Reported Decision : 63 NSWLR 300 New South Wales Court of Appeal CITATION: Lemoto v Able Technical Pty Ltd & 2 Ors [2005] NSWCA 153 HEARING DATE(S): 30 March 2005 JUDGMENT DATE: 9 May 2005 JUDGMENT OF: Hodgson JA at 1; Ipp JA at 12; McColl JA at 13 DECISION: (1) Extend to 18 June 2004 the time in which the appellant might seek leave to appeal against such orders as were made by the primary judge prior to 19 May 2004 (2)Grant leave to appeal and allow the appeal (3) Set aside the costs order made by Phegan DCJ in Chambers on 25 February 2004 (4)Order the first and second respondents to pay the appellant's costs of the appeal and of the application for leave to appeal (5)Third respondent to bear her costs of the appeal and of the application for leave to appeal. CATCHWORDS: LEGAL PROFESSION - whether costs order properly made against solicitor pursuant to s 198M Legal Profession Act 1987 - whether case that solicitor provided legal services on a claim for damages without reasonable prospects of success - NATURAL JUSTICE - procedural fairness - failure to give full and sufficient notice of basis on which costs order might be made against solicitor - failure to give full and sufficient opportunity to respond to question whether costs order should be made to have regard to principles of natural justice - PROCEDURE - mode of making s 198 M costs application - procedure devised to deal with question whether a s 198M order should be made should have regard to principles of natural justice - JUDICIAL OFFICERS - exercise of judicial power - obligation to give reasons - STATUTORY INTERPRETATION - construction of Part 11, Division 5C of the Legal Professional Act 1987 - WORDS AND PHRASES - "without reasonable prospects of success" (D) Arbitration (Civil Actions) Act 1983 Civil Liability Act 2002 Conciliation and Arbitration Act 1904 (Cth) Courts Legislation (Civil Procedure) Amendment Act 1991 District Court Act 1973 LEGISLATION CITED: District Court Rules 1973 Legal Profession Act 1987 Supreme Court Act 1970 Supreme Court Act 1981 (Imp) Supreme Court Rules 1970 Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 47 ATR 1 Attorney-General v Wylde (1946) 47 SR (NSW) 99 Bahai v Rashidian [1985] 1 WLR 1337 Balog & Stait v Independent Commission Against Corruption [1990] HCA 28; (1990) 169 CLR 625 Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430 Brendon v Spiro [1938] 1 KB 176 Burton v Shire of Bairnsdale [1908] HCA 57; (1908) 7 CLR 76 Cahill v Ekstein (Smart J, unreported, Supreme Court of New South Wales 5 June 1998) Candler v Crane Christmas & Co [1951] 2 KB 164 Carson v Legal Services Commissioner [2000] NSWCA 308 CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384 Commonwealth of Australia (Department of Defence); Ex parte Marks [2000] HCA 67; (2000) 75 ALJR 470 De Sousa v Minister for Immigration, Local Government & Ethnic Affairs (1993) 41 FCR 544 Degiorgio v Dunn (No 2) [2005] NSWSC 3 Deputy Commissioner of Taxation v Levick [1999] FCA 1580; (1999) 168 ALR 383 Edwards v Edwards [1958] P 235 Flinn v Flinn [1999] VSCA 134 Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 87 FCR 134 Giannarelli & Shulkes v Wraith [1988] HCA 52; (1988) 165 CLR 543 Gitsham v Suncorp Metway Insurance Ltd [2002] QCA 310 Harley v McDonald [2001] UKPC 18; [2001] 2 AC 678 Helljay Investments Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [1999] HCA 56; (1999) 74 ALJR 68 Johns v Law Society of New South Wales [1982] 2 NSWLR 1 Johnson v Emerson (1871) LR6Ex 329 Ketteman v Hansel Properties Ltd [1987] AC 189 Knaggs v J A Westaway & Sons Pty Ltd (1996) 40 NSWLR 476 Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 CASES CITED: Kumar v Minister for Immigration and Multicultural and Indigenous Affairs (No 2) [2004] FCA 18; (2004) 133 FCR 582 Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155 Marsh v Joseph [1897] 1 Ch 213 Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 Money Tree Management Services Pty Ltd v Deputy Commissioner of Taxation (No 3) [2000] SASC 286 Myers v Elman [1940] AC 282 New South Wales Bar Association v Murphy [2002] NSWCA 138; (2002) 55 NSWLR 23 Orchard v South Eastern Electricity Board [1987] QB 565 O'Reilly v Law Society of New South Wales (1988) 24 NSWLR 204 Patrick v Capital Finance Corp (Australasia) Pty Ltd [2004] FCA 1249 Potter v Minahan [1908] HCA 63; (1908) 7 CLR 277 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 R v Moore; Ex parte Federated Miscellaneous Workers Union of Aust [1978] HCA 51; (1978) 140 CLR 470 R v Solicitors Disciplinary Tribunal; Ex parte L (a solicitor) [1988] VR 757 Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 App Cas 186 Re Bendeich (1994) 53 FCR 422 Re Cooke (1889) 5 TLR 407 Ridehalgh v Horsfield [1994] Ch 205 Rondel v Worsley [1969] 1 AC 191 Smith v New South Wales Bar Association [1992] HCA 36; (1992) 176 CLR 256 Sorridimi v Moros & Anor [2004] NSWCA 168 Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 Steindl Nominees Pty Ltd v Laghaifar [2003] QCA 157; [2003] 2 Qd R 683 Symphony Group plc v Hodgson [1994] QB 179 Tame v State of New South Wales; Annetts v Australian Stations Pty Ltd [2002] HCA 35; (2002) 211 CLR 317 Taylor v Pace Developments Ltd [1991] BCC 406 Tombling v Universal Bulb Co Ltd [1951] 2 TLR 289 Wentworth v Rogers [1999] NSWCA 403 White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 Semisi Lemoto (Appellant) Able Technical Pty Limited (First Respondent) PARTIES: B & C Mailing Pty Limited (Second Respondent) Christine Stoddart (Third Respondent) FILE NUMBER(S): CA 40432/04 S Norton SC, M D Causer (Appellant) First Respondent (No Appearance) COUNSEL: M T McCulloch SC, R G Gambi (Second Respondent) K Richardson (Third Respondent) First Law Pacifica (Appellant) Owen Hodges Lawyers (First Respondent) SOLICITORS: Hunt & Hunt Lawyers (Second Respondent) Gilbert + Tobin (Third Respondent) LOWER COURT JURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC 13332/01 LOWER COURT JUDICIAL OFFICER: Phegan DCJ IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40432/04 DC 13332/01 HODGSON JA IPP JA McCOLL JA Monday, 9 May 2005 LEMOTO v ABLE TECHNICAL PTY LTD & 2 ORS FACTS The appellant acted as the solicitor for the third respondent in proceedings in the District Court in which she sought to recover damages for injuries she allegedly suffered while working at the second respondent's premises. She had been sent to work at those premises by the first respondent, a labour hire firm. The proceedings were referred to arbitration. The arbitrator entered a verdict for the first and second respondents. The third respondent sought a rehearing pursuant to s 18 Arbitration (Civil Actions) Act 1983. On 26 September 2003 the primary judge entered a verdict and judgment in favour of the first and second respondents. At a hearing on 23 October 2003 to debate the costs orders which should be made consequent upon the judgment, the second respondent sought a costs order against the appellant pursuant to s 198M, Part 11, Division 5C of the Legal Profession Act (the "Act"). On that occasion, counsel for the third respondent said the transcript of the hearing would be sought in order to respond to the s 198M application. The appellant was not in court on 23 October. The primary judge adjourned the s 198M application. The primary judge subsequently required counsel for the third respondent and the appellant to appear before him on 7 November 2003. On that occasion, his Honour said that he was persuaded that there was a case for an order to be made against each of them pursuant to s 198M of the Act. He invited them to provide affidavits and written submissions on that question. On 25 November 2003, the matter was re-listed before the primary judge, apparently at the request of the third respondent's counsel. The appellant said he was not notified of that hearing and did not attend. Counsel for the second respondent attended and informed the primary judge that the second respondent had not sought a personal costs order against the third respondent's counsel, but only against the appellant. On that occasion, the primary judge acknowledged he had not made an explicit finding that the facts established by the evidence did not found a basis for a reasonable belief that the third respondent's claim had reasonable prospects of success. His Honour said that that finding was "implicit" and he had no difficulty in "formalising it". On 10 December 2003 the associate to the primary judge sent a letter to the appellant which stated that following the mention of the matter on 25 November 2003 the primary judge was of the view that "the order made against [him] pursuant to section 198M of the Act should stand". The letter invited the appellant "to rebut the presumption that the matter was brought to trial without reasonable prospects of success as provided for in s 198N(3) and (4) of the Act". On 17 December 2003 the appellant wrote to the associate advising that the transcript of the hearing had been obtained and forwarded to counsel, but that counsel would not be able to draft affidavits prior to the close of the Court term. After the District Court term resumed in 2004 the associate sought to contact the appellant on two occasions to ascertain the position concerning affidavits. During this period the appellant was consulting counsel about the nature of the affidavits he could file, as well as seeking to ascertain what had transpired at the 25 November mention. He did not advise the associate that he was taking those steps. On 25 February 2004 the primary judge's associate wrote to the appellant noting that the appellant had failed to file an affidavit and that the primary judge had entered a costs order against him under s 198M of the Act (the "costs order"). On 4 March the appellant filed a Notice of Motion, seeking to set aside the cost order on the grounds (inter alia) that he was not afforded procedural fairness and denied natural justice before the order was made. The primary judge rejected this application. The appellant sought leave to appeal from the making of the costs order. HELD per McColl JA (Hodgson JA, Ipp JA agreeing), granting leave to appeal and allowing the appeal. 1 The purpose of Part 11, Division 5C of the Legal Profession Act 1987 is to deter the legal practitioner at the peril of a personal costs order, and possibly disciplinary proceedings, from representing a client whose prospects in pursuing or resisting a claim for damages he or she has formed the view have no reasonable prospects of success. 2 The question whether legal services were provided without reasonable prospects of success for the purposes of Part 11, Division 5C of the Legal Profession Act 1987 turns on whether the solicitor or barrister held a reasonable belief that the provable facts and a reasonably arguable view of the law meant that the prospects of recovering damages or defeating a claim or obtaining a reduction in the damages claimed were "fairly arguable". Degiorgio v Dunn (No 2) [2005] NSWSC 3 applied. 3 The question whether a solicitor or barrister believed that they had material which objectively justified proceeding with a claim or a defence turns on whether that belief "unquestionably fell outside the range of views which could reasonably be entertained". Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 referred to. 4 Section 198J imposes a continuing obligation. There may be a stage in a claim for damages where the fact a legal practitioner could not then reasonably believe that the evidence available would be admissible to enable the claim to be proved or defended, may lead to a prima facie case of a contravention of s 198J Cahill v Ekstein (Smart J, unreported, Supreme Court of New South Wales, 5 June 1998) referred to. 5 The mere fact litigation is resolved adversely to a party does not mean costs should be ordered against the legal practitioner who provided legal services to that party. Deputy Commissioner of Taxation v Levick [1999] FCA 1580; (1999) 168 ALR 383 applied; R v Moore; Ex parte Federated Miscellaneous Workers Union of Aust r alia [1978] HCA 51; (1978) 140 CLR 470; Commonwealth of Australia (Department of Defence); Ex parte Marks [2000] HCA 67; (2000) 75 ALJR 470; Gitsham v Suncorp Metway Insurance Ltd [2002] QCA 416 referred to. 6 The question whether a s 198M order should be made is discretionary. 7 When considering whether to make a s 198M order the court should consider the nature of the contravention of Division 5C which has been established, the possibly serious implications of making the costs order and determine whether it is just, in all the circumstances, that a s 198M order should be made and whether it should be as to the whole or part of the costs. 8 In the absence of regulations to the Legal Profession Act 1987 or District Court Rules regulating the procedure to be adopted, when an issue arises under s 198M the procedure to be adopted is a matter for the judge. The procedure must be devised having regard to the principles of natural justice and should be fair and "as simple and summary as fairness permits". Brendon v Spiro [1938] 1 KB 176; LJ; Bahai v Rashidian [1985] 1 WLR 1337; Ridehalgh v Horsfield [1994] Ch 205 referred to. 9 Where the application for a s 198M order is made by a party, it should be made by notice of motion supported by an affidavit. Sorridimi v Moros & Anor [2004] NSWCA 168 applied. 10 The Court must ensure that the legal practitioner against whom a s 198M order is sought has full and sufficient notice of the complaint and full and sufficient opportunity of answering it. Myers v Elman [1940] AC 282; Ridehalgh v Horsfield [1994] Ch 205; Smith v NSW Bar Association [1992] HCA 36; (1992) 176 CLR 256; O'Reilly v Law Society of New South Wales (1988) 24 NSWLR 204; R v Solicitors Disciplinary Tribunal; Ex parte L [1988] VR 757; Johns v Law Society of New South Wales [1982] 2 NSWLR 1 referred to. 11 The power to order costs against a non-party must be exercised judicially. The proceedings in which a s 198M order is considered must take place in court and, save in exceptional circumstances such as deliberate non-attendance, in the presence of the person likely to be affected by any order made. They should be determined by the delivery of a judgment which adequately exposes the reasons for the outcome. Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178; Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 referred to. 12 The primary judge erred in forming the view that this was a case which gave rise to the s 198N presumption. 13 The primary judge erred in making the costs order: (a) he failed to accord procedural fairness to the appellant; (b) he did not inform the appellant of the precise basis upon which he had apparently formed the view that the appellant had provided legal services to the third respondent without reasonable prospects of success; (c) to the extent it was possible to discern his approach, he failed to consider whether the third respondent's case was fairly arguable; (d) he failed to recognise the discretionary nature of s 198M. 14 The primary judge erred in failing to give reasons for the costs order. 15 There was no prima facie case that the appellant provided legal services to the third respondent without reasonable prospects of success. History of the jurisdiction to order legal practitioners to pay the costs of legal proceedings discussed; observations about the procedures which might be followed when considering whether a s 198M order should be made. ORDERS (1) Extend to 18 June 2004 the time in which the appellant might seek leave to appeal against such orders as were made by the primary judge prior to 19 May 2004. (2) Grant leave to appeal and allow the appeal. (3) Set aside the costs order made by Phegan DCJ in Chambers on 25 February 2004. (4) Order the first and second respondents to pay the appellant's costs of the appeal and of the application for leave to appeal. (5) Third respondent to bear her costs of the appeal and of the application for leave to appeal. ********** IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40432/04 DC 13332/01 HODGSON JA IPP JA McCOLL JA Monday, 9 May 2005 LEMOTO v ABLE TECHNICAL PTY LTD & 2 ORS Judgment 1 HODGSON JA: I agree with the orders proposed by McColl JA and substantially with her reasons. I would add a few comments of my own. 2 On 25 November 2003, the primary judge indicated to the effect that he had made a finding in terms of s.198N(1) of the Act, that is, that the facts established by the evidence before him did not form a basis for a reasonable belief that the claim in this case had reasonable prospects of success. 3 Such a finding is a judicial decision that materially affects the interests of persons who provide legal services on a claim, because it raises a presumption that those legal services were provided without reasonable prospects of success. It puts an onus on these persons to rebut that presumption, in circumstances where they are disadvantaged in that endeavour by the finding itself. Further, any attempted rebuttal of that presumption may require that those persons give evidence of communications between them and their client, as contemplated by s.198N(4). 4 Accordingly, unless there is some indication to the contrary in the legislation, a finding under s.198N(1) should not be made unless persons affected are given natural justice, at least to the extent of being advised that such a finding is under contemplation and given an opportunity to make submissions. 5 It may be said that s.198M and s.198N, in their statutory context, suggest that such issues should be decided expeditiously, inexpensively and without undue formality. It may also be said that strict application of the principles of natural justice could mean, contrary to this objective, that before an order under s.198M can be made on the basis that a s.198N finding, there might be three contested, time-consuming and expensive hearings: (1) to determine whether there should be a finding under s.198N(1); (2) to determine whether confidential communications can be disclosed, under s.198N(4); and (3) to determine whether the s.198N presumption is rebutted and, if not, whether to make a s.198M order. 6 Further, the whole process may be complicated by considerations of the interests of the party represented by the persons against whom an order is proposed. A s.198M order is, in itself, in the interests of that party, in that it may relieve that party of the costs of the proceedings; but the process of determining whether such an order should be made may be very much against that party's interests, by depriving that party of its legal advisers and thereby hindering proper consideration of the possibility of an appeal and the institution and conduct of an appeal, and also by giving rise to disclosure of privileged communications (which, even if it does not involve loss of the privilege for other purposes, could be to the detriment of that party). This may not be a serious difficulty if it is this party itself that applies for the s.198M order, because in that case the party chooses to subject itself to these possible disadvantages. But if, as in this case, the process is initiated by another party, or by the Court, the possible disadvantages to the party for whom the relevant legal services were provided need to be kept steadily in mind. 7 However, I do not think that, even having regard to these considerations, the legislation discloses an intention to displace ordinary requirements of natural justice. Further, I do think that in many cases all seriously contested issues can and should be dealt with in one hearing. 8 In some cases, particularly where an oral judgment is delivered, it may be possible for a judge, at the conclusion of the judgment, to indicate to a person or persons who provided legal services that the judge is contemplating a finding in terms of s.198N, for reasons then disclosed, and to invite submissions; and after hearing submissions, to make a finding in terms of s.198N(1) then and there. 9 But in my opinion, it would usually be preferable to indicate the possibility of a s.198N(1) finding, and then to give directions with a view if possible to a single hearing in which all issues can be determined. If there is a question arising under s.198N(4), the legal adviser might not be able safely to serve evidence disclosing confidential communications on anyone other than the client with whom there were such communications, until that question is resolved; so if the other party to the proceedings is involved in the application for the s.198M order, it may be necessary to decide whether a s.198N(4) issue needs to be determined in advance of the hearing, so that this other party knows before the hearing what the legal adviser's evidence is to be. 10 Turning to another matter, I agree with McColl JA that, if a court makes a finding that a barrister or solicitor has provided legal services to a party without reasonable prospects of success, the Court still has a discretion as to whether or not to make an order under s.198M. This discretion is indicated by the use of the word "may", and in my opinion it is confirmed by the terms of s.198L, according to which provision of services without reasonable prospects of success is not necessarily professional misconduct or even unsatisfactory professional conduct, but only "capable of being" such. That is, the provision of legal services without reasonable prospects of success may not even be unsatisfactory professional conduct; and this in turn suggests that such provision may occur in circumstances where it is not appropriate for an order under s.198M to be made, for example where a barrister is briefed to appear on very short notice. 