New South Wales Supreme Court CITATION : Tejani v Gerrard [1999] NSWSC 939 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : 4779/97 HEARING DATE(S) : 13 September 1999 JUDGMENT DATE : 16 September 1999 Sikkina Tejani (P1) PARTIES : Manoochehr Samali (P2) Serge Gerrard (D) JUDGMENT OF : Acting Master Berecry COUNSEL : Mr. P. Beale (P) Mr. G. C. Lindsay S.C. and Mr. I. E. Davidson (for third party John Joseph Gilles) SOLICITORS : McGrath Dicembre & Co (P) Giles Payne & Co (D) CATCHWORDS : Costs indemnity basis; Personal liability of solicitor; Part 52A rule 43; Costs improperly incurred. DECISION : See paragraph 15 SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION ACTING MASTER BERECRY Thursday, 16 September 1999 4779/97 SIKKINA TEJANI & ANOR -v- SERGE GERRARD JUDGMENT 1 ACTING MASTER: On 3 December 1998 a notice of motion by the defendant was filed in Court before Mr Justice Windeyer. Paragraph 3 of the notice of motion sought the following: 3. That the orders of this honourable Court made on 27 October 1998 be varied by the addition of the following order: Notwithstanding orders number 1 and 2 above, if the partners of the firm Giles, Payne and Co receive after 2 December 1998 any funds from the defendant which are necessary to pay into the Court for the purpose of prosecuting Appeal No. 40195/98 then the consent of the plaintiffs shall not be required for the partners of Giles, Payne and Co to pay these funds into Court. 2 The notice of motion was supported by an affidavit sworn on 3 December 1998 by Joseph John Gilles who, at that time, was a solicitor for the defendant. 3 On 7 December 1998 Mr Justice Austin handed down a decision on the notice of motion. The motion was dismissed. The question of costs was stood over. Costs were stood over because of the lack of time to allow cross-examination of Mr Gilles and his affidavit of 4 December 1998. It would appear that the defendant sought to withdraw the motion. However, that course of action was refused and the motion was dismissed. 4 His Honour's judgment sets out the history of this litigation. For the purpose of the costs application, the history is relevant from 20 October 1998. 5 An application was brought by the plaintiffs seeking a Mareva injunction against the defendant and the defendant's solicitor. Undertakings were given before Mr Justice Bryson on that occasion. On 27 October 1998 the matter was before Mr Justice Cohen. His Honour noted that, as an undertaking had been given to Mr Justice Bryson, there was an assumption that the solicitors held some funds on behalf of the client. However, in the absence of any evidence his Honour went on to say that he could not come to a conclusion on that matter and, in his opinion, there may or there may not be moneys held in the trust account. His Honour then granted the injunction restraining the defendant and the partners of the firm Giles, Payne and Co from taking any steps to reduce the balance of any funds held by that firm below $74,344 except with the consent of the plaintiffs. 6 The notice of motion before Mr Justice Windeyer on 3 December 1998 was not disposed of on that day. His Honour was not inclined to proceed with the application in the absence of any evidence concerning the amount of money that was held in the solicitor's trust account. The matter was stood over to 4 December and his Honour expressed the view that no order should be made as sought unless an affidavit was filed by a partner of Giles, Payne and Co giving details of the amount held in trust by them as at the 27 October 1998 and confirming that the amount still remains held by them and there have been no payments in or out of that trust account held for the defendants since 27 October 1998 or, if there have been, details of those payments in or out. 7 Subsequently, on 4 December 1998, an affidavit was sworn by Mr Gilles deposing to the current position of the trust account and the position of that account as at 27 October 1998. 8 At this point it is necessary to set out part of what happened in the Court of Appeal. On 2 November 1998 the Registrar of the Court of Appeal ordered the defendant to pay the Court the sum of $22,000 as security for costs of the appeal. He also stayed the leave to appeal until payment was made no later than 14 December 1998 and, further, that the security for costs provided after 4 December 1998 the response not required until January by the other side. I take it that, by response, that meant written submissions. 9 According to Mr Gilles affidavit of 3 December the following took place. The defendant had a telephone conversation with his solicitor in words to the following effect, "I wish to proceed urgently and expeditiously with the Court of Appeal matter. I will telegraphically transfer to your trust account the sum of $22,000 to pay to the Court of Appeal". Shortly before 12:00 noon on 2 December 1998, the solicitors for the plaintiff were notified that their consent would be required. That notification was by way of letter. It seems implicit in the letter that the $22,000 was an amount which was the subject of Mr Justice Cohen's orders of 27 October 1998, hence consent was required. 