Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Rahman v Al-Maharmeh (No 2) [2021] NSWCA 151 Hearing dates: On the papers Date of orders: 21 July 2021 Decision date: 21 July 2021 Before: Meagher JA at [1]; Leeming JA at [2]; Brereton JA at [3]. Decision: (1) As between the appellant and the respondent, make no order as to costs of the proceedings in the District Court on the appellant's motion filed 3 October 2019 and the respondent's motion filed 28 August 2019, or of the proceedings in this Court, to the intent that each party bear its own costs; and (2) Pursuant to (NSW) Civil Procedure Act 2005, s 99, order that all costs and disbursements (including counsel's fees) of the proceedings referred to in order (1) be disallowed as between Prominent Lawyers and the appellant, to the intent that the disbursements (including counsel's fees) are to be borne by Prominent Lawyers. Catchwords: COSTS – Party/Party – Appeals – Appeal against refusal of leave to commence proceedings out of time – Delay attributable to appellant's solicitors – Unsatisfactory explanation for delay – Respondent opposed application and led court below into error – Costs not sought by respondent against appellant – No order as to costs between parties COSTS – Appeals – Orders against non-parties – Personal costs orders against lawyers – As between respondent and appellant's solicitors – Solicitors acted negligently – Respondent increased costs considerably by opposing application – Orders not made COSTS – Appeals – Orders against non-parties – Personal costs orders against lawyers – As between appellant and appellant's solicitors – Costs incurred without reasonable cause – Relevance of undertaking by solicitors to not seek costs against appellant – Orders made Legislation Cited: (NSW) Civil Procedure Act 2005, ss 98, 99 (NSW) Motor Accidents Compensation Act 1999, s 109 Cases Cited: Felicity, Re; FM v Secretary, Department of Family and Community Services (No 4) [2015] NSWCA 19 Kelly v Jowett (2009) 76 NSWLR 405; [2009] NSWCA 278 Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153 Rahman v Al-Maharmeh (2021) 95 MVR 394; [2021] NSWCA 31 Ridehalgh v Horsefield [1994] Ch 205; 3 All ER 848 Category: Costs Parties: Samar Abdul Rahman (Appellant) Sarah Al-Maharmeh (Respondent) Representation: Counsel: J Morris SC, G Schipp (Appellant) J Turnbull SC (Respondent) L Williams, solicitor (Prominent Lawyers) Solicitors: Prominent Lawyers (Appellant) Moray & Agnew (Respondent) K&L Gates (Prominent Lawyers) File Number(s): 2020/147838 Publication restriction: Nil Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Citation: [2020] NSWDC 129 Date of Decision: 20 April 2020 Before: Wilson SC DCJ File Number(s): 2019/190375 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] On 15 March 2021, the Court granted leave to appeal and allowed an appeal by the appellant from a refusal of her application for leave to commence proceedings after the expiration of the limitation period fixed by Motor Accidents Compensation Act 1999 (NSW), s 109. The costs of the proceedings, both at first instance and on appeal, were left unresolved in that judgment, but the Court observed that the delay in commencing proceedings appeared to be attributable to the appellant's solicitors, Prominent Lawyers ("Prominent"), and invited submissions from the parties and Prominent Lawyers as to costs, including a 'wasted costs' order under Civil Procedure Act 2005 (NSW) ("CPA"), s 99. There were three costs issues: 1. What if any costs order should be made as between the parties; 2. Whether (as sought by the unsuccessful respondent) Prominent should be ordered to pay its costs; and 3. Whether a wasted costs order should be made as between Prominent and the appellant. Held (Brereton JA; Meagher JA and Leeming JA agreeing), making no order as to costs as between the appellant and respondent, and disallowing costs as between Prominent Lawyers and the appellant: [1], [2], [27]. As to party/party costs: 1. In circumstances where the proceedings were necessitated by the appellant's default, but where the respondent contributed to the extent of the costs incurred by adopting a position of active opposition, and where the respondent did not seek costs against the appellant, no order as to costs is appropriate: [17]-[18]. As to costs orders against legal representatives: 2. The jurisdiction to make costs orders against legal representatives under CPA, s 99, should be exercised with care and discretion, and only in clear cases. It involves applying a three-stage approach of asking first, whether the representative has acted improperly, unreasonable, or negligently; second, whether such conduct caused unnecessary costs to be incurred; and third, whether it is just to make an order in all the circumstances: [22] Kelly v Jowett (2009) 76 NSWLR 405; [2009] NSWCA 278; Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153; Ridehalgh v Horsefield [1994] Ch 205; 3 All ER 848, considered. As to costs between Prominent and the respondent: 3. In circumstances where Prominent has not offered any subsequent satisfactory explanation for the delay in commencing proceedings, the conclusion that it has at least acted negligently is open, and the proceedings in the District Court and this Court were necessitated by that negligence. However, again, the respondent contributed to the extent of the costs incurred by adopting a position of active opposition, therefore it would not be just to order Prominent to compensate the respondent for the whole or any part