FEDERAL COURT OF AUSTRALIA

Levick v Deputy Commissioner of Taxation [2000] FCA 674

PRACTICE AND PROCEDURE – Costs – Costs order made against solicitor acting for a debtor covering work done in respect of certain issues raised in a Notice of Opposition filed in bankruptcy proceedings – Whether order ought to have been made – Unarguable points raised in notice – Trial judge satisfied that the points “originated with lawyers” and were intended to delay the making of a sequestration order – Circumstances in which costs may properly be ordered against a solicitor – Whether it would have been more appropriate to require provision of security for costs.

WAYNE R LEVICK v DEPUTY COMMISSIONER OF TAXATION

N1466 of 1999

WILCOX, BURCHETT and TAMBERLIN JJ

SYDNEY

23 MAY 2000

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.                  The appeal be dismissed.

2.                  The appellant, Wayne R Levick, pay to the respondent, Deputy Commissioner of Taxation, his costs of the appeal.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

1                     THE COURT:  This is an appeal by a solicitor Wayne Levick, against an order made by a judge of the Court (Hill J) imposing upon him personal liability for certain costs incurred by the respondent, Deputy Commissioner of Taxation (“the Deputy Commissioner”), in relation to bankruptcy proceedings against Paul Quinn, a client of Mr Levick.

The history of the proceeding

2                     On 5 March 1999 the Deputy Commissioner filed with the Court a creditor’s petition against Mr Quinn alleging failure by him, on or before 25 November 1998, to comply with the requirements of a bankruptcy notice served on 4 November 1998.  The bankruptcy notice was founded on a final judgment obtained by the Deputy Commissioner against Mr Quinn in the District Court of New South Wales.

3                     On 27 July 1999 the petition was listed before a Deputy Registrar of the Court.  Mr D Fitzgibbon of counsel appeared for Mr Quinn and informed the Deputy Registrar that a Notice of Opposition would be filed that relied on constitutional grounds and the hearing would occupy three days.  Mr Fitzgibbon was instructed by Mr Levick.  The Deputy Registrar directed that any Notice of Opposition be filed by 5 August 1999 and indicated that the matter would be assigned to a judge’s docket.

4                     On 4 August Mr Levick filed a Notice of Opposition to the petition.  It contained three grounds based on an alleged assault sustained by Mr Quinn, resulting in physical and psychiatric injuries that were said to make Mr Quinn unable to understand the significance of the Court proceedings.  As Hill J noted in his reasons for judgment, “no attempt was made to file any evidence covering the alleged assault, or the physical or psychiatric illness to which these three grounds referred”.  The remaining four grounds were as follows: 

“1.      The Applicant having found by reason of responses to applications under the Freedom of Information Act 1982 that the legal steps necessary to establish the Australian Taxation Office as an arm of the Commonwealth Government were not completed and gazetted.  Therefore the Applicant challenges the delegation of powers by officers of the Australian Taxation Office who are prevented by law from delegating such powers.

2.                  The Applicant says that the delegation of powers by officers of the Australian Taxation Office does not exist in law.

3.                  Further the Applicant seeks to challenge the appointment of the Commissioner of Taxation on constitutional grounds arising from the findings of this Honourable Court in Sue v Hill HCA 30 of 1999.

4.                  The demands upon which the judgement was obtained against me in the District Court of New South Wales at Newcastle in matter Plaint Number: 5026 of 1998 had no basis in law.”

5                     On 27 August 1999 Mr Levick filed a document headed “Notice of Constitutional Matter”.  It was apparently intended to be treated as a notice under s78B of the Judiciary Act 1903.  Presumably, it was served upon all the Attorneys-General as required by that section.

6                     The document is lengthy.  It alleges that questions of conflict arose between the Commonwealth Constitution on the one hand and the following Acts or instruments:

“a.       The Treaty of Peace Act 1919

b.                The Charter of the United Nations Act 1945

c.                The Taxation Administration Act 1953

d.                The Income Tax Assessment Act 1936 (as amended)

e.                The Public Service Act 1922

f.                 The Acts Administrations Act

g.                The Human Rights and Equal Opportunity Act

h.                The Australia Act 1985 (Cth)

i.                  The Australia Act 1986 (UK)

j.                 The Corporations Law (Cth)

k.                The Corporations Law (NSW)”

7                     The document goes on to set out a series of propositions that are difficult to understand.  However, they seem to include the suggestion that by 1922, when assent was given to the Public Service Act 1922, the Sovereign had become a foreign monarch; so the assent of the Governor General to that Act was invalid and the Deputy Commissioner was not validly appointed to office under that Act.  This suggestion seems to have been inspired by the decision of the High Court of Australia in Sue v Hill [1999] HCA 30; 163 ALR 648.  A similar suggestion was made in relation to the Taxation Administration Act 1953.

