FEDERAL COURT OF AUSTRALIA Young v Hughes Trueman Pty Ltd (No 5) [2017] FCA 690 File number: NSD 920 of 2016 Judge: BROMWICH J Date of judgment: 19 June 2017 Catchwords: PRACTICE AND PROCEDURE – application for recusal – application made in relation to hearing of special costs application brought against solicitors for unsuccessful party in earlier proceedings – principles on recusal – held: application dismissed – held: independent decision for recusal Cases cited: ALA15 v Minister for Immigration and Border Protection [2016] FCAFC 30 Deputy Commissioner of Taxation v Levick [1999] FCA 1580; 168 ALR 383 Helljay Investments Pty Ltd v Deputy Commissioner of Taxation [1999] HCA 56; 166 ALR 302 Kennedy v Secretary, Department of Industry (No 2) [2016] FCA 746 Levick v Commissioner of Taxation (2000) 102 FCR 155 Young v Hughes Trueman Pty Ltd [2016] FCA 1176 Young v Hughes Trueman Pty Ltd (No 2) [2017] FCA 87 Young v Hughes Trueman Pty Ltd (No 3) [2017] FCA 235 Young v Hughes Trueman Pty Ltd (No 4) [2017] FCA 456 Date of hearing: Determined on the papers Date of last submissions: 21 April 2017 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 32 Counsel for the Applicant: The Applicant did not appear Counsel for the Respondents: Mr S Gray Solicitor for the Respondents: Kennedys Solicitor for the Others: L C Muriniti & Associates ORDERS NSD 920 of 2016 BETWEEN: MARGO YOUNG Applicant AND: HUGHES TRUEMAN PTY LTD First Respondent STEPHEN JOHN PERRENS Second Respondent L C MURINITI & ASSOCIATES Other LEONARDO CARLO MURINITI Other ROBERT DUANE NEWELL Other JUDGE: BROMWICH J DATE OF ORDER: 21 APRIL 2017 THE COURT ORDERS THAT: 1. The interlocutory application dated 11 April 2017 (but filed on 10 April 2017) for recusal of Justice Bromwich from hearing the interlocutory application for a special costs order dated and filed 21 November 2016 be dismissed. 2. The costs of the April 2017 recusal application be costs of the special costs application. THE COURT NOTES THAT: 3. On 21 April 2017, Justice Bromwich independently recused himself from hearing the special costs application. 4. Justice Bromwich will deliver reasons for recusal after the special costs application has been heard and determined. 5. The hearing of the special costs application was confirmed for hearing on 27 April 2017, but before Justice Lee. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BROMWICH J: 1 On 21 April 2017, I dismissed an application that I recuse myself from hearing a special costs application listed for hearing on 27 April 2017. I then independently, and for different reasons, considered whether I should recuse myself and decided that I should. The following are my reasons for both decisions. The hearing of the special costs application was confirmed for 27 April 2017, but before Lee J. Background 2 On 30 September 2016, I dismissed an application for an extension of time to file a notice of appeal from orders by the Federal Circuit Court of Australia dismissing an application to set aside a bankruptcy notice: Young v Hughes Trueman Pty Ltd [2016] FCA 1176 (September judgment). I ordered the applicant, Ms Young, to pay the respondents' costs. I also directed the Registrar to send a copy of the September judgment to the Legal Services Commissioner because of the conduct of the two lawyers who had run the unsuccessful application before me, as detailed in that judgment. 3 At the time of delivery of the September judgment, the successful respondents applied for leave to bring an application for a special costs order in lieu of the costs orders made on that day. I granted that leave. The special costs application was dated and filed seven weeks later, on 21 November 2016. That special costs application was listed for a case management hearing on 6 December 2016. Separate applications by Ms Young, and by her lawyers and her lawyers' law firm (the Solicitors), to stay that application were heard on 9 February 2017. An application apparently brought on behalf of Ms Young to adjourn the hearing of the stay applications was refused ex tempore and revised reasons subsequently published: Young v Hughes Trueman Pty Ltd (No 2) [2017] FCA 87. The stay applications were dismissed in a reserved judgment and the hearing date for the special costs application on 27 April 2017 was confirmed: Young v Hughes Trueman Pty Ltd (No 3) [2017] FCA 235 (stay judgment). 4 During the course of the hearing of the stay applications on 9 February 2017, I made mention of there being a reference to the question of whether I should hear the special costs application. I was referring to the 6 February 2017 submissions for Ms Young seeking an adjournment of the hearing of the applications to stay the special costs application, in which it was said that an application for me to recuse myself might be made if the stay was not granted. I indicated that while I was presently inclined to hear the costs application, recusal applications had to be taken very seriously and not either lightly acceded to or lightly rejected. Nothing further came of that suggestion for another two months. 