New South Wales Court of Appeal CITATION: Re The Black Stump Enterprises Pty Ltd and Associated Companies (No 2) [2006] NSWCA 60 HEARING DATE(S): 10/03/06 JUDGMENT DATE: 31 March 2006 JUDGMENT OF: Santow JA at 1; Bryson JA at 2; Young CJ in Eq at 3 DECISION: No order requiring solicitors to pay costs. No order for costs. CATCHWORDS: COSTS- Solicitors' liability for costs- Appeal without reasonable prospects of success- Sophisticated clients- Not clear whether appeal was a result of clients' or solicitors' action. LEGISLATION CITED: Uniform Civil Procedure Act 2005, s 99 Kumar v MIMIA (2004) 133 FCR 582 Lemoto v Able Technical Pty Ltd [2005] NSWCA 153 CASES CITED: Re The Black Stump Enterprises Pty Ltd and Associated Companies [2005] NSWCA 480 Ridehalgh v Horsefield [1994] Ch 205 Steindl Nominees Pty Ltd v Laghaifar [2003] 2 Qd R 683 White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 PARTIES: Abbott Tout (Appellants' Solicitors) FILE NUMBER(S): CA 40494/05 COUNSEL: M J Rosenblatt (S) (Appellants' Solicitors) SOLICITORS: Abbott Tout (Appellants' Solicitors) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): 2766/05 LOWER COURT JUDICIAL OFFICER: Barrett J IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40494/05 SANTOW JA BRYSON JA YOUNG CJ in EQ Friday 31 March 2006 RE THE BLACK STUMP ENTERPRISES PTY LTD AND ASSOCIATED COMPANIES (NO 2) Judgment 1 SANTOW JA: I agree with Young CJ in Eq. 2 BRYSON JA: I agree with Young CJ in Eq. 3 YOUNG CJ in EQ: The Court gave judgment in this matter on 14 December 2005 Re The Black Stump Enterprises Pty Ltd and Associated Companies [2005] NSWCA 480. 4 The Court was concerned that the creditors' monies were being wasted in what might be described as a hopeless appeal and in para 35 of the judgment I said that this was a case where the Court should, under s 99 of the Uniform Civil Procedure Act 2005, ask the solicitors to show cause why they should not personally pay the whole of the costs of the application and of the appeal. 5 That matter came back before the Court on 10 March 2006. 6 Mr Rosenblatt appeared to show cause. He respectfully submitted that the decision made to expedite the appeal in itself showed that the appeal must have been thought by an independent person to have some merit so that the appeal should not be classed as a "hopeless case". 7 However, on the principal point, that is, when should the Court make an order that solicitors pay the costs of the proceedings, Mr Rosenblatt reminded us of the decisions in Ridehalgh v Horsefield [1994] Ch 205 and Lemoto v Able Technical Pty Ltd [2005] NSWCA 153. 8 In Ridehalgh at p 229 and Lemoto at [92] the English Court of Appeal and this Court respectively said, quoting the words of McColl JA in the latter case: "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'." 9 There is abundant other authority for similar propositions; see eg White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169, 239; Steindl Nominees Pty Ltd v Laghaifar [2003] 2 Qd R 683, 689. 10 One of the difficulties for a court when applying the test set out in those authorities is in making an assessment as to whether it is the solicitor or client that is the real cause of the problem. This is exacerbated in that legal professional privilege may prevent the lawyer from informing the Court of what truly happened. Without the client's release, the lawyer may well be unable to give the Court full information; see eg Kumar v MIMIA (2004) 133 FCR 582. 11 In the instant case, the clients were professional liquidators. They must be taken to have had some knowledge of the facts and circumstances surrounding the application and the appeal. It would be difficult to infer that with such clients a solicitor, to use a traditional common law expression, would go out on a frolic of his own. The truth is that the Court just does not know whether the solicitor brought the appeal to justify his own advice to the client or whether the client insisted that the appeal be brought because the client thought, rightly or wrongly, that that would save the creditors' money in the long run, or what otherwise happened. 12 This being the situation the Court cannot be satisfied that this is a case where an order for costs should be made against the solicitor personally. 13 That being so, it seems to me that no order for costs should be made. ASIC, who appeared as amicus, indicated that whilst it was only too happy to receive an order for costs, it did not especially press for such an order to be made. 14 The fact that this Court was sufficiently concerned about the matter to ask the solicitor to show cause should serve as a red light warning to the profession that this Court is very concerned about dividends to creditors in a winding up being whittled away by expensive legal proceedings which have little chance of success. If, in a future case, the facts clearly showed that a solicitor had given very bad advice to an unsophisticated client who had accepted it without question with the result that the company concerned had incurred substantial legal costs, that may well be a case where the Court would, after giving the solicitor due notice to explain, make an order that the solicitor pay the costs personally. 15 In the present case the only additional order I would make is that there should be no order for costs. *********************** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.