FEDERAL COURT OF AUSTRALIA

Young v Hughes Trueman Pty Ltd (No 4) [2017] FCA 456

ORDERS

THE COURT ORDERS THAT:

1.    Leonardo Carlo Muriniti and Robert Duane Newell jointly and severally pay the costs of the respondents of and incidental to the application for an extension of time filed by the applicant on 9 June 2016 (including the costs of the interlocutory application filed on 21 November 2016) on an indemnity basis.

2.    Liberty to the respondents to apply by 4:15 pm today to extend the costs order made in order 1, in the event ‘L C Muriniti & Associates’ is a legal entity.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

LEE J:

Introduction

1    Extraordinary is an overused word in the context of litigation but aptly describes the flood of disputation of which this application for a non-party, special costs order (Special Costs Application) is a minor tributary.

2    It is unnecessary for me to detail the long running controversy spanning six courts which has, as its genesis, a drainage dispute between neighbours. This has already been done by others including Sheahan J in Young v King (No 9) [2016] NSWLEC 4 at [3] - [11], Bromwich J in Young v Hughes Trueman Pty Ltd [2016] FCA 1176 (Principal Judgment) at [8] - [28], and Emmett AJA in Young v King [2016] NSWCA 282 at [28] - [85].

3    Before I come to the substance of the Special Costs Application brought against L C Muriniti & Associates (LMA), Mr Muriniti (the solicitor for the applicant (Mrs Young) and principal of LMA) and Mr Newell (who is described as an employed solicitor of LMA) (collectively, the Solicitors), I should summarise developments since the delivery of the Principal Judgment:

(a)    on 19 October 2016, the Court of Appeal of New South Wales dismissed an application for leave to appeal against an unsuccessful attempt by Mrs Young to set aside consent orders made in the Land and Environment Court of New South Wales (L&E Court): Young v King [2016] NSWCA 282;

(b)    on 9 December 2016, an application was filed in the High Court on behalf of Mrs Young for an order to show cause in relation to a decision of the Federal Circuit Court (Young v Hughes Trueman Pty Limited [2016] FCCA 989) and the refusal of an extension of time to file a notice of appeal from that decision, being the Principal Judgment;

(c)    on 9 February 2017, Bromwich J refused an application for the adjournment of a hearing of an application for a stay of the Special Costs Application: Young v Hughes Trueman Pty Limited (No. 2) [2017] FCA 87;

(d)    on 1 March 2017, the High Court refused a second application for special leave from an earlier Court of Appeal Judgment: Young v Hones [2017] HCASL 27 and an application for an extension of time for special leave from the October 2016 Court of Appeal decision (see a. above): Young v Brendan King & Anor [2017] HCASL 28;

(e)    on 10 March 2017, Bromwich J refused an application by the Solicitors (and Mrs Young) to adjourn the Special Costs Application: Young v Hughes Trueman Pty Limited (No. 3) [2017] FCA 235;

(f)    on 23 March 2017, a sequestration order was made by the Federal Circuit Court against the estate of Mrs Young and a stay of that sequestration order was refused: Hughes Trueman Pty Limited v Young [2017] FCCA 468 and Hughes Trueman Pty Limited v Young (No. 2) [2017] FCCA 601;

(g)    on 27 March 2017, Sheahan J ordered the Solicitors to pay, jointly and severally (and on an indemnity basis), the costs incurred by some of the 18 named respondents who had previously successfully resisted an application filed by Mrs Young for indemnity costs in her favour against Mr and Mrs King (who were parties to the original drainage dispute) and 16 non-parties including the present respondents: Young v King (No. 11) [2017] NSWLEC 34;

(h)    on 12 April 2017, a notice of appeal was filed in this Court from the sequestration order and related orders made by the Federal Circuit Court.

4    Added to this is a further development that has resulted in the Special Costs Application being heard before me. On 10 April 2017, an order was sought that Bromwich J “recuse himself from hearing and determining” the Special Costs Application (in fact, notwithstanding her bankruptcy, Mrs Young was listed as the “applicant”). Bromwich J dismissed this application on 21 April 2017, however, his Honour, in any event, “independently recused himself”.

Process and Evidence

5    The interlocutory application filed by the respondents (being an engineer retained by Mrs Young who participated in a conclave in the L&E Court held in relation to the drainage dispute and his employer) seeks an order in the following terms:

[O]rder that:

a.    the law practice of L.C. Muriniti & Associates (Muriniti & Associates):

b.    Leonardo Carlo Muriniti, a legal practitioner, the solicitor on the record for the Applicant, and the Principal of the law practice L.C. Muriniti & Associates (Mr Muriniti); and/or

c.    Robert Duane Newell, a legal practitioner employed by Muriniti & Associates (Mr Newell),

indemnify the First and Second Respondents against any costs payable by them in relation to the Application for Extension of Time filed on behalf of the Applicant on 9 June 2016 (the Application), including on the indemnity basis, pursuant to section 43 of the Federal Court of Australia Act 1976 (Cth) and rule 40.07 of the Federal Court Rules 2011 (Cth).