8                     The case was assigned to Hill J’s docket.  On 15 September 1999 his Honour fixed it for hearing on 20 October and made directions for the filing of written submissions.

9                     Written submissions were filed on behalf of Mr Quinn.  They bore a note saying they were prepared by Mr Fitzgibbon.  Amongst other things, they asserted that “the legal steps necessary to establish the Australian Taxation Office as an arm of the Commonwealth Government were not completed nor gazetted” and that the “Income Tax Assessment Act 1936 was not validly assented to according to law in June of 1936 by the then Australian Governor General Lord Gowrie”, the reason being that Lord Gowrie was commissioned by King George V in December 1935 and the commission expired when that King died one month later.  It was also stated “that the Commissioner of Taxation is not empowered under the Australian Constitution Act 1900 to delegate his powers and functions to Deputy Commissioners and other officers of the Australian Taxation Office”.

10                  On 12 October 1999 Mr Levick wrote to the Australian Government Solicitor, who acted for the Deputy Commissioner, advising that he would be raising the arguments set out in the written submissions at the hearing fixed for 20 October.

11                  On the following day, 13 October, the Australian Government Solicitor filed a Notice of Motion, which was made returnable on 20 October 1999, seeking orders that Mr Levick be joined as a party to the proceeding and be ordered to pay, on an indemnity basis, the Deputy Commissioner’s costs attributable to the work undertaken in connection with the issues raised in paras 1 to 4 of the Notice of Opposition, the s78B notice and the letter of 12 October.

12                  When the matter came before Hill J on 20 October, Mr Fitzgibbon announced an appearance on behalf of Mr Quinn, instructed by Mr Levick.  Mr Orr and Dr G Ebbeck of counsel appeared for the Deputy Commissioner.  Without objection they tendered the usual evidence required in support of a bankruptcy petition.  Mr Fitzgibbon then asked Hill J to rule on the motion for costs, but his Honour declined to do that in advance of hearing the argument to be advanced in support of the Notice of Opposition.  After a short adjournment, Mr Fitzgibbon withdrew from the case.  His Honour then invited Mr Levick to put submissions but Mr Levick said that he, too, wished to withdraw.  He did not want to put anything else.  Hill J thereupon made a sequestration order against Mr Quinn.  Apparently, Mr Fitzgibbon and Mr Levick remained in Court while this was done.

13                  After making the sequestration order, Hill J turned to the Notice of Motion.  Mr Orr identified the affidavits upon which he relied.  At this point Mr Fitzgibbon announced he appeared on the motion for Mr Levick and had no objection to the affidavits, which were read.  The affidavits detailed the work that had been done in preparation for argument on the points raised in paras 1 to 4 of the Notice of Opposition.

14                  Hill J asked Mr Orr to identify the basis upon which he sought the costs order against Mr Levick.  In responding, Mr Orr accepted that it was not enough that Mr Levick had raised an unsuccessful case; there needed to be more than that.  He said one ground would be abuse of process; that is, “the proceeding” (by which he apparently meant the Notice of Opposition) was brought for a reason other than a legitimate defence or prosecution.  Another ground would be unreasonable behaviour on the part of the solicitor in bringing, maintaining or defending the proceeding.  Later Mr Orr said that he was “not in a position to show that these proceedings were brought for any ulterior motive”, but he asserted “they were brought in disregard of a proper consideration of the prospects of success”.  He went on to discuss the points raised by the documents filed by Mr Levick.

15                  When Mr Fitzgibbon addressed, he attempted some justification for some of the points; but he failed to put any coherent argument in support of any of them. 

