Local Court of New South Wales CITATION: Rees v Bethencourt & Perla [2007] NSWLC 13 JURISDICTION: Civil Jennifer Rees PARTIES: Luis Alberto Bethencourt Elena Perla T/as Perla & Jordan Lawyers FILE NUMBER: 4837/03 PLACE OF HEARING: Downing Centre Local Court DATE OF DECISION: 02/05/2007 MAGISTRATE: Magistrate H Dillon CATCHWORDS: Practice - Costs - Whether solicitor who commenced proceedings without retainer liable to pay defendant's costs personally - Whether test is that solicitor did not have reasonable belief in client's prospects of success - Whether tests under Uniform Procedure Rules and Division 5 of Legal Profession Act 1987 identical Civil Procedure Act 2005 s.98. Legal Profession Act 1987 ss. 198J, 198L, 198M, 198M. LEGISLATION CITED: Local Court (Civil Claims) Act 1970 s.34. Local Court (Civil Claims) Rules 1988 Pt 31A r1. Uniform Civil Procedure Rules 2005 Rule 42.3(d). Digiorgio v Dunn (No2) (2005) 62 NSWLR 284. Knaggs v JA Westaway & Sons Pty Ltd (1996) 40 NSWLR 476. CASES CITED: Leicester v Walton (NSWCA Unrep 22 Nov 1995 BC9510770). Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300. Wentworth v Wentworth (2001) 52 NSWLR 602. Zimmerman Holdings v Wales [2002] NSWSC 447. REPRESENTATION: Mr A. Bowen (counsel) instructed by DGB Lawyers Mr P. Doyle-Gray (counsel) ORDERS: 1. Respondent to pay defendant's costs of the dismissed proceedings between Jennifer Rees and Luis Alberto Bethancourt in a sum agreed or assessed on the indemnity basis. 2. Respondent to pay the applicant's costs of disposal of the motion in a sum agreed or assessed on the indemnity basis. REASONS for DECISION 1. On 29 September 2006, I granted the application brought before the court to dismiss the proceedings between the named plaintiff, Ms Jennifer Rees, and the defendant, Mr Luis Bethancourt. The notice of motion also sought costs against the respondent to the motion, Ms Elena Perla. Ms Perla was the solicitor who brought the proceedings in the name of Ms Rees. She did so without a retainer. I found, however, that Ms Perla had commenced proceedings with a reasonable belief that the claim had reasonable prospects of success: see ss.198J and 198M of the Legal Profession Act 1987. 2. The amended notice of motion had sought a costs order against Ms Perla personally pursuant to s.34 of the Local Court (Civil Claims) Act 1970 ("LCCC Act") as well as an order (in the alternative) pursuant to s.198M of the Legal Profession Act. Having made findings of fact and a decision in relation to the question of dismissal of the statement of claim, I reserved the question of costs in relation to the proceedings between Ms Rees and Mr Bethancourt as well as the motion and sought further submissions from the parties. The costs of the dismissed proceedings 3. The key question for determination concerning costs of the proceedings as a whole is whether the court's power to order costs against Ms Perla is confined to what might be ordered pursuant to s.198M of the Legal Profession Act or whether it has a separate, additional power to order costs pursuant to the LCC Act, the Civil Procedure Act 2005 and the Rules under both or either Act. The applicant argues that the court has the usual discretion under the Rules to make the order it seeks; the respondent argues that its scope is confined by s.198M. 4. The question is an important one in terms of where the costs of the proceedings ultimately fall. If Ms Perla is correct, the costs she could be ordered to bear would be limited to those incurred as a result of her delays in taking action to bring her involvement in the matter to an end in October 2004. The defendant applicant would then be left to bear its own costs from the commencement of the proceedings to that point. If, on other hand, the applicant's argument is accepted, Ms Perla could be ordered to bear the costs of the entire proceedings. They are, inevitably, a substantially greater sum. 5. Before progressing to deal with the arguments, it should be noted that the notice of motion was filed before the commencement of the Civil Procedure Act. That Act commenced on 15 August 2005. Section 98 of that Act is the equivalent of s.34 of the LCCC Act. For the purposes of the present argument, the two sections are virtually identical in purpose and operation. 6. Section 34(1) of the LCCC Act provides: Subject to this Act and the rules, and subject to any other Act: (a) costs in or in relation to an action shall be in the discretion of a court, (b) a court has full power to determine by whom, to whom and to what extent costs are to be paid in or in relation to an action, and (c) a court may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on an indemnity basis. 7. Section 98(1) of the Civil Procedure Act is identical but for its sub-paragraph (c) which provides "the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis". 