11 In the present case, the primary judge erred in making a finding under s.198N without giving natural justice to the appellant, in not recognising the existence of a discretion under s.198M, and in not giving reasons. I agree with McColl JA that it is appropriate for this Court to determine the matter, and I agree with her determination, for the reasons she gives. 12 IPP JA: I agree with Hodgson JA and McColl JA. 13 McCOLL JA: This is an application for leave to appeal from a costs order made by Judge Phegan against Semisi Lemoto pursuant to s 198M of the Legal Profession Act 1987. As I am of the view that leave to appeal should be granted I shall refer to the parties as the appellant and the first, second and third respondents respectively. 14 The costs order was made in respect of the appellant's conduct as solicitor for Christine Maree Stoddart (the "third respondent") in damages proceedings (the "principal proceedings") she brought against Able Technical Pty Ltd (the "first respondent") and B & C Mailing Pty Ltd (the "second respondent"). Legislative framework 15 Section 198M appears in Division 5C of Part 11 of the Legal Profession Act. Part 11 deals with "Legal fees and other costs". Division 5C was inserted by Schedule 2.2[2] of the Civil Liability Act 2002. The Civil Liability Act was assented to on 18 June 2002 but commenced on 20 March 2002. That date was selected as the commencement date following the Premier's announcement on 7 September 2001 foreshadowing the introduction of the Civil Liability Bill: Second Reading Speech, New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 28 May 2002, Vol 292 (the "Second Reading Speech") at 2086. 16 Division 5C relevantly provides: "Section 198J Solicitor or barrister not to act unless there are reasonable prospects of success (1) A solicitor or barrister must not provide legal services on a claim or defence of a claim for damages unless the solicitor or barrister reasonably believes on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success. (2) A fact is 'provable' only if the solicitor or barrister reasonably believes that the material then available to him or her provides a proper basis for alleging that fact. (3) This Division applies despite any obligation that a solicitor or barrister may have to act in accordance with the instructions or wishes of his or her client. (4) A claim has reasonable prospects of success if there are reasonable prospects of damages being recovered on the claim. A defence has reasonable prospects of success if there are reasonable prospects of the defence defeating the claim or leading to a reduction in the damages recovered on the claim. (5) Provision of legal services in contravention of this section constitutes for the purposes of this Division the provision of legal services 'without reasonable prospects of success'. Section 198L Restrictions on commencing proceedings without reasonable prospects of success (1) The provision of legal services without reasonable prospects of success does not constitute an offence but is capable of being professional misconduct or unsatisfactory professional conduct. (2) A solicitor or barrister cannot file court documentation on a claim or defence of a claim for damages unless the solicitor or barrister certifies that there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success. … Section 198M Costs order against solicitor or barrister who acts without reasonable prospects of success (1) If it appears to a court in which proceedings are taken on a claim for damages that a solicitor or barrister has provided legal services to a party without reasonable prospects of success, the court may of its own motion or on the application of any party to the proceedings make either or both of the following orders in respect of the solicitor or barrister who provided the services: (a) an order directing the solicitor or barrister to repay to the party to whom the services were provided the whole or any part of the costs that the party has been ordered to pay to any other party, (b) an order directing the solicitor or barrister to indemnify any party other than the party to whom the services were provided against the whole or any part of the costs payable by the party indemnified. (2) The Supreme Court may on the application of any party to proceedings on a claim for damages make any order that the court in which proceedings on the claim are taken could make under this section. (3) An application for an order under this section cannot be made after a final determination has been made under this Part by a costs assessor of the costs payable as a result of an order made by the court in which the proceedings on the claim concerned were taken. (4) A solicitor or barrister is not entitled to demand, recover or accept from his or her client any part of the amount for which the solicitor or barrister is directed to indemnify a party pursuant to an order under this section. Section 198N Onus on solicitor or barrister to show facts provided reasonable prospects of success (1) If the court ('the trial court') hearing proceedings on a claim for damages finds that the facts established by the evidence before the court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success, there is a presumption for the purposes of this Division that legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success. (2) If the Supreme Court (when the Supreme Court is not the trial court) is satisfied, either as a result of a finding of the trial court or otherwise on the basis of the judgment of the trial court, that the facts established by the evidence before the trial court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success, there is a presumption for the purposes of this Division that legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success. (3) A presumption arising under this section is rebuttable and a solicitor or barrister who seeks to rebut it bears the onus of establishing that at the time legal services were provided there were provable facts (as provided by section 198J) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success. (4) A solicitor or barrister may, for the purpose of establishing that at the time legal services were provided there were provable facts (as provided by section 198J) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success, produce information or a document despite any duty of confidentiality in respect of a communication between the solicitor or barrister and a client, but only if: (a) the client is the client to whom the legal services were provided or consents to its disclosure, or (b) the court is satisfied that it is necessary for the solicitor or barrister to do so in order to rebut a presumption arising under this section. " 17 Division 5C extended to legal services provided on or after 20 March 2002 even if the legal services were provided in connection with a claim that arose before that date (and whether or not proceedings on the claim were commenced before that date): Legal Profession Act, Schedule 8, cl 90(2). 18 I will refer to the order contemplated by s 198M (1)(a) as a "repayment order" and that contemplated by s 198M (1)(b) as an "indemnity order". 19 The Second Reading Speech to the Civil Liability Bill was mainly concerned with the tort law reform that bill effected. It gives little insight into the legislative purpose of Division 5C. To the extent that there was any statement beyond a repetition of the wording of ss 198J, 198L and 198M, the Premier referred, in substance, to the provisions preventing "unmeritorious claims" and "spurious defences": Second Reading Speech at 2088. Statement of the case 20 In the principal proceedings, the third respondent alleged that she had suffered an injury to her lower back on 11 October 1999 as a consequence of being required to lift boxes while working at the second respondent's premises. She had been sent to work at those premises by the first respondent, a labour/hire or employment agency. On 26 November 2001 the appellant filed a Statement of Claim in the District Court seeking damages on the third respondent's behalf acting in his capacity a partner in the firm First Law Pacifica. In those proceedings the first and second respondents were named as the first and second defendants respectively. 21 As described by the primary judge the third respondent's case against the respondents was that "they failed to provide [her] at the premises of the second [respondent] with a safe system of work, that she was required as part of that work to undertake heavy lifting which was directly responsible for the herniation of [her] disc at the L5/S1 level and the subsequent need for surgery". 22 The principal proceedings were referred to arbitration. On 17 March 2003 the arbitrator entered a verdict for the first and second respondents. In his brief reasons, the Arbitrator concluded that the second respondent neither directed nor requested the third respondent to undertake the lifting she asserted had caused her injury. Accordingly, he concluded that activity was not part of the second respondent's system of work and, presumably, while he did not expressly so state, there had been no breach of any duty of care. He concluded that the third respondent failed against the first respondent because she had not established that it required her to work in an unsafe environment or system. 23 The third respondent sought a rehearing of the arbitration: s 18 Arbitration (Civil Actions) Act 1983. The rehearing commenced on 15 September 2003 before the primary judge. The evidence concluded on 18 September 2003. On 26 September 2003 the primary judge delivered judgment in which he entered a verdict and judgment in favour of the first and second respondents. 24 The primary judge delivered a lengthy judgment. He dealt first with two causation issues. The first was whether the third respondent's back condition was caused by a pre-existing arthritic condition from which she suffered. The primary judge concluded that it was not. 25 The second causation issue was whether, even if there was no connection between the third respondent's pre-existing arthritic condition and her back problems, the back condition itself was a pre-existing condition, "independently triggered and … not in that sense caused by anything that had happened at the premises of the second [respondent] on 11 October 1999". The primary judge concluded that issue adversely to the third respondent. 26 His Honour's decision on the second causation issue was substantially influenced by his conclusions about her credit which he said was "a very significant issue in this case". The primary judge concluded that the third respondent was "a poor historian", but that he was not satisfied that "this was a consequence of any systematic attempt on [her] part to distort the truth". He concluded that he found it difficult "to place, with any confidence, reliance on all the plaintiff's evidence, and there were a number of respects in which, from a combination of inconsistency and hesitancy, it was difficult to accept a version of events which, for example, was adopted by [counsel for the third respondent] in some of the submissions which she made in support the third respondent's case". 27 Nevertheless, his Honour held that: " In fairness to the plaintiff, it has to be said that even when allowance is made for the unreliability of her evidence and for the difference in the medical opinions, there is still room on the medical evidence for a conclusion that the lifting incidents on 11 October 1999 were the precipitating cause of the disc protrusion. Certainly one could not say, on the basis of all of the medical evidence, that such a connection is excluded. It is quite consistent with the degenerative condition and the earlier episodes of the onset of back pain and symptoms of sciatica, to conclude that up until 11 October there had been no precipitating event sufficient to bring about the debilitating condition which the plaintiff subsequently suffered. A causal connection in that sense certainly could not be excluded as a possibility. It should also be said in fairness to the plaintiff that the evidence of gradual onset of pain and of its exacerbation, at least when the plaintiff was subsequently employed in late October and early November of 1999, is all consistent with the possibility that there was an undetected but nonetheless real herniation on 11 October. However, evaluating the evidence as a whole and in taking proper account of the various matters that I have now recorded, both with regard to the plaintiff's medical history leading up the incident in October but perhaps even more importantly the plaintiff's history in the period immediately following her employment with the second defendant, the plaintiff has failed on the balance of probabilities to establish a causal connection between whatever happened on that occasion and the onset of the condition which ultimately required the intervention of surgery in the early part of 2000. For that reason alone, the plaintiff's case against both of the defendants fails. The difficulty for the plaintiff is that, while one can interpret the evidence in a way favourable to the plaintiff, such a favourable interpretation only stands alongside a number of other equally feasible alternatives, and in those circumstances there is a failure on the plaintiff's part to shift the onus even on the balance of probabilities in her favour. " (emphasis added) 28 His Honour's conclusion on the second causation issue was sufficient to conclude the case adversely to the third respondent. However, even though, as he acknowledged, it was not "strictly necessary … for the judgment to go any further", he went on to indicate "in brief outline", that the third respondent's claim would also have failed because she had not established that either the first or second respondent had breached its duty of care. 29 Insofar as the second respondent was concerned, the primary judge found: "The plaintiff was told on more than one occasion and by more than one employee of the second defendant that part of her job was to bring the videos that were contained in the boxes of forty on the pallet to the table where she was working at assembling the smaller boxes and inserting the video cassettes for the purpose of the mail-out. Words were used in that context which varied from a reference to the large boxes to references to videos or video cassettes. However, even on the plaintiff's evidence, there was never an explicit direction that a full box containing forty video cassettes had to be carried from the pallet to the worktable. The plaintiff herself conceded in this regard, and it is to her credit that she did, that it was her interpretation of the words which were used, rather than the words themselves that led her to conclude that she was expected to carry boxes of 40 than anything less … The other area of uncertainty which was again, on the plaintiff's own admission, a product of her interpretation of the words which were used, was a significance that the plaintiff attached to the comment of the person she described as Maria on the afternoon of 11 October in the context of Maria's observation that the plaintiff had been seen asking an employee from another department to carry a box of video cassettes for her. According to the plaintiff she was told that she must 'carry her own weight' or words to that effect. There was nothing said by Maria in that context explicitly requiring the plaintiff to carry a box of forty videos. As a matter of common sense, the reference to carrying one's own weight is more likely to be understood as no more than a version of the common phrase of 'pulling' one's own weight. In other words, and indeed the plaintiff did give evidence to this effect, that what was being said to her was that every employee had to do their share of the work and specific tasks could not be delegated to other employees to the extent that it slowed down or interfered with that other employee's work. That was the gist of what was being said to the plaintiff. In the transportation of video cassettes from the pallets to the worktable, the plaintiff had to do her share. What was not said to the plaintiff at any stage, even on the plaintiff's own evidence, was that she was required to carry a box of forty videos. … The case against the defendants therefore, insofar as it was based on an alleged requirement that the plaintiff lift and carry boxes of forty videos was a consequence not of any explicit instruction to that effect, but of the plaintiff's interpretation of statements that were made to her by employees of the second defendant. It was the plaintiff's own decision, by way of such interpretation, on the afternoon of 11 October that led her to the attempts which she made unsuccessfully to lift and carry a full box. It was the plaintiff's resolution to do it, not the defendant's instructions. In coming to that conclusion, I acknowledge that such a conclusion was understandable. But that does not take the case against the defendants any further. The plaintiff had not long before been told that her job was at an end; she was, in words which she used at least in her statement of May 2000, 'embarrassed and humiliated' by what had been said to her by the person called Maria; she persuaded herself in the light of comments that had been made that she was expected to carry the full box, apart from any other reason, because it would speed up her rate of progress because it would cut down the number of trips she had to make from the worktable to the pallet and that she felt under some pressure to speed up in the light of the comments that had been made. In those circumstances the fact that she perceived herself to be under some imperative to try to lift the box is understandable . But it is certainly not enough to expose the defendants to liability for compelling her to do so. The pressures which she might have felt, real as they were, were not of a kind sufficient to suggest a disregard on the part of the second defendant of the plaintiff's safety. " (emphasis added) 30 After rejecting the third respondent's case against the second respondent, the primary judge said: "The case against the first defendant was also based on the failure of the first defendant to warn the second defendant of the plaintiff's limitations as a consequence of her arthritic condition. In that respect, again, the plaintiff's evidence is not as strong as the case put on the plaintiff's behalf would suggest. In Ms Ryan's address on behalf of the plaintiff, it was submitted that the plaintiff's uncontradicted evidence was that she informed the first defendant of her limitations and when each job or placement was offered to her by the first defendant, would raise with the first defendant's servants or agents whether it involved heavy or repetitive lifting. On each occasion she was told that it did not. This included her work at the second defendant's premises for which she was clearly constitutionally unsuited. I have already made comment on the vagueness and hesitancy of the plaintiff's presentation. The plaintiff's evidence did not substantiate, with the clarity expressed by counsel, the nature of the conditions put by the plaintiff to the first defendant. The plaintiff's evidence was rather that she had more than once, and more than likely on each occasion she was commissioned to do work by the first defendant, reminded the first defendant's employees that she only wanted jobs involving light duties. If that is as far as the plaintiff's evidence can be taken, and there is considerable evidence to support that conclusion that what was involved in the work at the second defendant's premises was no more than light duties as that term is generally understood. I say that with some caution because it is an area that remained unexplored on the evidence and for reasons I have already given, does not have to be resolved for the purpose of dealing with this case. But I must draw attention nonetheless, in canvassing the question of breach of duty, to the fact that the issue of the level of knowledge of the defendant of the plaintiff's condition, that is, of the first defendant and in turn the alleged failure of the first defendant to communicate that to the second defendant, is not on the plaintiff's evidence as clear cut as suggested, and certainly does not necessarily lead to the conclusions which I was invited to reach against the first defendant . There is the specific claim that the plaintiff explicitly advised the first defendant of her arthritis. That is another aspect of the evidence on which I am left to rely entirely on the plaintiff, because what little other evidence there is, would lead to a conclusion contrary to the plaintiff's evidence that she actually wrote on the application form or some similar document that she suffered from this condition and that it was a significant factor in the range of employment which she was able to undertake. There is no such reference in the registration document which became exhibit 1D1 nor in anything written by the plaintiff in the other documents which became exhibit 1D9. The only reference to arthritis appears under the first defendant's log in a hand which clearly is not that of the plaintiff. This was part of the comment, which I referred to earlier inserted against the reason for the plaintiff's ceasing employment on 11 October while working for the second defendant. That does not support a conclusion that the first defendant, prior to the commissioning of the plaintiff to work for the second defendant, was aware in any meaningful sense of the extent of the plaintiff's chronic arthritis and its impact on her capacity to undertake work of any kind other than of the most sedentary and untaxing kind, which, I accept, evidence was in fact the case. Those are not in any sense adequate reasons for the conclusion that there was no breach of duty on the part of either the first or second defendant had that been necessary to decide for the purpose of resolving this case, but I hope sufficient to indicate that even if I had been persuaded of a causal connection, there was not sufficient evidence to establish a breach of duty and that the plaintiff's case would therefore have failed on that ground quite independently of the question of causation. In conclusion I wish to make two further observations, again in the circumstances not strictly necessary, but which further underline what was in a comprehensive sense a very weak case for the plaintiff. Even if the plaintiff had succeeded in establishing both causation and breach of duty against either or against the defendants, the damages the plaintiff was likely to have been able to recover would have been modest in the extreme. It is not entirely clear, and it is not necessary to take the matter any further, that the plaintiff would have exceeded the thresholds imposed by the relevant parts of s 151 of the Workers Compensation Act , either with regard to non-economic or, even more so, with regard to economic loss. Had she done so, it would have been a very slim margin. " (emphasis added) The costs applications 31 After delivering his judgment on 26 September 2003 the primary judge asked whether there were any submissions on costs. Ms Bojanac, representing the second respondent, sought an order for indemnity costs from the date of a Calderbank offer, alternatively in relation to the rehearing generally. The first respondent's legal representative made no application. The appellant, who had attended court to take the judgment, informed the primary judge that he was not in a position to deal with the second respondent's costs application. The matter was left on the basis that a suitable date would be determined on which occasion submissions concerning costs would be made. 32 The matter was relisted before the primary judge on 23 October 2003. On that occasion, Ms Ryan, counsel for the third respondent at the hearing appeared, as too, did Mr Gambi, counsel for the second respondent. Mr Gambi also appears to have mentioned the matter on behalf of the first respondent. 