5 On 3 April 2017, the Solicitors, by letter to my associate, foreshadowed a recusal application being made. That application was dated 11 April 2017 (but filed a day earlier on 10 April 2017), preceded by 6 April 2017 written submissions. Those submissions mostly address the special costs application, but also raise apprehended bias because of the way in which the findings made on 30 September 2016 were expressed. On 10 April 2017, an affidavit in support was sworn and filed, annexing the September judgment and a further copy of the 6 April 2017 submissions. While the recusal application was, on its face, made on behalf of Ms Young, it became apparent by the submissions and affidavit filed, as well as subsequent events discussed below, that the recusal application was in fact brought on behalf of the Solicitors. Principles and issues on special costs applications against solicitors 6 Before turning to the competing submissions on recusal, it is convenient to set out the legal position in relation to special costs applications against solicitors and the issues which therefore arise for determination in this special costs application. 7 There is precedent for a judge of this Court in bankruptcy proceedings both to dismiss a debtor's action and to award indemnity costs against the debtor's solicitors. In Deputy Commissioner of Taxation v Levick [1999] FCA 1580; 168 ALR 383, a solicitor acting for a debtor, Mr Levick, filed a notice of intention to oppose a creditor's petition on grounds that were later found to be spurious. Prior to the hearing of the petition, the petitioner successfully applied to have Mr Levick joined as a party and sought indemnity costs against him. Counsel for the debtor sought a ruling on the costs application first, which, not surprisingly, was refused upon the basis that the issues raised in the grounds opposing the petition had to be ruled upon first. The grounds advanced were not the subject of any oral submissions on behalf of the debtor prior to the making of the sequestration order. Hill J therefore made the sequestration order without opposing submissions and then dealt with the costs application, at which time each of the grounds were found to be entirely without merit. 8 There is nothing in the Levick judgment to suggest that, had the grounds been argued in opposition to the making of the sequestration order rather than in relation costs application, Hill J would not still have ruled upon those grounds, still made the sequestration order, and then relied upon those findings in order to make the indemnity costs order against Mr Levick. 9 Hill J in Levick was careful to emphasise the distinction between an argument that does not succeed and one that justifies a third party costs order: see 390 [15]. Prior to considering the merits of the grounds that Mr Levick had advanced, Hill J considered authority as to when a solicitor could be made liable for costs in proceedings in which that solicitor's client's case had failed: see 389-391 [9]-[17], including the reference to Helljay Investments Pty Ltd v Deputy Commissioner of Taxation [1999] HCA 56; 166 ALR 302 at 310-11, in which Hayne J declined to recuse himself by reason of prior adverse decisions in cases that were factually similar, and made a third-party indemnity costs order (albeit that the third party was not a solicitor). 10 The Full Court upheld Hill J's costs order: Levick v Commissioner of Taxation (2000) 102 FCR 155 at 162-7 [29]-[50]. The Full Court applied prior authority to the effect that clients are free to reject advice and insist on litigating hopeless cases, and that it is rarely, if ever, safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved. As a practical matter, a trial judge will usually have to form an adverse view on the merits of the case before it becomes a special costs case, even if that outcome might be anticipated by the successful opposing party. The Full Court did not cast any doubt on the propriety of Hill J hearing the costs application. The Full Court's decision in Levick was cited by the Solicitors and accepted as binding authority in this area. 11 Although I would not regard the categories as being closed, the Full Court in Levick at 159 [17] quoted Hill J's reference to the case having no chance, or perhaps no real chance, or being untenable. The absence of merit in the failed case is a practical precondition for the special costs application to be made at all, although that may or may not have featured in a prior judgment as it has in this case. 12 The question of whether the application before me was properly brought has already been decided. No application for special leave to appeal to the High Court has, to my knowledge, been filed, despite this being raised by me at the 9 February 2017 stay application hearing: see stay judgment at [10]-[11]. Given Ms Young's bankruptcy status that is now unlikely to take place. 