FEDERAL COURT OF AUSTRALIA McNamara v San (No. 5) [2010] FCA 960 Citation: McNamara v San (No. 5) [2010] FCA 960 Parties: PAUL ANTHONY McNAMARA v BAO SAN, JULIE SAN, IVAN SAN, OFFICIAL TRUSTEE IN BANKRUPTCY and SCHON GREGORY CONDON File number: NSD 615 of 2009 Judge: GRAHAM J Date of judgment: 23 August 2010 Date of hearing: 23 August 2010 Date of last submissions: 23 August 2010 Place: Sydney Division: GENERAL DIVISION Category: No catchwords. Number of paragraphs: 27 The applicant appeared in person. Counsel for the Third Respondent: E W Young Solicitor for the Third Respondent: Parry Carroll Counsel for Mr Kalde and Mr Kalyk: W S Reynolds IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 615 of 2009 BETWEEN: PAUL ANTHONY McNAMARA Applicant AND: BAO SAN First Respondent JULIE SAN Second Respondent IVAN SAN Third Respondent OFFICIAL TRUSTEE IN BANKRUPTCY Fourth Respondent SCHON GREGORY CONDON Fifth Respondent JUDGE: GRAHAM J DATE OF ORDER: 23 AUGUST 2010 WHERE MADE: SYDNEY THE COURT: 1. Grants leave to the third respondent, as the applicant in the Notice of Motion filed 24 March 2010, to amend the Notice of Motion by deleting the proposed orders 1 and 2 and substituting orders in the following terms: '1. The applicant pay the costs of the third respondent and that those costs be taxed on an indemnity basis. 2. An order that Frank Kalyk, barrister and Mr Robert Kalde solicitor of Knight Lawyers in their capacity as counsel and solicitor for Paul Anthony McNamara the applicant in the proceedings pay the costs or some portion of the costs of the third respondent and that such costs be taxed on an indemnity basis under Order 62 Rule 9 of the Federal Court Rules or s 43 (3) of the Federal Court of Australia Act 1976 (Cth) being costs that would otherwise be payable by the applicant pursuant to Order 1.' 2. Grants leave to Mr Kalyk and Mr Kalde to file in court their respective affidavits sworn 20 August 2010. 3. Refuses leave to Mr Kalyk and Mr Kalde to file in court the affidavit of Mr Corsaro sworn 23 August 2010. AND THE COURT ORDERS THAT: 4. The applicant pay the costs of the third respondent in respect of the proceedings up to and including 15 March 2010. 5. The third respondent's Notice of Motion filed 24 March 2010 and amended on 23 August 2010 be otherwise dismissed. 6. The third respondent pay the costs of the Notice of Motion filed 24 March 2010 as amended on 23 August 2010 of Robert Peter Kalde and Francis Gary Kalyk. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 615 of 2009 BETWEEN: PAUL ANTHONY McNAMARA Applicant AND: BAO SAN First Respondent JULIE SAN Second Respondent IVAN SAN Third Respondent OFFICIAL TRUSTEE IN BANKRUPTCY Fourth Respondent SCHON GREGORY CONDON Fifth Respondent JUDGE: GRAHAM J DATE: 23 AUGUST 2010 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The matter presently before the Court is a Notice of Motion filed by the third respondent on 24 March 2010 in respect of costs. Leave was granted to the third respondent earlier today to reformulate the Notice of Motion so that the orders sought relevantly became: (1) The applicant pay the costs of the third respondent and that those costs be taxed on an indemnity basis. (2) An order that Francis Gary Kalyk, barrister, and Robert Peter Kalde, solicitor, of Knight Lawyers in their capacity as counsel and solicitor for Paul Anthony McNamara, the applicant in the proceedings, pay the costs or some portion of the costs of the third respondent and that such costs be taxed on an indemnity basis under Order 62, rule 9 of the Federal Court Rules or s 43(3)(f) of the Federal Court of Australia Act 1976 (Cth) (the 'Federal Court Act') being costs that would otherwise be payable by the applicant pursuant to order 1. (3) Such further or other order as the Court sees fit. (4) Costs. 2 The orders as to costs have been sought after the Court's reasons for judgment in this matter were published on 15 March 2010. The matter before the Court which was the subject of those reasons for judgment was a Notice of Motion filed 25 November 2009 in which the third, fourth and fifth respondents sought summary dismissal of the proceedings pursuant to s 31A(2) of the Federal Court Act, and in the alternative orders, striking out the Amended Statement of Claim filed 18 August 2009. The central issue in that interlocutory application was whether the applicant had the necessary standing to secure relief under s 120 and/or s 121 of the Bankruptcy Act 1966 (Cth) ('the Bankruptcy Act'), or alternatively, to secure declaratory relief as to the right of the fourth and fifth respondents to obtain relief under one or other of those sections. 3 The Court ordered that: '1. The amended Further Amended Application filed 12 February 2010 be dismissed. 2. The applicant pay the costs of the third respondent, the fourth respondent and the fifth respondent. 3. The costs of the fourth respondent and of the fifth respondent be taxed on an indemnity basis as from 25 September 2009. 