of the Civil Procedure Act - whether the legal services were provided without a reasonable belief by the solicitors that the claims had reasonable prospects of success – where there were no provable facts to support the claims – where trial judge and Court of Appeal made earlier findings dismissing claims – where solicitors failed to rebut the presumption that they were bound by the findings in the principal judgments – whether solicitors breached their professional ethical duties in pursuing claims – where the making of allegations of dishonesty and criminality increases the onus to make out the case – where no basis for the claims made –where this amounts to the serious misconduct of the solicitors – where solicitor to indemnify for costs incurred

COSTS - party/party - self represented litigant - where litigant is entitled to out-of-pocket expenses as would have constituted disbursements if they had been legally represented

Legislation Cited:

Australian Consumer Law s 18

Australian Securities and Investments and Commission Act 2001 (Cth) s 12DA

Civil Procedure Act 2005 (NSW) s 99

Contracts Review Act 1980 (NSW)

Crimes Act 1900 (NSW) s192E

Evidence Act 1995 (NSW) s 91

Legal Profession Act 1987 (NSW) s 198M

Legal Profession Uniform Law Application Act 2014 (NSW) Sch 2

Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW) rr 21.3, 21.4

Uniform Civil Procedure Rules 2005 (NSW) rr 15.6, 42.3

Cases Cited:

Briginshaw v Briginshaw (1938) 60 CLR 336

Degiorgio v Dunn (No 2) 62 NSWLR 284; [2005] NSWSC 3

Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373

Fowler, Corbett and Jessop trading as Haydon Fowler Corbett Jessop v Toro Constructions Pty Ltd [2008] NSWCA 178

Glover v Kaji Australia Pty Limited [2020] NSWCA 222

Kaji Australia Pty Ltd v Glover (No 2) [2018] NSWSC 414

Kaji Australia Pty Ltd v Glover (No. 4) [2019] NSWSC 1779

Kelly v Jowett (2009) 76 NSWLR 405; [2009] NSWCA 278

King v Muriniti [2018] NSWCA 98

Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153

Levick v Deputy Commissioner of Taxation (2000) 102 FCR 155; [2000] FCA 674

Mitry Lawyers v Barnden [2014] FCA 918

Preston v Commissioner for Fair Trading (2011) 80 NSWLR 359; [2011] NSWCA 40

Ralston and Collins v Chaffey [2018] NSWSC 1994

Ridehalgh v Horsfield [1994] Ch 205

Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306

Tombling v Universal Bulb Company, Limited [1951] 2 TLR 289

Waters v P C Henderson (Australia) Pty Ltd [1994] 254 ALR 328

Texts Cited:

Nil

Category:

Costs

Parties:

Kaji Australia Pty Ltd (First Plaintiff/First Cross-Defendant)
William Bradley Webster (Second Plaintiff/Second Cross-Defendant)
Johann Benson Glover (Defendant/Cross-Claimant)
Mercia Financial Solutions Pty Ltd (Third Cross-Defendant)
Richard Nicholson (Fourth Cross-Defendant)
Rodney Shields (Fifth Cross-Defendant)

Representation:

Counsel:
P Folino-Gallo (Plaintiffs/First and Second Cross-Defendants)
R Newell (Defendant/Cross-Claimant)
D Lloyd (Third and Fourth Cross-Defendants)
R Shields (Fifth Cross-Defendant)

Solicitors:
Shields Lawyers (Plaintiffs/First and Second Cross-Defendants)
L. C. Muriniti & Associates (Defendant/Cross-Claimant)
DLA Piper Australia (Third and Fourth Cross-Defendants)
Self-represented (Fifth Cross-Defendant)

File Number(s):

2014/105767

Publication restriction:

Nil

Judgment

1. On 17 December 2019 I delivered my reasons for orders that I subsequently made on 6 February 2020: Kaji Australia Pty Ltd v Glover (No. 4) [2019] NSWSC 1779 (the “principal judgment”). The orders were that there be judgment for the plaintiffs in the sum of $473,455.00, there be judgment for possession of the land at 15 Vincent Street, Mount Druitt and that the cross-claim be dismissed. The costs were reserved because some of the parties indicated that they wished to apply for special costs orders.

2. On 3 February 2020 the defendant filed a notice of motion seeking an order that the plaintiffs pay the defendant’s costs of the proceedings or such portion as the Court determines was just and reasonable; alternatively that there be no order as to costs as between the plaintiffs and the defendant, and an order that if an order for costs was made in favour of the defendant against the plaintiffs that the proceeds of the sale of the defendant’s house be paid into Court pending determination of the quantum of the defendant’s costs. At the hearing of the defendant’s motion, the defendant abandoned the claim that the plaintiffs pay the defendant’s costs.

3. On 14 May 2020 the third and fourth cross-defendants (the “Nicholson interests”) filed an amended notice of motion which claimed orders that the cross-claimant pay the third and fourth cross-defendants’ costs on a party party basis. The Motion also sought the following orders:

3. Pursuant to clause 5(1)(b) of schedule 2 to the Legal Profession Uniform Law Act 2014 (NSW), Leonardo Carlo Muriniti indemnify the Third Cross-Defendant for its costs of and incidental to the First Cross-Claim:

3.1   incurred on and from 8 June 2018; and

3.2   where such costs relate to the claims advanced by   the Cross-Claimant against the Third Cross-Defendant for:

3.2.1   damages for fraudulent misrepresentation;

3.2.2   damages for deceit and conspiracy; and

3.2.3   exemplary damages.

4. Pursuant to clause 5(1)(b) of schedule 2 to the Legal Profession Uniform Law Act 2014 (NSW), Leonardo Carlo Muriniti indemnify the Fourth Cross-Defendant for his costs of and incidental to the First Cross-Claim:

4.1   incurred on and from 8 June 2018; and.

4.2   where such costs relate to the claims advanced by   the Cross-Claimant against the Fourth Cross-Defendant for:

4.2.1   damages for fraudulent misrepresentation;

4.2.2   damages for deceit and conspiracy; and

4.2.3   exemplary damages.

5. Pursuant to section 99(2)(c) of the Civil Procedure Act 2005 (NSW), Leonardo Carlo Muriniti indemnify the Third Cross-Defendant for its costs of and incidental to the First Cross-Claim: 

5.1   incurred on and from 8 June 2018; and

5.2   where such costs relate to the claims advanced by the Cross-Claimant against the Third Cross-Defendant for:

5.2.1   damages for fraudulent misrepresentation;

5.2.2   damages for deceit and conspiracy; and

5.2.3   exemplary damages.

6. Pursuant to section 99(2)(c) of the Civil Procedure Act 2005 (NSW), Leonardo Carlo Muriniti indemnify the Fourth Cross-Defendant for his costs of and incidental to the First Cross-Claim:

6.1   incurred on and from 8 June 2018; and

6.2   where such costs relate to the claims advanced by the Cross-Claimant against the Fourth Cross-Defendant for:

6.2.1   damages for fraudulent misrepresentation;

6.2.2   damages for deceit and conspiracy;   and

6.2.3   exemplary damages.

7.   The quantification of costs referred to in the orders above be referred to a cost assessor under part 20 rule 14 of the Uniform Civil Procedure Act 2005 (NSW).

8.   The Cross-Claimant to pay the costs of and incidental to this Notice of Motion.

9.   Leonardo Carlo Muriniti indemnify the Third Cross-Defendant in respect of its costs of and incidental to this Notice of Motion.

10.   Leonardo Carlo Muriniti indemnify the Fourth Cross-Defendant in respect of its costs of and incidental to this Notice of Motion.