33 It is common ground that the appellant was not present during the 23 October 2003 proceedings. 34 The proceedings on 23 October 2003 were, to say the least, somewhat confusing. 35 At the outset Mr Gambi mentioned the appearance of the first respondent which, he informed his Honour, sought "to rely on the [second respondent's application] and submissions with respect to the s 198J and 198M application of the Legal Profession Act which is part of the application … the second defendant wishes to make that the plaintiff's solicitor's costs …". 36 At this stage the primary judge interrupted Mr Gambi and observed, accurately, that he did not think that application had been mentioned before. Mr Gambi acknowledged that his Honour's observation was correct, responding: "Not in those terms your Honour. I think your Honour's been invited to consider the question of the plaintiff's solicitors being ordered to pay costs but it's pursuant to those sections that the application is made, so that the first defendant supports the second defendant's submissions and application out of respect of that matter (sic, as in original) but does not have correspondence or offers and obviously can't rely on the second defendant's submissions in relation to any amended costs order that your Honour may make with respect to those matters. My learned friend wishes to make an application in relation to the matter today. It may be preferable if that could be made first before I launch into any submissions or application I wish to make." (emphasis added) 37 The underlined portion of this statement was wrong. So far as the transcript reveals, there had been no prior application to the primary judge for a personal costs order against the appellant nor any intimation of such an application. 38 Ms Ryan then submitted that, as the application Mr Gambi wished to pursue was "a very serious one", "we would like the opportunity to have available to us prior to such an application being made your Honour's judgment and a copy of the trial script (sic)". She contended that the third respondent's solicitors should be given an appropriate opportunity to consider the judgment and the transcript properly. 39 The primary judge sought Mr Gambi's attitude to Ms Ryan's application. Mr Gambi referred to the fact that the second respondent relied upon an offer of compromise and Calderbank letters as well as the Arbitrator's award. He then said: "We will invite your Honour to read that [the Arbitrator's award] and … considering the submissions that have been made in the case, the point that we wish to make is at all times, the plaintiff's case has really been one that it was either well known to her or well known to her legal representatives and didn't change between the arbitration and the hearing. Indeed, your Honour, she failed. The arbitrator really only considered one issue and that was the system of work and whether there was a breach per se. Your Honour not only considered that with respect and found against the plaintiff, but your Honour considered the separate issue of causation which the Arbitrator didn't even get to because he didn't need to." (emphasis added) 40 Mr Gambi then made it plain that he was resisting Ms Ryan's application for an adjournment on the basis that the primary judge could deal with the question of costs based on offers of compromise and Calderbank letters "on the papers". The following exchange took place: "Mr Gambi: … the question of whether or not there was any real prospect of success in our submission there really wasn't any, and the plaintiff really should have known about it at the conclusion of the arbitration. His Honour: Now that the s 191 [sic, this was presumably a reference to s 198M of the Legal Profession Act ] matter is being put on a more formal basis, it seems to me that that is a discrete issue which I would be wary of resolving in short compass this morning. I take your point, I should read the Arbitrator's award in the circumstances even though it might be brief enough for me to read quickly. I would prefer not to resolve that issue." (emphasis added) 41 His Honour then observed that he had not previously dealt with an application pursuant to s 198M. He opined that where a "formal application" pursuant to that section was made then "the counsel and/or solicitor for the party concerned would be entitled to prepare by way of response whether it is by way of affidavit and/or some other means, a response to that application". He indicated that he was sympathetic to adjourning the s 198M matter but that the question of costs as between the parties could proceed. 42 Before proceeding with that course, however, the primary judge enquired whether there was any "mechanism" for an application pursuant to s 198M. Mr Gambi submitted that "s 148B" of the District Court Act 1973 (NSW) was the "starting point". Although the transcript records Mr Gambi as having referred to "s 148B", he most probably referred to s 148E which gives the District Court power to make legal practitioners liable for their client's costs in certain circumstances. He gave the primary judge a copy of s 198J and s 198M of the Act and contended that the latter section was the source of his Honour's power. 43 At this stage, with respect, the primary judge appears to have become somewhat distracted by a belief that the second respondent's application was one pursuant to s 198M(1)(a), namely that the appellant repay to the third respondent any costs she was ordered to pay to any other party rather than, as appeared tolerably clear from Mr Gambi's application, an order pursuant to s 198M(1)(b) directing the third respondent's legal representatives to indemnify the first and second respondents in respect of their costs of the proceedings. 44 It was in the context of observing that the issue was "strictly one between the plaintiff and those acting for her" in which the second respondent had, according to the primary judge, only an "oblique … interest" that his Honour also expressed a concern that the application should not lead to an "escalation of further costs on the part of those representing the successful parties, having obtained a favourable costs order as to whether they had any further role in the pursuance of the matter as between client and those representing the unsuccessful client …". 45 The primary judge also expressed concern as to whether the third respondent should be represented for the purpose of the application, a matter he did not pursue further. 46 By this stage Mr Gambi appears to have formed the view that the s 198M application was more trouble than it was worth. He advised the primary judge that "in lieu of making the application under s 198 of the Legal Profession Act we simply bring the application based on the correspondence and the offers that have been made under Part 39A r 14." It is not clear his Honour appreciated what Mr Gambi was seeking to do as his response was to say he would stand that application over in order, in substance, to give the third respondent's legal representatives an opportunity to put on evidence. 47 The primary judge indicated that if he concluded the appellant and/or counsel who had appeared in the principal proceedings should show cause as to why they should not be burdened with a personal costs order, he would give them an opportunity whether by way of affidavit or by way of making a statement in Court to indicate why they should not bear the costs. He again expressed concern that in those circumstances the third respondent would not have an opportunity to make submissions. 48 Mr Gambi finally appears to have proceeded with the application foreshadowed on 26 September 2003 that the third respondent bear the costs of the principal proceedings on an indemnity basis relying upon an offer of compromise and Calderbank letters. He tendered the various offers and correspondence upon which he relied as well as the Arbitrator's award. 49 After hearing from Ms Ryan the primary judge sought details from Mr Gambi concerning the nature of the costs order he sought against the third respondent. Mr Gambi advised that the second respondent sought indemnity costs from the date of what appears to have been the offer of compromise, 17 February 2003. His Honour then said, "I make that order". He did not articulate the precise order he made at that stage. He ordered the third respondent to pay the first respondent's costs on a party-party basis. 50 Mr Gambi then enquired as to what course the primary judge proposed to pursue to deal with "the 39A and s 198 issue". He indicated that he was prepared to assist his Honour with "short submissions" without charging his client and that his instructing solicitor was also prepared to put on a "short affidavit about some matters" without further cost to the second respondent. 51 The primary judge said he proposed to give the matter further consideration and that his associate would contact Mr Gambi's instructing solicitor if he decided "to take the matter further". Once again he indicated that he was "sensitive to the interests of the plaintiff should the matter be taken any further". 52 It appears that the primary judge subsequently contacted Ms Ryan and the appellant and required them to attend before him on 7 November 2003. The transcript records Ms Ryan as appearing for the third respondent and there being no appearance for the first or second respondent. Although not recorded in the transcript, it is common ground that the appellant was present on this occasion, however the primary judge addressed all his remarks to counsel. His Honour said: "Ms Ryan I asked you and your instructing solicitor to be here this morning. … I have given further and very careful consideration to the question of the appropriate costs order that should be made in the matter of Stoddart and I am at this stage persuaded that there is a case for an order to be made against yourself and your instructing solicitor under s 198M of the Legal Profession Act . That's as far as I propose to take the matter this morning and to invite you, whether you do this jointly or separately is a matter between you and your instructing solicitor, to provide written submissions on that question." 53 Ms Ryan informed his Honour that as a result of what had fallen from him on the previous occasion she no longer appeared in the matter and had been replaced by Mr Lidden. 54 After she informed his Honour of this he said that he was inviting the solicitor and barrister for the third respondent to prepare affidavits with regard to the "matters alluded to in s 198M" and that it would be a matter for Mr Lidden to make submissions. 55 There was some debate about when some transcript would be available (apparently the transcript of the trial) following which the primary judge said: "Can we just work on that general basis that you will be given a further two weeks to finalise the affidavits after receipt of the transcript and that will be a matter which I can monitor and my associate will confirm a final timetable with each of you when we get to that stage." 56 His Honour then added: "Now the other matter I do want to be very clear about, when you say that you're no longer appearing in this matter, Ms Ryan, the matter of Stoddart per se has concluded. Any further costs incurred at this stage are certainly not costs under any circumstances to be borne by the plaintiff and/or any other party to the proceedings … this is a matter at this stage between yourselves and the Court and if you choose to seek the assistance of counsel then it is obviously entirely a matter for you, but it is between you and counsel, not between the plaintiff and counsel." 57 After indicating, again, that a timetable would be finalised in due course, his Honour also said: "… and obviously at that stage a date will have to be arranged for final submissions …." 58 On 25 November 2003, Mr Harrison SC with Mr Torrington appeared for Ms Ryan before his Honour. Mr Gambi appeared for the second respondent. The appellant did not appear on that occasion and, has sworn an affidavit in which he asserts that he was not notified of this hearing. The respondents did not dispute that proposition. 59 It does not appear from the transcript of 25 November how the matter came to be relisted before his Honour on that occasion. However, it appears from a judgment his Honour delivered in the matter on 19 May 2004 to which I will come, that the matter was relisted at Mr Harrison's request. 60 Mr Gambi made it clear to the primary judge on 25 November that the second respondent had not sought a personal costs order against Ms Ryan, but only against the third respondent's solicitors. 61 His Honour observed, however, that he had included Ms Ryan in what appeared to be his conclusion that there was a prima facie case for an order to be made pursuant to s 198M because: "… I was presented with a case which was demonstrably deficient in terms of its likelihood of success, conducted by counsel and obviously under instructions from a solicitor. If that's all I know about the matter, it is very hard for me to differentiate." 62 His Honour went on to explain that one of the reasons he had sought affidavits was, in effect, to determine the circumstances in which counsel had been briefed and in which the appellant had been instructed in order to assist him to reach his final conclusion. 63 At this stage the primary judge made it plain that whatever the second respondent's original application had been, he took the view that once he had decided to accede to the request, the responsibility for "taking the matter to the next step is entirely mine". 64 A lengthy exchange between the primary judge and Mr Harrison followed the details of which, save as to one matter, do not require repetition. That matter is that Mr Harrison drew to the primary judge's attention the fact that before there was any onus under s 198N on a solicitor or barrister to put on any evidence, there was an anterior requirement of a finding that the facts established by the evidence before the court did not form a basis for a reasonable belief that the claim had reasonable prospects of success. He submitted that it was not clear whether the primary judge "had formed that view, but not expressed it in those terms or … may not yet have formed that view or be inclined to make that finding". 65 The primary judge responded to this submission by saying: "… I accept that I did not make an explicit finding to that effect. I have to say, however, that it was implicit and that I have no hesitation in saying, for the purpose of dealing with your submissions at the moment, that I did reach such a conclusion and that I have no difficulty, therefore, in formalising that." 66 There was then some further discussion between the primary judge and Mr Harrison in the course of which the primary judge indicated that he was inclined to "revise [his] earlier order and to simply call on Ms Ryan to show cause under Part 39A". 67 Despite the view he had expressed on 23 October 2003 that resolution of the original s 198M application was a matter over which he had sole control, the primary judge asked Mr Gambi whether he should continue to call on the appellant to respond to the s 198M application. Mr Gambi affirmed that his instructions were to maintain the second respondent's position as against the appellant. The primary judge then expressed concern as to whether he should explicitly discriminate between the solicitor and the barrister noting, as he did so, that "there is no one here to represent the solicitor". 68 After some further discussion his Honour adjourned the matter and advised that counsel would be informed of how he intended to proceed from that point. 69 On 10 December 2003 the associate to the primary judge sent a letter to the appellant which stated: "Following the mention of this matter on 25 November 2003 his Honour, Judge Phegan is of the view that the order made against you under s 198M of the Legal Profession Act 1987 should stand. You are accordingly invited to rebut the presumption that the matter was brought to trial without reasonable prospects of success as provided for in s 198N (3) and (4) of the Act. In the circumstances his Honour has extended the time for filing any affidavit in support for a further fourteen (14) days from the date of this letter. As the fourteen (14) days will not expire until after the conclusion of the current term the matter will not be resolved until after the commencement of the new term in February 2004." (emphasis added) 70 On the same day the associate also forwarded a letter to Ms Ryan advising that the primary judge was satisfied, following Mr Harrison's submissions on her behalf, "that neither s 198M of the Legal Profession Act 1987 nor Part 39A r 14A of the District Court Rules is applicable to your conduct of this matter on behalf of the plaintiff". Ms Ryan was advised that in the circumstances she was not required: "… to file any affidavit in defence of your conduct and earlier orders made pursuant to those provisions are rescinded to the extent that they apply to you. However, his Honour is of the view that the orders should stand insofar as they apply to your instructing solicitor, Mr Semisi Lemoto and he will be advised accordingly". 71 On 17 December 2003 the appellant sent a letter responding to the associate's letter to him. He advised that the transcript of the full hearing had been collected on 10 December 2003 and had been forwarded to counsel the same day, but that counsel would not be able to draft affidavits prior to the close of the Court term and, further, that the appellant would be overseas from 20 December 2003 until 20 January 2004. 72 The District Court's 2004 term commenced on 2 February. On 30 January 2004 the primary judge asked his associate to telephone the appellant's office. It appears she spoke to a secretary in the appellant's office who undertook to remind Mr Lemoto of the outstanding affidavits. A further phone call was made by the primary judge's associate to the appellant's offices on 11 February 2004. 73 On 19 February 2004 the primary judge ascertained that the appellant had not filed any affidavits. On 25 February 2004 the associate to his Honour forwarded the following letter to the appellant: "Dear Mr Lemoto, Stoddart v Able Technical Pty Ltd & B C Mailing Pty Limited With reference to the above matter the letter dated 17 December 2003 from your office is noted. Given the fact that it is now one month since your return from overseas and as there is no record of the receipt of any affidavit filed on your behalf in the District Court Registry, his Honour, Judge Phegan has entered a costs order against you under s 198M of the Legal Profession Act 1987. This order is effective as of today's date." 74 The letter was copied to the second respondent's solicitor. 