Federal Court of Australia

Burrows v Macpherson Kelley Lawyers (Sydney) Pty Ltd [2023] FCA 875

ORDERS

THE COURT ORDERS THAT:

1.    The applicant is to provide security for the respondents’ costs by payment into Court or by way of an unconditional bank guarantee in a form acceptable to the respondents as follows:

(a)    $65,000 within 28 days of the date of these Orders; and

(b)    $65,000 42 days before the date of the commencement of any final hearing of the proceeding.

2.    In the event that the security in Order 1(a) and/or (b) above is not provided within the time specified, the proceeding be stayed until further order.

3.    The applicant is to pay the respondents’ costs of paragraphs 4 and 5 of their amended interlocutory application filed on 8 September 2022.

4.    Liberty to restore on three days’ notice.

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

REASONS FOR JUDGMENT

MARKOVIC J:

1    Zali Burrows, the applicant, commenced this proceeding by the filing of an originating application and statement of claim on 20 June 2022. The respondents to the proceeding are Macpherson & Kelley Lawyers (Sydney) Pty Ltd (ACN 127 962 298) (298 PL), Macpherson Kelley Pty Ltd (ACN 122 450 337) (MK) and Christopher Frawley.

2    298 PL was an incorporated legal practice from February 2008 until June 2015. At all relevant times it was a wholly owned subsidiary of MK.

3    In about 2011 and 2012 298 PL acted for Ms Burrows in a proceeding in the Family Court of Australia (now the Federal Circuit and Family Court of Australia) against her former partner, Stephen Alexander (Family Court Proceeding). Mr Frawley was a director of 298 PL. It is that relationship that has given rise to this proceeding. In particular:

(1)    Ms Burrows terminated 298 PL’s retainer to act for her in the Family Court Proceeding in November 2012 and thereafter acted for herself in the Family Court Proceeding, although it appears that the proceeding carried on under a new file number, SYC5955/2012 (Family Court File);

(2)    in November 2015 Ms Burrows commenced a proceeding in the District Court of New South Wales against 298 PL seeking damages for negligence and for breach of contract arising out of that firm’s retainer in the Family Court Proceeding (District Court Proceeding); and

(3)    it appears that in the course of defending the District Court Proceeding, 298 PL sought and was granted access to the Family Court File.

4    In this proceeding, in her recently filed further amended statement of claim (FASOC) Ms Burrows alleges, in summary, that in obtaining access to the Family Court File without first seeking permission from the parties to that proceeding to do so and in making a copy of one of the documents on the file without seeking permission to do so:

(1)    298 PL or, in the alternative MK, made certain representations and/or failed to make certain disclosures to Family Court staff and thereby engaged in misleading or deceptive conduct in breach of s 18 of the ACL, that MK, or in the alternative 298 PL, was knowingly concerned in misleading or deceptive conduct in breach of s 18 of the Australian Consumer Law, being Sch 2 to the Competition and Consumer Act 2010 (Cth) (ACL) and that Mr Frawley was knowingly concerned in the misleading or deceptive conduct in breach of s 18 of the ACL; and

(2)    298 PL or, in the alternative, MK engaged in unconscionable conduct contrary to s 21 of the ACL or the unwritten law and that MK, or in the alternative 298 PL, and Mr Frawley were knowingly concerned in that conduct.

5    Ms Burrows claims that she has suffered damage by reason of the alleged conduct and in respect of the contraventions of s 18 and s 21 of the ACL claims damages pursuant to s 236 of the ACL.

6    On 8 September 2022 the respondents filed an amended interlocutory application in which, among other things, they seek an order pursuant to s 56(1) of the Federal Court of Australia Act 1976 (Cth) that Ms Burrows provide security for their costs of the proceeding. As at 21 March 2023 the respondents estimated their recoverable costs to be $133,398.45 (exclusive of GST) and seek that amount by way of security.

Background

7    Ms Burrows is a solicitor. She was admitted to practice on 7 December 2012.

8    As set out at [3] above 298 PL provided legal services to Ms Burrows in the Family Court Proceeding and issued invoices to her.

9    On 1 October 2014 298 PL filed an application in the Supreme Court of New South Wales seeking to have its costs in relation to the Family Court Proceeding assessed. On 6 March 2015 the costs assessor determined (Determination) that 298 PL was entitled to the amount claimed from Ms Burrows, being $12,240.05.

10    On 2 April 2015 the Determination was registered as a judgment in the Local Court of New South Wales (Local Court Judgment). Ms Burrows has not paid the Local Court Judgment.

11    On 3 November 2015 Ms Burrows commenced the District Court Proceeding against 298 PL and a solicitor in the employ of 298 PL during the Family Court Proceeding (District Court Defendants). On 20 December 2019 judgment was delivered in the District Court Proceeding in favour of the District Court Defendants (District Court Judgment).

12    On 24 January 2020 298 PL made an application in the District Court Proceeding for a gross sum costs order. On 28 February 2020 the District Court delivered judgment on that application and Ms Burrows was ordered to pay 298 PL’s costs in the sum of $130,000 (Costs Judgment). Ms Burrows has not made any payment in reduction of the Costs Judgment and it remains outstanding.

