Supreme Court New South Wales Medium Neutral Citation: Dennis v Joukhador [2021] NSWSC 870 Hearing dates: 4 June 2021 Date of orders: 21 July 2021 Decision date: 21 July 2021 Jurisdiction: Common Law Before: Davies J Decision: (1) Dismiss the claim of the first plaintiff pursuant to r 13.4 Uniform Civil Procedure Rules 2005 (NSW). (2) The second plaintiff provide security for the first defendant's costs of the proceedings in the sum of $35,000 up to the conclusion of the filing and serving of evidence in the proceedings, within 14 days of the date hereof. (3) The proceedings be stayed until the security has been provided. (4) The plaintiffs are to pay the first defendant's costs of the amended notice of motion filed 23 April 2021 with the exception of costs associated with the affidavits of Vaikom Sundar Rajeev sworn 7 June 2021 and Lydia Fernandes Fogl sworn 8 June 2021, and preparation of the submissions of the first defendant of 9 and 21 June 2021. (5) Dismiss the first defendant's notice of motion filed 8 February 2021. (6) The first defendant is to pay the plaintiffs' costs of that notice of motion. Catchwords: CIVIL PROCEDURE – summary disposal – frivolous or vexatious proceedings - notice of motion seeking summary dismissal – where solicitor practised first as sole practitioner and subsequently as employee of incorporated legal practice – where both solicitor and incorporated legal practice claimed moneys held on trust for them in relation to costs – where only incorporated legal practice provided legal services to the clients – no right to the costs by the solicitor – no reasonable cause of action by the solicitor COSTS – security for costs – whether an order should be made – where evidence indicates legal entity will be unable to pay first defendant's costs if ordered to do so – application made early in the proceedings – difficulty of assessing costs to conclusion of proceedings - order for security for costs made up to conclusion of filing of evidence COSTS – security for costs – what amount should be ordered – "Chorley" exception – where issue relates to work done by employed solicitor at the solicitor's incorporated legal practice – whether abolition of the "Chorley" exception prevents employees of incorporated legal practices recovering costs Legislation Cited: Civil Procedure Act 2005 (NSW) ss 3, 56, 58 Corporations Act 2001 (Cth) s 1335 Federal Court of Australia Act 1976 (Cth) s 31A Legal Profession Uniform General Rules 2015 (NSW) r 52 Legal Profession Uniform Law (NSW) No 16a of 2014 ss 137, 138 Uniform Civil Procedure Rules 2005 (NSW) r 13.4 Cases Cited: Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; (2019) 93 ALJR 1007 Brundza v Robbie & Co (No 2) (1952) 88 CLR 171; [1952] HCA 49 Burrows v Macpherson & Kelley Lawyers (Sydney) Pty Ltd [2021] NSWCA 148 D A Starke Pty Ltd v Yard & Anor (No 2) [2020] SASC 81 Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87; [1983] HCA 25 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69 In the matter of HIH Insurance Limited (In Liquidation) (ACN 008 636 575) and others; Smith and Others v Anthony Gregory McGrath (in his capacity as Liquidator of HIH Insurance Limited (in liquidation)) and Others; Baldock and Others v Anthony Gregory McGrath (in his capacity as Liquidator of HIH Insurance Limited (in liquidation)) and Others;; De Bortoli Wines (Superannuation) Pty Ltd and Others v Anthony Gregory McGrath (in his capacity as Liquidator of HIH Insurance Limited (in liquidation)) and Others; Cuong Ly and Others v Anthony Gregory McGrath (in his capacity as Liquidator of HIH Insurance Limited (in liquidation)) and Others [2016] NSWSC 482 Hurst-Meyers v Aulich Civil Law Pty Ltd [2021] ACTSC 16 Jordan v Goldspring [2021] NSWSC 7 London Scottish Benefit Society v Chorley (1884) 13 QBD 872 Paul Ernest Simmons v Protective Commissioner of NSW also known as NSW Trustee and Guardian [2012] NSWSC 455 Shaw v State of New South Wales [2012] NSWCA 102 Spencer v The Commonwealth (2010) 241 CLR 118; [2010] HCA 28 Treloar Constructions Pty Limited v McMillan [2016] NSWCA 302 United Petroleum Australia Pty Ltd v Freehills [2020] VSCA 15 Texts Cited: Nil Category: Procedural rulings Parties: Bruce Vernon Dennis (First Plaintiff) DC Legal Pty Ltd (Second Plaintiff) Marcel Joukhador (First Defendant) Bookarelli Pty Ltd (Second Defendant) Representation: Counsel: M Castle (Plaintiffs) O Jones (First Defendant) Submitting appearance (Second Defendant) Solicitors: Watson & Watson (Plaintiffs) Vaikom Law (First Defendant) Self-represented (Second Defendant) File Number(s): 2020/355118 Publication restriction: Nil Judgment 1. The plaintiffs commenced proceedings by summons on 15 December 2020. They sought a declaration that the first defendant, Marcel Joukhador, holds trust monies deposited to the account of Thomas Joukhador Practice General Trust Account on behalf of the plaintiffs and the defendants, in connection with monies received as a consequence of a Settlement Agreement entered into between various parties. They sought an order that the first defendant provide an accounting in relation to the monies received by him in accordance with the Settlement Agreement, and an order that the first defendant pay to the plaintiffs the monies to which the plaintiffs are entitled in accordance with that Settlement Agreement. 2. The first plaintiff, Bruce Dennis, was formerly a solicitor of this Court. He practised as a sole practitioner trading as Dennis & Co from 2002 to 2009 until the second plaintiff, DC Legal Pty Ltd, was incorporated. The first plaintiff was and continues to be the sole director of the second plaintiff, and at all relevant material times he was the principal of that company when it was providing legal services. 3. The first defendant currently practises as a solicitor through Harrow Legal Pty Ltd. He formerly practised through the business name Thomas Booler and Co Lawyers. 4. The second defendant is a litigation funder, and has filed a submitting appearance in the proceedings. 5. The present proceedings arise out of costs orders and assessments made in relation to four sets of proceedings involving claims by former shareholders of HIH against the liquidators of HIH. In one of those proceedings (the Baldock proceedings) the relevant plaintiffs had previously been represented by DC Legal. Carriage of the Baldock proceedings had been transferred from DC Legal to the first defendant pursuant to Heads of Agreement entered into for this purpose between DC Legal and the first defendant on 26 June 2014. 6. Pursuant to the Heads of Agreement, it was agreed in relation to various proceedings then on foot, including the Baldock proceedings, that the first defendant would pay to DC Legal an amount equal to 50% of the profit costs received by the first defendant for the matters taken over, including the Baldock proceedings, after deduction of the amounts paid to the second defendant for its funding and other services. 7. Pursuant to a Settlement Agreement between the liquidators, the companies and the shareholders in the HIH proceedings, the sum of $2,382,000 was to be paid to the "Thomas Booler Lawyers Law Practice Trust Account", and $868,000 was to be paid to the "Harrow Legal Pty Ltd Law Practice Trust Account", presumably to recognise the two periods the first defendant practised through different companies. The plaintiffs say that they do not know if the money was paid as the Settlement Agreement anticipated, but the parties agree that in July 2020 an amount of $500,000 was paid from the Thomas Booler Trust Account to DC Legal. 8. Harrow Legal, acting for the first defendant, sought and obtained particulars of the plaintiffs' claims in the summons. The first defendant has not filed or served evidence going to the substantive issues in the proceedings. 9. On the same day the summons was issued, the plaintiffs served a Notice to Produce on the first defendant requiring production of the following documents: 1. A complete copy of Settlement Agreement between Anthony Gregory McGrath, Jason Preston, Christopher John Honey, HIH Insurance Ltd (In liquidation), FAI General Insurance Co Ltd (in Liquidation and Subject to Scheme of Arrangement); and HIH Casualty and General Insurance Ltd (in Liquidation and Subject to a Scheme of Arrangement) and the party's nominated could include on or about July 2020. 2. A copy of the clip certificate referred to in Schedule 4 to the settlement Agreement referred to in paragraph 1 executed by Bruce Vernon Dennis, DC Legal Pty Ltd and Bookarelli Pty Ltd. 3. A copy of the Thomas Booler Lawyers Law Practice Trust Account recording the receipt of monies referred to in clause 2.2(b)(i) of the Settlement Agreement referred to in paragraph 1 above. 4. A copy of the Thomas Booler Lawyers Law Practice Trust Account recording each dealing with monies referred to in paragraph 3 above after that receipt to the date of this Notice, 5. A copy of this Notice to Produce. 