75 As is apparent, the letter did not purport to convey the terms of the order the primary judge had made nor give any reasons why the order had been made. During the hearing of the appeal Mr McCulloch SC, who appeared with Mr Gambi for the second respondent, handed to the Court a document he described as a computerised summary of the orders as recorded in the District Court. That document records against the date 25 February 2004, "Order the slr for the plf to pay plf's costs of the proceedings under s 198M of the Legal Profession Act (Judge Phegan)". 76 On 4 March 2004 the appellant filed a Notice of Motion in the District Court seeking to set aside the costs order on the ground (inter alia) "that [he] was not afforded procedural fairness and was denied natural justice prior to the order being made". On 19 May 2004 the primary judge rejected that application. I shall return to the detail of the application after considering the ambit of the power his Honour exercised in making the costs order. At this stage it should be noted, however, that this appeal is from the making of the costs order, rather than the refusal to set it aside. Grounds of appeal 77 The appellant asserts that the primary judge was in error in: (1) ordering him to pay the costs of the trial; (2) placing the onus upon him to disprove that such an order should be made; (3) in failing to give any or sufficient reasons for his determination. 78 He seeks orders that: (1) the appeal be allowed; (2) the costs order made by Phegan DCJ in Chambers on 25 February 2004 be set aside and, in lieu thereof, there be an order that the plaintiff pay the first and second defendants costs of the District Court proceedings; (3) the opponents pay the costs of the appeal and of the application for leave to appeal. 79 A holding summons seeking leave to appeal was filed on behalf of the appellant on 18 June 2004. The appellant also seeks an extension of time in which to appeal against orders made by the primary judge prior to 19 May 2004. 80 The appellant submits, in essence, that the costs order was made against him in circumstances in which he was denied natural justice and procedural fairness. Although he accepts he did not respond to the opportunity he was afforded to file affidavits, he argues that his ability to do so was hampered by the primary judge's failure to inform him of the case he was required to meet. He also complains that he was denied reasons: Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430. 81 The second respondent argued that the appellant was given sufficient information concerning the basis on which the s 198M order was sought against him both at the hearing on 23 October 2003 and on 7 November 2003 when the primary judge invited him to file affidavits addressing the matters raised in s 198M. The second respondent also contended the costs order was appropriate as there was no evidence that the appellant could have had a reasonable belief that there were "provable facts" which could have supported a finding of breach of duty of care. The second respondent contended that the primary judge had given reasons for the costs order in his judgment of 19 May 2004 in which he rejected the appellant's application to set aside the costs order. 82 The third respondent also submitted the appellant was given a reasonable opportunity to be heard prior to the making of the costs order because of the events which transpired on 7 November 2003. She contended the procedure the primary judge adopted on that day was "straightforward and transparent" and consistent with District Court Practice Note 57. Somewhat ironically she contended that there would be no utility in granting the appeal as even if the costs order was set aside, the final result would not be different. In this respect she contended that regardless of the primary judge's view of her credibility, even accepting her claim at its highest, it may have failed, as there was no evidence she was specifically requested to lift the box, nor did her case establish through expert evidence that the box was unreasonably heavy. The jurisdiction to make costs orders against legal practitioners 83 The issues raised by the appeal require the Court to determine the proper construction of Part 11, Division 5C of the Act. Before turning to the detail of that exercise it should be observed that Division 5C represents a substantial departure from the ambit of the power hitherto available to courts to order legal practitioners to pay the costs of legal proceedings in respect of which they had provided legal services. 84 Historically courts which possessed inherent jurisdiction had power, exercised summarily, to order a solicitor to pay the costs of legal proceedings in relation to which he or she provided legal services. Misconduct, default or serious or gross negligence in the course of the proceedings was sufficient to justify such an order, which while being penal in nature, was made to protect the client who had suffered and indemnify the party injured: Myers v Elman [1940] AC 282 at 289, 303, 318, 319. The jurisdiction is not "a modern invention". It can be traced to the mid-eighteenth century: Myers v Elman (at 290, per Viscount Maugham). The cases traceable to that period demonstrate that a costs order might be made against a solicitor on the basis of "mere negligence of a serious character, the result of which was to occasion useless costs to the other parties": ibid. 85 The summary jurisdiction to order a solicitor to pay costs was an aspect of the court's disciplinary jurisdiction. It was based on the court's right and duty to supervise the conduct of its solicitors: Myers v Elman (at 302 per Lord Atkin, at 318 - 319 per Lord Wright, at 334 – 336 per Lord Porter). Lord Wright pointed out (Myers v Elman at 318 - 319): "… [A]longside the jurisdiction to strike off the Roll or to suspend there existed in the Court the jurisdiction to punish a solicitor or attorney by ordering him to pay costs, sometimes the costs of his own client, sometimes those of the opposite party, sometimes, it may be, of both. The ground of such an order was that the solicitor had been guilty of professional misconduct, (as it is generally called) not, however, of so serious a character as to justify striking him off the roll or suspending him. This was a summary jurisdiction exercised by the Court which had tried the case in the course of which the misconduct was committed. It was a summary jurisdiction, in which the intervention of the judge was invoked at the conclusion of the case either by motion in the Chancery Court or by a motion or application for a rule in the Courts of Common Law. Though the proceedings were penal, no stereotyped forms were followed. Hence now the complaint is not treated like a charge in an indictment or even as requiring the particularity of a pleading in a civil action. All that is necessary is that the judge should see that the solicitor has full and sufficient notice of what is the complaint made against him and full and sufficient opportunity of answering it. Thus, formal amendments of the complaint are not necessary, so long as variations of the charge are sufficiently defined and the solicitor is given sufficient liberty to make his answer. The summary jurisdiction thus involves a discretion both as to procedure and as to substantive relief, though there was and is an appeal. The cases of the exercise of this jurisdiction to be found in the reports are numerous and show how the Courts were guided by their opinion as to the character of the conduct complained of. The underlying principle is that the Court has a right and a duty to supervise the conduct of its solicitors, and visit with penalties any conduct of a solicitor which is of such a nature as to tend to defeat justice in the very cause in which he is engaged professionally, as was said by Abinger C.B. in Stephens v. Hill . … The matter complained of need not be criminal. It need not involve peculation or dishonesty. A mere mistake or error of judgment is not generally sufficient, but a gross neglect or inaccuracy in a matter which it is a solicitor's duty to ascertain with accuracy may suffice. … It is impossible to enumerate the various contingencies which may call into operation the exercise of this jurisdiction. It need not involve personal obliquity. The term professional misconduct has often been used to describe the ground on which the Court acts. It would perhaps be more accurate to describe it as conduct which involves a failure on the part of a solicitor to fulfil his duty to the Court and to realize his duty to aid in promoting in his own sphere the cause of justice. This summary procedure may often be invoked to save the expense of an action. Thus it may in proper cases take the place of an action for negligence, or an action for breach of warranty of authority brought by the person named as defendant in the writ. The jurisdiction is not merely punitive but compensatory. The order is for payment of costs thrown away or lost because of the conduct complained of. It is frequently, as in this case, exercised in order to compensate the opposite party in the action. " (emphasis added) 86 The summary jurisdiction did not extend to barristers who were not regarded as officers of the court "in the same sense [as] a solicitor": Rondel v Worsley [1969] AC 191 at 282. 87 In 1990 the English Supreme Court Act 1981 was amended by the insertion of a new s 51 which expanded the court's power to make costs orders against solicitors and, for the first time, made barristers subject to the power. Section 51 provided (inter alia) that: "… (6) … the Court may disallow, or (as the case may be) order the legal or other representative concerned to meet, the whole of any wasted costs or such part of them as may be determined in accordance with rules of Court (7) In subsection (6), 'wasted costs' means any costs incurred by a party – (a) as a result of any improper or unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such representative; or (b) which, in the light of any such act or omission occurring after they were incurred, the Court considers it is unreasonable to expect that party to pay." 88 The Supreme Court of New South Wales exercised the inherent jurisdiction to order solicitors to pay the costs of proceeding: Attorney-General v Wylde (1946) 47 SR (NSW) 99 at 113 – 114, 117 - 119. Absent legislation, however, the District Court could not exercise such a power as it had no disciplinary jurisdiction over a legal practitioner: Knaggs v J A Westaway & Sons Pty Ltd (1996) 40 NSWLR 476 at 485 per Simos AJA (with whom Giles and Abadee AJJA agreed). 89 In 1991 provisions in identical terms were inserted in the Supreme Court Act 1970 (s 76C) and the District Court Act 1973 (s 148E) which enabled each court "to penalise a solicitor whose serious neglect, incompetence or misconduct delays proceedings … by making orders about the payment of costs": Courts Legislation (Civil Procedure) Amendment Act 1991, Schedule 1, Part 5 cl (2); Schedule 2, cl (8). Before those amendments the rules of both courts included provisions conferring power to penalise a solicitor by way of costs orders where "costs [were] incurred improperly or without reasonable cause, or [were] wasted by undue delay or by any other misconduct or default" for which the solicitor was responsible: Supreme Court Rules 1970 Pt 52, r 66 (see now Pt 52A, r 43); District Court Rules 1973 Pt 39, r 6 (see now Pt 39A, r 14). In 1994 Pt 52A of the Supreme Court Rules was amended by the insertion of r 43A which empowered the court to make costs orders against barristers. A like rule was inserted in the District Court Rules in 2001: Pt 39A, r 14A. The rules dealing with solicitors reflected the English RSC O 62, r 8(1), which "confirm[ed] the ancient jurisdiction of the court to exercise control over its own officers": Orchard v South Eastern Electricity Board [1987] QB 565 at 569 per Sir John Donaldson MR. 90 In Wentworth v Rogers [1999] NSWCA 403 at [41] the Court of Appeal (Handley and Stein JJA, Sheppard AJA) said that there was no difference in substance between the approach taken in the United Kingdom and the approach taken in Australia concerning the power to order a solicitor to pay the costs of proceedings. The court also observed the English authorities were more comprehensive than the Australian authorities. A brief reference to the principles developed concerning the exercise of that power by reference to authorities in both countries provides a useful background to a consideration of the power conferred by Part 11, Division 5C: CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384 at 408 per Brennan CJ, Dawson, Toohey and Gummow JJ. 91 The jurisdiction conferred by the English Supreme Court Act to make what have come to be known as "wasted costs orders" was considered by the Court of Appeal (Sir Thomas Bingham MR, Rose and Waite LJJ) in Ridehalgh v Horsfield [1994] Ch 205 which concerned six cases in each of which the s 51(6) power was exercised. The case raised the question, "in what circumstances should the Court make a wasted costs order in favour of one party to litigation against the legal representative (counsel or solicitor) of the other": see Ridehalgh at 224. The court reviewed the history of the exercise of the jurisdiction to order payment of costs by legal practitioners whose conduct had led to the incurring of unnecessary costs. Any consideration of the principles which have emerged from Ridehalgh and other authorities should be prefaced by the court's observation (Ridehalgh at 226): "The argument we have heard discloses a tension between two important public interests. One that is lawyers should not be deterred from pursuing their client's interests by fear of incurring a personal liability to their client's opponents; that they should not be penalised by orders to pay costs without a fair opportunity to defend themselves; that wasted costs order should not become a back-door means of recovering costs not otherwise recoverable by a legally-aided or impoverished litigant; and that the remedy should not grow unchecked to become more damaging than the disease. The other public interest, recently and clearly affirmed by Act of Parliament, is that litigants should not be financially prejudiced by the unjustifiable conduct of litigation by their or their opponent's lawyers. The reconciliation of these public interests is our task in these appeals. Full weight must be given to the first of these public interests, but the wasted costs jurisdiction must not be emasculated. " (emphasis added) 92 The new Division 5C should be construed against the background of the following principles which can be gleaned from the English and Australian authorities which have considered the power to order legal practitioners to pay the costs of proceedings in which they have represented parties: (a) The jurisdiction to order a legal practitioner to pay the costs of legal proceedings in respect of which he or she provided legal services must be exercised "with care and discretion and only in clear cases": Ridehalgh (at 229), Re Bendeich (1994) 53 FCR 422; Deputy Commissioner of Taxation v Levick [1999] FCA 1580; (1999) 168 ALR 383 per Hill J at [11]; Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155 at [44]; Gitsham v Suncorp Metway Insurance Ltd [2002] QCA 416 at [8] per White J (with whom Davies and Williams JJA agreed); De Sousa v Minister for Immigration (1993) 41 FCR 544; Money Tree Management Service Pty Ltd v Deputy Commissioner of Taxation (No 3) [2000] SASC 286; (b) A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he or she acts for a party who pursues a claim or a defence which is plainly doomed to fail: Ridehalgh (at 233); Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 at [56] per Lord Hobhouse; White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 (affirmed on appeal, Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 87 FCR 134); Levick v Deputy Commissioner of Taxation ; cf Steindl Nominees P/L v Laghaifar [2003] QCA 157; [2003] 2 Qd R 683; (c) the legal practitioner is not "the judge of the credibility of the witnesses or the validity of the argument": Tombling v Universal Bulb Co Ltd [1951] 2 TLR 289 at 297; the legal practitioner is not "the ultimate judge, and if he reasonably decides to believe his client, criticism cannot be directed to him": Myers v Elman (at 304, per Lord Atkin); Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 47 ATR 1 at [34] per Callinan J; (d) A judge considering making a wasted costs order arising out of an advocate's conduct of court proceedings must make full allowance for the exigencies of acting in that environment; only when, with all allowances made, a legal practitioner's conduct of court proceedings is quite plainly unjustifiable can it be appropriate to make a wasted costs order: Ridehalgh (at 236, 237); (e) A legal practitioner against whom a claim for a costs order is made must have full and sufficient notice of the complaint and full and sufficient opportunity of answering it: Myers v Elman (at 318); Orchard v South Eastern Electricity Board (at 572); Ridehalgh (at 229); (f) Where a legal practitioner's ability to rebut the complaint is hampered by the duty of confidentiality to the client he or she should be given the benefit of the doubt: Orchard v South Eastern Electricity Board (at 572); Ridehalgh (at 229); in such circumstances "[t]he court should not make an order against a practitioner precluded by legal professional privilege from advancing his full answer to the complaint made against him without satisfying itself that it is in all the circumstances fair to do so": Medcalf (at [23] per Lord Bingham); (g) The procedure to be followed in determining applications for wasted costs must be fair and "as simple and summary as fairness permits…[h]earings should be measured in hours, and not in days or weeks… Judges … must be astute to control what threatens to become a new and costly form of satellite litigation": Ridehalgh (at 238 – 239); Harley v McDonald [2001] UKPC 18; [2001] 2 AC 678 at 703 [50]; Medcalf (at [24]). 93 The authorities concerning the sparing exercise of the jurisdiction to make wasted costs orders against legal practitioners (sub-paragraph (a)) are consistent with cases in which orders are sought that a lay non-party pay the costs of litigation; such an order is exceptional: Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 at 980 per Lord Goff; Taylor v Pace Developments Ltd [1991] BCC 406 at 410; Symphony Group Plc v Hodgson [1994] QB 179 at 192-3 per Balcombe LJ; Flinn v Flinn [1999] VSCA 134 at [24]. The expeditious administration of justice 94 The passage from Lord Wright's speech in Myers v Elman I have extracted earlier in this judgment emphasises that the historical jurisdiction to order a solicitor to pay costs was exercised in circumstances where the solicitor had failed to fulfil his or her duty to the court in the administration of justice. If the misconduct of the solicitor led to a person suffering loss, the court had power to order the solicitor to make good the loss occasioned by the breach of duty: Marsh v Joseph [1897] 1 Ch 213, 244-245, per Lord Russell of Killowen C.J. 95 In Ketteman v Hansel Properties Ltd [1987] AC 189 at 220 Lord Griffiths spoke of the "pressure on the courts caused by the great increase in litigation and the consequent necessity that, in the interests of the whole community, legal business should be conducted efficiently." The days when the suit of Jarndyce v Jarndyce wound its apocryphal way through the pages of Dickens' Bleak House are long gone – if they ever were. 96 The prompt and efficient disposal of litigation is a core aspect of the administration of justice. In the Supreme Court that objective has been enshrined in the statement that the overriding purpose of the court's rules, "… in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in such proceedings": Supreme Court Rules Pt 1, r 3. Section 76A Supreme Court Act 1970 and s 68A of the District Court Act 1973 give the respective courts power "from time to time, [to] give such directions as the Court thinks fit (whether or not inconsistent with the rules) for the speedy determination of the real questions between the parties to a civil action." 