6    An application for leave (raised for the first time on the morning of the hearing) to pursue alternative orders that would have provided that the bankrupt Mrs Young pay the respondents’ costs (with or without an indemnity from the Solicitors) was ultimately not pressed. Of course, those aspects of the interlocutory application that sought relief against Mrs Young were, upon her bankruptcy, stayed by reason of s 58(3) of the Bankruptcy Act 1966 (Cth).

7    For reasons I will come to, it is important that there be clarity as to what is and what is not before me on the Special Costs Application. Both the respondents and the Solicitors agreed, at the outset of the hearing, that the evidentiary material to which Bromwich J was expressly taken at the hearing on 21 July 2016 (which led to the Principal Judgment) and the transcript of that hearing were before me. I have reviewed that material.

8    The respondents, as the moving parties, relevantly tendered additional material directed at demonstrating that shortly after the filing of Mrs Young's notice of motion in the L&E Court on 20 August 2015 (L&E Costs Application), there was correspondence from Kennedys, who acted for the respondents, referring to various allegations made in the L&E Costs Application and: (a) relevantly reminded the Solicitors that an unwarranted allegation of fraud, when there is no sufficient factual basis, would constitute serious misconduct and would trigger what was described as the “jurisdiction” to award indemnity costs and personal costs orders; and (b) invited the Solicitors to withdraw the allegations of fraud, conspiracy and serious misconduct.

9    The Solicitors relied upon an affidavit sworn by Mr Muriniti on 24 April 2017, which seemed largely directed at proving the following:

(a)    that the further amended grounds of application filed in the 2014 proceedings in the L&E Court did not plead a conspiracy (and hence later allegations of conspiracy did not amount to the re-litigation of issues that had been decided); and

(b)    lengthy submissions were later made, which did advance the “complexity of the allegation of conspiracy which was at the heart of” the L&E Costs Application, but the articulation of the conspiracy in this Court was required to be condensed, by order of Bromwich J, to only 10 pages of submissions.

10    Prior to the hearing, extensive written submissions were filed: by the respondents in chief on 28 February 2017, by the Solicitors on 6 April 2017 (Solicitors’ Submissions), and by the respondents, in reply, on 21 April 2017.

11    As will be seen, the written submissions of the respondents call in aid a number of findings made in the Principal Judgment. Indeed, it is not an overstatement to say that those findings are the central thrust of the submissions in chief. The admissibility of those findings against non-parties to the application before Bromwich J (that is, the Solicitors), is not addressed at all in the submissions. Given the findings of Bromwich J are at the core of the respondents' contentions, it is convenient, at the outset, to deal with a preliminary point as to the proposed use of those findings against non-parties, which I raised at the commencement of the hearing.

A Preliminary Point

12    The question of whether a finding of a judge hearing a substantive application can be used to determine the liability for costs of a third party creates some conceptual difficulties. Those difficulties are brought into sharper focus when, such as here, the judge hearing the costs application is different from the judge hearing the substantive application.

13    It is trite that, subject to any statutory exceptions, judicial findings are inadmissible as evidence of the facts upon which they were based in proceedings between a party to an earlier judicial proceeding and a third party. However, as Balcombe LJ observed in Symphony Group PLC v Hodgson [1994] QB 179 at 193:

The procedure for the determination of costs is a summary procedure, not necessarily subject to all the rules that would apply in an action. Thus, subject to any relevant statutory exceptions, judicial findings are inadmissible as evidence of the facts upon which they were based in proceedings between one of the parties to the original proceedings and a stranger: see Hollington v F Hewthorn & Co Ltd [1943] KB 587 and Cross on Evidence 7th ed (1990) pp 100-101. Yet in the summary procedure for the determination of the liability of a solicitor to pay the costs of an action to which he was not a party, the judge's findings of fact may be admissible: see Brendon v Spiro [1938] 1 KB 176, 192 per Scott LJ, cited with approval by this court in Bahai v Rashidian [1985] 1 WLR 1337, 1343D, 1345H. This departure from basic principles can only be justified if the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing this exception to the general rule. (emphasis added)

14    The Full Court (Cooper, Whitlam and Tamberlin JJ) in National Mutual Life Association of Australasia Limited v Grosvenor Hill (Queensland) (Formerly Hillier, Parker (Queensland) Pty Limited) (2001) 183 ALR 700 at 715, in obiter, noted that:

(r)elaxation of the general rule as to the inadmissibility of a judge's finding of fact against a non-party may only occur where the connection of the non-party with the original proceedings is so close that he or she will not suffer any injustice by allowing for such an exception to the general rule, for example when considering in a summary way the making of a costs order against a non-party.

15    A couple of years earlier, the Victorian Court of Appeal, in Flinn v Flinn [1999] VSCA 134 at [4] to [5], had also referred to the general rule that a non-party is not bound by findings made in the litigation, but on an application against a non-party seeking an order for the costs of the litigation, the applicant may, in an appropriate case, be permitted to rely on facts found. In doing so, the Court noted that Staughton LJ and Waite LJ agreed with the observations of Balcombe LJ in Symphony Group (quoted above), with Staughton LJ noting at 196:

…there are cases, as Balcombe LJ has shown where a person may be ordered to pay costs on the basis of evidence given and facts found at a trial to which he was not a party. Before such an order is made, it must be just and fair that the stranger should be bound by that evidence and those findings.