11.   Costs.

4. In addition, the plaintiffs orally sought an order that the defendant/cross-claimant should pay their costs on the ordinary basis. Finally, Mr Shields, the fifth cross-defendant, who appeared for himself, sought orders that the defendant and/or Mr Muriniti and/or Mr Newell pay his out of pocket expenses. His sought a further order that my judgment be referred to the NSW police pursuant to s 192E of the Crimes Act 1900 (NSW).

5. In the meantime, and notwithstanding that the issue of costs had not been argued, nor any orders made by me giving effect to my reasons, the defendant appealed against my judgment to the Court of Appeal. The appeal was heard on 14 July 2020. When I became aware that the appeal was to be argued before I had made any costs orders, I refrained from considering the matter of costs until the Court of Appeal gave judgment. I considered that there was little point in determining claims for costs on the basis of my judgment when there was a possibility that my judgment would be overturned by the Court of Appeal. If it was, different costs orders would then be made, probably by the Court of Appeal.

6. The Court of Appeal delivered its judgment on 22 September 2020: Glover v Kaji Australia Pty Limited [2020] NSWCA 222. The appeal was dismissed with costs, without any findings being made inconsistent with my judgment.

Costs between the plaintiffs and the defendant/cross-claimant

7. Although in his notice of motion the defendant first sought that the plaintiffs pay the defendant’s costs of the proceedings or such proportion of those costs as the Court determines to be just and reasonable, Mr Newell in his submissions proposed only that the orders should be that each party pay their own costs of the proceedings. He submitted that such an order was the appropriate one because the plaintiffs never made clear in the claim they made that they were seeking only interest at the lower rate of 3% per month. The amount claimed in the statement of claim was a figure based on the higher rate of 5%.

8. Mr Newell submitted that the failure to disclose that only the lower rate was claimed prevented the possibility of the proceedings being settled. He submitted that in claiming the higher rate, the defendant was given no alternative but to defend the proceedings.

9. Mr Newell submitted that although the plaintiffs claimed interest at the higher rate, they were unsuccessful as a result of my finding that they were estopped by reason of the commencement by the plaintiffs of the District Court proceedings where only the lower rate was claimed, from claiming the higher rate in the present proceedings. In that way, Mr Newell submitted that the defendant achieved substantial success in the proceedings.

10. Mr Newell submitted that the plaintiffs did not respond to various offers of settlement made on behalf of the defendant which had the effect of making settlement on the basis of anything other than a complete capitulation basis impossible.

11. Mr Newell submitted that, in any event, the defendant should not be responsible for any of the costs incurred by reason of the application to set aside the judgment in the District Court and the Supreme Court. This was because of the convoluted procedure adopted by the plaintiffs to obtain possession of the land. Mr Newell submitted that the reason for the procedure adopted “was not calculated to alert the defendant that what was at stake was the question of possession of his home”. Mr Newell submitted that following the orders made by Gibb DCJ on 22 January 2016 by which the District Court judgment was set aside, the plaintiffs unreasonably resisted the setting aside of the order for possession which was based on the judgment in the District Court.

12. The plaintiffs submitted that, despite not recovering the higher rate of interest, at no time did the defendant put an offer that was superior to the judgment obtained for the lower interest rate. Further, at no time did the defendant pay the principal sum that he undoubtedly owed to the plaintiffs. The plaintiffs contended, in any event, that the vast majority of the hearing time was spent dealing with the fruitless cross-claim brought by the defendant against the plaintiffs and others.

13. The plaintiffs submitted that there was no obligation on them to respond to offers of settlement that were made. In that regard, they submitted that the defendant had available to him the Uniform Civil Procedure Rules 2005 (NSW) in relation to offers of compromise. Further, the plaintiffs submitted that any offers made by the defendant were inferior to the outcome achieved by the plaintiffs.

14. In relation to the taking of the District Court proceedings, the plaintiffs submitted that there was no evidence to support the assertion that the procedure was contrived with the view to not alerting the defendant that the possession of his home was at stake. The plaintiffs submitted that the District Court judgment was set aside because of an irregularity by a registrar in the Court and through no fault of the plaintiff. The plaintiffs submitted that although the process adopted by them could be described as unorthodox, nothing further could be made of that fact.

Determination

15. Leaving to one side the question of the District Court proceedings and what followed, I can see no basis upon which the costs of the plaintiffs’ claim and the defendant’s cross-claim should not follow the event. The question of whether the plaintiffs were entitled to recover interest at the higher or lower rate was a relatively insignificant issue between those parties. There was really no dispute, but for the matters raised in the cross-claim, that the plaintiffs were entitled to obtain a judgment for what was held to be owing by the defendant, and a judgment for possession on the basis of a breach of the mortgage and loan agreement. The two main issues between the plaintiffs and the defendant were whether the loan contract and mortgage were unjust or unconscionable, and whether the plaintiffs and their agent, Mr Shields, were part of a conspiracy to deprive the defendant of his land. The defendant was entirely unsuccessful on both of those issues.

16. Ordinarily, the Court will award the costs of the proceedings to the successful party without attempting to differentiate between the particular issues upon which it was successful and those on which it failed: Waters v P C Henderson (Australia) Pty Ltd [1994] 254 ALR 328; Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306. It is only where a particular issue or group of issues is clearly dominant or separable that it will ordinarily be appropriate to differentiate between those particular issues on which it was successful and those on which it failed: Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373.

17. The matter concerning the District Court judgment is a matter related to wasted or unnecessary costs and is not a matter concerned with success on a particular issue by a party. The defendant submitted, in effect, that costs associated with commencing proceedings in the District Court were wasted costs. I agree.

18. In my principal judgment, I described the procedure of instituting proceedings for debt based on the loan contract in the District Court and thereafter commencing proceedings for possession in this Court based on the District Court judgment as bizarre. And so it was. It is difficult to see what benefit there is to any party proceeding in that way. A party need only file a statement of claim in the Possession List in this Court alleging a default under a loan agreement and/or mortgage to justify an order for possession. No explanation was forthcoming from the plaintiffs as to why that convoluted procedure was adopted. The problem was compounded by the fact that judgment was irregularly entered in the District Court necessitating its being set aside. Although that was not the fault of the plaintiffs, if the plaintiffs had proceeded in the ordinary way, there would have been no District Court proceedings and no judgment in that court to set aside.

19. Nor should the plaintiffs have resisted the application in this Court to set aside the judgment for possession. The statement of claim in this Court pleaded:

5.   The defendant is in default of the loan pursuant to Notice of Orders made in the District Court Case No: 2012/00372995 Kaji Australia Pty Ltd ACN 111 (sic) (first plaintiff) and Webster (second plaintiff) by a judgment made in the District Court on 30 January 2013 against the defendant for the breach of defendant’s failure to pay money to the plaintiff, …

Particulars of default

6.   Failure to pay the following amounts due:

(a)   $186,045 pursuant Notice of Orders made by judgment in the District Court on 30 January 2013 aforesaid.

20. It is clear from that pleading that the default was said to be established as a result of the judgment obtained in the District Court. When that judgment was set aside, the basis of obtaining a judgment for possession in this Court was removed. No attempt was made to amend the statement of claim in this Court to plead the matter on a different basis; for example, that there was default in repayment of the principal sum.

21. In those circumstances, it was inevitable that judgment would be set aside. The plaintiffs should not have resisted that application.

22. I disallow from the costs order which will be made in favour of the plaintiffs costs relating to the District Court proceedings and costs relating to the setting aside of the judgment in this Court. Otherwise, the defendant/cross-claimant should pay the plaintiffs’ costs of the proceedings including the costs of the cross-claim.

Costs between the defendant/cross-claimant and the third and fourth cross-defendants

23. In the first place, the Nicholson interests seek their costs against the defendant/cross-claimant on the basis that he was unsuccessful on his cross-claim against them. No submissions were made on behalf of the defendant/cross-claimant resisting such an order. The general rule should apply with the result that the defendant/cross-claimant will be required to pay the costs of the third and fourth cross-defendants.

