Muriniti v Mercia Financial Solutions Pty Ltd

[2021] NSWCA 180

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Muriniti v Mercia Financial Solutions Pty Ltd [2021] NSWCA 180

Hearing dates:

03 June 2021

Date of orders:

18 August 2021

Decision date:

18 August 2021

Before:

Bell P at [1];
Gleeson JA at [124];
Emmett AJA at [125]

Decision:

Appeal dismissed with costs

Catchwords:

APPEALS – appeal from primary judgment making personal costs orders against the applicant pursuant to Sch 2 of the Legal Profession Uniform Law Application Act 2014 (NSW) and s 99 of the Civil Procedure Act 2005 (NSW) – where applicant was the legal practitioner for the defendant in the proceedings below and made allegations of fraudulent misrepresentation and conspiracy without any proper basis – where solicitor breached his professional ethical duties in pursuing the claims

APPEALS – application for leave to appeal – whether leave to appeal is required by a legal practitioner who is subject to a third party costs order, assuming that the monetary threshold under s 101(2)(r) of the Supreme Court Act 1970 (NSW) is satisfied – leave to appeal not required pursuant to s 101(2)(c) of the Supreme Court Act on the basis that the decision was not one “as to costs only”

APPEALS – challenge to earlier decision of this Court on the basis that it was “plainly wrong” – where no real attempt was made to satisfy the requirements for a challenge to a decision of this Court as outlined in Gett v Tabet (2009) 254 ALR 504; [2009] NSWCA 76

APPEALS – procedural fairness – whether applicant was denied procedural fairness on the basis that the primary judge did not consider all of the grounds and arguments advanced by the applicant – whether applicant was denied procedural fairness in that the Court treated various findings made in the substantive judgment as beyond challenge for the purposes of the costs application – where applicant’s arguments in the costs application were essentially a replication of the arguments that had been advanced and rejected by the primary judge in the substantive judgment – where no denial of procedural fairness

COSTS – where primary judge imposed personal costs orders against the legal practitioner of the unsuccessful party in proceedings below – where applicant was the legal practitioner for the defendant in the proceedings below and improperly made allegations of fraudulent misrepresentation and conspiracy without any evidence to support it – where solicitors breached their professional ethical duties in pursuing the claims

COSTS – whether in an application for costs orders against a legal practitioner under s 99 of the Civil Procedure Act 2005 (NSW), the Court is entitled to take account of its findings in the substantive judgment – whether a legal practitioner against whom such costs orders are sought is bound by findings in the substantive judgment, even though the legal practitioner was not formally a party to the proceedings – where in the present case, the applicant was given a full and fair opportunity to explain the basis upon which he made the relevant allegations and to rebut the statutory presumption arising under cl 6 of Sch 2 to the Legal Profession Uniform Law Application Act 2014 (NSW)

LEGAL PRACTITIONERS – obligations of solicitors arising pursuant to the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW) r 21

Legislation Cited:

Civil Procedure Act 2005 (NSW) s 99

Evidence Act 1995 (NSW) ss 91, 140(2)

Legal Profession Uniform Law Application Act 2014 (NSW) Sch 2, cll 2(1), 5, 6(1)

Supreme Court Act 1970 (NSW) ss 101(2)(c), 101(2)(r)

Supreme Court Act 1981 (UK) s 18(1)(f)

Supreme Court Act 1995 (Qld) s 253

Federal Circuit Court Rules 2001 (Cth) r 21.07

Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW) rr 21, 21.3

Cases Cited:

Arena Management Pty Ltd (Receiver and Manager Appointed) v Campbell Street Theatre Pty Ltd (2011) 80 NSWLR 652; [2011] NSWCA 128

Berry v CCL Secure Pty Ltd (2020) 94 ALJR 715; [2020] HCA 27

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

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

Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd [2004] 2 Qd R 11; [2003] QCA 516

Etna v Arif [1999] 2 VR 353; [1999] VSCA 99

Flinn v Flinn [1999] 3 VR 712; [1999] VSCA 134

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

Gett v Tabet (2009) 254 ALR 504; [2009] NSWCA 76

Glover v Kaji Australia Pty Limited [2020] NSWCA 222

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

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) 97 NSWLR 991; [2018] NSWCA 98

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

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

Mitry Lawyers v Barnden [2014] FCA 918

Oxer v Astec Paints Australia Pty Ltd [2008] SASC 64

Re Felicity; FM v Secretary, Department of Family and Community Services (No 4) [2015] NSWCA 19

Ridehalgh v Horsefield [1994] Ch 205

Symphony Group Plc v Hodgson [1994] QB 179

The State of Queensland v The Commonwealth of Australia (1977) 139 CLR 585; [1977] HCA 60

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

Category:

Principal judgment

Parties:

Leonardo Carlo Muriniti (Applicant)
Mercia Financial Solutions Pty Ltd
(First Respondent)
Richard Nicholson (Second Respondent)
Rodney Shields (Third Respondent)

Representation:

Counsel:

R Newell (Solicitor) (Applicant)
D A Lloyd SC (First and Second Respondents)
R Shields (Third Respondent) (In person)

Solicitors:

L C Muriniti & Associates (Applicant)
DLA Piper (First and Second Respondents)

File Number(s):

2020/336242

Publication restriction:

N/A

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Common Law

Citation:

[2020] NSWSC 1576

Date of Decision:

12 November 2020

Before:

Davies J

File Number(s):

2014/105767

HEADNOTE

[This headnote is not to be read as part of the judgment]

Mr Leonardo Carlo Muriniti (Mr Muriniti) brought an application for leave to appeal against a judgment by which personal costs orders were made against him, pursuant to cl 5 of Sch 2 of the Legal Profession Uniform Law Application Act 2014 (NSW) (the Uniform Law) and s 99 of the Civil Procedure Act 2005 (NSW): see Kaji Australia Pty Ltd v Glover (No 5) [2020] NSWSC 1576 (the costs judgment).

Mr Muriniti had been the solicitor for the defendant in the underlying substantive proceedings, involving a claim for possession and monies due and owing under a loan agreement and mortgage. In these proceedings, a cross-claim was brought on behalf of Mr Muriniti’s client alleging that the cross defendants had engaged in fraudulent misrepresentation and conspiracy to defraud the defendant. In his judgment on the substantive proceedings (Kaji Australia Pty Ltd v Glover (No 4) [2019] NSWSC 1779 (the substantive judgment)), Davies J (the primary judge) dismissed the cross-claim, finding that there was no evidentiary basis for the allegations of fraudulent misrepresentation and conspiracy and that it was “difficult to see in the present matter how [Mr Muriniti’s] ethical responsibilities have been complied with”.

The substantive judgment was upheld on appeal: see Glover v Kaji Australia Pty Limited [2020] NSWCA 222 (the appeal judgment). In the costs judgment, which was delivered following the appeal judgment, the primary judge ordered that Mr Muriniti was to indemnify certain of the cross-defendants in the substantive proceedings for 65% of their costs and/or out-of-pocket expenses actually and reasonably incurred.

In making the relevant orders, the primary judge held that the filing of the cross-claim was in breach of Mr Muriniti’s professional and ethical obligations, and that the operation of cl 6(1) of Sch 2 to the Uniform Law was engaged. This clause erected a presumption that the legal services provided by Mr Muriniti on the cross-claim were without reasonable prospects of success. Although the presumption was rebuttable on the hearing of the costs proceedings, Mr Muriniti was bound by the findings of the primary judge in the substantive judgment.

The primary judge held that Mr Muriniti had failed to rebut the presumption and that the evidence he had advanced in the costs proceedings simply repeated the arguments which had been presented and rejected in the substantive proceedings, including in relation to the cross-claim alleging fraudulent misrepresentation and conspiracy.

Mr Muriniti filed a Summons seeking leave to appeal against the costs judgment, although he did not accept that leave to appeal was required such that the question of leave became an issue on the appeal.

It followed that the principal issues on appeal were:

1. whether leave to appeal was required by a legal practitioner who is subject to a third-party costs order, assuming the quantum involved exceeds the monetary threshold under s 101(2)(r) of the Supreme Court Act 1970 (NSW);

2. whether the presumption created by cl 6(1) of Sch 2 of the Uniform Law had been rebutted on the evidence advanced by Mr Muriniti in the costs proceedings;

3. whether Mr Muriniti was denied procedural fairness by the primary judge’s asserted failure to consider the content of an Affidavit, explaining his bases for filing the cross-claim, in its entirety; and

4. whether the primary judge erred in making various findings of fact in the costs judgment.

The Court held (Bell P, Gleeson JA and Emmett AJA agreeing), dismissing the appeal with costs:

1. Mr Muriniti did not require leave to appeal pursuant to s 101(2)(c) of the Supreme Court Act, on the basis that the decision was not one “as to costs only”: [25]–[27] (Bell P); [124] (Gleeson JA); [130] (Emmett AJA).

Arena Management Pty Ltd (Receiver and Manager Appointed) v Campbell Street Theatre Pty Ltd (2011) 80 NSWLR 652; [2011] NSWCA 128; Re Land and Property Trust Co plc [1991] 3 All ER 409; Oxer v Astec Paints Australia Pty Ltd [2008] SASC 64; Emanuel Management Pty Ltd (in liq) v Foster’s Brewing Group Ltd [2004] 2 Qd R 11; [2003] QCA 516; Etna v Arif [1999] 2 VR 353; [1999] VSCA 99, considered.