16    The principle identified by Balcombe LJ is well established; so much so that in a number of cases it appears persons against whom third party costs have been sought have either agreed or not contested that findings in a principal judgment could be used: see, for example, Yu v Cao (2015) 91 NSWLR 190.

17    It is in the absence of such an agreement (such as here) that what appears to be an unresolved question arises: how is this well established principle reconciled with the express provisions of s 91(1) of the Evidence Act 1995 (Cth)?

18    The exclusionary provision in s 91(1) is in the following terms:

(1) Evidence of the decision, or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding.

19    As noted above, the written submissions contain an implicit assumption that a finding of fact in the Principal Judgment is admissible on the Special Costs Application to prove the existence of the fact that was in issue before Bromwich J. To my mind, that is very far from being a self-evidently correct proposition.

20    Perhaps not surprisingly, after I raised the s 91(1) issue, the response of the Solicitors was to object to the findings in the Principal Judgment being regarded as binding on them. Of course, s 91(1) is an exclusionary and not a facultative provision and is part of a regime, found in Part 3.5 of the Evidence Act, which deals with not only civil judgments but also convictions and acquittals. The explanatory material contained in the Australian Law Reform Commission’s “Interim Report: Evidence” (ALRC 26) explains the relevant recommendation (no. 782) which was informed, in part, by the notion that a civil judgment (and findings in such judgments) are based on evidence chosen by the parties (with no obligation, like that of a Crown Prosecutor, to make available all known evidence). Sections 92 and 93 set out specific exceptions and savings which limit the operation of the exclusionary rule but none, notably, speak to the present issue (except to the extent an argument can, in an appropriate case, be developed that a form of issue estoppel may arise in the case of a non-party privy: see s 93(c)).

21    In any event, the operation of the section is not necessarily straightforward (see, for example, Talacko v Talacko [2014] VSC 328 at [75]), and given what I perceive to be real doubt as to whether I should rely upon the relevant findings of fact, I considered it utile for me to have regard to the underlying material in evidence and in the record before Bromwich J, and form and record my own separate views, independent of the Principal Judgment, as to the facts which I consider to be necessary for the determination of the Special Costs Application. The parties were content for me to adopt this course.

22    Like Barrett AJA in Re Condor Blanco Mines Ltd (No. 3) [2017] NSWSC 65, when a similar issue arose, I do not propose to form a final view on this s 91(1) question. I adopt this course in circumstances where: (a) a number of Courts, after the enactment of the Evidence Act, including a Full Court, appear to have proceeded on the basis that the statement of principle by Balcombe LJ governs the admissibility of findings in an application such as the present; (b) I do not have the assistance of any submissions from the parties on the point; and (c) for reasons I will explain, it is unnecessary to determine the question in forming a view as to whether a costs order ought be visited upon the Solicitors.

23    Having said this, for the sake of completeness, I do accept the Solicitors had a close connexion with the original proceedings. This is because the Solicitors have acted for Mrs Young in various proceedings since approximately 2008 and, in particular, were responsible for the filing of the submissions in relation to the L&E Costs Application where the alleged conspiracy was first articulated and have advanced it ever since, including before Bromwich J. There can be no question that the Solicitors have been instrumental in advancing this case theory and have the closest possible connexion with it being made - not only before Bromwich J, but elsewhere. Indeed, as Mr Newell described it in oral submissions before me, the Solicitors are still developing their understanding of the conspiracy. It follows that, absent any operation of the s 91(1) exclusionary provision, the findings made by Bromwich J would have been admissible in considering, in a summary way, the Special Costs Application.

Power and Relevant Principles

24    During the course of oral submissions, a dispute emerged between the parties as to whether s 43 of the Federal Court of Australia Act 1976 (Cth) (Act) confers sufficient power on the Court to make the costs orders sought. This was somewhat surprising, as s 43(3)(f) confirms expressly, without limiting discretion, that the Court may order a party's lawyer to bear costs personally. In any event, Mr Newell (who appeared for himself and for the other Solicitors) confirmed that the dispute as to power went away if the order for costs sought by the applicant was expressed in a more conventional form, that is, that the Solicitors pay the costs of the respondents of the application for extension of time filed on behalf of the applicant on 9 June 2016 on an indemnity basis. The response of the respondents was to seek such an order. In truth, there is no doubting power, but this pragmatic approach of the respondents ensured there was no further dispute as its existence. More significantly, there was no dispute as to the principles that guide the exercise of the power.

25    It is often said that the discretion as to costs in s 43 is “wholly unfettered”. In a practical sense this remains true, but, in a way relevant to the Special Costs Application, this is perhaps now an over simplification. Since the introduction of Part VB of the Act, s 37N(4) has provided that in exercising the discretion to award costs in a civil proceeding, the Court must take account of any failure of a party to conduct the proceeding in a way consistent with the overarching purpose to facilitate resolution of the dispute according to law and as quickly, inexpensively and efficiently as possible. Similarly, s 37M provides that all civil practice and procedure provisions must be interpreted and applied, and any power conferred must be exercised or carried out, in a way that best promotes the overarching purpose.

