New South Wales Supreme Court CITATION : Kallinicos & Anor v Hunt & Ors (Costs) [2006] NSWSC 723 HEARING DATE(S) : 13 April 2006 (written submissions closed 29 May 2006) JUDGMENT DATE : 19 July 2006 JURISDICTION : Equity Division JUDGMENT OF : Brereton J DECISION : Solicitor/respondent to pay plaintiffs' costs of motion for his removal. Defendants/former clients to pay solicitor's costs, including the costs which he is liable to pay plaintiffs. CATCHWORDS : LEGAL PRACTITIONERS – SOLICITORS – COSTS – where solicitor restrained on application of plaintiffs from continuing to act for defendants – where solicitor resisted application at request and on instructions from defendants/former clients – where application had sought costs only against solicitor – whether solicitor was amenable to costs order – whether defendants were amenable to costs order – where defendants and solicitor appeared by common counsel to resist motion – whether solicitor entitled to be indemnified by former clients in respect of costs liability – held, solicitor to pay plaintiffs' costs of motion for his removal, and defendants/former clients to pay solicitor's costs, including the costs which he is liable to pay plaintiffs. LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW), rr 6.12(4) and 18.3(1)(b) Attorney General v Wylde (1946) 47 SR (NSW) 99 Belan v Casey [2002] NSWSC 58 Frixione v Tagliaferro & Sons (1856) 10 MooPC 175 Harris v Schembri (NSWSC, Bryson J, 7 November 1995, unreported), BC9501757 Kallinicos v Hunt [2005] NSWSC 1181 Lemoto v Abel Technical Pty Limited (2005) 63 NSWLR 300 Myers v Elman [1940] AC 282 CASES CITED : Re Famatina Development Corporation Limited [1914] 2 Ch 271 Re Wells & Croft; ex parte Official Receiver (1895) 72 LT 359 Ridehalgh v Horsefield [1994] Ch 205 Simpson & Miller v British Industries Trust Limited (1923) 39 TLR 286 Spincode Pty Limited v Look Software Pty Limited (2001) 4 VR 501 The James Seddon (1866) LR 1 A&E 62 Wentworth v Rogers [1999] NSWCA 403 Williams v Lister & Co (1913) 109 LT 699 Peter Kallinicos (first plaintiff) Chepan Pty Limited (second plaintiff) Peter Anthony Hunt (first defendant) PARTIES : Dibsenta Pty Ltd (second defendant) Randall Pty Ltd (third defendant) P & K Corporation Pty Ltd (fourth defendant) Rowntree Properties (fifth defendant) Patrick John Moloney (respondent) FILE NUMBER(S) : SC 1033/03 G K Burton SC (plaintiffs) COUNSEL : Mr D Creais (defendants) (sol) J M Ireland QC (respondent) Konstan Lawyers (plaintiffs) SOLICITORS : Bartier Perry (defendants) Moloney Lawyers (respondent) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Wednesday, 19 July 2006 1033/03 Peter Kallinicos and Anor v Peter Anthony Hunt and ors JUDGMENT 1 HIS HONOUR: On 22 November 2005, I gave judgment and made orders that Patrick Moloney, who had until then acted as solicitor for the defendants in the proceedings, cease to so act, and that Mr Moloney pay the plaintiffs' costs of the application [Kallinicos v Hunt [2005] NSWSC 1181]. On the question of costs, I said (at [96]): 96 As the jurisdiction invoked involves the court's supervisory jurisdiction over its solicitors, the appropriate order is one directed to Mr Moloney, and as he appeared by counsel to oppose the application, it is he who should bear the costs. 2 When I gave judgment, Mr Debuse of counsel, who had appeared with Mr Ireland QC at the hearing, and who attended to take judgment for the defendants, suggested that the order was made without notice to Mr Moloney. Although I was of the view, which is now uncontroversial, that Mr Moloney had appeared by counsel (Mr Ireland QC and Mr Debuse) to oppose the application, I gave leave to Mr Moloney, if so advised, to apply to set aside the costs order and/or for a different costs order. 3 After the order was made on 22 November 2005, Mr Moloney naturally ceased to act for the defendants, who are now separately represented. On 23 March 2006, application was made on behalf of Mr Moloney, by letter, for the matter to be re-listed to consider an application to set aside or vary the costs order. The transcript had recently become available, and was thought to support the view that Mr Moloney was not represented at the hearing – a position that is no longer pressed on his behalf. 4 As a result, the matter was listed on 13 April 2006, when directions were made for the service of any affidavit evidence and for written submissions, on the basis that the matter would be determined on the written material unless any party requested that it be listed. At that stage, the assessment process was well advanced, and I stayed until further order the operation of the costs order of 22 November 2005. 