KELLY & LOMAX
[2015] FamCA 520
•25 June 2015
FAMILY COURT OF AUSTRALIA
| KELLY & LOMAX | [2015] FamCA 520 |
| FAMILY LAW – COSTS – where there was no abuse of process found – where one party wholly unsuccessful – where counsel found not to have acted negligently or unprofessionally – case application dismissed |
| Family Law Act 1975 (Cth) s117 s117AA s118 Legal Profession Act 2004 (NSW) |
| Lemoto v Able Technical Pty Ltd & Ors (2005) 63 NSWLR 300 Cassidy & Murray (1995) FLC 92-633 Yunghanns & Ors & Yunghanns (2000) FLC 93-029 Colgate-Palmolive Company & Colgate-Palmolive Pty Ltd v Cussons Pty Ltd (1993) FCR 225 Kohan & Kohan (1993) FLC 92-340 and FLR 19.08(3) Muldoon & Carlyle (2012) FLC 93-513 Daymond & Daymond & Ors (Costs) [2014] FamCA 302 Grefeld & Grefeld & Anor (Costs) [2015] FamCA FC 56 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 364 J Corp Pty Ltd v Australian Building Labourers Federation Union of Workers (WA Branch)(No 2) [1993] FCA 42 Z (A Solicitor) v Limousin (Costs) [2010] FLC 93-433 |
| APPLICANT: | Ms Kelly |
| RESPONDENT: | Mr Lomax |
| FILE NUMBER: | BRC | 6009 | of | 2010 |
| DATE DELIVERED: | 25 June 2015 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Tree J |
| HEARING DATE: | 25 June 2015 |
REPRESENTATION
| THE APPLICANT: | In person |
| MS LOMAX: | In person |
| MR KK: | Mr Page QC |
Orders
The Amended Application in a Case of Ms Lomax filed 8 September 2014 be dismissed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Kelly & Lomax has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC6009/2010
| Ms Kelly |
Applicant
And
| Mr Lomax |
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
On 27 June 2013, for reasons given on that day, I ordered that the then second respondent to these proceedings, Ms Lomax, be removed as a party to them. However those reasons only dealt with a part of the controversy that had been earlier litigated before me, which was not finally resolved until 25 October 2013, when I gave further reasons. I will detail the relevant history of the matter shortly.
By Amended Application in a Case filed 8 September 2014, Ms Lomax seeks orders that Ms Kelly (“the wife”) and her former counsel, Mr KK, “be ordered to pay the costs in the amount of $109,418.77 on an indemnity basis for legal fees incurred in [the] unsuccessful attempt to join [Ms Lomax] as a third party to the proceeding.” I will deal with the various iterations of that application in due course as well.
On 4 September 2014 I made orders requiring the wife and Mr KK to make file and serve any material in opposition to Ms Lomax’s application by 4:00pm Thursday 16 October 2014. Further orders were made facilitating Ms Lomax’s response to any such material, and the matter was adjourned for hearing before me in 2015 in Brisbane. In fact, as it transpired, neither the wife nor Mr KK filed any such material. The matter was brought on again before me on 19 February 2015, on which occasion Mr KK appeared by solicitor, and the wife appeared in person. There was a regime ordered by consent for the exchange of written submissions, which required Ms Lomax to make file and serve written submissions in support of her application by 5 March 2015, and the wife and Mr KK were to make file and serve any submissions in response by, respectively, 9 and 16 April 2015. No such submissions were filed by either of those persons. In a further mention of the matter on 24 June 2015, I directed that the wife and Mr KK make oral submissions before me on 25 June 2015, with the decision then being reserved.
These are my reasons for that decision.
RELEVANT LITIGIOUS HISTORY
In my reasons of 27 June 2013 I traversed some of the relevant litigious history of this matter at paragraphs 4 to 6, where I recited the matters that were then before me and which had been heard on 11, 12 and 13 March 2013. Particularly, by paragraph 2 of Part B to the wife’s reply filed 17 September 2012, the wife had sought orders that Ms Lomax be joined as a party to the proceedings. However for reasons contained in paragraph 33, I determined that in fact Ms Lomax by then was already a respondent to the proceedings and had been since the filing of a third Further Amended Initiating Application on 9 August 2012, which named her as a second respondent.
In the event that I determined that Ms Lomax was in fact a party to the proceedings, she sought orders that she be disjoined from them, or that they be summarily dismissed, or that there be an order for security for costs. In paragraph 57 of my reasons, I determined that there was no reasonable cause of action against Ms Lomax, and hence no basis for keeping her in the proceedings and removed her as a party. An appeal from that order was ultimately deemed abandoned.