4. The Orders as to costs in paragraphs 2 and 3 may not be entered before 29 March 2010 or such later date, if any, as the Court may on or before 29 March 2010 order. AND in the event that any party wishes to apply for a different order or orders as to costs 5. THE COURT GRANTS LEAVE to any party to file and serve a Notice of Motion returnable for 9:30am on 29 March 2010 or such earlier date as the parties may agree. AND 6. THE COURT DIRECTS that any such Notice of Motion, together with Written Submissions in support of the orders proposed therein, be served on the other parties not less than two clear business days before the return date shown in the Notice of Motion.' 4 The third respondent was dissatisfied with the order as to costs that was proposed and filed his Notice of Motion of 24 March 2010 seeking more favourable orders. That Notice of Motion was made returnable before the Court on 29 March 2010. On 29 March 2010, the orders as to costs in favour of the fourth and fifth respondents were finalised. In relation to the third respondent's costs, a number of orders and directions were made, prefaced by the words, 'THE COURT'. These orders and directions were relevantly as follows: '1. Orders that the third respondent's Notice of Motion in respect of costs filed 24 March 2010 be stood over for final hearing on Monday 23 August 2010 at 10:15am. 2. Directs that the third respondent file a copy of his written submissions on or before 1 April 2010. 3. Directs that Mr Kalde, solicitor, advise the applicant in writing of the adjourned date for final hearing of the third respondent's Notice of Motion, providing him with a copy of the Notice of Motion and any affidavit material that may be filed and served in support of the Notice of Motion by the third respondent. 4. Directs the third respondent to file and serve such affidavits as he may be advised on or before Friday 30 April 2010. 5. Notes that Mr Kalyk and Mr Kalde undertake to cause Notices of Appearance to be filed and served on their respective behalves on or before Friday 9 April 2010. 6. Directs the applicant, Mr Kalyk and Mr Kalde to file and serve such affidavits as they may wish to rely upon on the hearing of the third respondent's Notice of Motion on or before Friday 28 May 2010. 7. Directs the third respondent to file and serve any affidavits in reply on or before 11 June 2010. … 9. Orders that Order 2 as proposed on 15 March 2010 be set aside. … 11. Orders that the costs of the third respondent be reserved for determination on the hearing of the third respondent's Notice of Motion filed 24 March 2010. … 13. Grants leave to all parties to the third respondent's Notice of Motion filed 24 March 2010 to issue and serve such Notices to Produce and Subpoenas as they may be advised provided that they are served no later than Friday 16 April 2010. 14. Directs that the applicant, Mr Kalyk and Mr Kalde file such written submissions in relation to the Notice of Motion as they may be advised on or before Friday 4 June 2010.' 5 Neither Mr Kalyk nor Mr Kalde filed any affidavits within the time required by the directions, nor did they file any written submissions on or before the prescribed time. In the court's reasons for judgment (see McNamara v San (No. 3) (2010) 183 FCR 328) it was held that the applicant lacked standing to seek relief directly, under ss 120 and/or 121 of the Bankruptcy Act. It was also held that the applicant lacked standing to seek declaratory relief as to the rights of the fourth and fifth respondents to secure relief under one or other of those sections. The Court was of the opinion that the applicant had no reasonable prospect of successfully prosecuting the proceeding, and that judgment should be given for each of the third, fourth and fifth respondents in relation to the whole thereof. 6 In relation to costs, the Court said, at [104] – [105]: '104 Whilst there has been some suggestion that an order for costs might be sought against the solicitors for the applicant, it seems to me that the appropriate order as to costs would be one requiring the applicant to pay the costs of the third, fourth and fifth respondents. In addition, in the case of the fourth and fifth respondents it would seem to me that special circumstances exist warranting an order that their respective costs be paid on an indemnity basis as from 25 September 2009, the date upon which the solicitors for the applicant declared that they were of the view that their client had an arguable case in terms of the requirements of s 121(1) of the [Bankruptcy] Act, notwithstanding clear advice from the trustees' side of the record to the contrary (see generally Gersten v Minister for Immigration & Multicultural Affairs [2001] FCA 260 at [19]). I have considered only allowing one set of costs to the third, fourth and fifth respondents, but have reached the conclusion that the unwillingness