Tetbury Pty Ltd v Mahony trading as Mahony Law - [2024] NSWSC 446

Supreme Court

New South Wales

Medium Neutral Citation: Tetbury Pty Ltd v Mahony trading as Mahony Law [2024] NSWSC 446
Hearing dates: 9 February 2024, 19 March 2024
Date of orders: 24 April 2024
Decision date: 24 April 2024
Jurisdiction: Common Law
Before: Schmidt AJ
Decision:
(1) The orders sought by Tetbury be refused and the proceedings dismissed; and
(2) Unless the parties approach with short written submissions about costs within 14 days, Tetbury is to pay Mr Mahony’s costs, as agreed or assessed.

Catchwords:
COSTS – solicitor/client – costs agreement – costs assessed under Legal Profession Act 2004 (NSW) – binding costs certificate issued – unsuccessful appeal on questions of law – costs judgment entered – application to set aside costs judgment under r 36.15 of Uniform Civil Procedure Rules 2005 (NSW) – whether costs judgment was entered irregularly or in bad faith – whether plaintiff liable to pay assessed costs – application based on claimed misconduct considered on both assessment and appeal – plaintiff liable to pay assessed costs – costs judgment not entered irregularly or in bad faith – order refused and proceedings dismissed
CIVIL PROCEDURE – jurisdiction – supervisory jurisdiction of legal practitioners – order setting aside the costs judgment where plaintiff is bound by costs agreement and proven judgment debt application to set aside costs judgment under r 36.15 having been refused

Legislation Cited:
Civil Procedure Act 2005 (NSW), ss 56, 73, 91, 133
Corporations Act 2001 (Cth), s 459H(1)(a)
Legal Profession Act 1987 (NSW)
Legal Profession Act 2004 (NSW), ss 319, 359, 361, 384, 385
Legal Profession Uniform Law (NSW) 2014
Legal Profession Uniform Law Application Act 2014 (NSW), s 70
Uniform Civil Procedure Rules 2005 (NSW), r 36.10, r 36.15

Cases Cited:
Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2011] NSWDC 55
Benjamin & Khoury Pty Ltd v Rahme [2022] NSWSC 766
Bingham v Bevan [2023] NSWCA 186
Blooms the Chemist Management Services Ltd v Pharmacy Council of New South Wales [2024] NSWSC 296
Branson v Tucker [2012] NSWCA 310
Calandra v Murden [2015] NSWCA 231
Coshott v Barry [2012] NSWSC 850
Doyle v Commonwealth (1985) 156 CLR 510; [1985] HCA 46
Doyle v Hall Chadwick [2007] NSWCA 159
Hartnett (t/as Hartnett Lawyers) v Bell [2023] NSWCA 244
In the matter of Tetbury Pty Ltd [2017] NSWSC 37
In the matter of Tetbury Pty Ltd [2022] NSWSC 1670
Khoury & Anor v Hiar & Anor [2006] NSWCA 47
Legal Profession Conduct Commissioner v Radin (2014) 118 SASR 349; [2014] SASCFC 1
Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) (2009) 78 NSWLR 190; [2009] NSWCA 387
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45
Reznitsky v District Court of New South Wales [2015] NSWCA 194
Tetbury Pty Ltd v John Francis Mahony trading as Mahony Law (District Court (NSW), 16 December 2020, unrep)
Tetbury Pty Ltd v John Francis Mahony trading as Mahony Law [2021] NSWDC 691
Tresedar Pty Ltd v Property Builders (Constructions) Pty Ltd (In Liquidation) [2014] NSWSC 382
Tjiong v Tjiong [2021] NSWSC 1389

Category: Principal judgment
Parties: Tetbury Pty Ltd (Plaintiff)
John Mahony trading as Mahony Law (Defendant)
Representation:
Counsel:
M Gracie (Plaintiff)
A Maroya (Defendant)
Solicitors:
Whitfields Solicitors (Plaintiff)
Mahony Law (Defendant)

File Number(s): 2022/372314
Publication restriction: Nil

JUDGMENT

Between 2013 and 2015, Mr Mahony and Tetbury were solicitor and client, Mr Mahony acting for Tetbury and others in proceedings dealt with in Tresedar Pty Ltd v Property Builders (Constructions) Pty Ltd (In Liquidation) [2014] NSWSC 382. They had entered a costs agreement, but a dispute arose about payment of Mr Mahony’s costs and disbursements, including counsel’s fees.
This has resulted in numerous further proceedings in this and other Courts, as well as a disputed costs assessment under the Legal Profession Act2004 (NSW) and an unsuccessful appeal to the District Court on questions of law: Tetbury Pty Ltd v John Francis Mahony trading as Mahony Law [2021] NSWDC 691. The assessment has never been challenged on its merits. A costs judgment was later entered in Mr Mahony’s favour in this Court.
By its summons, Tetbury sought orders under r 36.15 of the Uniform Civil Procedure Rules 2005 (NSW) setting aside the costs judgment, even though the underlying costs certificate has not been disturbed by its appeal. It thus still being bound by the certificate and appeal decision, but not having paid Mr Mahony anything more in respect of his assessed costs.
Tetbury now contends that the costs judgment was entered irregularly and in bad faith. Despite this, it seeks no orders in respect of the underlying costs certificate or Gibson DCJ’s appeal decision. That the order sought could be made was disputed.
It was in earlier proceedings Tetbury commenced in this Court, which were transferred to the District Court and in which Mr Mahony had brought a cross claim seeking payment of outstanding counsel’s fees, that Tetbury contended that Mr Mahony had wrongfully appropriated some $141,945.10 out of $170,000 it had paid him for such fees. During the course of that hearing he unsuccessfully sought to amend his cross claim to include his own costs, which was opposed and refused for procedural reasons: Tetbury Pty Ltd v John Francis Mahony trading as Mahony Law (District Court (NSW), 16 December 2020, unrep).
Those proceedings were later dismissed after Mr Mahony was cross examined, his evidence confirming what he had done with the funds Tetbury had paid him. The terms the parties then agreed required Tetbury to pay him a further $20,000.
Mr Mahony’s earlier evidence in those proceedings was that he believed that he could not pursue an assessment of his costs because of what Tetbury had already paid him, which it disputed, its case being that the costs should have been assessed. After the settlement, Mr Mahony succeeded on the costs assessment he pursued and Tetbury resisted.
Its case on the assessment was that after the settlement of the District Court proceedings, there was no remaining costs dispute between the parties. That was not established, with the result that a costs certificate was issued in Mr Mahony’s favour for a further $85,000.
Tetbury then unsuccessfully appealed that assessment, but only on questions of law. Gibson DCJ dismissed the appeal, concluding that the assessor did have jurisdiction to deal with the parties’ costs dispute and that he had not erred in his approach. Her Honour also took the view that it was not necessary to make findings about Mr Mahony’s conduct, to resolve the issues of law which arose to be decided on that appeal.
Gibson DCJ’s decision has not been challenged. Nor has Tetbury ever challenged the merits of the costs assessment, as it could have under s 385 of the 2004 Act, with leave of the District Court. The correctness of the views which the assessor and Gibson DCJ arrived at thus do not arise to be determined in these proceedings. Both the certificate and the appeal decision remain binding on the parties.
The result of this was that s 368(5) of the 2004 Act and r 36.10 of the Uniform Civil Procedure Rules permitted Mr Mahony to file the costs certificate as a judgment in this Court, in respect of any of the assessed costs which remained unpaid: Branson v Tucker [2012] NSWCA 310. There is no suggestion that Tetbury has ever paid any of those costs.
Despite this, Tetbury advanced its application on the basis that there are no outstanding costs to be paid to Mr Mahony. To advance this case it relied on similar evidence and arguments of law to those which it had earlier unsuccessfully advanced to resist the assessment and to pursue its appeal before Gibson DCJ.
There is now no issue about how Mr Mahony dealt with the payment Tetbury had made to him, before the first District Court proceedings before Russell SC DCJ which the parties settled. He had used most of those funds to meet his own costs, in order to pay a debt owed to a third party which he had incurred at a time when it appears he was bankrupt. Tetbury relied on this and the settlement of those proceedings to advance its case that the costs judgment had been entered irregularly and in bad faith.
On its case, that settlement had relieved it of the obligation to pay Mr Mahony anything more for his own costs. That was again disputed.
Mr Mahony, whose application to amend his cross claim to also pursue his own costs in the first District Court proceedings had been refused, with the result that they only concerned counsel’s fees, contended that the settlement which resulted in the dismissal of those proceedings was incapable of precluding the pursuit of an assessment of his costs under the 2004 Act.
Tetbury still argued that the result of all that it relied on was that the costs judgment was entered irregularly or in bad faith, despite the failure of its appeal from the assessment.
To advance its case Tetbury relied on observations Black J made after its appeal was dismissed, on its application to set aside a statutory demand Mr Mahony had made pursuant to s 459H(1)(a) of the Corporations Act 2001 (Cth).
In those proceedings, Tetbury also claimed that there still remained a genuine dispute about the claimed debt arising from the unpaid costs, despite the assessment of those costs and its unsuccessful appeal: In the matter of Tetbury Pty Ltd [2022] NSWSC 1670. There Black J observed at [25]:

“25 It is here not necessary to determine, in the abstract, whether, as Mr Maroya contends, the costs assessment regime is an alternative to a contractual claim by a solicitor and, in the abstract, both can be invoked successively. I am comfortably satisfied that, on the particular facts of this case, which are not facts that one would expect to see repeated in proceedings involving a solicitor and officer of the court, there is some other reason to set aside the Demand. Here, there is a real question whether Mahony Law's manoeuvring in respect of the payment of the amount received under the settlement, and in particular the application of that payment to disputed fees of the firm rather than undisputed counsel fees, operated to the disadvantage of its former client, Tetbury, in the First District Court Proceedings and frustrated the just, quick and cheap determination of those proceedings. There is also a real question as to whether the settlement that provided for the payment of a further $20,000 to his firm, in the context that Mr Mahony had given evidence in those proceedings that a further costs assessment could not occur in respect of the disputed solicitors’ fees because they had been paid, prevented Mr Mahony from subsequently undertaking such an assessment.”

Mr Mahony contended that those observations were incapable of helping to establish that the costs judgment had been entered irregularly and in bad faith, what his Honour so observed being contrary to binding authority.

Conclusions

For reasons which follow I have concluded that even if it be accepted that Mr Mahony engaged in the misconduct on which Tetbury advanced its case in resisting his cross claim in the first District Court proceedings, the settlement of those proceedings did not relieve it of its contractual obligation to pay him in accordance with the costs agreement it had entered, for the work he had earlier performed for it.
It was the dispute about the claimed outstanding counsel’s fees which was resolved by the settlement of those proceedings. That settlement did not preclude Mr Mahony’s pursuit of an assessment of his own costs under the 2004 Act, it being a still available statutory mechanism for quantifying legal costs payable under the parties’ binding contract. The resulting assessment, unsuccessfully challenged as it was in the District Court, finally resulted in the creation of a deemed judgment debt which satisfied the contractual entitlement: Branson at [127]-[130].
That costs judgment evidenced Tetbury’s debt and cannot now be set aside under r 36.15, it not having established that it was entered irregularly or in bad faith, or that it now has no liability to meet that judgment debt. Nor can the orders sought be made in exercise of the Court’s inherent jurisdiction, as Tetbury finally sought.

Issues

There was no issue that:

before Mr Mahony pursued proceedings against Tetbury it had not paid all that he was owed for the work he had performed or the disbursements incurred, in accordance with the costs agreement;

Tetbury eventually paid Mr Mahony $170,000, but there was later a dispute about the purpose of that payment;

the use Mr Mahony made of those funds was established when he was cross examined in the first District Court proceedings, where he had brought a cross claim to recover the counsel’s fees he claimed were still outstanding;

Tetbury’s case was that it had paid counsel’s fees and that there was a dispute about Mr Mahony’s costs, which he should have had assessed;

those proceedings were dismissed on payment of a further $20,000 to Mr Mahony, after he was refused leave to amend his claim to pursue his own costs, as well as counsel’s fees;

Mr Mahony then successfully pursued his application for the assessment of his costs, in which the assessor considered all that was owing and had been paid, including in relation to counsel’s fees and the cases which the parties each advanced;

Tetbury unsuccessfully relied on Mr Mahony’s use of the funds it had paid to meet counsel’s fees and the settlement of the District Court proceedings, both on that costs assessment and to advance its appeal against that assessment in the second District Court proceedings; and

Tetbury has never challenged the merits of the assessment.

What is in issue concerns whether, in all the circumstances which arise to be considered, Tetbury has a basis to challenge the costs judgment under r 36.15, it not having paid any more of the assessed costs and not asserting that anything which was not known at the time of the assessment and appeal has since come to light.
What is in issue thus turns on:

the proper operation of r 36.15;

the underlying costs certificate, which Tetbury unsuccessfully challenged on questions of law, but not on its merits, not having been set aside;

the facts and arguments on which it relies again in these proceedings, now in order to establish that the costs judgment had been entered irregularly or not in good faith, despite already having failed on the assessment and appeal to establish that there was no costs dispute between the parties capable of becoming the subject of a costs certificate;

the result that the appeal decision and certificate continue to bind the parties; and

whether an order setting aside the costs judgment could still be made in exercise of the Court’s supervisory jurisdiction.

The course of the parties’ litigation

Something more should be said about the complex course of the parties’ litigation. This included:

Tetbury first commencing proceedings in this Court in 2017, after Mr Mahony had issued a creditor’s statutory demand under the Corporations Act, for payment of his then outstanding invoices, which included counsel’s fees.

Tetbury seeking to have that demand set aside: In the matter of Tetbury Pty Ltd [2017] NSWSC 37. The sum then in issue was $270,810.32, much of which related to unpaid counsel’s fees. Black J calculated the substantiated amount properly the subject of that demand to be $174,748. His Honour then observed that the submission about there being no evidence to establish that Mr Mahony was liable for the payment of counsel’s fees failed “to recognise that the onus of establishing a genuine dispute as to the Demand rests on Tetbury, which has led no evidence raising any question that Mahony Law is not liable to Counsel in respect of those fees, subject to his rights against Tetbury in that respect”: at [37].

Other proceedings later being pursued, including a winding up application Mr Mahony brought.

Tetbury then paying Mr Mahony $180,000, $10,000 for costs of the winding up proceedings and $170,000 which was later disputed in the first District Court proceedings which Tetbury brought, which were transferred to the District Court and dismissed in 2017. Mr Mahony still pursuing payment of counsel’s fees by a cross claim which was heard before Russell SC DCJ in 2018 over two days before the proceedings were dismissed following a settlement.

Mr Mahony then claiming to have been owed, in total, some $320,044.29 for his costs and disbursements and Tetbury claiming that it had only paid counsel’s fees and that Mr Mahony had to have his own costs assessed, before he could pursue their payment.

The settlement being arrived at after Mr Mahony unsuccessfully sought to amend his cross claim to seek payment of his own invoices, in the alternative, leave to amend having been opposed and refused. The proceedings then being dismissed on payment to Mr Mahony of the agreed further $20,000.

Mr Mahony then successfully pursuing the assessment of his own costs, resisting Tetbury’s appeal against that assessment and finally entering the costs judgment in February 2022.

In March 2022, Mr Mahony serving a creditor’s statutory demand claiming $85,211.32, referable to the judgment debt arising from the costs assessment. Tetbury successfully having this demand set aside in November 2022. Black J noting Mr Mahony’s case that “Tetbury should not be permitted to embark on a collateral attack on the registration of the costs assessment as a judgment of this Court”: at [21]. His Honour concluding that it was not necessary to determine whether a genuine dispute about those costs had been established, “bear[ing] in mind that the costs assessment has been registered and takes effect as a judgment of this Court, which has not been set aside”: at [22].

But his Honour also observing that “whether it can be brought in separate proceedings, in another list in this Court, can be left to the judge determining that matter, if it arises”: at [21].

His Honour concluding, nevertheless, that the demand should be set aside, given the adverse view which he took of Mr Mahony’s “manoeuvring” about the amount received under the settlement. He accepting that it had also given rise to a real, undetermined question about whether the settlement on payment of a further $20,000, in the context of Mr Mahony’s evidence that a further costs assessment could not occur in respect of his disputed fees because they had been paid, prevented him from subsequently undertaking such an assessment, and prevented the inference being drawn that Tetbury was unable to pay its debts as and when they fell due: at [27].

Soon afterwards Tetbury commencing these proceedings seeking orders under r 36.15 setting aside the costs judgment. But it did not further challenge either the certificate or appeal judgment.

The settlement of the first District Court proceedings

As I have explained Tetbury relied on the evidence Mr Mahony gave in support of his cross claim in the District Court, which included that he considered that he could not pursue a costs assessment, his fees having been paid and that what was unpaid was counsel’s fees.
Those proceedings were settled by consent orders dismissing the proceedings, after his application for leave to amend his cross claim to pursue his legal costs had been refused. On Tetbury’s case, its understanding was that he then accepted that he had been paid all fees he was owed. But the orders did not refer to this or to his fees.
There was also no issue that the handwritten terms of settlement in the District Court provided only:

“Terms Of Settlement
1. Proceedings stood over until…
AND THE COURT NOTES THE FOLLOWING
2. If Tetbury pays the cross claimant the sum of $20,000 by 12 December 2018 the proceedings are dismissed with no order as to costs.