13    On 20 March 2020 Ms Burrows commenced a proceeding in the New South Wales Court of Appeal seeking to appeal the District Court Judgment, the Costs Judgment and the District Court’s refusal on 26 February 2020 to further adjourn the application for a gross sum costs order. On 16 July 2020 the Court of Appeal dismissed the appeal as incompetent with costs (Court of Appeal Judgment).

14    Upon determining that she was required to do so, on 27 July 2020 Ms Burrows filed a summons for leave to appeal in the Court of Appeal.

15    On 20 April 2022 bankruptcy notice BN 256021 (Bankruptcy Notice) seeking payment of the Costs Judgment (i.e. the sum of $130,000) was issued to Ms Burrows. At the time of the hearing before me, the question of service of the Bankruptcy Notice remained in issue given an appeal from Orders made by the Federal Circuit and Family Court of Australia (Div 2) (Federal Circuit Court) which has since been determined (see [20] and [21] below). However, it was not in dispute that Ms Burrows has not complied with the Bankruptcy Notice.

16    On 21 June 2022 Ms Burrows filed an application in the Federal Circuit Court seeking to set aside the Bankruptcy Notice (Bankruptcy Notice Proceeding). On 25 July 2022 298 PL filed a notice stating grounds of opposition in that proceeding.

17    On 20 June 2022 Ms Burrows made an application in the District Court Proceeding for a stay of the Costs Judgment (Stay Application). On 19 July 2022 Ms Burrows amended the Stay Application to include a claim that 298 PL was not an incorporated legal practice at all material times (Amended Stay Application). The Amended Stay Application was heard on 2 September 2022 and the following orders were made by Principal Registrar Romeo:

In relation to the Notice of Motion filed on 27 July 2022:

1.    The Notice of Motion is dismissed.

2.    Each party is to pay their own costs of the Notice of Motion.

In relation to the Amended Notice of Motion filed on 31 August 2022:

3.    Leave is granted to the plaintiff to file a further Amended Notice of Motion nunc pro tunc.

4.    The Application is dismissed.

5.    The plaintiff is to pay the first defendant’s costs of the Further Amended Notice of Motion as agreed or assessed (such costs to include costs incurred in relation to the earlier Notice of Motion and the Amended Notice of Motion).

6.    Exhibits are to be retained on the file.

Note:

(a)    The undertaking of the first defendant through its counsel not to take any further steps to enforce the costs judgment against the plaintiff for 14 days other than to comply with any procedural directions of the Federal Circuit and Family Court of Australia is noted.

(b)    The first defendant also gave an undertaking to the court through its counsel that in relation to any money paid to it by the plaintiff to satisfy the judgment sum, it would not disburse that amount pending the plaintiff’s application for special leave to the High Court, and in the event special leave was granted and the appeal was successful, would return the judgment sum amount to the plaintiff.

18    On 30 June 2022 Ms Burrows sought special leave to appeal in the High Court of Australia from the Court of Appeal Judgment. On 19 September 2022 that application was dismissed.

19    On 20 October 2022 Ms Burrows filed a statement of claim commencing proceeding no. 2022/00314118 in the Supreme Court against 298 PL, Ms Di Condio and the Court of Appeal as first, second and third defendants respectively (Supreme Court Fraud Proceeding). In her statement of claim, among other things, Ms Burrows sought the following relief:

1.    A declaration that the First Defendant through its legal representatives committed a fraud upon the District Court of New South Wales and the Court of Appeal Supreme Court of NSW.

2.    An Order that the decision of the Court of Appeal, Supreme Court of New South Wales, be quashed.

3.    An Order that the District Court of New South Wales matter No 2015 of 00097848 be remitted to that Court for hearing.

4.    An Order that enforcement of the decisions of the District Court of New South Wales dated 28 February 2020 and of the NSW Court of Appeal dated 16 July 2021 be stayed pending determination of this matter.

20    On 13 December 2022 298 PL filed a creditor’s petition in the Federal Circuit Court seeking a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) against Ms Burrows’ estate. On 1 February 2023 Ms Burrows filed a notice stating grounds of opposition to petition.

21    On 16 December 2022 the Federal Circuit Court made orders in the Bankruptcy Notice Proceeding including an order dismissing the application to set aside the Bankruptcy Notice: see Burrows v Macpherson and Kelley Lawyer (Sydney) NSW [2022] FedCFamC2G 1048. In his reasons, Manousaridis J found that the Bankruptcy Notice was served on Ms Burrows on 24 May 2022: see Burrows v Macpherson at [50]-[51].

22    On 26 January 2023 Ms Burrows filed a notice of appeal in this Court seeking to appeal from the orders made in the Bankruptcy Notice Proceeding (Bankruptcy Notice Appeal). Subsequent to the hearing of this application, on 7 June 2023, Jackman J heard and dismissed the Bankruptcy Notice Appeal with costs: see Burrows v Macpherson and Kelley Lawyers (Sydney) Pty Ltd [2023] FCA 622.