16                  At the end of submissions, Hill J reserved his judgment on the motion for costs.  On 1 December 1999 he delivered reasons for judgment in which he recounted the history of the matter and affirmed the Court’s power to order costs against a solicitor, not being a party to the proceedings.  In that regard, his Honour cited s43 of the Federal Court of Australia Act 1976 and Caboolture Park Shopping Centre Pty Ltd (in liquidation) v White Industries (Qld)(No.1) Pty Ltd (1993) 45 FCR 224 (“Caboolture Park No. 1”).  His Honour went on at paras 10-11:

“There is, however, an important difference between the question whether the Court has jurisdiction to order a stranger to the litigation to pay costs and the exercise of that jurisdiction:  Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 186 per Mason CJ and Deane J.  The discretion which the Court has is one to be exercised judicially, it is not an unfettered discretion:  Knight at 192. …

The jurisdiction is, I think, one that must be exercised sparingly, having regard to all the circumstances of the particular case.  It is clear enough that a litigant is entitled to representation to vindicate a particular legal right, or to maintain a legal defence.  Should it turn out that the litigation is decided adversely to the litigant it does not follow that costs should, in consequence, be ordered against the legal adviser, be he or she a solicitor or a barrister.  Were that the case those seeking to advance legitimate claims, or to pursue legitimate defences might well be deprived of legal representation and access to justice, in consequence, would be  impeded.”

17                  Hill J noted the submission in the present case was that “a cost order should be made against a solicitor where the case advanced is one which has substantially no chance of success”.  After referring to various authorities, his Honour at para 17 stated the relevant question as being “whether the case advanced on behalf of Mr Quinn was such that it had no chance or perhaps no real chance of success.  An alternative way of putting it is whether the case advanced was untenable”.

18                  Hill J then examined the points raised in the documents filed by Mr Levick.  He concluded at para 34:

“The discussion of the arguments put … demonstrates that they are untenable – indeed one might even say of them that they were nonsense.  If it matters it can be inferred that both Mr Levick and Mr Fitzgibbon of counsel knew that this was so when the moment that a third party cost order was raised they immediately expressed the desire to withdraw, presumably so as to avoid the third party order.  This hardly displayed any confidence in the arguability of the matters which they previously indicated they intended to advance.”

19                  Hill J went on at para 35:

“It is not as if these arguments would have originated from the client.  They clearly originated with the lawyers.  It is obvious enough that they were intended to delay as long as possible the making of a sequestration order against Mr Quinn.  But it is not necessary to go that far to justify the making of an order that the solicitor pay the costs of the Deputy Commissioner on an indemnity basis occasioned by the raising of these matters.  There is, as well, an ethical question which arises where solicitor or counsel advise their clients to pursue spurious arguments before the Courts.”

20                  Hill J made the following orders:

“1.       Wayne Levick be joined as a respondent to the proceedings.

2.                  Wayne Levick pay so much of the costs of the Deputy Commissioner of Taxation on the bankruptcy petition as related to the arguments to which reference is made in the reasons delivered on 1 December 1999 as were proposed to be raised on behalf of Mr Quinn, such costs to be calculated on a solicitor and client basis.

3.                  Wayne Levick pay the costs of the Deputy Commissioner of Taxation’s motion, such costs to be calculated on a party and party basis.”

Issues on the appeal

21                  On 21 December 1999 Mr Levick filed a notice of appeal against the orders of Hill J.  The notice repeated many of the points referred to in the earlier documents.  However, when the appeal came on for hearing, none of these points was argued by counsel for Mr Levick, Mr M J Neil QC and Mr M G McHugh.  The reason soon became apparent.  During discussion with the Court, they virtually conceded all the points were unarguable.  However, counsel maintained that Hill J erred in making an order against their client.  Essentially, they put two arguments:  first, there was in this case no occasion for any special order; second, if a special order was required, the Deputy Commissioner’s appropriate course would have been to seek an order for security for costs.

22                  Counsel for the Deputy Commissioner, once again Mr Orr (now of Queen’s Counsel) and Dr Ebbeck, supported the orders of Hill J.  They also pointed out that the orders were made by his Honour in the exercise of a judicial discretion, so as to make relevant the principles stated by Dixon, Evatt and McTiernan JJ in House v The King (1936) 55 CLR 499 at 504-505:

“It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course.  It must appear that some error has been made in exercising the discretion.  If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.”

The security for costs argument

23                  It is convenient immediately to deal with the appellant’s argument that the appropriate course, if a special order was required, was for the Deputy Commissioner to seek  an order that Mr Quinn provide security for costs.  There is no substance in this argument.