10 Shortly before 5:00pm on 2 December 1998 the solicitors for the plaintiff refused to release the funds. That refusal was contained in a letter drawing attention to the fact that the specific funds held in the trust account to the extent of $74,000 was subject to the Mareva injunction, and the costs on appeal was a different issue. At 9:00pm on 2 December the solicitor had another conversation with the defendant. The defendant said words to the effect, "I've been running from bank to bank to ensure that I get the money to you before 4 December. It has taken me nine hours to arrange it, but I have now telegraphically transferred to you the $22,000 which you need to put into the Court of Appeal. 11 On 3 December at approximately 9:00am the defendant's solicitor wrote again to the plaintiff's solicitor. In that letter he stated as follows, Perhaps we failed to make the arrangement abundantly clear. The $22,000, which we are seeking to have released from the trust account, is new money and in addition to any funds already there. He also warned the plaintiff's solicitor that unless they responded by 11:00am that morning the defendant's solicitor would approach the duty judge for an appropriate order. At 1:15pm that day the plaintiff's solicitor responded, by letter, informing the defendant's solicitor that he would not consent to release of any funds that would mean that the trust account would hold an amount less than the amount the subject of Mr Justice Cohen's order but, to the extent that the funds exceed that amount, they would have no objection to the funds being released unless there are other options open to the defendant to pay the money into Court other than by way of filing a notice of motion. At 2:15pm on that day the notice of motion and supporting affidavit was forwarded to the plaintiffs' solicitor. As a result of the comments by Mr Justice Windeyer, Mr Gilles prepared an affidavit on 4 December 1998. In that affidavit he deposed the fact that his firm was not holding any money in trusts or any controlled money account in trust for the defendant as at 27 October 1998. There had been no movement into and from the trust account or any controlled money account held in trust for the defendant since that date. Subsequently, as I have already noted, Mr Justice Austin dismissed the notice of motion save as to costs. The plaintiffs' solicitor indicated they would be seeking costs on an indemnity basis from either the defendant or the solicitors and that Mr Gilles would be required for cross-examination. However, time did not permit that to take place. His Honour therefore stood over the question of costs. 12 On 29 July 1999 Master McLaughlin, at the callover, specially fixed the matter for 13 September 1999 and gave directions requiring the defendants by 6 August 1999 to serve a written statement setting out the precise terms of each order sought against each respondent to the application and the grounds upon which it is alleged that each specified order should be made. Directions were also made in relation to written submissions. Unfortunately, the directions were not complied with so the written submissions by the plaintiffs were handed up at the commencement of the hearing. Counsel for the defendant complained that it still was not clear upon what basis the plaintiff sought indemnity costs against either the defendant or the defendant's solicitor. Counsel for the plaintiff indicated that it was clear from the affidavits the basis for the order and from his written submissions. 13 The plaintiff relies on Part 52A rule 43 (i) (c) of the Supreme Court Rules which provide as follows: 43(i) If costs are incurred improperly for no reasonable cause or are wasted by undue delay or for any other misconduct or default and it appears to the Court that a solicitor is responsible (whether personally or through a servant or agent) the Court may, after giving a solicitor a reasonable opportunity to be heard, (a) - (b) - (c) direct the solicitor to indemnify any party other than the client against costs payable by the indemnified party. 14 Subrule (2) provides as follows: Without limiting the generality of subrule (1), a solicitor is responsible for default for the purpose of that subrule where any proceedings cannot conveniently proceed or fail or are adjourned without useful progress being made, because of the failure of the solicitor (a) - (b) to file any document which ought to have been filed; (c) - (d) to be prepared with any proper evidence or account; or (e) - 15 The plaintiffs submit that costs on the indemnity basis are justified because (1) the motion was brought to achieve a purpose which was, in the circumstances, wholly unnecessary and were, therefore, entirely avoidable without litigation of any description; (2) the application was brought in great haste and giving the defendant an unreasonable amount of time to seek instructions; (3) the application because of its unreasonableness was unjustified; (4) the solicitor was aware that the defendant had no assets in Australia and had left Australia permanently and that there was little likelihood that the plaintiffs would be able to recover their costs. 