23    On 9 February 2023, in accordance with orders made by the Supreme Court, Ms Burrows filed an amended statement of claim in the Supreme Court Fraud Proceeding in which she has abandoned the relief previously sought in that proceeding and now seeks an order that the Costs Judgment be set aside. The defendants to that proceeding are 298 PL and Ms Di Condio. There was evidence before me of further case management orders having been made by the Supreme Court in this proceeding but it is not necessary to set out those orders.

24    On 3 March 2023 the Federal Circuit Court made orders adjourning the creditor’s petition to 4 August 2023 pending the determination of the Bankruptcy Notice Appeal.

Statutory framework and legal principles

25    Section 56 of the Federal Court Act empowers the Court to order an applicant in a proceeding in the Court to give security for the payment of costs that may be awarded against him or her.

26    Rule 19.01(1) of the Federal Court Rules 2011 (Cth) relevantly provides that:

(1)    A respondent may apply to the Court for an order:

(a)    that an applicant give security for costs and for the manner, time and terms for the giving of the security; and

(b)    that the applicant’s proceeding be stayed until security is given; and

(c)    that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed.

27    In All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840 at [41]-[44] Allsop CJ summarised the principles applicable to the exercise of the discretion to order an applicant to provide security for costs as follows:

41    Section 56 of the Federal Court of Australia Act does not expressly impose any threshold to be met before the Court considers the various discretionary matters. However, the applicant’s inability to pay the costs of the respondent remains an important consideration in the exercise of the Court’s discretion.

42    The Court’s discretion to require the provision of security for costs is broad and the factors informing the exercise of that discretion cannot be stated exhaustively. The only limitation is that the discretion be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCAFC 29; 2 FCR 1 at 3. The matter which lies at the heart of the discretion is one of fairness, both in terms of whether security should be granted, and if so, in what amount: Madgwick v Kelly [2013] FCAFC 61; 212 FCR 1 at 21 [92]. The Court aims to achieve a “balance between ensuring that adequate and fair protection is provided to the defendants, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings”: Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470 (Giles J).

43    The Court’s discretion should be exercised having regard to all of the circumstances of the case (see Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] HCA 41; 193 CLR 502 at 513 [26] (Kirby J)). There are a number of well-established factors relevant to the Court’s exercise. These include (see KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; 56 FCR 189 at 197–198 per Beazley J): whether the application for security for costs has been brought promptly; the strength and bona fides of the applicant’s case; whether the applicant’s impecuniosity was caused by the respondent’s conduct subject of the claim; whether the respondent’s application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate; and whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security.

44    An additional factor to add to this list is whether there are aspects of public interest which weigh in the balance against the making of an order (see Equity Access Ltd v Westpac Banking Corporation [1989] FCA 520; ATPR 40-972 at 50,635 per Hill J).

28    In this application one of the relevant factors is that Ms Burrows is a natural person.

29    In James v Australia & New Zealand Banking Group (No 1) (1985) 9 FCR 442 at 445-6 Toohey J said:

But it is not the position of the second and third respondents with which the Court is directly concerned. Their position is no doubt the catalyst for the present motion but the question is whether, in all the circumstances, the applicants should be required to give security for the second and third respondents’ costs of the application. All the applicants other than Yallambee Pty. Ltd. are natural persons. So far as they are concerned, the law is clear.

“The basic rule that a natural person who sues will not be ordered to give security for costs, however poor he is, is ancient and well-established. As Bowen L.J. said in Cowell v. Taylor (1885) 31 Ch. D. 34 at 38, both at law and in equity, ‘the general rule is that poverty is no bar to a litigant’.” (Megarry V-C in Pearson v. Naydler (1977) 3 All E.R. 531 at 533).

Putting to one side the existence of a corporation as one of the applicants, there is nothing in the situation of the other applicants to render the well established principle inappropriate. …

30    In Knight v Beyond Properties Pty Ltd [2005] FCA 764 at [32]-[33] Lindgren J said:

32    Many cases can be cited for the proposition that there is a disinclination to order an applicant who is a natural person to provide security, at least, in the absence of some factor in addition to impecuniosity. Cases which can be cited against the ordering of security and in favour of allowing natural persons, even impecunious ones, free access to the courts, include …

33    In the cases in which natural persons have been ordered to provide security, some factor in addition to impecuniosity has been present; cf Barton v Minister for Foreign Affairs (1984) 2 FCR 463 (Morling J) at 594 (impecuniosity and residence outside Australia); Cunningham v Olliver (unreported, Burchett J, 21 November 1994) (but for delay, security would have been ordered on ground of impecuniosity and bringing of claim to a significant extent for benefit of others); Chang v Comcare Australia [1999] FCA 1677 (Moore J) at [32] (impecuniosity and lack of prospects of success); Loque v Hansen Technologies Ltd [2003] FCA 81 (Weinberg J) (impecuniosity and residence outside Australia); Morris v Hanley [2000] NSWSC 957 (Young J) at [21], [38] and [39] (but for delay, Young J would have ordered security on grounds of impecuniosity and lack of prospects of success and large costs involved to defendants. Young J’s decision was reversed on appeal on the ground that defendants had not adequately explained their delay in moving for security, but the Court of Appeal did not consider other aspects of his Honour’s reasons: see Morris v Hanley & Ors [2001] NSWCA 374 at [30]-[31]); Melville v Craig Nowlan & Associates Pty Ltd (2002) 54 NSWLR 82 (CA) at [132] (per Heydon JA) (impecuniosity and applicant’s failure to show that order would stultify proceeding and sum ordered by primary Judge not oppressive).