24. The Nicholson interests also seek costs against Mr Muriniti, the solicitor for the defendant/cross-claimant in reliance on cl 5(1) of Schedule 2 to the Legal Profession Uniform Law Application Act 2014 (NSW), in the alternative, on the basis that his costs of defending the cross-claim were incurred by the "serious misconduct" of Mr Muriniti or "improperly", within the meaning of s 99(1)(a) and (b) of the Civil Procedure Act 2005 (NSW).

23. Schedule 2 to the Uniform Law relevantly provides:

2 Law practice not to act unless there are reasonable prospects of success

(1)   A law practice must not provide legal services on a claim or defence of a claim for damages unless a legal practitioner associate responsible for the provision of the services concerned reasonably believes on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.

(2)   A fact is provable only if the associate reasonably believes that the material then available to him or her provides a proper basis for alleging that fact.

(3)   This Schedule applies despite any obligation that a law practice or a legal practitioner associate of the practice may have to act in accordance with the instructions or wishes of the client.

(4)   A claim has reasonable prospects of success if there are reasonable prospects of damages being recovered on the claim. A defence has reasonable prospects of success if there are reasonable prospects of the defence defeating the claim or leading to a reduction in the damages recovered on the claim.

(5)   Provision of legal services in contravention of this clause constitutes for the purposes of this Schedule the provision of legal services without reasonable prospects of success.

…

4   Restrictions on commencing proceedings without reasonable prospects of success

(1) The provision of legal services by a law practice without reasonable prospects of success does not constitute an offence but is capable of being unsatisfactory professional conduct or professional misconduct by a legal practitioner associate of the practice who is responsible for the provision of the service or by a principal of the practice.

(2) A law practice cannot file court documentation on a claim or defence of a claim for damages unless a principal of the practice, or a legal practitioner associate responsible for the provision of the legal service concerned, certifies that there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.

(3) Court documentation on a claim or defence of a claim for damages, which has been lodged for filing, is not to be filed in a court or court registry unless accompanied by the certification required by this clause. Rules of court may make provision for or with respect to the form of that certification.

(4) In this clause -

court documentation means -

(a) an originating process (including for example, a statement of claim, summons or cross-claim), defence or further pleading, or

(b) an amended originating process, defence or further pleading, or

(c) a document amending an originating process, defence or further pleading, or

(d) any other document of a kind prescribed by the local regulations.

cross-claim includes counter-claim and cross-action.

5 Costs order against law practice acting without reasonable prospects of success

(1) If it appears to a court in which proceedings are taken on a claim for damages that a law practice has provided legal services to a party without reasonable prospects of success, the court may of its own motion or on the application of any party to the proceedings make either or both of the following orders in respect of the practice or of a legal practitioner associate of the practice responsible for providing the services -

(a) an order directing the practice or associate to repay to the party to whom the services were provided the whole or any part of the costs that the party has been ordered to pay to any other party,

(b) an order directing the practice or associate to indemnify any party other than the party to whom the services were provided against the whole or any part of the costs payable by the party indemnified.

(2) The Supreme Court may on the application of any party to proceedings on a claim for damages make any order that the court in which proceedings on the claim are taken could make under this clause.

(3) An application for an order under this clause cannot be made after a final determination has been made under Part 7 by a costs assessor of the costs payable as a result of an order made by the court in which the proceedings on the claim concerned were taken.

(4) A law practice or legal practitioner associate of the practice is not entitled to demand, recover or accept from a client any part of the amount for which the practice or associate is directed to indemnify a party pursuant to an order under this clause.

6 Onus of showing facts provided reasonable prospects of success

(1) If the court (the trial court) hearing proceedings on a claim for damages finds that the facts established by the evidence before the court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success, there is a presumption for the purposes of this Schedule that legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success.

(2) If the Supreme Court (when the Supreme Court is not the trial court) is satisfied, either as a result of a finding of the trial court or otherwise on the basis of the judgment of the trial court, that the facts established by the evidence before the trial court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success, there is a presumption for the purposes of this Schedule that legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success.

(3) A presumption arising under this clause is rebuttable and a person seeking to rebut it bears the onus of establishing that at the time legal services were provided there were provable facts (as provided by clause 2 (Law practice not to act unless there are reasonable prospects of success)) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success.

(4) A law practice or legal practitioner associate of the practice may, for the purpose of establishing that at the time legal services were provided there were provable facts (as provided by clause 2 (Law practice not to act unless there are reasonable prospects of success)) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success, produce information or a document despite any duty of confidentiality in respect of a communication between the law practice or a legal practitioner associate of the practice and a client, but only if –

(a) the client is the client to whom the legal services were provided or consents to its disclosure, or

(b) the court is satisfied that it is necessary for the law practice or associate to do so in order to rebut a presumption arising under this clause.

26. Section 99 of the Civil Procedure Act relevantly provides:

99 Liability of legal practitioner for unnecessary costs (cf Act No 52 1970, section 76C; SCR Part 52A, rules 43 and 43A)

(1) This section applies if it appears to the court that costs have been incurred

(a) by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or

(b) improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.

(2) After giving the legal practitioner a reasonable opportunity to be heard, the court may do any one or more of the following -

(a) it may, by order, disallow the whole or any part of the costs in the proceedings

(i)   …

(ii) in the case of a solicitor, as between the solicitor and the client,

(b) it may, by order, direct the legal practitioner –

(i) …

(ii) in the case of a solicitor, to pay to the client the whole or any part of any costs that the client has been ordered to pay to any other person, whether or not the client has paid those costs,

(c) it may, by order, direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party.

27. Mr Lloyd of Counsel for the Nicholson interests submitted that three claims were made against the Nicholson interests in the further amended cross-claim being:

(a) a claim for damages for misleading or deceptive representations in breach of s 12DA of the Australian Securities and Investments and Commission Act 2001 (Cth) and s 18 of the Australian Consumer Law;

(b) a claim for damages for false representations in breach of s 12DA of the ASIC Act; and

(c)    a claim for damages for deceit and conspiracy.

28. Mr Lloyd submitted that there were no reasonable prospects of success with respect to the claims in (b) and (c). Mr Lloyd submitted that there were no provable facts and there was no reasonably arguable view of the law to support the allegations. He relied on various findings in my judgment. Mr Lloyd submitted that those findings amounted to a presumption within the meaning of cl 6 of Sch 2, and that Mr Muriniti had not rebutted the presumption.

29. Mr Lloyd submitted that Mr Muriniti had not in written or oral submissions identified the evidence in support of the pleaded allegations and to the extent that there were provable facts, they did not provide any basis on a reasonably arguable view of the law to support the fraud or conspiracy claims.

30. Mr Lloyd drew attention to what was said to be the dramatic shift in the cross-claimant’s case with respect to the alleged purpose of the fraud and conspiracy. He submitted that every way in which the case was put in that regard was fanciful and could not amount to a tenable case.

31. In relation to the claim under s 99, Mr Lloyd submitted that the fraud and conspiracy allegations were made and pursued in breach of Mr Muriniti’s ethical obligations, and he made reference to rules 21.3 and 21.4 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW). Mr Lloyd submitted that the making and prosecution of the unfounded allegations of fraud, conspiracy and illegality without any foundation was serious misconduct within s 99(1)(a), and it caused costs to be improperly incurred.

32. Mr Lloyd submitted that it would be reasonable to apportion 75% of the Nicholson's interests costs to the claims in fraud and conspiracy.

33. Mr Newell for the defendant/cross-claimant referred to cases which urge caution and say that the power to order costs against a solicitor is only to be exercised with care and discretion, and only in clear cases. Reference was made to Fowler, Corbett and Jessop trading asHaydon Fowler Corbett Jessop v Toro Constructions Pty Ltd [2008] NSWCA 178 and Levick v Deputy Commissioner of Taxation (2000) 102 FCR 155; [2000] FCA 674.