3. If Tetbury does not pay the settlement sum of $20,000 to Mahony Law by 12 December 2018 Judgment for the cross claimant in the sum of $20,000.
4. The settlement sum is to be paid to the cross-claimant without set-off, counter claim of deduction.”

I have concluded that Tetbury’s case, that what was so agreed and ordered also settled any claim Mr Mahony had for his own costs, cannot be accepted. Not only do the terms not say so, this was in issue on the assessment and the appeal and rejected.
Even if that were not so, Tetbury’s reliance on the evidence of its solicitor, Mr Whitfield, does not establish that for which it contends.
That on the assessment it was established that Tetbury had paid in total only about half of what it owed under the costs agreement was consistent with the terms of settlement not having referred to the settlement of the parties’ dispute about those costs.
It is relevant that despite Tetbury’s continued claim that what had been agreed on the settlement included Mr Mahony’s own costs, it has never made an application under s 73 of the Civil Procedure Act 2005 (NSW), which empowered the District Court to determine a dispute about the terms on which proceedings before it had been settled.
In the assessor’s preliminary decision, amongst the issues he identified he had to determine was whether the tax invoices the subject of the application had been paid and the effect of the settlement of the District Court proceedings in which Mr Mahony had pursued outstanding counsel’s fees. Having considered s 91 of the Civil Procedure Act, he found that the terms of that settlement did not preclude Mr Mahony bringing fresh proceedings to pursue the recovery of his invoices and counsel’s fees. The assessor also found that Mr Mahony should amend his assessment application to include counsel's fees, which he then did.
That decision was not appealed, other than in respect of the decision to require Mr Mahony to amend his application to include counsel’s fees, which Gibson DCJ later found was open to the assessor.
The assessor, having then examined the relevant records, quantified the fees and disbursements and concluded on all the evidence which the parties had then led, that there were still some costs unpaid. Mr Mahony successfully resisted Tetbury’s case that there was then no costs dispute, despite his conduct, his evidence in the District Court, the settlement of those proceedings and its claimed impact on its obligation to pay him for his unpaid costs.
That examination was required to be undertaken because not only were the costs payable to Mr Mahony disputed by Tetbury, so was what had been paid and what remained outstanding. That depended not only on what he had invoiced, but also on what Tetbury had paid and for what purpose, before the first District Court proceedings; the use Mr Mahony made of the $170,000 which on Tetbury’s case it had paid only to meet counsel’s fees; as well as what it had further paid on settlement of the proceedings and for what purpose, given the disputed terms.
The outstanding costs determined in the assessor’s final decision, for reasons which he there gave, amounted to $85,211.32.
There has been no suggestion that the assessor erred about the merits of what he had to determine. While the summons commencing the appeal to the District Court indicated that Tetbury appealed the whole of the cost assessor’s 27 July decision and orders quashing the assessment were sought, the grounds advanced were confined to questions of law.
The appeal grounds challenged the assessor’s jurisdiction under the 2004 Act, as well as other matters. By an amended summons, what was pursued was summarised by Gibson DCJ to be:

“Ground 1: ‘No costs were in fact in dispute as required by s 361(1) of the LPA 2004 at the time of the costs assessment process’ (written submissions, paragraph 47).
Ground 2: ‘Irrespective of whether the defendant’s legal costs were determined to be fair and reasonable under s 367(1) of the LPA 2004, no amount of legal costs could be payable to the defendant’ (written submissions, paragraph 64).
Ground 3: ‘Failing to have regard to relevant principles of law establishing that there was no dispute as there was no entitlement to costs by the respondent for there to be a costs assessment process’ (written submissions, paragraph 67).”

A further amended summons was later filed, but her Honour noted that initially it was the above grounds which were pursued at the hearing. It was only in submissions in reply that the other grounds in the further amended summons were addressed. They were:

“1. The costs assessment was made in the absence of jurisdiction under the Legal Profession Act 2004 (NSW) (LPA 04) in purporting to assess the defendant's legal costs because none of those costs were not in dispute as required by s 361(1) of LPA 04 at the time the defendant filed the application for a costs assessment on 29 August 2019.
2. The costs assessor erred in purporting to assess the defendant's legal costs because irrespective of whether the defendant's costs were determined to be fair and reasonable under s 367(1) of LPA 04, there was no liability for the plaintiff to pay any amount of legal costs to the defendant.
3. Having found that the dispute between the parties with respect to legal costs had been litigated in District Court proceedings 2017/00136036, the costs assessor erred:
(a) in finding that there was an extant dispute with respect to legal costs enlivening jurisdiction under the Legal Profession Act 2004 (NSW); and
(b) to include in the costs assessment amounts for counsels' fees in respect of which there was no dispute.
4. The costs assessor erred in finding that the parties were in dispute as to which part of amounts already paid by the plaintiff to the defendant were to be properly ascribed as either the defendant's legal costs or counsels' fees.
5. Further or alternatively, the in preliminary decision of the costs assessor dated 28 February 2019 attached and described as ‘Ruling A’ in the costs assessment, the costs assessor failed to have proper regard to or wrongly rejected the application of the principles of law upon which the plaintiff relied in challenging from the outset the jurisdiction of the costs assessor under ss 361(1) and 367(1) of the Legal Profession Act 2004 (NSW), in contending that the defendant's costs were no longer in dispute and irrespective of whether the defendant's legal costs were fair and reasonable, there was no liability for the plaintiff to pay any amount of legal costs to the defendant. Those principles of law included the following:
(a) the effect of a dismissal of proceedings in accordance with on the ‘Terms of Settlement’ filed on 21 November 2018 in District Court proceedings no 2017/000136036;
(b) res judicata;
(c) issue estoppel;
(d) Anshun estoppel;
(e) estoppel by representation and misleading and deceptive conduct;
(f) finality of litigation;
(g) the prohibition on a party approbating and reprobating;
(h) limits on the rights of appeal.
6. Further, in the preliminary decision of the costs assessor dated 28 February 2019 attached and described as ‘Ruling A’ in the costs assessment, the costs assessor erred in allowing the defendant to file an amended application on 13 March 2020 to include all legal costs, including counsels' fees.”

It should be noted that these legal principles, other than the limits of an appeal, were pursued again on this application.
Gibson DCJ observed that the costs assessment process was "neither wholly judicial, nor wholly adversarial, as there are strong elements of an inquisitorial nature involved": at [28], quoting Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2011] NSWDC 55 at [31]. Further, “an important factor, in relation to s 384 appeals, is that legal error alone is insufficient”, because “the narrow context of statutory appeal for which s 384(1) of the LPA provides”: at [29], citing Reznitsky v District Court of New South Wales [2015] NSWCA 194 at [43]. She also noted that the “interrelationship between the costs assessment process and the bringing of proceedings for relief from the courts” had been analysed in Branson: at [30].
Her Honour rejected the claim that the assessor had no jurisdiction, because the costs were not in dispute at the time of the costs assessment: at [31]-[37]. Her Honour considered that the grounds Tetbury advanced misconceived the relationship between the parties’ contractual rights and the entitlement to seek an assessment under the legislative scheme: at [35].
What was in issue had to be determined on the materials which the parties had put before the assessor. Her Honour concluded that however the payments Tetbury had made were characterised, “the total the plaintiff paid was actually only around half of the amount owing, in circumstances where the quantum of the costs and disbursements is now, following the administrative process of costs assessment, not in dispute”: at [35].
Tetbury’s argument that there was no dispute about costs which arose to be assessed thus again failed.
Her Honour also observed that under s 359 the assessor had the power to assess all costs and was required to assess “disputed costs”, an undefined term, in accordance with s 361: at [36]. The method the assessor had pursued, given that only around half of the total costs had been paid, was to require Mr Mahony to file an Amended Application for the whole sum, not merely solicitors’ fees but also counsel’s fees, in order to determine the shortfall between what had been paid and what was owed. This was the sum to which he was entitled, the same sum not being able to discharge both debts at the same time: at [37].
In the result, her Honour concluded the assessor had not fallen into the claimed errors of law, there having been costs in dispute for the purpose of s 361 and he having proceeded to assess them in accordance with s 359. Not only did the assessor have jurisdiction to deal with that dispute, no error of law in assessing the disputed costs had been made: at [37]-[38].
Gibson DCJ also explained the problems with the way in which grounds 3-5 of the appeal was advanced: at [40]-[42]. But she concluded that they underpinned various of the grounds advanced on the appeal: at [43].
She also explained the assessor’s power to widen the ambit of a costs assessment, as he did, consistently with s 56 of the Civil Procedure Act, to include all costs, even those not in dispute, in order to arrive at “a result which reflects the true position between the parties as to what is owing and what has been paid”: at [46].
Her Honour also rejected the arguments advanced about Mr Mahony impermissibly approbating and reprobating, as well as those in relation to claimed waiver, noting that inconsistent statements were not sufficient to establish the claimed waiver: at [46]-[53]. She also concluded that the arguments advanced were misconceived because the contractual claims settled in the earlier District Court proceedings had not precluded pursuit of a costs assessment and thus no necessary detriment could be shown: at [54].
There had not been any election between inconsistent rights, and even if there had been false evidence given in the earlier proceedings, that could not preclude a later assessment of the real facts. There was no relevant finality in the earlier litigation and s 91 of the Civil Procedure Act did not apply. Additionally, what had been decided in Branson stood in the way of the case Tetbury advanced: at [58]-[59].
No findings of fact having been made in the first District Court proceedings, where the application to amend the cross claim to include Mr Mahony’s costs was rejected on case management grounds, the settlement of those proceedings presented no bar to the further pursuit of the costs, as the assessor correctly concluded: at [60]-[61].
Her Honour rejected the arguments advanced about res judicata, issue estoppel and the Anshun principle: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45: at [62]-[71]. Considering authorities which had considered the operation of s 91 and what was decided in Tjiong v Tjiong [2021] NSWSC 1389, her Honour thus rejected Tetbury’s appeal: at [83]-[92].
She concluded that what had been consented to in the first District Court proceedings was “the end of proceedings and costs claims in relation to what appears to have been an aborted attempt to enforce a costs agreement by commencing proceedings in the District Court rather than having the bill assessed in the usual way (which, if it had occurred, would have meant that the plaintiff would not have raised these issues, as Mr Gracie stated more than once)”: at [90]. She observed that if Tetbury had wanted to ensure that the settlement brought finality, in the sense that “the solicitors’ legal costs which would be owing if the moneys paid for counsel’s fees had not been appropriated to pay them”, appropriate orders had to be sought at the time: at [92].
Her Honour’s conclusions reflected that Russell DCJ had not permitted amendment of the cross claim, so that the quantification of Mr Mahony’s costs or their payment were not in issue in those proceedings. That also grounded the conclusion that, there having been no determination on the merits of the parties’ dispute about those costs, questions of finality and s 91 did not preclude their pursuit by a costs assessment: at [72]-[74]. The claimed abuse of process was thus also rejected: at [75]-[77].