26    Irrespective of whether it is still literally accurate to say that the discretion is “unfettered”, the principles which guide the exercise of a discretion to make orders such as those proposed emerge from the decision of Goldberg J in White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 and the decisions of the Full Court in Levick v Deputy Commissioner of Taxation (2000) 102 FCR 155 and Macteldir Pty Limited v Roskov [2007] FCAFC 49. Wigney J collected the relevant principles in Mitry Lawyers v Barnden [2014] FCA 918 at [42] as follows:

1.    Instituting or maintaining a proceeding on behalf of a client which has no, or substantially no, prospect of success will not, without more, invoke the jurisdiction to make a costs order against a lawyer.

2.    Something which involves “unreasonable conduct” is required.

3.    What constitutes unreasonable conduct will depend on the circumstances of the particular case.

4.     The element of acting unreasonably 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, or an intention to use the proceeding for an ulterior purpose, or to abuse the processes of the court, or with a disregard of any proper consideration of the prospects of success.

5.    The circumstances must involve or result in a serious dereliction of duty owed to the court, or serious misconduct in promoting the course of, and the proper administration of, justice.

6.     An ulterior purpose or an abuse of process cannot be assumed simply because the case is hopeless.

7.     The reason that the mere pursuit of an unmeritorious case is not so sufficient to invoke the jurisdiction to make a costs order against a lawyer is that a party is entitled to have a practitioner act for him or her in an unmeritorious case. The court is concerned to avoid the risks of a practice developing whereby lawyers endeavour to browbeat their opponents into abandoning clients, or particular issues or arguments, for fear of personal costs orders being made against them.

27    The summary of Wigney J was accepted by the parties as an accurate statement of the principles. To these, I would add two further matters. First, despite the focus on “unreasonable conduct” in the context of non-party costs orders, orders for costs are compensatory, not punitive: see Latoudis v Casey (1990) 170 CLR 534. Secondly, although such orders have been described as “exceptional”, as McColl JA observed in Yu v Cao (2015) 91 NSWLR 190 at 216 [139]:

“[E]xceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense ... [t]he ultimate question [being] whether in all the circumstances it is just to make the order.” The power to order non-party costs “is inevitably to some extent a fact-specific jurisdiction and ... there will often be a number of different considerations in play, some militating in favour of an order, some against.”

28    With these principles in mind, I now turn to that way in which the respondents put their contentions.

Respondents’ Submissions

29    The submissions of the respondents fell into two parts. The first was in the written submissions filed prior to the hearing that were based on the findings of Bromwich J as to the conspiracy allegation and the conduct of the Solicitors. The second aspect of the submissions, advanced orally (and in reply), was developed after I raised the preliminary point.

30    As to the first part of the submissions, in relation to the findings in the Primary Judgment as to the conspiracy allegation, the respondents point to the following:

(a)    “Underpinning the attempts by the applicant to set aside the 2004 Consent Orders has been an allegation of collusion or conspiracy by which those orders were arrived at, with the applicant alleging the respondents were parties to that conduct”: at [15].

(b)    “... not even a prima facie case was established for the existence of a conspiracy, and thus there could not be any arguable case”: at [40].

(c)    “The applicant, both in this Court and before the primary judge, has therefore failed at the first hurdle of showing any proper basis for inferring the existence of the conspiracy that she relied upon”: at [42].

(d)    “The applicant did not even get to the point of excluding other reasonable explanations”: at [42].

(e)    “There has not been placed before me a single scrap of evidence capable of demonstrating the existence of a conspiracy, ... Indeed the allegation of conspiracy or collusion does not appear to have any factual foundation at all”: at [42].

(f)    “It simply will not do for any party in litigation to make such serious allegations upon nothing more substantial than a bare assertion that this is the only possible explanation for what has transpired”: at [43].

(g)    “That [baseless] conspiracy theory continues to underpin the basis for her [case against] the respondents ... The conspiracy theory also underpins the basis for the assertion that the bankruptcy notice is an abuse of process, and breach of the particulars relied upon for the asserted improper collateral purpose in having the bankruptcy notice issue”: at [44].

(h)    “The applicant's central problem is that the conspiracy she alleges has never risen above a theory, and a mostly fanciful theory at that”: at [45].

(i)    “...there was simply no evidence whatsoever of a conspiracy, in the sense of there being nothing that was pointed to that was capable of supporting any such inference”: at [58].

(j)    “...the second limb was fanciful and ludicrous, relying as it did on establishing an entitlement to an asserted $83,000,000 in costs based on a wildly improbable conspiracy, without any precise expression of its terms and information, let alone evidence”: at [65].

(k)    “...the suggested abuse of process on the part of the respondents in causing the bankruptcy notice to issue was based on supposition and assertion”: at [90].

(l)    “The asserted conspiracy underlying this litany of litigation has never risen above a conspiracy theory, in the pejorative sense in which that term is used in common parlance”: at [93].

31    The respondents also pointed to the Primary Judgment at [93] and [94] and his Honour's comments that:

(a)    “In the hands of a legal practitioner such fevered imaginings are unacceptable”: at [93];

(b)    “The conduct of the applicant's solicitors in this matter can only be described as reprehensible”: at [94].

32    It follows from the above, the respondents submit, that the flawed allegation of conspiracy meant that the application for an extension of time was doomed to fail on any reasonable view of the law and facts and also involved unreasonable conduct and failures of duty by the Solicitors.