of its costs: [21]-[23]. As to the appellant's solicitor/client costs: 4. Prominent caused costs to be incurred by the appellant without reasonable cause, and while it offered an undertaking not to seek, from the appellant, costs not recoverable from the respondent, that was only in the context of the respondent being ordered to pay the appellant's costs. It was not clear that the undertaking extended to the present scenario of there being no order as to party/party costs, and the opportunity to so extend the undertaking was not taken during the hearing. All costs and disbursements (including counsel's fees) of the proceedings in the District Court and this Court should be disallowed as between Prominent and the appellant, to the intent that the disbursements (including counsel's fees) are to be borne by Prominent: [21], [24]-[26]. Judgment 1. MEAGHER JA: I agree with Brereton JA. 2. LEEMING JA: I agree with Brereton JA. 3. BRERETON JA: On 15 March 2021 the Court granted leave to appeal and allowed an appeal by the appellant Samar Abdul Rahman from the refusal by Wilson SC DCJ of her application for leave to commence proceedings after the expiration of the limitation period fixed by (NSW) Motor Accidents Compensation Act 1999 ("MAC Act"), s 109. [1] The Court set aside the orders made by the District Court and in lieu thereof, granted leave to the appellant nunc pro tunc under s 109, to commence the proceedings instituted by her in the District Court against the respondent Sarah Al-Maharmeh by statement of claim filed in proceedings 2019/190375 on 19 June 2019. The costs of the proceedings, both at first instance and on appeal, was not resolved. I made the following observations: [2] "[92] In the course of the hearing, the appellant's lawyers were asked whether her solicitors were prepared to undertake to pay the costs of any appeal as a condition of a grant of leave to appeal. Such an undertaking was not proffered. Her counsel submitted (independently of the solicitors), that if leave to appeal were refused, the appellant would be liable to an adverse costs order but would seek indemnity from her solicitors under CPA s 99; the same would apply if leave were granted but the appeal failed; whereas if – as has eventuated – the appeal succeeded, she would seek costs of the appeal and in the court below. [93] Upon the assumption that an order for costs were made against the respondent, that would not be a complete indemnity, but would leave a solicitor-client costs component not recoverable from the respondent for which the appellant would be liable. [94] Moreover, while it may well be that the unsuccessful respondent should not be entitled to the benefit of a costs order either in this court or below, there remains a question as to whether the respondent should bear the appellant's costs, in circumstances where the view is open that responsibility for this litigation resides primarily with her solicitors, both in respect of failing to commence proceedings within time when instructed to do so, and in respect of furnishing an explanation which, though I have ultimately found it to be 'full and satisfactory', invited scrutiny because of its very economical disclosure of what the solicitors had done. [95] CPA s 99 empowers the court to make a 'wasted costs order' against a legal practitioner personally, where costs have been incurred by serious neglect, incompetence or misconduct of the practitioner, or improperly or without reasonable cause in circumstances for which the practitioner is responsible. The court may, by order, disallow the whole or any part of the costs in the proceedings, as between the solicitor and the client, or direct the solicitor to pay to the client the whole or any part of any costs that the client has been ordered to pay to any other person, whether or not the client has paid those costs, or direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party. Before such an order is made, the practitioner must first be given a reasonable opportunity to be heard. This statutory power is available in the District Court, which does not enjoy inherent jurisdiction, as well as in the Supreme Court; thus it is available not only in connection with the appeal, but also with the proceedings at first instance." 1. The Court made the following direction: [3] "Direct that any party, and Prominent Lawyers in their own right, who wishes to make submissions as to costs, including whether any order should be made under (NSW) Civil Procedure Act 2005, s 99, disallowing the whole or any part of the costs in the proceedings as between Prominent Lawyers and the appellant, lodge submissions and any supporting evidence within 14 days, and that any party wishing to respond to such submissions do so within a further 14 days thereafter." 1. (NSW) Civil Procedure Act 2005 ("CPA"), s 99(1) ("Liability of legal practitioner for unnecessary costs") applies "if it appears to the court that costs have been incurred by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible." Subsection (2) provides that, "[a]fter giving the legal practitioner a reasonable opportunity to be heard, the court may do any one or more of the following": (a) it may, by order, disallow the whole or any part of the costs in the proceedings: (i) in the case of a barrister, as between the barrister and the instructing solicitor, or as between the barrister and the client, as the case requires, or (ii) in the case of a solicitor, as between the solicitor and the client, (b) it may, by order, direct the legal practitioner: (i) in the case of a barrister, to pay to the instructing solicitor or client, or both, the whole or any part of any costs that the instructing solicitor or client, or both, have been ordered to pay to any other person, whether or not the solicitor or client has paid those costs, or (ii) in the case of a solicitor, to pay to the client the whole or any part of any costs that the client has been ordered to pay to any other person, whether or not the client has paid those costs, (c) it may, by order, direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party. 