Supreme Court New South Wales Medium Neutral Citation: Benjamin & Khoury Pty Ltd v Rahme (No 2) [2022] NSWSC 1143 Hearing dates: 24 August 2022 Decision date: 29 August 2022 Jurisdiction: Common Law Before: Adamson J Decision: In proceedings 2021/330107 (1) Dismiss the first defendant's notice of motion filed 21 April 2022. (2) Order the first defendant to pay the plaintiff's costs of the notice of motion. (3) Direct the parties to agree on a date for further directions and communicate such date to my Associate by 1 September 2022 so that the matter can be listed before the Registrar for that purpose. (4) Failing agreement by the parties on a date, list the matter for further directions before the Registrar on 5 September 2022. In proceedings 2021/330110 (1) Dismiss the first defendant's notice of motion filed 21 April 2022. (2) Order the first defendant to pay the plaintiff's costs of the notice of motion. (3) Direct the parties to agree on a date for further directions and communicate such date to my Associate by 1 September 2022 so that the matter can be listed before the Registrar for that purpose. (4) Failing agreement by the parties on a date, list the matter for further directions before the Registrar on 5 September 2022. Catchwords: CIVIL PROCEDURE — Subpoenas — Application to set aside — Abuse of process — where documents sought relevant to issue of application of indemnity principle in appeal against costs certificates — where not oppressive — application dismissed COSTS — Costs assessment — Determination — Review/appeal — discussion of principles Legislation Cited: Legal Profession Act 2004 (NSW) Legal Profession Uniform Law Application Act 2014 No 16 (NSW), ss 71, 89 Legal Profession Uniform Law (NSW), ss 178, 198 Limitation Act 1969 (NSW) Supreme Court Act 1970 (NSW), s 75A Uniform Civil Procedure Rules 2005 (NSW), r 42.1 John Sharpe Cases Cited: Benjamin & Khoury Pty Ltd v Rahme [2022] NSWCSC 766 Rahme v Benjamin & Khoury Pty Ltd (2019) 100 NSWLR 550; [2019] NSWCA 211 Rahme v Benjamin & Khoury Pty Ltd (No 2) [2019] NSWCA 239 Rahme v Satouris [2018] NSWSC 1753 Secretary of the Department of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145 Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145 Category: Procedural rulings Parties: Benjamin & Khoury Pty Ltd (Plaintiff) Dana Rahme (First Defendant) John Sharpe (Second Defendant) Gregory Walsh (Third Defendant) Representation: Counsel: T K Smith (Plaintiff) C Bevan (First Defendant) Submitting appearance (Second and Third Defendants) Solicitors: Daniel Jude Lawyers (Plaintiff) Solon Lawyers (First Defendant) Crown Solicitors Office (Second and Third Defendants) File Number(s): 2021/330107; 2021/330110 JUDGMENT Introduction 1. By notice of motion filed on 21 April 2022, Dana Rahme, the first defendant, seeks an order that the notice to produce served on her by Benjamin & Khoury Pty Ltd (B & K), the plaintiff, and the subpoena served on Kekatos Lawyers, her former solicitors, by B & K, be set aside. The grounds relied on by Ms Rahme are that the notice to produce and the subpoena amount to an abuse of process and that they are oppressive. 2. In order to give context to the application, it is necessary to summarise the procedural history which has given rise to it. The procedural history giving rise to the applications 1. Ms Rahme and her husband retained B & K to act on their behalf. Subsequently, Ms Rahme and her husband brought proceedings against B & K. The proceedings were heard by Emmett AJA who ordered judgment for the defendant: Rahme v Satouris [2018] NSWSC 1753. Ms Rahme's appeal against this judgment was partially successful: Rahme v Benjamin & Khoury Pty Ltd (2019) 100 NSWLR 550; [2019] NSWCA 211. The Court of Appeal ordered B & K to pay Ms Rahme's costs of the proceedings at first instance and of the appeal: Rahme v Benjamin & Khoury Pty Ltd (No 2) [2019] NSWCA 239. 2. Both sets of costs were determined by the Costs Assessment Review Panel on 22 October 2021. On 9 November 2021, the certificates were registered pursuant to s 71(3) of the Legal Profession Uniform Law Application Act 2014 No 16 (NSW) (the Application Act) and thereby became judgments of the Court in the respective sums of $393,108.80 (for the costs at first instance) and $186,339.84 (for the costs of the appeal). 3. The costs as between Kekatos Lawyers and Ms Rahme for the first instance proceedings are yet to be assessed although the assessment has commenced. No such assessment has been sought by Ms Rahme of the costs of the appeal. 4. On 9 November 2021, Ms Rahme served statutory demands on B & K on the basis of the judgments referred to above. 5. B & K has appealed against each of these costs assessments by commencing proceedings by summons filed on 19 November 2021 in the Common Law Division of this Court pursuant to s 89 of the Application Act. Proceeding 2021/330107 concerns the assessment of first instance costs and proceeding 2021/330110 concerns the assessment of the appeal costs. The defendants in each proceedings are the same: Ms Rahme is the first defendant in each. John Sharpe and Greg Walsh OAM, who together comprised the Costs Assessment Review Panel, are the second and third defendants respectively and have filed submitting appearances. Accordingly, Ms Rahme is the only active defendant. 