of the applicant to yield to a commonsense outcome militates against the adoption of such an approach. Each respondent was required to address his own respective case. 105 What I propose to do is to make an order for costs in the terms indicated, on the basis that the relevant order may not be entered for a period of 14 days or further order of the Court, so that, if any party wishes to make a submission to the effect that a different costs order should be made they will be afforded an appropriate opportunity to do so. I will direct that any application for a different order as to costs be supported by the filing of a written submission advancing reasons as to why such order should be made. By proceeding in this way it may be possible to spare the parties further costs in bringing this matter to finality.' 7 Alas the Court's endeavour to save the parties further costs did not succeed. 8 Section 43 of the Federal Court of Australia Act made provision for the awarding of costs against a party's lawyer and for the award of costs on an indemnity basis. Section 43(3) relevantly provided: '43(3) Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following: … (f) order a party's lawyer to bear costs personally; (g) order that costs awarded against a party are to be assessed on an indemnity basis or otherwise.' 9 Further power in respect of a legal practitioner's liability for costs is to be found in Order 62, rule 9 of the Federal Court Rules. Without limiting the general power in rule 9(1), rule 9(2) detailed circumstances where an order under the rule was appropriate. It relevantly provided: '9(2) … a lawyer is taken to be responsible for a default under [sub-rule (1)] if a proceeding cannot conveniently proceed, or can proceed only with the incurring of extra costs or with inconvenience to the Court or another party to the proceeding, because of the failure of the lawyer: (a) to attend before the Court in person or by proper representative; or (b) to file any document that ought to have been filed; or (c) to deliver for the use of the Court any document that ought to have been so delivered; or (d) to be prepared with any proper evidence or account; or (e) to comply with any provision of these Rules or any judgment or order or direction of the court; or (f) otherwise to proceed.' 10 The more general provision to be found in rule 9(1) was expressed as follows: '9(1) Without limiting the Court's discretion to award costs in a proceeding, if costs are incurred improperly or without reasonable cause, or are wasted by undue delay or by any other misconduct or default, and it appears to the Court that a lawyer is responsible (whether personally or through a servant or agent), the Court may, after giving the lawyer a reasonable opportunity to be heard, do any of the following: … (c) direct the lawyer to repay to the client, costs which the client has been ordered to pay to another party; …' 11 The fact that a party may be found to have no reasonable prospect of successfully prosecuting a proceeding provides no foundation for an order that that party's lawyer bear costs personally. Even a finding that a proceeding is hopeless or bound to fail will not of itself warrant the making of an order against a party's lawyer, although matters of degree may have some bearing. 12 In White Industries (Qld) Pty Limited v Flower & Hart (1998) 156 ALR 169 ('White Industries') at 239 Goldberg J said: 'This analysis of the cases [which his Honour considered] makes it clear that the jurisdiction to order costs against an unsuccessful party's solicitors is enlivened when they have unreasonably initiated or continued an action when it had no or substantially no prospects of success, but such unreasonableness must relate to reasons unconnected with success in the litigation or to an otherwise ulterior purpose or to a serious dereliction of duty or serious misconduct in promoting the cause of and the proper administration of justice. Further, the cases establish the proposition that it is a relevant serious dereliction of duty or misconduct not to give reasonable or proper attention to the relevant law and facts in circumstances where if such attention had been given it would have been apparent that there were no worthwhile prospects of success.' 