1. Subsection (6)(b) provides that "[a] party's legal practitioner is not entitled to demand, recover or accept, in the case of a solicitor, from the client, any part of the amount for which the legal practitioner is directed by the court to indemnify any party pursuant to an order referred to in subsection (2)(c)." Submissions 1. Pursuant to the direction referred to above, the Court received submissions from the appellant independently of her solicitors Prominent Lawyers ("Prominent"), from the respondent, and from Prominent. Those submissions may be summarised as follows. Appellant's submissions on costs 1. For the appellant, it was submitted that she should not be out of pocket for any costs or disbursements, in respect of both the application at first instance and the appellate proceedings. It was submitted that: 1. As to the application at first instance, if costs were awarded in her favour against the respondent, then the appellant's solicitor should be liable for any shortfall between the party/party component and the solicitor/client component, or alternatively her solicitor should not be entitled to charge beyond party/party costs. If on the other hand she were ordered to pay the respondent's costs, then she should have a complete indemnity from her solicitors; 2. As to the appellate proceedings, if the respondent were ordered to pay the appellant's costs, then the appellant's solicitor should not be entitled to charge beyond a party/party basis. If costs were not awarded in her favour against the respondent, then the appellant's solicitor should pay her costs on an indemnity basis or otherwise completely indemnify her. If the appellant were ordered to pay the respondent's costs and disbursements, then she should be indemnified by her solicitor. Respondent's submissions for a wasted costs order 1. The respondent sought an order that the appellant's solicitors personally pay the respondent's costs of the motions at first instance and of the proceedings in this Court. It was submitted that although CPA, s 99(2)(b)(ii), was not engaged, because the appellant had succeeded, the Court's supervisory jurisdiction enabled it to make a wasted costs order of the nature proposed, [4] and that the appellant's solicitors had failed to fulfill their duty to the Court in a way that had led to the incurring of unnecessary or wasted costs. [5] Prominent Lawyers' submissions on costs 1. For Prominent it was submitted that, the appellant having succeeded, she was entitled to an order for costs against the respondent. Prominent proffered an undertaking that they would not seek payment of any costs or disbursements related to the motions in the District Court or the appellate proceedings that were not recoverable from the respondent. In those circumstances, they submitted that no "disallowing order" under s 99 should be made. Appellant's further submissions on costs. 1. The appellant submitted that s 99 does not confer power to order the payment of the respondent's costs directly as against the solicitor: it was submitted that it is first necessary to decide the question of costs between the appellant and the respondent, and once that is determined, s 99 potentially authorises: 1. disallowing costs as between Prominent and the appellant; 2. ordering Prominent to pay the costs ordered to be paid by their client (the appellant) to the respondent; or 3. requiring Prominent to indemnify the appellant for any costs she might be ordered to pay the respondent. 1. It was further submitted that s 99 does not provide for the appellant's barrister's fees and other disbursements incurred before the primary judge and on appeal to be awarded against Prominent, although it was acknowledged that the general costs powers of the Court under CPA, s 98(1), extends to do so. 2. As to the first step, the appellant sought her costs against the respondent, both of the MAC Act s 109 application before Wilson DCJ and of the appellate proceedings. In the event that the Court were to decline to make costs orders against the respondent, the appellant pressed her submissions of 24 March 2021 to the effect that she should be indemnified by Prominent for any shortfall. Further, she submitted that if she were ordered to pay the respondent's costs, it should be ordered pursuant to CPA, s 99(b)(ii), that Prominent pay those costs. Respondent's submissions in reply 1. In response to the appellant's further submissions, the respondent clarified that a wasted costs order was sought in the Court's supervisory jurisdiction with respect to legal practitioners, and/or under CPA, s 98. 