97 An integral aspect of the legal practitioner's duty to the court is to ensure the business of the courts is conducted with the expediency consistent with the due administration of justice. The role of the legal profession in this respect, with particular focus on the role of counsel, was referred to by Mason CJ in Giannarelli & Shulkes v Wraith [1988] HCA 52; (1988) 165 CLR 543 at 556. His Honour said: "The performance by counsel of his paramount duty to the court will require him to act in a variety of ways to the possible disadvantage of his client. … It is not that a barrister's duty to the court creates such a conflict with his duty to his client that the dividing line between the two is unclear. The duty to the court is paramount and must be performed, even if the client gives instructions to the contrary. Rather it is that a barrister's duty to the court epitomises the fact that the course of litigation depends on the exercise by counsel of an independent discretion or judgment in the conduct and management of a case in which he has an eye, not only to his client's success, but also to the speedy and efficient administration of justice. In selecting and limiting the number of witnesses to be called, in deciding what questions will be asked in cross-examination, what topics will be covered in address and what points of law will be raised, counsel exercises an independent judgment so that the time of the court is not taken up unnecessarily, notwithstanding that the client may wish to chase every rabbit down its burrow. The administration of justice in our adversarial system depends in very large measure on the faithful exercise by barristers of this independent judgment in the conduct and management of the case. In such an adversarial system the mode of presentation of each party's case rests with counsel. The judge is in no position to rule in advance on what witnesses will be called, what evidence should be led, what questions should be asked in cross-examination. Decisions on matters such as these, which necessarily influence the course of a trial and its duration, are made by counsel, not by the judge. This is why our system of justice as administered by the courts has proceeded on the footing that, in general, the litigant will be represented by a lawyer who, not being a mere agent for the litigant, exercises an independent judgment in the interests of the court." 98 While this passage is expressed in terms of the barrister's duty to the court, there is no doubt that the solicitor's duty to the court is co-extensive with counsel's. 99 In this light, the principle to which I have referred in para [92] (b) requires some elaboration. The proposition that a legal practitioner would not be subjected to a personal costs order simply because he or she acted for a party who pursued a claim or a defence which was doomed to fail reflected the first of the tensions referred to in Ridehalgh, "that lawyers should not be deterred from pursuing their client's interests by fear of incurring a personal liability to their client's opponents." In Ridehalgh (at 234) the Court said: "Legal representatives will, of course, whether barristers or solicitors, advise clients of the perceived weakness of their case and of the risk of failure. But clients are free to reject advice and insist that cases be litigated. It is rarely if ever safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved. They are there to present the case; it is (as Samuel Johnson unforgettably pointed out) for the judge and not the lawyers to judge it." 100 Accordingly, subject to the Court's power to dispose summarily of matters where no cause of action or defence was disclosed, which were frivolous or vexatious or were an abuse of process (Supreme Court Rules Pt 13 r 5; Pt 15, r 26; District Court Rules Pt 9, r 17; Pt 11A, r 3), "every litigant ha[d] a right to have matters of law as well as matters of fact decided according to the ordinary rules of procedure, which give him full time and opportunity for the presentation of his case to the ordinary tribunals": see Burton v Shire of Bairnsdale [1908] HCA 57; (1908) 7 CLR 76 at 92 per O'Connor J. Every citizen was entitled to his or her day in court. Hopeless claims and defences were thought to be discouraged by the fact that the losing litigant was obliged to pay the legal costs incurred by the successful party: Ridehalgh (at 225). 101 The proposition that a lawyer who acted for a party who pursued a claim or a defence "plainly doomed to fail" had not acted improperly (Ridehalgh at 233) has been expressed in more qualified terms. In Re Cooke (1889) 5 TLR 407 at 408, Lord Esher MR said: '[I]f the solicitor could not come to the certain and absolute opinion that the case was hopeless , it was his duty to inform his client of the risk he was running, and, having told him that and having advised him most strongly not to go on, if the client still insisted in going on the solicitor would be doing nothing dishonourable in taking his instructions.' " 102 In Edwards v Edwards [1958] P 235 at 248 Sachs J said that it was clear from the authorities that unreasonably to initiate or continue an action when it had no or substantially no chance of success may constitute conduct justifying an order that a solicitor pay the costs of the other party. Acting in such circumstances, in his view, was regarded as a "serious dereliction of duty" attracting the exercise of the court's jurisdiction. In Orchard v South Eastern Electricity Board (at 579) Dillon LJ said: " It may well be the duty of counsel primarily, but also of the solicitor with due regard to the views expressed by experienced counsel, to weigh the evidence available to his client, if a plaintiff, to see whether the plaintiff's claim raises a triable issue . It is not the duty of the solicitor to endeavour to assess the result where there is a likelihood of a conflict of evidence between his client's witnesses and those of the other side: per Sachs LJ in Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch 276, 297D." (emphasis added) 103 In Australia there is a tension between decisions of the Federal Court and decisions of state appellate courts concerning the propriety of legal practitioners acting for litigants with hopeless cases. 104 In White Industries (Qld) Pty Ltd v Flower & Hart (a firm), Goldberg J considered the authorities supporting the proposition that it is not improper to act for a party with a hopeless case and concluded (at 237) that: "Those principles are, put shortly, that a solicitor does not act improperly or in breach of his or her duty to the court by acting for a party with a hopeless case. In order to affix liability for costs to a solicitor there must be something further added in the nature of acting unreasonably or for reasons unconnected with success in the litigation or for an otherwise ulterior purpose resulting in an abuse of process or in circumstances resulting in a serious dereliction of duty or serious misconduct in promoting the cause of and the proper administration of justice." 105 His Honour observed (at 236), referring to Sachs J's statement in Edwards v Edwards, that it was not clear what was "encompassed by 'unreasonably' initiating or continuing proceedings if they have no or substantially no chance of success" and concluded that such conduct involved "some deliberate or conscious decision taken by reference to circumstances unrelated to the prospects of success with either a recognition that there is no chance of success but an intention to use the proceeding for an ulterior purpose or with a disregard of any proper consideration of the prospects of success." Accordingly, his Honour rejected (at 237) a submission that "the law is that because a solicitor's duty is to the court he or she should refuse to pursue, on behalf of a client, a case which he or she knows to be hopeless". While he acknowledged "that the fact that a client insists on pursuing a hopeless case will raise an issue or inquiry as to whether the reason for pursuing the case is the pursuit of an ulterior purpose", he observed that "an ulterior purpose or an abuse of process cannot … be assumed simply because … the case is hopeless". 106 In Levick v Deputy Commissioner of Taxation (at [44]) the Full Court of the Federal Court referred with approval to Goldberg J's conclusion (White Industries (Qld) Pty Ltd v Flower & Hart (a firm) at 236) that "a solicitor does not act improperly or in breach of his or her duty to the court by acting for a party with a hopeless case" unless that conduct was "unreasonable", and observed that "[w]hat constitutes unreasonable conduct must depend upon the circumstances of the case; no comprehensive definition is possible". 107 In two state appellate decisions, the view has been expressed that it is improper for a legal practitioner to commence or present a case which is doomed to fail. In Carson v Legal Services Commissioner [2000] NSWCA 308 at [113] Sheller JA (with whom Giles JA agreed) said: "…[O]rdinarily the solicitor who begins proceedings on the client's instructions does so for the purpose of the client. If the client's immediate purpose is within the scope of the proceedings instituted and assuming the proceedings are not futile or foredoomed to fail, there can be no impropriety by either the client or the solicitor in instituting them. It is the solicitor's duty to institute the proceedings in accordance with the client's instructions." 108 In Steindl Nominees P/L v Laghaifar (at [24]0 Davies JA (with whom Williams JA and Philippides J agreed) accepted Goldberg J's conclusion that the jurisdiction to order costs against an unsuccessful party's solicitors was enlivened when they had unreasonably initiated or continued an action which had no or substantially no prospects of success. He also accepted the reasoning of Goldberg J generally and that of the Full Court of the Federal Court in Levick v Deputy Commissioner of Taxation subject to the qualification that he rejected "statements [in them which] state or imply that it is not improper for a legal representative to present a case which he or she knows to be bound to fail." He said (at [24]): "I would prefer to say that it is one thing to present a case which is barely arguable (but arguable nevertheless) but most likely to fail; it is quite another to present a case which is plainly unarguable and ought to be so to the lawyer who presents it. In my opinion, with respect, it is improper for counsel to present, even on instructions, a case which he or she regards as bound to fail because, if he or she so regards it, he or she must also regard it as unarguable." 109 After referring to the passage in Mason CJ's statement in Giannarelli & Shulkes v Wraith (at 556) concerning the importance to the administration of justice of the "exercise by barristers of [an] independent judgment in the conduct and management of the case", Davies JA observed (at [27]): "[27] If it is counsel's duty to exercise his or her own independent judgment upon which points will be argued it must also be his or her duty, in the exercise of that judgment, to decide whether there is any point which can be argued. Greater care must be taken, in judging the conduct of a lawyer for a party in litigation, where the arguability of that party's case depends on a question of fact than where it depends on a question of law, for it is not for counsel or solicitor to sit in judgment on the reliability of his or her client's witnesses. Nevertheless the question, in my opinion, is the same whether it depends on fact or law. If the case is plainly unarguable it is improper to argue it." 110 Although Williams JA agreed with Davies JA, he also expressed his agreement with Lord Hobhouse of Woodbrough's statement in Medcalf (at [56]) concerning the entitlement of litigants to be heard notwithstanding the fact the court considered the advocate had been arguing a hopeless case. Philippides J agreed with Davies JA's reasons and also with Williams JA's further reasons. 111 It is plain, as Goldberg J accepted in White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (at 231), that the proposition that "commencing or maintaining proceedings with no or no substantial prospects of success enlivens the jurisdiction to order a solicitor to pay the costs of a party" is expressed at a dangerous level of generality. Something more is required as both Goldberg J and Davies JA accepted. Sheller JA in Carson characterised it as improper for a solicitor to commence proceedings which were "futile or foredoomed to fail". This accords with Davies JA's proposition. 112 It is not necessary for the purpose of this judgement to resolve the tension between these decisions. Suffice it to say that Sheller JA's observation in Carson and Davies JA's qualification in Steindl appear to presage the philosophy underpinning Division 5C. 113 The cases in which legal practitioners have been ordered to pay the other party's costs of the proceedings costs bear out the "plainly unarguable" and "futility" test. In Deputy Commissioner of Taxation v Levick Hill J ordered the solicitor for the respondent, who was seeking to resist a creditor's petition filed by the Deputy Commissioner, to pay the applicant's costs of the proceedings. His Honour held that the order was warranted because the solicitor had advanced arguments as to whether the Australian Taxation Office existed for legal purposes, whether a delegate of the applicant was authorised to file creditor's petitions and whether the Income Tax Assessment Act 1936 (Cth) was invalid. His Honour concluded (at [34]) that those arguments "untenable … indeed … nonsense". He pointed out (at [19]) that the same arguments had been rejected as being "untenable and obviously so" by Hayne J when advanced by the same solicitor in Helljay Investments Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [1999] HCA 56; (1999) 74 ALJR 68 at [26] – although it should be noted that Hayne J refused (at [22]) to order the solicitor to bear the costs because he had not been given proper notice of the application. 114 Another illustration of the sort of hopeless case which might attract the court's jurisdiction to impose a personal costs order on the legal practitioner responsible for the proceedings would be one where there was no evidence to support an essential element of a cause of action. 115 The discretionary nature of the jurisdiction is illustrated by Steindl in which Davies JA concluded that a personal costs order should not be made against a "young and inexperienced" barrister who was taking instructions directly from a lay client in a factually complex matter of some years standing, and who apparently ascertained on or shortly before the hearing of an application for an extension of time within which to appeal, that his main argument was unarguable. Construction of Part 11 Division 5C 116 The context in which Division 5C appears is of significance in considering its ambit: Project Blue Sky Inc & Ors v Australian Broadcasting Authority [1988] HCA 28; (1998) 194 CLR 355 at 381, 384 [69] per McHugh, Gummow, Kirby and Hayne JJ. 117 The legislature chose to insert the court's power to make costs orders against legal practitioners who pursue claims or defences without reasonable prospects of success in the legislation which regulates the conduct of the legal profession in New South Wales. The Civil Liability Act which inserted Division 5C in the Legal Profession Act effected two other amendments to the latter Act. First, s 196 in Part 10A, Division 5 was amended by the insertion of cl (1)(a2) which enabled the costs payable for legal services provided in connection with any claim for personal injury damages (within the meaning of the Civil Liability Act) to be fixed by regulation. Secondly, a new Division 5B was inserted into Part 11 intended to impose costs recovery limitations on legal practitioners who acted in personal injury claims in which $100000 or less was recovered. Division 5B provides, in substance, (subject to some exceptions) that if the amount recovered on a claim for personal injury damages does not exceed $100,000, the maximum costs recoverable for legal services provided to the plaintiff or defendant are 20% of the amount recovered or claimed or $10,000, whichever is greater. 118 These reforms formed part of stage one of the Government's tort law reforms which were intended to reduce the cost of personal injury claims and public liability claims as a whole as well as reduce the cost of public liability insurance premiums: Second Reading Speech (at 2086). The Civil Liability Act 2002 imposed limits on the recovery of damages in personal injury claims for economic loss, for gratuitous attendant care services and for non-economic loss. Introducing the Bill and foreshadowing stage two of the government's reforms, the Premier recognised that the legislation concerned "fundamental rights" and said "no-one wants to deprive the genuinely deserving of compensation": Second Reading Speech (at 2085). 119 It is, accordingly apparent that Division 5C formed part of a "package" of measures designed to reduce the costs of claims for damages. 120 In Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 at 188, Mason CJ and Deane J said that it was artificial to attribute the orders for costs against solicitors made in the exercise of the court's inherent jurisdiction to an exercise of the disciplinary power rather than to an exercise of the jurisdiction to award costs of the proceedings. Their Honours were commenting critically on an observation to the former effect in the Privy Council's decision in Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 App Cas 186 at 212. They did not refer to Myers v Elman. As the foregoing discussion demonstrates, there is a considerable body of authority confirming the view expressed in Myers v Elman that the jurisdiction to order a solicitor to pay costs is an exercise of the disciplinary power, exercised when the solicitor was guilty of professional misconduct which did not warrant being struck off or suspended: Myers v Elman (at 318). In Medcalf, Lord Hobhouse concluded (at [56]) that the wasted costs jurisdiction was "penal" as it involved making "a finding of fault against the advocate and visiting upon him a financial sanction". As the Privy Council said recently in Harley v McDonald (at [49]): "A costs order against one of its officers is a sanction imposed by the court. The inherent jurisdiction enables the court to design its sanction for breach of duty in a way that will enable it to provide compensation for the disadvantaged litigant. But a costs order is also punitive. Although it may be expressed in terms which are compensatory, its purpose is to punish the offending practitioner for a failure to fulfil his duty to the court." 121 Whether or not the view expressed in Knight should be preferred to that expressed in Myers v Elman, there can be no doubt that by inserting Division 5C in the Legal Profession Act, the legislature intended the making of a costs order pursuant to the new provisions to involve either an exercise of disciplinary power or the exercise of a power ancillary to a disciplinary power, rather than to be merely an aspect of the court's costs jurisdiction. Although the immediate context of Division 5C is Part 11 of the Legal Profession Act which deals with "Legal fees and other costs", it appears in the legislation concerned with regulating the legal profession: see, in particular, Part 10 which deals with "Complaints and Discipline". The other provisions to which I have earlier referred which empower the Supreme and District Courts to order a legal practitioner to pay costs appear in the legislation dealing with the courts' practices and procedures. 122 The jurisdictional basis of a Division 5C costs order, a finding that a solicitor or barrister has provided legal services to a party without reasonable prospects of success, is capable of being professional misconduct or unsatisfactory professional conduct: s 198L(1). Such a finding exposes a legal practitioner to the range of penalties set out in Part 10, including having his or her name removed from the roll of legal practitioners: s 171C, Legal Profession Act: Section 171D gives the Administrative Decisions Tribunal which hears complaints concerning legal practitioners wide powers to make compensation orders (albeit limited to $10,000) against a legal practitioner found to be guilty of unsatisfactory professional conduct or professional misconduct including ordering the legal practitioner to waive or repay the whole or a specified part of the amount charged to the complainant by the legal practitioner in respect of the legal services specified in the order (s 171D(1)(a)) pay to the complainant, by way of monetary compensation for the loss, the amount specified in the order (s 171D(1)(d)). 123 The grave consequences to which Division 5C exposes a legal practitioner and his or her client indicates that "[t]he construction of the section and the application of the jurisdiction should … be no wider than is clearly required by the statute": cf Medcalf at [56] per Lord Hobhouse. 124 There are some general observations which can be made. First, Division 5C represents a departure from the historical basis upon which legal practitioners could 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. The legislature has endorsed the proposition that it is not in the public interest, nor a function of the due administration of justice, for legal practitioners to provide legal services in circumstances which involve representing clients who wish to pursue or defend claims for damages which have no reasonable prospects of success. 125 Secondly, Division 5C requires the legal practitioner to evaluate the client's case with an eye to his or her potential exposure to a personal costs order as well as the disciplinary consequences which may flow from a finding that he or she has contravened s 198J: see s 198L. The potential for a conflict of interest is manifest as, too, is the deterrent effect on legal practitioners. Division 5C is capable of visiting severe consequences both against the legal practitioner and the client potentially deprived of legal representation to pursue his or her claim for damages. 126 The legislature clearly intended Division 5C to have this chilling effect. It is timely, however, to recall the tensions to which the Court of Appeal referred in Ridehalgh (at 226). While the Division 5C jurisdiction should not be emasculated, the due administration of justice should not be impaired by a too liberal exercise of the new powers. 