By paragraph 6 of her Amended Response to Initiating Application filed 14 November 2012, Ms Lomax sought an order that the wife pay her costs on an indemnity basis. She further sought that order by paragraph 1 of her Application in a Case filed 11 July 2013, save that she specified the amount in question as being $109,418.77. By Amended Application in a case filed 8 September 2014 (pursuant to order 1 of my orders of 4 September 2014) Ms Lomax also made an application for costs against Mr KK as well as the wife. Up until that time, Mr KK had been acting as counsel for the wife, having announced his appearance as acting on a “pro bono” basis.
RELEVANT STATUTORY PROVISIONS AND AUTHORITIES
The legislation
The starting point for a consideration of these applications is s117 of the Family Law Act which relevantly provides as follows:
117(1) Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AC and 118 each party to proceedings under this Act shall bear his or her own costs.
117(2) If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
117(2A) In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a)the financial circumstances of each of the parties to the proceedings;
(b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
(d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g)such other matters as the court considers relevant.
It is also relevant to note s118 which provides as follows:
118 The court may, at any stage of proceedings under this Act, if it is satisfied that the proceedings are frivolous or vexatious:
(a)dismiss the proceedings; and
(b)make such order as to costs as the court considers just.
Part 19.4 of the Family Law Rules deals with costs orders. Rule 19.10 specifically contemplates costs orders being made against lawyers. It provides as follows:
19.10(1) A person may apply for an order under subrule (2) against a lawyer for costs thrown away during a case, for a reason including:
(a)the lawyer’s failure to comply with these Rules or an order;
(b)the lawyer’s failure to comply with a pre-action procedure;
(c)the lawyer’s improper or unreasonable conduct; and
(d)undue delay or default by the lawyer.
19.10(2) The court may make an order, including an order that the lawyer:
(a) not charge the client for work specified in the order;
(b) repay money that the client has already paid towards those costs;
(c)repay to the client any costs that the client has been ordered to pay to another party;
(d)pay the costs of a party; or
(e)repay another person’s costs found to be incurred or wasted.
Rule 19.08(3) imposes a mandatory obligation in the following terms:
A party applying for an order for costs on an indemnity basis must inform the Court if the party is bound by a Costs Agreement in relation to those costs and, if so, the terms of the Costs Agreement.
Rule 19.18 deals with the method of calculation of costs in the following terms:
19.18(1) The court may order that a party is entitled to costs:
(a)of a specific amount;
(b)as assessed on a particular basis (eg lawyer and client, party/party or indemnity);
(c)to be calculated in accordance with the method stated in the order; or
(d)for part of the case, or part of an amount assessed in accordance with Schedule 3.
Example
For paragraph (1)(c), the stated method may be in accordance with Schedule 3 but with an additional percentage for complexity.
19.18(2) If costs are payable under the Act or these Rules, or the court orders that costs be paid and does not specify the method for their calculation, the costs are to be assessed on a party/party basis.
19.18(3) In making an order under subrule (1), the court may consider:
(a) the importance, complexity or difficulty of the issues;
(b) the reasonableness of each party’s behaviour in the case;
(c) the rates ordinarily payable to lawyers in comparable cases;
(d) whether a lawyer’s conduct has been improper or unreasonable;
(e)the time properly spent on the case, or in complying with pre-action procedures; and
(f)expenses properly paid or payable.
Principles relating to costs orders against lawyers
There was no dispute before me that the power under s117(2) extends to make an order for costs against a party’s lawyer or other non-party. What will enliven the jurisdiction is serious misconduct, default or negligence, which if established may be sufficient to justify an order.[1] Such an allegation is of some gravity, and in that context I am mindful of s140 of the Evidence Act. Further, the court must be cautious to ensure that there is a balance between lawyers not being deterred from pursuing their clients’ interests on the one hand, with litigants not being unduly burdened with the costs of inappropriate conduct on the part of solicitors[2] on the other.
[1]Cassidy & Murray (1995) FLC 92-633.
