District Court New South Wales Medium Neutral Citation: Mansfield v Townend (No 2) [2018] NSWDC 177 Hearing dates: 25, 26 and 29 May, 20 December 2017, 14 February, 1 May 2018 Date of orders: 29 June 2018 Decision date: 29 June 2018 Jurisdiction: Civil Before: Wilson SC DCJ Decision: (a) The plaintiff's motion filed 17 January 2018 is dismissed; (b) The plaintiff is to pay the 1st defendant's costs of the notice of motion. Catchwords: COSTS – indemnity rule – pro bono legal services Legislation Cited: Corporations Act 2001 Uniform Civil Procedure Rules 2005 Cases Cited: None Texts Cited: None Category: Costs Parties: David Mansfield as official liquidator of Camperdown Bowling & Recreation Club Ltd (Plaintiff) Leanne Townend (1st Defendant) Paul McDonald (2nd Defendant) – discontinued Ronald Lewis (3rd Defendant) – discontinued Representation: Counsel: Mr Krochmalik (Plaintiff) Mr Martin (1st Defendant) Solicitors: Shine Lawyers (Plaintiff) Law Society Pro Bono Scheme (1st Defendant) File Number(s): 2015/241621 Publication restriction: None Judgment 1. On 20 December 2018, I delivered judgement in relation to the principal action. I entered a verdict for the 1st defendant against the plaintiff and ordered that the plaintiff pay the 1st defendant's costs of the proceedings. I granted leave to the parties to apply within 28 days to vary the costs order, if necessary. 2. By way of notice of motion filed 17 January 2018, the plaintiff sought a variation of the costs order referred to above. The variation sought was to set aside the order for costs made in favour of the 1st defendant resulting in each party paying his or her own costs, or, in the alternative, to order costs proportionate to the issues upon which the respective parties were successful in the proceedings. 3. The plaintiff's application was opposed by the defendant and the motion was listed for hearing on 1 May 2018. On that occasion, the 1st defendant sought to rely upon an affidavit of Nerida Harvey affirmed 30 April 2018. The affidavit was tendered and then withdrawn before being tendered again. The affidavit of Ms Harvey was MFI 1 and also Exhibit 2. At the end of the time allotted for the hearing of the motion on 1 May 2018, the matter was adjourned to 24 May 2018 in order for the plaintiff to cross-examine Ms Harvey on her affidavit and for the 1st defendant to further address in relation to the matter generally. 4. Before adjournment on the first occasion, I dealt with objections to the affidavit of Ms Harvey. Those rulings appear in the transcript of proceedings. 5. On or about 17 May 2018, an outline of submissions on costs was filed and served on behalf of the 1st defendant. It was then agreed between the parties that, as long as the plaintiff had a right of reply, it was not necessary to cross-examine Ms Harvey or to reconvene for further addresses. On or about 28 May 2018, an outline of submissions in reply on costs was filed and served on behalf of the plaintiff. 6. Considerable time and expense has been incurred in respect to the question of costs. 7. Having regard to the submissions made on 1 May 2018 and the written submissions filed on behalf of both parties, it is apparent that there are two issues arising for determination. 8. The first issue arises by reason of the fact that the representation for the 1st defendant was obtained through the Pro Bono Scheme of the Law Society of New South Wales. The plaintiff's submission was that as there was no obligation upon the 1st defendant to pay costs, to make a costs order in her favour would offend the "indemnity rule" (the first issue). 9. The second dispute raised by the plaintiff was that the 1st defendant ought not to be awarded costs in respect of the litigation of issues in respect of which she was unsuccessful (the second issue). 10. The question was further complicated by the fact that, prior to the commencement of the hearing, the 1st defendant served on the plaintiff an offer which, if accepted, would have seen the 1st defendant pay the plaintiff the sum of $10,000.00, the statement of claim dismissed and no order as to costs. Whilst the 1st defendant obtained a result more favourable than the offer, the offer can only be regarded as nominal given its sum, the fact that was made so close to the commencement of the hearing, and that it was expressed to be open for just 24 hours. Nevertheless, it is a factor to which the court is entitled to have regard in determining the appropriate outcome in terms of costs. 11. Leaving aside for one moment the two issues which have arisen in respect of costs, the starting point is that the court has a wide discretion in ordering costs, such discretion to be exercised on evidence and judicially. Section 98 of the Civil Procedure Act 2005 is the foundation of the court's discretion. 12. Whilst the court's discretion is broad, the general rule to costs are set out in rule 42.1 of the Uniform Civil Procedure Rules 2005 which provides: "Subject to this Part, if the Court makes an order as to costs, the Court is to order that the costs follow the event unless it appears to the Court the some other order should be made as to the whole or any part of the costs." 1. In the present case, the exercise of the Court's discretion, having regard to the rule quoted above would warrant the costs order as made. Namely, that the plaintiff pay the 1st defendant's costs of the proceedings. 2. Questions as to whether the costs sought are fair and reasonable are matters reserved for costs assessors and not the courts, although the court does have the power to order a specified gross sum instead of assessed costs (s98(4)(c)). Such an order is not sought in the present matter. The question of what costs are reasonable, therefore, are left as a matter for agreement between the parties or determination by a costs assessor in the event of dispute. 