1. On 8 February 2021 the first defendant filed a notice of motion seeking an order that the Notice to Produce be set aside. On 17 March 2021 the first defendant filed a further notice of motion seeking that the claim made by the first plaintiff be struck out, that the second plaintiff give security for the first defendant's costs of the proceedings in the sum of $77,500.00, and that the proceedings be stayed until the security was provided. On 23 April 2021 the first defendant filed an amended notice of motion in respect of the notice of motion filed 17 March 2021, making it clear that the order sought was that the first plaintiff's claim be summarily dismissed pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW). 2. It is the motion of 8 February 2021 and the amended motion of 23 April 2021 with which this judgment is concerned. Summary dismissal Submissions 1. The first defendant submitted that, if either of the plaintiffs has any claim by reference to costs incurred in the Baldock Proceedings, it can only be a claim by DC Legal and not Mr Dennis in his personal capacity. That is because: (a) In the first of the judgments in relation to costs (In the matter of HIH Insurance Limited (In Liquidation) (ACN 008 636 575) and others; Smith and Others v Anthony Gregory McGrath (in his capacity as Liquidator of HIH Insurance Limited (in liquidation)) and Others; Baldock and Others v Anthony Gregory McGrath (in his capacity as Liquidator of HIH Insurance Limited (in liquidation)) and Others; De Bortoli Wines (Superannuation) Pty Ltd and Others v Anthony Gregory McGrath (in his capacity as Liquidator of HIH Insurance Limited (in liquidation)) and Others; Cuong Ly and Others v Anthony Gregory McGrath (in his capacity as Liquidator of HIH Insurance Limited (in liquidation)) and Others [2016] NSWSC 482), the solicitors for the plaintiffs in the Baldock Proceedings are recorded as being DC Legal and not Mr Dennis; (b) In a letter from the plaintiffs' solicitors to the first defendant dated 11 January 2021 it was said that "DC Legal acted in the Baldock Proceedings..."; (c) The Heads of Agreement were entered into between DC Legal and the first defendant, and Mr Dennis was not a party to that Agreement; (d) In an email of 7 December 2020, Mr Dennis described the costs as being settled "for DC Legal Pty Ltd", and "DC Legal Ltd was your client" in the costs settlement negotiations. 1. Ms Castle of counsel for the plaintiffs submitted that Mr Dennis has an arguable case to an entitlement to the costs. She submitted that he acted for the Baldock clients from 2002; he claimed a lien over the funds in the hands of HIH and was required to release that lien against HIH as part of the settlement agreement; and Thomas Booler and Harrow Legal acted for both him and DC Legal in settling the party/party costs claim against HIH. Ms Castle submitted that the documents show a lack of clarity about whether Mr Dennis or DC Legal was acting in the matter, so that the test for summary dismissal was not met. Legal principles 1. Rule 13.4 UCPR provides: 13.4 Frivolous and vexatious proceedings (1) If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings - (a) the proceedings are frivolous or vexatious, or (b) no reasonable cause of action is disclosed, or (c) the proceedings are an abuse of the process of the court, the court may order that the proceedings be dismissed generally or in relation to that claim. (2) The court may receive evidence on the hearing of an application for an order under subrule (1). 1. The principles to be applied on an application for summary dismissal are similar to those applied on summary judgment applications, and are well known. It would have to be found that the claim is so obviously untenable that it cannot possibly succeed or is manifestly groundless, or is one which the Court is satisfied cannot succeed, or is an abuse of process: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; [1964] HCA 49; see also Shaw v State of New South Wales [2012] NSWCA 102 at [30]-[33]. The assessment is made taking the plaintiffs' case at its highest. 2. In Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41, the plurality said at [57]: Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways [citing Dey v Victorian Railway Commissioner (1949) 78 CLR 62 at 91, and General Steel Industries], but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way. 1. In Spencer v The Commonwealth (2010) 241 CLR 118; [2010] HCA 28, a case concerned with s 31A of the Federal Court of Australia Act 1976 (Cth), French CJ and Gummow J quoted with approval what the High Court had earlier said in Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99; [1983] HCA 25: The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried. 1. In Paul Ernest Simmons v Protective Commissioner of NSW also known as NSW Trustee and Guardian [2012] NSWSC 455, Hammerschlag J said at [62]: Whilst UCPR Pt 13 r 13.4 does not expressly provide (as does s 31A of the Federal Court of Australia Act 1976 (Cth)) that a proceeding need not be hopeless or bound to fail to have no reasonable prospects of success, the combination of the inclusion of the word reasonable and the operation of s 56(2) sufficiently clearly indicates, in my view, that the approach to exercising the power to dismiss under the rule is the same as that elucidated by the High Court in relation to the federal enactment. 1. The provisions of ss 56 and 58 of the Civil Procedure Act 2005 (NSW) do not warrant any result different from that indicated by the General Steel test: Shaw at [134]. Consideration 1. An examination of the contemporaneous evidence tends to demonstrate that the entity who provided the legal services to the shareholders was DC Legal. 2. The Heads of Agreement, to which earlier reference was made, was between DC Legal (referred to as "DCL" in the Agreement) and Marcel Joukhador (referred to as "MJ" in the Agreement). It relevantly provided: 2. MJ shall take over the following current matters from DCL: a. HIH Claimants including the Baldock proceedings and HIH Note Holders/Claimants. … 3. In consideration for the taking over of the current matters referred to in paragraph 2 above MJ shall pay DCL an amount of 50% of the profit costs for the current matters received by MJ… 4. The effective date of this agreement shall be 1 July 2014 at which time the lease shall commence and DCL shall had (scil. hand) over the files and records for current matters referred to in paragraph 2 to MJ. It may be accepted that Mr Dennis signed that agreement but, as he was not a party to it, he can only have done so as the only director of DC Legal at that time. 1. Counsel for Mr Dennis tendered a number of items of correspondence passing variously between Mr Dennis, DC Legal, Thomas Booler, Harrow Legal, and Ashurst, between 2014 and 2020. The correspondence principally concerned the settlement of the issue of costs between Thomas Booler & Co on the one hand, and Ashurst, the solicitors for the liquidators, on the other hand. All but three of the documents are intractably neutral in terms of casting any light on the entitlement of Mr Dennis personally to the costs. The first two tend to support Mr Dennis's entitlement, and the third does not. 2. The first of those is a letter from Harrow Legal to Ashurst of 9 July 2019 which relevantly says: We act for Dennis & Co and DC Legal Pty Limited. Our Clients have liens for legal services rendered by them to certain Plaintiffs in the above matter [the Baldock proceedings] over the Scheme Payments payable to the Plaintiff companies… 1. The second letter from Harrow Legal to Ashurst of 19 August 2019 simply reiterates that Harrow Legal acts for Dennis & Co and DC Legal. 2. In a sense, reliance on these letters by the plaintiffs is question begging, because it needs to be ascertained from other material whether it is correct that either of those entities does have a lien for legal services. The fact of Harrow Legal acting for Dennis & Co, and asserting such a lien does not, of itself, take the matter any further. 3. The third of those letters is one on the letterhead of DC Legal Pty Ltd to Mr Scarcella and others at Ashurst dated 26 June 2014. The letter says: We enclose, by way of service the following documents:- 1. Plaintiffs who have instructed us in the above proceedings with signed authorities and fees agreements. 2. DC Legal clients who have instructed us verbally and have indicated that they are in the process of forwarding of their documentation. 3. … The letter concludes, "Yours faithfully, DC Legal Pty Ltd". 1. That letter seems to me to provide further support for the notion that the only entity having a right, or claiming a right, to the costs from the liquidators was DC Legal Pty Ltd. 2. In his affidavit of 12 May 2021, Mr Dennis said this: 3. I acted for the Baldock plaintiffs in proceedings number 345623 of 2013 ("the Baldock proceedings") referred to below as a Sole Practitioner trading as Dennis & Company from 2002 until 2009 when DC Legal Pty Ltd (DC Legal) was incorporated. I was and continue to be the sole director of DC Legal. I was the Solicitor on the record and DC Legal was the legal corporation that provided legal services to the plaintiffs in the Baldock proceedings from 2009 until July 2015. … 26. In about May 2019 I instructed Philip Madden of Thomas Booler & Company to take action to recover cost owning (sic) to DC Legal relating to services provided to various parties who were originally a plaintiff in the Baldock proceedings however, had been excluded by order of Justice Brereton. Those legal services provided by myself and DC Legal to those parties in general terms included [a number of services were then set out]. 