Consideration

31    I turn to consider whether an order for security for payment of the respondents’ costs should be made.

32    As a preliminary matter the respondents contended that Ms Burrows would be unable to satisfy a costs order if they are successful in defending the litigation. The evidence relied on by the respondents to support that contention comprises the following:

(1)    according to a national property ownership search undertaken in Ms Burrows’ name on 25 July 2022, Ms Burrows does not own any real property in Australia;

(2)    Ms Burrows has failed to comply with the Bankruptcy Notice;

(3)    Ms Burrows has not satisfied or made any payment in reduction of the Local Court Judgment or the Costs Judgment;

(4)    in an email dated 6 February 2020 to Michelle Dawe (6 February 2020 Email), who I infer is the Associate to Acting Judge Craig QC of the District Court, Ms Burrows asked that the District Court Proceeding, which was listed at 9.00 am that morning, be stood down until her counsel arrived, in the event he was late. Her email included (as written):

I am seeking 8 weeks to put on submissions and any evidence in reply to the defendant’s motion on costs approximately $130,000, because I do not have the capacity to respond earlier and given the quantum of costs they are seeking, it is a very serious matter. Further, it requires consideration to the High Court authority on legal practitioners claiming their own costs, I require the time to properly respond given such a large cost order will have dire consequences on my practicing certificate and livlihood. I am a single mother with 3 dependents under the age of 14, no assets and I am a sole practitioner predominately legal aid matters. I require the time to properly respond to the motion. I was served an affidavit last night by the defendant.

(5)    a transcript of the District Court Proceeding on 6 February 2020 recording that court’s consideration of Ms Burrow’s application for an adjournment where Acting Judge Craig stated, by reference to the 6 February 2020 Email, that:

The only other basis upon which the plaintiff seems to indicate that she required an eight week period, was that she had matters to which she had to attend, including that same criminal matter. She also identified the seriousness of the defendants' motion in this matter for her because of difficulty she would have in meeting the costs sum sought by the defendants, particularly in light of her personal circumstances as a single mother with three dependent children under the age of 14.

33    Ms Burrows did not lead any evidence demonstrating her ability to meet a costs order in the amount sought by the respondents or, indeed, any amount should she be unsuccessful in this proceeding. Although Ms Burrows is a practising solicitor she did not, for example, put before the Court any evidence of her income and/or of any assets which she owns.

34    Ms Burrows submitted that, even taking the evidence on which the respondents rely at its highest, they have not established that any of them would be entitled to a costs order in anything like the amount sought, if successful. She made the following further submissions.

35    First, Ms Burrows submitted that a costs order can only be made to indemnify the successful party for professional costs actually incurred in the conduct of litigation as opposed to costs theoretically quantifiable but not in fact payable by the successful party, relying on Cachia v Hanes (1994) 179 CLR 403 at 410.

36    Cachia concerned the question of whether the appellant’s claim for compensation for the loss of his time spent preparing and conducting his case and associated out of pocket expenses could be included in a bill of costs for taxation under the Supreme Court Rules 1970 (NSW) as they applied at the time. The High Court held at 409 that:

The “costs” provided for in the Rules do not include time spent by a litigant who is not a lawyer in preparing and conducting his case. They are confined to money paid or liabilities incurred for professional legal services.

At 410-411 the Court said:

To use the Rules to compensate a litigant in person for time lost would cut across their clear intent. Costs, within the meaning of the Rules, are reimbursement for work done or expenses incurred by a practitioner or practitioner's employee. Compensation for the loss of time of a litigant in person cannot be said to constitute costs within the meaning of the Rules.

This is hardly surprising. It has not been doubted since 1278, when the Statute of Gloucester introduced the notion of costs to the common law, that costs are awarded by way of indemnity (or, more accurately, partial indemnity) for professional legal costs actually incurred in the conduct of litigation. They were never intended to be comprehensive compensation for any loss suffered by a litigant.