33    As to the second part of the submissions, the same conclusion is reached by different means. Reference was made to the fact that the Court's discretion to award costs against a solicitor is enlivened where the solicitor fails to assist a party to comply with the overarching purpose: see Modra v State of Victoria (2012) 205 FCR 445 at 8 [31]. Plainly, it is antithetical to the overarching purpose to advocate a proceeding without proper consideration of its prospects of success. In short, the respondents pointed to the continuing inability of the Solicitors (including before me) to propound any reasonable basis for the conspiracy and their lack of proper consideration of prospects.

Solicitors’ Submissions

34    The Solicitors made the following points:

(a)    the 2015 L&E Costs Application did not involve a re-litigation of issues that had been decided;

(b)    that although the respondents conveyed to the Court an intention to make an application for a special costs order at the time the judgment was delivered on 30 September 2016, there was a delay of seven weeks;

(c)    a costs order was sought directly against Mr Newell, which given that he is an employee of the practice L C Muriniti & Associates, this aspect of the application was “otiose for legitimate purposes”;

(d)    the cost application “strived to create a conflict of interest between the Applicant” and the solicitors or, put another way, it was “calculated to invite the Applicant to seek considerable incentive in “turning on” the solicitors”;

(e)    the respondents did not condescend to deal with an analysis of the evidence of conspiracy and can be characterised as being “replete with statements which are bare assertions carefully calculated to have maximum pejorative impact”.

35    I will deal with each of these miscellaneous matters in [54] below, but what emerges principally from the submissions is the core complaint made by the Solicitors: the contention that the Principal Judgment placed the Solicitors in an impossible position. This is because the judgment of Bromwich J is said to contain no reasoning, which makes it impossible to determine how his Honour may have misapprehended the facts, whether a mistake of law or fact might have been made or whether a legal standard was or was not properly applied to the facts. Indeed, the Solicitors (remarkably) go so far as to say that the Principal Judgment contains “no reasons at all” as to the critical statements made about the lack of an evidentiary basis for the conspiracy allegation. It is said that in these circumstances, to rely on the critical statements in the judgment would amount to unfairness. Another allegation of unfairness appears from a suggestion (not developed orally) that because only 10 pages of submissions was allowed by Bromwich J in writing to develop the articulation of the conspiracy in this Court (compared to 300 pages in the L&E Court), the respondents were placed at a disadvantage.

36    The second aspect of this allegation of unfairness can be rejected immediately. As will be seen, both before Bromwich J and, to the extent relevant, before me, Mr Newell was given every opportunity to put whatever he could to support the allegation that there was a basis for alleging the conspiracy. It did not get better as it went on.

Professional Responsibility and what transpired before Bromwich J

37    Before coming back to a consideration of the submissions, it is worth focussing briefly on three matters: first, the nature of a civil conspiracy; secondly, what is needed in order for an allegation of conspiracy to be made by legal practitioners conscientiously; and thirdly, the way argument proceeded before Bromwich J.

Conspiracy and the Obligations of a Solicitor

38    A party alleging a conspiracy is alleging that two or more persons have combined to do an unlawful act or to do a lawful act by unlawful means, thereby causing some loss to another. More specifically, breaking it down into its essential elements, a party alleging a civil conspiracy must prove that:

(a)    there was an express or inferred agreement between two or more persons;

(b)    there was an intention to injure;

(c)    the agreement was executed in whole or in part; and

(d)    the party suffered some loss as a result of the acts taken in furtherance of the agreement

(see generally, Australian Wool Innovation Ltd v Newkirk 2005] ATPR 42-053; [2005] FCA 290 at [59] to [64] per Hely J).

39    Given its elements, it is obvious that conspiracy, like fraud, is not an allegation that should be made lightly. It is also elementary that to make an allegation of conspiracy, a solicitor must believe, on reasonable grounds, that available material exists by which the allegation could be supported and that such material provides a proper basis for the allegation: see Rule 21.4 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW) (which is in materially the same terms as earlier conduct rules regulating the conduct of solicitors in New South Wales). These obligations are a reflection of fundamental obligations of a lawyer to the Court and ensure the privilege to make allegations of serious wrongdoing is not abused. It will be recalled that these professional obligations were specifically drawn to the attention of the Solicitors in 2015 when an allegation was made in the L&E Costs Application in the same form as advanced before Bromwich J.

The Conduct of the Proceedings before Bromwich J

40    The flavour of what occurred before Bromwich J can be grasped fairly readily by reviewing extracts of a longer exchange between Mr Newell and his Honour, which runs from pages 43 to 48 of the transcript. It is worth providing some context. What was before his Honour was an application under Rule 36.05 of the Federal Court Rules 2011 (Cth) for an extension of time to file a notice of appeal from orders made by a judge of the Federal Circuit Court. The primary judge dismissed an application to set aside a bankruptcy notice which was issued on the basis of an order for costs made in the Supreme Court of New South Wales. The two bases for seeking to set aside the bankruptcy notice were:

(a)    an alleged counter claim equal to or exceeding the costs upon which the bankruptcy notice was based (that is, the then pending appeal following the refusal of the L&E Costs Application); and

(b)    an allegation the bankruptcy notice was issued for an improper or collateral purpose, that is, to prevent access to evidence of alleged misconduct by the respondents.