The parties’ cases

It is against this background that the parties’ cases in these proceedings have to be understood.

Tetbury

Tetbury advanced its case, in short, on the basis that Mr Mahony:

wrongly made use of the $170,000 owing to counsel which Tetbury had earlier paid into his trust account, solely and expressly for the purpose of that full sum being paid to counsel, to meet his own costs;

ignored the directions it then gave him that the payment of $170,000 was in respect of counsel’s fees only, as Black J found;

falsely told counsel that he could not pay all of their outstanding fees, because his firm’s debts were secured by a third party by way of a charge that had priority over their interests, and that he would have to pay “that secured” creditor first, who would then relend that money, so that he could pay a further $50,000 to counsel;

falsely told counsel that the payments to three of them were pro-rated against the $50,000 he would receive back from the secured creditor in respect of their respective unpaid fees, with a balance going to some of his firm’s fees;

instead paid his firm’s fees in full, then conducted himself on the basis that only counsel’s fees were unpaid and there were no unpaid costs owing to him, including by suing on the cross claim in the District Court, which sought payment of counsel’s fees;

falsely maintained to Tetbury’s solicitors and the District Court that he could not have his firm’s costs assessed, because there were no unpaid costs owing by Tetbury;

settled the District Court proceedings, having sued only for counsel’s fees, on terms that provided payment of $20,000 by Tetbury in satisfaction of those proceedings, failing which judgment would be entered on the cross claim in the sum of $20,000;

then not only had his costs assessed, but finally included in the assessment all of counsel’s fees, that eventually leading to the filing of the costs certificate and entry of the costs judgment, which was the subject of these proceedings.

Tetbury relied on affidavit evidence Mr Whitfield gave both in these proceedings and earlier before Black J in 2022, as well as the transcript of the District Court proceedings, the terms of settlement and many other documents which the assessor, Gibson DCJ and Black J had considered.
In its submissions, Tetbury not only alleged that the result was that there had been relevant irregularity in entry of the costs judgment, but that it had been obtained by Mr Mahony in bad faith, given his conduct before and during the proceedings before Russell DCJ, before the settlement and his later pursuit of the assessment.
Tetbury claimed that it had been understood on the settlement that it was agreed that Mr Mahony had been paid all of his costs and disbursements, including counsel’s fees. Later, in the costs assessment, Mr Mahony impermissibly resiled from that position.
On its case, this conduct raised matters which now also have to be considered by the Court in light of its supervisory jurisdiction over legal practitioners, given that it established that Mr Mahony had obtained the costs judgment irregularly and against good faith.
The appeal it had unsuccessfully pursued in the District Court against the costs assessment had been limited to questions of law: s 384 of the 2004 Act. The issues there raised turned on the costs assessor’s jurisdiction to deal with the dispute regarding Mr Mahony’s unpaid costs. On this application it contended that despite the conclusions there reached, there were no unpaid costs and, therefore, no certificate in respect of them could have been entered under s 133 of the Civil Procedure Act or r 36.10 of the Uniform Civil Procedure Rules. It followed that the certificate entered contrary to those provisions was entered irregularly and could thus be set aside.
The amount of costs outstanding, agreed by the parties after the 2017 proceedings in this Court were decided, was $180,000. Mr Mahony’s trust account established that this sum had been paid, but it had wrongly not been applied to pay counsel’s costs, as had been directed, with some $90,000 wrongly paid to a third-party creditor. Mr Mahony had acknowledged this in cross examination, where he also accepted that all of his fees had been paid and his claim to amend his cross claim to pursue those fees was refused.
Tetbury had not pursued the proceedings it had brought in the District Court, where Mr Mahony pursued his cross claim. But the settlement of those proceedings, after warnings about the consequence of the proceedings for his right to practice, had the result that there has never been a judicial determination of the merits of his cross claim. Still, the dismissal of those proceedings constituted a res judicata, preventing the filing of the costs certificate. It also constituted an irrevocable waiver, election by affirmation, extinguishment of rights and an irrevocable waiver by estoppel.
In bad faith, Mr Mahony later instituted and pursued the costs assessment process, deliberately thwarting Black J’s 2017 findings and intent, by not paying counsel and later pursuing the costs assessment he had eschewed in the District Court.
That had also wrongly resulted in entry of the judgment debt against Tetbury, in circumstances which Black J had criticised in 2022. His Honour observed that Mr Mahony’s pursuit of the costs assessment had been contrary to his evidence in the District Court and did not involve a resolution of the parties’ dispute by way of cross examination or a contested hearing, which had also not arisen for determination on the appeal: at [13]-[14].
Tetbury thus contended that:

Mr Mahony’s evidence in the District Court established that it did not owe him any costs, that being supported by the refusal of his application to amend his cross claim to pursue such costs;

How Mr Mahony had dealt with the payment it had made for counsel’s fees demonstrated his repeated bad faith in bringing his cross claim and later pursuing the costs assessment and entry of the judgment debt, despite the parties’ settlement;

Mr Mahony’s rights against it for payment of counsel’s fees were removed by the settlement, their payment being his responsibility at law;

The settlement had also brought claims about Mr Mahony’s own costs to an end;

While the District Court proceedings had not resulted in a determination of the merits of what it had to pay Mr Mahony, the costs assessment process could not be used to thwart the settlement;

The dismissal of the District Court proceedings by consent was sufficient to make the later proceedings res judicata and, even if not, an abuse of process: Tijong v Tijong [2021] NSWSC 1389 at [177] and [182];

That dismissal also prevented the filing of the costs certificate and, once it was registered as a judgment, provided a basis for ordering its stay: Benjamin & Khoury Pty Ltd v Rahme [2022] NSWSC 766 at [32]-[33];

Mr Mahony had also waived his rights by the settlement, although such a waiver is rarely irrevocable.