37    Ms Burrows’ reliance on Cachia is inapt for two reasons. First, the purpose of an order for security for costs is to protect a respondent beneficiary of a costs order from that order being frustrated by the inability of the applicant to satisfy it: see Dal Pont, The Law of Costs at 28.1. That is, at the stage of such an application the Court considers whether, in the circumstances of the particular case, it should exercise its discretion to order security to ensure that its orders are ultimately not frustrated. Secondly, the respondents seek security for their legal costs, i.e. costs that are likely to be incurred in defending this proceeding. They do not seek to have costs which they say they actually incurred quantified by way of a taxation or otherwise. Nor do they seek to include in the estimate of their likely costs of defending the proceeding any costs other than their legal costs estimated by reference to the nature of the proceeding, the hours to be spent by various practitioners in acting in the respondents’ defence, an estimate of counsel’s fees and other disbursements.

38    Secondly, Ms Burrows submitted that “the existence and scope of the successful litigant’s duty to pay his or her own solicitors is central to the ability to recover costs” quoting from Shaw v Yarranova Pty Ltd [2011] VSCA 55 at [8]. That case concerned an application for leave to appeal from a review of an order confirming the taxation of certain costs orders. The primary argument was that as the respondents’ parent company had paid the respondents’ legal costs, the respondents’ claim for the applicant to pay their taxed costs offended the indemnity rule as the respondents had no liability to their solicitors: at [7]. At [8] Redlich and Mandie JJA set out the parameters of the rule known as the indemnity costs rule observing that:

An order for costs against the unsuccessful litigant aims to provide the successful party with some level of indemnity for the legal costs the successful party would not have incurred had it not been necessary to uphold his or her rights in court. Such an order does not entitle the successful litigant to recover more than he or she has paid or is liable to pay to his or her own lawyer. The rule limits the successful party’s right to indemnification to the “necessary or proper” costs incurred to obtain justice in the case. The costs are usually confined to those that the successful party “was primarily and potentially legally obliged to pay to his solicitor”. Hence the existence and scope of the successful litigant’s duty to pay his or her own solicitors is central to the ability to recover costs.

    (Footnotes omitted.)

39    There is no controversy about this principle. It concerns the nature and ultimately quantum of recoverable costs by a party who has been successful in a proceeding. However, as I have already observed this application is not about entitlement to costs once an order for costs has been made. It concerns the question of whether the respondent should be required to defend the litigation in circumstances where it contends that there is a risk that the applicant will not be able to meet a costs order, if made.

40    Thirdly, Ms Burrows submitted that none of the respondents have proved that any professional fees, as opposed to disbursements, will be payable in this proceeding. Ms Burrows contended that is because MK, as a self-represented legal practice, is not entitled to recover costs for work done by its employed solicitors and neither 298 PL, MK’s wholly owned subsidiary, nor Mr Frawley, an employed solicitor of MK and director of 298 PL, has proven the existence or scope of any duty to pay MK as their solicitor. Ms Burrows submitted that the best the respondents’ case gets is that she might be liable to pay disbursements, which were estimated to be in the sum of approximately $49,000 as at March 2023, if she is unsuccessful and the respondents have not discharged their onus that she would be unable to meet a costs order up to that sum because their case is premised on the higher sum of $130,000.

41    Ms Burrows relies on the decision in Birketu v Castagnet [2022] NSWSC 1435. The facts of that case are complicated. The second defendants, the partners in law firm Atanaskovic Hartnell (Firm), sued the first plaintiff, Birketu Pty Ltd, to recover their professional fees and disbursements, having acted for it in six matters. Ultimately an order was made that Birketu pay the Firm’s costs up to and including 16 September 2019, assessed on the ordinary basis, and that the Firm pay Birketu’s costs of the proceeding from 10 August 2019, assessed on the indemnity basis. Throughout the costs recovery proceeding the Firm acted for itself.

42    The Firm subsequently served its proposed application for costs assessment on Birketu. The application included costs for work done by the Firm’s employed solicitors. Birketu objected to the claim for professional costs for work done by the Firm’s employed solicitors and made submissions to the costs assessor to whom the assessment was assigned on that issue. By email dated 22 April 2022 (22 April Email) the costs assessor noted, among other things, that:

Whether [the Firm] is entitled to such costs and the amount of costs to which it is entitled will be determined in this assessment. Any sustainable submissions Birketu may make would be on the costs of the costs assessment.

43    Birketu requested the assessor to provide formal reasons for the decisions set out in the 22 April Email. The assessor declined, noting he had not made any interim determination and that the only determination he would make in the matter would be his final determination. Birketu then filed a summons seeking, among other things, a declaration that the Firm was not entitled to recover the professional costs of its employed solicitors in the assessment.

44    In considering whether such a declaration should be made Brereton J observed that the issue that arose for determination was whether abrogation of the Chorley exception involved denying that solicitor litigants could recover costs for work done by their employees, though not work done by themselves personally, or whether preservation of the employed solicitor exception means that they are entitled to recover such costs. After stating the question, his Honour noted (at [24]) that the reasons in Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333 did not expressly address that question but that it had been addressed by the Victorian Court of Appeal in United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15 in which the Court held that, in light of Bell Lawyers, recovery ought not be permitted.