2. No evidence was adduced by Mr Muriniti which operated to rebut the statutory presumption in cl 6(1) of Sch 2 to the Uniform Law and arising from the primary judge’s undisturbed findings in the substantive judgment: [93] (Bell P); [124] (Gleeson JA); [131] (Emmett AJA).

King v Muriniti (2018) 97 NSWLR 991; [2018] NSWCA 98; Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284; [2005] NSWSC 3; Tombling v Universal Bulb Company, Limited [1951] 2 TLR 289; Flinn v Flinn [1999] 3 VR 712; [1999] VSCA 134; Symphony Group Plc v Hodgson [1994] QB 179; Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153, considered.

3. Mr Muriniti was not denied procedural fairness either by the treatment of the findings in the substantive judgment as beyond challenge in the costs proceedings nor by the primary judge’s consideration of his Affidavit and submissions in the costs judgment: [96] (Bell P); [124] (Gleeson JA); [131] (Emmett AJA):

1. nothing was to be gained by repeating in the costs judgment why the arguments advanced in the substantive proceedings had been rejected both by the primary judge and by the Court of Appeal as lacking any proper basis for the cross-claim: [101]–[102] (Bell P); [124] (Gleeson JA); [131] (Emmett AJA); and

2. the inquiry under s 99 of the Civil Procedure Act is directed to whether or not there was a reasonable basis for the allegations made in the cross-claim, to which the subjective belief and understanding of the legal practitioner is immaterial: [103] (Bell P); [124] (Gleeson JA); [131] (Emmett AJA).

4. The primary judge’s findings of fact in the costs judgment did not disclose any error and his Honour’s conclusion that Mr Muriniti had failed to rebut the presumption that arose from the findings in his substantive judgment was sound: [105]–[119], [120] (Bell P); [124] (Gleeson JA); [131] (Emmett AJA).

Judgment

1. BELL P: Before this Court is an application for leave to appeal brought by Mr Leonardo Carlo Muriniti (Mr Muriniti) from a decision of Davies J (the primary judge): see Kaji Australia Pty Ltd v Glover (No. 5) [2020] NSWSC 1576 (the costs judgment or CJ). Mr Muriniti is a legal practitioner within the meaning of the Legal Profession Uniform Law Application Act 2014 (NSW) (the Uniform Law).

2. The primary judge made personal costs orders again Mr Muriniti, pursuant to Sch 2 of the Uniform Law and s 99 of the Civil Procedure Act 2005 (NSW).

3. Mr Muriniti was the solicitor for the defendant, Mr Johann Glover (Mr Glover), in a claim for possession and moneys due and owing under a loan agreement and mortgage. The claim was brought by Kaji Australia Pty Ltd (Kaji) and its principal Mr William Webster (Mr Webster). Mr Glover in turn cross-claimed against both plaintiffs, as well as Mercia Financial Solutions Pty Ltd (Mercia), Mr Richard Nicholson (Mr Nicholson), said to be Mercia’s sole director, and Mr Rodney Shields (Mr Shields) alleging, amongst other things, fraudulent misrepresentation and conspiracy to defraud Mr Glover.

4. The plaintiffs succeeded in their claim and the cross-claim was dismissed: see Kaji Australia Pty Ltd v Glover (No. 4) [2019] NSWSC 1779 (the substantive judgment or SJ). These reasons assume familiarity with the substantive judgment, but of particular significance for the subsequent costs judgment was the primary judge’s statement at SJ [288] that:

“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.”

5. In similar vein it is to be noted that the primary judge, after recording at SJ [138] that “[i]t is apparent from the case sought to be made by the defendant against the various cross-defendants that the St George Bank loan is a central matter”, held, at SJ [143], that:

“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.” (emphasis added).

6. In an appeal from this decision (see Glover v Kaji Australia Pty Limited [2020] NSWCA 222 (the appeal judgment)), handed down prior to the costs judgment, White JA expressly endorsed the primary judge’s observation that the submission made and recorded in the above paragraph was improper: at [62]. It may also be observed that Macfarlan JA, with whom Bathurst CJ and White JA agreed, having reviewed the evidence relied upon and inferences sought to be drawn to make good the allegations of fraud and conspiracy against Mr Nicholson, concluded at [38] that the “claim against Mr Nicholson was bound to fail”.

7. His Honour also concluded that many of the same considerations applied in relation to the claim against Mr Shields “although there is, if anything, even less of a basis for an inference of fraud and conspiracy against him”: at [39]. Macfarlan JA observed that the only particular points of any arguable significance relied on “[n]either individually nor together” amounted to “a basis for the relevant inference”: at [39].

8. In the costs judgment, the primary judge made various costs orders against Mr Glover in relation to both the plaintiffs’ claim and the cross-claim. Critically for present purposes, the primary judge also ordered, by reference to a Notice of Motion that had been filed by Mercia and Mr Nicholson on 14 May 2020 (and which was joined in by Mr Shields), that Mr Muriniti was to indemnify:

1. the third and fourth cross-defendants (Mercia and Mr Nicholson) for 65% of their costs of the proceedings and all of their costs of an amended Notice of Motion filed 14 May 2020 (which was the motion for the third party costs order); and

2. the fifth cross-defendant (Mr Shields who represented himself in the underlying proceedings) for 65% of the out-of-pocket expenses actually and reasonably incurred by him.

   9. These orders were made pursuant to cl 5 of Sch 2 of the Uniform Law and s 99 of the Civil Procedure Act. They supplied independent sources of power for the making of the costs orders.

   10. Clause 5(1) of Sch 2 of the Uniform Law provides:

   “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.”

   11. Clause 6(1) of Sch 2 of the Uniform Law provides:

   “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.”

   12. Clause 6(1) of Sch 2 of the Uniform Law is a forensically significant provision because it erects a statutory presumption by reference to findings in the underlying proceedings to which the legal practitioner is not a party (although he or she will have been intimately involved in the proceedings). Whilst the presumption built on such findings may be rebutted, the legal practitioner is bound by the findings in the sense that he or she may not be heard to say that, because he or she was not a party to the proceedings, they have no legal effect on the legal practitioner.

   13. The primary judge held that his finding at SJ [288] (see [4] above) engaged cl 6(1) of Sch 2 to the Uniform Law and that Mr Muriniti had failed to rebut the presumption that arose from the findings in the substantive judgment: at CJ [80].

   14. Sections 99(1) and (2) of the Civil Procedure Act, which supplied the alternative statutory basis for the costs orders against Mr Muriniti, provide that:

   “99   Liability of legal practitioner for unnecessary costs

   (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)    in the case of a barrister, as between the barrister and the instructing solicitor, or as between the barrister and the client, as the case requires, or

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

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

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

   (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.”

   15. Section 99 of the Civil Procedure Act was considered by this Court in King v Muriniti (2018) 97 NSWLR 991; [2018] NSWCA 98 at [37] (King v Muriniti), in which Basten JA, with whom Gleeson JA agreed, held that:

   “The references in s 99(1) and (2) to ‘the court’, together with the reference in s 99(2)(a) to ‘the costs in the proceedings’, are consistent with the power being exercised in the proceedings between the original parties. Further, although s 99(2) requires that the legal practitioner be given a reasonable opportunity to be heard, there is no suggestion that he or she becomes a party to the proceedings, at least in such a way as to constitute fresh proceedings. Although s 99(4) provides that the court may direct that ‘notice of any proceedings or order under this section with respect to a legal practitioner’ be given to certain persons, it should not be inferred that this language implies that there will be fresh proceedings commenced under the section. Such an implication would be inconsistent with the form and purpose of subs (1) and (2).”

   16. Basten JA also held that, although a third party against which a costs order is sought may seek and will be entitled to lead evidence “well beyond the evidence called at the trial”, the Court may take into account findings made in the underlying judgment without requiring it to be tendered in or as evidence: at [39]-[44].

   17. In the present case, the primary judge held in relation to the alternative basis for the claim under s 99 of the Civil Procedure Act that the costs associated with the claims in fraud and conspiracy were incurred improperly, without reasonable cause, and by the serious misconduct of Mr Muriniti: at CJ [85]. That misconduct related to what the primary judge considered to be non-compliance with professional and ethical responsibilities embodied in the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW) (the Conduct Rules).

   18. Notwithstanding the fact that Mr Muriniti has filed a Summons seeking leave to appeal, he did not accept that leave to appeal was required and a preliminary and important question arises as to whether or not leave to appeal is in fact required by a legal practitioner who is subject to a third party costs order, assuming that the quantum involved exceeds $100,000 cf. s 101(2)(r) of the Supreme Court Act 1970 (NSW). (I have assumed that the monetary threshold is exceeded in the present case given the length – 8 days – of the hearing of the underlying proceedings).

   19. It is convenient to deal first with the question of whether leave to appeal was required.

Is leave to appeal required?

20. Section 101(2)(c) of the Supreme Court Act provides that:

“(2)     An appeal shall not lie to the Court of Appeal, except by leave of the Court of Appeal, from—

…

(c)     a judgment given or order made in proceedings in the Court with the consent of the parties or as to costs only which are in the discretion of the Court”.

21. The competing arguments were identified and carefully analysed in a typically thorough manner by Campbell JA in Arena Management Pty Ltd (Receiver and Manager Appointed) v Campbell Street Theatre Pty Ltd (2011) 80 NSWLR 652; [2011] NSWCA 128 at [104]-[122]. It was not necessary, however, for his Honour ultimately to decide the question in that case which related to costs orders against a liquidator.