6. The grounds in these proceedings are similar but not identical. The differences can be explained by B & K's contention that Kekatos Lawyers' retainer at first instance was governed by the Legal Profession Act 2004 (NSW) (the 2004 Act), which applied prior to 1 July 2015, and Kekatos Lawyers' retainer on appeal was governed by the Legal Profession Uniform Law (NSW) (the Uniform Law), which applied from 1 July 2015. 7. Kekatos Lawyers has sought an assessment of costs at first instance under the 2004 Act, which is not subject to the time limit which applies under the Uniform Law (see below). I was informed by Mr Bevan that the only time limitation for a solicitor seeking an assessment under the 2004 Act is contained in the Limitation Act 1969 (NSW). The basis on which Ms Rahme has, in correspondence, disputed her liability to Kekatos Lawyers for first instance costs is not clear. 8. Under the Uniform Law, a client (in this case, Ms Rahme) is not required to pay legal costs until they have been assessed if the solicitor (in this case, Kekatos Lawyers) breached their disclosure obligations under Part 4.3: s 178(1)(b). In this event, Ms Rahme's obligation can only arise if the costs can be assessed. A law practice (Kekatos Lawyers) can only apply for an assessment within 12-months of the bill being issued, relevantly, to the client: s 198(3) of the Uniform Law. While Ms Rahme, as the client, can apply for an extension of time, Kekatos Lawyers cannot: s 198(4). 9. The amended summons in each proceeding alleges, as a ground of appeal, that the "indemnity principle" has been breached and that the assessments ought therefore be set aside. The indemnity principle provides that the costs to be paid by an unsuccessful litigant cannot exceed the amount that the receiving party (the successful litigant) is liable to pay his, her or its solicitors: Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145 at [46]-[48] (Santow JA) and [102] (Basten JA). Thus, if Ms Rahme, as the successful litigant, has no obligation to pay Kekatos Lawyers, her solicitors, B & K, the unsuccessful party, will have no obligation to pay her. 10. The basis for the allegation that the assessments breach the indemnity principle derives from correspondence between Ms Rahme, Kekatos Lawyers and the Manager, Costs Assessment, in which Ms Rahme would appear to deny any liability to pay Kekatos Lawyers. As referred to above, the basis for the denial of liability is not entirely clear from the correspondence. Further, in other documents, Ms Rahme appears to accept that she is liable to pay Kekatos Lawyers. Mr Bevan, who appeared on her behalf, contended that she accepted that she was liable to pay Kekatos Lawyers. However, this submission would appear to be inconsistent with at least some of the written material emanating from Ms Rahme through her present solicitor, Michael Soulos, which came to the notice of B & K in April 2022, being the month in which the letters were written. The question whether she is liable to pay Kekatos Lawyers arises in the s 89 appeals and cannot be determined in the course of these reasons. The notices to produce and the subpoenas 1. On 13 April 2022, B & K filed a subpoena issued to Kekatos Lawyers in which it sought, relevantly: "For the period 1 July 2020 to date, all documents in which [Ms Rahme] (on her own account or by her legal representatives) disputes her liability to pay your costs or disbursements for acting for her in the Proceedings [defined as covering the first instance proceedings and the cost assessment relating to those proceedings]." 1. A similarly worded subpoena was issued to Kekatos Lawyers in respect of the appeal and the cost assessment for the appeal. 2. On 14 April 2022, B & K served notices to produce on Ms Rahme in similar terms to the extract from the subpoena set out above. 3. As referred to above, Ms Rahme moved by motion filed on 21 April 2022 to have the subpoenas to Kekatos Lawyers and the notices to produce set aside. It was common ground that she had standing to apply to set aside the subpoenas as well as the notices to produce. 