24                  Counsel recognise that Mr Quinn was in the position of a defendant in the bankruptcy proceeding and it would be most unusual for a court to order that a defendant provide security for costs.  However, they say that, in raising the points set out in the s78B notice, Mr Quinn was in the position of a plaintiff; so it would have been open to the Court to require him to put up security for the costs likely to be incurred by the Deputy Commissioner in meeting these points.  They say the position of Mr Quinn was analogous to that of a counter claimant, and it is well settled that security may be ordered in relation to a counterclaim that raises matters foreign to the plaintiff’s claim.  Counsel cite Visco v Minter [1969] 2 All ER 714 and Townsend Controls Pty Ltd v Gilead (1989) 14 IPR 443.

25                  In Townsend Controls von Doussa J made an order for security for costs against cross claimants who resided outside Australia, but only in relation to issues raised by the cross claims.  In making that order, his Honour noted the distinction drawn in the authorities between a cross claim that is in the nature of a defence, arising out of the same set of circumstances as the claim, and a cross claim that puts forward a matter wholly distinct from the claim.  The same distinction was noted in Visco, where the claim for security failed.

26                  Section 56(1) of the Federal Court of Australia Act empowers the Court to order “a plaintiff in a proceeding in the Court” to give security for costs.  In Townsend Controls von Doussa J held that “(t)he notion of ‘a plaintiff’ [in this subsection] includes not only a plaintiff in the strict technical sense but a party who, in substance, is the party invoking the court’s jurisdiction for the purpose of establishing rights or obtaining relief in the sense laid down in Willey v Synan  (1935) 54 CLR 175 and Neck v Taylor [1893] 1 QB 560”; that is, seeking relief in respect of a matter wholly foreign to the claim.

27                  In the present case, in raising the first four points of opposition and giving the s78B notice, Mr Quinn was not putting forward matters foreign to the claim.  He was asserting points of defence to the claim.  It is true that the Rules required him to give notice of those points, and that s78B of the Judiciary Act required notice to the Attorneys-General of any constitutional point; nonetheless, all these points were raised by way of defence to the petition, not in the course of making a distinct claim or seeking relief other than dismissal of the petition.

28                  In our view, s56 of the Federal Court of Australia Act would not have extended to this case.  Even if it had, it seems fanciful to believe that any judge of the Court would have required a debtor to provide security for costs as the price of asserting something by way of defence to a bankruptcy petition.  Counsel say a judge might have done so if persuaded that the points sought to be raised by Mr Quinn lacked substance; but this would have required argument about the risk of the merits, in preparation for which the Deputy Commissioner would have needed to incur the very expense against it is supposed the security would be sought.

Was there occasion for a special order?

(i)                 The submissions of counsel

29                  Counsel for Mr Levick do not dispute the Court’s power to make a costs order against their client, including an order on an indemnity basis if that is appropriate.  In the light of Caboolture Park No.1, they could hardly do so.  However, they emphasise a solicitor’s duty to take all steps necessary and proper for the advancement of the client’s case and statements made in the authorities about the caution that ought to be exercised before ordering a solicitor to pay the costs relating to an unsuccessful proceeding, issue or argument.  Counsel point out that difficult claims and arguments sometimes succeed.  They argue it would be highly undesirable if lawyers were to become inhibited in putting such arguments by fear that, if they failed, they would become personally liable for costs.  They also refer to the possibility of intimidation by opposing lawyers, if a perception develops that the Court will readily order costs against lawyers.

30                  Counsel for the Deputy Commissioner do not dispute, or minimise the importance of, the considerations urged on behalf of Mr Levick.  But they say these considerations are not new; they are reflected in the decided cases, in which the line has been drawn between situations in which it is appropriate to order costs and those in which it is not.  Counsel submit that Hill J was justified in concluding that this case fell into the category of situations in which costs may be ordered.

(ii)               The authorities

31                  It is convenient to begin a review of the authorities with the House of Lords decision in Myers v Elman [1940] AC 282.  A judge made an order against solicitors on the basis that their employed clerk had prepared, and permitted the firm’s clients to make, inadequate affidavits of documents.  At 289 Viscount Maugham pointed out that the objective in ordering a solicitor to pay costs was not to punish the solicitor but “to protect the client who has suffered and to indemnify the party who has been injured”.  He said:

“It is not limited to misconduct or default, but expressly extends to costs incurred improperly or without reasonable cause, or which have proved fruitless by reason of undue delay in proceeding under a judgment or order.”

32                  At 292, Viscount Maugham spoke of the need for “a serious dereliction of duty as a solicitor either by himself or by his clerks”, before a costs order was made.  See also per Lord Wright at 319.