3. Turning now to the question of the matters which have arisen as issues between the parties on the question of costs. The indemnity rule is designed to avoid circumstances where there is no obligation on the part of the successful party to pay his or her costs. It is said that to award costs where there is no obligation for costs to be paid would unduly enrich the successful party and would be inconsistent with the principles underlying the indemnity rule. 4. Whilst it is not disputed that legal services were provided to the 1st defendant pursuant to the Pro Bono Service of the Law Society of New South Wales, there is evidence of an obligation by the 1st defendant to pay costs in the event of a successful outcome and costs being ordered by the Court. 5. I note that the evidence as to that matter is contained in paragraph 7 of the affidavit of Ms Harvey in which she refers to a conversation she had with the 1st defendant on or about 7 December 2015. Ms Harvey stated that she said to the 1st defendant: "Our legal fees, which is my time and any disbursement such as getting a medical report prepared for Court and Mr Martin's fees are limited to whatever we can recover from the Liquidator in the event that you win and a cost order is made in your favour." 1. Agreements of that type are not unusual. As noted by counsel for the 1st defendant costs orders are commonly made in proceedings when legal representatives were acting on a pro bono or conditional basis. Services such as those offered by the Law Society of New South Wales and the New South Wales Bar Association are essential. It is submitted by counsel for the 1st defendant, and I accept, that there is a public policy issue underlying awarding costs in the circumstances. Not only are lawyers who are prepared to provide their services on a pro bono basis assisting parties to litigation who may otherwise be unrepresented, they also provide invaluable assistance to the Courts in New South Wales in the administration of justice generally. To take this case as an example, it involved complex issues arising under the Corporations Act 2001 which a layperson would have no prospect of mastering, let alone advocating. 2. This court also has a procedure whereby unrepresented litigants are referred for legal assistance. Pursuant to Regulation 7.41 to the Uniform Civil Procedure Rules 2005, provision is made for a costs order in the circumstances which exist. Regulation 7.41(2) provides: "(2) if an order for costs is made in favour of a litigant who is assisted under the scheme, the barrister or solicitor who has provided the legal assistance is entitled to recover the amount of costs that another person is required to pay under the order." 1. Although that regulation does not apply in the present case as the services were not provided under the Court scheme, it demonstrates the public policy underlying the award of costs for successful litigants who are receiving legal services on a pro bono basis. 2. In the present case, I am satisfied that the agreement between Ms Harvey and the 1st defendant is such as to give rise to an obligation on the part of the latter to pay legal fees in the event of a successful outcome. In the circumstances, it cannot be said that the costs order, as made, offends the indemnity rule. The costs paid will go to meet the professional fees and disbursements incurred on behalf of the 1st defendant. There is no risk of unjust enrichment. 3. As for the 2nd issue in dispute on the question of costs, the plaintiff seeks relief on the basis that the 1st defendant ought to have conceded certain matters which ultimately were found against the 1st defendant. In particular, it is submitted on behalf of the plaintiff that the 1st defendant ought to be disentitled to costs in relation to the following issues: 1. the application to amend the defence on 25 May 2017; 2. whether the company was insolvent during the relevant period; 3. whether the 1st defendant was a director of the company; and 4. the defence raised under section 588H(4). 1. In my opinion, items (a) and (d) were of little significance in terms of costs incurred in the proceedings. The real dispute was in respect of items (b) and (c). 2. In my opinion, the evidence as to the issues raised by (b) and (c) were complex and very much in dispute in the proceedings. In other words, the outcome in respect of those issues was not so clear-cut that a concession as to those matters ought to have been made by the 1st defendant. Indeed, her belief was that she was not a director and the company was solvent. 3. Each of the matters were essential elements of the plaintiff's cause of action. The plaintiff bore the onus of proving those matters on the balance of probabilities. There is nothing in the legislation or elsewhere at law to shift the burden to the 1st defendant in any way so as to create an obligation upon her to make admissions as to those disputed facts. Accordingly, I am not prepared to apportion costs between the time spent hearing evidence as to essential issues in the proceedings about which there was real contest. 4. Accordingly, the order for costs made on 20 December 2018 stands. That is, the plaintiff is to pay the 1st defendant's costs of the proceedings. As to the quantum of those costs and whether they are fair and reasonable in the circumstances, I leave that as a matter for agreement or consideration by a costs assessor. 5. In respect of the plaintiff's notice of motion filed 17 January 2018, I make the following orders: 1. the motion is dismissed; 2. the plaintiff is to pay the 1st defendant's costs of the notice of motion. ********** 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. Decision last updated: 29 June 2018