Mr Mahony

Mr Mahony did not contest the seriousness of the matters relied on by Tetbury. But he disputed that they could result in the order it sought, or in Tetbury being relieved of the obligation to pay costs due under its judgment debt for the work he had earlier performed.
Mr Mahony contended that much of what Tetbury advanced by its submissions had not been raised by its summons and was not only contrary to what had been decided in Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) (2009) 78 NSWLR 190; [2009] NSWCA 387, but also impermissibly advanced arguments which had already failed on the costs assessment and the appeal to the District Court.
Gibson DCJ’s judgment not having been challenged and the costs certificate still binding the parties, it was not open to Tetbury by this application, to challenge the findings her Honour had made, by which it remained bound, despite the adverse views Black J had later expressed about Mr Mahony. In any event they were inconsistent with what had been decided in Branson, to which no reference had there been made.
Further, Tetbury’s case depended on fundamental fallacies. They included that Gibson DCJ’s decision was confined to determining whether the assessor had jurisdiction to issue a costs assessment. Her Honour had, however, also dismissed Tetbury’s appeal on other grounds, it having unsuccessfully advanced arguments almost identical to those it now advanced on this application.
Her Honour found both that the assessor did have the jurisdiction Tetbury challenged and that the assessment was correct and not infected by the other errors of law it now again sought to pursue. The orders dismissing Tetbury’s appeal were final, a notice of intention to appeal having been filed, but not pursued. It followed that Tetbury was not entitled now again to advance the submissions which had been dismissed by Gibson DCJ, to advance this application.
Before the assessor, it had been established that Tetbury had only paid about half of the combined solicitors’ costs and counsel fees which it owed under the costs agreement. In the result the Court could not now accept that Mr Mahony was not entitled to be paid for the work he had performed, notwithstanding his later conduct, which Black J had criticised.
Tetbury’s submissions ignored what was decided in Branson at [127]-[129]. There it was explained that the 2004 Act assessment process is a means of quantification made available to billing practitioners and those billed. It is an administrative mechanism for quantifying legal costs in a variety of circumstances, which does not alter the fundamental nature of the right and title to such costs. If that Act does not apply, the costs have to be dealt with in the same way as any other contractual claim or, if there is no costs agreement, on the basis of the statutory form of quantum meruit created by s 319(1)(c).
Given that there were no findings of fact made by the District Court about the merits of what lay in issue between the parties in the first proceedings about what was owed to counsel, the use which Mr Mahony had made of the $170,000 Tetbury had paid and the question of Mr Mahony’s unpaid fees not there having been permitted to be pursued, he was entitled to engage the statutory process to pursue payment of the balance of any costs Tetbury still owed him, as he did.
His cross claim in the District Court, by which he had pursued counsel’s fees, had been dismissed by consent and so did not necessarily set up a res judicata. The order was that $20,000 be paid by Tetbury by 12 December 2018 and that the proceedings be dismissed with no order as to costs. There was no order or notation preventing pursuit of a cost assessment, which Tetbury had earlier contended he should have pursued. Those costs were not addressed by the settlement, consistently with the leave he had sought to amend the cross claim to include those costs having been refused.
That had prevented his costs being dealt with in those proceedings. The dismissal of those proceedings thus could not preclude the later pursuit of the statutory assessment of those costs, the consent orders which were entered in the District Court not being able to operate to defeat the operation of the 2004 Act.
As Gibson DCJ had found, res judicata thus did not arise, the District Court then having made no findings of fact and not finally or conclusively determining Mr Mahony’s entitlement to unpaid costs. The amendment, which was refused on case management grounds, had resulted in there being no determination of those matters on their merits. This attracted s 91(1) of the Civil Procedure Act, which provides that a dismissal does not prevent a plaintiff from bringing fresh proceedings or claiming the same relief in fresh proceedings, the merits of what was in issue not having been determined.
In the circumstances, the assessment application involved no abuse of process and the registration of the certificate for the unpaid costs, after the failure of the appeal, involved neither irregularity nor bad faith.
Mr Mahony’s entitlement to payment of his unpaid professional fees was determined in accordance with the statutory scheme, his claim for their payment not having been disposed of in the way for which Tetbury contended, despite the conduct and settlement it relied on and the evidence and arguments it now again advanced in pursuit of this application.
It followed that the costs judgment could not be set aside.
Nor, in all the circumstances, could the order Tetbury sought be made in exercise of the Court’s supervisory jurisdiction.

The construction of Rule 36.15 is settled and does not permit the orders sought

Rule 36.15 is not concerned with every irregularity, illegality or lack of good faith which may occur in dealings between parties or in the litigation which they pursue as a result. Such matters may undoubtedly arise to be considered including when the exercise of a discretion in favour of a party who has engaged in such conduct arises to be considered, or when orders are being formulated.
But r 36.15 is not concerned with such matters. It is only concerned with the judgment the subject of the application. It provides:

36.15 General power to set aside judgment or order
(1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith.
(2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent.

In Heperu, the construction of the Rule arose to be considered. In that case additional or fresh evidence had become available to the respondents after the Court’s judgment had been entered. On the hearing of the motion, allegations of misrepresentation by the appellant before and at the trial were then advanced. It was then not initially clear whether it was alleged that the misrepresentations were fraudulent, but that was later disclaimed: at [5]. It was irregularity which was finally pursued.
The irregularities advanced were the appellant’s failure to disclose in its verified defence that it was the wrong party; its express or implied assertions that it was the correct defendant; as well as its failure to discover relevant documents. That this could provide the basis for an order under the Rule was disputed, it being the judgment with which the Rule was concerned.
It was there held:

“16 The focus of Pt 36.15(1) is on the judgment or order that is attacked, and question is whether it was "given, … entered or … made" irregularly etc. The focus is on irregularity in those steps, not on the merits of any decision, or the irregularity of other steps in the proceedings, or in the proceedings below.
17 The rule applies with particular force to default or consent judgments and orders, and those given or made ex parte. It can only have limited application to judgments and orders made or entered after a hearing on the merits at which all parties were represented and fully heard.”

The claimed irregularity of the appeal judgment was thus rejected, because the irregularities relied on had occurred before and during the hearing of that matter at first instance and before the filing of the notice of appeal. The result was that the Court’s judgment had not been entered irregularly and that it had correctly reflected the orders pronounced in open court and in the hard copies given to the parties: at [19].
The case advanced for Tetbury sought to distinguish what had been decided in Heperu, because it not only advanced irregularity, but also bad faith. In my view, Heperu cannot be so distinguished.
What was there decided about the operation of the rule is binding, whether it is irregularity or bad faith on which an application under r 36.15(1) is advanced. The focus must be on the judgment in question and what is relied on to establish that it was given or entered irregularly, in bad faith or illegally. That cannot include matters over which the parties joined issue in the proceedings in which the judgment was given, which finally led to entry of the judgment which resolved the parties’ dispute. Nor matters over which they joined issue in earlier proceedings which the parties litigated.
It follows that it must be accepted that Tetbury’s case, relying as it does on claimed irregularities stemming from the misconduct it pursued in the first District Court proceedings and the settlement of those proceedings, which it relied on to resist the assessment and advance its appeal and now still claims prevented the assessment which Mr Mahony successfully pursued, despite the conclusions the assessor and Gibson DCJ reached, is incapable of establishing irregularity or bad faith of the kind with which this rule is concerned.
What was relied on did not concern entry of the costs judgment. Rather matters earlier ligated, about which nothing new or additional was advanced, which could have resulted in a different result, had it then been known.
It follows that the order Tetbury seeks setting aside the costs judgment cannot be made.

Can orders be made under Rule 36.15 in relation to a costs judgment?