[2]ibid at 82,364-5
A very helpful analysis of the inherent jurisdiction to order a legal practitioner to pay costs was undertaken by McColl JA in Lemoto v Able Technical Pty Ltd & Ors (2005) 63 NSWLR 300. That discussion was in the context of then relatively new amendments to the New South Wales Legal Profession Act, which introduced a suite of provisions which potentially saw costs orders able to be made against solicitors or barristers where they were acting in proceedings where there was no reasonable prospects of success. At [92] her Honour helpfully summarised the pre-existing jurisprudence as follows:
The new Division 5C should be construed against the background of the following principles which can be gleaned from the English and Australian authorities which have considered the power to order legal practitioners to pay the costs of proceedings in which they have represented parties:
(a)The jurisdiction to order a legal practitioner to pay the costs of legal proceedings in respect of which he or she provided legal services must be exercised “with care and discretion and only in clear cases”: Ridehalgh (at 229), Re Bendeich (1994) 53 FCR 422; Deputy Commissioner of Taxation v Levick [1999] FCA 1580; (1999) 168 ALR 383 per Hill J at [11]; Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155 at [44]; Gitsham v Suncorp Metway Insurance Ltd [2002] QCA 416 at [8] per White J (with whom Davies and Williams JJA agreed); De Sousa v Minister for Immigration (1993) 41 FCR 544; Money Tree Management Service Pty Ltd v Deputy Commissioner of Taxation(No 3) [2000] SASC 286;
(b)A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he or she acts for a party who pursues a claim or a defence which is plainly doomed to fail: Ridehalgh (at 233); Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 at [56] per Lord Hobhouse; White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 (affirmed on appeal, Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 87 FCR 134); Levick v Deputy Commissioner of Taxation; cf Steindl Nominees P/L v Laghaifar [2003] QCA 157; [2003] 2 Qd R 683;
(c)The legal practitioner is not “the judge of the credibility of the witnesses or the validity of the argument”: Tombling v Universal Bulb Co Ltd [1951] 2 TLR 289 at 297; the legal practitioner is not “the ultimate judge, and if he reasonably decides to believe his client, criticism cannot be directed to him”: Myers v Elman (at 304, per Lord Atkin); Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 47 ATR 1 at [34] per Callinan J;
(d)A judge considering making a wasted costs order arising out of an advocate’s conduct of court proceedings must make full allowance for the exigencies of acting in that environment; only when, with all allowances made, a legal practitioner’s conduct of court proceedings is quite plainly unjustifiable can it be appropriate to make a wasted costs order: Ridehalgh (at 236, 237);
(e)A legal practitioner against whom a claim for a costs order is made must have full and sufficient notice of the complaint and full and sufficient opportunity of answering it: Myers v Elman (at 318); Orchard v South Eastern Electricity Board (at 572); Ridehalgh (at 229);
(f)Where a legal practitioner’s ability to rebut the complaint is hampered by the duty of confidentiality to the client he or she should be given the benefit of the doubt: Orchard v South Eastern Electricity Board (at 572); Ridehalgh (at 229); in such circumstances “[t]he court should not make an order against a practitioner precluded by legal professional privilege from advancing his full answer to the complaint made against him without satisfying itself that it is in all the circumstances fair to do so”: Medcalf (at [23] per Lord Bingham);
(g)The procedure to be followed in determining applications for wasted costs must be fair and “as simple and summary as fairness permits…[h]earings should be measured in hours, and not in days or weeks… Judges … must be astute to control what threatens to become a new and costly form of satellite litigation”: Ridehalgh (at 238 – 239); Harley v McDonald [2001] UKPC 18; [2001] 2 AC 678 at 703 [50]; Medcalf (at [24]).
Later at [99]-[115] her Honour elaborated upon the principle referred to by her at para [92](b). Particularly she identified conflict, or at least tension, between the approach taken in the Federal Court on the one hand, with the approach taken in two State courts on the other. Ultimately her Honour determined that it was not necessary in the instant case to resolve that tension. However she did go on to illustrate that the sorts of cases in which costs orders had been in fact made against practitioners included descriptions of the cases as “untenable.. indeed … nonsense” and cases where there was no evidence to support an essential element of a cause of action. Further she referred to a Queensland decision in which the Court determined not make a personal costs order against a young and inexperienced barrister taking instructions directly from a lay client in a factually complex matter of some years standing.
It seems to me that the power under s117 is akin to the power under the inherent jurisdiction of the State Supreme Courts, and is in marked distinction to the sorts of statutory regimes of which the New South Wales Legal Profession Act is but one example. Nothing in Rule 19.10(1) persuades me to the contrary, at least insofar as any costs order arises because of “the lawyer’s improper or unreasonable conduct.” Therefore the discussion both at para [92](b) and thereafter by McColl JA in Lemoto (supra) is of considerable assistance.
Principles relating to indemnity costs
In order to justify the making of an order for costs on other than a party/party basis, all that is required are particular facts and circumstances of the case in question warranting the making of such an order.[3] That said, such an order is a very great departure from the normal standard, and hence it is imperative that the court be aware of what the nature of the indemnity is, in the sense of what the costs agreement between the parties seeking the order in their solicitors is.[4] That said, such an order remains wholly compensatory and not punitive.[5]
[3]Yunghanns & Ors & Yunghanns (2000) FLC 93-029 adopting Sheppard J in Colgate-Palmolive Company & Colgate-Palmolive Pty Ltd v Cussons Pty Ltd (1993) FCR 225.