13 An application for constitutional writs has been brought in relation to the September judgment, but as I concluded in the stay judgment at [21], that seems to be devoid of merit, not least because no jurisdictional error is identified, let alone demonstrated as possibly existing. In those circumstances, the findings made in the September judgment stand as much for any other judge who might hear the special costs application as for me in hearing it, subject to any evidentiary impediments standing in the way of reliance on the prior judgment being used to establish any necessary facts. The question for determination on the special costs application was not whether the case as brought was devoid of merit – that has already been effectively determined – but whether the Solicitors should be liable for the costs of the respondents (and now special costs applicants) for running such a case on behalf of their client. Principles on recusal 14 Merely reaching an adverse view of the merits of a case, even if firmly expressed, does not necessarily, or even ordinarily, preclude a judge determining the next stage of the same proceedings. Damages hearings routinely follow determination of liability; in the criminal jurisdiction sentences follow determinations of guilt (including in cases by way of trial by judge alone). In any court where costs may be awarded, including in particular indemnity costs, the way in which a case was run will fall to be assessed against the backdrop of an unfavourable prior decision which may go to the heart of the decision to be made. It simply cannot be the case that in such situations a new judicial officer is required as a matter of course for that last stage. The focus must be on a proper basis for recusal. 15 The key authorities on recusal were helpfully summarised by Flick J in Kennedy v Secretary, Department of Industry (No 2) [2016] FCA 746 at [15]-[21], with a particular focus on the basis for supposing that a judicial officer cannot bring an impartial mind to bear on the issue to be determined, not merely whether any prior adverse view of relevance has been expressed. The test for recusal was succinctly stated by the Full Court in ALA15 v Minister for Immigration and Border Protection [2016] FCAFC 30 at [35] as follows: … whether a fair-minded and appropriately informed lay observer might reasonably apprehend that the Court might not bring a fair, impartial and independent mind to the determination of the matter on its merits. 16 Relevant to this situation, the recusal issue was whether I could bring an impartial mind to bear on the role and responsibility of the Solicitors in running the prior unsuccessful litigation before me when it came to determining the special costs application. I return to this question below. The Solicitors' recusal submissions 17 The submissions made by the Solicitors address both the substance of their response to the special costs application and the recusal application. The latter received only a passing reference in the 57 paragraphs of submissions filed by the Solicitors. 18 The recusal complaint outlined in the submissions was as follows (footnotes omitted, emphasis added): 20 The Respondents open their submissions by rehearsing the many peculiarly adverse and pejorative statements made in the course of the September Judgment ("the Critical Statements"). It is material to state at this stage that the Lawyers' position is that the Critical Statements analysed in their material context support inter alia a reasonable apprehension of bias. … 22 The unfairness [in the special costs applicants relying on the reasons in the September Judgment for the special costs application] flows from the fact that no reasons whatever have been provided for the Critical Statements in the September Judgment about the "Conspiracy Allegation". That entire absence of reasons informs the context in which it is submitted that the Critical Statements underwrite a reasonable apprehension of bias. … 32 It is submitted that the judgment of Bromwich J. contains no reasons at all. [Noting that this complaint also appeared to be made in relation to the special costs application.] … 52 The matter is complicated by the fact that many of the observations in the September Judgment are expressed in pejorative and extravagant language. It is plain that they carry with them the inevitability of serious damage to the reputations of the Lawyers and to their practical ability to act for their client. A fair-minded observer would be more than alarmed. It is always possible that in some (materially undisclosed) circumstances the Critical Statements in the September Judgment might be fair comment. At the same time, even then the relentless repetition of those statements, in ever more gothic formulations, would seem to a fair-minded observer unnecessary and raising a need for an explanation for that reason alone. 