16 The defendants submitted that the requirements of Part 52A rule 43 had not been met. No allegation been made concerning misconduct of the solicitor or that he acted other than on the instructions of the client. No finding could be made, as in all the circumstances, that the solicitor acted unreasonably. 17 In the judgment of 7 December 1998, Mr Justice Austin, on page 7, makes the following comment: I note, however, that I would have awarded costs against the applicant, that is, the defendant, in the normal course were it not for the application for indemnity costs by the respondents (plaintiffs) since the application has wholly failed. Whether this is a case for awarding costs against the applicant (defendant) or his solicitor on the indemnity basis depends, in my opinion, on the contents of Mr Gilles' affidavit of 4 December 1998 which is not yet in evidence plus any further evidence arising out of cross-examination of Mr Gilles or otherwise. 18 Costs may be ordered on the indemnity basis where the proceedings have been commenced or continued in circumstances where a party properly advised should have known that he or she had no chance of success and, therefore, had an ulterior motive in bringing or continuing the proceedings. 19 In his judgment of 27 October 1998, Mr Justice Cohen referred to the position of the trust account. On the evidence before him it was not clear whether or not there were any moneys in the trust account. His Honour made the assumption in the absence of any evidence that there may be some funds left out in an amount of more than $1 million obtained by the defendant in the last six months. On that basis his Honour granted the orders that were sought by the plaintiff in relation to any funds up to $74,344 in the defendant's trust account. It is clear then that as of 27 October 1998 there is no evidence one way or the other about any funds that were held by the solicitor. Therefore, it cannot be said at that point that there has ever been any misrepresentation by the defendant or his solicitor as to funds still held in the trust account. 20 On 2 November 1998 the Registrar of the Court of Appeal made an order in relation to security for costs. The security was to be provided by either 4 December 1998 or 14 December 1998 it is not clear from the affidavit of Mr Gilles of 3 December 1998. 21 On 2 December 1998, a month after the order of the Court of Appeal, the defendant seeks to proceed urgently and expeditiously with the Court of Appeal matter. No basis has been given why the appeal had now become urgent and required to be dealt with expeditiously. The decision appealed against was the decision of Mr Justice Cohen of 11 March 1998. The appeal was not lodged until 7 April 1998 and it was not until 17 September 1998 that the Court informed the claimant that the appeal was incompetent without leave. 22 On 24 September 1998 a summons seeking leave was filed. Subsequently, the matter was called-over on 16 November 1998. But, during that period, no urgency appeared and no application for expedition was made. It was only on 2 December 1998 that there appeared to be some degree of urgency. That is not articulated. The only basis it seems to be that if the security is not provided by 4 December 1998, the plaintiffs will have the luxury of approximately 6 to 7 weeks to put on their written submissions, whereas otherwise the submissions would have to be filed and served before the end of term. 23 The notice of motion was brought on with great haste. On the evidence it cannot be said that the solicitor intended to mislead either the Court or his opponent. However, there does appear to be an absence of candour. The notice of motion sought a variation of the orders of Mr Justice Cohen of 27 October 1998 to the extent that any funds received from the defendant after 2 December 1998 which were necessary for the prosecuting of the appeal should not require the consent of the plaintiffs to pay those funds into Court. The motion attempts to do that, with funds being available after 2 December 1998. However, the solicitor knew or ought to have known that, at the most, when the application was made, the only funds held in the trust account amounted to $20. That sum is a far cry from the protection of just over $74,000 made by the order of Mr Justice Cohen. 24 Similarly, the correspondence between the parties, on a close reading of the correspondence, it can be seen of the $22,000 mentioned is an amount which is subject to the Mareva injunction and, therefore, the plaintiffs' consent to pay the money into Court from funds out of the trust account would be required. However, the defendant's solicitor was not acting openly and frankly. In his letter of 3 December 1998, he informed the plaintiffs' solicitor that the $22,000 is new money and in addition to any funds already there. Strictly speaking that was correct. He knew or ought to have known that the funds already held in the trust account amounted to no more than $20. By referring to the $22,000 as new money and in addition to any funds already there the inference is that, having regard to the background of the proceedings, there are substantial funds in the trust account. By substantial I put no quantum on the funds, but something greater than $20 and less than $74,000. 