1. In his first affidavit of 15 December 2020 Mr Dennis exhibited to his affidavit a party/party bill of costs prepared in respect of the Baldock proceedings in accordance with orders made by Brereton J on 28 April 2017. The bill claimed legal costs and disbursements of $4,824,380.75. Mr Dennis referred to the exhibit as exhibit DCB1. 2. His affidavit went on to say: 17. The amount of the compromise of legal costs of $2,382,000 was a compromise of the claim for costs in the Bill of Costs exhibited and marked "ExhDCB1". … 28. The bill of costs exhibited and marked "ExhDCB1" sets out all claims for costs sought to be made and which were thereafter compromised under the Settlement Agreement. To the extent that those costs represent legal costs, charges and expenses incurred by the plaintiffs, I consider that they should be apportioned according to the proportion that the settlement sum bears to the totality of the costs as claimed in ExhBVD1. 1. Exhibit DCB1 is a lengthy document of more than 200 pages. However, its significance is that the earliest dates for which costs and disbursements were claimed by the plaintiffs was November 2013. On the basis of Mr Dennis's statement in paragraph 3 of his affidavit of May 2021, DC Legal was the legal practice that provided legal services to the plaintiffs in the HIH proceedings after 2009, even though Mr Dennis was the solicitor on the record. 2. In an email from Mr Dennis to Mr Joukhador of 7 December 2020 Mr Dennis said: Dear Marcel, In case you forgot, The costs for DC Legal were settled for $2,380,000. You have paid $500,000 on account. … 1. After Mr Joukhador replied saying that the costs for DC Legal were not in the amount of $2,380,000, Mr Dennis emailed Mr Joukhador and said: Dear Marcel DC Legal Pty Ltd was your client. Phillip Madden was authorised to negotiate. I signed off on my own behalf and on behalf of DC Legal Pty Ltd. Your firm still acts for DC Legal Pty Ltd. 1. Those emails contain an acknowledgement that it was DC Legal which provided the legal services. 2. After the commencement of the proceedings, the solicitors for Mr Joukhador sought further and better particulars of the claims made in the summons. Question 1 asked: Please identify the legal basis on which it is said that trust monies deposited into the Thomas Booler General Trust Account is held "on behalf of" the First Plaintiff. The response was: Bruce Vernon Dennis trading as Dennis & Co performed the works prior to 2009 on the individual bills which were incorporated in the party/party bill. Bruce Vernon Dennis was a party to the settlement agreement and his permission was required to permit monies to be paid to the First Defendant's trust account, he having notified the liquidators of a claim, through Harrow Legal Pty Ltd for a fruits of the action lien. 1. What were referred to as "the individual bills" in that answer were otherwise described in exhibit DCB1 as "unique party and party bill of costs". One of those bills formed part of that exhibit, and it is apparent that the first work for which legal costs were claimed was carried out on 4 November 2013. 2. The plaintiffs submitted that the evidence of the work done by Mr Dennis from 2002 was not before the Court, but pointed to the statement in paragraph 3 of his affidavit ([28] above) to submit that he had done that work. It was Mr Dennis who put before the Court the Bills of Costs in exhibit DCB1. It was open to him to adduce evidence of the work he had done by exhibiting bills for the period 2002 to 2009. However, it is to be recalled that Mr Dennis said in his affidavit that ExhDCB1 sets out "all claims for costs sought to be made" and which were compromised under the Settlement Agreement (see [30] above). If there was evidence, contrary to what was said in his affidavit, his failure to do so enables an inference to be drawn that any further evidence would not have assisted the claim he makes. 3. In the request for particulars, question 3 asked the same question as question 1 in respect of the second plaintiff. The answer given by those acting for the plaintiffs was this: The fact that the fund of monies were monies paid pursuant to the settlement agreement being monies due to the second plaintiff in respect to the plaintiffs' cost orders in respect of the orders made on 28 April 2017 in the Baldock proceedings… . The monies were paid in accordance with clause 2.2(a)(i) and 2.2(b)(i) of the settlement agreement. These related to payments of the costs payable to DC Legal Pty Ltd and Bruce Vernon Dennis for work done by them and pursuant to their "fruits of the action lien" and were paid pursuant to the directions of the plaintiffs in the principal proceedings to and beneficially for DC Legal Pty Ltd. 1. Question 5 of the request for particulars sought clarification of paragraph 6 of Mr Dennis's affidavit of 15 December 2020. It was that paragraph which made reference to, and exhibited, exhibit DCB1. Question 5(a) asked if the first or second plaintiffs provided any instruction in relation to the drafting of the bill of costs and, if so, whether those instructions were oral. Question 5(b) asked, if the instructions were oral, what the substance of the alleged conversation was. The answer given was: The precise substance of each conversation is not known in circumstances where they given on a number of occasions over a long period of time. The nature of the conversation however led to the inclusion in the Bill of Costs of the entries recorded as representative of claims made by DC Legal Pty Ltd and is a matter of record in that document. 1. What Mr Dennis says in the affidavits he swore in relation to the present applications, and what is contained in the contemporaneous documents, demonstrates beyond any serious argument that the only party entitled to the costs arising out of the settlement agreement is the second plaintiff DC Legal. It was that entity which entered into the fee agreements and it was that entity which provided the legal services to the various claimants in the Baldock proceedings. No claims for costs have been identified prior to 2013. On Mr Dennis's own evidence, it was DC Legal that provided the legal services after 2009. 2. No reasonable cause of action is demonstrated by the first plaintiff, and the claim brought by him should be summarily dismissed. Security for costs 1. In the light of my determination concerning the position of the first plaintiff, Mr Dennis, I will only deal with security for costs on the basis that the only plaintiff is DC Legal. Submissions 1. The first defendant submitted that there were five reasons why the jurisdictional requirement is made out. First, there is no evidence DC Legal has any assets except for an amount of $100,000 in Westpac bank. Secondly, DC Legal has no active business. Thirdly, the Westpac account is controlled by Mr Dennis so that the balance in the account can be reduced. Fourthly, although $500,000 was paid to DC Legal on 13 July 2020, there is only $100,000 left in the account. Fifthly, there is no evidence about the account except between 1 April 2021 and 10 May 2021. 2. The plaintiffs submitted that there were problems with the costs estimates provided by Mr Husaini, a solicitor in the employ of Harrow Legal. These estimates were said to have been adopted by Mr Rajeev, the solicitor for the first defendant. 3. The plaintiffs relied on what was said in the High Court in Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; (2019) 93 ALJR 1007 and the cases which have followed it, to argue that the first defendant is not entitled to costs prior to the time his present solicitors commenced to act for him. 4. The plaintiffs submitted that there was no evidence of any costs agreement between the solicitors who claimed to be acting for the first defendant. Following further debate about this matter, I granted leave to the first defendant to file further evidence concerning a costs agreement which Mr Jones of counsel for the first defendant indicated had been entered into. I shall return to this matter later in the judgment. Legal principles 1. Rule 42.21 Uniform Civil Procedure Rules 2005 (NSW) relevantly provides: 42.21 Security for costs (1) If, in any proceedings, it appears to the court on the application of a defendant – … (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or … the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given. (1A) In determining whether it is appropriate to make an order that a plaintiff referred to in subrule (1) give security for costs, the court may have regard to the following matters and such other matters as it considers relevant - (a) the prospects of success or merits of the proceedings, (b) the genuineness of the proceedings, (c) the impecuniosity of the plaintiff, (d) whether the plaintiff's impecuniosity is attributable to the defendant's conduct, (e) whether the plaintiff is effectively in the position of a defendant, (f) whether an order for security for costs would stifle the proceedings, (g) whether the proceedings involves a matter of public importance, (h) whether there has been an admission or payment in court, (i) whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant, (j) the costs of the proceedings, (k) whether the security sought is proportionate to the importance and complexity of the subject matter in dispute, (l) the timing of the application for security for costs, (m) whether an order for costs made against the plaintiff would be enforceable within Australia, (n) the ease and convenience or otherwise of enforcing a New South Wales court judgment or order in the country of a non-resident plaintiff. … (2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct. (3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed. (4) This rule does not affect the provisions of any Act under which the court may require security for costs to be given. 