53 The real difficulty is that a fair-minded observer knowing (as he must) that reasons are a necessary hallmark of a judicial decision would conclude that the pejorative and extravagant findings or observations have a life of their own not anchored in the facts. For this reason, and because reasons are not given at all, such an observer would conclude that the judgment reflected a rush by Bromwich J. to vindicate a pre-conceived view of the so-called conspiracy allegation. Further, that that pre-conceived view appears to be generated on the foundation of equally unsupported findings of Sheahan J. of the Land & Environment Court. In the circumstances, for the application to proceed and be determined on the basis of the findings in the September Judgment would heap perception of bias on perception of bias and miscarriage of justice upon miscarriage of justice. 19 For clarity, the "Critical Statements" first mentioned in [20] of the Solicitors' recusal submissions refer to extracts from the September judgment in the submissions in chief by the special costs applicants. The extracts were of findings in relation to the conspiracy allegation and findings in relation to the conduct of the Solicitors, including [93] and [94] of the September judgment which provided for a referral of the September judgment to the Legal Services Commissioner in relation to the conduct of the Solicitors. 20 So expressed, the above extract from the Solicitors' recusal submissions constitutes the totality of the arguments made in writing for recusal. At no point is the test for recusal properly described or addressed by the Solicitors. The substance of the case for recusal, apart from an obscure objection to the language used, was that the adverse conclusions on the case advanced on behalf of Ms Young were not available on the evidence and the conclusions in the September judgment may harm the reputation of the Solicitors. In the circumstances of this case, those are not proper grounds for recusal. 21 Curiously, the Solicitors assert at [54] of their submissions, moving on from the question of recusal, that the prior findings in the September judgment "would not address the essential matter upon which [their] proposed liability turns", being the existence of the alleged conspiracy, because consideration had to be given to what was said to be 15 folders of evidence, and 235 pages of submissions, served on the present respondents in 2015 in New South Wales Land and Environment Court (NSWLEC) proceedings. It should be recorded expressly that such evidence and submissions were not before this Court, at least in full, because there was not that volume of evidence or submissions before me at the hearing of the (unsuccessful) application for an extension of time in which to appeal from the Federal Circuit Court decision refusing to set aside the bankruptcy notice issued against Ms Young which resulted in the September judgment. 22 The material that was before me is described in [54] of the submissions now made as a "small sample of evidence". The substance of that submission is to be contrasted with an earlier submission made by the Solicitors at [23] that "[t]he necessary forensic election made by the Applicant was to present a very small sample of the evidence in her possession…". Accordingly, the complaint in [54] appears to lament a forensic decision made by the Solicitors, on instructions from Ms Young, rather than providing any support for the recusal application or in resisting the special costs application. The special costs applicants' submissions 23 The special costs applicants' (successful respondents following the September judgment) submissions on recusal may be summarised as follows: (1) The recusal application was brought in the name of Ms Young but the only submissions filed were on behalf of the Solicitors. (2) The basis of the recusal application does not appear in the recusal application and is not fully developed in the Solicitors' submissions. (3) The Solicitors' submissions mingle the basis for the recusal application with their opposition to the special costs application. (4) The special costs application is not a separate proceeding but rather is an interlocutory dispute arising out of the same proceedings. (5) The elements of the test for a reasonable apprehension of bias had not been made out by the Solicitors. Consideration of recusal application 24 The recusal application as brought and argued does not identify any proper basis for asserting that an impartial mind cannot or would not be brought to the task at hand. It rises no higher than objecting to adverse findings being made in the September judgment, and the way in which they were expressed. Ultimately, the recusal submissions on behalf of the Solicitors appeared to be an alternative frontier for attempting to resist the special costs application, following the unsuccessful attempts at a stay and adjournment of the hearing of that application. Given the absence of any coherent basis for recusal being advanced, it follows that the recusal application as brought should fail. However that is not the end of the matter. Rationale for independent recusal 25 Once I had received the submissions from the Solicitors and had read them, I felt compelled to consider whether I should, on my own initiative, recuse myself. I considered that I should for the following reasons. 