[4]See Kohan & Kohan (1993) FLC 92-340 and FLR 19.08(3).
[5]See Muldoon & Carlyle (2012) FLC 93-513 at [115].
It is well established that proceedings brought in wilful disregard of known facts or clearly established law are one of the established categories which justify indemnity costs.[6] An instance of that in this court is the decision of Limousin[7] where the Full Court did not disturb a costs order against a solicitor who had failed to have any proper regard to the prospects of success of a claim.
[6]Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 364; J Corp Pty Ltd v Australian Building Labourers Federation Union of Workers (WA Branch)(No 2) [1993] FCA 42; Colgate-Palmolive (supra and Yunghanns (supra).
[7]Z (A Solicitor) v Limousin (Costs) [2010] FLC 93-433
Does s 117 apply?
Notwithstanding that the wife’s claim against Ms Lomax was pursuant to the accrued jurisdiction of the court, it seems clear that nonetheless costs applications in relation to such matters stand to be determined by s 117: see Daymond & Daymond & Ors (Costs) [2014] FamCA 302. To the extent that Murphy J in that case could not find Full Court authority to support that proposition, that appears now to have been provided in Grefeld & Grefeld & Anor (Costs) [2015] FamCA FC 56 at [42].
THE APPLICATION AGAINST THE WIFE
Financial circumstances
I know little about Ms Lomax’s financial circumstances. Annexure “C” to her affidavit filed 12 October 2012 (which was read by her in the proceedings) discloses that she is a director of D Pty Ltd which was incorporated on 12 March 2010. Its “only” assets are said to comprise office furniture, debtors and a bank account, although the amount in that account at that date was not disclosed. However that table goes on to say that the “business involves 35 employees/sub-contractors providing engineering and geological services.” I do not know what the present status of the business is.
On the other hand I do know that she remains the owner of M Street in conjunction with the husband, although I do not have any evidence of its present value or its level of indebtedness.
In paragraph 26 of my reasons delivered 25 October 2013, I referred to the husband’s material, which disclosed that Ms Lomax then received an average weekly gross income of $3,000.00 (or $156,000.00 per annum) of which she devoted $2,500.00 to meeting the household expenses of herself, the husband and their children.
Finally I note that in fact Ms Lomax has expended the $109,418.77 on her solicitors and senior counsel. In submissions she asserted that this was funded by way of a draw-down on the mortgage over M Street.
The wife has not availed herself of the opportunity to file any material in resistance to the application for costs, as to her financial circumstances or otherwise. Nonetheless in the overall context of this litigation, it is plain that she is likely impecunious, or close to it. It appears common ground that the former matrimonial home, where until recently, she has been residing, is in the process of being sold up by a bank arising from the wife’s default on the mortgage. She owes a litigation funder somewhere in the order of $300,000.00. She has the care of the parties’ children.
I am therefore persuaded that Ms Lomax is in better financial circumstances than the wife. Beyond that the evidence does not permit me to make any firm conclusion.
Legal Aid
No party was apparently in receipt of Legal Aid.
Conduct of parties
This is a major matter relied upon by Ms Lomax. She says, in substance, that the wife has been litigating irresponsibly, in the face of numerous warnings by Ms Lomax’s former solicitors that there was no viable claim against her, and that she would likely seek orders for costs against the wife in the event that the wife failed against her. Ms Lomax puts her argument as strongly as suggesting that the wife deliberately chose to conduct hopeless litigation with a view to “increasing the costs and wearing down the other parties to the matter in the hope that [she] forces them into agreeing to a settlement offer, and in the second instance the delaying actions have enabled the wife to continue to live in the [former matrimonial home].”
That is a serious allegation. It is an accusation that the wife is engaged in an abuse of process. It is a matter to which s 140 of the Evidence Act has application. The material does not persuade me, on the balance of probabilities, that such conduct is established. In my view it is likely that the wife was transfixed by her belief that Ms Lomax was the ostensible controller of what had been the former business of the husband and wife, and believed that therefore she was a necessary party to the litigation. Moreover, she was probably distracted by the variously inconsistent, opaque, or suspicious explanations given from time to time by the husband as to how Ms Lomax – the husband’s former administrative assistant – came to be the person allegedly conducting businesses strangely similar to those which had previously been conducted by him.