1. Section 1335 of the Corporations Act 2001 (Cth) relevantly provides: (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. 1. In Treloar Constructions Pty Limited v McMillan [2016] NSWCA 302 Beazley ACJ said: 11 The test to be applied in determining whether an applicant has satisfied the jurisdictional requirements of s 1335 has been described as "undemanding": HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87 at [17]. In Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; [2008] VSCA 93, Maxwell P and Buchanan JA stated, at [15], that the phrase "reason to believe" in s 1335 "is the touchstone of jurisdiction. It requires a rational basis for the belief – and no more". See also HP Mercantile v Dierickx at [6]-[10]; Wollongong City Council v Legal Business Centre Pty Limited [2012] NSWCA 245 at [29]-[30]; Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65 at [16]. 12 In Livingspring v Kliger Partners their Honours further observed, at [15], that the section required the making of a risk assessment as to whether the corporation would be unable to pay, and that: "The section calls for a practical, commonsense approach to the examination of the corporation's financial affairs." 13 Relevantly, for the purposes of this case, their Honours stated, at [16], that the assessment that must be made under s 1335 is "a low threshold", reflecting the policy of the section, which is to protect a party against the risk of a corporation's impecuniosity. Maxwell P and Buchanan J stated, at [17], that the foremost consideration in determining whether to exercise the discretion conferred by s 1335 was whether "an order for security would work an injustice". 14 Specific factors that have been identified in the authorities as relevant to the exercise of the discretion conferred by s 1335 include whether the applicant's conduct was the cause of the company's impecuniosity; and whether an order for security for costs would stifle the proceedings: KP Cable Investments Pty Ltd v Meltglow (1995) 56 FCR 189 at 196-197; Pioneer Park at [48]-[51]. 15 The onus in proving that a party will be unable to pay costs ordered against it remains at all times on the party making the application: see Livingspring v Kliger Partners at [20]; HP Mercantile Pty Ltd v Dierickx at [11]. However, as discussed in Wollongong City Council v Legal Business Centre at [30], if a corporation who seeks to resist an order for security for costs, in circumstances where the applicant for security has established that there is reason to believe that the corporation will be unable to pay the costs of litigation if successful, contends that an order should not be made, for example, because it would stifle the litigation, there may be an evidentiary burden on the corporation to demonstrate that this is the case. Consideration 1. The two issues which arise in relation to security for costs are whether any order should be made and, if so, what amount should be ordered. Consideration of the second matter raises the issue of the Chorley exception [London Scottish Benefit Society v Chorley (1884) 13 QBD 872], on the basis of what was said in Bell Lawyers. (a) Should an order be made? 1. DC Legal was incorporated in 2009, seemingly to be the vehicle through which Mr Dennis conducted his legal practice. Mr Dennis has not held a practising certificate since 30 June 2015, and on 6 May 2016 orders were made for the removal of his name from the Supreme Court roll. 2. The evidence discloses that on 13 July 2020 an amount of $500,000 was paid to DC Legal in relation to the costs settlement with the liquidator. As at 10 May 2021 there remained in the Westpac Bank account of DC Legal the sum of $114,069.82. NAB holds a fixed and floating charge over all the property and assets of DC Legal. This charge was put in place on 26 May 2011. 3. In his affidavit of 12 May 2021 Mr Dennis said that DC Legal no longer banks with NAB, it is not indebted to NAB, and he has requested that NAB discharge the charge. At the time of hearing of the motions on 4 June 2021 there was no further evidence about what had been done in relation to removing that charge. 4. Since June 2015 DC Legal has had no active business. Although Mr Dennis says it has no business outgoings, it is apparent that the account at Westpac is being used to pay liabilities as they arise such as to the ATO, ASIC and for legal fees. 5. Given the rate at which the amount of $500,000 has been diminished, there is a reasonable belief that DC Legal will be unable to pay the costs of the first defendant if ordered to do so. I note, in that regard, that the only evidence about the account is one bank statement showing transactions between 1 April 2021 and 10 May 2021. 6. Mr Dennis says that he is the registered proprietor of a strata unit in Hosking Place in Sydney. No mortgage is shown on the certificate of title. However, in light of my determination that the claim by Mr Dennis should be summarily dismissed, it is significant that, although submissions filed for the plaintiffs say that Mr Dennis "has acknowledged that he would stand behind" DC Legal, and that he has unencumbered property to "support and such ability", his affidavits do not make any such offer. Nor is it satisfactory that the first defendant should have to execute a judgment against the property. No offer of a charge or mortgage was made. In any event, where DC Legal has a bank account with funds in it, that is the appropriate source for the provision of security, if it is to be ordered. 7. There is no suggestion that the proceedings will be stifled if an order is made. Nor is there any evidence that any impecuniosity of DC Legal has been caused by the first defendant. 8. In my opinion the evidence causes me to believe that DC Legal will be unable to pay the first defendant's costs if ordered to do so. The rate at which the funds placed in that account have been dissipated, and seemingly for ongoing liabilities, leads me to that conclusion. The proceedings will not be finalised until well into 2022. $500,000 was placed into the account on or about 13 July 2020. By 10 May 2021 there was only a little over $114,000 in the account, with no evidence of what had happened to $350,000 of the $500,000 prior to 1 April 2021. It is, therefore, appropriate to make an order for the provision by DC Legal of security for those costs. (b) What amount should be ordered? 1. As noted earlier, counsel for the plaintiffs submitted that the first defendant had filed no evidence of a costs agreement between him and the solicitors who claimed to be acting for him in the proceedings. Counsel for the plaintiff first submitted that it should be inferred from what the solicitor, Mr Rajeev, said, that there was an agreement by the first defendant to pay his costs. When I indicated some doubt about drawing such an inference, counsel sought leave to tender the costs agreement, although submissions had almost concluded. Counsel for the plaintiffs opposed leave being given on the basis that, without seeing the costs agreement, she did not know what might flow from its admission into evidence. She said it was possible the approach to security may have been conducted in a different manner. 2. I indicated that I was minded to grant leave to the first defendant to re-open his case to adduce the evidence of the costs agreement, but I said I would give the plaintiffs time to consider the evidence and their approach to it. 3. Counsel for the first defendant said that he was instructed the costs agreement could be obtained within 10 to 15 minutes. However, the lunch adjournment was approaching, and Ms Castle was not available after lunch. In those circumstances, I directed that the further evidence was to be served by the following Monday, and that either a further date could be appointed for further oral submissions or, if the parties, wished, they could lodge short written submissions in relation to the evidence, and I would consider those without the need for a further hearing. The latter position was adopted by the parties. 4. The first defendant filed a further affidavit of Mr Rajeev annexing the costs agreement. However, without any leave, the affidavit also contained a complete reassessment by Mr Rajeev of the costs he estimated would be incurred in defending the proceedings. In addition, and again without any leave, the first defendant filed a further affidavit from Ms Fogl reviewing those costs as an expert witness. Finally, and again without any leave, the first defendant filed submissions which, in addition to dealing with the costs agreement, contained arguments about the revised costs, and revisited the issue arising from Bell Lawyers. 