13 Goldberg Js decision in White Industries was considered by a Full Court of this Court, comprising Wilcox, Burchett and Tamberlin JJ, in Levick v Commissioner of Taxation (2000) 102 FCR 155. In expressing the Court's conclusions in that case at [44] their Honours said: '… it is … important to uphold the right of a court to order a solicitor to pay costs wasted by the solicitor's unreasonable conduct of a case. What constitutes unreasonable conduct must depend upon the circumstances of the case; no comprehensive definition is possible. In the context of instituting or maintaining a proceeding or defence, we agree with Goldberg J that unreasonable conduct must be more than acting on behalf of a client who has little or no prospect of success. There must be something akin to abuse of process; that is, using the proceeding for an ulterior purpose or without any, or any proper, consideration of the prospects of success.' (Emphasis added) 14 French J, as his Honour then was, considered the legal principles governing awards of costs against legal practitioners in Ex Christmas Islanders Association Inc v The Attorney-General for the Commonwealth (No 2) [2006] ALR 97 (the 'Christmas Islanders case'). His Honour reviewed a number of authorities including Kumar v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 133 FCR 582. In that case Mansfield J rejected an application for costs made by the Minister against the solicitor for the applicant. His Honour held that, simply by instituting or maintaining, on instructions, proceedings with no real prospect of success, a solicitor would not be exposed to an order for costs. Mansfield J referred to an observation of Lord Hobhouse in Medcalf v Mardell [2003] 1 AC 120 at [12] as follows: 'So it is not enough that the court considers that the advocate has been arguing a hopeless case. The litigant is entitled to be heard; to penalise the advocate for presenting his client's case to the court would be contrary to the constitutional principles to which I have referred. The position is different if the court concludes that there has been improper time-wasting by the advocate or the advocate has knowingly lent himself to an abuse of process.' 15 Mansfield J said that the proper focus was firstly upon whether the solicitor for the applicant was shown to have been 'seriously derelict in his duty by failing to give reasonable attention to the relevant law and facts before the institution of the application.' His Honour continued by saying at [26]: 'By instituting the proceedings on instructions, but without fully investigating the claims to be made, the solicitor for the applicant is not necessarily shown to have committed a serious dereliction of duty.' 16 In the Christmas Islanders case, French J observed that the way in which the application was formulated and the argument presented indicated not merely the presentation of an unarguable case. His Honour continued at [21]: '… It indicated a failure to discharge the practitioner's basic duty to consider the legal issues which should have been considered before the application was prepared and filed and before argument on it was presented to the Court.' At [22] his Honour said: '… A costs order may be made under s 43 of the Federal Court Act or O 62 r 9 when the solicitor or counsel has so failed in the duty to give proper consideration to the legal and/or factual questions involved in the preparation and presentation of an application as to be seriously derelict in his or her duty to the client and/or to the Court. There is no relevant distinction here between the position of solicitor and barrister whether in a divided or a fused profession.' 17 In an affidavit sworn 20 August 2010, which has been read on the hearing of the present motion, Mr Kalde said: '12. I sought advice from Mr Frank Kalyk of Counsel in relation to the Applicant's prospects and I received certain advice from Mr Kalyk. As a result of that advice, I continued to pursue the application. 13. I understand that Mr Kalyk had obtained Senior Counsel's advice on an informal basis. 14. From my own research and numerous discussions with Mr Kalyk, I formed the view that the approach being taken, whilst novel, was not contrary to any direct line of authority, and was arguable. 15. During the course of the proceedings, I was not appraised of any direct line of authority suggesting that the Application was hopeless or without merit, by any of the other parties' representatives.' 18 I hasten to observe that the fourth and fifth respondents certainly made it known to the applicant that they considered the application to be misconceived. 19 In an affidavit sworn by Francis Gary Kalyk on 20 August 2010, he said: 12. … I sought the views of [senior counsel], whose opinion I highly regard. I visited [senior counsel] in his room for this purpose. We spent about a half hour discussing the issue [as to the standing of the applicant to seek the relief sought in the application] and conducted some, but not an exhaustive review of authorities. At the conclusion of our discussions, [senior counsel] advised me that he considered that I had a reasonable basis for argument that a creditor had standing in the circumstances advanced by [the applicant]. 13. [Senior counsel]'s views were supportive of the standing of [the applicant] to proceed as he had sought to do, and to the best of my recollection I indicated to him that his comments did not lead me to conclude that I should not continue the Application on behalf of [the applicant]. I so advised Mr Kalde. 