4. Before the applications were heard, B & K sought a stay of the judgments to prevent Ms Rahme moving on the statutory demands or otherwise enforcing the judgments arising from the costs certificates before the determination of B & K's appeals. The stays were granted by Davies J on 14 June 2022: Benjamin & Khoury Pty Ltd v Rahme [2022] NSWCSC 766. The stays were granted on condition that B & K pay into court $196,554 in the 2021/330107 proceedings and $93,170 in the 2021/330110 proceedings. Of present relevance, his Honour said: "42 After the Review Panel concluded its review of the costs, it appears that it came to the attention of B&K that Ms Rahme was disputing in whole or in part a liability to pay the fees of Kekatos Lawyers. B&K then wrote to Ms Rahme's lawyers asking if the fees of Kekatos Lawyers had been paid, whether Ms Rahme disputed that she had a liability to them for those fees, and if she intended to make an application for assessment of their costs. There was no response to that letter. However, after the present notice of motion was filed, B&K became aware of an exchange of correspondence between Kekatos Lawyers and Ms Rahme's lawyers, such correspondence being annexed to affidavits filed in relation to the present motion by Ms Rahme's lawyers. 43 In a letter from Kekatos Lawyers to Ms Rahme's lawyers dated 5 April 2022, the following appears: 4. It is concerning that Mrs Rahme has taken issue with our invoices and costs agreements, in circumstances whereby those invoices were relied upon for party/party cost assessments, and a fruitful costs determination has been made. The conduct proceeded on is an abuse of process in that an assertion is made on costs assessment that there is entitlement to money on the basis that Kekatos Lawyers is owed fees for the costs incurred for the Supreme Court and Appeal proceedings against BK, and on the other hand Mrs Rahme is claiming that Kekatos Lawyers is not owed any fees… 5. The abuse of process is furthered, in that, a third party, being BK is being required to pay party/party costs in circumstances whereby Mrs Rahme has no intention to pay any legal costs and disbursements amount to Kekatos Lawyers. 6. Needless to say, the conduct also flies in the face of indemnity principle. 44 The letter went on to say that Kekatos Lawyers would be proceeding with the costs assessment for their solicitor/client costs against Ms Rahme. The letter also said that they had advised Ms Rahme's solicitors that they maintained the solicitor lien over all judgment and costs determination proceeds recovered from B&K by Ms Rahme in connection to the orders made in the appeal proceedings. The letter said that B&K could not discharge its obligations imposed in the costs order without satisfying a lien. 45 The letter in reply from Ms Rahme's lawyers of 8 April 2022 said that costs billed before 8 April 2016 were statute-barred. They drew attention to s 352 of the Legal Profession Act 2004 (NSW) which precludes a law practice from applying for assessment unless it has given compliant bills of costs to the client at least 30 days beforehand. They asserted that the final bills and tax invoices did not comply with the Legal Profession Regulation 2005 (NSW). The letter went on to reiterate what had earlier been said in Local Court proceedings, That Mrs Rahme does not dispute that she has some liability to your firm for legal costs and that the only issues are whether the costs are payable by herself and the bankrupt estate of her husband jointly, to the intent that she is liable for only one-half of the costs, … (emphasis in the original) 46 In a letter from Ms Rahme's lawyers to the Manager of Costs Assessment dated 21 April 2022, similar points were made as had been made to Kekatos Lawyers. It was also asserted that there was an issue between Mr and Mrs Rahme and Kekatos Lawyers as to whether they were ever given the costs agreements which were relied upon to support the application for assessment. 47 In an affidavit sworn by Ms Rahme's solicitor on 27 April 2022 for the present hearing, Mr Soulos said (at paragraph 27): …[T]here is no dispute that Mrs Rahme is in dispute with her previous solicitors, Kekatos Lawyers, about the payment of their costs of acting for Mrs Rahme in her Supreme Court proceeding against B&K for damages for breach of fiduciary duty. (emphasis in the original) 48 It is apparent from all of this material that there are serious issues between Ms Rahme and Kekatos Lawyers concerning any liability she has to pay some or all of the costs of Kekatos Lawyers. It does not appear that this dispute was known to the costs assessor or the Review Panel. However, it is ultimately not for the costs assessor to determine whether the costs are payable or not: Basten JA in Wentworth v Rogers at [160]. It will be for a Court to determine whether those costs are payable to Kekatos Lawyers. If they are not, there is, at the very least, an arguable case that the indemnity principle will operate to mean that B&K is not ultimately required to pay some or all of the costs assessed and reviewed. There is a serious question to be tried on this issue." Consideration Whether the notices to produce and subpoenas amount to an abuse of process 1. A notice to produce or subpoena will amount to an abuse of process if it has been issued for an improper purpose or has no legitimate forensic purpose: see the summary of the authorities in Secretary of the Department of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145 at [57]-[67] (Bell P, Brereton and McCallum JJA relevantly agreeing). 