5 On 28 April 2006, a submission was lodged on behalf of Mr Moloney which, although it does not expressly state what order is sought, in substance proposes that the costs order against him be set aside, and does not propose any alternative order. It also submitted that another judge should determine the application, in light of the order I had already made. On 10 May 2006 the plaintiffs lodged a submission in which they contended that there should be no variation to the existing costs order, and alternatively that the defendants should pay the plaintiffs' costs of the application. It also proposed machinery orders for the continuation of the assessment so as to avoid any detriment in that respect to the plaintiffs. On 15 May 2006, the defendants lodged a submission, by which they contended that either the present order should be undisturbed, or there should be no order as to the costs of the motion, or the costs of the motion should be costs in the cause. This submission was accompanied by an affidavit of the first defendant, Mr Hunt, to which I shall return. 6 Mr Moloney, who had until that point not filed any evidence, then on 17 May 2006 lodged an affidavit, to which I shall also return, together with submissions in reply. On 22 May 2006, the plaintiffs lodged further submissions, and on 29 May 2006, the defendants lodged further submissions. No party sought to cross-examine Mr Moloney or Mr Hunt, nor to make oral submissions. 7 As to the submission that another judge to decide this question, there is no difficulty in the court withdrawing or reconsidering its costs order when the order is made more or less as of course without consideration of arguments that the parties wish to advance [Harris v Schembri (NSWSC, Bryson J, 7 November 1995, unreported), BC9501757]. All I decided so far as costs were concerned was that, the order having been sought against Mr Moloney and he having appeared to oppose it, unsuccessfully, he should bear the costs. As I have not, until now, considered and expressed a concluded view on the arguments now advanced on the question of costs, I do not consider it necessary or appropriate that those arguments now be determined, at further cost and delay, by another judge, who does not have the benefit of familiarity with the substantive application. I embark on reconsideration of the costs question on the basis that Mr Moloney bears no onus of showing why the costs order should be set aside. I approach the matter afresh. 8 It is first appropriate to identify the nature of the application that was before the Court. In substance, the application before the court was an application by the plaintiffs (as applicants) against Mr Moloney (as respondent) for an order in the inherent supervisory jurisdiction of the court that Mr Moloney be restrained from continuing to act for the defendants. Such applications are sometimes made in separate proceedings, and sometimes in the existing proceedings [see Spincode Pty Limited v Look Software Pty Limited (2001) 4 VR 501], but in substance the application is a separate proceeding against the solicitor [Belan v Casey [2002] NSWSC 58, [8] – [14]]. In such proceedings, the person liable to pay costs to a successful plaintiff would ordinarily be the defendant/respondent solicitor. Thus the application could equally have been brought in separate proceedings in which Mr Moloney was the sole defendant against who would have been primarily liable for any costs order. 9 The rules [UCPR r 18.3(1)(b); formerly SCR Pt 19 r 2(d)] require that a Notice of Motion name a person affected by the order who is not already a party to the proceedings as a respondent. While it is true that the motion did not name Mr Moloney as a respondent, it named him in the order sought as the person to be restrained, and in the costs order sought as the person against whom it was sought. The motion specifically sought an order that Mr Moloney pay the applicant's costs, although, of course, costs need not be specifically claimed (Uniform Civil Procedure Rules 2005 (NSW), r 6.12(4)]. Mr Moloney was served with the motion (albeit as solicitor for the defendants), and was on notice of its terms. He was present at the hearing. As is now common ground, an appearance on his behalf as respondent to the motion was announced at the hearing. Although the motion might in form have been defective, that is a mere irregularity. In those circumstances Mr Moloney was amenable to a costs order as respondent in the same way as any other party to proceedings, without the court having to resort to principles which govern its power to make costs orders against non-parties including solicitors. 