33                  In Edwards v Edwards [1958] P 235 Sachs J dealt with an application that solicitors should pay the costs incurred in matrimonial litigation by the opposing party.  At 248 he said:

“It is, of course, axiomatic, but none the less something which in the present case should be mentioned, that the mere fact that the litigation fails is no reason for invoking the jurisdiction:  nor is an error of judgment:  nor even is the mere fact that an error is of an order which constitutes or is equivalent to negligence.  There must be something that amounts, in the words of Lord Maugham to  ‘a serious dereliction of duty’, something which justifies, according to other speeches in that case, the use of the word ‘gross’.  It is not, however, normally necessary to establish mala fides or other obliquity on the part of the solicitors; though it may be that if mala fides is established that might turn the scale in a particular case:  and it is right at this stage to make it clear that no imputation whatever is made against the solicitor’s honesty.

No definition or list of the classes of improper acts which attract the jurisdiction can, of course, be made; but they certainly include anything which can be termed an abuse of the process of the court and oppressive conduct generally.  It is also from the authorities clear, and no submission to the contrary has been here made, that unreasonably to initiate or continue an action when it has no or substantially no chance of success may constitute conduct attracting an exercise of the above jurisdiction”.

34                  Orchard v South Eastern Electricity Board [1987] 1 QB 565 was a case where an application for a costs order against solicitors was refused.  The application arose out of an action by a householder against an electricity supply authority.  He alleged damage to his house from escaped electricity.  He had the benefit of an expert opinion supporting the theory upon which he based his claim but failed at the end of a 12 day trial.  During the trial it became apparent that the phenomena relied on as proof of the claim were fabricated by the plaintiff, his wife and their son.  However, the solicitors did not know this before trial.  Dillon LJ commented (at 578) that the relevant entries in a diary kept by the plaintiff and his wife “make strange reading, and any lawyer might readily have concluded that it would be a difficult task to establish the defendants’ liability on the balance of probabilities ”.  However, he noted other matters that might have encouraged the solicitors to accept their clients’ claim.

35                  Dillon LJ noted the difficulty, caused by the doctrine of legal professional privilege, in knowing what advice the solicitors and counsel had given their client.  He saw that difficulty as “part of the price which has to be accepted from rules designed to ensure that a litigant has freedom to consult with his lawyers before his case comes before the court”.  He went on (at 580-581):

“This public policy aspect does, however, have further implications.  The power of the court to order a solicitor to pay the costs personally where litigation has been initiated or continued unreasonably when it had no or substantially no chance of success is, in an appropriate case, a very salutary power.  I do not, however, regard it as at all salutary that a practice should develop whereby solicitors for defendants endeavour to browbeat solicitors for legally-aided plaintiffs into dropping their clients’ cases – or into procuring revocation of the relevant legal aid certificates – by threats that the defendants will seek to hold the plaintiffs’ solicitors personally liable for the costs of the litigation.  In Carl Zeiss Stiftung v. Herbert Smith & Co. (No.2) [1968] 2 All E.R. 1233, 1236, Pennycuick J. said in relation to an attempt by a plaintiff to harass the solicitors for the defendant (by a claim that all funds in the solicitors’ hands were subject to a constructive trust):

              ‘The prospect of this personal liability would be a grave deterrent to a responsible solicitor undertaking the conduct of such an action at all, for … the conduct of the action would represent a gamble on his client’s success, a highly undesirable state of affairs.  If he did undertake the defence, the fact that he was at risk in regard to this liability might, and in many circumstances almost inevitably would tend to influence and hamper him at various stages in the action … He might even find that his interest was in conflict with his duty to his client, for example, in connexion with some suggested compromise.  There can I think be no doubt that such a claim would represent a very serious obstruction in the course of justice.’ 

These words can readily be applied to any such brow-beating practice as I have mentioned on the part of defendants or their solicitors, should such a practice develop; indeed, such conduct might be contempt of court.”

36                  Donaldson MR also made a comment about threats.  At 577-578 he said:

“Whilst there can be no objection to an application under Ord. 62, r.8 at the conclusion of a hearing, given appropriate facts, it is quite another matter where such an application is threatened during or prior to the hearing.  Objectivity is a vital requirement of professional advisers.  Hence, for example, the rejection of contingency fees and the impropriety of a solicitor acting for co-defendants.  Threats to apply on the basis that the proceedings must fail not only make the solicitor something in the nature of a co-defendant, but they may well, and rightly, make him all the more determined not to abandon his client, thereby losing a measure of objectivity”.