41    Ultimately it was sufficient to decide the application for an extension of time upon what his Honour described as the “complete lack of merit in the proposed appeal”. It was in this context that there was examination of whether there was any realistic prospect of success in making out the conspiracy allegation.

42    Given the Solicitors’ present assertions as to the lack of reasons in the Principal Judgment, it is not surprising that a contention of the applicant before Bromwich J, in support of the merits of an appeal, was that Sheahan J in the L&E Court had provided no reasons for concluding that the applicant's case was wholly misconceived.

43    After making that submission, the following exchange occurred:

HIS HONOUR: When you say there's no reasons, what you say is it's not good enough for Sheahan J to simply say I'm not satisfied - or I - there is no evidence of a fraud or the like. That seems to be your complaint, that it's not enough to say I'm not satisfied. It's there. You have to go through letter and verse and explain why something isn't there. That's the essence of your argument, isn't it?

MR NEWELL: Yes. You have to explain - if it was put ..... yes, but not as crudely as that. You have to - if you've been presented with pleadings and submissions, you have to say why they don't contend for what - why they don't support what it is they're contended to support. And that's an easy matter. As an example, if someone were to plead that a representation occurred, and the representation is you would have to please constitute it by certain facts, it's a straightforward matter to say, "I'm not satisfied .....

HIS HONOUR: Well, I haven't, as yet, seen anything to demonstrate to me the existence of a fraud or a conspiracy.

***

HIS HONOUR: And the conspirators to that are initially, you say, the Council and the neighbours and then other persons come to join this conspiracy, do they?

MR NEWELL: They do.

HIS HONOUR: And the persons said to join this conspiracy, if I've understood it correctly, are your client's former lawyers, your client's former experts who are the current respondents, the Council and the neighbours. Is that roughly the grouping?

MR NEWELL: Yes.

HIS HONOUR: All right. And that's asserted, but where's the foundation for the formation or existence of such an agreement?

MR NEWELL: Well, it's all to be inferred from conduct to which I will take your Honour. The core - the centre of the matter

HIS HONOUR: You would ordinarily require there to be no reasonable alternative explanation before you would infer the existence of such an agreement.

MR NEWELL: Well, I took your Honour - that's fine. Please - if you would let me make my submissions…..

***

HIS HONOUR: Let me be very clear on this so you're left in no doubt whatsoever. You say a judge has to expressly spell out and explain why it is they're not satisfied there is any evidence of a conspiracy. I'm going to completely invert that. You are going to have to demonstrate to me the existence of this conspiracy, and I can tell you now reasoning that there is no other explanation for how this could have arrived at except for a conspiracy will not cut it - will not cut it. You're going to have to show me the basis for inferring the existence of such an agreement.

MR NEWELL: I will show your Honour the basis for inferring a prima facie case.

HIS HONOUR: No. It's going to have to be more than that.

MR NEWELL: Can I take your Honour then, please, to - you will recall Sheahan J

HIS HONOUR: I'm inviting you because it's essential to the success of your case to show me the evidence of the conspiracy.

HIS HONOUR: But you could be in no doubt as to what I've said you will need to do.

MR NEWELL: No. I understand, your Honour….

44    What the transcript demonstrates overall is the repeated efforts made by his Honour to direct Mr Newell to focus on the elements of the alleged conspiracy and articulate, with some degree of precision, why it was that there was any basis, let alone a reasonable basis, for the making of the allegations. His Honour could not have been any plainer in directing Mr Newell to the task that confronted him as an advocate.

The Articulation of the Conspiracy on the Special Costs Application

45    Whatever else Mr Newell's submissions lacked, they did not lack persistence.

46    Like Bromwich J, I indicated to Mr Newell that he would need to satisfy me that arguably there was a proper factual foundation for alleging that there was an agreement between conspirators and that such an agreement was executed in whole or part. I was prepared, for present purposes, to assume detriment to Mrs Young.

47    The following particulars emerged when the alleged conspiracy was described in oral submissions before me:

(a)    a “technique of deceit” was used by a number of parties to represent to Mrs Young that she was getting a “drain and retain” solution to the drainage problem that was the subject of the dispute with her neighbours, the Kings (T58-59);

(b)    a “completely sham consent” was given by the Council to the Kings which (to the extent I follow the argument) represented a lie about the King's land draining to the street when this was a hydrological impossibility, and that this lie was represented by Council in order to divert attention away from what was required, that is, that the King's property had to drain to the rear (which would involve Mrs Young's land being used for drainage) (T59);

(c)    the conspiracy was all about imposing on Mrs Young a drainage obligation which was sufficiently financially taxing so as to require Mrs Young to sell her house and hence open it to demolition so that the relevant Council could put in the drainage solution that the Council wanted (T55-56); the Council had an intention to mislead her to get something to its benefit and her detriment, that is, to “misappropriate” or “steal” her land (T61, 74-75);