5. In Jordan v Goldspring [2021] NSWSC 7 Hallen J said: 33. Parties and legal representatives should not assume that there is a right to lodge, and have considered, supplementary submissions sent to the Court after the conclusion of a contested hearing, and absent leave previously given, to that effect, even if the consent of the other party is obtained. The High Court has deprecated the provision of supplementary written material after the conclusion of oral argument, without leave. McHugh ACJ, Gummow, Callinan and Heydon JJ described doing so as "unsatisfactory" and "impermissible": NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 at 159 [192]; [2004] HCA 48 at [192]. 34. In Notaras v Waverley Council (2007) 161 LGERA 230 at 267 [147]; [2007] NSWCA 333 at [147], Tobias JA (Mason P and Hodgson JA agreeing) wrote: "As leave to file the final submissions was neither sought nor granted, authority requires that they should be ignored except for para 66 and the material to which that paragraphs refers: Carr v Finance Corporation of Australia Ltd [No 1] (1981) 147 CLR 246 at 258 per Mason J; In the matter of an application by the Chief Commissioner of Police (Vic) [2005] HCA 18; (2005) 79 ALJR 881 at 890 [53]-[54] per Kirby J; Dwyer v Commonwealth [Bank] of Australia (1995) 31 ATR 48; Kirwan v Cresvale Far East Ltd (In liq) [2002] NSWCA 395; (2002) 44 ACSR 21 at [340] per Young CJ in Eq; Chapmann v Caska [2005] NSWCA 113 at [19] per Beazley, Giles and Tobias JJA. As Mason J said in Carr and Kirby J in ex parte the Commissioner of Police, the notion that supplementary submissions can be filed without leave is misconceived and this is so even if the other party to the proceedings consents. It should not occur." 35. In Bull v Lee (No 2) [2009] NSWCA 362, although a case involving an appeal, the Court (comprising Allsop P, Campbell and Young JJA), after quoting the passage in Notaras v Waverley Council, added, at [9]: "The effect of making submissions after judgment has been either delivered or reserved, that go beyond the scope of any leave that has been granted is not confined to having those submissions ignored. Counsel should understand that it is a breach of their professional responsibilities to the Court to seek to make submissions that go outside the scope of the leave that has been granted. For counsel to act in that way seeks to undermine the important principle that, save in the most exceptional circumstances, all arguments relating to an appeal should be put at the one time. It has the capacity to cause waste of the Court's time, and both waste of time and expense for counsel's opponent in deciding what to do about the submissions that have been made without leave." 1. Although I said to counsel for the first defendant, "Mr Jones, I think you need to serve a copy of whatever other evidence you are going to serve", that statement had to be seen in the light of his application to tender simply the costs agreement. There was no suggestion that the costs were to be reviewed by Mr Rajeev or Ms Fogl. The filing of those affidavits, and the making of those further submissions were inappropriate, and should not have occurred. I do not intend to have any regard to that material. The costs of preparing that material are not to be recovered from the plaintiffs. 2. There is a further matter arising from Mr Rajeev's affidavit of 7 June 2021. In his affidavit of 2 June 2021 Mr Rajeev said: 2. On or about 22 April 2021, I was approached by the First Defendant, Marcel Joukhador, to act on his behalf in these proceedings. We also agreed to terms of our retainer to act on behalf of Marcel Joukhador. 1. In his affidavit of 7 June 2021 Mr Rajeev said: 2. In paragraph 2 of my First affidavit, I stated that I agreed to act on behalf of the First Defendant in these proceedings on 22 April 2021. This was an error for which I apologise to the Court – the correct date was 26 February 2021 3. My costs agreement was sent to the First Defendant by post on 12 March 2021. … 4. The First Defendant instructed me to act, and therefore the Costs Agreement became binding, on 22 April 2021. 1. It is difficult to see how Mr Rajeev could have sworn to what appeared in the affidavit of 2 June 2021 if he had acted with any care to ensure that what was contained in that affidavit was true. This was not simply a typographical error as can easily occur. There must have been evidence in his file of the agreement on 26 February, and of the posting of the costs agreement on 12 March. Courts ordinarily act on the basis that they can accept without question statements made by lawyers in affidavits. It behoves lawyers to act with great care when they put material before the Court, especially in affidavits. This error had the potential to affect any apportionment of costs between the time Mr Rajeev was acting, and the earlier period when Harrow Legal were acting, during which time the issue arising from Bell Lawyers must be resolved. 2. Although Mr Rajeev said in his affidavit of 7 June 2021 that the Costs Agreement became binding on 22 April 2021, the copy of the Costs Agreement annexed to that affidavit has the signature of the first defendant and the date "7/6/21". That was a date after the hearing of the first defendant's motions, and rather suggests that counsel's instructions that it could be obtained within 10 or 15 minutes on 4 June were not correct. It was not otherwise explained in what way the costs agreement became binding on 22 April. 3. The evidence of the costs estimate for the first defendant's costs of defending the proceedings, is to be found in the affidavit of Naushad Husaini sworn 17 March 2021. Mr Husaini is a senior solicitor at Harrow Legal, Mr Joukhador's firm. Reliance is also placed on an affidavit of Lydia Fogl, a solicitor who is put forward as an expert in the area of costs assessments. 4. Objection was taken by the plaintiffs to Ms Fogl on the basis of a conflict of interest. Ms Fogl was said to have acted as an expert in the interests of the plaintiffs in recovering party/party costs for them. I do not see any basis for finding a conflict of interest. Ms Fogl was an expert in both cases. The present costs being considered are not the same costs as the plaintiffs were earlier recovering. Ms Fogl's opinion does not concern opinions she may have expressed earlier. An expert owes his or her duty to the Court. Ms Castle ultimately submitted that the issue went to weight. I do not think it even impacts the weight to be given to Ms Fogl's opinion. 5. Mr Husaini estimates the costs of a one day hearing together with all necessary preparation at $49,800. He estimates disbursements at $27,700, making a total figure of $77,500. Ms Fogl has assumed that the tasks, estimates of time and disbursements made by Mr Husaini are correct. She considers the hourly rates to be charged by him and his subordinates are at the lower end of the rates ordinarily charged in these type of proceedings. She makes some adjustments to his figures, and concludes that an amount of $64,725 is likely to be allowed for professional fees and disbursements on a party/party basis. 6. Mr Husaini's breakdown of costs includes costs of $7,500 for costs incurred in relation to work performed for the present Notice of Motion. Part of the costs allowed for counsel also includes work related to the present applications. Counsel for the first defendant accepted that it was not appropriate to include costs of that work in any security ordered. In my opinion, an amount of $10,000, representing the costs of the present applications, should first be deducted from any amount awarded for security. 7. In his affidavit of 1 June 2021, Mr Rajeev says that work totalling $10,250 from Mr Husaini's estimate was work performed by Mr Husaini before Mr Rajeev commenced to act. That raises the issue from the decision in Bell Lawyers because Mr Husaini was an employee of Harrow Legal which was the first defendant's firm. Harrow Legal was an incorporated legal practice. 8. In Bell Lawyers, the High Court held (Nettle J dissenting) at [3], [63] and [93], that the Chorley exception, whereby a solicitor acting for himself or herself could recover professional fees for acting in the litigation, should not be recognised as part of the common law of Australia. The joint judgment of Kiefel CJ, Bell, Keane and Gordon JJ) then went on to deal with a submission that serious inconvenience would be caused in relation to the use of in-house solicitors by governments and corporations by the removal of the Chorley exception. 