37                  In some of the English cases, notably Myers v Elman, the power of a court to make a costs order against solicitors has been related to solicitors’ status as officers of the court.  That may not be the situation in relation to this Court.  However, that does not matter.  In Knight v F P Special Assets Ltd (1992) 174 CLR 178, the High Court of Australia construed the Queensland Rules of the Supreme Court as enabling the Supreme Court of Queensland to make an order for costs against any person, whether or not that person is a party to the proceeding.  At 185 Mason CJ and Deane J (with whom Gaudron J agreed) said:

“The jurisdiction and the discretion thereby conferred are not limited.  Because they are not limited it is easy to postulate a variety of circumstances where an exercise of the jurisdiction against a non-party would be extravagant and unjust.  However, the existence of that possibility provides no justification for the imposition by the courts, by way of implication, of an arbitrary limitation upon the general jurisdiction conferred by the rule.  To do so would, as will appear, deny power to the Court to order costs against a non-party in cases in which, in the interests of justice, such orders should be made.”

38                  In De Sousa v Minister for Immigration, Local Government and Ethnic Affairs (1993) 41 FCR 544, French J held the power granted to this Court by s43 of the Federal Court of Australia Act, in relation to costs, is no narrower than that given under the Queensland rule considered in Knight.  He applied the High Court’s decision in Knight in holding that he had power to make an order against a solicitor.  His Honour added (at 547-548):

“I accept the proposition that the jurisdiction is to be exercised with care and discretion and only in clear cases.  The mere fact that litigation fails is plainly no ground for its exercise.  There has to be something which amounts to a serious dereliction of duty.”

39                  The Full Court applied Knight, and approved De Sousa, in Caboolture Park No.1.  In doing so, their Honours imported, into the exercise of the jurisdiction to order costs against a solicitor, the principles developed in England, including the need for caution.

40                  Drummond J observed in Re Bendeich (1994) 126 ALR 643 at 647:

“The cases show that this jurisdiction must be exercised with caution.  There is good reason for caution.  Too ready an exposure of the lawyer for a party to personal liability for the costs of his client or of the other party is likely to inhibit the way the lawyer acts in conducting the litigation.  It frequently happens that a lawyer will have to make judgments as to which of a number of courses is the optimum one to follow, bearing in mind his duty to advance his client’s interests by all proper means and his duty to the court to conduct the litigation in proper fashion.  The introduction of a third consideration into every day litigation that requires a solicitor to keep in mind the need to minimise the chances of a costs order being made against him personally, would raise a conflict between the lawyer’s duties to his client and to the court, on the one hand, and his own interests, on the other.  As is understandable, such a conflict would likely be resolved by the solicitor concentrating on identifying and adopting the course most likely to minimise his own personal exposure at the expense of following courses best fitted to advantage his client and to bring the action to an expeditious end.  Moreover, practitioners should not be encouraged to see the threat to seek a costs order against their opposing solicitor as a tactic available to be employed in the course of litigation to put pressure on their opponent …”

41                 In White Industries (Qld) Pty Ltd v Flower & Hart  (1998) 156 ALR 169 at 236, Goldberg J said:

“The authorities do not support the proposition that simply instituting or maintaining a proceeding on behalf of a client which has no or substantially no prospect of success will invoke the jurisdiction.  There must be something more namely, carrying on that conduct unreasonably.  It is not clear what is encompassed by ‘unreasonably’ initiating or continuing proceedings if they have no or substantially no chance of success.  It seems to me that it involves 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.”

42                  Goldberg J commented that this expression of principle “accommodates the competing principle that a party is entitled to have a practitioner act for him or her even in an unmeritorious case”.  He referred to Ridehalgh v Horsefield [1994] Ch. 205, a decision of the English Court of Appeal.  At 234 that Court pointed out that “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”.  The Court went on:

“It is, however, one thing for a legal representative to present, on instructions, a case which he regards as bound to fail; it is quite another to lend his assistance to proceedings which are an abuse of the process of the court.  Whether instructed or not, a legal representative is not entitled to use litigious procedures for purposes for which they were not intended, as by issuing or pursuing proceedings for reasons unconnected with success in the litigation or pursuing a case known to be dishonest, nor is he entitled to evade rules intended to safeguard the interests of justice, as by knowingly failing to make full disclosure on ex parte application or knowingly conniving at incomplete disclosure of documents.  It is not entirely easy to distinguish by definition between the hopeless case and the case which amounts to an abuse of the process, but in practice it is not hard to say which is which and if there is doubt the legal representative is entitled to the benefit of it.”