22. A number of Australian cases have made reference to the observations of Nicholls LJ with whom Lord Donaldson MR agreed in Re Land and Property Trust Co plc [1991] 3 All ER 409. That case concerned a consideration of s 18(1)(f) of the Supreme Court Act 1981 (UK) which provided that “[n]o appeal shall lie to the Court of Appeal without the leave of the court or tribunal in question, from any order of the High Court or any other court or tribunal made with the consent of the parties or relating only to costs which are by law left to the discretion of the court or tribunal.” His Lordship said (at 412):

“To my mind, the making of a costs order against a non-party is such an unusual and far reaching departure from the normal course of events to be expected in litigation that I cannot believe Parliament had this type of case in mind at all when enacting s 18(1)(f) or the corresponding section in the preceding Acts. It would indeed be remarkable if a 'stranger' to proceedings could be ordered to pay the costs of a party to those proceedings and have no right of appeal against that order in any circumstances unless the judge who made the order saw fit to give leave to appeal. Parliament cannot have intended that such a person should have no right of appeal at all whatever the circumstances and however severe or draconian the effect of the order might be.

In my view, s 18(1)(f) is to be understood and read as applying only to orders for costs made against persons who were parties to the proceedings in which the costs in question were incurred. Costs orders against persons who were not parties to the relevant proceedings are not orders which relate 'only to costs' within the meaning of that expression in the paragraph. Such orders necessarily relate to matters other than merely the outcome of the proceedings. There has to be something more, some conduct by the non-party which makes it just that he should bear the costs of the litigation to which he was not a party.”

23. This analysis was endorsed by Debelle J in Oxer v Astec Paints Australia Pty Ltd [2008] SASC 64 at [6] and, although distinguished on the basis of a difference in the wording of s 253 of the Supreme Court Act 1995 (Qld) by the Queensland Court of Appeal in Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd [2004] 2 Qd R 11; [2003] QCA 516 at [8], that Court did observe at [11] that:

"[Counsel submitted] that [s 253] does not apply to a costs order made against a solicitor...: cf. In re Bradford, Thursby and Farish (1883) 15 Q.B.D. 635, 636; Thompson v Fraser[1986] 1 W.L.R. 17; Michael v Freehill Hollingdale and Page(1990) 3 WAR 223, 228, 234; Etna v Arif [1999] VSCA 99; [1999] 2 V.R. 353, 379. To warrant such an order, the court must necessarily be satisfied there has been some dereliction on the part of the solicitor, and that may be regarded as the feature to which the order primarily relates. That approach is therefore distinguishable because historically considered as uniquely referable to the disciplinary jurisdiction of the court, and not to the court's general discretionary jurisdiction as to costs. It is accepted that there must be an appeal without leave in respect of a finding of professional misconduct or negligence (Etna v Arif, p.379)."

24. The decision in Etna v Arif [1999] 2 VR 353; [1999] VSCA 99, referred to in the above passage, contained the following observation of Batt JA at [69] (with whom Charles and Callaway JJA agreed):

“It is established that an order that a solicitor personally pay costs is not an order ‘as to costs only’ which are in the discretion of the court, but rather is an order in the disciplinary jurisdiction of the court (even though the main object of the order may be compensatory): Re Bradford, Thursby and Farish (1883) 15 Q.B.D. 635; Thompson v. Fraser [1986] 1 W.L.R. 17; [1985] 3 All E.R. 511 at 512 and Michael v. Freehill Hollingdale & Page (1990) 3 W.A.R 223 at 228 and 231-3; cf. Re Hardwick (1883) 12 Q.B.D. 148; Re Land and Property Trust Co. Plc [1991] 1 W.L.R. 601 at 604-5; [1991] 3 All E.R. 409 at 412 and Wilkinson v. Kenny [1993] 1 W.L.R. 963 at 971 and 974; [1993] 3 All E.R. 9 at 17 and 19. (The compensatory object of the order is emphasised in Myers v. Elman [1940] A.C. 282 at 289 and 319, contra at 303; Michael at 233; Ridehalgh v. Horsefield [1994] Ch. 205 at 227 and White Industries (Qld) Pty. Ltd. v. Flower & Hart (1998) 156 A.L.R. 169 at 229-30 (affd. sub. nom. Flower & Hart v. White Industries (Qld) Pty. Ltd. (1999) 87 F.C.R. 134) and cases there cited.) In the first-mentioned case (scil., Re Bradford, Thursby and Farish) it was held that a judge had no discretion to make an order for costs against a solicitor personally unless there had been misconduct or negligence and that on that question there ought to be an appeal without leave. Later cases have taken a wider view and in Thompson v. Fraser at W.L.R. 17; All E.R. 512 Sir John Donaldson M.R. said that the court was unanimously of the view that an appeal in such circumstances did not relate only to costs ‘or, indeed, primarily to costs: it relates to the conduct of the solicitor’. Although the word ‘only’ does not appear in the Victorian s. 17A(1)(b), that difference does not, in my view, make the long-established line of authority distinguishable and, whilst it is not binding upon this court, I consider that we should follow it.”

25. In my opinion, not only because of the weight of authority in other Australian states and in England on cognate provisions but, most fundamentally, by reason of the language “as to costs only which are in the discretion of the Court” contained in s 101(2)(c) of the Supreme Court Act, Mr Muriniti did not require leave to appeal.

26. Section 99 of the Civil Procedure Act can only be engaged if it appears to the court that costs in the underlying proceedings have been incurred by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible. Adverse findings in the underlying proceedings may inform such a conclusion. So, too, the power to order costs against a legal practitioner is not solely discretionary under cl 5 of Sch 2 of the Uniform Law. Rather, findings of the utmost seriousness with regard to the legal practitioner are a necessary prerequisite to the ordering of costs against the practitioner. True it is that there may be a discretion as to the extent of any award of costs (as the award of 65% in the present case illustrates) but, as the primary judge’s costs judgment also illustrates, much more than the exercise of a discretion underpinned the orders from which Mr Muriniti appeals.

27. It follows that leave to appeal was not, in my opinion, required on the basis that the decision was one “as to costs only”.

28. Before turning to the grounds of appeal, it is necessary to supply (a) some further background to the underlying cross-claim, (b) an account as to how it was dealt with in the substantive judgment, and (c) an account of the primary judge’s reasoning in the costs judgment.

Background to the proceedings

29. In 2008, Mr Glover owed money to the Australian Tax Office (ATO) in respect of a capital gains tax liability which he incurred after selling some shares, the purpose of which was to advance money to his then friend, Mr John Lippits (Mr Lippits). Mr Glover had a long history of lending money to Mr Lippits and had lent him more than $1 million over the years which had not been repaid.

30. The ATO commenced proceedings in the District Court of New South Wales against Mr Glover on 28 November 2008. On 9 February 2009, a default judgment of $74,890.17 was obtained by the ATO (the ATO Judgment). On 1 December 2009, the ATO issued a Bankruptcy Notice against Mr Glover which was served on him on 31 January 2010.

31. By early 2011, Mr Glover’s problems with the ATO had become more serious, and the ATO was reluctant to continue to allow sequestration proceedings that it had commenced to be adjourned.

32. Mr Lippits approached Mr Nicholson, who was a mortgage broker, on Mr Glover‘s behalf. A loan application to St George Bank was prepared and apparently submitted to the bank, although the circumstances in which this was done and by whom the application was completed was controversial, as was an email dated 1 February 2011 apparently from St George to Mr Nicholson recording conditional approval for the loan.

33. The St George loan did not however eventuate and, on 21 February 2011, Mr Glover borrowed the sum of $115,000 from Kaji secured by a mortgage over his property at an interest rate of 3% or 5% per month. The loan was repayable on 21 April 2011. Mr Glover did not repay the loan, and on 8 April 2014, Kaji brought proceedings against him for possession of his property and for repayment of the amount owing under the loan.

34. Mr Glover alleged by his Cross-Claim that his entry into the loan agreement with Kaji was procured by a fraudulent conspiracy between Kaji (via its controlling mind Mr Webster), Mercia (via its controlling mind Mr Nicholson), and Mr Shields, a mortgage originator known to Mr Nicholson. It was contended that Mercia and Mr Nicholson had engaged in fraudulent representations to Mr Glover through Mr Lippits, after 1 February 2011 and before 15 February 2011, that the St George loan could not be settled in time to avert a sequestration order against Mr Glover’s assets, but that an approach could be made to private lenders for a short term loan pending settlement of the St George loan.

35. It was alleged that the effect of this was to suggest to Mr Glover that:

(a)   the St George Loan Approval was a sound basis on which to contemplate the pay out of the ATO Judgment; and that

(b)   the St George Loan Approval provided a sound exit strategy from a short-term loan insofar as a short-term loan had become necessary.

These two propositions were defined in the Cross-Claim as “the Expected Loan Representations".

36. These representations were alleged to be fraudulent in that Mercia and Mr Nicholson were alleged to know that they were fraudulent and were said to have been made by Mercia and Mr Nicholson with the intention of deceiving Mr Glover and inducing him to enter the loan agreement and mortgage with Kaji from which Mr Nicholson would in some way benefit.

37. The conspiracy was alleged in para 32 of the Cross-Claim as follows:

“Further and/or in the alternative on or before 20 February 2011 the First, Second, Third, Fourth and Fifth Cross-Defendants wrongfully and with intent to injure the Cross-Claimant by unlawful means conspired and combined together to defraud the Cross-Claimant by causing him to enter into the Agreement and the Mortgage and thereby to obtain for themselves the opportunity through a mortgagee sale to appropriate the value of the Cross-Claimant's home (in whole or substantial part) and to conceal such fraud from the Cross-Claimant.”