26 The Solicitors' submissions on the special costs application and recusal application are the first made when they are acting for themselves (having ceased to retain counsel and solicitors previously acting on their behalf) and not on instructions for Ms Young. They are the first submissions which can therefore be seen to reflect their own views, and not merely those of their client. They were put before me not just as filed submissions, but also as evidence annexed to an affidavit of one of the Solicitors. Prior to those submissions, the Solicitors may have advanced arguments as to why they ran the case as they did and how they gave proper consideration to running such a case, without necessarily impinging on communications with Ms Young that were protected by legal professional privilege. Until those submissions were to hand, there was some limited room for me to conclude that: (1) the Levick test was not met when the proper distinction was drawn between the argument that did not succeed (largely being the conspiracy allegation) and an argument that justifies a special costs order; and (2) the Solicitors, however unwisely, may simply have been acting on strident instructions from their client. However, that means of retaining an open mind has been lost from my personal perspective by the form and content of the Solicitors' submissions on the special costs application. 27 The submissions made by the Solicitors on the special costs application make it clear that their position, independent of any client instructions, was that they had not just a proper case to bring on behalf of their client, but a sound and cogent case. They make repeated references to my failure and the failure of the respondents (and now special costs applicants) to analyse the "evidence" of the conspiracy. It was impossible for me to retain an open mind in the face of such absurd and inaccurate submissions. 28 The problem is that there was simply no evidence of a conspiracy for me to analyse or for the respondents to address. It may readily be observed that I am not the first judicial officer to have formed that conclusion. The conspiracy alleged before me was based on nothing more than reverse engineering of how consent orders made in the NSWLEC came to be made in 2004. The alleged conspiracy rose no higher than an assertion that nothing else can explain how Ms Young was misled as to what the settlement undertaking of her neighbours entailed by way of remedial drainage work. The lawyers still seem to think that this was a viable case to run and that they should have succeeded on behalf of their client, not just in this Court but in other courts in which in excess of 20 decisions have been made adversely to their client and with costs orders made against her. 29 In light of the above, it became impossible for me to reach any other conclusion than that, rather than the Solicitors being imprudently pushed by their client into running a misconceived case on her behalf, they actively encouraged her to run a baseless conspiracy argument, and not just in this Court. For a relatively trivial amount of money involved in the remedial work, the Solicitors appear to me to have driven their hapless client into hopeless litigation in numerous courts over many years and thereby into bankruptcy and most likely losing her house. 30 In all the circumstances, I was left without any residual capacity to bring an impartial mind to bear on the question of the competence and propriety of the conduct of the Solicitors, a fact directly in issue in the special costs application. This is not merely a matter of perception, but of my own view of how this issue should actually be determined. In those circumstances, I had no alternative but to organise for the special costs application to be heard by another judge. 31 I concluded that the question of costs of the recusal application should abide by the result of the special costs application. While the recusal application failed in the manner in which it was brought, the end result reached by different means has been the same as if it succeeded, albeit for reasons that the Solicitors almost certainly did not anticipate. 32 These reasons were not furnished to Lee J, in final form or in any draft, prior to him hearing and determining the special costs application: Young v Hughes Trueman Pty Ltd (No 4) [2017] FCA 456. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromwich. Associate: Dated: 19 June 2017