Although the wife has not availed herself of the opportunity to file material in relation to the question of costs, on the material before me in the course of dealing with the applications in 2013, it seemed to me that the wife – and indeed Mr KK – had not properly thought through the basis for the remedy which they sought. In a sense they were a remedy looking for a cause of action. However it is quite another thing to say that they were therefore abusing the processes of the court.
I am not persuaded on the balance of probabilities that the purpose of the wife seeking to join Ms Lomax into the proceedings was as Ms Lomax asserts.
Previous non-compliance
This is not engaged here.
Wife wholly unsuccessful
The wife wholly failed in her efforts to join or retain Ms Lomax as a party. That said, Ms Lomax acted appropriately by seeking to staunch what would otherwise have been haemorrhaging legal costs by bringing the question of the validity of any asserted cause of action against her to a head at an early stage.
Offers to settle
I am unaware of any offers to settle between the wife and Ms Lomax.
Other matters
I can identify no additional relevant matters.
Consideration
I am not satisfied that the usual rule established by s 117(1) has been displaced. There will be no order for costs against the wife, whether on an indemnity basis or otherwise.
THE APPLICATION AGAINST MR KK
Financial circumstances of the parties
I have already identified that I know little about Ms Lomax’s financial circumstances. I know absolutely nothing about Mr KK’s.
Legal Aid
Neither party were in receipt of Legal Aid, nor is Mr KK legally aided.
Conduct of the parties
I have already addressed this in the course of considering the application against the wife. However as regards Ms KK, the allegation takes a slightly different tenor: necessarily to the extent that he was knowingly a party to an abuse of process, the allegation must be that Mr KK has misconducted himself professionally. Further, the allegation is more broadly made, that he has been grossly negligent. Mr Page QC, who appeared for Mr KK, described Ms Lomax’s allegations as scandalous. The flavour of them can be discerned from the following extracts from Ms Lomax’s written submissions:
…
I contend that [Mr KK] has a well-recognised modus operandi in his endeavours within the Family Court – particularly in cases where he is acting on a purported “Pro Bono” basis with some speculative view to getting payment.
…
[Mr KK], in my opinion, is manipulating the court system by making frivolous applications with the simple intention of in the first instance increasing the costs and wearing down the other parties to the matter in the hope that he forces them into agreeing to a settlement offer, and in the second instance the delaying actions have enable the wife to continue to live in the FMH.
…
In circumstances where counsel knew the wife to be impecunious, knew the wife owed a litigation funder over $300,000.00, was acting for the wife on a pro bono and perhaps success fee basis and was acting on a direct brief and was therefore aware that the wife would be unlikely to have any resources available to pay my costs if the wife’s litigation against me was unsuccessful – the court could reasonably expect that counsel was particularly diligent to ensure the wife’s litigation had some prospect of success, was not being undertaken simply to delay proceedings and allow the wife stay in the FMH and was not being used as a mechanism by which to pressure myself and the husband to make a settlement offer to the wife.
The court should discourage irresponsible litigation such as that portrayed by [Mr KK] over the course of these proceedings – the strategy whereby counsel represents clients on a prop bono success fee basis, manipulates the system to delay matters and has little regard for the merits of the case presented, nor any concern about a costs order as the client is impecunious, should not be acceptable to the courts of Australia and should be discouraged by applying personal costs against barristers who facilitate and participate in such behaviour.
…
It is my contention that [Mr KK] sought my joinder either on a whim, or at the request of his impecunious, querulous, client who was focussed on drawing out proceedings and seeking revenge against me by, in her words, doing everything she can to ruin my life.
…
The material does not justify such assertions. In this context it is useful to reflect upon the observation made by McColl JA in Lemoto (supra) at [92] (b) that “a legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he or she acts for a party who pursues a claim or a defence which is plainly doomed to fail.”
The material falls well short of persuading me that Mr KK either engaged in professional misconduct or unprofessional conduct, or was grossly negligent.
Failure to comply with previous orders
This is not relevant to this application.
Wife wholly unsuccessful
Indeed it is the case that the wife has been wholly unsuccessful in this case, as against Ms Lomax, and necessarily it follows that Mr KK failed in his efforts to keep Ms Lomax as a party to the proceedings.
Offers to settle
I am unaware of any offers to settle.
Other matters
I can identify no additional relevant matters.
Consideration
I am not persuaded that there should be an order for costs against Mr KK because there are not circumstances which justify such an order (s 117(2)) and because such an order would not be just.
CONCLUSION
Ms Lomax’s Amended Application in a Case filed 8 September 2014 is dismissed.
I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Tree delivered on 25 June 2015.
Associate:
Date: 25 June 2015
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