9. The joint judgment said: [50] A decision by this Court that the Chorley exception is not part of the common law of Australia would not disturb the well-established understanding in relation to in-house lawyers employed by governments and others, that where such a solicitor appears in proceedings to represent his or her employer the employer is entitled to recover costs in circumstances where an ordinary party would be so entitled by way of indemnity. [51] Whether the same view should be taken in relation to a solicitor employed by an incorporated legal practice of which he or she is the sole director and shareholder stands in a different position. It might be queried whether such a solicitor has sufficient professional detachment to be characterised as acting in a professional legal capacity when doing work for the incorporated legal practice. And it might be queried whether costs claimed by an incorporated legal practice for work of its sole director and shareholder are within the expansive view of indemnity that has been adopted in the authorities. In this regard, in McIlraith, [McIlraith v Ilkin & anor (Costs) [2007] NSWSC 1052 at [11]] Brereton J was disposed to attribute "no significance" to the circumstance that the party seeking an order for costs was an incorporated legal practice whose director was the solicitor who actually performed the work for which costs were sought. It is neither appropriate nor necessary to come to a conclusion as to whether Brereton J was correct in this regard. [52] The resolution of this question may require close consideration of the legislation which provides for incorporation of solicitors' practices and the intersection of that legislation with the provisions of the Civil Procedure Act in light of the general rule; and so the resolution of this question may be left for another day, when all the legislation that bears on the question has been the subject of argument. [53] It is sufficient for present purposes to say that whether or not an incorporated legal practice that is a vehicle for a sole practitioner should be able to obtain an order for costs for work performed by its sole director and shareholder is ultimately a matter for the legislature. Whether the Chorley exception is part of the common law of Australia is a matter for this Court. 1. Bell Lawyers was considered in the Victorian Court of Appeal in United Petroleum Australia Pty Ltd v Freehills [2020] VSCA 15. In that case Freehills acted for itself in litigation, albeit, the work was mainly carried out by employees of the firm. The Court of Appeal said that the issue flowing from Bell Lawyers was this: [95] Applying the approach of the plurality, the issue is whether a claim by a firm of solicitors to recover costs for the work of its employees fits within the general rule and is only justified under the Chorley exception, or whether it fits within the 'well-established understanding' relating to employed solicitors and stands outside the general rule. If it is the former, then as a matter of logic and principle the claim must fail once the Chorley exception was abandoned as part of Australian law. If it is the latter, then costs would appear to be recoverable on the same basis as in the case of other employed solicitors. 1. The Court of Appeal said this: Does Freehills fit within the general rule? [96] In considering the application of Bell Lawyers, it is convenient to start by repeating the general rule identified by the plurality: a self-represented litigant may not obtain any recompense for the value of his or her time spent in litigation. Under an exception to the general rule, a self-represented litigant who happens to be a solicitor may recover his or her professional costs of acting in the litigation. [97] Freehills was a self-represented litigant in the proceedings. The Freehills partnership was a party, with each of the partners jointly and severally liable, and the partnership was also the solicitor on the record. The employed solicitors did not represent their employer. They worked on the relevant matters as employees of the firm and under the supervision of partners who had overall responsibility for the carriage of the litigation. [98] Would recovery of costs in respect of work done by employees amount to recompense for time spent by Freehills in the litigation? As a matter of both substance and form, the work of the employee solicitors was done for and on behalf of the partnership. The time of the employed solicitors was time that the firm had available to deploy as it saw fit. The same is true of the work and time of other employees. [99] In the present case, although Freehills is not seeking to recover costs for the time spent by Mitchell, the lawyers who did the work reported to him and he had oversight and control of the litigation. He retained a critical role at the apex. Although there was a degree of functional separation between the partners and employee lawyers who had acted in the matters that gave rise to the litigation, Mitchell remained jointly and severally liable for the profits and losses arising from acting and from the result of the litigation. If complete functional separation has any significance, which we doubt, it cannot be said to exist here. [100] It might also be said that the partnership should be permitted to ameliorate the opportunity cost of not having the employees available to do external remunerative work. However, to use the examples given by Edelman J, a plumber, engineer, architect, or accountant who is a party to a proceeding is not entitled to recover the value of his or her own labour or that of an employee who has to spend time in the conduct of the litigation. As a matter of principle, given the outcome in Bell Lawyers, a different answer is not given because the lawyer uses his or her time, or that of his or her employees, to provide legal services. At least for the purpose of determining whether the general principle is engaged, there is no reason to treat the employees of a solicitor differently. It follows that to allow a solicitor to recover costs referable to the work done by its employees would recompense that solicitor for its time spent in the litigation. 1. The Court then considered matters which might be thought to favour the matter fitting into the exception of an employed solicitor, and said: [119] Ultimately, we have come to the conclusion that to treat employee solicitors of a legal firm as falling within the 'well-established understanding' would considerably undermine Bell Lawyers. It would extend the 'well-established understanding' to cases of self-represented legal firms and perpetuate a significant degree of special treatment not accorded to non-lawyer litigants, referred to in Chorley as 'ordinary litigants'. [120] In substance it would, anomalously, allow firms of solicitors to recover for their own time spent in the litigation. It would also mean that a legal practice with employees could recover fees when a sole practitioner could not. [121] It follows that, in our view, Bell Lawyers prevents recovery of costs in favour of Freehills for the time spent by its own employees. That does not mean that it is not entitled to an order for other costs. In Bell Lawyers, costs orders were made by the High Court in favour of Bell Lawyers in respect of the first instance proceedings, in the intermediate appellate court and in the High Court notwithstanding that the firm was both a party and the solicitor on the record. 1. That case is not determinative of the present issue because Freehills was the party sued and the solicitors who acted. 2. In D A Starke Pty Ltd v Yard & Anor (No 2) [2020] SASC 81, the solicitor who acted through an incorporated legal practice, sued a former client for fees and disbursements. The defendant resisted the claim in reliance on Bell Lawyers. Judge Boschner (a Master of the South Australian Supreme Court) said: [31] I am of the view that the same reasoning, and conclusion, must apply to incorporated legal practices. To adopt the language of United Petroleum, to allow a solicitor to use a corporate vehicle to recover fees for work done by its employees, when the solicitor is, himself or herself, the controlling mind of the corporate vehicle, would be to allow an incorporated legal practice to recover fees where an individual solicitor could not, and would serve to perpetuate the inequity deplored by the High Court in Bell Lawyers. … [34] In McIlraith, Brereton J considered that, for the purpose of costs recovery, an incorporated legal practice and its director solicitor should be treated as one and the same. I reach the same conclusion here. The reasoning applied by the Victorian Court of Appeal in relation to partnerships must be applied to incorporated legal practices. The plaintiff, whether it was represented by D A Starke Pty Ltd or Starke Legal Pty Ltd, was self represented in this action. 1. In Hurst-Meyers v Aulich Civil Law Pty Ltd [2021] ACTSC 16, an incorporated legal practice, which was sued, was represented by an employed solicitor and a director of the practice. The practice was successful, and sought costs. Justice Mossop said at [30] and [31] that he followed the decisions in Bell Lawyers, United Petroleum, and D A Starke, and refused to order costs. 