38. As the primary judge recorded in the substantive judgment, on 19 June 2018 the solicitors for Mr Nicholson wrote to the defendant’s solicitors and asked these questions:

“4.   In relation to paragraph 32 of the FACC, what are the facts, matters and circumstances supporting the allegation that certain parties ‘conspired’ and ‘combined together’. Further:

4.1

   If the alleged conspiring and alleged combining together    occurred verbally, please specify:

4.1.1   the time and place of each conversation;

4.1.2   between whom each conversation took place;

4.1.3

   in the presence of whom each conversation took place;

   and

4.1.4

   the substance of each conversation;

4.2   if the alleged conspiring and alleged combining together was recorded in writing or partly in writing, please specify the writing and provide a copy of the same.

5.

   Further, in relation to paragraph 32 of the FACC, in circumstances    where our client was not a party to the Agreement (as that word is    defined in the FACC) or a mortgagee in respect of the Mortgage (as    that word is defined in the FACC), how is it said our clients (or one of    them) obtained the opportunity to appropriate the value of your client’s    home?

6.   In relation to paragraph 34(a) please clarify what is meant by the phrase ‘a substantial stake in the outcome’.” (emphasis in original).

The following answers were received:

“4   This is not a proper request for particulars. The opportunity in question was the end and aim of the conspiratorial agreement and the conduct engaged in for that purpose. It is out of that value of the home that rewards were to be distributed to the conspirators including Nicholson. it is not material to specifically know or assert how access to the benefits of that opportunity were to devolve to the conspirators.

5

   This is not a proper request for particulars. It is not necessary to allege    what benefit, if any, was obtained by reason of a fraud or deceit.    Nonetheless, we observe that your clients’ conduct can only be    explained on the basis that they received (or were to receive) a    pecuniary benefit for their role in fraudulently facilitating the    unconscionable loan. As you are aware, that loan was the subject of a    course of conduct by Shields and the Plaintiffs calculated to obtain an    unconscionable windfall of no less than $500,000 from the auction of    the Cross-Claimant’s home leaving the Cross-Claimant homeless.

6

   It is not clear what you consider to be problematic so far as concerns    the phrase in context: ‘a substantial stake in the outcome’. We will    assume that you seek to have the meaning of the outcome clarified.    The outcome is the creation of access to a windfall fund by inducing    the Cross-Claimant to enter into the securing of a grossly    unconscionable loan agreement and a protracted course of conduct    designed to allow for the unconscionable accumulation of contractual    interest.”

39. Paragraph 33 of the Cross-Claim was important because it highlighted the link between the allegations of fraudulent representation and those of conspiracy. It was in these terms:

“Pursuant to and in furtherance of the conspiracy pleaded in paragraph 32 above the First, Second, Third, Fourth and Fifth Cross-Defendants carried out the following unlawful acts and means by which the Cross-Claimant was injured:

(a)   The Third and Fourth Cross-Defendants made the fraudulent    representations pleaded at 31 above (‘The Fraudulent    Representations’).

(b)   The First and Second Cross-Defendants through their agent the Fifth Cross Defendants entered into unconscionable bargains as pleaded at 28 (i) and (iv);

(i)   Taking advantage inter alia of The Fraudulent Representations made to the Cross-Claimant referred to in (a); and

(ii)   With actual knowledge that the said representations were fraudulent for which allegation of knowledge the Cross-Claimant relies upon the matters pleaded at paragraphs 22 (a) to 22 (p) and 23 above (‘the Unlawful Acts’).”

40. Mr Glover alleged that the conspirators were involved in knowingly procuring a “sham” St George Bank loan approval to Mr Glover, and used that “sham” approval to persuade Mr Glover to enter into the short term, high interest loan with Kaji, which the alleged conspirators knew that Mr Glover would be unable to repay with the consequence that all three alleged conspirators, Kaji, Mr Nicholson and Mr Shields, would benefit.

The substantive judgment

41. The substantive judgment worked through in a close and detailed way the various allegations made, evidence relied upon, inferences sought to be drawn from that evidence and arguments sought to be made in support of the fraudulent representation case and the conspiracy case.

42. The fraudulent representation case and the conspiracy case were intertwined, as para 33 of the Cross-Claim reproduced at [39] above illustrates.

43. In the substantive judgment, the primary judge rejected Mr Glover’s cross-claim, and made findings which included that:

1. the matters put forward by Mr Muriniti on behalf of Mr Glover to support a conspiracy were “entirely insufficient and inadequate… [and] [i]t is difficult to see in the present matter how [Mr Muriniti’s] 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”: SJ [288]; and

2. an expert report served by Mr Muriniti in the proceedings from a Mr Valentino, to the effect that Mr Nicholson was involved in the sham loan approval, was baseless and should not have been put forward by Mr Muriniti: SJ [269].

44. The rejection of the conspiracy and fraud claims, upheld on appeal, involved a careful analysis of the arguments relied upon in support of the serious allegations and the role of Mr Lippits in the events. For present purposes, it is sufficient to refer to the primary judge’s analysis from SJ [240]-[289] and to that in the appeal judgment from [34]-[57].

45. The fraudulent representation and conspiracy allegations, amongst other matters, made little or no sense. In relation to Mr Nicholson’s involvement in the alleged conspiracy, there was no evidence that he was a party to what the primary judge held was the sham St George Loan approval, and to the extent that Mr Nicholson had been involved in the making of that application, his involvement in supplying the wrong answers to two of the questions asked in the approval questionnaire could only, as the primary judge pointed out at SJ [253], have assisted Mr Glover to obtain a loan from St George.

46. Equally inconsistent with his involvement in the alleged conspiracy was the fact that, as recorded at SJ [218], Mr Nicholson expressly told Mr Lippits that he ought to consider commencing a loan application process on behalf of Mr Glover with another mainstream lender in case St George did not move forward with the loan. As the primary judge observed at SJ [272], this was “hardly likely from someone endeavouring to push the defendant into a short term loan from which he would not be able [to] pay out.”

47. Further inconsistency with the allegations in relation to Mr Nicholson was evidenced by his email of 28 April 2011 to Mr Shields and Mr Lippits, reproduced at SJ [212], which was in the following terms:

“The loan from St George could not proceed.

I have since discussed an alternative source or refinance (a mortgage manager through Adelaide Bank) who have expressed their interest in the refinance.

I have forwarded application forms and required documentation to Mr Glover (via John Lippits) and have received the signed application form back, but not the balance of the necessary documents.

I have had no communication with Mr Glover or Mr Lippits since the week commencing 8 April 2011.”

For Mr Nicholson to have been party to the fraud and conspiracy alleged, this document would have had to have been an elaborate charade to conceal any subsequent charge of a conspiracy. There was no suggestion that it was. An earlier document, namely Mr Nicholson’s communication to Mr Shields of 15 February 2011, reproduced at SJ [43], also made no sense if Messrs Nicholson and Shields were in a conspiracy together. There was no basis for thinking that that email was anything other than genuine.

48. In relation to Mr Shields’ involvement in the alleged conspiracy, one difficulty with the case was that if Mr Shields and Kaji were involved in the alleged conspiracy, neither would have been concerned for there to be a short term exit strategy via St George Bank, because the whole point of the alleged conspiracy was that Mr Glover “would not be able to repay the short term loan, with the result that there would be a windfall to the plaintiffs and the other participants in the conspiracy at a time further down the track”: SJ [274].

49. Furthermore, Mr Shields’ conduct in chasing up repayment of the Kaji loan after it fell due in April 2011, as recorded at SJ [80], and inquiring about the progress of the St George loan which he understood was to be used to refinance the short term Kaji loan, was conduct wholly inconsistent with the alleged conspiracy and the alleged financial motivation for it as the longer the loan was outstanding, the greater the amount due, especially in a context where interest was accruing at 3% or 5% per month.

50. As the primary judge also stated at SJ [280]:

“That Mr Shields was involved in a conspiracy was never put to him in the lengthy cross-examination that Mr Newell conducted. The idea that the parties to the conspiracy intended for the loan not to be repaid so that high quantities of interest could be run up is entirely inconsistent with the documents signed by the defendant at the time the loan was entered into which noted the need of the plaintiffs to have the money repaid in due time. [I]t was never put to Mr Shields that those documents were not to be taken at face value, but were some sort of charade to hide the real intentions of the parties to the conspiracy. The notion that the plaintiffs and others intended that the loan not be repaid, allowing the defendant to be gouged, is also inconsistent with the fact that when judgment was entered by the plaintiffs in the District Court they did not claim the much higher default rate of interest.”

51. The primary judge emphasised that:

1. Mr Lippits was “at the centre of events”: SJ [138];

2. the “strong likelihood” was that “the information contained in the St George application was largely or entirely provided to Mr Nicholson by Mr Lippits”: SJ [145];

3. Mr Lippits signed as CEO a letter on the letterhead of Boston Traders Pty Ltd, dated 14 January 2011 and to be sent as part of the St George loan application, purporting to confirm, falsely, that Mr Glover was employed by Boston Traders on a full time basis on a salary of $70,000 per year plus super, and had been so employed since 2008; and

4. it was Mr Lippits who told Mr Glover that the St George loan had fallen through.

52. The primary judge held that Mr Glover’s case “attributing legal liability for what occurred not only to the plaintiffs but also to Mr Shields and Mr Nicholson overlooks the significant involvement of Mr Lippits in the events”, and that “[s]trong inferences are available that concern Mr Lippits”: SJ [94]. At SJ [288], the primary judge held that Mr Lippits was the “person who had the most to gain by all that occurred”.