2. I respectfully agree with, and adopt the analysis of Davies J as set out in the paragraphs extracted above. There is a serious question to be tried on the application of the indemnity principle in the present case. On this basis, B & K is entitled to seek documents relevant to that issue from Ms Rahme as well as from Kekatos Lawyers. In coming to this conclusion I have considered and rejected the arguments put to the contrary by Mr Bevan, which I will summarise below. 3. First, Mr Bevan submitted that this Court, when determining the appeals in the present proceedings will not be determining whether B & K is liable for the costs, since that question has already been determined by the Court of Appeal, but only the quantum. This distinction gives rise to a false dichotomy because of the indemnity principle, the effect of which is that if Ms Rahme is not liable at all to Kekatos Lawyers, then B & K will not be liable to Ms Rahme. This question is plainly one which the Court can consider on an appeal. 4. Secondly, Mr Bevan submitted that B & K was not entitled to documents in which Ms Rahme disputes her liability to Kekatos Lawyers unless and until leave has been granted by the Court pursuant to s 89(4) of the Application Act to permit B & K to rely on such documents. Section 89 relevantly provides: "89 Appeal on matters of law and fact (1) A party to a costs assessment that has been the subject of a review under this Part may appeal against a decision of the review panel concerned to— … (b) the Supreme Court, in accordance with the rules of the Supreme Court, but only with the leave of the Court if the amount of costs in dispute is less than $100,000. (2) The … Supreme Court (as the case requires) has all the functions of the review panel. … (4) An appeal is to be by way of a rehearing, and fresh evidence or evidence in addition to or in substitution for the evidence before the review panel or costs assessor may, with the leave of the Court, be given on the appeal." 1. There is an unattractive circularity to this submission. In deciding whether to grant leave under s 89(4), the Court will need to see the material which is proposed to be adduced as evidence. Such an application cannot be determined in a vacuum. Thus, B & K will need to garner the proposed evidence before it seeks the Court's leave to tender such evidence on the appeal. While it can be seen from the passage extracted above from the judgment of Davies J, that there is already material which tends to indicate that Ms Rahme disputes her liability to Kekatos Lawyers (which shows that there is a basis for the subpoenas and the notices to produce and that they are not merely fishing expeditions), B & K ought not be limited to material which has been voluntarily disclosed by Mr Soulos. I reject this submission. Indeed, the purpose of the subpoenas and the notices to produce is to obtain such material in advance of the application for leave under s 89(4). 2. Thirdly, Mr Bevan submitted, in effect, that B & K had no prospect of obtaining leave under s 89(4) because s 89(4) was analogous to s 75A(7) of the Supreme Court Act 1970 (NSW) and leave would not be granted unless there were "special circumstances" and there was none. I reject this submission. Section 75A is not closely analogous to s 89(4), at least in the circumstances of the present case. The determinations which are the subject of the appeals were made by a panel of costs assessors. The "appeals" to this Court will present the first occasion on which a judge has determined the assessment of costs (as distinct from the costs orders made by the Court of Appeal). The application of the indemnity principle is not just a question of quantum. It can be expected that, if there is material to indicate that the indemnity principle applies and has not been applied by the panel (which did not have the benefit of the material which indicated that Ms Rahme disputed her liability to Kekatos Lawyers), there is a reasonable basis for an application for leave under s 89(4) of the Application Act. It is not for me otherwise to assess the strength of this application since this will be a matter for the judge who hears the application. 3. Fourthly, Mr Bevan submitted that Ms Rahme has, in open court before me through her counsel, admitted that she is liable to Kekatos Lawyers and that this should be sufficient to dispose of the issue. I reject this submission. Her admission is not determinative and, in particular, cannot bind B & K, which has an interest in establishing that Ms Rahme is not liable to Kekatos Lawyers. This is a question to be determined by the Court which hears the appeals. 4. Fifthly, Mr Bevan submitted that the 2004 Act applied to both the retainer of Kekatos Lawyers at first instance and on appeal. He argued, on this basis, that there was no ground for disputing Ms Rahme's liability since the costs of each (first instance and appeal) could be assessed. The question of what Act applies to which retainer is (in the absence of agreement) an issue to be tried. Mr Smith, who appeared on behalf of B & K, contended that the 2004 Act applied only to the retainer at first instance and that the Uniform Law applied to the retainer on appeal. This question cannot be determined in the course of this application. There is a clear forensic purpose in B & K exploring the basis on which Ms Rahme disputes her liability to Kekatos Lawyers. 