That the order sought under r 36.15 setting aside the costs judgment could be made as Tetbury sought, given that it had been entered in accordance with the provisions of the 2004 Act following the filing of the costs certificate after its appeal failed, it not having paid any further costs, was also disputed and should be dealt with.
What arises to be considered supports the conclusion that the orders sought cannot be made.
In relation to the predecessor legislation, the Legal Profession Act1987 (NSW), it was held that a costs judgment could be set aside or varied if the underlying certificate was set aside or varied: Doyle v Hall Chadwick [2007] NSWCA 159 at [52].
But in this case the steps Tetbury pursued to have the costs certificate set aside failed.
Reference was there made to Khoury & Anor v Hiar & Anor [2006] NSWCA 47, where it was observed that assessment of costs was concerned with quantification, not with liability, and that liability could be resisted when a costs judgment was sought to be enforced: at [43]- [46].
These proceedings are not concerned with enforcement of the judgment, but with the application to set it aside, because of claimed bad faith and irregularity, with the result that it cannot be enforced.
In Branson v Tucker, the cost assessment scheme operating under the 2004 Act was explained. It was there reiterated that the assessment process was “no more than a means of quantification made available to the billing practitioner and the person billed. Either of them may resort to it or not as he or she chooses. The objective is to provide an efficient method of objective quantification by experienced practitioners and, in that way, to protect those upon whom lawyers impose charges and to regulate the conduct of lawyers”: at [126]. That quantification does not alter the lawyer’s fundamental right and title to those costs: at [139], quoting Coshott v Barry [2012] NSWSC 850 at [41].
It is the filing of an assessor's certificate in a court registry, which translates the quantification produced by the assessment into a deemed judgment debt, that then supersedes or satisfies the contractual entitlement: s 368(5) of the 2004 Act. There then no longer exists any possibility of an action in contract to recover the lawyer's fees: at [127].
It would appear to follow from this analysis that the result of setting aside a costs judgment would permit pursuit of the underlying contractual claim. But that need not be considered further, given that the certificate has not been set aside and the costs judgment does not rest on the resolution of a contractual claim.
In Calandra v Murden [2015] NSWCA 231, when the 2004 Act was still in force, it was noted that the process for filing a costs certificate as a judgment of the Court also required the filing of a form which specified any payments made or credits accrued since the relevant assessment, as well as a statement of the total amount “to be enforced as at date of filing”: at [5].
In this case, despite the failure of its appeal against the costs assessment, there is no suggestion that Tetbury made any further payment to Mr Mahony before he filed the certificate. Nevertheless, it still claims that it owes him nothing more, given the settlement of the proceedings before Russell DCJ, despite the assessment and its failed appeal. I am satisfied that this cannot be accepted.
In Calandra it was concluded that there was power under r 36.15 to set aside a costs judgment entered against good faith, when no costs are outstanding: at [20]. But such an order does not have the result that the cost assessor’s determination is set aside, it remains binding: at [18]. In that case, the judgment in issue was set aside because it was concluded that there were no unpaid costs due.
That conclusion cannot be arrived at in this case.
In Bingham v Bevan [2023] NSWCA 186, the application of r 36.15 arose to be considered in the context of the current Legal Profession Uniform Law (NSW) of 2014. There, the barrister had no legal entitlement to payment of the costs in question, the parties’ costs agreement being void.
This is also not such a case.
There, the effect of s 70 of the Legal Profession Uniform Law Application Act2014 (NSW), s 133(1) of the Civil Procedure Act and r 36.10, which now provide for the filing of a costs certificate as a judgment of the Court when costs have still not been paid, arose to be considered: at [24]-[27].
The operation of rr 36.15 and 36.16 were also there considered. In this case r 36.16 was not relied on. Nor was reliance placed on the broader power to set aside a costs judgment where there was no legal entitlement to payment of the costs, discussed by the Court at [59]. Understandably, given the parties’ binding costs agreement.
Tetbury rather relied on the Court’s supervisory powers over legal practitioners, to advance its case that the Court would set aside the costs judgment, Mr Mahony having acted in bad faith in pursuing the costs assessment as he did, given his proven misconduct in how he dealt with the $170,000 he had been paid and then pursuing the assessment, despite the settlement of the earlier proceedings. I will return to this.
It was also noted in Bingham, that like the predecessor schemes, the current statutory scheme for entry of a costs judgment assumes that there was a legal liability to pay the costs determined by the costs assessor. A costs judgment finally entered is thus concerned with “the amount of unpaid money” and not the “amounts specified in the certificate”: at [69].
The form to be filed with a costs certificate thus requires that the party filing the certificate swear an affidavit stating how much, if any, of the assessed costs have been paid. It follows that a costs judgment may be set aside if the judgment debtor demonstrates that the affidavit is incorrect, the liability to pay costs no longer existing, or not having arisen, in which case it is appropriate to describe the judgment as having been entered “irregularly”: at [69].
That this is such a case is disputed. Given Gibson DCJ’s binding decision, that conclusion also does not appear to be open.

Despite the binding costs certificate and appeal judgment, has Tetbury established that it has no liability to pay the costs the subject of the disputed judgment?

As I have explained, the statutory processes which permitted the filing of the costs judgment were engaged after the failure of Tetbury’s appeal on questions of law, which it did not further challenge. It has not challenged the merits of the assessor’s decisions.
On this application to set aside the resulting costs judgment, neither the correctness of the assessor’s conclusions about the assessment and what remained unpaid, which resulted in the issue of the underlying certificate, nor the correctness of the conclusions Gibson DCJ arrived at on the questions of law her Honour had to consider, arise to be determined.
That is despite the case Tetbury advances necessarily having to be understood as involving an attack on their correctness.
Other available steps to challenge the certificate and appeal judgment were not pursued by Tetbury. Instead, it advanced similar arguments to those which earlier failed, on this application. But that does not permit the Court, effectively, to entertain an appeal against the assessment or the appeal judgment.
In the result, this is an application which can have no effect on the certificate. It provides an objective quantification of Mr Mahony’s unpaid costs, which must be accepted. It follows that the failure of the appeal on the issues of law which Tetbury has already unsuccessfully advanced is a powerful impediment to the acceptance that the costs judgment which resulted, was later entered irregularly or in bad faith, given that it has paid nothing more for the assessed costs.
This application, concerned as it only is with the entry of the costs judgment, in respect of what has been found on the merits still to be owed, but unpaid, is not concerned with the enforcement of the judgment.
But liability is still what lies at the heart of the case Tetbury pressed.
Essentially, it still contends that Mr Mahony’s misconduct and the settlement of his cross claim, pursued only in respect of counsel’s fees, had the result that Tetbury was relieved of its contractual obligation to pay him anything further for any of his costs, which it had then contended were unpaid and had to be assessed. The settlement then precluding him from pursuing their quantification or payment.
In Bingham, it was held that on an application such as this, a party may seek to establish that liability to pay the assessed costs no longer exists or has not arisen, in which case the judgment may be accepted as having been entered irregularly.
The question which must be determined, it follows, is thus whether what Tetbury advanced, relying as it did on the conduct which Black J criticised and the disputed terms of the settlement, established that despite what was decided in the assessment and on the appeal, it was not liable to pay Mr Mahony the costs which became the subject of the challenged costs judgment.

Tetbury’s liability

I am not persuaded that Tetbury has met the onus of establishing that its liability to pay Mr Mahony’s assessed costs did not arise or no longer exists.
Despite how he dealt with what Tetbury had paid him, Mr Mahony’s evidence in the District Court about that, his challenged belief that it had paid his costs, the problems he then perceived with pursuing an assessment and the settlement which the parties finally agreed to, the result of the course which the parties each then pursued was that Tetbury became bound by the assessment it resisted and what was decided on the appeal which it unsuccessfully pursued.
Both the assessor and Gibson DCJ rejected Tetbury’s case that there was then no longer any costs dispute between the parties arising to be assessed. The result was that the certificate was issued and the costs judgment was later entered in accordance with the requirements of the statutory scheme.
There was no suggestion that the conclusion the assessor arrived at after examination of the records which established what had been paid, was incorrect. That established all that Tetbury still owed under the costs agreement. It has paid nothing more since then.
That Tetbury has still not accepted that it was required to pay Mr Mahony anything more by way of costs, despite the outcome of the costs assessment and its failed appeal, cannot establish that it is not liable to pay the assessed costs. It cannot now be accepted that its liability to pay the costs still not paid in accordance with the costs agreement was satisfied by the settlement which provided for payment of $20,000 and dismissal of his cross claim, given the binding certificate and appeal judgment
Nor am I persuaded that any misconduct involved in the use Mr Mahony earlier made of the funds Tetbury had paid him to meet counsel’s fees, or his evidence about that in the District Court, relieved Tetbury of its contractual obligation to pay him any unpaid costs for the work which he had earlier performed, given the parties’ binding costs agreement. Nor did the settlement.
That settlement could have encompassed Mr Mahony’s costs, notwithstanding that his cross claim only concerned counsel’s fees. But I am satisfied that was not established by the evidence. The terms agreed are earlier quoted. They make no reference to such costs or their assessment.
This accords with the result of the course the parties each pursued. Namely, that Mr Mahony’s cross claim was brought only in respect of counsel’s fees. His application to amend the cross claim to include his outstanding costs, having been opposed, was refused on procedural grounds, including the disadvantage which would result to Tetbury in those proceedings, if the leave he then sought was granted.
Consistently with the proceedings thus not being concerned with the pursuit of Mr Mahony’s costs, which Tetbury insisted it had not paid and still needed to be assessed, the terms the parties’ agreed to settle the proceedings did not refer to such costs, their assessment, their inclusion in the settlement of the cross claim, or the dismissal of those proceedings.
This accords with the settlement not being concerned with Mr Mahony’s entitlement to payment of any of his costs which remained unpaid.
Still Tetbury relied on what had transpired in those proceedings before the settlement to advance its case. In cross examination about why he had not pursued an assessment of his own costs, Mr Mahony’s evidence included that a barrister had told him that it was quite appropriate for him simply to commence proceedings for recovery of costs. It was put to him that the 2004 Act operated as a bar to him commencing and maintaining proceedings for payment of the three invoices which Black J had dealt with in 2017, without such an assessment, which he did not accept. Later he said that it would not be a simple matter to have those costs assessed, if they had not in fact been paid, given that then required leave. But he considered that they had been paid.
This led to the following submission for Tetbury:

“For the benefit of his Honour I maintain to the Court my instructions that at all times accepts that there must be some payment owing to Mr Mahony. Has offered to Mr Mahony to have his costs assessed to deal with the matter. Remains willing to do that Mr Mahony is maintaining the, as I’ll put it, the pretence this cross-claim is for recovery of counsels' fees which my client says it’s paid.”