53. These conclusions ultimately led to the observation in SJ [288], namely that:

“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.”

54. As has been noted above, the primary judge’s analysis and conclusions were upheld by this Court in its judgment delivered on 22 September 2020, prior to the costs judgment being delivered.

The costs judgment

55. Personal costs orders were sought against Mr Muriniti by Mercia and Mr Nicholson pursuant to cl 5(1)(b) of Sch 2 to the Uniform Law, and s 99(2)(c) of the Civil Procedure Act. The Mercia/Nicholson claims in this regard did not extend to the costs of defending misleading or deceptive allegations which had also been made against those cross-defendants by Mr Glover. Mr Shields also sought personal costs orders in respect of his expenses, he having represented himself in the proceedings before the primary judge.

56. For the purposes of resisting the personal costs application against him, Mr Muriniti swore an Affidavit on 12 June 2020 which purported to explain his conduct and his basis for permitting the allegations of fraudulent misrepresentation and conspiracy to be made. However, as the primary judge stated at CJ [60]:

“The principal difficulty with this explanation is that it largely repeats the arguments put forward both at the hearing before me at first instance and in the Court of Appeal in relation to why the defendant asserted that Mr Nicholson, Mr Shields and the plaintiffs were part of a conspiracy, and why the Nicholson interests engaged in fraud. Mr Muriniti accepted in cross-examination that there was no evidence in his affidavit from his file that was not put before the Court as evidence at the trial. He accepted that the arguments put forward in his affidavit were the same as those put forward at the trial.”

57. Mr Newell, who appeared for Mr Muriniti both at first instance and on appeal, submitted to the primary judge, by reference to the decision of Wigney J in Mitry Lawyers v Barnden [2014] FCA 918 at [42] (Mitry Lawyers), that there were two distinct limbs or matters to be established to support a conclusion of unreasonable conduct, the first calling for the proof of “some deliberate or conscious decision taken by reference to circumstances unrelated to the prospects of success”, and the second requiring 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 the second limb was not made out and that there was no suggestion in the substantive judgment of any deliberate or conscious misuse of the Court’s processes on Mr Muriniti’s part.

58. The primary judge undertook a careful review of the case law including the illuminating decision of Barrett J (as his Honour then was) in Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284; [2005] NSWSC 3 (Degiorgio) and subsequent decisions of the Court of Appeal in Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153 (Lemoto); Kelly v Jowett (2009) 76 NSWLR 405; [2009] NSWCA 278; and King v Muriniti. The primary judge also made reference to the decision of the Court of Appeal for England and Wales in Ridehalgh v Horsefield [1994] Ch 205 (Ridehalgh), noting that it had been referred to with approval in a number of decisions of this Court. His Honour expressed the view (at CJ [45]) that he was not “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.”

59. At CJ [46], the primary judge noted that a significant issue which arose on the costs hearing concerned the use that could be made of findings which had been made in his Honour’s principal judgment. The primary judge recorded the submission that Mr Muriniti “could not be bound by those findings because he was not a party to the proceedings”, and described this submission as “surprising” in light of “the decision of the Court of Appeal in King v Muriniti [2018] NSWCA 98, a case involving the same firm of solicitors”. At CJ [51], the primary judge noted that:

“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.”

60. At CJ [52], the primary judge made reference to the claim made under Sch 2 of the Uniform Law, outlining that cl 6 necessarily meant that the solicitors were “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”. The primary judge considered “that King v Muriniti is authority for the principle that the solicitors are bound by findings I made in my principal judgment” and then stated (at CJ [52]) that:

“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.”

61. The primary judge, having set out extensive extracts of his findings in the substantive judgment as well as detailed passages from the decision of the Court of Appeal, said (at CJ [57]) that:

“The findings I made, and the acceptance of those findings by the Court of Appeal, clearly identify the absence of evidence to justify the particular claims that were made. In that way those findings give rise to a presumption for the purposes of cl 6 of Sch 2 of the Uniform Law. There is, therefore, an onus on Mr Muriniti to establish that there were provable facts that provided a basis for a reasonable belief that the claim had reasonable prospects of success.”

62. Central to the primary judge’s finding that the statutory presumption created by cl 6 of Sch 2 to the Uniform Law, namely that the legal services provided on the cross-claim were provided without reasonable prospects of success, had not been rebutted was the fact that the evidence advanced by Mr Muriniti largely simply repeated the arguments which had been considered and rejected by the primary judge (and the Court of Appeal) in rejecting the fraudulent representation and conspiracy claims. So much was accepted by Mr Muriniti in cross-examination, as the primary judge noted: see [56] above.

63. The primary judge had regard, as an important part of the context, to r 21 of the Conduct Rules. Rule 21.3 provides that a solicitor must not allege any matter of fact in any court document settled by the solicitor, in any submission during any hearing, in the course of an opening address, or in the course of a closing address or submission on the evidence, unless the solicitor believes on reasonable grounds that the factual material already available provides a proper basis to do so. Rule 21.4 provides that a solicitor must not allege any matter of fact amounting to criminality, fraud or other serious misconduct against any person unless the solicitor believes on reasonable grounds that available material by which the allegation could be supported provides a proper basis for it, and the client wishes the allegation to be made, after having been advised of the seriousness of the allegation and of the possible consequences for the client and the case if it is not made out. His Honour took the view (at CJ [65]) that “nothing in Mr Muriniti’s affidavit or his oral evidence identifies any available material, as cl 21.4.1 requires, which supports the allegations.” His Honour continued at [66], stating that:

“The significant matter that emerges from Mr Muriniti's affidavit is that at an early time he appears to have made an assumption that, because the St George loan application was a sham, Mr Nicholson must have known that it was a sham and must have been involved in its falsity. His assumption in that regard appears to have come about because he failed entirely to consider alternatives to that assumption. The most obvious one, as I found and as the Court of Appeal found (at [35]-[37]), was that it was Mr Lippits who was the person involved with that sham arrangement.”

64. The primary judge pointed to a number of matters which emerged in the course of the preparation of the matter for hearing that should have alerted Mr Muriniti to the flimsiness and insecurity of his hypothesis that Mr Shields and Mr Nicholson were parties to any conspiracy or fraudulent representation. These included the emergence of the fact that the Boston Traders employment letter signed by Mr Lippits was fraudulent and had been knowingly relied upon by Mr Glover and Mr Lippits to secure the loan from Kaji and to deceive Mr Shields: at CJ [67].

65. His Honour also noted at CJ [71] the conspicuous fact that nowhere in his Affidavit did Mr Muriniti say anything about the way he viewed Mr Lippits in the events, it being remembered that Mr Lippits was the source of almost all of the information that Mr Glover had about the St George loan application, and it was Mr Lippits to whom Mr Glover had lent significant sums of unrepaid money which led to Mr Glover’s indebtedness to the ATO in the first place. As the primary judge had said at SJ [288], “[t]he person who had the most to gain by all that occurred was Mr Lippits. The history of his dealing with the defendant confirms that.”

66. As had been noted by the Court of Appeal, the primary judge also drew attention (at CJ [79]) to the fact that, given that the alleged conspiracy was advanced by reference to circumstantial matters, “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”. The only answer that could be proffered by Mr Muriniti was entirely speculative.

67. The primary judge’s ultimate conclusion, at CJ [80], was that:

“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.”

68. The primary judge found that Mr Muriniti was liable to pay costs pursuant to both the Uniform Law and the Civil Procedure Act, and his Honour ordered Mr Muriniti to indemnify Mr Nicholson and Mercia for 65% of their costs of the proceedings.

Grounds of appeal

69. By his amended draft Notice of Appeal, Mr Muriniti raises the following grounds of appeal, many of which are overlapping in their generality:

“1. The learned primary judge erred in holding that the fraud and conspiracy case in respect of which the Appellant provided legal services (‘the fraud and conspiracy case’) did not have reasonable prospects of success within the meaning of Schedule 2, Clause 6 of the Legal Profession Uniform Law Application Act 2014 (NSW).

2. The learned primary judge erred in holding that section 99 of the Civil Procedure Act 2005 (NSW) was invoked by the fact of the commencement of and/or conduct by the Appellant of the fraud and conspiracy case.

3. The learned primary judge erred in not applying the correct test for liability under section 99 [of the] Civil [L]iability Act 2005.

4. The decision in King v Muriniti [[2018] NSWCA 98] on which the learned primary judge relied was wrongly decided.

5.   By reason of Ground 4, the learned primary judge erred in treating his findings in the principal proceedings as beyond challenge.

6.   The learned primary judge erred in that the Appellant was denied procedural fairness.

7.   The learned primary judge made fact-finding errors in arriving at the conclusion that the Appellant did not have a proper basis to maintain the fraud and conspiracy claims.

8.   The learned primary judge erred in finding that the Appellant did not have a proper factual basis to maintain the fraud and conspiracy claims.

9.   The learned primary judge erred in not considering significant submissions made on behalf of the Appellant”.

70. Mr Muriniti submitted that at the centre of the appeal is the question whether the findings made by the learned primary judge in the principal proceedings were beyond challenge such that Mr Muriniti “could not defend himself by questioning those findings in collateral costs proceedings”.

71. The principal legal arguments advanced on appeal related to the correctness of this Court’s decision in King v Muriniti (a matter that did not touch the costs orders insofar as they were sourced in the power conferred by cl 5 of Sch 2 to the Uniform Law) and whether or not Mr Muriniti had been denied procedural fairness.