10 Mr Ireland QC, for Mr Moloney, has submitted that Mr Moloney was guilty of no such neglect, incompetence or misconduct as would justify a costs order in the inherent jurisdiction. I would not find that he was guilty of any such conduct, although by remaining in the matter after objection was taken he did put the plaintiffs to the costs of the motion. But in my opinion in the context of this application that is not the test. Although the substantive injunctive relief claimed was an aspect of the court's inherent jurisdiction, the costs order was not sought as a "wasted costs order" in the inherent or statutory jurisdiction [cf Myers v Elman [1940] AC 282; Attorney General v Wylde (1946) 47 SR (NSW) 99, 113-114; Ridehalgh v Horsefield [1994] Ch 205; Wentworth v Rogers [1999] NSWCA 403; Lemoto v Abel Technical Pty Limited (2005) 63 NSWLR 300, 318-322]. It was sought as an ordinary, compensatory costs order, consequent upon the applicant's success and the respondent's failure on the motion. The plaintiffs were successful on their motion, and in the ordinary course are entitled to costs [UCPR r 42.1]. While, as Mr Ireland submits, the decision to restrain Mr Moloney was one which resulted from a balancing of competing interests, that is not a sufficient reason to depart from the prima facie position that costs follow the event. Indeed, given that the substantive order and the costs order were expressly sought against him and he unsuccessfully opposed the relief claim, Mr Moloney is prima facie the person primarily liable. 11 Accordingly, as between the plaintiffs as applicants and Mr Moloney as respondent, there is in my opinion no reason to depart from the prima facie position that costs should follow the event, and that Mr Moloney should pay the plaintiffs' costs of the motion. The real issue is how those costs should be borne as between Mr Moloney and the defendants who then retained him. 12 The evidence of Mr Moloney and Mr Hunt is not inconsistent, and is unchallenged. That and other evidence establishes the following facts. 13 Mr Moloney's firm was served with the motion on about 28 June 2005, following which he had a conversation with Mr Hunt, in which he told Mr Hunt that he would have to decide whether he wanted to allocate resources to contest the motion, or would rather engage another solicitor now. Mr Hunt responded "There is no question. I want you to stay in the proceedings". Mr Hunt elected to fund the costs of Mr Moloney and counsel to oppose the application that Mr Moloney cease to act as he did not wish to change his solicitor, and but for Mr Hunt's instructions to contest the motion, Mr Moloney would have taken steps to withdraw from the proceedings. 14 After the motion was listed for hearing, Mr Moloney sought Mr Hunt's instructions to brief senior counsel on it. Mr Hunt said: "I want you to stay in the matter and I will follow your recommendation. If you think senior counsel should be briefed, go ahead". 15 Following the hearing on 5 September 2005, at which Mr Moloney was present, he issued a tax invoice to the defendants which included costs in relation to the Notion of Motion and fee notes from counsel, which the third defendant has subsequently paid. 16 Mr Hunt decided to fund Mr Moloney's opposition to the motion in circumstances that he had not prior to the hearing of the motion been advised that a costs order might be made against him or the other defendants if the plaintiff succeeded. Although he says that, had he been made aware that a costs order might be made against the defendants in favour of the plaintiff if the motion succeeded, "I may have chosen either not to fund the costs of Patrick Moloney and counsel to oppose the Notice of Motion or have voluntarily have withdrawn Patrick Moloney's instructions", he does not categorically say that he would have done so, and given his determination to retain Mr Moloney as his solicitor, as evidenced by his willingness to fund Mr Moloney's opposition to the motion and to authorise the briefing of Senior Counsel, I am unpersuaded that, had he been on notice of the risk of an adverse costs order, it would have made any difference to his position. 17 Accordingly, I accept the submissions on behalf of Mr Moloney, that he obtained firm instructions from his clients to resist the Notion of Motion, that Mr Hunt undertook to meet the costs of opposing the motion to remove him, that those costs were rendered and paid by the defendants, and that Mr Moloney would not have resisted the motion, absent Mr Hunt's instructions so to do. Although I accept that the defendants were not expressly advised that they were at risk as to the plaintiffs' costs of the motion, I do not accept that such advice would have made any difference to their determination that the motion should be resisted. 