45    After examining the “evolution and rationale” for the employed solicitor exception, Brereton J turned to consider the decision in Bell Lawyers. At [36] his Honour expressed the opinion that he did not think the High Court had in mind a litigant solicitors’ own employed solicitors when it made clear that it was not intending to displace the employed solicitor exception. At [40] his Honour said:

In my view, the High Court had in mind “in-house” lawyers employed by government departments and corporations, who act as solicitor for the employing department or corporation in litigation, and not employed solicitors in a law firm which as a party to litigation has some or all of the work done by those employees.

46    At [42] after referring to the considerations which led to the High Court rejecting the Chorley exception, Brereton J added:

As it seems to me, those same reasons unambiguously favour the position that a solicitor litigant should not be able to recover costs in respect of work done by his or her own employees, any more than for work done by him or herself. To permit a solicitor to recover such costs would be to provide an incentive for solicitors to act for themselves, while allocating as much of the work as they could, to their employees; and it would preserve the appearance that a solicitor was in a privileged position as a self-represented litigant in being able to recover costs for work done by his or her own firm.

47    It follows from the analysis undertaken by Brereton J in Birketu v Castagnet that a law firm which successfully acts for itself and secures a costs order in its favour cannot recover the costs incurred by reason of its employed solicitors acting in the matter. That may mean that, to the extent that MK acts for itself in this proceeding and obtains a costs order in its favour it may not be able to recover the costs of its employed solicitor. By that observation I should not be taken to have determined the question which is one for another day. Further, on this application I see no need for 298 PL and/or Mr Frawley to establish the terms of any retainer between them and MK. Again that is matter for another day and not one which arises on this application.

48    In my opinion, Ms Burrows’ submissions as to entitlement to costs are misplaced. At this stage, the respondents seek to quantify their recoverable costs for the purpose of their application for security. Whether that amount will ultimately be recoverable is a question for another day. The respondents estimate that their likely recoverable costs of defending the proceeding amount to approximately $130,000. But even if I am wrong about the relevance of Ms Burrows’ submissions as to recoverability, she concedes that the respondents’ disbursements estimated at $49,000 would be recoverable if they were successful in the proceeding.

49    Despite her submission to the contrary, I am satisfied that the respondents have established that there is reason to believe that Ms Burrows could not meet a costs order if made in this proceeding, either in the amount of the approximately $130,000 sought or in the lesser amount of $49,000. The evidence is that Ms Burrows owns no real property and has failed to comply with the Bankruptcy Notice. Absent that, Ms Burrows has not filed any evidence which would satisfy me that she would be able to meet a costs order in either amount.

50    That being so, I am satisfied that the respondents have established Ms Burrows’ impecuniosity.

51    However, establishing Ms Burrow’s impecuniosity is not sufficient. As the respondents acknowledge, there is a reluctance to order a natural person to pay security for costs. That said, there have been instances where such an order has been made, usually where the applicant for security can demonstrate a factor in addition to impecuniosity. The respondents say the following additional factors are present.

52    First, that Ms Burrows has failed to show that an order for security would stultify the proceeding. That is so. Ms Burrows has neither put on any evidence to that effect, e.g. of her asset position and ability to meet an order for security if made, nor made any submissions to that effect other than her reliance on the 6 February 2020 Email (see [74] below).

53    Secondly, that the amount of security is relatively low. In my opinion, whether that is so is to be considered in the context of a particular proceeding. Certainly the amount sought is not at the higher end but of itself I would not consider this to be a compelling additional factor.

54    Thirdly, that the application for security is not oppressive. The respondents explain that it is not being made to deny Ms Burrows the opportunity to pursue her rights; rather it is made to ensure that their costs are covered in the event of a costs order in their favour. So much can be accepted.

55    Fourthly, that Ms Burrows has not satisfied costs orders made in other proceedings. Ms Burrows has not paid the Local Court Judgment or the Costs Judgment. The latter is the subject of the Bankruptcy Notice and the litigation associated with it and by the Supreme Court Fraud Proceeding Ms Burrows seeks to have the District Court Judgment, which led to the Costs Judgment, set aside. Other costs orders have also been made against Ms Burrows in favour of one or more of the respondents, but to date those costs orders have not been quantified. The respondents submitted that was of no consequence because the Costs Judgment, which has been quantified, remains unpaid.

56    The final and principal reason relied on by the respondents is that Ms Burrows has adopted a vexatious mode of conducting litigation.

57    The respondents submitted that the non-payment of the Costs Judgment is itself a manifestation of vexation and that there is also the “opaque and haphazard” content of Ms Burrows’ pleading, the form and substance of which is inherently vexatious.

58    In relation to the non-payment of costs orders, as set out above although they have the benefit of other costs orders, the respondents accept that the only quantified costs order is the Costs Judgment. Ms Burrows submitted that she has applied in the Supreme Court Fraud Proceeding to set aside that order on the ground of fraud and that the respondents do not seem to question the bona fides of that claim or to deny that it is reasonably arguable. Ms Burrows submitted that this Court would not exercise its discretion to award security on the basis of an unpaid costs order in an unrelated proceeding where that order is the subject of a reasonably arguable and properly pleaded application to set aside the order on the basis of fraud.