72. Mr Muriniti’s Amended Written Submissions (AWS) also contained challenges to miscellaneous findings of fact made by the primary judge although, as will be seen, these were for the most part not challenges to findings of fact made in the costs judgment but rather to those in the substantive judgment, confirmed on appeal to this Court in its earlier judgment. To that extent, these challenges depended on the success or failure of the challenge to King v Muriniti.

Consideration

73. Whilst Mr Newell, who made submissions on behalf of Mr Muriniti, correctly placed emphasis on the fact that a costs order against a solicitor is only to be made with care and discretion and only in clear cases, referring to Fowler, Corbett and Jessop trading asHaydon Fowler Corbett Jessop v Toro Constructions Pty Ltd [2008] NSWCA 178 and Levick v Commissioner of Taxation (2000) 102 FCR 155; [2000] FCA 674 in support of this approach, it is equally to be borne in mind that the allegations of fraudulent misrepresentation and conspiracy that had been made in the Cross-Claim were of a very serious nature requiring cogent proof and clear evidence: see Evidence Act 1995 (NSW) s 140(2); Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 (Briginshaw); and Berry v CCL Secure Pty Ltd (2020) 94 ALJR 715; [2020] HCA 27 at [39]. As Dixon J famously said in Briginshaw at 362:

“The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters ‘reasonable satisfaction’ should not be produced by inexact proofs, indefinite testimony, or indirect inferences.” (emphasis added).

74. Such allegations as were made in the present case also engaged stringent professional obligations. Thus, as the primary judge observed, cl 2(1) of Sch 2 to the Uniform Law stipulates that:

“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”,

This obligation 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”: cl 2(3). Reference should also be made in this regard to those provisions of the Conduct Rules highlighted by the primary judge: see [63] above.

75. It is convenient to commence with the challenge to this Court’s relatively recent decision in King v Muriniti.

Challenge to King v Muriniti

76. King v Muriniti established that, in an application for costs orders against a legal practitioner under s 99 of the Civil Procedure Act, the court is entitled to take account of its findings, to the extent that they are relevant, in the principal judgment, and the legal practitioner against whom such costs orders are sought is not able to prevent the court from having regard to its findings in that judgment, even though the legal practitioner was not formally a party to the proceedings: at [44].

77. Emmett AJA at [97] observed that:

“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.”

78. All members of the Court rejected an argument that, because the legal practitioner in question was not a party to the underlying proceedings in respect of which the third party costs order was being sought, the underlying judgment needed to be tendered but that this could not be done, being precluded by s 91 of the Evidence Act.

79. Mr Muriniti’s challenge to King v Muriniti did not seek to impugn what the Court said as to s 91 of the Evidence Act. Rather, the attack was directed towards what Basten JA said at [46], which was as follows:

“…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.”

80. Thus, it was submitted by Mr Muriniti that:

“The premise of the decision is that it is an ‘abuse of process’ for a third-party respondent to challenge findings made in the principal or substantive proceedings in subsequent or collateral costs proceedings. It is submitted that such an abuse of process can only arise from an established preclusion doctrine. It is submitted that there was no applicable preclusion doctrine in the case before the Court in King v Muriniti. It is a [sic] commonplace that preclusion doctrines (not being rules of justice but rules of policy) are not to be extended except upon clear necessity”.

81. Mr Muriniti further submitted that:

“to present a solicitor with findings from the principal proceedings which are impervious to ordinary challenge is a fundamental denial of natural justice. That is because the findings in such a case are matters of which he could have had no notice prior to their purported deployment against him or her in the collateral costs proceedings”.

He further submitted that:

“If such findings were beyond challenge, then the anomalous and unjust situation would exist that such findings could not be challenged at all. It is trite that an appeal in the principal proceedings could only be brought to challenge the ultimate orders in those proceedings and not in respect of any particular finding. Such an appeal could easily be disposed of without it being incumbent on the court to reconsider the findings in question. In any event, the practitioner should not be placed in a position that he is conflicted in advising his client whether to bring an appeal. The circumstance could easily be seen as bringing the appeal for the benefit of the solicitor and not exclusively the client”.

82. The proposition contained in the first sentence of [46] of Basten JA’s decision concerning “abuse of process” did not form part of the ratio of the decision in King v Muriniti. There were three separate judgments of the members of the Court. Neither Gleeson JA nor Emmett AJA expressed their agreement with Basten JA’s statement that it would be an abuse of process for the solicitor to be allowed to challenge the findings made in the substantive proceedings. Certainly, in some cases that may be so, but whether or not it would invariably be so is not necessary to decide.

83. In relation to s 99 of the Civil Procedure Act, to resist a personal costs order, the legal practitioner does not need to establish that the primary judge made mistakes in his or her conclusions on the facts; rather, what needs to be established is that there was not “serious neglect, serious incompetence or serious misconduct” by the legal practitioner in his or her conduct of the case, including in the making of serious allegations. Where the practitioner had a reasonable basis for making serious allegations, even if those allegations were not ultimately accepted, the criteria for the exercise of the s 99 jurisdiction will not have been engaged.

84. A practitioner will be afforded the opportunity, as was Mr Muriniti in the present case, to lead evidence in support of the reasonableness of the position taken in the conduct of the underlying litigation. Judges are astute to the fact that different views may be open on particular evidence and that just because a witness, for example, may not ultimately be accepted as credible under cross-examination or come up to proof, it may have been entirely reasonable for a practitioner to have based his or her view as to arguability of a case on such evidence. Judges are also conscious of the fact that, for various reasons not always within the control of the practitioner, litigation may take an unexpected turn, resulting in a case which originally may have appeared to have fair or reasonable prospects to be a hopeless one. On a third party costs application, the legal representative will have the opportunity to explain such a circumstance.

85. Judges are also astute to the fact that costs orders against legal practitioners should not be used in a way that discourages acceptance of instructions in cases which are fairly arguable, even if not strong or even weak. As Barrett J said in Degiorgio at [27]:

“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.”

86. Returning to the attack on [46] of Basten JA’s judgment in King v Muriniti, Mr Nicholson did not maintain that the arguments made by Mr Muriniti in the costs application in the present case were an abuse of process and could not be entertained, and the primary judge did not refuse to consider them on the basis that they involved an abuse of process. The primary judge’s principal point was that Mr Muriniti did little more in his evidence than to repeat the submissions that had been made and rejected as baseless in the principal proceedings with regard to the allegations of conspiracy and fraud. His Honour made the point at CJ [73] that the present was not a case such as Tombling v Universal Bulb Company, Limited [1951] 2 TLR 289, where the solicitor relied upon instructions from his or her client which appeared credible at the time, but which were not ultimately accepted by the judge hearing the proceedings.

87. Nor was this a case where Mr Muriniti led evidence about facts which were unknown to the primary judge but which, for forensic or other reasons, were not deployed or did not emerge in the trial but which supplied some additional basis for the solicitor’s belief as to the viability of the allegations and rendered the approach taken a reasonable one. It also was not a case where it was suggested that the constraints of legal professional privilege impeded Mr Muriniti’s ability fully to explain his basis for making the problematic allegations.

88. Mercia and Mr Nicholson submitted that even if, which they did not accept, there was a viable argument that King v Muriniti was plainly wrong:

“…it would not affect the outcome of the proposed appeal. That is because Mr Muriniti put forward no relevant matter before the primary judge in the costs application which was different from the evidence or material before the primary judge in the proceedings. Accordingly, even if this Court found that the principles stated at [46] in King v Muriniti are plainly wrong and that it was open to Mr Muriniti to challenge the findings made in the primary judgment, the primary judge’s findings on the costs application obviously would have been the same as the findings in the primary judgment”.

89. Given the concession made under cross-examination by Mr Muriniti, noted at [56] above and [98] below, there is an inescapable logic to this submission.

90. In any event, no real attempt was made to satisfy the requirements for a challenge to a decision of this Court which were set out in some detail by this Court in Gett v Tabet (2009) 254 ALR 504; [2009] NSWCA 76 (Gett). That decision held that, whilst intermediate appellate courts are not bound by their own earlier decisions, they should only depart from an earlier decision if convinced that that decision was “plainly wrong” and that there are “compelling reasons” to do so: [274]-[295]. Departures from previous authority should be infrequent and exceptional (see The State of Queensland v The Commonwealth of Australia (1977) 139 CLR 585 at 620; [1977] HCA 60) and, as was observed in Gett, the principle of constraint is to maintain certainty in the law: at [281].

91. Mr Muriniti submitted that the decision in King v Muriniti was inconsistent with that of the Victorian Court of Appeal in Flinn v Flinn [1999] 3 VR 712; [1999] VSCA 134 (Flinn) in which it was submitted that “it was recognised that a third-party costs Respondent had a right to challenge findings made in the principal proceedings”. Flinn was a case decided in a very different statutory and procedural context and the proposition for which the case was relied upon, as noted above, was conceded, it being accepted by counsel for the respondent in Flinn that it was open to the third party against whom a costs order was sought to challenge findings made at first instance and on appeal: see Flinn at [138]. In any event, as the judgment of the Victorian Court of Appeal noted, even at general law there is an exception which provides that an applicant for a non-party costs order may be able to rely on findings of fact made in the underlying proceedings where the non-party has such a close connection with the original proceedings that no injustice would be suffered: see at [139], citing Balcombe LJ in Symphony Group Plc v Hodgson [1994] QB 179 at 193.