2. In response to Prominent's submissions, it was stated that the costs order that the respondent seeks is one to the effect that the costs of the District Court proceedings and the appellate proceedings, and nothing else, be paid by Prominent. Prominent's submissions in reply 1. Prominent's position was summarised as follows: 1. the appropriate costs order in the proceedings is that the respondent pay the appellant's costs of the hearing before Wilson DCJ, and the appellant's costs of and incidental to the appellate proceedings; 2. the alternative costs order sought in the appellant's further submissions (to the effect that Prominent indemnify the appellant in respect of any costs ordered to be paid to the respondent) does not arise; and 3. a 'wasted costs order' should not be made against Prominent in favour of the respondent. As between the appellant and the respondent 1. As to the position between the parties, while it is relevant that the appellant ultimately succeeded, it is also relevant that she required an indulgence, namely leave to commence her proceedings out of time. It is also relevant that as between the appellant and the respondent, the fault for not commencing proceedings within time lay squarely in the appellant's camp. This was not a case in which any act or omission on the part of the respondent had contributed to the failure to commence proceedings within time. The proceedings were necessitated by the appellant's default. However, while, as the respondent emphasised, the MAC Act s 109 proceedings were unavoidable once the appellant was out of time, it is also true that the respondent did not have to oppose the s 109 application, and by doing so lead the judge into error as this Court has ultimately found. The respondent, by adopting a position of active opposition, contributed to the extent of the costs incurred, including in particular the costs of an appeal. 2. The respondent did not seek an order for costs against the appellant, either in respect of the proceedings in the District Court on in this Court. In the absence of any such application, and a corresponding opportunity to respond to it, such an order should not be made. However, it does not follow that the respondent should pay the appellant's costs. The cause of the litigation was first, the appellant's failure to commence proceedings in time in the first place, and secondly, the less than ample explanation provided for that failure, which resulted in the primary judge's refusal to extend time, and thus the need for an appeal. As between the appellant and the respondent, there should be no order as to costs, to the intent that each party bear its own costs, both at first instance and in this Court. The position of the solicitors 1. That then leaves for consideration the position of the solicitors. In the principal judgment, I said: [6] "There is no doubt that in this respect, the explanation could have been fuller than it was. In particular, it could have explained why the solicitors apparently did nothing, and what was the 'miscommunication' between Mr Ilic and Mr Bazouni. However, the evidence of the appellant and Mr Ilic did provide an account of the conduct of the solicitors, to the extent that it appeared that though instructed to commence proceedings, they did nothing until after Mr Coxall had left without drafting a statement of claim; they did nothing until the appellant contacted them on 15 February; Mr Ilic reviewed the file on 26 February and drafted a statement of claim on 28 February and forwarded it to Mr Bazouni after the 4 March conference; and thereafter, despite persistent inquiries by the appellant, they appear to have done nothing until June. What the explanation did not include was an explanation as to why the solicitors failed to implement the appellant's instructions and did nothing. However, that was not a matter within the control or knowledge of the appellant personally, as distinct from her solicitors, and while her account of the conduct for the relevant period was required to cover the relevant conduct of her solicitors, that requirement did not extend to including "the actions, knowledge and belief" of the solicitors." 1. Later, after referring to the principles relevant to wasted costs orders, I continued: [7] "It is entirely conceivable that the solicitors may be able to demonstrate, by evidence and/or argument, that this is not a case in which the jurisdiction should be exercised. However, given that the Court has a right and a duty to supervise the conduct of its solicitors, that costs of litigation should generally be borne by those responsible for the litigation, and that at least on one view it might be said that the solicitors are responsible for the litigation, this is a case in which submissions should be sought as to the appropriate costs order, including whether there should be a 'wasted costs order'." 1. Despite the invitation implicit in paragraph [97] of the principal judgment, Prominent have not offered, in argument or evidence, any explanation for the events which are wholly within their knowledge or control that led to the failure to institute proceedings in time, nor why so economical an approach was adopted to providing an explanation for it at first instance. In my assessment, Prominent's egregious and unexplained failure to commence proceedings in a timely manner in accordance with their instructions, and their subsequent failure to furnish to the Court any more than the bare minimum of an explanation, were the fundamental and dominant causes for the proceedings, and the costs incurred in them. 2. The first question is whether, as the respondent submits, Prominent should be required to pay the unsuccessful respondent's costs. The jurisdiction to make such orders is to be exercised "with care and discretion and only in clear cases". [8] In considering such an application, courts apply a