59    Ms Burrows also submitted that by commencing the Supreme Court Fraud Proceeding, even after an unsuccessful appeal to set aside the Costs Judgment, she had followed a procedure expressly endorsed by the High Court in Clone Pty Ltd v Players Pty Ltd (in liq) (2018) 264 CLR 165 such that the proceeding is not somehow vexatious and does not engage any exception to the basic rule. Ms Burrows said that she brought the Supreme Court Fraud Proceeding shortly after new evidence emerged in this proceeding, namely the date on which 298 PL ceased to be an incorporated legal practice, which was material to questions of whether 298 PL was self-represented in the District Court and hence whether it was entitled to recover the professional fees of lawyers who had worked on the matter.

60    In Sywak v Visnic (No 2) [2010] NSWSC 374 Slattery J considered whether an order should be made for security for costs against the plaintiff who was a natural person on the basis that the plaintiff’s action is vexatious because he had failed to pay two sets of costs orders owing to the defendant in related proceedings. At [10] Slattery J said:

The non-payment of these prior costs orders is an important logical step in the defendant’s argument. The core element of vexation, where a plaintiff sues before satisfying prior costs orders that the defendant has against the plaintiff, may be readily identified. It is to ensure that a plaintiff does not make further use of Court processes, where the plaintiff is already misusing Court processes by failing to honour existing Court orders. Allowing the second case to proceed risks increasing the financial burden upon the defendant, who has already suffered the detriment of unpaid costs orders.

61    To like effect in Mbuzi v Hall [2010] QSC 359 at [68]-[69] Applegarth J said:

[68]    As a general rule, the law requires defendants to accept the risk that natural persons who litigate viable claims in good faith for their own benefit might not be able to satisfy an order for costs. However, a claimant who “has adopted a vexatious mode of conducting the litigation” may fall outside the general rule. There may be other processes by which such vexation may be remedied, including a stay of proceedings. Still, where a party has adopted a vexatious mode of conducting the proceedings, the interests of justice in the case may justify an order for security for costs.

[69]    The non-payment of existing costs orders may constitute vexation, particularly where the prior costs orders relate to a previous case involving similar disputes. The core element of vexation may be readily identified since “allowing the second case to proceed risks increasing the financial burden upon the defendant, who has already suffered the detriment of unpaid costs orders”. The circumstances in which the previous costs orders were made, and the steps taken to have them quantified, assessed and enforced may be relevant. Naturally, any costs orders in favour of the claimant may need to be taken into account.

    (Footnotes omitted.)

62    The Supreme Court Fraud Proceeding is in its early stages. The evidence before me disclosed that the defences are yet to be filed and that Ms Burrows has suggested she may wish to bring an application to transfer it to the District Court. In those circumstances I would not infer that the defendants accept that Ms Burrows’ claim is reasonably arguable and properly pleaded.

63    In Clone at [2] the High Court said that a court may set aside a perfected judgment for actual fraud. At [32] the High Court noted that generally the appropriate way to proceed on an application to set aside a perfected judgment for actual fraud is to bring a fresh action. There is no dispute that that is what Ms Burrows has done and that she has thereby followed the procedure endorsed by the High Court.

64    But the question before me is whether this proceeding and the circumstances in which it is pursued is vexatious. That is because, to adopt Applegarth J’s characterisation, Ms Burrows in pursuing this proceeding “risks increasing the financial burden upon the [respondents], who [have] already suffered the detriment of unpaid costs orders”, which in this case is the Costs Judgment.

65    The new fact which emerged and led to the commencement of the Supreme Court Fraud Proceeding was that 298 PL ceased to be an incorporated legal practice on 30 June 2015 while the evidence in the District Court was that this had occurred some three years earlier in 2012. However, the respondents point out that the District Court Proceeding in which Ms Burrows sued 298 PL commenced on 3 November 2015 so that whether 298 PL had ceased to be an incorporated legal practice on 30 June 2015 or in 2012 was immaterial as, either way, it was before the District Court Proceeding had commenced. That is so.

66    Further, as the respondents point out, the further amended defence filed in the District Court Proceeding, which was in evidence before me, was filed for 298 PL, not by it, and its lawyer is Mr Frawley of M&K Lawyers Group Pty Ltd. In other words 298 PL does not appear to have been acting for itself in the District Court Proceeding.

67    Finally, as the respondents submitted, even if Ms Burrows was successful in setting aside the Costs Judgment for fraud, 298 PL would still be entitled to recover its disbursements which, based on the evidence before him, Craig ADCJ quantified in his reasons at $38,651.63.

68    Ms Burrows also referred to the decision in Potier v Attorney-General (NSW) (2015) 89 NSWLR 284 where Leeming JA said (at [125]) that to be vexatious a proceeding needs to be “an abuse of process or lacking in reasonable grounds”. However, that proceeding was concerned with the relationship between the Felons (Civil Proceedings) Act 1981 (NSW) and the Vexatious Proceedings Act (2008) (NSW). It is difficult to see how it can assist the Court on this application particularly given that non-payment of existing costs orders may lead to a finding that a subsequent proceeding is vexatious for the purposes of exercising the discretion to order security for costs.