2. Since this matter was argued, the New South Wales Court of Appeal has delivered judgment in Burrows v Macpherson & Kelley Lawyers (Sydney) Pty Ltd [2020] NSWCA 148. The case involved an incorporated legal practice which had obtained a lump sum costs order against a former client who had unsuccessfully sued the practice. One of the issues on the appeal concerned whether the decision in Bell Lawyers prevented the making of the costs order in circumstances where employees of the legal practice had acted for the practice in the litigation. The issues were complicated by the fact that there had been a change in the legal structure of the practice during the retainer by the former client, with the result that the successor legal practice (M & K Lawyers Group) acted for the former legal practice (M & K Sydney) in the litigation against it, albeit with employed solicitors doing the work. That means that the issue to be determined was not the straightforward issue in the present case of an employed solicitor doing work for his own incorporated legal practice. 3. However, a number of passages in the judgments suggests that the abolition of the Chorley exception will not affect the recovery of costs by an incorporated legal practice where the legal work was carried out by an employee of that practice. 4. The principal judgment was given by Leeming JA. His Honour examined the statutory basis for recovery of costs, including the definition of 'costs' in s 3 of the Civil Procedure Act 2005 (NSW) which is: Costs in relation to proceedings, means costs payable in or in relation to the proceedings, and includes fees, disbursements. expenses and remuneration". 1. Leeming JA said of the joint judgment in the High Court: [115]. The joint judgment in Bell Lawyers recorded that "costs are a creature of statute" at [33], and identified the source of the power to make the order for costs in the Civil Procedure Act 2005 (NSW): at [13]-[14]. The joint judgment deferred the consideration of statute (at [16]) returning to it at [40]-[45] when dealing with a submission that the "Civil Procedure Act itself embraced the Chorley exception". The submission was that the explicit inclusion of "fees, disbursements, expenses and remuneration" within the definition of "costs" demonstrated an intention to maintain "the Chorley exception". The focus was on "remuneration", which was said to extend to the recovery by a lawyer for work on his or her own case. This submission was rejected at [43]-[44], including the following passage which is highly relevant for the position of employed solicitors: "In s 3(1) of the Civil Procedure Act, the 'means' part of the definition, in referring to 'costs payable', is a restatement of the general rule that costs are awarded only for professional costs actually incurred. The 'includes' part of the definition, in referring to 'remuneration', can be seen readily enough to encompass remuneration for professional services rendered under a contract of service as well as remuneration for professional services rendered under a contract for services. In so doing, it 'makes plain' that the cost of professional legal services rendered by an employed lawyer is included in the definition of 'costs'. The definition, being otherwise exhaustive, leaves no room for the Chorley exception as a matter of legislative intention. 'Remuneration' is simply not a word which is apt to include the notion of payment to a person by himself or herself for work done by himself or herself." [116] It is difficult to read that passage, which was determinative of what appears to have been an important submission of the respondent, as other than an endorsement of the proposition that the costs of an employed solicitor fell within the statutory power conferred by s 98. The passages at [50] and [68] reproduced above are also consistent with this. 1. His Honour next dealt with a submission that the corporate veil should be pierced, so that the earlier legal practice for whom the latter practice acted should be regarded as one and the same entity. This was not a consideration of whether an employee who acted for his legal practice should be identified with it, by piercing the veil, but similar considerations are likely to arise. His Honour said that there was no basis, on the authorities, to pierce the corporate veil, and went on to say: [132] … An employed solicitor is subject to personal ethical obligations to the Court. Nonetheless, he or she is scarcely independent of his or her employer. But for present purposes, it suffices to say that all of the natural persons who actually provided legal services on behalf of M&K Lawyers Group in defending the District Court action were solicitors employed by that company, each owing personal ethical obligations to the Court, and if the client M&K Sydney were unable to recover professional costs in respect of those employed solicitors, that would cut across the express endorsement of the proposition that costs associated with an employed solicitor are recoverable. [133] Thus the critical point which is dispositive of these grounds of appeal is the failure of Ms Burrows' submission that M&K Lawyers Group is to be equated to M&K Sydney. The result is that the costs attributable to work done by employed solicitors of M&K Lawyers Group, which company was acting for M&K Sydney, are recoverable. Far from casting any doubt about the recoverability of costs in those circumstances, Bell Lawyers confirms as has long been the case that those costs are recoverable. 1. His Honour then said this of United Petroleum: [134] Accordingly, it is not necessary to express a view on the correctness of United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15, although the respondents submitted that it was clearly wrong, if not distinguishable. The Victorian Court of Appeal was not dealing with the position of an incorporated legal practice, nor was it dealing with a case where the litigant was represented by a different corporation. I see no reason to lengthen these reasons with a full account of the careful reasoning of that Court (which I have found of assistance in preparing these reasons). I acknowledge that insofar as the Victorian Court of Appeal regarded the "employed solicitor" rule as inapplicable to a firm of solicitors, as opposed to a corporation or statutory authority (see at [101]-[121]), then it tends against the conclusion I have reached. But that is scarcely surprising. As I have sought to explain, there is a tension between the abrogation of "the Chorley exception" and the retention of the "employed solicitor" rule. I do not think that tension undermines the reasoning applicable to the present, materially different, case. The position would be different if I had acceded to Ms Burrows' submission concerning piercing the corporate veil. 1. Justice Meagher agreed with Leeming JA adding some reasons of his own, where he said of Bell Lawyers: [15] In so concluding, the plurality (at [50]) considered that the rejection of the Chorley exception would not disturb "the well-established understanding in relation to in-house lawyers employed by governments and others, that where such a solicitor appears in proceedings to represent his or her employer the employer is entitled to recover costs in circumstances where an ordinary party would be so entitled by way of indemnity" (emphasis added). Whether the same conclusion follows with respect to "a solicitor employed by an incorporated legal practice of which he or she is the sole director and shareholder" was said to stand in a different position (at [51]). The resolution of that question, having regard to the "provisions of the Civil Procedure Act in light of the general rule" was expressly left open (at [52]). [16] On the face of it, this reasoning of the plurality resolves the question which arises as to the recoverability of legal costs when an incorporated legal practice sues or is sued and acts for itself by its employed solicitors, provided that the self-represented incorporated legal practice is not a "vehicle for a sole practitioner" (at [53]). However as Leeming JA says, once Ms Burrows' "piercing the corporate veil" submission is rejected, that question could not have arisen in the present case because the incorporated legal practice, M&K Sydney, was not acting for itself. 1. White JA also agreed with Leeming JA with added reasons. In the course of those he said: [162] In Bell Lawyers the majority considered that it was a matter for the Legislature to say whether an incorporated legal practice that is a vehicle for a sole practitioner should be able to obtain an order for costs for work performed by its sole director and shareholder (at [53]). To deny M&K Sydney and M&K Lawyers Group the benefits of separate legal personality on the ground that to do so would advance substantially the same policy reasons for which the High Court in Bell Lawyers rejected the Chorley exception would exceed the limits of the judicial role. 1. Although the decision in Burrows does not bind me because of the unusual factual situation in that case, I consider that I should adopt a similar approach to the reasoning in that case, and respectfully not follow D A Starke and Hurst-Meyers. I consider that the decision in United Petroleum is of limited usefulness because it did not concern an incorporated legal practice and its employees. 2. The result is that the costs estimated to have related to the work carried by Mr Husaini before Mr Rajeev was retained, should be taken into account. 