8. The foundation of Ms Perla's argument can be summed up in this way: the Local Court is an inferior court, a creature of statute and has no power to order costs against any person except by virtue of statutory authority: see Leicester v Walton (NSWCA Unrep 22 November 1995 BC9501770). As an inferior court it has no inherent power to discipline solicitors: see Knaggs v JA Westaway & Sons Pty Ltd (1996) 40 NSWLR 476. Accordingly, there is no jurisdiction beyond s.34 or s.98, as the case may be, to award costs against a solicitor. 9. The applicant does not take issue with these propositions so far as they go. 10. One of the main pillars of Ms Perla's argument, however, is that s.34 of the LCCC Act and Pt 31A of the Rules under that Act apply in this case. Pt 31A Rule 1 provided costs orders made under that Part were "subject to the Legal Profession Act 1987 and the regulations made under that Act." There is no equivalent of that rule in the new Uniform Rules. 11. Paragraph 5 of Schedule 6 of the Civil Procedure Act provides that, subject to the court's discretion to dispense with the requirements of the Uniform Civil Procedure Rules in appropriate circumstances when dealing with proceedings started before the commencement of the Civil Procedure Act and Rules, that Act and those Rules apply to all proceedings started before the commencement of the new legislation and Rules. It appears therefore that s.98 is the relevant legislation to be applied in this case. It follows, therefore, that the order sought by the applicant is not subject to Part 31A Rule 1 of the old Local Court Rules. The relevant rule is, therefore, Rule 42.3(2)(d) of the Uniform Civil Procedure Rules 2005 which provides that the court may make an order for costs against a person who, without authority, purports to conduct proceedings in the name of another person. 12. That, however, may make no practical difference to the arguments of the parties or the determination of the issue. The keystone of Ms Perla's argument is the phrase "subject to any other Act" found in preamble to s.98(1) of the Civil Procedure Act. As I understand the parties' positions, the applicant does not dispute that if any "other Act" is relevant in these circumstances it can only be the Legal Profession Act 1987, because that was the Act applying at the time Ms Perla filed the statement of claim in Ms Rees's name without a retainer. 13. Ms Perla contends that "the extent of the court's jurisdiction to award costs pursuant to [s.98] is subject to the [Legal Profession Act]" and that, therefore, "it follows that the extent of the court's jurisdiction to order costs against the respondent pursuant to [s.98] is identical to the extent of the court's jurisdiction to order costs against the respondent pursuant to s.198M [of the Legal Profession Act]". 14. She argues that support for this proposition is to be found in the judgment of Heydon JA in Wentworth v Wentworth (2001) 52 NSWLR 602 when he observed (at [161]) that "the area of operation of s.76(1) [the section in the Supreme Court Act corresponding to s.98] necessarily depends on the scope, as it exists from time to time, of the provisions of any other enactments dealing with costs." 15. She also heavily relies upon the decision of Barrett J in Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284 which she argues stands for the proposition that if an application for costs under s.198M fails so too must an application under s.98. 16. Finally, she contends that the line of authority to the effect that a solicitor who commences proceedings without proper authority will usually be ordered to pay some or all of the defendant's costs is no longer relevant because the decided cases, such as Zimmerman Holdings v Wales [2002] NSWSC 447, have been superseded by s.198M of the Legal Profession Act. She relies for that proposition upon the statement of McColl JA in Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300 that: Division 5C [of the Legal Profession Act , in which is found s.198M] represents a departure from the historical basis upon which legal practitioners can be exposed to personal costs orders. A legal practitioner is now required to ensure that a claim, or a defence to a claim, for damages has 'reasonable prospects of success' and, to that extent, to become a judge of the client's cause. 17. In summary, the respondent's contention is that the court's sole source of power to award costs against a solicitor personally is to be found in s.198M. 18. The applicant disagrees with that contention. It says, first, that it would be appropriate to make an order under s.198M against Ms Perla but that, if an order is not made in respect of its costs of the entire proceedings on that basis, the court, nevertheless, retains a wider power, consonant with the principles enunciated in Zimmerman and that line of authority, to order that a solicitor who commences proceedings without a retainer pay the defendant's costs. It argues that the court's power is not confined by s.198M. Consideration and analysis 19. In my view, Ms Perla's argument that s.198M is the sole source of the court's power to award costs against solicitors is fundamentally flawed. 