25 The solicitor proceeded with great haste to obtain the plaintiff's solicitor to consent to allow the money to be used as security for costs by threatening to go immediately to the Court to obtain the necessary orders. All this takes place in the period of forty-eight hours and yet it was some five weeks earlier that the Registrar of the Court of Appeal ordered the defendant to provide the security for costs. There is no explanation given for the urgency. I can only assume it was done to obtain some tactical advantage. The solicitor embarked on a program of undue haste. In doing so, he not only caused his opponent to incur costs, but he has not properly searched and inspected his own records. Whilst the evidence is that the defendant, in conversations with Mr Gilles, informed him that money was being telegraphically transferred to his trust account. Mr Gilles appears to have taken no steps to ensure that the funds had been received. But, of course, that is allowed for in the notice of motion. The motion refers to funds received after 2 December 1998. 26 Nevertheless, in making such an application, I would have thought to establish the bona fide of the defendant there would have been at least an affidavit setting out how much was in the trust account at the time the application was made. This did not happen. I do not accept that a solicitor would bring such an application and would assume that, in the absence of any evidence establishing either his or the client's bona fide, such an application could succeed. Surely, in considering such an application, a matter that the Court would want to be satisfied about was, having regard to the orders made by Mr Justice Cohen on 27 October 1998, that there were, in fact, substantial funds held by the solicitor in his trust account. It seems to me that the application was more a bluff rather than a substantial application. It ran into problems on the first return before Mr Justice Windeyer when he refused to deal with the application and suggested that their evidence should be put on concerning amounts held in the trust account. In fact, his Honour went further than that. He expressed the view that no orders should be made as sought unless an affidavit was filed by a partner of Giles, Payne and Co giving details of the amount held in the trust account by them. As at 27 October 1998 and confirming that the amounts still remains held by them and that there had been no payments in or out of that trust account held for the defendant since 27 October 1998 or, if there had been, details of those payments in or out. This forced the defendant to show his hand. 27 On the following day, on 4 December 1998, the matter was relisted before Mr Justice Austin. An affidavit had been prepared and was sworn on 4 December 1998 by Mr Gilles. In that affidavit Mr Gilles deposed the fact that, as at 27 October 1998, there were no moneys in the trust account and, since that date, there had been no movement of funds into or from the trust account. 28 As a result of that search of his trust account Mr Gilles sought to withdraw the motion. It became crystal clear that the motion could not succeed. Of course, even the evidence given in that affidavit was found to be wrong. There was, in fact, an amount of $20 in the account. 29 Subsequently, it has been established that there was, in fact, transferred by inter-bank transfer into the solicitor's trust account on 3 December 1998 an amount of $21,992. It is said that the solicitor did not become aware of this until late January 1999. Exhibit A contains a copy of the account statement from the St George Bank. There is handwritten on that statement the following words, "statement received 11/12/98". That is inconsistent with the statement made during the hearing of the costs application. 30 In any event I find it difficult to accept that, having been told by the client that the funds would be transferred into the trust account, the solicitor knowing what bank his firm does business with, did not telephone the banks the practice deals with to inquire whether or not there had been a telegraphic transfer of funds. It seems that all that the solicitor did was to rely on what the client said he would do and had done and on the records that were kept by the practice. Of course those records are not going to be updated until there is some acknowledgment by the receiving bank of those funds. It would appear to me that the solicitor in preparing this application had not carried out the proper searches and inquires to establish whether the funds had been put into the trust account. That becomes abundantly clear after the comments made by Mr Justice Windeyer that the Court would not consider the application unless it had before it information confirming the quantum of any funds that flowed into and out of the trust account since 27 October 1998. 