(d)    the motivation of the Council was because there was a water course under the King's house that was not working; so instead of asking Mrs Young to put in a drainage solution through her land, a “natural history myth” was devised; this was because, it is alleged, the Council had already illegally caused the redirection of subsurface water by allowing construction of a “granny flat”; Council had to design an illicit solution because (already being in breach of the Water Act 1912 (NSW)), it could not approach the relevant Minister for permission to redirect subsurface water because this would involve, in effect, saying: “I want to breach the Water Act so that I do not have a confrontation with the person on whose land I should be having the issue” (T60-61);

(e)    what then happened is that after the Council's malign intent was formed, a series of engineers (including the respondents) and lawyers (including the lawyers of Mrs Young) agreed to fall in and advance the Council's interests to injure Mrs Young (T62);

(f)    it was apparently not thought likely by the Council that Mrs Young would go to a lawyer (T62); but Mrs Young retained a consulting engineer (apparently without the prior knowledge of the Council (T65)); the engineer then recommended to her three potential lawyers, one of whom she retained; the engineer was, in doing so, “helping the Council” (T63) by directing her to lawyers that he knew would fall into the agreement to injure so as to “accommodate the Council” (T64); it is further suggested that the motivation for the engineer and lawyers forming and then joining the conspiracy was that “the relationship becomes the fulcrum for the agreement”, which (when I pressed Mr Newell), was explained as meaning that engineers and lawyers do a lot of work for councils and “you're not going to expose the council. You're not going to get big people sacked and prosecuted and expect to get work” (T65); put more bluntly, when Mrs Young went to the engineer, he was prepared to sacrifice the interests of his client, Mrs Young, by reason of the fact that he was not going to “cross the Council” and he “will get a reward for helping them” to further his economic interests (T65);

(g)    by the time Exhibit A was provided to the L&E Court (which recorded the agreement between Mrs Young and the Kings which later became the subject of the set aside application), the conspiracy to further the Council's interests to the detriment of Mrs Young had extended, on my count, to 13 actors which included not only the original engineer and Mrs Young's lawyers but also counsel for Mrs Young, the lawyers for the Kings and the town planner and engineering experts for both Mrs Young and the Kings (T70-72).

48    When pressed for the objective evidentiary material upon which this conspiracy was based, the response of Mr Newell was, in essence, to point to the fact that it should have been clear that the consent was a sham and it was “screamingly obvious” that what was contained in Exhibit A was not a real or available “drain and retain” solution as was said to be represented. To conclude the explanation, the following exchange (at T69) occurred:

HIS HONOUR: So the burden of the submission that's just made is that you say that because of the obvious difficulties with what the engineers should have perceived with exhibit A that the only rational explanation for them putting up to the court and, essentially, through the court to Mrs Young, is conscious, knowing untruth.

MR NEWELL: Yes.

HIS HONOUR: And, secondly, a conscious, knowing untruth in concert with others in order to further the malign purposes of the Council.

MR NEWELL: It had - yes, that's right.

49    As with the argument before Bromwich J, Mr Newell came back to the notion that the L&E Court and Mrs Young had been misled by a number of persons and there could be no basis upon which this could be attributed to anything other than a conspiracy. In this regard, the Solicitors referred to the judgment of Isaacs J in R v Associated Northern Collieries (1911) 14 CLR 387 where his Honour referred to the fact that if several persons are seen as taking a variety of steps or tending towards an obvious purpose and are seen during a period of time taking steps to lead to one end, it is a question of fact as to whether or not those persons have combined together to bring about that end which their conduct seems so obviously adapted to effectuate. Of course, as a matter of law and logic this must be right but it is not correct, legally nor logically, to assert that just because a number of actors acted in a way which, taken together, caused (in a “but for” sense) an alleged detriment, that one can logically jump to the conclusion that the relevant actors were acting in concert - let alone that they were acting pursuant to an inferred agreement to cause damage.

50    What Associated Northern Collieries relevantly stands for is that when one considers the question of proof of a conspiracy, an inference that an arrangement or understanding existed can, in certain circumstances, be drawn from circumstantial evidence if the conduct of the alleged conspirators exhibits “a concurrence of time, character, direction and result”: at 400. As Beach J recently observed in Australian Competition and Consumer Commission v Olex Australia Pty Limited [2017] FCA 222 at [478], where persons “meet without any apparent legitimate purpose, then this may assist in proving the existence of an arrangement or understanding”. As noted above, a finding of conspiracy can be made in the absence of direct evidence, but it is necessary that circumstantial evidence is identified which shows something more than circumstances which could give rise to conflicting inferences of an equal degree of probability or plausibility or where the choice between them can only be made by conjecture (see Olex at [479]).

51    This is the central problem that confronts the Solicitors and has confronted them whenever the conspiracy has been examined in Court. There is nothing whatever that is pointed to by way of evidence to suggest that there is not an equally plausible explanation for the actions of each of the alleged co-conspirators. Indeed, here one can go much further than merely pointing to an available hypothesis consistent with the non-existence of a conspiracy: in the present circumstances, even assuming a wrong was caused, the type and motivations of the inferred agreement are so singular and so contrary to ordinary experience that any legal practitioner acting reasonably would conclude that there are a number of explanations (including inadvertence or negligence) which are plainly much more probable. Whatever the perceived deficiencies or shortcomings of the actions of one or other of the actors, how can it be reasonably said that anyone was acting in a way that did not have an apparent legitimate purpose, let alone that all persons were acting in concert and illegitimately?