Mr Mahony was then cross examined about misconduct and the breach of trust account regulations involved in the course he had pursued in not paying counsel’s fees and rather, having used what he had received to pay his own costs. This he denied. He was also cross examined about his claim that he had granted a charge at a time when he was bankrupt, which he accepted was rather a general “loose security” over his firm’s assets and not a legally enforceable registered charge.
Settlement discussions were being pursued while this cross examination was underway. The application to amend the cross claim to also pursue Mr Mahony’s costs was also then made.
In advancing his amendment application, Mr Mahony’s case was that if Tetbury’s case, that what it had paid him could only have been used to satisfy counsel’s fees and had been wrongly applied to his own costs, was accepted, the result would be that contrary to his understanding, his costs had not been paid. In that event he was entitled to pursue those costs against Tetbury. Still, the leave he sought to amend was opposed by Tetbury and refused, it being accepted that given the time at which it was made, there would be real prejudice to Tetbury if it was granted.
At that point Russell SC DCJ also raised with the parties the potential consequence for Mr Mahony of the acceptance of Tetbury’s case, including perhaps serious consequences for his right to practice.
The parties then continued their discussions, with the agreed terms of settlement soon being handed up, with an explanation that if a payment of $20,000 was made to Mr Mahony, the proceedings would be dismissed with no order as to costs and, if not, that the $20,000 could be entered as a judgment in those proceedings.
Russell DCJ then made the agreed orders dismissing the proceedings, noting the agreement contained in the terms of settlement which had been filed.
It is apparent from this sequence of events that the settlement followed soon after the rejection of the application to amend the cross claim and took into account the possibility that it would be accepted that what Tetbury had paid was not to meet Mr Mahony’s costs.
It is in those circumstances that I cannot accept the construction of the terms of settlement which Tetbury advances.
It is one which is not reflected by the words which the parties adopted. Nor does it accord with the course the proceedings took. Tetbury was legally represented. If, despite its successful opposition to the amendment of the cross claim and its insistence that Mr Mahony’s costs, which it considered it had not paid, had to be assessed, those costs were intended to be included in the settlement of those proceedings, as was the evidence of Mr Whitfield, Tetbury’s solicitor, the terms could easily have said so. They did not.
The terms agreed resulted in Mr Mahony being paid only a further $20,000. As the result of the way that the assessment unfolded, all that was owed under the parties’ costs agreement and what had been paid was considered by the assessor, as Gibson DCJ held he was entitled to do. The assessor concluded that Tetbury had paid only about half of what was payable under the costs agreement.
That also makes improbable the earlier settlement on the basis Tetbury claimed, its case then having been that Mr Mahony was not entitled to payment of his unpaid costs, without an assessment.
In the result I am satisfied that Mr Whitfield’s evidence about what the settlement intended does not reflect what the parties in fact agreed.
His evidence included that in advising Tetbury about the settlement, he had relied on the truthfulness of matters about which Mr Mahony had earlier corresponded, as well as his evidence in court that his professional fees had been paid in full and that he could not and would not seek an assessment of those costs. Further, he relied on the fact that but for Mr Mahony being a solicitor and his acceptance of Mr Mahony’s truthfulness, he would also have required a deed of release to be entered.
But that was inconsistent with how Tetbury advanced its case, which did not accept that Mr Mahony was truthful.
Further, Mr Whitfield’s earlier evidence included that on his reading of the cross claim, he understood that what was being pursued was counsel fees Tetbury had already paid and the resulting contest being about whether what Tetbury had paid was available to be used to meet Mr Mahony’s costs. Its case was that it was not. Its challenge was not only to Mr Mahony’s conduct in using the funds to meet his own costs, but also to the truthfulness of Mr Mahony’s evidence. As well as, finally, Mr Mahony’s acceptance that if Tetbury was correct, he still needed to pursue the payment of his own costs.
On the case then advanced this was what led to the proposed amendment of the cross claim, which Tetbury successfully opposed. As counsel then put it, the payment Tetbury had made could not satisfy both counsel’s fees and what Mr Mahony was owed, so that if it succeeded, his costs were still outstanding. That was clearly then understood by the parties and those who represented them, when they settled the proceedings.
That the settlement provided for the proceedings to be dismissed on payment only of a further $20,000 or, if unpaid by the agreed date, on judgment for $20,000 being entered, is also inconsistent with an agreement that what Tetbury so paid also satisfied whatever it still owed Mr Mahony for his own costs.
That does not accord with the words which the parties agreed; the course which they each had pursued in the proceedings; or with what Russell DCJ was informed. Nor did the terms say that what had been agreed was a full and final settlement of all matters in dispute between the parties, as was also Mr Whitfield’s evidence.
Like Gibson DCJ, I am not persuaded by what transpired before and during the first District Court proceedings, or their settlement, that the result was that Mr Mahony was deprived either of his contractual rights under the costs agreement to be paid outstanding costs, or of his statutory right to pursue an assessment of those costs.
The assessment he then pursued was concerned with the quantification of the disputed costs still owing under the costs agreement. The result of that statutory process was a certificate which entitled Mr Mahony to pursue what was found to remain unpaid as a judgment debt.
In the result I am satisfied that the order sought setting aside the costs judgment which resulted from the filing of the certificate cannot now be made, Tetbury not having established that it is not liable to pay the assessed costs.

The costs judgment was not entered irregularly or in bad faith

Given the course which the assessment took, both the disputed $170,000 and the $20,000 paid as the result of the District Court settlement were taken into account in determining what Tetbury had paid and what it still owed under the costs agreement. That assessment has never been challenged on the merits, as it could have been. It must be accepted that the assessor did not err in the conclusions which he reached about the merits of the matters the parties put in issue.
Tetbury was entitled to rely on the evidence and arguments it advanced about Mr Mahony’s conduct and the settlement of his cross claim, both on the costs assessment, where it contended that no costs dispute existed between it and Mr Mahony and also on the appeal, as it did. Indeed, as it emerged, in these proceedings there was additional evidence referred to in submissions, which it had earlier relied on to advance its case on the assessment and appeal, but which had not been included in the court book.
Even so, on the evidence which was led in these proceedings and the cases which the parties advanced, it must be accepted that the matters Tetbury relied on again in these proceedings were all known to the parties, at least since the first District Court proceedings were settled. They have been relied on by Tetbury in various other proceedings, including the assessment, the appeal and in this Court before Black J in 2022. On this application Tetbury has raised nothing new.
That the statutory scheme still provides Tetbury an opportunity to have the costs judgment set aside, by reliance on these same arguments and evidence, after dismissal of its appeal judgment, is the essence of its case. I am satisfied that cannot be accepted, given its liability to pay the assessed costs. Even if that could be accepted, I am not persuaded that the matters it relies on are capable of providing a basis for the conclusion that the costs judgment was entered irregularly or in bad faith.
Tetbury has pursued the opportunity the rules provide to bring this application. But it is confined by r 36.15 to the giving or entry of the costs judgment. A basis for the order it seeks cannot be established by the misconduct on which it earlier unsuccessfully relied on the costs assessment and the appeal. Nor does Tetbury’s ongoing refusal to accept that the result is that it is obliged to pay Mr Mahony’s now assessed costs, its appeal having failed, provide a basis for such an order.
Unlike all the authorities I have referred to in which r 36.15 was engaged, Tetbury does not contend that anything new has come to light since the costs judgment was entered, which was not earlier known to it and which might have had an impact on the underlying costs assessment, the appeal, or the entry of the costs judgment, if it had been known.
All that it relies on to establish that the entry of the judgment was irregular or in bad faith are the matters known to it and advanced on the costs assessment and appeal, albeit unsuccessfully.
Given what was decided in Heperu, it is the costs judgment and its entry with which the rule is concerned. It thus cannot be accepted that what the parties earlier litigated about Mr Mahony’s long disputed use of the $170,000 Tetbury paid him, the evidence which he gave in the first District Court proceedings about his use of those funds, or the settlement of those proceedings, now permits an order setting aside the costs judgment as having been entered irregularly or in bad faith.
The assessment, the certificate and the appeal judgment all bind the parties and are inconsistent with the case Tetbury has again advanced on this application.
It follows that what Tetbury again relied on to advance claims of res judicata, that Mr Mahony could not approbate and reprobate, irrevocable waiver, irrevocable affirmation, extinguishment of rights and irrevocable waiver by estoppel has no evidentiary foundation and cannot establish either irregularity or bad faith.
As was submitted at [63] of Tetbury’s own written submissions, the terms of settlement provided for “payment of $20,000 in consideration of that settlement in respect of counsel’s fees then the subject of the cross claim”. But they did not resolve the parties’ overall dispute about was owed under the costs agreement and that they needed to be assessed. That was resolved by the assessment and the appeal.
Mr Mahony pursued the assessment of his costs which Tetbury had urged and it resisted his case, as it was entitled to do. But it is bound by the result, given the failure of its appeal and the resulting entry of the costs judgment.
It follows that Tetbury has not established that liability for the costs the subject of the costs judgment has not arisen. The certificate Mr Mahony filed still binds it and the resulting entry of the costs judgment was, in the circumstances which arise for consideration, not the result of irregularity or bad faith.