(iii)       Our conclusions

43                  We accept the statements of principle made in the cases we have cited.  We endorse the emphasis on caution in making orders against solicitors, particularly as it will often be difficult for a court to know all the details and circumstances of the solicitor’s instructions.  We share the concern expressed by Donaldson MR and Dillon LJ in Orchard about the risk of a practice developing whereby solicitors endeavour to browbeat their opponents into abandoning clients, or particular issues or arguments, for fear of a personal costs order being made against them.  We agree such conduct might amount to contempt of court.

44                  Having said that, it is equally important to uphold the right of a court to order a solicitor to pay costs wasted by the solicitor’s unreasonable conduct of a case.  What constitutes unreasonable conduct must depend upon the circumstances of the case; no comprehensive definition is possible.  In the context of instituting or maintaining a proceeding or defence, we agree with Goldberg J that unreasonable conduct must be more than acting on behalf of a client who has little or no prospect of success.  There must be something akin to abuse of process; that is, using the proceeding for an ulterior purpose or without any, or any proper, consideration of the prospects of success.

45                  In the present case, Hill J inferred that the subject arguments “clearly originated with the lawyers”; that is, Mr Levick and Mr Fitzgibbon.  No challenge can be made to that inference.  So this is not a case, like Orchard, where a difficult case was taken to a lawyer by a client who wished it to be pursued in the court.  Neither is it a case, like that contemplated in Ridehalgh v Horsefield, where the lawyer had “to present, on instructions, a case which he regards as bound to fail”.  This is a case where the lawyers themselves thought up the “legal” points and advanced them on behalf of the client.  It is unreasonable, in the sense of a dereliction of duty (to both the client and the court), for any lawyer to take that course without first being satisfied that the points are, at least, seriously arguable.  We agree it was not necessary in the present case that the lawyers be satisfied that the points would succeed; but it was necessary they be satisfied there was a rational basis upon which they might succeed. 

46                  The situation would be different if the viability of the points depended on one or more unresolved questions of fact.  In that situation, lawyers might be entitled, acting reasonably, to notify the points, against the possibility that the facts, when determined, would lend support to them.

47                  In the present case, there was no unresolved issue of fact.  By a letter dated 20 July 1999, which was annexed to an affidavit made by Mr Levick on 4 August 1999, the Deputy Commissioner had pointed out that “the Australian Taxation Office is not the entity which either issues assessments or collects outstanding taxes.  These powers and rights are exercised by the Commissioner of Taxation, the Deputy Commissioner of Taxation and their delegates and authorised officers”.  In August 1999, the Deputy Commissioner filed affidavits annexing copies of the documents that effected the delegations of authority relevant to this case.  By that time, at least, it ought to have been evident that there was nothing in the first two points sought to be raised.  Yet, on 12 October 1999, Mr Levick indicated they would be pressed.

48                  The two remaining points of opposition did not depend on facts at all; they were asserted as constitutional propositions.

49                  Hill J thought it “obvious enough that (the arguments) were intended to delay as long as possible the making of a sequestration order against Mr Quinn”.  Counsel for Mr Levick disputed that finding.  However, it seems to us it was a finding open to the learned judge.  There is no doubt that the taking of the points had the effect of occasioning delay.  Nor is there any doubt that any lawyer, considering the position in early August, would have realised this would be the effect.  Once the points were taken, the matter would have to be assigned to a judge.  The Deputy Registrar could not have made a sequestration order, as she might have if there had been no foreshadowed Notice of Opposition.  If the points included constitutional points, a s78B notice would be necessary.  This would necessitate delay in the hearing date, in order to allow the Attorneys-General the opportunity of considering their responses.

50                  While we again emphasise that the jurisdiction to order costs against a solicitor in respect of an unsuccessful issue, held to have been pursued in serious dereliction of the solicitor’s duty, ought to be exercised sparingly and with great caution, we think it was open to Hill J to take that course in this case.  The question whether he should do so was one committed to his Honour’s discretion.  It has not been demonstrated that his Honour erred in the exercise of that discretion.

51                  The appeal should be dismissed with costs.

Associate:

Dated:              23 May 2000