14. [Senior counsel] lastly referred me to public interest matters in which standing to seek declaratory relief had been considered and expressed the view that I should look to such authorities for support. 15. In all the circumstances, after having given the matter considerable thought and after significant research, I considered [the applicant] to have reasonable prospects of success. 20 Having regard to the manner in which the applicant's case on the summary dismissal application was conducted, I have no doubt that Mr Kalyk was industrious in his preparation of his client's case. 21 The fact that Mr Kalyk's industry may not have revealed to him the weakness of his client's case, or the lack of a proper case, does not, in my opinion, warrant the making of an order for costs against Mr Kalyk. The same goes for Mr Kalde. In my opinion, this is not a proper case for an order to be made such as that proposed in paragraph 2 of the third respondent's amended Notice of Motion. 22 This brings me back to the proposed Order 1. It must be recalled that consideration was given to only allowing one set of costs to the third, fourth, and fifth respondents who had joined together in bringing the application for summary dismissal pursuant to s 31A(2) of the Federal Court Act. 23 Orders for costs have been made in the fourth and fifth respondents' favour, and those costs have been ordered to be paid as from 25 September 2009 on an indemnity basis. It was on 25 September 2009 that the solicitors for the applicant wrote to the solicitors for the fifth respondent asserting that their client had an arguable case in terms of the requirements of s 121(1) of the Bankruptcy Act, notwithstanding the letter from the solicitors for the fifth respondent to the applicant's solicitors of 17 September 2009 in which the solicitors for the fifth respondent wrote: '1. Our client will not consent to the relief sought by your client in the proceedings. We have previously outlined to you in correspondence and in communications with your Counsel that the Application made by your client has no legal basis and little or no prospects of success. In the same circumstances we offered to consent to an Order that the proceedings be discontinued with no Order as to costs. Your client ignored such offer. 2. We note that your client is attempting to usurp the powers of the trustee in circumstances where your client expects to be able to conduct proceedings in the name of the Trustee and without giving any indemnity for costs. Your client does not appear to have assets to give such indemnity or satisfy any Costs Order. 3. We give you notice that in circumstances where the claims have little or no prospects of success and do not appear to have any reasonable legal grounds of being pursued that our client will consider pursuing an Application that the partners of your firm pay our client's legal costs in the event a Court takes a similar view as to merits of the Application and in the event your client does not have the financial resources to satisfy any Costs Order. A copy of this letter and previous correspondence will be tendered to the Court in support of an Application that your client pay our client's costs on an indemnity basis and also possibly your firm.' 24 The relevant principles to be observed in respect of costs are conveniently summarised in the judgment of Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 230-234. In Gersten v Minister for Immigration and Multicultural Affairs [2001] FCA 260 at [19] a Full Court consisting of Lee, Carr and Sackville JJ said: 'If an action is commenced when proper advice would indicate that the proceeding has no prospect of success, a discretion to award indemnity costs is ordinarily enlivened.' 25 Whilst it would be open to the Court to order indemnity costs in the circumstances of this case in favour of the third respondent, I am not disposed to do so. The third respondent is entitled to an order for the payment by the applicant of his costs on a party and party basis. It must be remembered that the third respondent was a party to the summary dismissal application that was properly a matter for the fourth and fifth respondents to address, as they did. In my opinion, a special order for costs is not warranted. 26 In the circumstances, the order as to costs that I propose to make in the proceedings is an order that the applicant pay the third respondent's costs. 27 In relation to the motion as amended, the applicant in the motion, namely, the third respondent, has failed to secure a more favourable order as to costs. Accordingly, the motion should otherwise be dismissed and the third respondent should be ordered to pay the costs of the respondents brought into the matter in the motion, namely Mr Kalde and Mr Kalyk. No order as to costs is sought by Mr McNamara, the applicant in the proceedings, who has appeared in person. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham. Associate: Dated: 1 September 2010