34. Mr Newell drew attention to the matters set out by Mr Muriniti in his affidavit sworn 12 June 2020, and submitted that there was more than abundant material to justify the commencement and maintenance of proceedings by Mr Muriniti. In particular, Mr Newell submitted that the fact that the loan was a sham itself strongly suggested that Mr Nicholson, as the broker with hands-on involvement in the transaction, would most probably know that it was a sham. He submitted that the combined weight of the evidence took the matter further.

35. Mr Newell submitted that rather than Mr Nicholson addressing the fact that the loan was a sham, he sought to construct a confusing distraction by reference to a claimed uncertainty in the submissions made at trial on the part of the defendant as to what precise benefit Mr Nicholson was to achieve from the conspiracy. Mr Newell submitted that the purpose of the conspiracy was plainly pleaded at paragraph [32] of the cross-claim, and that the defendant was not called upon to plead the specific benefit to Mr Nicholson that was in contemplation. He submitted that the allegation in paragraph [32] was an agreement to injure him by subjecting him to what amounted to asset lending. Mr Newell said that the development of the complaint about the benefit that Mr Nicholson was to receive was calculated to distract from the "elephant in the room" which was that the St George loan was a sham with a direct common-sense connection to Mr Nicholson.

36. In relation to the claim under s 99, Mr Newell submitted that on the basis of the evidence deposed by Mr Muriniti, the defendant’s case could not be said to have been hopeless.

37. Mr Newell submitted that the principles governing the jurisdiction to make personal costs orders against legal practitioners were set out in the judgment of Wigney J in Mitry Lawyers v Barnden [2014] FCA 918 at [42]. He submitted that the test is not met by describing the case as "hopeless. An element of unreasonable conduct over and above the assumed fact of a hopeless case must be established.

38. Mr Newell submitted, on the basis of what was said in Mitry, that there were then two distinct limbs or matters to be established to support a conclusion of unreasonable conduct. He submitted that the first limb called for proof of "some deliberate or conscious decision taken by reference to circumstances unrelated to the prospects of success", and that the second limb required that the decision be taken with "either a recognition that there is no chance of success, or an intention to use the proceedings for an ulterior purpose or to abuse the processes of the Court, or with a disregard of any proper consideration of the prospects of success”. Mr Newell submitted that there is no suggestion in the principal judgment of a deliberate or conscious decision unrelated to the prospects of success. He submitted further that the second limb was not made out.

Determination

39. In Tombling v Universal Bulb Company, Limited [1951] TLR 291, Denning LJ (as his Lordship then was) spoke about the duty of counsel in a civil case. The remarks are equally applicable to a solicitor. His Lordship said (at 297):

The duty of counsel to his client in a civil case… is to make every honest endeavour to succeed. He must not, of course, knowingly mislead the Court, either on the facts or on the law, but, short of that, he may put such matters in evidence or omit such others as in his discretion he thinks will be most to the advantage of his client. So also, when it comes to his speech, he must put every fair argument which appears to him to help his client towards winning his case. The reason is, because he is not the judge of the credibility of the witnesses or of the validity of the arguments. He is only the advocate employed by the client to speak for him, and present his case, and he must do it to the best of his ability, without making himself the judge of its correctness, but only of its honesty.         (emphasis added)

The provisions of Sch 2 of the Uniform Law have, of course, modified that duty, but what was said by Lord Denning as to the lawyer not being the judge of credibility has continuing relevance.

40. In Degiorgio v Dunn (No 2) 62 NSWLR 284; [2005] NSWSC 3, Barrett J (as his Honour then was) considered the meaning of "without reasonable prospects of success" in s 198M of the Legal Profession Act 1987 (NSW) (the same phrase appears in cl 5 of Sch 2 of the Uniform Law). His Honour said:

[20]   When that statutory language is examined, it is seen that, while s.198J(4) goes some way towards explaining “reasonable prospects of success”, it does so in a way that does not attempt to explain or define “reasonable prospects”. The meaning of that expression must be gathered by analogy, with such attention as is permissible paid to Parliamentary materials.

[21]   In some contexts, “reasonable prospects of success” signifies no more than “arguable”. I quote the following passage from the decision of the Australian Industrial Relations Commission in Westend Pallets Pty Ltd v Lally (1996) 69 IR 1 at p.12:

“The requirement for an arguable case of either legal error or that the discretion has been miscarried will mean that applicants must demonstrate that their case has a reasonable prospect of success.”

[22]   It may also be said that “reasonable prospects of success” connotes something less than likelihood of success – hence the formulation of Sheppard J, in Ahern v Deputy Commissioner of Taxation (1983) 78 FLR 202, “… will be likely to succeed or at least have reasonable prospects of success” [emphasis added]. That the test is not a particularly stringent one is suggested by an observation of Gleeson CJ, McHugh and Gummow JJ in United Mexican States v Cabal (2001) 209 CLR 165 at p.174:

“A constitutional challenge to legislation is always a matter of public importance. If it has even reasonable prospects of success, special leave to appeal will be granted – almost as a matter of course” [emphasis added]

.…

[26]   I accept that this legislation imposes upon lawyers a standard that is more demanding than that applicable in cases where, by reference to general law principles, a costs order is sought against a party’s lawyer. Cases of that kind turn upon the lawyer’s duty to the court. Here, by contrast, the lawyer is subject to a statutory duty reflective of the interests of the community. A recent statement of the relevant general law approach may be found in the decision of the Queensland Court of Appeal in Steindl Nominees Pty Ltd v Laghaifar [2003] 2 QdR 683. Davies JA there said (at p.689), with the concurrence of the other members of the court and after reviewing earlier authorities:

“To the extent that those statements state or imply that it is not improper for a legal representative to present a case which he or she knows to be bound to fail, I would reject them. I would prefer to say that it is one thing to present a case which is barely arguable (but arguable nevertheless) but most likely to fail; it is quite another to present a case which is plainly unarguable and ought to be so to the lawyer who presents it. In my opinion, with respect, it is improper for counsel to present, even on instructions, a case which he or she regards as bound to fail because, if he or she so regards it, he or she must also regard it as unarguable.”

[27] In drawing a line at a somewhat higher point on the relevant scale of conduct, the Legal Profession Act should not, in my opinion, be presumed to intend that lawyers practising in New South Wales courts must boycott every claimant with a weak case. A statutory provision denying to the community legal services in a particular class of litigation cannot be intended to stifle genuine but problematic cases. Nor do I see the statutory provisions as intended to expose a lawyer to the prospect of personal liability for costs in every case in which a court, having heard all the evidence and argument, comes to a conclusion showing that his or her client’s case was not as strong as may have appeared at the outset to be. The legislation is not meant to be an instrument of intimidation, so far as lawyers are concerned.

[28]    The several factors to which I have referred, including the references in the Premier's second reading speech and the apparent legislative purpose, cause me to adopt the construction of "without reasonable prospects of success" that equates its meaning with "so lacking in merit or substance as to be not fairly arguable". The concept is one that falls appreciably short of "likely to succeed".

41. This approach was approved in Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153 by McColl JA (Hodgson and Ipp JJA agreeing) at [132]:

[132]    Barrett J’s construction of the expression “without reasonable prospects of success” appears to me to accommodate both the purpose of Division 5C and to reflect the language of s 198J. The test, whether a claim or a defence was “so lacking in merit or substance as to be not fairly arguable”, must be applied, however, in the context of the constituent components of s 198J. In that context the question becomes whether the solicitor or barrister held a reasonable belief that the provable facts and a reasonably arguable view of the law meant that the prospects of recovering damages or defeating a claim or obtaining a reduction in the damages claimed were “fairly arguable”. These are matters about which reasonable minds might differ. The question will be whether the solicitor or barrister’s belief that they had material which objectively justified proceeding with the claim or the defence “unquestionably fell outside the range of views which could reasonably be entertained”: Medcalf at [40] per Lord Steyn.