92. Whilst McColl JA cited Flinn in Lemoto at [147] for the proposition that “the court should be conscious that use of judicial findings in the principal proceedings will only be permitted where the legal practitioner will not suffer an injustice”, that observation recognised that findings in the principal proceedings could be relied upon. There was no injustice to Mr Muriniti in the present case in any event; he was given a full and fair opportunity to explain the basis on which he made the allegations and to rebut the statutory presumption which arose under the Uniform Law. The primary judge was also at pains to explore Mr Muriniti’s reasoning, asking him in the course of his evidence what the basis was for the making of particular allegations. The primary judge’s questions and Mr Muriniti’s answers were set out in the costs judgment.

93. In the context of cl 6 of Sch 2 to the Uniform Law, the presumption that the legal services in question were provided without reasonable prospects of success is a rebuttable one. Nothing said in King v Muriniti gainsays that matter, and even if the challenge to King v Muriniti had some force (which I do not accept), that would not assist Mr Muriniti insofar as the source of the power exercised by the primary judge to award costs against him rested in cl 6 of Sch 2 to the Uniform Law. In that context, the key point is that, in the present case, no evidence was adduced which operated to rebut the statutory presumption which arose from the primary judge’s undisturbed findings in the underlying substantive judgment.

Mitry Lawyers

94. To the extent that Mr Muriniti placed reliance on the decision of Wigney J in Mitry Lawyers in his submissions on appeal, that decision concerned r 21.07 of the Federal Circuit Court Rules 2001 (Cth) which are in materially different terms to s 99 of the Civil Procedure Act. It was also a decision in which it was held that there had been a serious denial of procedural fairness in the making of the costs orders and where the primary judge was wrong to reject  the significance of the fact that experienced counsel had advised that the application had reasonable prospects: at [59]-[74] and [94]. In any event and with no disrespect to Wigney J, this Court will apply its own decisions rather than decisions from other jurisdictions dealing with differently worded statutory provisions.

Lack of procedural fairness

95. This ground involved a complaint that Mr Muriniti was denied procedural fairness by the primary judge because it was asserted that his Honour did not consider all the grounds and arguments advanced by Mr Muriniti in his Affidavit explaining his reasoning process underlying the making of the fraudulent representation and conspiracy allegations.

96. Thus it was submitted that Mr Muriniti was denied procedural fairness in that the Court treated various findings made in the substantive judgment (at [143], [245], [246], [269]-[270], [275]-[276], [279] and [288]-[291]) as beyond challenge for the purpose of the costs application “and it appears to the extent of those findings, for the most part did not consider the Appellant's affidavit and submissions.” I reject this submission.

97. The primary judge set out Mr Muriniti’s reasoning or stated justification for the making of the fraud and conspiracy allegations in extenso in the costs judgment: at CJ [59]. His Honour also observed, however, that this reasoning was in essence a replication of the arguments that had been advanced and rejected in the substantive judgment. These were the self-same matters which had led his Honour to observe at SJ [288] that “[t]he matters put forward by the defendant to suggest a conspiracy are entirely insufficient and inadequate to do so” and to conclude that the allegations were made “without a proper basis”.

98. Mr Muriniti agreed with what Mr Lloyd SC had put to him in cross-examination, namely that what he had done in his Affidavit sworn on 12 June 2020 was to refer to evidence and arguments that were put to the primary judge at the trial, and which had been rejected at [288] of the substantive judgment. Mr Muriniti elaborated on his answer as follows:

“I'm not taking issue with what his Honour has found insofar as yes, that finding applies to Mr Glover, what I am saying is that is not an applicable matter to me. What his Honour is called upon to determine is whether I held an honest and genuine belief in the process of reasoning; having regard to the matters that exercised my mind, to bring the proceedings and the allegations that were brought. My contention is I held that belief, I went through a process of reasoning, I formed a view, I held it honestly and I held it genuinely and I believe, and still do, that my reasoning was cogent and was honest and the proceedings I brought were brought for an honest and forensically proper purpose.”

99. Mr Lloyd then put to Mr Muriniti, and he agreed, that he challenged the finding in SJ [288] insofar as it applied to him by referring to his process of inferential reasoning as identified in his Affidavit to support the fraudulent misrepresentation and conspiracy cases.

100. Three points should be made in relation to the alleged lack of procedural fairness.

101. First, the primary judge was correct in his observation that Mr Muriniti’s reasoning was in essence a replication of the arguments that had been advanced and rejected in the substantive judgment. Nothing was to be gained by repeating in the costs judgment the reasons why those arguments had been rejected both by the primary judge and the Court of Appeal as not providing any proper basis for the allegations of fraudulent misrepresentation and conspiracy, still less as making those serious allegations out.

102. Secondly, notwithstanding the point made above, the primary judge did revisit a number of the key aspects of Mr Muriniti’s reasoning. To the extent that he did not deal with each and every part of that reasoning, it was because to do so would have just been a repetition of the primary judge’s detailed and close reasoning in the substantive judgment.

103. Thirdly, Mr Muriniti’s understanding of what needed to be considered on an application under s 99 was not wholly correct. More is involved than simply a demonstration that the legal practitioner had a genuine and honest belief that his or her reasoning process underpinning the allegations was cogent, but that is what his Affidavit evidence set out to demonstrate. The s 99 inquiry is directed as to whether or not there was a reasonable basis for the allegations being made. An honest and genuine belief that a matter is reasonably arguable does not make it so. This is an objective matter which is separate from the subjective belief and understanding of the legal practitioner.

104. So also, conduct which is improper for the purposes of s 99 of the Civil Procedure Act need not be dishonest. It makes no difference that the conduct is the product of excessive but genuine or honest zeal and not improper motive or dishonesty: cf. Ridehalgh at 232.

Miscellaneous challenges to findings of fact

105. Paragraphs 24-64 of Mr Muriniti’s AWS proceed to detail a number of alleged errors of fact made by the primary judge.

106. The first finding of fact challenged was the primary judge’s finding that Mr Muriniti made an “unconsidered assumption that Mr. Nicholson had knowledge that the St. George loan was a sham”: AWS [24]-[31]. This would appear to be a reference to what the primary judge said at CJ [66], set out at [63] above.

107. The first argument put to attack what the primary judge held was that Mr Nicholson did not deny knowing that the loan was a sham. It was submitted that in this regard, Mr Muriniti was “entitled to rely on the principles in Jones v Dunkel”. That submission betrays a misunderstanding of Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8, which cannot supply evidence where none otherwise exists.

108. Further arguments advanced on behalf of Mr Muriniti relate to the false statement in the St George loan application that the purpose of the loan was for investment purposes as opposed to the payment of a debt to the ATO, and false representations to the effect that no one had ever started a legal action against Mr Glover for failure to pay a debt and that no judgment had ever been entered or recorded against Mr Glover. To the extent that Mr Nicholson was responsible for the inclusion of these false statements of purpose in light of the fact that he appreciated that St George would not lend money to pay an ATO debt or lend money to a proven defaulter, this scarcely provides a basis for a belief that Mr Nicholson knew that the loan and conditional loan approval was a sham. If Mr Nicholson falsely recorded the true purpose of the loan, that can only have been in order to secure the loan by false pretences. Nothing in such otherwise discreditable conduct suggests, however, knowledge on the part of Mr Nicholson that the loan application was a sham. Indeed, it points in entirely the opposite direction, namely an attempt not to deceive Mr Glover, but rather St George Bank. It is also inconsistent with the central assertion for the purposes of the fraudulent misrepresentation case that Mr Nicholson knew that the St George loan approval was a sham.

109. Paragraph 27 of the AWS included the assertion that “the Appellant had considerable material suggesting that Mr Nicholson knew that the St George loan was a sham”. Such material did not emerge from either the written submissions or Mr Muriniti’s Affidavit before the primary judge. No doubt Mr Muriniti entertained a suspicion that Mr Nicholson knew that the loan was a sham, but the primary judge was correct to conclude that Mr Muriniti did not appear to have turned his mind to the possibility that Mr Nicholson did not have actual knowledge of this matter. As I have pointed out in the previous paragraph, there was certainly material which pointed the other way.

105. Even if Mr Nicholson did have such knowledge, that would not provide a basis for the making of the allegations of fraudulent misrepresentation and conspiracy.

106. The next factual finding challenged was that it would not be a reasonable inference that Mr Nicholson knew that the Boston Traders employment letter was false, simply because he reproduced the earnings information in the letter in the St George loan application. The submission advanced was the fact “that the Employment letter was a fraudulent fabrication by Mr. Lippits does not at all cut across the idea that Mr. Nicholson knew that the letter was false”: AWS para 32. This slender submission does not assist Mr Muriniti. It was entirely a matter of speculation as to whether or not Mr Nicholson, who did not, on the evidence, have any prior association with either Mr Glover or Mr Lippits, knew that the Boston Traders employment letter was false (although he subsequently came to learn that this was the case).

107. Even if there was a basis for thinking that he knew that the Boston Traders employment letter was false, that also would not have provided a basis for the making of the allegations that Mr Nicholson participated in the conspiracy alleged and the fraudulent misrepresentation of the truth to Mr Glover, who himself knew full well that the Boston Traders employment letter contained entirely false information. The fabrication of the letter was not to deceive Mr Glover, but rather any prospective lenders.

108. The next factual finding sought to be challenged related to CJ [68], in which the primary judge said:

“Mr Muriniti went on to assume knowledge in Mr Nicholson about what Mr Prestia and Mr Lippits had done in relation to the Bank West application. The assumption was based entirely on conjecture arising from the email Mr Nicholson sent to Mr Lippits on 23 December 2010. In this regard, the Court of Appeal said (at [46]):

‘The evidence did not however establish any knowledge of Mr Nicholson that such approval was fake, if in fact it was’.”