69    The respondents made other submissions in support of their contention that the proceeding is vexatious. They noted that proceedings have been on foot against them, or at least 298 PL, for close to a decade, all of which have their genesis in the Local Court Judgment for approximately $12,000 and in relation to each of which they have incurred costs. The respondents submitted that Ms Burrows’ conduct of this proceeding has been particularly vexatious to date noting that there have been two iterations of the statement of claim, failure to engage with and respond to email communications and that the proceeding is likely to be complicated and expensive to run. That there have been two iterations of a statement of claim does not, in my opinion, of itself lead to a finding that a proceeding is vexatious. However, understandably the respondents are concerned that Ms Burrows’ approach protracts the proceeding, adding to their costs in circumstances where they are already faced with an outstanding costs order.

70    On balance, having regard to the factors set out above, I am satisfied that an order should be made for Ms Burrows to pay security for the respondents’ costs of the proceeding. Although Ms Burrows is an individual, the respondents have demonstrated that she would be unable to meet a costs order if made against her and have established that her approach to this litigation is vexatious. The conduct which leads to that conclusion is her pursuit of this proceeding where she has failed to satisfy an outstanding quantified costs order in a related proceeding involving at least one party in common. All of the subsequent litigation in which the respondents have been involved have sprung from the District Court Proceeding in which the Costs Judgment was given. As the respondents submitted, even if Ms Burrows is not impecunious, based upon her approach to the broader litigation, it appears highly likely that if she is ordered to pay their cost of this proceeding she will not quietly do so.

71    I turn to the question of quantum.

72    The respondents seek $133,398.45 (exclusive of GST) by way of security. Ms Burrows submitted that in doing so the respondents seek a complete indemnity for their costs of the proceeding. That is because the respondents seek by way of security the amount they say they could be entitled to if they successfully defend the proceeding and obtain an order for their costs. In addition, and despite not adducing any evidence to this effect (or making any submission or leading evidence in relation to stultification), Ms Burrows submitted that to order the amount sought by the respondents as security would be unjust because it would “cut [the proceeding] off at the knees”.

73    Ms Burrows contended that the Court would infer, based on the way in which the respondents had conducted their application for security, that the estimates provided by them are over estimates and that a significant discount should be applied, of approximately 50%. This was because of the way in which the respondents have conducted the litigation, having filed a significant amount of evidence just prior to the hearing and the fact that there were three solicitors and one graduate-at-law present at the hearing.

74    Other than the 6 February 2020 Email adduced by the respondents (see [32(4)] above), Ms Burrows did not rely upon nor produce any evidence to support the contention that the proceeding would “be cut off at the knees” if an order was made that she pay the amount sought by the respondents as security, or any amount. To the extent she does so, the 6 February 2020 Email is now more than three years old and can only be taken to describe her circumstances as at that time and there is no evidence from Ms Burrows to the effect that her circumstances remain as described in the 6 February 2020 Email.

75    Further, I do not accept that the respondents seek a complete indemnity for their costs. In estimating the respondents’ costs Mr Siddle has considered the likely steps in the litigation and time for each step. He has then applied a discount based on the likely recovery on a taxation and adopted the mid-point of 70% recovery. That is, he has done the best he can to provide a fair estimate of likely recoverable fees. Ms Burrows has not led any evidence which challenges Mr Siddle’s estimates including as to likely recovery. Accepting that there were four representatives of the respondents present in Court on this application does not lead me to reject or reduce Mr Siddle’s estimate. That is because the estimate does not reflect that level of resourcing of this application or any other step in the proceeding. It was prepared on a more modest basis, in terms of resourcing.

76    Ms Burrows has not established that the quantum sought should be reduced in any significant way. I am satisfied that is just that Ms Burrows provide security for the respondents’ costs in the sum of $130,000.

Conclusion

77    It follows that Ms Burrows is required to provide security for the respondents’ costs in the sum of $130,000.

78    In the circumstances of this case I propose to order that the security be provided in two tranches as follows: the first tranche of $65,000 to be provided within 28 days of the making of the orders for the provision of security; and the second tranche of $65,000 to be provided on the date that is six weeks prior to the date on which the proceeding is listed for hearing.

79    Ms Burrows may pay the amounts of security either by payment into Court or by provision of an unconditional bank guarantee in a form acceptable to the respondents.

80    The respondents seek an order that the proceeding be dismissed if the security is not paid in accordance with the Court’s orders. I do not intend to make such an order. Rather, if Ms Burrows fails to pay the amount ordered by way of security in accordance with the Court’s Orders, the proceeding will be stayed. If that occurs, the respondents will have liberty to restore the proceeding to make whatever application they consider appropriate at the time.

81    Finally, as Ms Burrows has been unsuccessful, she should pay the respondents’ costs of their application for security for costs.

82    I will make orders accordingly.

Associate:

Dated:    31 July 2023