Can the orders sought be made in the Court’s supervisory jurisdiction?

Mr Mahony’s claimed misconduct could, of course, have been dealt with in other ways. Whether any such steps have been taken to pursue Black J’s earlier critical observations, other than by the commencement of these proceedings, was not revealed.
But even accepting that how Mr Mahony dealt with what Tetbury had paid him to meet counsel’s fees was entirely wrong, that did not alter its contractual obligation to pay him what was still unpaid for the work he had performed and the disbursements incurred, in accordance with the costs agreement. That was only subject to its statutory right to have the costs assessed. Such an assessment was what Mr Mahony later pursued, that resolving what remained in dispute about what had to be paid under the parties’ agreement.
The costs judgment was later regularly entered under the statutory scheme, after the rejection of Tetbury’s appeal against the cost assessment, the parties having been properly heard about the matters of law Tetbury advanced on that appeal. It has never challenged the merits of the assessment under the statutory scheme and its application under r 36.15 has failed. The result is that it is now bound by the certificate, the appeal judgment and the costs judgment.
Despite this, Tetbury contended that the costs judgment should be set aside in exercise of the Court’s inherent jurisdiction. That was not raised by its summons but was advanced in submissions, finally by reliance on what was most recently decided in Hartnett (t/as Hartnett Lawyers) v Bell [2023] NSWCA 244.
That case was concerned with the disgorgement of excess professional charges, where only an unsigned costs agreement which contained a clause permitting a 25% uplift fee was in evidence. Those proceedings were complex for reasons unnecessary to explain, but which were quite different to what arises to be considered in this case.
But the reasons did explain the Court’s inherent and supervisory jurisdiction, which includes the jurisdiction to scrutinise the remuneration of its officers. That jurisdiction is not limited to cases of exorbitant overcharging by lawyers or by any contractual arrangements they have entered and can be exercised even in respect of matters regulated by a provision of a statute or rule, so long as the Court can do so without contravening such a provision: at [123].
But a judge cannot dispense with the requirements of the rules, unless they give “power to do so, and when a power is expressly conferred on the court subject to a condition, a judge cannot, by relying on inherent powers, escape from the necessity of ensuring that the condition has been fulfilled”: Doyle v Commonwealth (1985) 156 CLR 510 at 518; [1985] HCA 46.
This restriction appears to preclude the Court making the order sought, given the statutory schemes which I have discussed.
The case advanced under r 36.15 having failed, the purpose of the order pressed in claimed exercise of the Court’s supervisory jurisdiction is plainly to punish Mr Mahony for the misconduct examined in the first District Court proceedings, about which Black J commented as he did. That is, by relieving Tetbury of the consequences of the assessor’s conclusions that Mr Mahony has not been paid for all the work he earlier performed for it, as had been agreed.
I cannot see that the Court’s inherent jurisdiction permits an order setting aside the costs judgment to be made for that purpose. Tetbury being bound as it is not only by the costs agreement, but also by the proven judgment debt.
This is so even if it be accepted that all that Mr Mahony did with what Tetbury had earlier paid him was not honourable and did not meet the highest standards of integrity expected of members of the legal profession: Hartnett at [133].

That is because the requirements of r 36.15 under which Tetbury pursued its complaint about Mr Mahony’s conduct, in order to have the costs judgment set aside, have not been satisfied. Given what was decided in Doyle, that necessarily leads to the conclusion that an order setting aside the costs judgment in exercise of the Court’s supervisory jurisdiction cannot justly be made, those requirements not having been satisfied.
After reserving I was referred to Blooms the Chemist Management Services Ltd v Pharmacy Council of New South Wales [2024] NSWSC 296 and Legal Profession Conduct Commissioner v Radin (2014) 118 SASR 349; [2014] SASCFC 1. The former was concerned with an application for summary dismissal of a judicial review application and the latter with disciplinary proceedings commenced in the South Australian Supreme Court against a legal practitioner, who was struck off for misconduct.
In neither case was reference made to Doyle. Nor was what was there decided akin to that which here arises for determination, an application to set aside a costs judgment entered in accordance with the requirements of the statutory schemes I have discussed.
In the result they have not led me to any different view, that the order sought cannot justly be made.

Costs

The usual costs order under the Rules is that costs follow the event. That is an order that Tetbury pay Mr Mahony’s costs, as agreed or assessed.
It may be that the parties wish to be heard about costs. In that event they should approach with short written submissions within 14 days, indicating if they wish to be heard further.
Otherwise, the usual order will be entered.

Orders

For the reasons given I order that:

The orders sought by Tetbury be refused and the proceedings dismissed; and

Unless the parties approach with short written submissions about costs within 14 days, Tetbury is to pay Mr Mahony’s costs, as agreed or assessed.

**********

Decision last updated: 24 April 2024

Medium Neutral Citation:	Tetbury Pty Ltd v Mahony trading as Mahony Law [2024] NSWSC 446
Hearing dates:	9 February 2024, 19 March 2024
Date of orders:	24 April 2024
Decision date:	24 April 2024
Jurisdiction:	Common Law
Before:	Schmidt AJ
Decision:	(1) The orders sought by Tetbury be refused and the proceedings dismissed; and (2) Unless the parties approach with short written submissions about costs within 14 days, Tetbury is to pay Mr Mahony’s costs, as agreed or assessed.
Catchwords:	COSTS – solicitor/client – costs agreement – costs assessed under Legal Profession Act 2004 (NSW) – binding costs certificate issued – unsuccessful appeal on questions of law – costs judgment entered – application to set aside costs judgment under r 36.15 of Uniform Civil Procedure Rules 2005 (NSW) – whether costs judgment was entered irregularly or in bad faith – whether plaintiff liable to pay assessed costs – application based on claimed misconduct considered on both assessment and appeal – plaintiff liable to pay assessed costs – costs judgment not entered irregularly or in bad faith – order refused and proceedings dismissed CIVIL PROCEDURE – jurisdiction – supervisory jurisdiction of legal practitioners – order setting aside the costs judgment where plaintiff is bound by costs agreement and proven judgment debt application to set aside costs judgment under r 36.15 having been refused
Legislation Cited:	Civil Procedure Act 2005 (NSW), ss 56, 73, 91, 133 Corporations Act 2001 (Cth), s 459H(1)(a) Legal Profession Act 1987 (NSW) Legal Profession Act 2004 (NSW), ss 319, 359, 361, 384, 385 Legal Profession Uniform Law (NSW) 2014 Legal Profession Uniform Law Application Act 2014 (NSW), s 70 Uniform Civil Procedure Rules 2005 (NSW), r 36.10, r 36.15
Cases Cited:	Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2011] NSWDC 55 Benjamin & Khoury Pty Ltd v Rahme [2022] NSWSC 766 Bingham v Bevan [2023] NSWCA 186 Blooms the Chemist Management Services Ltd v Pharmacy Council of New South Wales [2024] NSWSC 296 Branson v Tucker [2012] NSWCA 310 Calandra v Murden [2015] NSWCA 231 Coshott v Barry [2012] NSWSC 850 Doyle v Commonwealth (1985) 156 CLR 510; [1985] HCA 46 Doyle v Hall Chadwick [2007] NSWCA 159 Hartnett (t/as Hartnett Lawyers) v Bell [2023] NSWCA 244 In the matter of Tetbury Pty Ltd [2017] NSWSC 37 In the matter of Tetbury Pty Ltd [2022] NSWSC 1670 Khoury & Anor v Hiar & Anor [2006] NSWCA 47 Legal Profession Conduct Commissioner v Radin (2014) 118 SASR 349; [2014] SASCFC 1 Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) (2009) 78 NSWLR 190; [2009] NSWCA 387 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45 Reznitsky v District Court of New South Wales [2015] NSWCA 194 Tetbury Pty Ltd v John Francis Mahony trading as Mahony Law (District Court (NSW), 16 December 2020, unrep) Tetbury Pty Ltd v John Francis Mahony trading as Mahony Law [2021] NSWDC 691 Tresedar Pty Ltd v Property Builders (Constructions) Pty Ltd (In Liquidation) [2014] NSWSC 382 Tjiong v Tjiong [2021] NSWSC 1389
Category:	Principal judgment
Parties:	Tetbury Pty Ltd (Plaintiff) John Mahony trading as Mahony Law (Defendant)
Representation:	Counsel: M Gracie (Plaintiff) A Maroya (Defendant) Solicitors: Whitfields Solicitors (Plaintiff) Mahony Law (Defendant)
File Number(s):	2022/372314
Publication restriction:	Nil