3. The authorities show that the amount of security ordered should be sufficient, but not a complete indemnity: Brundza v Robbie & Co (No 2) (1952) 88 CLR 171. 4. The plaintiffs did not adduce any evidence of the likely costs to the first defendant, nor were any of the first defendant's deponents cross-examined. On the other hand, the breakdown of the costs and disbursements by Mr Husaini has been done on a very broad-brush basis. Estimates are given of 10 hours each for paralegal staff and secretarial staff. The disbursements are said to be include $10,500 which includes lay and expert witness expenses (if any). It is not readily apparent, for example, why an expert would be needed, or what sort of expert that might be. These matters highlight one of the difficulties in assessing an appropriate figure. 5. The application is made at a very early point in the proceedings. No evidence in relation to the substantive claim appears to have been filed by the first defendant. I am not at all critical of the early application. However, it makes it more difficult to reach an informed view about the complexity of the case, and what costs are likely to be incurred in its preparation. On one view, it is a relatively straightforward case. Whether the money was received on trust would not seem to depend on a great deal of evidence. Whether there should be an accounting is likely to be determined by similar evidence to the trust point. It is likely that evidence about the background will be agreed. The case may well depend largely on the construction of documents. By reason of my decision on the position of the first plaintiff, the issues are likely to be narrower. 6. It seems to me that the fairest way to proceed is to make an order for security up to the conclusion of the filing of evidence. By that time, a better estimate can be made about the complexity of the case, its ultimate hearing time, and the further costs that are likely to be incurred to the end of the hearing. It will be open to the first defendant to make a further application for security at that time. 7. If I take Ms Fogl's figure of $64,725 and deduct $10,000 for the costs of the present applications, the starting point is $54,725. I then deduct $14,500 being the solicitor's and counsel's costs of the hearing. The figure should then be reduced again by a reasonably arbitrary amount, although based on Mr Husaini's affidavit, of $5,000 for other costs and disbursements likely to be related to the hearing and its immediate preparation. In those circumstances, I consider an order should be made for an amount of $35,000 up to the time when all of the evidence has been filed. Notice to produce 1. The first defendant submitted that the documents sought in paragraphs 3 and 4 of the Notice to Produce are documents to which the plaintiffs would be entitled if they were successful in obtaining the declaration and order sought in the Summons. The first defendant submitted that the issue in the case is whether the monies are held on trust for the plaintiffs. He submitted that his case will be that the arrangement between the parties was a contractual one and not one of trust. He submitted that a Notice to Produce must have a legitimate forensic purpose. In that regard, the documents sought to be produced will not assist in determination of the issue in the case. 2. The plaintiffs submitted that a solicitor was obliged under the Legal Profession Uniform Law (NSW) No 16a of 2014 and the Legal Profession Uniform General Rules 2015 (NSW) to hold trust moneys in a trust account, and to provide a trust account statement to each person on whose behalf trust money is held. The plaintiffs submitted that it would be surprising if they were not able to obtain under a Notice to Produce something to which under the statute law they were entitled. The plaintiffs submitted that the documents they seek may help to cast light on the basis on which the money was received, held and disbursed from the trust account, that is, how the money was characterised by the first defendant, whilst accepting that any description of it by the first defendant would not be determinative. 3. What seems not to be disputed is that the $2,382,000 was paid into the Thomas Booler Lawyers Law Practice Trust Account, and that $500,000 of that money was paid out to DC Legal. 4. Sections 137 and 138 of the Uniform Law provide: 137 Certain trust money to be deposited in general trust account A law practice must deposit trust money (other than cash) into the law practice's general trust account as soon as practicable after receiving it unless - (a) the law practice has a written direction by a person legally entitled to provide it to deal with the money otherwise than by depositing it in the account; or (b) the money is controlled money or transit money; or (c) the money is the subject of a power given to the practice or an associate of the practice to deal with the money for or on behalf of another person. Civil penalty: 100 penalty units. 138 Holding, disbursing and accounting for trust money in general trust account (1) Except as otherwise provided in this Part, a law practice must - (a) hold trust money deposited in the law practice's general trust account exclusively for the person on whose behalf it is received; and (b) disburse the trust money only in accordance with a direction given by the person. Civil penalty: 50 penalty units. (2) Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law. (3) The law practice must account for the trust money as required by the Uniform Rules. Civil penalty: 50 penalty units. 1. Rule 52 of the Uniform General Rules provides: 52 Trust account statements (1) A law practice must give a trust account statement to each person for whom or on whose behalf trust money (other than transit money and written direction money) is held or controlled by the law practice or an associate of the practice. (2) … (3) A trust account statement is to contain particulars of - (a) all the information required to be kept under the Uniform Law or these Rules in relation to the trust money included in the relevant ledger account or record, and (b) the remaining balance (if any) of the money. (4) A trust account statement is to be given - (a) as soon as practicable after completion of the matter to which the ledger account or record relates, and (b) as soon as practicable after the person for whom or on whose behalf the money is held or controlled makes a reasonable request for the statement during the course of the matter, and (c) except as provided by subrule (5) or (6), as soon as practicable after 30 June in each year. … (7) The law practice must keep a copy of a trust account statement given under this rule. 1. In my opinion, the first defendant's submissions confuse proof of the claim made by the plaintiffs with the documents sought to be produced. Paragraphs 3 and 4 of the Notice to Produce do not assume that the money received into the trust account was held on trust for them, although it must be said that the plaintiffs' submission that they must be entitled to the documents by reason of s 138 and r 52 does make that assumption. It may reasonably be assumed that the money was received on trust for someone, because the money was paid into the trust account. Until final judgment it will not be known who the beneficiary was or who the beneficiaries were. 2. Whether the money was received and held for the plaintiffs on trust is a matter which will be decided objectively, having regard to the Heads of Agreement, the terms of the Settlement Agreement (perhaps), some oral evidence (perhaps), as well as any contemporaneous documentary evidence. Part of that contemporaneous evidence may be trust account documents required to be created and maintained by the first defendant, whose legal practice no doubt operated the trust account. The identification of the person for whom the money was received under the Settlement Agreement is likely to throw some light on the ultimate question in issue, even if it does not determine that issue. Similarly, the persons to whom that money was disbursed might assist in the determination. 3. In that way the documents sought by the plaintiffs have a legitimate forensic purpose. They should be produced. The Notice to Produce should not be set aside. Conclusion 1. I make the following orders: 1. Dismiss the claim of the first plaintiff pursuant to r 13.4 Uniform Civil Procedure Rules 2005 (NSW). 2. The second plaintiff provide security for the first defendant's costs of the proceedings in the sum of $35,000 up to the conclusion of the filing and serving of evidence in the proceedings, within 14 days of the date hereof. 3. The proceedings be stayed until the security has been provided. 4. The plaintiffs are to pay the first defendant's costs of the amended notice of motion filed 23 April 2021 with the exception of costs associated with the affidavits of Vaikom Sundar Rajeev sworn 7 June 2021 and Lydia Fernandes Fogl sworn 8 June 2021, and preparation of the submissions of the first defendant of 9 and 21 June 2021. 5. Dismiss the first defendant's notice of motion filed 8 February 2021. 6. The first defendant is to pay the plaintiffs' costs of that notice of motion. ********** 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