18 The defendants are of course parties to the proceedings. The defendants did not submit to the order of the court on the motion, but appeared by counsel to oppose it. At the hearing of the motion, Mr Ireland QC announced his and Mr Debuse's appearance on behalf of "the first to fourth defendants, and Mr Moloney as respondent". No distinction was drawn at the hearing of the motion between the position of the defendants and that of Mr Moloney. By joining in opposition to the plaintiffs' motion, and a fortiori by funding that opposition, the defendants have made themselves potentially liable for the costs of the motion. 19 The only basis upon which it might reasonably be suggested, in the circumstances, that they ought not be ordered to pay the plaintiffs' costs is that costs were not sought against them. Although costs need not be specifically sought, costs were expressly claimed in the motion, but only against Mr Moloney. Insofar as this deprived the defendants of an opportunity to argue the question of costs, they have of course now had an opportunity to be heard on that question. Nonetheless, although the argument would have been stronger had the defendants not appeared and actively opposed the relief sought, as between plaintiffs and defendants, I do not see why an order should now be made that was not originally sought by the plaintiffs, when as I have indicated that order will stand. 20 But that is not the end of the matter. It is now apparent that Mr Moloney's resistance to the motion was on instructions, on behalf of the defendants, and then perceived by the defendants to be for their benefit. In addition to Mr Moloney's affidavit, evidence supporting this is catalogued in the plaintiffs' further note dated 9 June 2006, paragraph 4. Mr Moloney was acting as the defendants' solicitor and agent in resisting the motion, not independently on his own account. 21 Every agent has a right, against a principal, to be reimbursed all expenses and to be indemnified against all losses and liabilities incurred in the execution of the agent's authority. An agent who incurs damages and expenses in defending an action on behalf of a principal is entitled to reimbursement of those damages and expenses, so long as the agent is acting within the scope of his or her authority in defending the action, and the loss is not caused by the agent's own default [Frixione v Tagliaferro & Sons (1856) 10 MooPC 175; The James Seddon (1866) LR 1 A&E 62; Re Wells & Croft; ex parte Official Receiver (1895) 72 LT 359; Williams v Lister & Co (1913) 109 LT 699; Re Famatina Development Corporation Limited [1914] 2 Ch 271; Simpson & Miller v British Industries Trust Limited (1923) 39 TLR 286]. 22 The position would be quite different if the costs order were made in the inherent or disciplinary jurisdiction, as a "wasted costs order", in which case it is intended to visit liability on the solicitor to the exoneration of the client. But this is a party/party costs order, for which Mr Moloney is liable because and only because he has resisted the motion at the request of his former clients. In so doing, he was acting within the scope of his authority, and on behalf of his clients rather than in his own interests. It follows that he is entitled to be indemnified by his principals. This is so regardless of the circumstance that costs were sought only against him in the motion: the liability to indemnify depends not on what costs orders are sought and made, but on the underlying relationship of principal and agent. 23 Accordingly, in my opinion, the original costs order should not be disturbed, so that Mr Moloney should remain responsible for the plaintiffs' costs of the motion. In addition, he should bear the plaintiffs' costs of this costs argument, in which he has been unsuccessful in disturbing the order which the plaintiffs have against him. However, Mr Moloney should be indemnified in respect of his costs liability by his former clients, upon whose behalf and in whose interests and on whose instructions he was acting in resisting the motion and incurring that costs liability. 24 My orders are: 1. Order that the application to set aside or vary Order 2 made on 22 November 2005 be dismissed. 2. Order that Mr Moloney pay the plaintiffs' costs of the application to vary Order 2 of 22 November 2005. 3. Order that the first, second and third defendants pay Mr Moloney's costs of the Notice of Motion, including the costs which he is liable to pay the plaintiffs under Order 2 of 22 November 2005, and under Order 2 above. ********** 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.