three‐stage approach, asking first, has the legal representative of whom complaint is made acted improperly, unreasonably, or negligently; secondly, if so, did such conduct cause the applicant to incur unnecessary costs; and thirdly, if so, is it in all the circumstances just to order the legal representative to compensate the applicant for the whole or any part of the relevant costs. [9] 3. In response to the application, Prominent have argued that there is nothing before the Court to suggest that the impugned conduct involved a breach of the relevant solicitors' duties to the Court, much less a serious dereliction of those duties; and that the respondent has not established a causal link between the impugned conduct of Prominent and the respondent's costs of the proceedings. As to the first, I am satisfied, absent any explanation from them whatsoever, that they have at least acted negligently, and that the negligence was more than mere, which suffices to engage the jurisdiction. [10] As to the second, the MAC Act s 109 proceedings, and the appeal, were necessitated by that negligence. However, the respondent chose to oppose an extension of time, and then to oppose the appeal, and to incur the costs of doing so. Had the respondent not chosen to adopt a position of active opposition, the costs would have been relatively slight. The respondent engaged in the argument, in its own interests, and by doing so considerably increased the costs that would be incurred, both by itself and by the appellant. An application for leave under MAC Act, s 109, may not infrequently be associated with negligence on the part of a plaintiff's solicitor, and defendants should not be encouraged to oppose such applications in the belief that if unsuccessful they may nonetheless recover costs from the plaintiff's solicitor. In my view, in all the circumstances of this case it would not be just to order Prominent to compensate the respondent for the whole or any part of its costs. 4. That leaves the position as between the appellant, who will not have the benefit of a costs order against the respondent, and her solicitors. It was Prominent's failure to commence proceedings in a timely manner in accordance with their instructions that necessitated the application, with the result that the appellant incurred costs of the application and the appeal, which ought never to have been required. I am therefore satisfied that costs have been incurred without reasonable cause, in circumstances for which a legal practitioner is responsible, in the sense referred to in CPA, s 99(1)(b). 5. While Prominent ultimately proffered an undertaking that they would not seek payment of any costs or disbursements related to the motions in the District Court or the appellate proceedings that were not recoverable from the respondent, that was in the context that they were proposing that the respondent be ordered to pay the appellant's costs, and it is not entirely clear that the offer of an undertaking extended to circumstances where there is to be no costs order against the respondent in favour of the appellant. No such undertaking was proffered during the hearing, when there was an opportunity and an invitation to do so. 6. While the appellant should not be required to bear the respondent's costs, she should not be out of pocket, and all costs and disbursements (including counsel's fees) of the relevant proceedings should be disallowed as between Prominent and the appellant. The intent is that the disbursements (including counsel's fees) are to be borne by Prominent. Orders 1. The following orders should be made: 1. As between the appellant and the respondent, make no order as to costs of the proceedings in the District Court on the appellant's motion filed 3 October 2019 and the respondent's motion filed 28 August 2019, or of the proceedings in this Court, to the intent that each party bear its own costs; and 2. Pursuant to (NSW) Civil Procedure Act 2005, s 99, order that all costs and disbursements (including counsel's fees) of the proceedings referred to in order (1) be disallowed as between Prominent Lawyers and the appellant, to the intent that the disbursements (including counsel's fees) are to be borne by Prominent Lawyers. ********** Endnotes 1. Rahman v Al-Maharmeh (2021) 95 MVR 394; [2021] NSWCA 31 ("Rahman"). 2. Rahman at 421 [92]-[95] (Brereton JA; Meagher JA and Leeming JA agreeing). 3. Rahman at 423 [98] (Brereton JA; Meagher JA and Leeming JA agreeing). 4. Reference was made to Re Felicity; FM v Secretary, Department of Family and Community Services (No 4) [2015] NSWCA 19 at [20] (Basten JA; Ward JA and Emmett JA agreeing). 5. Reference was made to Kelly v Jowett (2009) 76 NSWLR 405; [2009] NSWCA 278. 6. Rahman at 404-405 [41] (Brereton JA; Meagher JA and Leeming JA agreeing). 7. Rahman at 422 [97] (Brereton JA; Meagher JA and Leeming JA agreeing). 8. Kelly v Jowett (2009) 76 NSWLR 405 at 418 [60] (McColl JA; Beazley JA and Barrett J agreeing); [2009] NSWCA 278; Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300 at 320-321 [92(a)] (McColl JA; Hodgson JA and Ipp JA agreeing); [2005] NSWCA 153. 9. Ridehalgh v Horsefield [1994] Ch 205; 3 All ER 848. 10. Ridehalgh v Horsefield [1994] Ch 205 at 232-233 (Sir Thomas Bingham MR for Sir Thomas Bingham MR, Rose and Waite LJJ); 3 All ER 848; and see Re Felicity; FM v Secretary, Department of Family and Community Services (No 4) [2015] NSWCA 19 at [24] (Basten JA; Ward JA and Emmett JA agreeing). DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 July 2021