20. There can be no doubt that Division 5C of the Legal Profession Act represents, as McColl JA said in Lemoto, a departure from the old approach to the question of costs orders against legal practitioners. Division 5C considerably strengthened the rights of clients against lawyers, and altered the balance between lawyers and clients, and was designed to do so. But it did not establish a code in respect of personal costs orders against solicitors. It made solicitors liable (or potentially liable) to personal costs orders in specific circumstances. In my view, the respondent's argument does not gain support from Division 5C itself or the cases upon which she seeks to rely. 21. Nowhere in Division 5C is there any intention on Parliament's part to curtail the court's powers to make costs orders against solicitors who commence litigation without authority expressed or implied. Rather, if any intention can be divined, it is to add to, rather than detract from, the court's powers. It would be anomalous indeed if a defendant against whom proceedings had been brought without authority could not recover costs except by proving that a solicitor had no reasonable grounds to believe that his or her client had reasonable prospects of success. Division 5C is beneficial legislation, enacted to protect the clients of lawyers, and, if there is any ambiguity (which I cannot see), ought not be read down in the way for which the respondent contends but interpreted in a way calculated to achieve the beneficial purpose intended by Parliament. 22. Barrett J's decision in Degiorgio v Dunn (No 2) does not stand for a bald proposition that if an application for costs under s.198M fails, so too must an application under s.98. That argument was the high water mark of the respondent submissions but is a misreading or misinterpretation of a decision which, in my view, is not relevant to a consideration of costs orders against solicitors who commence proceedings without authority except for one important point. 23. In that case, Barrett J dismissed the plaintiff's amended statement of claim. The questions His Honour then had to decide were whether he should make an order under s.198M, on the basis that the litigation had been commenced when the solicitor had no reasonable belief in the prospects of success of his client, or on an alternative basis under the Supreme Court Rules. Costs were sought was under Part 52A r 43 of the Rules. That rule gave power to the Supreme Court to ward costs against a solicitor if the court found that "costs [had been] incurred improperly or without reasonable cause, or are wasted by any undue delay or by any other misconduct or default" as a result of the solicitor's conduct. There was no question that the solicitor had a proper retainer to conduct the litigation for the plaintiff. 24. The argument that s.198M is the sole basis upon which the court could order costs against the solicitor was, as far as I can see, never raised or ventilated but it is evident from the approach taken by Barrett J that he saw no necessary inconsistency between the alternative bases upon which the defendant sought orders against the plaintiff's solicitor. Certainly, he did not take the view that the Legal Profession Act had ousted or superseded the court's powers under its own Rules. Indeed, at [9] of his decision, he noted the defendant made no distinction between the bases upon which it sought the costs order but remarked that "I am not suggesting that the two potential bases of liability are co-extensive…" That accords with common sense as well as the scheme of the legislation and the Rules being considered here. 25. The reason that Barrett J (at [44]) dismissed the application for costs against the solicitor under the Rules was that, the defendant having made no material distinction between the two bases for its application, and the standard of conduct required of a legal practitioner under ss.198J and 198M being more stringent than that required under Pt 52A r 43, the findings and conclusions he had drawn in respect of s.198M disposed of the issues raised under the Rules. This had nothing to do with the situation of a solicitor who had conducted litigation without a retainer. Furthermore, it is transparently clear that His Honour was not intending to express any general principle, let alone the proposition for which Ms Perla contends. Degiorgio must therefore be distinguished from this case in most respects. 26. In my view, Lemoto also provides no warrant for the respondent's contentions that the source of the defendant's relief, if any, is only to be found in s.198M of the Legal Profession Act. In that case the Court of Appeal considered the test to be applied under s.198M. Once again, there was no suggestion that the solicitor in question had commenced proceedings without authority from the plaintiff. Lemoto did not deal with or purport to deal with the questions raised in Zimmerman and that line of authority. It is irrelevant to the question whether a solicitor may be ordered to pay a costs order personally if he or she commences litigation without authority. 