127 Turning to the construction of Division 5C, it is apparent that the question whether legal services have been provided "without reasonable prospects of success" turns, in the first instance, on the legal practitioner's "reasonable" belief as to the "provable facts" and his or her view of the law: s 198J (1). Section 198J (2) explains the circumstances in which a fact will be regarded as "provable", again turning on the question of the legal practitioner's "reasonable" belief that the material then available provides a proper basis for alleging that fact. There is no express requirement that this material be admissible. However s 198J imposes a continuing obligation. There may be a stage in a claim for damages where the fact a legal practitioner could not then reasonably believe that the evidence available would be admissible to enable the claim to be proved or defended, may lead to a prima facie case of a contravention of s 198J: cf Cahill v Ekstein (Smart J, unreported, Supreme Court of New South Wales, 5 June 1998). 128 Section 198J (4) describes the circumstances in which a claim or a defence will be regarded as having "reasonable prospects of success". The combined effect of subss 198J(1) and (4) is that a claim will have "reasonable prospects of success" if the legal practitioner reasonably believes there are "provable facts" and a "reasonably arguable view of the law" to establish that "there are reasonable prospects of damages being recovered on [a] claim…[or]… there are reasonable prospects of [a] defence defeating the claim or leading to a reduction in the damages recovered on the claim". 129 Section 198J (5) conflates the product of ss 198J (1) and (4) to provide that provision of legal services in contravention of s 198J constitutes the provision of legal services "without reasonable prospects of success" for the purposes of the Division. The remaining sections in Division 5C use the conflated expression. It is important not to lose sight of its constituent components. 130 The question whether a s 198M order should be made is discretionary. The court "may" make either a repayment order or an indemnity order: s 198M(1). The discretion operates even if the court concludes that the legal practitioner provided legal services to a party without reasonable prospects of success. 131 The question of what constitutes the provision of legal services "without reasonable prospects of success" for the purposes of Division 5C was considered by Barrett J in Degiorgio v Dunn (No 2) [2005] NSWSC 3. His Honour accepted (at [26]) that Division 5C imposed upon legal practitioners "a standard that is more demanding than that applicable in cases where, by reference to general law principles, a costs order is sought against a party's lawyer". He said: "20 When that statutory language is examined, it is seen that, while s.198J(4) goes some way towards explaining 'reasonable prospects of success', it does so in a way that does not attempt to explain or define 'reasonable prospects'. The meaning of that expression must be gathered by analogy, with such attention as is permissible paid to Parliamentary materials. 21 In some contexts, 'reasonable prospects of success' signifies no more than 'arguable'. I quote the following passage from the decision of the Australian Industrial Relations Commission in Westend Pallets Pty Ltd v Lally (1996) 69 IR 1 at p.12: 'The requirement for an arguable case of either legal error or that the discretion has been miscarried will mean that applicants must demonstrate that their case has a reasonable prospect of success.' 22 It may also be said that 'reasonable prospects of success' connotes something less than likelihood of success – hence the formulation of Sheppard J, in Ahern v Deputy Commissioner of Taxation (1983) 78 FLR 202, '... will be likely to succeed or at least have reasonable prospects of success' [emphasis added]. That the test is not a particularly stringent one is suggested by an observation of Gleeson CJ, McHugh and Gummow JJ in United Mexican States v Cabal (2001) 209 CLR 165 at p.174: 'A constitutional challenge to legislation is always a matter of public importance. If it has even reasonable prospects of success, special leave to appeal will be granted – almost as a matter of course' [emphasis added]. 23 I was referred by counsel to an article by Nicholas Beaumont, 'What are reasonable prospects of success?' (2004) 78 ALJR 812 in which it is suggested that a claim satisfies the statutory requirement 'if it is not hopeless or entirely without merit'. The 'not hopeless' construction is put forward by reference to Cadogan v McCarthy & Stone (Developments) Ltd [2002] L&TR 249, an English decision about the phrase 'reasonable prospect of being able to bring about this occupation'. Saville LJ there said (at pp.253-4): 'The reason why it must be established that there is a reasonable prospect of obtaining permission is that otherwise the landlords could only be said to be contemplating, rather than genuinely intending, the desired course of action. A reasonable prospect in this context accordingly means a real chance, a prospect that is strong enough to be acted on by a reasonable landlord minded to go ahead with plans which require permission, as opposed to a prospect that should be treated as merely fanciful or as one that should sensibly be ignored by a reasonable landlord. A reasonable prospect does not entail that it is more likely than not that permission will be obtained.' 24 The learned author sees the 'not fanciful' formulation of Saville LJ as supported by the decision of the High Court in Bushell v Repatriation Commission (1992) 175 CLR 408 which concerned the expression 'reasonable hypothesis'. Brennan J (at p.428) approved the distinction drawn in Repatriation Commission v Webb (1987) 76 ALR 131 at p.135 between 'a theory that is rationally based' and one that is 'irrational, absurd or ridiculous'. 25 The explanatory note accompanying the Civil Liability Bill 2002 provides no guidance on the meaning of 'reasonable prospects of success'. The Premier's Second Reading Speech (Hansard, Legislative Assembly, 28 May 2002, p.2085) is of some assistance in that it refers to 'unmeritorious claims' and 'spurious defences'. The adjective 'unmeritorious' refers to something that is devoid of merit. Something is 'spurious' if it is false or not genuine. 26 I accept that this legislation imposes upon lawyers a standard that is more demanding than that applicable in cases where, by reference to general law principles, a costs order is sought against a party's lawyer. Cases of that kind turn upon the lawyer's duty to the court. Here, by contrast, the lawyer is subject to a statutory duty reflective of the interests of the community. A recent statement of the relevant general law approach may be found in the decision of the Queensland Court of Appeal in Steindl Nominees Pty Ltd v Laghaifar [2003] 2 Qd R 683. Davies JA there said (at p.689), with the concurrence of the other members of the court and after reviewing earlier authorities: 'To the extent that those statements state or imply that it is not improper for a legal representative to present a case which he or she knows to be bound to fail, I would reject them. I would prefer to say that it is one thing to present a case which is barely arguable (but arguable nevertheless) but most likely to fail; it is quite another to present a case which is plainly unarguable and ought to be so to the lawyer who presents it. In my opinion, with respect, it is improper for counsel to present, even on instructions, a case which he or she regards as bound to fail because, if he or she so regards it, he or she must also regard it as unarguable.' 27 In drawing a line at a somewhat higher point on the relevant scale of conduct, the Legal Profession Act should not, in my opinion, be presumed to intend that lawyers practising in New South Wales courts must boycott every claimant with a weak case. A statutory provision denying to the community legal services in a particular class of litigation cannot be intended to stifle genuine but problematic cases. Nor do I see the statutory provisions as intended to expose a lawyer to the prospect of personal liability for costs in every case in which a court, having heard all the evidence and argument, comes to a conclusion showing that his or her client's case was not as strong as may have appeared at the outset to be. The legislation is not meant to be an instrument of intimidation, so far as lawyers are concerned. 28 The several factors to which I have referred, including the references in the Premier's Second Reading Speech and the apparent legislative purpose, cause me to adopt the construction of 'without reasonable prospects of success' that equates its meaning with 'so lacking in merit or substance as to be not fairly arguable'. The concept is one that falls appreciably short of 'likely to succeed'." (underlining added) 132 Barrett J's construction of the expression "without reasonable prospects of success" appears to me to accommodate both the purpose of Division 5C and to reflect the language of s 198J. The test, whether a claim or a defence was "so lacking in merit or substance as to be not fairly arguable", must be applied, however, in the context of the constituent components of s 198J. In that context the question becomes whether the solicitor or barrister held a reasonable belief that the provable facts and a reasonably arguable view of the law meant that the prospects of recovering damages or defeating a claim or obtaining a reduction in the damages claimed were "fairly arguable". These are matters about which reasonable minds might differ. The question will be whether the solicitor or barrister's belief that they had material which objectively justified proceeding with the claim or the defence "unquestionably fell outside the range of views which could reasonably be entertained": Medcalf at [40] per Lord Steyn. 133 Although it might be assumed that the question whether a s 198M order should be made will ordinarily arise where a litigant has been unsuccessful, it needs to be emphasised that the mere fact litigation is resolved adversely to a party does not mean costs should, in consequence, be ordered against the legal adviser, whether he or she be a solicitor or a barrister: Deputy Commissioner of Taxation v Levick per Hill J at [11]; applied Gitsham v Suncorp Metway Insurance Ltd at [8]; Commonwealth of Australia (Department of Defence); Ex parte Marks [2000] HCA 67; (2000) 75 ALJR 470 at [27]. 134 As Gibbs J said in R v Moore; Ex parte Federated Miscellaneous Workers Union of Australia [1978] HCA 51; (1978) 140 CLR 470 at 473 dealing with the court's power under s 197A of the Conciliation and Arbitration Act 1904 as amended (Com): "… a party cannot be said to have commenced a proceeding 'without reasonable cause', within the meaning of that section, simply because his argument proves unsuccessful. In the present case the argument presented on behalf of the prosecutor was not unworthy of consideration and it found some support in the two decisions of this court to which I have referred. The fact that those decisions have been distinguished, and that the argument has failed, is no justification for ordering costs in the face of the prohibition contained in s 197 A." 135 It is important to recognise that the question whether a s 198M order should be made may arise in several ways each of which may attract different onuses of proof. It may arise because the trial court "hearing proceedings on a claim for damages finds that the facts established by the evidence before the court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success": s 198N(1). Alternatively it may arise because "the Supreme Court (when the Supreme Court is not the trial court) is satisfied, either as a result of a finding of the trial court or otherwise on the basis of the judgment of the trial court, that the facts established by the evidence before the trial court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success": s 198N(2). In either of these cases there is a rebuttable presumption for the purposes of Division 5C that the legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success. The presumption is rebutted if the legal practitioner establishes "that at the time legal services were provided there were provable facts (as provided by section 198J) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success": s 198N(3). 136 Section 198N is only concerned with whether the facts demonstrated there was "a basis for a reasonable belief that the claim or the defence had reasonable prospects of success". However, the question whether a s 198M order should be made may arise for reasons which do not turn on the facts found by the court. The court may, for example, form a prima facie view that despite the facts found, there was no reasonably arguable view of the law which would support a reasonable belief that "the claim or the defence had reasonable prospects of success". 137 Alternatively, the question whether a s 198M order should be made might arise for reasons which are extrinsic to the judgment. In this case the s 198M application was made because the second respondent contended the futility of the District Court proceedings should have been apparent to the appellant because of the outcome of the arbitration. Section 198M(1) contemplates that the court may consider making a costs order against the legal practitioner in such circumstances. An application of this nature or one initiated by the court independently of its factual findings would not trigger the s 198N rebuttable presumption. The onus would remain upon the applicant throughout to demonstrate that the solicitor or barrister had provided legal services without reasonable prospects of success. If the court was proceeding of its own motion, it would be important that it recognise that no s 198N rebuttable presumption arose. 138 When considering whether to make a s 198M order the court should, in my view, consider the nature of the contravention of Division 5C which has been established, the possibly serious implications of making the costs order and determine whether it is just, in all the circumstances, that a repayment and/or indemnity order should be made and whether it should be as to the whole or part of the costs. Legal representation 139 One of the reasons the Division 5C jurisdiction should be exercised with caution is to ensure that the preparedness of the legal profession to represent litigants "should not be undermined either by creating conflicts of interest or by exposing the [legal profession] to pressures which will tend to deter them from representing certain clients or from doing so effectively": cf Medcalf (at [52]). 140 Some cases which have considered the question whether a legal practitioner acts improperly in representing a client with a hopeless case have expressed the view that "a party is entitled to have a practitioner act for him or her even in an unmeritorious case": see White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (at 236). 141 An allied view is that the administration of justice may be better served by a party being legally represented notwithstanding that the party has a hopeless case. In Kumar v Minister for Immigration & Multicultural & Indigenous Affairs (No 2) [2004] FCA 18; (2004) 133 FCR 582 at [15] Mansfield J referred to "the public interest for the client to be represented" even when a legal practitioner had advised that proceedings had no reasonable prospects of success on the basis that [p]roceedings, even hopeless proceedings, are likely to be conducted more efficiently by a solicitor for a party than by a litigant in person." 142 Properly administered the Division 5C jurisdiction should not trespass upon the preparedness of legal practitioners to provide legal services in claims for damages as long as they have reasonable prospects of success. However, the purpose of Division 5C is plainly to deter the legal practitioner at the peril of a personal costs order, and possibly disciplinary proceedings, from representing a client whose prospects in pursuing or resisting a claim for damages he or she has formed the view have no reasonable prospects of success. There is no entitlement to legal representation in such cases. It is a matter for the client to determine whether to pursue the claim or defence without such services. Procedural matters 143 The primary judge noted, correctly, that there is no formal procedure for dealing with a s 198M application. In the absence of regulations to the Legal Profession Act or District Court rules regulating the procedure to be adopted when an issue arises under s 198M, the procedure to be adopted was a matter for the judge: see Brendon v Spiro [1938] 1 KB 176 at 192 per Scott, LJ; Bahai v Rashidian [1985] 1 WLR 1337. The procedure must be devised having regard to the principles of natural justice. It should be fair and "as simple and summary as fairness permits": Ridehalgh (at 238). 144 I should, at this stage, record my disagreement with the primary judge's observation that if a party seeks a s 198M order, the conduct of that application is then purely a matter for the judge. Section 198M is not open to that construction. Where an application is made by a party as s 198M contemplates, it is that party who should have its carriage. It is only if the judge, of his or her own motion, considers making an order, that the carriage of the matter is purely a matter for him or her. 145 Where the application is made by a party, it should be made by notice of motion supported by an affidavit: see Sorridimi v Moros & Anor [2004] NSWCA 168. 146 The Court must ensure that the legal practitioner has full and sufficient notice of the complaint and full and sufficient opportunity of answering it. Insofar as the degree of particularity of notice is concerned, cases concerning the requirement that allegations against a legal practitioner in disciplinary proceedings be specifically identified provide an apt analogy: see Smith v NSW Bar Association [1992] HCA 36; (1992) 176 CLR 256 at 270 per Deane J. Specifying the allegation with particularity guides the court as to the proper approach to its task and facilitates making clear findings as to the nature and quality of the legal practitioner's conduct so as to determine whether a s 198M order ought be made: cf O'Reilly v Law Society of New South Wales (1988) 24 NSWLR 204; R v Solicitors Disciplinary Tribunal; Ex parte L [1988] VR 757 at 770; Johns v Law Society of New South Wales [1982] 2 NSWLR 1 at 6 per Moffitt P. 147 In determining the application, the court should be conscious that use of judicial findings in the principal proceedings will only be permitted where the legal practitioner will not suffer an injustice: see Flinn v Flinn (at [4] – [9]). 148 It is fundamental that the power to order costs against a non-party be exercised judicially: Knight v FP Special Assets Ltd (at 192). Exercising the power judicially means that the proceedings in which a s 198M order is considered must take place in court and, save in exceptional circumstances such as deliberate non-attendance, in the presence of the person likely to be affected by any order made. They should be determined by the delivery of a judgement which adequately exposes the reasons for the outcome: Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247. 149 While recognising that the procedure to be adopted pursuant to Division 5C is a matter for the court considering making a s 198M order, I would suggest that such a court: (1) consider whether there is a prima facie case that a solicitor or barrister has provided legal services to a party without reasonable prospects of success within the meaning of s 198J; the solicitor or barrister should be given an opportunity to be heard on whether a prima facie case has been made out; full particulars of the basis of the application should be provided; (2) if the court considers there is a prima facie case, the legal practitioner should be given the opportunity to show cause why a s 198M order should not be made; again this requires giving the solicitor or barrister sufficient particulars of the prima facie case; (3) after any explanation is provided, the court should determine whether a finding that the legal practitioner has provided legal services to a party without reasonable prospects of success within the meaning of s 198J should be made; in considering this issue the onus of proof may differ depending upon whether or not the rebuttable presumption in subss 198N(1) and (2) is operative; (4) if the court concludes the legal practitioner has provided legal services to a party without reasonable prospects of success within the meaning of s 198L the court should consider whether it is, in all the circumstances, just to make a s 198M order; (5) if an order is made, it should specify whether it is a repayment order or an indemnity order and whether the solicitor or barrister is ordered to pay "the whole or any part of" the relevant costs; (6) provide reasons for the decision. Law reform 150 It would be highly desirable, in my view, for regulations to be made to the Legal Profession Act prescribing the minimum procedure to be followed in Division 5C matters. The costs order: procedural fairness 151 It is appropriate at this stage to consider the events which followed the making of the costs order on 25 February 2004. As I indicated earlier, the appellant moved to set aside the order. The manner in which the primary judge disposed of that application provides an insight into his approach to making the costs order. 