(emphasis added)

42. Her Honour went on to say:

[135] It is important to recognise that the question whether a s 198M order should be made may arise in several ways each of which may attract different onuses of proof. It may arise because the trial court “hearing proceedings on a claim for damages finds that the facts established by the evidence before the court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success”: s 198N(1). Alternatively it may arise because “the Supreme Court (when the Supreme Court is not the trial court) is satisfied, either as a result of a finding of the trial court or otherwise on the basis of the judgment of the trial court, that the facts established by the evidence before the trial court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success”: s 198N(2). In either of these cases there is a rebuttable presumption for the purposes of Division 5C that the legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success. The presumption is rebutted if the legal practitioner establishes “that at the time legal services were provided there were provable facts (as provided by section 198J) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success”: s 198N(3).

[136] Section 198N is only concerned with whether the facts demonstrated there was “a basis for a reasonable belief that the claim or the defence had reasonable prospects of success”. However, the question whether a s 198M order should be made may arise for reasons which do not turn on the facts found by the court. The court may, for example, form a prima facie view that despite the facts found, there was no reasonably arguable view of the law which would support a reasonable belief that “the claim or the defence had reasonable prospects of success”.

43. The principles to be applied when considering costs orders under s 99 of the Civil Procedure Act were set out in Kelly v Jowett (2009) 76 NSWLR 405; [2009] NSWCA 278 by McColl JA (Beazley JA and Barrett J agreeing) at [60]-[61]:

[60] The jurisdiction to make costs orders against legal practitioners referred to in s 99 and UCPR 42.3(2)(g), now commonly referred to as the “wasted costs” jurisdiction, must be exercised “with care and discretion and only in clear cases”: Lemoto v Able Technical Pty Ltd & 2 Ors [2005] NSWCA 153; (2005) 63 NSWLR 300 (at [92](a)) per McColl JA (Hodgson and Ipp JJA agreeing). In exercising the jurisdiction, however, the Court takes into consideration the public interest reflected in the legislative provisions to which I have referred, that litigants should not be financially prejudiced by the unjustifiable conduct of litigation by their or their opponent’s lawyers: Ridehalgh v Horsfield [1994] Ch 205. It is the public interest in the administration of justice which is the source of duties that lawyers owe to the court: Rondel v Worsley [1969] 1 AC 191 (at 227) per Lord Morris.

[61]    The wasted costs jurisdiction is based on the court’s right and duty to supervise the conduct of its solicitors: Myers v Elman (at 302) per Lord Atkin, (at 318 – 319) per Lord Wright, (at 334 – 336) per Lord Porter. The underlying principle is that the court has a right and a duty to supervise the conduct of its solicitors, and visit with penalties any conduct of a solicitor which is of such a nature as to tend to defeat justice in the very cause in which the solicitor is engaged professionally. The jurisdiction is exercised where it is demonstrated that the solicitor has failed to fulfil his or her duty to the Court and to realise his or her duty to aid in promoting in his own sphere the cause of justice. The order is for payment of costs thrown away or lost because of the conduct complained of and is frequently exercised in order to compensate the opposite party in the action: Myers v Elman (at 319) per Lord Wright; see also Sydney South West Area Health Service v Stamoulis [2009] NSWCA 153 (at [204]) per Ipp JA (Beazley and Giles JJA relevantly agreeing).

44. Assistance in understanding the meaning of terms used in s 99 is provided in the decision of Ridehalgh v Horsfield [1994] Ch 205 (a decision referred to with approval in a number of decisions of the Court of Appeal of New South Wales). The United Kingdom Court of Appeal was considering the equivalent provision to s 99 which provided:

Subject to the following provisions of this rule, where in any proceedings costs are incurred improperly or without reasonable cause, or are wasted by undue delay or any other misconduct or default, the court may make against any solicitor whom it consider to be responsible…an order…(c) directing the solicitor personally to indemnify such other parties against costs payable by them.

The Court relevantly for the present application said (at 232):

In our view the meaning of these expressions is not open to serious doubt.

“Improper” means what it has been understood to mean in this context for at least half a century. The adjective covers, but is not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty. It covers any significant breach of a substantial duty imposed by a relevant code of professional conduct. But it is not in our judgment limited to that. Conduct which would be regarded as improper according to the consensus of professional (including judicial) opinion can be fairly stigmatised as such whether or not it violates the letter of a professional code.

“Unreasonable” also means what it has been understood to mean in this context for at least half a century. The expression aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on a practitioner’s judgment, but it is not unreasonable.

…

We were invited to give the three adjectives (improper, unreasonable and negligent) specific, self-contained meanings, so as to avoid overlap between the three. We do not read these very familiar expressions in that way. Conduct which is unreasonable may also be improper, and conduct which is negligent will very frequently be (if it is not by definition) unreasonable. We do not think any sharp differentiation between these expressions is useful or necessary or intended.

45. I am not persuaded that the test set out in Mitry Lawyers v Bamden is the correct test for determining costs applications against lawyers under either Sch 2 of the Uniform Law or under s 99 of the Civil Procedure Act. The decision is not referred to in any of the authorities I have set out about, nor in other decisions of the Court of Appeal dealing with such costs.

46. A significant issue which arose at the present hearing concerned the use that could be made of findings which I made in my principal judgment. Mr Newell submitted, following evidence given to the same effect by Mr Muriniti, that Mr Muriniti could not be bound by those findings because he was not a party to the proceedings. This was a surprising submission in the face of the decision of the Court of Appeal in King v Muriniti [2018] NSWCA 98, a case involving the same firm of solicitors.

47. In that case, the winning party in litigation sought that the losing party’s solicitor pay the costs which the losing party (then a bankrupt) had been ordered to pay. One of the significant bases upon which the solicitors resisted the payment of costs was that since the solicitors had not been a party to the original appeal they were not bound by the findings made by the Court in the proceedings that gave rise to the costs orders (see at [12]). The claim for costs in that case relied on the provisions of s 99 of the Civil Procedure Act. One basis upon which it was suggested that the solicitors were not bound by the findings in the principal proceedings was a reliance on s 91 of the Evidence Act 1995 (NSW) which provided:

(1) Evidence of the decision or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding.

(2) Evidence that, under this Part, is not admissible to prove the existence of a fact may not be used to prove that fact even if it is relevant for another purpose.

48. The Court of Appeal concluded that a court may have regard to findings in the court’s principal judgment when costs are sought against a solicitor. Basten JA (with whom Gleeson JA and Emmett AJA agreed with additional reasons) said:

[44] In short, if the practitioner were entitled to prevent the court having regard to findings in its principal judgment, he would, presumably, be entitled to seek recusal of the whole bench on the basis of pre-judgment. That would obviously be inconsistent with the scope and purpose of s 99 and its historical antecedents. However, if the court is entitled to take account of its findings, to the extent that they are relevant, it would be absurd that it could not have regard to the very judgment in which those findings were expressed. The only contention standing in the way of that approach is the reading of s 91 relied on by the practitioner; however, properly understood, s 91 is not engaged in the present circumstances. Indeed, there is no reason to require that the substantive judgment be tendered or treated as "evidence" on the costs application.

[45] Given the nature of the jurisdiction conferred by s 99 of the Civil Procedure Act, in my view s 91 of the Evidence Act has no operation. Indeed, it would be a technicality to require one of the parties to proceedings for a third party costs order to tender as evidence the judgment of the court in the substantive proceedings. The judgment does not need to be tendered for the court to take into account and place reliance upon the findings it had made in the substantive proceedings.