27. A solicitor may not act for a client without a retainer. Whereas Division 5C of the Legal Profession Act has a public policy function (and, perhaps, a quasi-disciplinary aspect as well) of discouraging unmeritorious litigation, costs under the Rules are almost exclusively to do with compensating successful parties for the expenses they have incurred in conducting the proceedings. 28. If a solicitor commences proceedings in good faith not realising that he or she has no retainer it may, nonetheless, be appropriate that the solicitor ought pay the defendant's costs personally for the very reason that there may be no one else available to do so. It might be considered grossly unfair that a defendant, put to the costs of defending proceedings that ought never to have been commenced, should have to bear some or all of those costs. In my view, the well-established line of authority for the proposition that solicitors who commence actions without retainers remains as strong as it always was. 29. Questions of the professionalism and care with which the solicitor carried out the work that led to the commencement of proceedings without a genuine retainer, and conducted the proceedings themselves, may also be relevant to the question whether he or she should pay costs personally. These are separate considerations from the beliefs of the solicitor and the reasonableness of those beliefs at the time proceedings are commenced. 30. In Zimmerman, Bryson J, holding that a solicitor without a retainer should pay the defendant's costs, said (at [17]): A respect in which I regard imposing liability on the solicitors for the costs as open to question is that the solicitors, in a more literal sense than any other person involved, received a warranty of authority from Messrs Rajwan that they were directors and that they had the company's authority to commence proceedings. It does not seem to be just or appropriate that Messrs Rajwan and the solicitors should stand in the same ranking with respect to liability for costs. The problem was in truth caused by Messrs Rajwan, and all concerned including the solicitors should be in a position to look to them for any liability for costs flowing from their having claimed to have an authority which they in fact did not have. This does not, however, excuse the solicitors in relation to defendants. The opportunity to ascertain facts and come to a position of certainty about whether authority existed was in the hands of the solicitors, both before the litigation was commenced and at all times while it was pending, in a way which and with opportunities which were simply not available to defendants. The loss was considerable, as the litigation was pending for months and was prepared for hearing, and the responsibility of the solicitors goes further than simply accepting what was represented to them by an apparently reliable source, as there were means of inquiry and further grounds of consideration available to them which they did not follow up in an effectual way. 31. Those comments might be applied with equal or greater force to Ms Perla. She had the best opportunity of anyone involved in this case to ascertain the facts surrounding the claim and to establish whether Ms Rees had signed the letter of authority forwarded to Perla & Jordan from Mr El Jamal. By taking the approach to her practice she did and, in particular, relying only a document handed to her by a third party with the primary interest in the proceedings for her authority to act, she knowingly and willingly undertook the risk that she may have been acting without authority. She had the means of inquiring whether Ms Rees existed and whether she had authorised the proceedings, but she failed in any effectual way to use them. 32. Even when it became clear to Perla & Jordan that Ms Rees was an apparently reluctant witness or client, Ms Perla took no effective action to clarify whether or not she had a retainer. All the while, however, she pressed ahead with this case causing the defendant (or his insurer) to incur the costs of defending the action. The reality was that Ms Rees was an almost irrelevant consideration to her because this case was just one of a number of a very similar type being, in effect, mass-processed against insurers. A plaintiff who was not required to pay for any repairs or legal costs was always unlikely to complain about a case being brought without authority and this, as well as his friendship with Ms Rees, of course, gave Mr El Jamal his opportunity. 33. No suggestion has been made that Mr El Jamal be brought into the action and given an opportunity to show cause why costs should not be ordered against him. Conclusions & Orders 34. In my view, it is appropriate in the circumstances to make an order under Section 98 of the Civil Procedure Act and Rule 42.3(2)(d) that Ms Perla pay the defendant's costs of the dismissed proceedings assessed on the indemnity basis. 35. It is also appropriate that she pay the defendant's costs of disposal of the motion also on the indemnity basis. Hugh Dillon Magistrate 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.