152 The appellant swore an affidavit in support of the Notice of Motion to set aside the costs order in which he recorded the history of the matter, as far as he was aware of it. He referred to the fact that he had not been present in Court on 23 October 2003, that no transcript was available of the proceedings on that date and that he was not in a position to determine what happened then. He deposed that when he was informed on 7 November 2003 that "[there was] a case for counsel and solicitor to pay the costs of these proceedings pursuant to s 198M", at that stage, no evidence had been presented on behalf of the second respondent as to the costs which were sought "and the only findings made by the Court were contained in the [principal] judgment". He said, in effect, that the 10 December 2003 letter was the first time he became aware that the matter had been mentioned on 25 November 2003 and also the first time he had been told that "any costs order had been made against [him]". He said that he had retained Mr Lidden in 2003 and provided him with the transcript of the principal proceedings, but that Mr Lidden had advised him that due to pressure of work he would be unable to review the material until after the Christmas break at the end of January 2004. A conference had been arranged with Mr Lidden on 5 February 2004 which he attended. At that conference he became aware that there had been a mention of the matter when Mr Harrison and Mr Torrington had appeared. He deposed that there was no transcript of that hearing and that he had not been given the opportunity to attend on that occasion. 153 It appears that he instructed Mr Lidden to seek to ascertain what had transpired on 25 November 2004. The transcript of the 25 November 2004 proceedings was unavailable at the date he swore his affidavit on 4 March 2004. The inquiries Mr Lidden made produced information which the appellant described as "confusing … and … conflicting". He said he had seen Mr Lidden on 25 February 2004 at which stage they discussed the difficulty occasioned by the third respondent's legal professional privilege. He said he formed "the view that there was little [he] could put in any affidavit if the client retained her legal professional privilege over her instructions to [him] throughout the claim". It appears that it was agreed that Mr Lidden was to take steps to relist the matter for further argument but before that could occur the 25 February 2004 letter arrived. He referred to his letter to the primary judge's associate of 17 December 2003. He said he had not been informed of any further date for the filing of any affidavits, nor given a date for submissions, nor notified by the Court "that it was intended that an order would be made in my absence". 154 The Notice of Motion was listed before the primary judge on 5 March 2004. On that occasion Ms Bojanac appeared for the second respondent. Mr Lidden appeared, no doubt for the appellant, although the transcript records him as appearing for the third respondent. On that day the primary judge repeated his view that once the second respondent had initiated an application pursuant to s 198M, the judge was effectively given the responsibility for its carriage and that there was no continuing role for the original applicant. He reiterated his concern that further costs not be incurred. 155 The primary judge also expressed his concern that in the light of the orders he made he was functus officio. The matter was adjourned on the basis that Mr Lidden would prepare written submissions concerning his Honour's power to set aside the costs order. 156 The substantive basis of the appellant's application to set aside the costs order as articulated in the written submissions was that there had been a lack of procedural fairness and a denial of natural justice constituting an irregularity. He submitted that in the context of s 198M, procedural fairness involved the opportunity to adduce relevant evidence and material and to make submissions in light of the case which was to be faced. He said he wished to argue the costs order was obtained irregularly because (inter alia) he had not been given the opportunity to seek an order that his client's legal professional privilege should be "set aside or waived" and he had not been given an opportunity to argue against the final making of the order or its terms. He also argued that he wished to submit that the costs order was obtained irregularly because he had not been informed of the actual case he had to meet and was not informed as to why the Court thought the principal action had no reasonable prospects of success. He sought to argue that he had not been given the opportunity to make submissions that the "original" order should not have been made. While he acknowledged that he had not complied with the order to file affidavits, he wished to argue that that order too, should not have been made in the first instance and certainly not without consideration of whether he was entitled to go behind the third respondent's privilege. The appellant also submitted to the primary judge that he wished to complain about the lack of reasons for the costs order as a breach of natural justice. Application to set aside the costs order 157 On 19 May 2004 the primary judge held that he had no power to grant the relief sought and dismissed the Notice of Motion. His Honour set out the history of the proceedings in his judgment. 158 He said that after considering "various matters put to me by Mr Gambi on the previous occasion and the reason for the arbitrator's award", he was "satisfied that there was a case for an order to be made against barrister and solicitor under s 198M". He said that on 7 November 2003 both Ms Ryan and the appellant "were invited either jointly or severally to provide written submissions in answer to the presumption raised under s 198N". I interpolate to note that there was no reference to s 198N during the 7 November proceedings. He then recorded that after Mr Harrison's appearance on 25 November 2003 on behalf of Ms Ryan, he had "resolved to rescind orders previously made against Ms Ryan but to confirm those orders insofar as they applied to Mr Lemoto". It is not apparent from his Honour's judgment to which orders he was referring. Certainly, on his recitation of the history, no order had, by 10 December 2003, been made pursuant to s 198M against the appellant. 159 He referred to the two calls his associate made to the appellant's firm in February 2004, in the second of which he said she advised his Honour intended to deal with the matter on his return from circuit. It is not clear if she had specified a date for his return. His Honour then recorded that: "On 25 February 2004 I accordingly made an order in Chambers that Mr Lemoto pay the plaintiff's costs in the principal proceedings under s 198M of the Legal Profession Act ." 160 Two observations might be made about that statement. First, it does not accord with the terms of the letter sent to the appellant by the primary judge's associate on 25 February 2004. As I earlier noted, that letter did not specify the terms of the costs order made against the appellant. His Honour's statement accords substantially however with what appears in the computerised extract of the order recorded in the District Court. Secondly, the order his Honour indicated he had made is not one contemplated expressly by s 198M which only provides for a repayment order (s 198M(1)(a)) and/or an indemnity order (s 198M(1)(b)). During the hearing of the appeal Mr McCulloch submitted that the order ought be understood as having been made pursuant to s 198M(1)(a). As will become apparent little will ultimately turn on precisely what order the primary judge made. The disconcerting aspect of the costs order was that its imprecision tends to suggest his Honour had not paid close attention to the power he was purporting to exercise. 161 His Honour then considered and rejected each of the bases upon which Mr Lidden had submitted the 25 February 2004 Order could be set aside. 162 The primary judge dealt with the complaints about lack of procedural fairness and denial of natural justice as follows: "The submission that the solicitor was denied natural justice in this case cannot be addressed without consideration of the legislative framework within which the order was made. I have made brief reference to this already in noting the unusual role vested in the Court by s 198 of the Legal Profession Act . The Court is placed by s 198M in the role of both prosecutor and judge . Given the absence of any rules of court or other statutory provisions outlining the procedure to be followed where s 198M is raised, the Court has to devise its own procedures in the resolution of such matters. As in this case the initiation of proceedings under s 198M occurs at the conclusion of proceedings in which judgment has been entered in favour of a successful party. Either on the application of that party or [of] the Court's own motion a decision is made which gives rise to a presumption against a solicitor and/or barrister. If that presumption is not rebutted an order will be made against the solicitor or barrister in terms of s 198M requiring the solicitor or barrister to pay the costs ordered against the party whom they had represented in the principal proceedings. In such circumstances the question of whether natural justice has been afforded to the solicitor and/or barrister will not necessarily depend upon the formal criteria which would apply in the conduct of litigation resulting in a judgment supported by reasons and recorded as such at the conclusion of the proceedings for which detailed rules of procedure are provided. This is not to say that the solicitor or barrister is not entitled to natural justice. To the contrary, the very absence of legislative provision in the form of procedural rules imposes a particular onus on the Court to ensure that a barrister or solicitor is given a proper opportunity to be heard before any final order is made against them. That is the basis on which this matter was conducted. In this case the application of s 198 was first raised on 23 October 2003 in the course of submissions on costs following the entry of a verdict and judgment against the plaintiff in favour of the first and second defendants in the principal proceedings on 26 September 2003. As recorded earlier, Mr Gambi for the second defendant invited the Court to make an order under s 198M of the Legal Profession Act against Mr Lemoto. In the course of his submissions Mr Gambi referred to the plaintiff's case as one "that was either well known to her or well known to her legal representatives and didn't change between the arbitration and the hearing". This was a reference to an arbitrator's award in favour of the first and second defendants made on 17 March 2003. Mr Gambi made it clear from the outset that he relied on s 198M of the Legal Profession Act . As Ms Ryan for the plaintiff quite correctly submitted, a pre-requisite for any order under that section was a finding that legal services had been provided by the solicitor or barrister 'without reasonable prospects of success'. It was to this pre-requisite that Mr Gambi addressed further submissions directed to the absence of any significant change in the plaintiff's case as it was conducted at arbitration and the case before me and the similarity between the conclusions reached by the arbitrator and those given as my reasons for judgment. One exception to the general similarity between the case at arbitration and that before this Court was the evidence of Professor March in the plaintiff's case which sought to dissociate any connection between the onset of the plaintiff's back problems allegedly caused by the defendants' breach of duty and a congenital arthritic condition from which the plaintiff suffered. While the evidence in the two proceedings could be distinguished in this way, it was a matter of no material consequence in view of my finding that, quite independently of the arthritic condition, the plaintiff had failed to prove that the mechanical back problems were a consequence of her employment with the defendants rather than other independent causes apart from the arthritis. It is true that because of Professor March's evidence more attention was given to the question of causation than appears to have been given to it in the proceedings before the arbitrator. But what is most significant in the context of the application of s 198M is the fact that the explicit reasons given by the arbitrator for his award in favour of both defendants are strikingly similar to the alternative reasons given in my judgment. He was adversely critical of the report of the plaintiff's expert Mr R Nicholson for reasons almost identical with those given in my judgment. His reasons for the conclusion that the plaintiff had failed in establishing a breach of duty on the part of the second defendant were those upon which I had relied in reaching the same conclusion. The arbitrator's reasons for his award in the first defendant's favour were brief but entirely consistent with the more detailed reasons in my judgment. A comparison of the arbitrator's award with my judgment fully support the submission made by Mr Gambi that it should have been clear to the plaintiff and those acting on her behalf at the conclusion of the arbitration proceedings that to pursue an application for re-hearing before this Court was without reasonable prospects of success unless some or all of the deficiencies in the plaintiff's case identified in the arbitrator's award were addressed. They were not, with one exception which did nothing to advance the plaintiff's prospects of success. Part of Mr Lidden's submissions were based on the absence of any judgment delivered by me consisting of an explicit finding under s 198M (1) together with reasons for such a finding. While it is true that no such judgment was delivered, it is consistent with the nature of s 198 of the Legal Profession Act that the manner and circumstances in which the application of that section is raised do not necessarily lend themselves to so formal a process. What is more important is that as a consequence of the proceedings, the solicitor and/or barrister should be in no doubt that a finding has been made against them under s 198M including the reasons for it and that they are given a proper opportunity to respond in accordance with s 198N . In this case the exchange between counsel and myself on 23 October 2003 could leave no room for doubt that the application made by Mr Gambi was made under s 198M to which repeated reference was made. At the conclusion of those proceedings no express finding as made by me because it was unnecessary at that stage . On the next occasion, namely 7 November 2003, there was no appearance for either defendant but both Ms Ryan and Mr Lemoto appeared having been required to do so in anticipation of the finding which I had resolved I should make. At the commencement of the appearance I advised both Ms Ryan and Mr Lemoto that I had concluded that there was a case against them under s 198M. I here quote from page 1 of the transcript: HIS HONOUR: Ms Ryan I asked you and your instructing solicitor to be here this morning. … I have given further and very careful consideration to the question of the appropriate costs orders that should be made in this matter of Stoddart and I am at this stage persuaded that there is a case for an order to be made against both yourself and your instructing solicitor under s 198M of the Legal Profession Act . That's as far as I propose to take the matter this morning and to [sic] invite you, whether you do this jointly or separately is a matter between you and your instructing solicitor, to provide written submissions on that question. Although on that occasion I did not explicitly repeat the words 'without reasonable prospects of success', there could have been no doubt that the conclusion I had reached was in those terms. Section 198M makes provision for no other conclusion as a condition precedent for a costs order against the solicitor or barrister. The extensive discussion on the previous occasion contained both the finding and the reasons for such a finding. On the previous occasion Ms Ryan had not challenged Mr Gambi's submissions that the plaintiff's case had not in any way been advanced in its presentation before me with the exception of Professor March's evidence. She did not at any stage challenge the similarities between the arbitrator's award and his reasons for finding no breach of duty on the part of either defendant and my own reasons for reach the same conclusions. On Friday 7 November 2003 following discussion between Ms Ryan and myself referred to earlier it was accepted that the more appropriate way of proceeding was by way of affidavit and the timetable for that purpose was put in place. I draw particular attention to the fact that Mr Lemoto was present on this occasion although he left Ms Ryan to make submissions as long as they shared a common interest. If there was any room for doubt arising from the absence of a formal judgment by way of a finding under s 198M(1), it was resolved in the letter to Mr Lemoto of 10 December 2003 from my Associate following the decision not to proceed against Ms Ryan. In that letter Mr Lemoto was expressly invited "to rebut the presumption that the matter was brought to trial without reasonable prospects of success". For the purpose of such rebuttal Mr Lemoto's attention was explicitly directed to s 198N(3) and (4). It was in that letter that Mr Lemoto was given a further fourteen days to file any affidavit .… In summary, from 10 December 2003 Mr Lemoto could have been under no misapprehension about the nature of the finding made against him and the action which was required on his part by way of response. Notwithstanding every effort to elicit such a response it was not forthcoming and the order against him on 25 February 2004 was made in the face of his continuing inaction. Mr Lemoto's affidavit An affidavit sworn by Mr Lemoto and dated 4 March 2004 was filed in support of the Notice of Motion. In that affidavit Mr Lemoto devotes a considerable amount of time to his absence from the hearing before me on 25 November 2003 on which occasion Ms Ryan was represented by Mr Harrison SC and Mr Torrington of Counsel. It was on this occasion that Mr Harrison conveyed various reasons for reconsidering the application of s 198M as against Ms Ryan and Mr Gambi confirmed that his application for the application of that section was confined to the solicitor and did not extend to Ms Ryan. No additional findings were made against Mr Lemoto nor any change to any earlier findings against him. The hearing of the matter before me on 25 November 2003 did not affect the proceedings insofar as they concerned Mr Lemoto. In order to remove any doubt should Mr Lemoto come to hear of what transpired on 25 November 2003, the letter of 10 December advised Lemoto that the order made on 7 November against him still stood. The only other comment I would make in this regard is that, in contrast to Mr Lemoto, Ms Ryan showed sufficient concern at the prospect of an order against her under s 198 that she briefed Senior Counsel to appear on her behalf following the order to file affidavits on 7 November 2003. The same opportunity was available to Mr Lemoto but he did nothing. At any time following the order made on 7 November he could have sought relisting of the matter to make submissions or seek clarification of his position, if that were needed. The only reference to the letter to Mr Lemoto of 10 December 2003 in his affidavit is that he was told in that letter that 'the order' had already occurred. This appears to be a reference to the order ultimately made on 25 February 2004 requiring Mr Lemoto to pay the costs ordered against the plaintiff. The only order that had been made at any earlier stage and the one referred to in the letter of 10 December 2003 was that made on 7 November 2003 requiring the filing of affidavits. This was clear from the letter of 10 December 2003 in which the time for filing such affidavits was extended for a further 14 days. Mr Lemoto's confusion of the two orders, coming as it does from a member of the legal profession, is disingenuous. In paragraph 23 of his affidavit Mr Lemoto refers to advice received from Mr Lidden on 24 February 2004 concerning the existence of a solicitor/client privilege over communications between himself and the plaintiff which could only be waived by the plaintiff. In the letter to Mr Lemoto of 10 December 2003 his attention had been explicitly directed to s 198N(4) of the Legal Profession Act which provides for the Court to make an order effectively waiving that privilege where the Court is satisfied that it is necessary to do so in order to rebut the presumption arising under that section against the solicitor." 