114. Mr Muriniti submitted that his inference as to Mr Nicholson’s involvement in or knowledge of the fact that a false bank loan approval from Bankwest had been used by Mr Glover to secure an adjournment of Mr Glover’s bankruptcy proceedings in December 2010 “was not based entirely on conjecture arising from the email sent to Mr. Lippits on 23 December 2010”. The balance of Mr Muriniti’s submissions on this topic, however, focussed on the terms of the 23 December 2010 email, before continuing that “[i]f Mr. Nicholson knew about the Bankwest unconditional approval at all, then he knew that it was a sham…” This form of submission only underlines the speculative or conjectural nature of Mr Muriniti’s position.

115. Mr Muriniti’s submissions on this topic, even if accepted, do not explain how, even if Mr Nicholson was aware that the Bankwest loan was simply used as a pretext to secure an adjournment of the bankruptcy proceedings in the Federal Court relating to Mr Glover and was not in fact genuine, that fact provided a basis for making the particular allegations of fraudulent misrepresentation and conspiracy to defraud Mr Glover by causing him to enter the high interest loan with Kaji. They also do not explain or overcome the matters referred to at [45]-[47] above.

116. The next factual finding challenged related to CJ [69]-[70], which were in these terms:

“Further, Mr Muriniti never accepted the explanation of Mr Nicholson for the disappearance of his records, despite my having accepted his explanation, and holding that he had complied with his discovery obligations in Kaji Australia Pty Ltd v Glover (No 2) [2018] NSWSC 414 at [42]-[44]. That judgment was given on 9 April 2018. Despite that judgment, Mr Muriniti filed the Further Amended First Cross-Claim on 8 June 2018 which pleaded (inter alia) at paragraph 19(zz):

‘The Third and Fourth Cross-Defendants destroyed or concealed their hard electronic files concerning the purported approval and application from which it is inferred that the file would have revealed that the St George Application and purported approval and the entire purported transaction were a fabrication.’

That pleading was later picked up at paragraph 31 as support for an allegation that the Nicholson interests made fraudulent representations concerning the St George Loan Approval.

Mr Muriniti persisted with the claim against Mr Nicholson and persisted with the assertion that Mr Nicholson lied about the disappearance of his records despite my ruling and determination. The Court of Appeal said at [45] that there was no inherent improbability in Mr Nicholson’s explanation, and made express reference to my judgment about that matter. It was not only unreasonable of the solicitors to rely on the disappearance of Mr Nicholson's files in the face of that judgment, it was in breach of their ethical duties to do so.”

117. Mr Muriniti’s submissions on this matter only served to reinforce the correctness of the primary judge’s opening observation in the paragraphs extracted above. They disclose that he relied upon conjecture as to the reason for the absence of Mr Nicholson’s files, and speculation that he had something to hide. But again, even if it were legitimate to be sceptical as to Mr Nicholson’s explanation as to his inability to produce his files, this falls a long way short of founding or contributing to the existence of a reasonable basis for the making of the particular allegations of fraudulent misrepresentation and conspiracy which was the central issue to be determined in the costs judgment. General suspicion as to the veracity of a person’s position, or the honesty of his conduct more generally, does not, without more, authorise the making of specific allegations of particular fraudulent or conspiratorial behaviour.

118. Mr Muriniti next challenges the primary judge’s finding at CJ [75] that his reliance on the rejected expert opinion of Mr Valentino could not be shown to be reasonable when the assumptions Mr Valentino was asked to make and the instructions that Mr Valentino was given were unknown. The primary judge’s observation was entirely valid. Opinions offered by experts are almost always, in part at least, a function of and dependent upon the assumptions and/or instructions about the facts that they are asked to make. This is why it is so critical for an expert’s assumptions to be made clear as part of his or her opinion. Mr Muriniti did not take the opportunity in his evidence to explain what those assumptions or instructions in fact were. As was held at SJ [269], Mr Valentino’s opinion that Mr Nicholson had fabricated the loan application “was based only on assumption and speculation”.

119. As to the motivations for Mercia and Messrs Nicholson and Shields participating in the alleged conspiracy, Mr Muriniti’s evidence as to his belief was question-begging in that it necessarily assumed the existence of the conspiracy alleged. As the primary judge said at SJ [288], “[a]ny conclusion that there has been fraud or conspiracy here by the cross-defendants is only attainable by speculation and a predisposition to believe it” (emphasis added).

Conclusion

120. The primary judge’s conclusion that Mr Muriniti had failed to rebut the presumption that arose from the findings in his substantive judgment was sound. Moreover, as the primary judge observed at CJ [80], even if no presumption arose under Sch 2 of the Uniform Law, there was:

“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.”

121. It is to be emphasised that the present was not a case where the underlying claim was simply unsuccessful or even hopeless. It had the added dimension that the nature of the allegations made were of the utmost gravity and engaged the well-known principles of professional conduct embodied in the Conduct Rules calling for due circumspection and care in the making of such allegations. The primary judge held that such care had simply not been taken and held that what Basten JA described in Re Felicity; FM v Secretary, Department of Family and Community Services (No 4) [2015] NSWCA 19 at [21] as the “gateway or condition precedent to the engagement of the power conferred by subs [99](2)” was satisfied. As his Honour added, the exercise of the power thereafter was discretionary.

122. The primary judge’s conclusion as to the gateway or preconditions for the engagement of s 99 of the Civil Procedure Act was well open to him and was not infected by error, nor did his exercise of discretion miscarry.

123. For all of the above reasons, the appeal should be dismissed with costs.

124. GLEESON JA: I agree with Bell P.

125. EMMETT AJA: The question at issue in these proceedings is whether the appellant, Mr Leonardo Muriniti, who is a legal practitioner, should be ordered personally to pay costs in proceedings brought in the Common Law Division (the Proceedings) by Kaji Australia Pty Ltd (Kaji) and Mr William Webster against Mr Johann Glover. Kaji and Mr Webster lent the sum of $115,000 to Mr Glover pursuant to a loan agreement with him. As security for the loan, Mr Glover gave a mortgage over a parcel of real property (the Property). Following default under the loan agreement in repayment of the loan, Kaji and Mr Webster commenced the Proceedings claiming judgment for possession of the Property and judgment for the amount owing under the loan agreement. Mr Muriniti acted as Mr Glover’s solicitor in the Proceedings.

126. In the Proceedings, Mr Glover relied upon a cross-claim against Kaji, Mr Webster, and three other cross-defendants. In the further amended cross-claim filed on behalf of Mr Glover by Mr Muriniti as his solicitor, allegations were made of conspiracy to defraud and fraudulent misrepresentations on the part of the cross-defendants, including Kaji and Mr Webster. On 17 December 2019, a judge of the Common Law Division (the primary judge) published reasons for concluding that Kaji and Mr Webster were entitled to judgment for possession of the Property and judgment for the amount owing under the loan agreement. His Honour also concluded that the cross-claim should be dismissed. An appeal by Mr Glover to this Court was dismissed with costs on 22 September 2020 for reasons published on that day.

127. By amended notice of motion dated 14 May 2020, the third and fourth cross-defendants, Mercia Financial Solutions Pty Ltd (Mercia) and Mr Richard Nicholson, sought orders that Mr Muriniti indemnify them for their costs of and incidental to the cross-claim. Those orders were sought under cl 5(1)(b) of Sch 2 to the Legal Profession Uniform Law Application Act 2014 (NSW) and s 99(2)(c) of the Civil Procedure Act 2005 (NSW) (the Civil Procedure Act). On 12 November 2020, for reasons published on that day, the primary judge ordered that Mr Muriniti indemnify Mercia and Mr Nicholson for 65% of their costs of the proceedings and that he indemnify the fifth cross-defendant, Mr Rodney Shields, for 65% of out-of-pocket expenses actually and reasonably incurred by him.

128. In his reasons for making those orders, the primary judge observed that the matters put forward on behalf of Mr Glover to suggest a conspiracy were entirely insufficient and inadequate to do so. His Honour considered that any conclusion that there had been fraud or conspiracy by the cross-defendants was only attainable by speculation and a predisposition to believe it. His Honour observed that lawyers have ethical responsibilities not to plead or allege fraud and other criminality without a proper basis to do so and found it difficult to see how those ethical responsibilities had been complied with in the case before him.

129. The primary judge observed that there was nothing in the evidence adduced on behalf of Mr Muriniti that demonstrated that he had provable facts to justify the claims made in the cross-claim nor a reasonably arguable view of the law to form a reasonable belief that the fraud and conspiracy claims had reasonable prospects of success. His Honour concluded that the legal services provided by Mr Muriniti to Mr Glover, in so far as claims were made against the cross-defendants for fraud and conspiracy, were provided without reasonable prospects of success. The nature of the allegations made in the cross-claim were of the utmost gravity and engaged well known principles of professional conduct calling for due circumspection and care in the making of such allegations. His Honour concluded that such care had simply not been taken.

130. By summons filed on 12 February 2021, Mr Muriniti sought leave to appeal to this Court from the orders made by the primary judge on 12 November 2020. A preliminary question arose as to whether leave to appeal was required. I have had the advantage of reading in draft form the reasons of the President for concluding that leave was not required. I agree with his Honour for the reasons given by him.

131. I also agree with the President that the conclusions of the primary judge as to the preconditions for the engagement of the relevant provisions of the Civil Procedure Act were well open to him and was not infected by error. I also agree with the President that the exercise of discretion by the primary judge did not miscarry. Accordingly, I agree that the appeal should be dismissed with costs.

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Decision last updated: 18 August 2021