5. Sixthly, Mr Bevan submitted that it did not matter what Ms Rahme or her solicitor said about her liability or otherwise to Kekatos Lawyers because her liability was to be determined by the assessment itself. What Ms Rahme, either on her own account or through her solicitor, said about her liability to Kekatos Lawyers is not determinative. Nonetheless, B & K is entitled to production of documents which evidence the basis on which she disputes that liability, with a view to ascertaining whether any of the bases she advances can be used by B & K to argue that it is not liable to her because she is not liable to Kekatos Lawyers on the basis of the indemnity principle. Whether the subpoenas or notices to produce are oppressive 1. Mr Bevan argued that the subpoenas and notices to produce were too wide and that it would be far too onerous to expect Kekatos Lawyers and Ms Rahme to comply with them. 2. I accept Mr Smith's submission that, although Ms Rahme has standing to apply to set aside subpoenas to a third party (Kekatos Lawyers), I ought not infer that the subpoenas are oppressive in the absence of any objection by Kekatos Lawyers or evidence that they would find production oppressive. Indeed, I understood Mr Bevan ultimately to accept as much. 3. Mr Bevan submitted that the notices to produce were far too wide and covered an inordinately lengthy period which would require Mr Soulos to "trawl through" at least 3,000 documents. 4. I am not persuaded that the process required to identify documents which answer the notice to produce would be particularly oppressive. There is some debate about the period of time for which Mr Soulos has acted for Ms Rahme. In an affidavit sworn 2 August 2022, he deposed that he had been her solicitor for "over three years". However, Mr Bevan submitted that Mr Soulos had only been her solicitor since August 2020 (about two years). The notices to produce seek documents from July 2020 to date, which covers the period of Mr Soulos' retainer. If he has only been acting for her since August 2020, the notices would also require production of documents written by Ms Rahme or on her behalf shortly before Mr Soulos was retained. This is not sufficient to render the notices oppressive. 5. It follows that for all, or almost all, of the period covered by the notices (July 2020 to date), Mr Soulos has been acting for Ms Rahme. It can be inferred that he was the author of most, if not all, documents disputing her liability to Kekatos Lawyers. Mr Bevan expressly accepted the proposition I put to him that Mr Soulos had written such documents, charged for them and presumably knew what he had said in them. Thus, the notices to produce require Mr Soulos to review his own correspondence and submissions over a two-year period. I accept Mr Smith's submission that this would amount, having regard to the presumed familiarity of Mr Soulos with his own documents, to a "page-turning exercise", which can be expected to be conducted relatively quickly. Indeed, Mr Bevan identified the correspondence (which is extracted in the passage from Davies J's reasons set out above) and said: "… we are hard pressed to think what else we can possibly give them." 1. However, it later emerged that the exercise of going through the files had not yet been undertaken. 2. I am not persuaded that the notices to produce are oppressive in the terms in which they have been served. Costs 1. It was common ground that costs ought follow the event in accordance with the general rule in Uniform Civil Procedure Rules 2005 (NSW), r 42.1. Orders 1. For the reasons given above, I make the following orders: In proceedings 2021/330107 1. Dismiss the first defendant's notice of motion filed 21 April 2022. 2. Order the first defendant to pay the plaintiff's costs of the notice of motion. 3. Direct the parties to agree on a date for further directions and communicate such date to my Associate by 1 September 2022 so that the matter can be listed before the Registrar for that purpose. 4. Failing agreement by the parties on a date, list the matter for further directions before the Registrar on 5 September 2022. In proceedings 2021/330110 (1) Dismiss the first defendant's notice of motion filed 21 April 2022. (2) Order the first defendant to pay the plaintiff's costs of the notice of motion. (3) Direct the parties to agree on a date for further directions and communicate such date to my Associate by 1 September 2022 so that the matter can be listed before the Registrar for that purpose. (4) Failing agreement by the parties on a date, list the matter for further directions before the Registrar on 5 September 2022. ********** 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: 29 August 2022