[46]   Further, it would be an abuse of process for the solicitor to be allowed to challenge the findings made in the substantive proceedings. It was open to him to call such evidence as he wished by way of confession and avoidance or mitigation, but that he did not do. The findings in the substantive judgment as to the conduct of the proceedings therefore warrant the drawing of the inferences required by s 99, supporting an order for costs against the solicitor for Ms Young.

49. Acting Justice Emmett said at [97]:

In any event, it is by no means clear that s 91 has any application. The Court is being asked to make orders as to the costs of proceedings that have been decided by the Court. It is artificial to treat the four applications presently before the Court as separate proceedings simply because Mr Muriniti was not formally a party to the Four Proceedings. He was, of course, intimately involved in the Four Proceedings.

50. Mr Newell submitted that the statement in King v Muriniti at [46], that it would be an abuse of process for the solicitor to be allowed to challenge the findings made in the substantive proceedings, was a determination made without any authority. In response to a question that I asked of Mr Newell, he accepted that I was bound by that principle from the Court of Appeal, but he said that he made the submission to preserve his rights to argue on appeal from this judgment that the decision of the Court of Appeal in King v Muriniti was wrong.

51. King v Muriniti was concerned with a claim made under s 99 of the Civil Procedure Act. To the extent that reliance is placed in the present application on s 99, the solicitors are bound by the findings in my principal judgment and by the findings in the judgment of the Court of Appeal.

52. As far as the claim is made under Sch 2 of the Uniform Law, cl 6 necessarily means that the solicitors are bound by any findings of the kind referred to in cl 6 of Sch 2 by the trial judge, to lead to the rebuttable presumption that the legal services were provided without reasonable prospects of success. To the extent that findings were not made precisely in the terms referred to in cl 6(1), I consider that King v Muriniti is authority for the principle that the solicitors are bound by findings I made in my principal judgment. The issue is then whether that leads to the conclusion that the legal services were provided without a reasonable belief by the solicitors that the claim had reasonable prospects of success.

53. In the course of my principal judgment I made a number of findings relevant to the costs issue under consideration. Those findings were these:

[143]   Although the present legal advisors for the defendant put forward a case to suggest that Mr Nicholson was behind the fake loan application and approval from St George, as will be seen later, I do not accept that there is any evidence to suggest that that is so. It is difficult to see what benefit Mr Nicholson could think that he would derive from engaging in such behaviour. The submission made by the defendant's solicitor, Mr Newell, during the hearing that Mr Nicholson was doing this to take "a slice of the equity of the [defendant's] house", or to take "a secret commission derived from the equity in the property" was improperly made because not only was it made without any evidence to support it, it is impossible to see how Mr Nicholson would ever be able to take any equity in the defendant's property. Since the plaintiffs through Mr Shields were conducting the auction they were, presumably, the only party who could pay Mr Nicholson a secret commission. It was never put to Mr Shields that any commission or fee was to be paid or was paid to Mr Nicholson for any reason by the plaintiffs.

…

[245]   In final submissions I asked Mr Newell again what Mr Nicholson was to get out of engaging in this conspiracy with Mr Shields and the plaintiffs. The following exchange occurred…:

…

HIS HONOUR: So Mr Nicholson makes this fraudulent arrangement with St George to further his relationship with Mr Shields and his lenders, is that the idea?

NEWELL: To do whatever it took to send the work Mr Shields' way, the type of contract to Mr Shields' way. Now, there also has to be a suggestion--

HIS HONOUR: And what does Mr Nicholson get out of this? A fee and continuing work from Mr Shields, is that what you say?

NEWELL: Yes…

[246]   As Mr Lloyd of counsel for Mr Nicholson pointed out, this was a wholly new basis for putting the case. In any event, the only evidence that remotely provided any basis for it was evidence obtained from Mr Shields in cross-examination that he had known Mr Nicholson for some time on a professional basis and had been involved in a number of other loan agreements previously. The defendant should not be allowed to change the basis of his case in this way. It would be unfair to all the cross-defendants who are likely to have led further or different evidence concerning the prior relationship between Mr Shields and Mr Nicholson. In any event, the evidence does not support the new basis put forward. The matter must be considered on the basis set out in the pleadings and particulars.

…

[269]   Whether Mr Valentino was saying that the letter was fabricated or that the loan approval was fabricated (it is difficult to see how the letter of approval could be genuine if the loan itself was a fabrication) he had no basis at all for suggesting that the author of the fabrication was Mr Nicholson. His conclusion in that regard was based only on assumption and speculation. His opinion in that regard should not have been put forward by the lawyers acting for the defendant. It was an allegation of fraud and criminality without any basis as Mr Valentino's cross-examination demonstrated and as he ultimately accepted.

[270]   In the same way, none of the matters identified by the defendant considered singly or together, leads to an inference that Mr Nicholson engaged in fraud or that he conspired with the plaintiffs and Mr Shields to enrich themselves from the sale of the defendant's land. I accept the submissions of Mr Lloyd for Mr Nicholson which demonstrate the improbability of the fraud and conspiracy alleged. …

…

[275]   The defendant also relies on matters which are set out at paragraph 34 of the cross-claim. They are said to inform the agreement to perform the unlawful acts for the combination and conspiracy. The first five are neither facts nor particulars but, rather, conclusions or inferences which it is said should be drawn. That is the difficulty. They assert that (a) Mr Nicholson had a substantial stake in the defendant entering the loan with the plaintiffs; (b) Mr Nicholson, knowing the St George Approval was a fabrication and that the Expected Loan Representations were fraudulent, made himself available to the plaintiffs by swearing an affidavit to resist the application by the defendant to set aside the judgment; (c) Mr Shields and the plaintiffs "sought out and embraced [Mr Nicholson] as part of their camp"; (d) all the cross-defendants cooperated forensically to frame an affidavit case to suggest the St George loan was genuine; (e) Mr Nicholson formed an intention "to avoid a forensic exploration" of the St George Loan Application and Approval.

[276]   It is very difficult to understand what most of those matters mean. There was no evidence to support any of them except that both Mr Nicholson and Mr Shields swore affidavits for the plaintiffs in relation to the making of the loan. That was hardly surprising when both men were involved in the loan coming about. Neither had been joined to the proceedings at that stage. The matter referred to in (d) above would have been difficult to achieve without the involvement of the lawyers acting for the various cross-defendants. It is not clear if there is a suggestion that they too were involved.

…

[279]   Neither of the failures to remove the caveat or to provide a payout figure suggests anything more than negligence on the part of the plaintiffs' solicitors. The inclusion of those matters as a basis for the allegations of combination and conspiracy can only mean that the defendant is asserting that the plaintiffs' solicitors were part of the conspiracy. Those solicitors were not named as cross-defendants. There is no basis for alleging that those matters were evidence of a conspiracy. The allegations should not have been made.

…

[288]   The matters put forward by the defendant to suggest a conspiracy are entirely insufficient and inadequate to do so. Lawyers have ethical responsibilities not to plead or allege fraud and other criminality without a proper basis to do so. It is difficult to see in the present matter how those ethical responsibilities have been complied with. Any conclusion that there has been fraud or conspiracy here by the cross-defendants is only attainable by speculation and a predisposition to believe it. I certainly accept that the St George loan was a sham. The person who had the most to gain by all that occurred was Mr Lippits. The history of his dealings with the defendant confirms that.

[289]   The defendant’s evidence about why he had not joined Mr Lippits to the proceedings or sued him separately was entirely unconvincing. He knew as little of Mr Nicholson’s and Mr Shields’ wherewithal as he did about Mr Lippits. Nevertheless, the defendant, having used Mr Lippits’ assistance to set aside the judgment for possession, then chose not only not to call him to give evidence but chose not to join him to the proceedings to claim against him.