31 In preparing the affidavit of 4 December 1998 it would seem that the solicitor did no more than have a cursory glance at the records of the trust account. No inquiries were made at the bank and no proper search was conducted of the trust account. At that point it would appear that the solicitor knew that the application was absolutely hopeless and doomed to fail. 32 However, the conduct of the solicitor, in my view, does not amount to misconduct. The Professional Conduct and Practice Rules of the Law Society of New South Wales set out the duties that a practitioner owes to the Court and to his opponent. In the Statement of General Principle, it is stated that in dealing with the Courts the practitioner is required to act with competence, honesty and candour. It seems to me that, for whatever reason in the haste to bring the application concerning the $22,000 before the Court, the solicitor has failed to properly consider the matter and has failed to ensure that there is material before the Court which would assist the Court in making a determination and, even after he conducted the search of his trust account, he was still unable to give accurate evidence of the current position of the trust account. 33 Mr Justice Austin, in his judgment of 7 December 1998, intimated that because the plaintiffs had succeeded on the motion that he would have made an order for costs in the usual manner against the defendant as the defendant had wholly failed on the motion. But he stood the motion over on the question of costs because time did not permit the cross-examination of Mr Gilles on his affidavit of 4 December 1998. 34 Therefore without any more at the very least the plaintiffs are entitled to an order for costs. The question is on what basis and by whom should those costs be paid. 35 There is evidence that the defendant had, during the course of 1998 divested himself of assets in New South Wales. There is also evidence which establishes that Mr Gilles acted as his solicitor in the sale of two properties. There is no evidence that Mr Gilles was aware that, as a result of those two sales, he, Mr Gilles, knew that the defendant no longer had assets in New South Wales. However, the Registrar of the Court of Appeal ordered his client to provide security for costs for the prosecution of the appeal. As I understand it that application was brought on the basis that the defendant, the appellant in the appeal, was no longer resident in Australia and had no assets in the country. Mr Gilles was the defendant's solicitor on that application. It, therefore, can be inferred that Mr Gilles had a reasonable knowledge of the defendant's financial position concerning assets in Australia. Mr Gilles was, of course, aware that there was little in the practice's trust account held on behalf of the defendant. A look at the trust account records would reveal that since late April 1998 the practice held little or no funds on behalf of the defendant. Mr Gilles was aware that orders made by Mr Justice Cohen were no restraint on his client because the funds that were held were so minuscule as to be meaningless. The solicitor must have been aware that in making the application that was made before Mr Justice Windeyer that unless he could establish the bona fide of the application that it was doomed to failure. He was also aware that any victory that the plaintiff may have can be categorised as nothing but a Pyrrhic victory because, in all probability, his client had no funds in Australia, has made no attempt to put money into the trust account to cover the costs of the Equity Division proceedings and was only concerned with providing funds to cover the security for costs application. It therefore meant that any further costs incurred in the equity proceedings were costs which the plaintiffs would have a great deal of difficulty in recovering and, in fact, as things stand, an almost impossible task. 36 For those reasons I am of the view that the costs that have been incurred on this application have been improperly incurred and they have been incurred without reasonable cause. It follows that the plaintiffs should succeed on the question of costs. The Court should not make orders which give a party a Pyrrhic victory. Any order of the Court should be an order that has some substance to it. The only substance that can be given to the order is to ensure that there is a capacity within that order for it to be met. In my view because the solicitor was a party to an action which improperly incurred costs. In the absence of proper searches and inquiries of his own records there is a degree of negligence. The solicitor should be liable for the plaintiffs' costs incurred in the motion. Not only in relation to the costs of and incidental to the hearings before Mr Justice Windeyer and Mr Justice Austin but also the costs of the motion before me on 13 September 1999. 37 Therefore the order I made is that John Joseph Gilles pay the plaintiff's costs personally on the indemnity basis of the defendant's motion filed on 3 December 1998. ********** Last Modified: 09/16/1999 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.