52    It follows that, quite independently to the findings of Bromwich J, I have reached the conclusion that the alleged conspiracy is a fancy based on what appears to be a sense of grievance and a mixture of speculation and illogical leaps. There is no material to which I have been taken that provides a proper basis for extremely serious allegations against a public authority and a number of professionals. Indeed, the notion that a wide range of professionals would have fallen into a corrupt and deceitful plan by the Council to damage Mrs Young in the way articulated by Mr Newell, should have caused profound scepticism in any lawyer and been dismissed as fantastic, absent some cogent incriminating evidentiary material. In the absence of anything but conjecture, it was a misuse of the absolute privilege of the courtroom to advance it.

53    Although not relevant in forming my views on the material before me, it is far from surprising that other judges faced with analysing this conspiracy have reached the same conclusion, including Emmett JA who in Young v King [2016] NSWCA 282 at [90] concluded that there was not a “skerrick of evidence of the conspiracy hinted at by Mrs Young” and that despite “the very extensive and unnecessarily complex allegations of fraud” the allegation of conspiracy was “completely without foundation in the evidence and should never have been made”.

Miscellaneous Points

54    The five miscellaneous points made by the Solicitors (see [35] above) can be dealt with very briefly:

(a)    whether the 2015 L&E Costs Application involved a re-litigation of issues is beside the point – the focus is on what was argued in this proceeding (although it is relevant that the conspiracy was first developed as long ago as 2015 and was long the subject of specific complaint as to how it could be conscientiously maintained);

(b)    a delay of 7 weeks from the time the Principal Judgment was delivered on 30 September 2016 was not excessive and no operative prejudice was sought to be demonstrated;

(c)    seeking a costs order against Mr Newell was appropriate notwithstanding he was an employee because he had quite independent duties;

(d)    there is no basis for the suggestion the Special Costs Application was pursued “to create a conflict of interest” or was “calculated” to invite the applicant to turn on her lawyers – it was pursued legitimately and this allegation of an ulterior purpose should never have been made;

(e)    the respondents’ submissions were not “replete with statements which are bare assertions carefully calculated to have maximum pejorative impact” but, rather, were appropriately made and pointed to the absence of proper material for the conspiracy.

Should the Costs Orders Sought be made and on what basis?

55    I do not make a finding that Mr Newell and Mr Muriniti did not subjectively believe the conspiracy allegations to be true. What is particularly disturbing is that this is not some sort of instinctive, Rorschach test reaction; the conspiracy allegations have been maintained after repeated warnings as to the insufficiency of the material and what appears to be detailed and continuing consideration. What can be said is that the persistence in maintaining the allegations in a variety of curial contexts is a powerful indication Mr Newell and Mr Muriniti are convinced of their theory.

56    Whether it be misplaced zeal or some other reason, the fact is that the Solicitors have not only instituted and maintained a proceeding which had no prospects of success but have also engaged in something more, being unreasonable conduct in making serious allegations absent a reasonable basis and also with a disregard of any proper consideration of the prospects of success. For whatever reason, the maintenance of the allegation in this proceeding amounts to a dereliction of duties of each of Mr Newell and Mr Muriniti to the Court. It has also caused them to breach the duty contained in s 37N(2) of the Act by failing to take sufficient account of the overarching purpose and failing to assist Mrs Young to comply with her duty to conduct the proceeding before Bromwich J according to law and as quickly, inexpensively and efficiently as possible.

57    A costs order which will have the effect of compensating the respondents ought to be made. Given my findings, there is clearly a relevant delinquency sufficient to justify the awarding of costs on an indemnity basis: see Colgate-Palmolive Co v Cussons Pty Limited (1993) 46 FCR 225 at 233. My view that indemnity costs are appropriate is fortified by the fact that at material times the Solicitors have been on notice that the respondents have regarded the allegations of conspiracy as being made and maintained inconsistently with professional standards. The Solicitors could have been in no doubt as to the possibility of a personal costs order being sought if the allegations were persisted in (as was the case in the L&E Court). For completeness, I note my order that the Solicitors bear the costs personally because of failures which amount to a breach of the duty imposed by s 37N(2), means that they would not be able to recover the costs from Mrs Young (in the event they otherwise were able to do so).

58    Although I have reached this view without recourse to the findings of Bromwich J, if they had been admissible against the Solicitors, I would have reached the same conclusion.

Order

59    For the reasons I have explained, Mr Newell and Mr Muriniti, jointly and severally, should be ordered to pay the costs of the respondents of and incidental to the application for extension of time filed on behalf of the applicant on 9 June 2016, including the Costs of the Special Costs Application, on an indemnity basis. There was no evidence one way or the other as to whether LMA is an incorporated legal practice and given it has been described as ‘L C Muriniti & Associates’, I will proceed on the basis that it is not. Despite references being made to Mr Newell being an employee of LMA, this appears to be a business name owned by Mr Muriniti. Accordingly, I do not presently propose to extend the order beyond Mr Newell and Mr Muriniti. However, given that this was not explored by any party at the hearing, if my understanding that LMA is not a legal entity is incorrect, I grant liberty to the respondents to apply by 4:15 pm today to extend the order to LMA.

Associate:

Dated:    5 May 2017