72. The material which the solicitors had to consider whether a cross-claim alleging fraud and conspiracy should be brought consisted of the St George loan application, the Bank West loan approval, the employment letter from Boston Traders, the St George loan approval, the affidavit evidence of Mr Nicholson and Mr Shields, and the affidavit they obtained from Mr Valentino. What they did not have was any evidence from Mr Glover to support a claim of fraud or conspiracy. In those circumstances, there was no question of the solicitors being entitled to rely on matters told to them by their client which might later be found by a court not to be correct, as referred to in Tombling v Universal Bulb Company, Limited (see above at [39]).

73. There was nothing in the affidavits of Mr Nicholson and Mr Shields to provide a basis for the claim made. The fact that they had had a prior business relationship was not even a circumstance that could be relied upon to support such a claim.

74. To the extent that Mr Muriniti relied on Mr Valentino’s opinion, a significant difficulty is that there was no evidence of what information was provided to Mr Valentino nor what assumptions he was asked to make. The reason for that is that he was not provided with a letter of instructions. Mr Newell informed me at the substantive hearing that Mr Valentino went into Mr Muriniti’s office “and was asked his opinions”. I can put aside for present purposes the fact that instructing an expert in that fashion is entirely inappropriate: Ralston and Collins v Chaffey [2018] NSWSC 1994 at [67]. However, the end result of such a methodology is that Mr Muriniti’s reliance on Mr Valentino’s opinions cannot be shown to be reasonable when the assumptions and instructions he was given are unknown. Mr Valentino’s unwarranted conclusion that Mr Nicholson falsified the loan approval letter (referred to at [267]-[269] of my principal judgment) highlights the difficulty.

75. There is no additional information contained in Mr Muriniti's evidence which identifies evidence that he had that causes me to alter the conclusion that I reached in my judgment at [288] as follows:

The matters put forward by the defendant to suggest a conspiracy are entirely insufficient and inadequate to do so. Lawyers have ethical responsibilities not to plead or allege fraud and other criminality without a proper basis to do so. It is difficult to see in the present matter how those ethical responsibilities have been complied with. Any conclusion that there has been fraud or conspiracy here by the cross-defendants is only attainable by speculation and a predisposition to believe it. I certainly accept that the St George loan was a sham. The person who had the most to gain by all that occurred was Mr Lippits. The history of his dealings with the defendant confirms that.

77. A significant matter in considering the reasonableness of the solicitors approach concerns the various motivations put forward by them for Mr Nicholson's participation in fraud and conspiracy. The motivation was variously said to be for Mr Nicholson to obtain an opportunity through a mortgagee sale of Mr Glover's house, to get "a slice of the equity of the house", to obtain a secret commission, and subsequently to ensure the obtaining of further work through his relationship with Mr Shields.

78. In my principal judgment at [143] I discussed this matter and said that the submission that Mr Nicholson was doing it to take a slice of the equity or to take a secret commission was improperly made, "not only was it made without any evidence to support, it is impossible to see how Mr Nicholson could take any equity in the defendants property". I note that in the Court of Appeal, White JA said at [62]:

I would also endorse the primary Judge's finding at [143]… that the submission made by Mr Newell, there referred to, was improper.

79. This issue of motive was not, as Mr Newell submitted, a distraction. As the Court of Appeal noted, the case made against the cross-defendants in fraud and conspiracy was entirely circumstantial. In those circumstances, a reasonable solicitor would need to ask himself or herself why it might be that the cross-defendants would be acting in a fraudulent, improper or illegal way. Mr Muriniti had clearly given that aspect of the matter some thought because of the various motivations put forward by him in answer to the request for particulars and by Mr Newell at the hearing.

80. In my opinion, the solicitors have failed to rebut the presumption that arose from the findings in my principal judgment. Even if no presumption arose, there is nothing in the evidence of Mr Muriniti which demonstrates that he had provable facts to justify the claims, nor a reasonably arguable view of the law to form a reasonable belief that the fraud and conspiracy claims had reasonable prospects of success. In my opinion, the legal services, insofar as the claim was made against Mr Nicholson, Mr Shields and the plaintiffs for fraud and conspiracy were provided without reasonable prospects of success.

81. Even, however, if there was some basis for the solicitors to consider on 8 June 2018 when pleading and filing the cross-claim that alleged fraud and conspiracy against Mr Nicholson and others (a proposition I do not accept), the information which ultimately found its way into the defendant’s affidavit of 18 December 2018 ought to have led the solicitors to re-assess the claims they had made. They knew that Mr Lippits had prepared a false letter to assist in obtaining the loan from the plaintiffs, and that their client was admitting to being a party to that fraud. They also knew from that admission that their client had lied in prior affidavits in a number of respects as I set out in my principal judgment. The information would have told them that Mr Lippits continued to be an active player in relation to the loan applications, and was someone who was prepared to engage in fraud to achieve his purposes.

82. Part of Mr Muritini’s reasoning (subpara 10(f) of his affidavit) concerned Mr Nicholson’s knowledge of, and reliance on, the employment letter. The discovery that the letter was prepared by Mr Lippits and its contents were false meant either that Mr Lippits must have been part of the conspiracy (which was never alleged), or that Mr Nicholson was duped in the same way that Mr Shields and the plaintiffs were. Yet there is no indication that Mr Muriniti ever reconsidered the seriousness of the allegations he had made against the Nicholson interests.

83. Mr Muriniti says nothing in his affidavit about what he did when he became aware of this information. There is no evidence from Mr Muriniti about any reassessment he made at that time about Mr Nicholson’s involvement with the loan. As I said earlier, I have assumed in Mr Muriniti’s favour that client legal privilege has not been waived for the purposes of this costs application, so I do not draw any inference from any failure of Mr Muriniti to identify what instructions he might have been given after the defendant made the admission. Nevertheless, this disclosure by the defendant must be seen from an objective point of view as extremely significant, when assessing the matter of reasonable prospects of success on the fraud and conspiracy claims.

84. Schedule 2 to the Uniform Law is not confined to the time of commencement of proceedings. It sanctions the “provision of legal services”. That includes the pursuit of proceedings already commenced and the conduct of the hearing of those proceedings. Notwithstanding the significant disclosure made by the defendant to his solicitors in or about December 2018, the solicitors continued to pursue the fraud and conspiracy claims against the various parties including the Nicholson interests.

85. In relation to the claim under s 99 of the Civil Procedure Act, for the same reasons, the costs associated with the claims in fraud and conspiracy were incurred, improperly, without reasonable cause and by the serious misconduct of the solicitor. For present purposes, the finding that the costs were incurred without reasonable cause follows from the finding that the solicitor provided the legal services without a reasonable belief that the claims had reasonable prospects of success.

86. Similarly, providing legal services without a reasonable belief that the claims had reasonable prospects of success is capable of being unsatisfactory professional conduct or professional misconduct: cl 4 of Sch 2. In that way, and because cl 2 of Sch 2 prohibits such provision of legal services, the costs were incurred improperly.

87. In the present case, the claims that were made without the reasonable belief were claims involving fraud, criminality and serious misconduct. Rule 21.4 is the present iteration of a longstanding rule of legal professional behaviour designed to protect persons from claims of fraud, criminality and serious misconduct which do not have an appropriate basis. The claims included that the Nicholson interests were involved in a sham loan from St George Bank, that Mr Nicholson, Mr Shields and the plaintiffs were engaged in a conspiracy to persuade the defendant to mortgage his house so that the conspirators could deprive him of it entirely and share the proceeds of sale amongst themselves, that those parties co-operated to prepare misleading (at least) or false (at worst) affidavits to mislead the Court, the allegation that Mr Nicholson destroyed or concealed his electronic files in the face of my judgment determining that he had complied with his discovery obligations, and the various allegations of the benefits Mr Nicholson was to receive from the entry by the defendant into the loan agreement with the plaintiffs.