163 It is, regrettably, necessary to make a number of observations concerning these reasons. First, his Honour also appears to have formed the view that if the s 198N presumption was not rebutted, s 198M required him to make an order against the appellant. In other words that the court had no discretion in this respect. As I have explained that construction of s 198M is incorrect. The Court has a discretion as to whether a s 198M order should be made. Such an order should only be made if it is just, in all the circumstances, to do so. 164 Secondly, his Honour placed considerable weight on the hearing of 23 October 2003, yet he failed to acknowledge that the appellant was not present during the proceedings on 23 October 2003 and had deposed, in his affidavit in support of the motion to set aside the costs order, that he was unaware of what had transpired on that occasion. To the extent that the primary judge's rejection of the appellant's submission that he had been denied natural justice depended on the proposition that the proceedings on 23 October 2003 were sufficient notification to him of the basis upon which it might be said he had provided legal services without reasonable prospects of success, that conclusion lacked factual foundation. 165 Thirdly, his Honour's reference to the fact that on 23 October Ms Ryan did not gainsay the matters upon which Mr Gambi advanced the s 198M application pays no regard to two matters: first, Ms Ryan was seeking an adjournment on 23 October on the basis that she was not in a position to deal with the second respondent's application. She was not required to make substantive submissions. Secondly, Ms Ryan did not purport to represent the appellant on that occasion. 166 Fourthly, the proposition that it was consistent with "the nature of s 198 of the Legal Profession Act" that it did not lend itself to the formal process of a reasoned judgment must be rejected. It is fundamental to the exercise of judicial power that reasons are given. 167 Fifthly, his Honour appears to have been under the impression that it was sufficient notice to the appellant of the case he had to meet to advise him on 7 November 2003 that "[there was] a case for an order to made against [him] under s 198M …". That proposition is untenable. It was incumbent upon the primary judge to specify the basis of that conclusion with sufficient particularity to enable the appellant to understand the case he had to meet. Instead, the course the primary judge took, left the appellant in the dark as to what aspect of his provision of legal services to the third respondent he was obliged to address, let alone why the primary judge had formed the view that those services had been provided "without reasonable prospects of success". 168 It follows that the primary judge's conclusion that from at least 10 December 2003 the appellant could have been under no misapprehension about "the nature of the finding against him and the action which was required on his part by way of response" lacked any factual foundation. 169 Next I note that on 7 November 2003 the primary judge indicated that after affidavits were filed, a time would be appointed for final submissions. The fact that no affidavits were filed did not mean the appellant should be denied the opportunity to make such submissions. The costs order was made without the appellant being afforded that opportunity. 170 Finally, even if it was the case that the third respondent failed before the primary judge for the same reasons she failed before the arbitrator, that bald proposition would not suffice to attract a finding that legal services had been provided without reasonable prospects of success. 171 I would also observe that the primary judge's criticism of the appellant as "disingenuous" is, with respect, unwarranted. In my view, having regard to the manner in which the matter had proceeded before the primary judge, the appellant was entitled to have been entirely confused as to what he was required to do and when. Indeed even his Honour appears to have struggled to identify the order the appellant was informed should stand when dealing with his associate's letter of 10 December 2003. To say, as he did, that that appeared to be a reference to the order he made over two months later, highlights in my view the confusion the 10 December letter would engender. 172 I accept that it was inappropriate for the appellant not to have communicated with the primary judge after the two occasions upon which his associate had contacted the appellant's firm in February 2004. While the appellant explained in an affidavit filed in these proceedings that he had not returned that call because "I was waiting on advice from counsel in respect to the affidavits", it was clearly discourteous of him not to advise the primary judge's associate of the steps he was taking to seek to comply with the directions of 7 November 2003 as confirmed in the letter of 10 December 2003. 173 The second respondent submitted that the appellant's failure to avail himself of the opportunity to put on affidavits meant, in effect, that he had exhausted the opportunity that the primary judge had extended to him on 7 November 2002. In my view that submission must be rejected. The appellant's apparent inaction cannot cure the procedural inequity by which he was burdened by the primary judge's failure to identify with precision the case he was required to meet. Further, looking at the matter objectively, it is not apparent that the appellant had exhausted the opportunity the primary judge had extended to him. As I have noted by 25 February 2004, the primary judge had not listed the matter for the final submissions foreshadowed on 7 November 2003. The costs order: conclusion 174 In my view the primary judge erred in making the costs order against the appellant. 175 While the primary judge recognised that he was obliged to accord procedural fairness to the appellant he failed to discharge that obligation. He did not inform the appellant of the precise basis upon which he had apparently formed the view that the appellant had provided legal services to the third respondent without reasonable prospects of success. 176 The primary judge acknowledged on 25 November 2003 (albeit in the appellant's absence) that he had not explicitly made any such finding. Yet even on that occasion having said that he had made an "implicit" finding that he had no difficulty in formalising, his Honour did not identify the basis for his "finding". In some respects this observation is by the way because the appellant was not present on 25 November 2003 and the primary judge took no steps either to require his attendance on that occasion or to notify him of what had transpired to the extent that it might be seen to have affected him. Indeed by referring enigmatically to that mention in his 10 December 2003 letter to the appellant and the fact that following that mention he was "of the view that the order made against [the appellant] under s 198M of the Legal Profession Act 1987 should stand" the primary judge unfortunately conveyed the impression that something which had occurred on that occasion had, or at least may have, affected his view of the appellant's conduct in representing the third respondent. 177 The obligation on the primary judge was to give the appellant "full and sufficient notice" of the basis of any prima facie view which might have led him to make a s 198M order. It was not sufficient for the primary judge merely to recite the ultimate conclusion contemplated by s 198M, that legal services had been provided without reasonable prospects of success. Nor was it sufficient, as the primary judge did on 7 November 2003, simply to inform the appellant that he was "persuaded that there is a case for an order to be made against yourself and your instructing solicitor under s 198M of the Legal Profession Act." It was incumbent upon his Honour to specify in what respects he considered the appellant had provided legal services to the third respondent without reasonable prospects of success so that the appellant understood the case he had to meet. 178 Further, his Honour erred in forming the view that this was a case which gave rise to the s 198N presumption. This was because both the original application and the basis upon which he apparently determined the s 198M issue turned not merely upon his factual findings, but upon a comparison between his decision and the arbitrator's award. Moreover, even if this had been a case in which the s 198N presumption arose, failure to discharge the presumption did not mean a s 198M order would follow as of course. His Honour failed to recognise the discretionary nature of s 198M. 179 Finally his Honour erred in failing to give reasons. The absence of reasons means it is not possible to discern the test his Honour applied to determine what constituted the provision of legal services "without reasonable prospects of success". To the extent regard can be had to the reasons given on the application to set aside the costs order, it is apparent his Honour did not consider whether the case was "fairly arguable" on the basis of provable facts or a reasonably arguable view of the law. Rather, his Honour appears to have concluded that the s 198M order should be made because the third respondent had lost her case both at the arbitration and before him. As I have already observed a costs order should not be made against a legal practitioner merely because a litigant has been unsuccessful. That proposition is not weakened because a litigant has lost twice. His Honour's careful judgment in the principal proceedings make it plain that they were resolved adversely to the third respondent for reasons largely connected to his assessment of her credibility. Division 5C does not require the legal practitioner to pre-judge that issue. Resolution of the appeal 180 The conclusion that the primary judge erred in failing to give reasons for the costs order requires consideration of whether this Court can resolve the issue. The alternative course is to remit the question whether a s 198M order ought be made against the appellant to the District Court for reconsideration: see Beale v Government Insurance Office of New South Wales (at 444). The appellant urged the Court to resolve the matter. The second respondent submitted that the costs order should stand or, if the Court was to allow the appeal, that the matter should be remitted for re-consideration in the light of the views the Court expresses about Division 5C. 181 In my view it is open to this Court to determine the matter on the basis that there should be no finding in terms of s 198N(1), and that there was no prima facie case that the appellant had provided legal services to the third respondent without reasonable prospects of success. 182 Consideration of this question requires determining whether the appellant could reasonably have believed that the third respondent's claim that the first and second respondents had breached the duty of care they owed her had reasonable prospects of success. That is, in essence, how the second respondent put its application for a s 198M order before the primary judge when, on 23 October 2003, relying upon what it submitted was the conformity between the primary judge's conclusion on breach and the arbitrator's reasons. It was that factor to which the primary judge referred in his decision of 19 May 2004 dismissing the appellant's Notice of Motion seeking to set aside the costs order. 183 The issue thus exposed is within a narrow compass. As I have earlier recorded the arbitrator found against the third respondent because he concluded that the second respondent had not directed her to undertake the lifting she asserted had caused her injury. The primary judge reached the same conclusion. However in his reasons for that decision which he acknowledged were only "in brief outline" because of the conclusion he had reached on the causation issue he accepted that the third respondent's interpretation of statements made to her by employees of the second respondent that she was required to lift and carry boxes of forty videos "was understandable". A conclusion that an employee mistakenly but honestly believed the system of work required her to lift and carry boxes beyond her capacity could establish the employer had breached its duty of care. A breach of an employer's duty of care may be established where the employer ought reasonably to have foreseen that an employee might undertake a risky task even though not expressly directed to do so: see Tame v State of New South Wales; Annetts v Australian Stations Pty Ltd [2002] HCA 35; (2002) 211 CLR 317 at 354 [102] per McHugh J. It was not for the appellant to determine whether the third respondent would be believed when she said that the second respondent expressly directed her to undertake a task that exposed her to a risk. Equally, it was open to the appellant to conclude that it was reasonably arguable, as a matter of law, that the second respondent breached its duty of care because it ought to have foreseen that the third respondent could have understood that the system of work required her to undertake that task. 184 Both the arbitrator and the primary judge found there was no expert evidence to establish that, even if the second respondent had required the third respondent to lift the boxes, the boxes were too heavy for a female employee to lift. The third respondent's expert evidence to that effect was rejected both at the arbitration and the rehearing because the factual basis of the expert's opinion was not proved. The second and third respondents both rely upon that matter as also justifying the costs order. However the third respondent's case in the principal proceedings did not depend merely upon her being required to lift weights which exceeded the capacity of the average female employee. It also turned on the proposition that by reason of her lifting limitations, even lifting a light box was beyond her. The third respondent made that case strongly against the first respondent. That case did not depend upon expert evidence. 185 The third respondent's case against the first respondent was that she had informed the first respondent of her lifting limitations and that it was its responsibility to inform the second respondent of that matter. The primary judge found against her in this respect because he concluded, based on documents apparently written by the third respondent in respect of her registration with the first respondent, that she had not so advised it. Again this conclusion largely turned on the third respondent's credibility. 186 On its face, the propositions of which the third respondent presumably gave instructions to the appellant, that the first respondent was aware of her lifting limitations and that the second respondent had required her to lift weights which exceeded her capacity in circumstances where the first respondent ought to have advised it of her limitations and/or the second respondent was in any event aware of those limitations disclosed, in my view, a case which had reasonable prospects of success in the sense that it was "fairly arguable". The fact that, ultimately, the third respondent failed both before the primary judge and the arbitrator did not mean the appellant had provided legal services without reasonable prospects of success. 187 Accordingly, in my view, there was no prima facie case that the appellant had provided legal services to the third respondent in respect of a claim without reasonable prospects of success. Conclusion 188 Finally I would make some general observations about the Division 5C jurisdiction. 189 First, the fact that Division 5C appears in legislation which makes elaborate provision in Part 10 for the discipline of legal practitioners suggests that Division 5C should not be invoked where the conduct impugned is "sufficiently egregious to give rise to a contention that a person is permanently, or at least indefinitely, unfit for practice": see New South Wales Bar Association v Murphy [2002] NSWCA 138; (2002) 55 NSWLR 23 at [5], [27] per Spigelman CJ. This tends to reinforce the proposition that the Division 5C power should be exercised with caution. 190 Secondly, no doubt Division 5C was introduced with the purpose of eliminating claims for damages which are not "fairly arguable". However, it runs the grave risk of becoming an instrument of injustice if not properly understood and applied. Division 5C requires the legal practitioner to form a belief about the prospects of success in circumstances where he or she is not merely considering the client's interests and the duty to the court, but will inevitably be concerned about his or her potential exposure to a personal costs orders. There is a real risk that the over-cautious will refuse to act, potentially depriving a client of an effective remedy. As Lord Steyn said in Medcalf (at [42]): "The law reports are replete with cases which were thought to be hopeless before investigation but were decided the other way after the court allowed the matter to be tried." 191 Lord Steyn's observation highlights the necessity to approach a submission that a legal practitioner has contravened s 198J with considerable circumspection. It would be a sad consequence of Division 5C if it influenced legal practitioners to become "timorous souls" as opposed to "bold spirits": cf Candler v Crane Christmas & Co [1951] 2 KB 164 at 178 per Lord Denning. 192 Thirdly, because Division 5C operates at the fault line between a legal practitioner's duty to the Court and his or her duty to the client it has the potential to expose clients to unfortunate consequences. Thus in Degiorgio v Dunn (No 2) where the defendant sought costs on an indemnity basis not only from the unsuccessful plaintiff but also from his solicitor, the solicitor withdrew from the retainer immediately it became clear that an application for a costs order against him would be pursued. At the hearing on costs, the plaintiff appeared without legal representation and his former solicitor was represented by counsel. 193 There is a real risk if s 198M applications are made immediately after proceedings have concluded (which I accept is the most realistic time for any such application) that the client may be prejudiced if the legal practitioner ceases to act because of a perceived conflict of interest leaving the client unable to secure advice as to the prospects of a successful appeal from the person most familiar with the proceedings. 194 Fourthly, I share the concern expressed elsewhere of the risk of a practice developing whereby solicitors endeavour to browbeat their opponents into abandoning clients or particular issues or arguments for fear of personal costs orders being made against them: see Levick v Commissioner of Taxation (at 166); Patrick v Capital Finance Corp (Australasia) Pty Ltd [2004] FCA 1249. 195 Finally, as I earlier noted, in Ridehalgh at 238 – 239 the Court of Appeal warned that judges "must be astute to control what threatens to become a new and costly form of satellite litigation". Despite this warning the House of Lords observed in Medcalf (at [13]): "… [T]he clear warnings given in [ Ridehalgh ] have not proved sufficient to deter parties from incurring large and disproportionate sums of costs in pursuing protracted claims for wasted costs, many of which have proved unsuccessful." 196 What has happened in this case is a salutary warning to courts to ensure that Division 5C applications do not assume a costly life of their own. Orders 197 Accordingly the appeal should be allowed and the costs order discharged. 198 In addition to seeking an order setting aside the costs order, the appellant seeks an order that the third respondent pay the first and second respondents' costs of the District Court proceedings. That order should not be necessary as in the 23 October 2003 hearing the primary judge ordered the third respondent to pay the second respondent's costs up to 10 April 2003 on a party-party basis and on an indemnity basis from that date. On the same day he ordered the third respondent to pay the first respondent's costs on a party-party basis. 199 I have earlier noted that it was not clear whether the costs order the primary judge made against the appellant was a repayment order or an indemnity order. In my view the better construction is that it was a repayment order, requiring the appellant to repay to the third respondent the costs she had been ordered to pay the first and second respondents. Accordingly the costs orders the primary judge made in their favour against the third respondent on 23 October 2003 continue to operate. It is unnecessary for this Court to make any order dealing with the costs of the principal proceedings. 200 In my view, however, the third respondent should not bear any part of the appellant's costs of the appeal. She did not initiate or in any way participate in the costs order proceedings before the primary judge. She was properly joined as a party to the appeal and actively participated by way of written submissions and the adoption, in court, of the second respondent's submissions. In my view she should bear her own costs. 201 I propose the following orders: (1) Extend to 18 June 2004 the time in which the appellant might seek leave to appeal against such orders as were made by the primary judge prior to 19 May 2004. (2) Grant leave to appeal and allow the appeal. (3) Set aside the costs order made by Phegan DCJ in Chambers on 25 February 2004. (4) Order the first and second respondents to pay the appellant's costs of the appeal and of the application for leave to appeal. (5) Third respondent to bear her costs of the appeal and of the application for leave to appeal. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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