88. Those claims were made in breach of r 21.4. They were improperly made. In that way, the costs incurred by the Nicholson interests were incurred by the serious misconduct of the solicitors, and they were incurred without reasonable cause. The Nicholson interests are entitled to be indemnified for the costs they are obliged to pay to their solicitors in respect of those claims, pursuant to either or both of r 5 of Sch 2 of the Uniform Law and s 99 of the Civil Procedure Act.

89. The issue raised by the fraud and conspiracy claims occupied the majority of the time at the hearing. Some time was spent on the claims under the Contracts Review Act 1980 (NSW) and for unconscionablity. The claims under the Australian Securities and Investments Commission Act 2001 (Cth) for misleading and deceptive conduct, as they were run, were scarcely distinguished from the claim in fraud, although it was necessary for the principal judgment to make a clear distinction between the two. My assessment, for the guidance of any costs assessor, is that 60% of the time in the proceedings from the date of filing the Further Amended First Cross-Claim on 8 June 2018 was concerned with the fraud and conspiracy claims which should not have been commenced or maintained.

90. As noted earlier, Mr Lloyd sought an order that 70% of the costs of the Nicholson interests should be indemnified by Mr Muriniti. Mr Newell at fist accepted that 65% would be appropriate, but then submitted that 50% was the appropriate apportionment. I consider that 65% is the appropriate apportionment, and the order that I will make is that Mr Muritini indemnify the third and fourth cross-defendants for 65% of the costs they incurred in the proceedings.

Claim by Mr Shields

91. Mr Shields sought an order that the defendant and/or Mr Muritini and/or Mr Newell pay his out-of-pocket expenses pursuant to r 15.6 of the Uniform Civil Procedure Rules 2005 (NSW). Rule 15.6 provides:

15.6 Claims for out of pocket expenses

A party pleading who claims damages that include money that he or she has paid or is liable to pay must give particulars of that money.

This rule is inapposite here, as what is sought, in substance, is costs by a litigant in person. I note, however, that Mr Shields, who has a law degree but does not practise as a lawyer, has not in fact provided any particulars of what he has paid or is liable to pay. Nor has he provided any evidence of what expenses he has incurred in relation to his defence of the claim against him. When I asked him at the costs hearing what he wanted to say in relation to his claim for costs he said “nothing”. He said that he had suffered a head injury and he had not had the time to attend to the costs matter.

92. In Preston v Commissioner for Fair Trading (2011) 80 NSWLR 359; [2011] NSWCA 40, the Court of Appeal said:

[183]   It has been held, under a previous statutory regime authorising the making of costs orders, that a litigant in person who is not a lawyer is not entitled to receive an order for costs to compensate him for time spent in preparing and conducting his case: Cachia v Hanes (1994) 179 CLR 403. However a self-represented litigant who is not a lawyer can recover an indemnity for at least some out-of-pocket expenses actually and reasonably incurred: Secretary, Department of Foreign Affairs v Boswell (No 2) (1992) 39 FCR 288; Lawrence v Nikolaidis [2003] NSWCA 129; (2003) 57 NSWLR 355 at [37]. It appears from Cachia v Hanes at 417 that those out-of-pocket expenses were ones of the type which would have been recoverable as disbursements if the Appellant had been legally represented. Thus such expenses include filing fees: Deva v University of Western Sydney [ 2008] NSWCA 137 at [82]. Though there are some English cases, and some previous Australian authority (including Boswell ) that say that under the heading of out of pocket expenses a litigant in person can get compensation for the opportunity cost of spending time on his litigation rather than on other paying work, since Cachia v Hanes those cases have not been followed in Australia: Lawrence v Nikolaidis at [37].

[184]   The power of this Court to make orders for costs is now governed by the Civil Procedure Act 2005 and the UCP Rules . Now, section 3 Civil Procedure Act defines "costs" in relation to proceedings, as meaning "costs payable in or in relation to the proceedings, and includes fees, disbursements, expenses and remuneration." Section 98(1) Civil Procedure Act provides:

"(1) Subject to rules of court and to this or any other Act:

(a) costs are in the discretion of the court, and

(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid ..."

[185]   There does not appear to be any relevant difference between the present statutory framework for costs orders, and the provisions that the High Court referred to in Cachia v Hanes. Thus the costs order should be the sort of order that the cases cited in [183] held was permissible.

93. In my opinion, Mr Shields is entitled to such out-of-pocket expenses as would have constituted disbursements if he had been legally represented. They would be out-of-pocket expenses actually and reasonably incurred by him. In the first instance, the defendant/cross-claimant must pay those costs. However, for the reasons given above in relation to the Nicholson interests, the claims in fraud and conspiracy should never have been brought against Mr Shields. The claims did not have reasonable prospects of success, and they were brought improperly. Mr Shields incurred the out-of-pocket expenses by reason of the serious misconduct of the solicitors.

94. Mr Shields was a significant witness in relation to the claims under the Contracts Review Act and matters associated with whether the loan agreement was unfair or unconscionable, in a way that Mr Nicholson was not. In my opinion, Mr Shields is entitled to 50% of the costs of his out-of pocket expenses.

95. Mr Shields sought a further order that my principal judgment be referred to the police pursuant to s 192E of the Crimes Act 1900 (NSW). Section 192E provides:

192E Fraud

(1) A person who, by any deception, dishonestly -

(a) obtains property belonging to another, or

(b) obtains any financial advantage or causes any financial disadvantage,

is guilty of the offence of fraud.

Maximum penalty - Imprisonment for 10 years.

(2) A person’s obtaining of property belonging to another may be dishonest even if the person is willing to pay for the property.

(3) A person may be convicted of the offence of fraud involving all or any part of a general deficiency in money or other property even though the deficiency is made up of any number of particular sums of money or items of other property that were obtained over a period of time.

(4) A conviction for the offence of fraud is an alternative verdict to a charge for the offence of larceny, or any offence that includes larceny, and a conviction for the offence of larceny, or any offence that includes larceny, is an alternative verdict to a charge for the offence of fraud.

96. The order sought is misconceived. I did not find that the defendant (or anyone else for that matter) was guilty of fraud. What I found was that the defendant and his solicitors should not have alleged fraud, conspiracy or other criminality on the evidence they had available. Mr Shields made no submissions in relation to this matter. Nor did Mr Newell, whether acting for the defendant or Mr Muriniti.

Conclusion

97. I make the following orders:

1. The defendant/cross-claimant is to pay the plaintiffs’ costs of the proceedings including the costs of the cross-claim, but excluding costs related to the proceedings in the District Court and the setting aside of the judgment for possession in this Court;

2. The defendant/cross-claimant is to pay the plaintiffs’ costs of the defendant/cross-claimant’s notice of motion filed 3 February 2020 and of the costs hearing;

3. The defendant/cross-claimant is to pay the third and fourth cross-defendants’ costs of the cross-claim;

4. The defendant/cross-claimant is to pay the fifth cross-defendant’s out-of-pocket expenses actually and reasonably incurred by him;

5. Order that Leonardo Carlo Muriniti is to indemnify the third and fourth cross-defendants for 65% of their costs of the proceedings;

6. Order that Leonardo Carlo Muriniti is to indemnify the third and fourth cross-defendants for the costs of the Third and Fourth cross-defendants amended notice of motion filed 14 May 2020;

7. Order that Leonardo Carlo Muriniti is to indemnify the fifth cross-defendant for 65% of the out-of-pocket expenses actually and reasonably incurred by him.

8. Subject to orders (4) and (5), the notice of motion by the fifth cross-defendant filed on 4 March 2020 is dismissed with no order as to costs.

1. The defendant’s notice of motion filed 3 February 2020 is dismissed with costs.

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Decision last updated: 12 November 2020